-----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, Os2x/D/2vD0gF3Y0BrymRRAhy7m3pYRrg3qR8htCCscDEth42gN/JV+5u+KhiLnu p43AxSSYDfT7G12I/ocPdg== 0000950152-01-503946.txt : 20010815 0000950152-01-503946.hdr.sgml : 20010815 ACCESSION NUMBER: 0000950152-01-503946 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HAWK CORP CENTRAL INDEX KEY: 0000849240 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] IRS NUMBER: 341608156 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-13797 FILM NUMBER: 1711685 BUSINESS ADDRESS: STREET 1: 200 PUBLIC SQ STE 30-5000 STREET 2: STE 29-2500 CITY: CLEVELAND STATE: OH ZIP: 44114 BUSINESS PHONE: 2168613553 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 l89585ae10-q.txt HAWK CORPORATION 10-Q/QTR END 6-30-01 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD _________ TO _________. COMMISSION FILE NUMBER 001-13797 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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No[ ]. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 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: 8,552,920 Class B Common Stock, $0.01 par value: None (0) 1 2
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 20 Item 3. Quantitative and Qualitative Disclosures about Market Risk 26 PART II. OTHER INFORMATION Item 1. Legal Proceedings 26 Item 4. Submission of Matters to a Vote of Security Holders 26 Item 5. Other Information 27 Item 6. Exhibits and Reports on Form 8-K 27 SIGNATURES 28
2 3 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS (UNAUDITED) HAWK CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31, 2001 2000 (UNAUDITED) (SEE NOTE) ----------- ---------- ASSETS Current assets: Cash and cash equivalents $ 3,238 $ 4,010 Accounts receivable, less allowance of $364 and $372, respectively 32,266 29,602 Inventories 29,365 31,864 Deferred income taxes 1,365 1,113 Other current assets 2,417 2,976 ----------- ----------- Total current assets 68,651 69,565 Property, plant and equipment: Land 1,603 1,603 Buildings and improvements 18,374 18,240 Machinery and equipment 92,683 89,330 Furniture and fixtures 6,309 5,584 Construction in progress 3,069 3,316 ----------- ----------- 122,038 118,073 Less accumulated depreciation 52,786 47,672 ----------- ----------- Total property, plant and equipment 69,252 70,401 Other assets: Intangible assets 68,917 70,713 Shareholder notes 1,010 1,010 Other 4,037 3,696 ----------- ----------- Total other assets 73,964 75,419 ----------- ----------- Total assets $ 211,867 $ 215,385 =========== =========
3 4 HAWK CORPORATION CONSOLIDATED BALANCE SHEETS - (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA)
JUNE 30, DECEMBER 31, 2001 2000 (UNAUDITED) (SEE NOTE) ----------- --------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 13,558 $ 11,579 Accrued compensation 6,090 7,791 Other accrued expenses 6,253 6,446 Current portion of long-term debt 6,941 7,273 ----------- --------- Total current liabilities 32,842 33,089 Long-term liabilities: Long-term debt 94,547 96,661 Deferred income taxes 11,612 11,554 Other 2,087 2,092 ----------- --------- Total long-term liabilities 108,246 110,307 Minority interest 114 300 Shareholders' equity: Series D preferred stock, $.01 par value; an aggregate liquidation value of $1,530, plus any accrued and unpaid dividends with 9.8% cumulative dividend (1,530 shares authorized, issued and outstanding) 1 1 Class A common stock, $.01 par value; 75,000,000 shares authorized, 9,187,750 issued and 8,552,920 and 8,548,520 outstanding, respectively 92 92 Class B common stock, $.01 par value, 10,000,000 shares authorized, none issued or outstanding Additional paid-in capital 54,627 54,631 Retained earnings 23,473 24,109 Accumulated other comprehensive loss (2,824) (2,409) Treasury stock, at cost (4,704) (4,735) ----------- --------- Total shareholders' equity 70,665 71,689 ----------- --------- Total liabilities and shareholders' equity $ 211,867 $ 215,385 =========== =========
Note: The balance sheet at December 31, 2000 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 consolidated financial statements. 4 5 HAWK CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2001 2000 2001 2000 ---- ---- ---- ---- Net sales $ 101,200 $ 109,007 $ 47,419 $ 53,837 Cost of sales 77,046 79,106 37,085 38,879 ----------- ----------- ----------- ----------- Gross profit 24,154 29,901 10,334 14,958 Selling, technical and administrative expenses 17,031 15,948 8,359 8,233 Restructuring costs 1,000 892 Amortization of intangibles 2,265 2,051 1,134 1,026 ----------- ----------- ----------- ----------- Total expenses 20,296 17,999 10,385 9,259 Income (loss) from operations 3,858 11,902 (51) 5,699 Interest expense 4,834 4,545 2,391 2,256 Interest income (103) (104) (61) (64) Other expense, net 430 155 411 66 ----------- ----------- ----------- ----------- (Loss) income before income taxes (1,303) 7,306 (2,792) 3,441 Income tax (benefit) expense (557) 3,232 (1,286) 1,531 ------------ ----------- ------------ ----------- Net (loss) income before minority interest (746) 4,074 (1,506) 1,910 Minority interest (184) (87) ------------ ----------- ------------ ----------- Net (loss) income $ (562) $ 4,074 $ (1,419) $ 1,910 ============ ============ ============= ============ Earnings per share: Basic (loss) earnings per share $ (.07) $ .47 $ (.17) $ .22 ============ ============ ============= ============ Diluted (loss) earnings per share $ (.07) $ .47 $ (.17) $ .22 ============ ============ ============= ============
See notes to consolidated financial statements. 5 6 HAWK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, 2001 2000 ---- ---- Cash flows from operating activities: Net (loss) income $ (562) $ 4,074 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,905 7,362 Deferred income taxes (151) 90 Loss on sale of fixed assets 416 Undistributed loss - minority interest (184) Changes in operating assets and liabilities, net: Accounts receivable (3,347) (3,158) Inventories 2,008 (270) Other assets (282) 1,482 Accounts payable 2,283 2,470 Other liabilities (1,214) 2,274 ------------ ----------- Net cash provided by operating activities 6,456 14,740 Cash flows from investing activities: Proceeds from sale of property, plant and equipment 69 Purchases of property, plant and equipment (4,830) (5,587) ------------ ------------ Net cash used in investing activities (4,830) (5,518) Cash flows from financing activities: Payments on short-term debt (587) Proceeds from long-term debt 16,239 8,391 Payments on long-term debt (18,436) (16,990) Payments of preferred stock dividends (75) (76) ------------ ------------ Net cash used in financing activities (2,272) (9,262) ------------ ------------ Net decrease in cash and cash equivalents (646) (40) Effect of exchange rate changes on cash (126) (87) Cash and cash equivalents at the beginning of the period 4,010 3,993 ----------- ----------- Cash and cash equivalents at the end of the period $ 3,238 $ 3,866 =========== ============
See notes to consolidated financial statements. 6 7 HAWK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2001 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited 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 period ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the consolidated financial statements and footnotes thereto in the Form 10-K for Hawk Corporation (the "Company") for the year ended December 31, 2000. The Company, through its business segments, designs, engineers, manufactures and markets specialized components used in a variety of aerospace, industrial and commercial applications. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Beginning in December 2000, the financial statements also include the Company's 67% ownership interest in Net Shape Technologies LLC. All significant intercompany accounts and transactions have been eliminated in the accompanying financial statements. In the fourth quarter of 2000, the Company changed its accounting policy to reflect in its consolidated statement of income all shipping and handling costs as cost of sales and related shipping revenue in net sales. All prior periods have been changed to conform to current year presentation. NOTE 2 - COMPREHENSIVE INCOME Comprehensive income is as follows:
SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, 2001 2000 2001 2000 ---- ---- ---- ---- Net (loss) income $ (562) $ 4,074 $ (1,419) $ 1,910 Foreign currency translation (loss) income (415) (640) 90 (218) ---------- ---------- ---------- ----------- Comprehensive (loss) income $ (977) $ 3,434 $ (1,329) $ 1,692 ========== ========= ============ ============
NOTE 3 - 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:
JUNE 30, DECEMBER 31, 2001 2000 ---- ---- Raw materials and work-in-process $20,786 $22,645 Finished products 11,386 11,724 Inventory reserves (2,807) (2,505) ------- ------- $29,365 $31,864 ======= =======
7 8 NOTE 4 - EARNINGS PER SHARE Basic and diluted earnings per share are computed as follows:
SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, 2001 2000 2001 2000 -------- -------- --------- -------- Numerator: Net (loss) income $ (562) $ 4,074 $ (1,419) $ 1,910 Preferred stock dividends (75) (76) (37) (38) -------- -------- --------- -------- Numerator for basic earnings per share-income available to common shareholders $ (637) $ 3,998 $ (1,456) $ 1,872 ======== ======= ========= ======== Effect of dilutive securities: Interest on convertible note, net of tax 41 18 -------- -------- --------- -------- Numerator for diluted earnings per share-income available to common shareholders after assumed conversion $ (637) $ 4,039 $(1,456) $ 1,890 ======== ======== ========= ======== Denominator: Denominator for basic (loss) earnings per share- weighted average shares 8,552 8,548 8,553 8,549 Effect of dilutive securities: Employee stock options* 11 27 Convertible notes 112 100 -------- -------- --------- -------- Denominator for diluted (loss) earnings per share- adjusted weighted average shares after assumed conversions 8,552 8,671 8,553 8,676 ======== ======== ========= ======== Basic (loss) earnings per share $ (.07) $ .47 $ (.17) $ .22 ======== ======== ========= ======== Diluted (loss) earnings per share $ (.07) $ .47 $ (.17) $ .22 ======== ======== ========= ========
* As a result of the Company's net loss for the three and six month periods ended June 30, 2001 all options to purchase shares of Common Stock and all notes convertible into shares of Common Stock were excluded from the computation of diluted earnings per share since they were anti-dilutive. The number of options and converted shares excluded from the earnings per share calculation, using the treasury stock method, were 93 and 105 for the three and six month periods ended June 30, 2001, respectively. 8 9 NOTE 5 - BUSINESS SEGMENTS The Company operates in four primary business segments: friction products, powder metal, performance automotive and motors. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately based on fundamental differences in their operations. The friction products segment engineers, manufactures and markets specialized components used in a variety of aerospace, industrial and commercial applications. The Company, through this segment, is a worldwide supplier of friction components for brakes, clutches and transmissions. The powder metal segment engineers, manufactures and markets specialized components used primarily in industrial applications. The Company, through this segment, targets three areas of the powder metal component marketplace: high precision components that are used in fluid power applications, large structural powder metal parts used in construction, agricultural and truck applications, and smaller, high volume parts. The performance automotive segment engineers, manufactures and markets high performance friction material for use in racing car brakes in addition to premium branded clutch and drive train components. The Company, through this segment, targets leading teams in the NASCAR racing series, as well as high-performance street vehicles and other road race and oval track competition cars. The motor segment engineers, manufactures and markets die-cast aluminum rotors for use in small electric motors. The Company, through this segment, targets a wide variety of applications such as business equipment, small household appliances and exhaust fans. 9 10 The information by segment is as follows:
SIX MONTHS ENDED THREE MONTHS ENDED JUNE 30, JUNE 30, 2001 2000 2001 2000 ---- ---- ---- ---- Revenues from external customers: Friction Products $ 54,666 $ 59,392 $ 26,345 $ 29,241 Powder Metal 32,268 39,591 14,422 19,687 Performance Automotive 9,902 5,273 4,499 2,618 Motor 4,364 4,751 2,153 2,291 --------- --------- --------- --------- Consolidated $ 101,200 $ 109,007 $ 47,419 $ 53,837 ========= ========= ========= ========= Depreciation and amortization: Friction Products $ 4,447 $ 4,440 $ 2,233 $ 2,203 Powder Metal 2,422 2,224 1,223 1,128 Performance Automotive 546 336 276 189 Motor 490 362 262 189 --------- --------- --------- --------- Consolidated $ 7,905 $ 7,362 $ 3,994 $ 3,709 ========= ========= ========= ========= Operating Income (loss): Friction Products $ 4,712 $ 5,757 $ 1,475 $ 3,268 Powder Metal 467 5,398 (635) 2,203 Performance Automotive 45 985 30 431 Motor (1,366) (238) (921) (203) --------- --------- --------- --------- Consolidated $ 3,858 $ 11,902 $ (51) $ 5,699 ========= ========= ========= =========
NOTE 6 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Effective January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging Activities" as amended by SFAS No. 138. As amended, SFAS 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position, measure those instruments at fair value and recognize changes in the fair value of derivatives in earnings in the period of change unless the derivative qualifies as an effective hedge that offsets certain exposures. The Company periodically enters into interest rate swap agreements to moderate exposure to interest rate changes and to lower the overall cost of borrowing. During the first quarter ended March 31, 2001, the Company entered into an interest rate swap agreement that effectively converts a portion of its floating rate debt to a fixed rate of 5.34% on $10.0 million notional amount on its variable-rate debt maturing in 2003. Although this financial instrument did not meet the hedge accounting criteria of SFAS 133, it continues to be effective in achieving the risk management objectives for which it was intended. The change in the fair value of the interest rate swap resulted in a charge of $0.2 million as other expense in the second quarter of 2001. 10 11 In June 2001, the Financial Accounting Standards Board ("FASB") unanimously approved the issuance of two statements, Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses financial accounting and reporting for business combinations and amends APB No. 16, "Business Combinations." All business combinations in the scope of this Statement are to be accounted for using one method, the purchase method. SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB No. 17, "Intangible Assets." It changes the accounting for goodwill from an amortization method to an impairment only approach. The Company will cease the amortization of goodwill that was recorded in past business combinations on December 31, 2001, as required by SFAS No. 142. The Company is still evaluating how the adoption of these pronouncements will impact the financial statements. NOTE 7 - SUPPLEMENTAL GUARANTOR INFORMATION Each of the Company's 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 10.25% Senior Notes due December 1, 2003 (the "Senior Notes"). The Guarantor Subsidiaries are direct or indirect 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, 2001 and December 31, 2000, consolidating condensed statements of income for the three and six month periods ended June 30, 2001 and 2000 and consolidating condensed statements of cash flows for the six months ended June 30, 2001 and 2000. 2. Hawk Corporation ("Parent") combined Guarantor Subsidiaries and combined Non-Guarantor Subsidiaries (consisting of the Company's subsidiaries in Canada, Italy, Mexico and China) 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 are material to investors. Therefore, separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented. 11 12 SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET (UNAUDITED)
JUNE 30, 2001 --------------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 458 $ 408 $ 2,372 $ 3,238 Accounts receivable, net 24,648 7,618 32,266 Inventories, net 23,803 5,816 $ (254) 29,365 Deferred income taxes 1,199 166 1,365 Other current assets 356 1,226 835 2,417 --------------------------------------------------------------------------- Total current assets 2,013 50,085 16,807 (254) 68,651 Investment in subsidiaries 794 1,765 (2,559) Intercompany advances, net 157,266 7,652 (6,970) (157,948) Property, plant and equipment 23 60,084 9,145 69,252 Intangible assets 203 68,714 68,917 Other 1,010 4,087 960 (1,010) 5,047 --------------------------------------------------------------------------- Total assets $ 161,309 $ 192,387 $ 19,942 $ (161,771) $ 211,867 =========================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 10,400 $ 3,158 $ 13,558 Accrued compensation $ 5 4,934 1,151 6,090 Other accrued expenses (417) 5,475 1,286 $ (91) 6,253 Current portion of long-term debt 5,000 1,605 336 6,941 --------------------------------------------------------------------------- Total current liabilities 4,588 22,414 5,931 (91) 32,842 Long-term liabilities: Long-term debt 86,150 4,939 3,458 94,547 Deferred income taxes 11,128 484 11,612 Other 948 1,139 2,087 Intercompany advances, net 1,280 149,916 7,165 $ (158,361) --------------------------------------------------------------------------- Total long-term liabilities 98,558 155,803 12,246 (158,361) 108,246 --------------------------------------------------------------------------- Total liabilities 103,146 178,217 18,177 (158,452) 141,088 Minority interest 114 114 Shareholders' equity 58,163 14,056 1,765 (3,319) 70,665 --------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 161,309 $ 192,387 $ 19,942 $ (161,771) $ 211,867 ===========================================================================
12 13 SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 2000 --------------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED --------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 553 $ 1,027 $ 2,430 $ 4,010 Accounts receivable, net 22,785 6,817 29,602 Inventories, net 25,792 6,072 31,864 Deferred income taxes 1,199 (86) 1,113 Other current assets 967 1,363 646 2,976 --------------------------------------------------------------------------- Total current assets 2,719 50,967 15,879 69,565 Investment in subsidiaries 794 3,168 $ (3,962) Intercompany advances, net 160,192 5,784 (5,084) (160,892) Property, plant and equipment 26 61,219 9,156 70,401 Intangible assets 207 70,506 70,713 Other 1,010 3,931 775 (1,010) 4,706 --------------------------------------------------------------------------- Total assets $ 164,948 $ 195,575 $ 20,726 $ (165,864) $ 215,385 =========================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,313 $ 3,266 $ 11,579 Accrued compensation $ 5 6,854 932 7,791 Other accrued expenses 633 5,047 766 6,446 Current portion of long-term debt 5,000 1,901 372 7,273 --------------------------------------------------------------------------- Total current liabilities 5,638 22,115 5,336 33,089 Long-term liabilities: Long-term debt 90,645 5,574 442 96,661 Deferred income taxes 11,128 426 11,554 Other 937 1,155 2,092 Intercompany advances, net 1,197 149,909 10,199 $ (161,305) --------------------------------------------------------------------------- Total long-term liabilities 102,970 156,420 12,222 (161,305) 110,307 --------------------------------------------------------------------------- Total liabilities 108,608 178,535 17,558 (161,305) 143,396 Minority interest 300 300 Shareholders' equity 56,340 16,740 3,168 (4,559) 71,689 --------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 164,948 $ 195,575 $ 20,726 $ (165,864) $ 215,385 ===========================================================================
13 14 SUPPLEMENTAL CONSOLIDATING CONDENSED INCOME STATEMENT (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2001 -------------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------------------------------------------------------------------------- Net sales $ 88,345 $ 12,855 $ 101,200 Cost of sales 65,658 11,388 77,046 ------------------------------------------------------------------------- Gross profit 22,687 1,467 24,154 Expenses: Selling, technical and administrative expenses $ (258) 15,077 2,212 17,031 Restructuring costs 1,000 1,000 Amortization of intangible assets 9 2,256 2,265 ------------------------------------------------------------------------- Total expenses (249) 18,333 2,212 20,296 ------------------------------------------------------------------------- Income (loss) from operations 249 4,354 (745) 3,858 Interest (income) expense, net (1,836) 6,149 418 4,731 Income (loss) from equity investees (2,431) (1,306) $ 3,737 Other expense (income) 276 224 (70) 430 ------------------------------------------------------------------------- Income (loss) before income taxes and minority interest (622) (3,325) (1,093) 3,737 (1,303) Income tax (benefit) expense (60) (710) 213 (557) Minority interest (184) (184) ------------------------------------------------------------------------- NET LOSS $ (562) $ (2,431) $ (1,306) $ 3,737 $ (562) =========================================================================
14 15 SUPPLEMENTAL CONSOLIDATING CONDENSED INCOME STATEMENT (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000 ---------------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ---------------------------------------------------------------------------- Net sales $ 97,579 $ 11,428 $ 109,007 Cost of sales $ 285 69,557 9,264 79,106 ---------------------------------------------------------------------------- Gross profit (285) 28,022 2,164 29,901 Expenses: Selling, technical and administrative expenses 144 13,798 2,006 15,948 Amortization of intangible assets 5 2,046 2,051 ---------------------------------------------------------------------------- Total expenses 149 15,844 2,006 17,999 ---------------------------------------------------------------------------- (Loss) income from operations (434) 12,178 158 11,902 Interest (income) expense, net (1,893) 6,014 320 4,441 Income (loss) from equity investees 3,179 (455) $ (2,724) Other expense 101 54 155 ---------------------------------------------------------------------------- Income (loss) before income taxes 4,638 5,608 (216) (2,724) 7,306 Income tax expense 564 2,429 239 3,232 ---------------------------------------------------------------------------- NET INCOME (LOSS) $ 4,074 $ 3,179 $ (455) $ (2,724) $ 4,074 ============================================================================
15 16 SUPPLEMENTAL CONSOLIDATING CONDENSED INCOME STATEMENT (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2001 -------------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------------------------------------------------------------------------- Net sales $ 41,252 $ 6,167 $ 47,419 Cost of sales 31,296 5,789 37,085 ------------------------------------------------------------------------- Gross profit 9,956 378 10,334 Expenses: Selling, technical and administrative expenses $ 154 7,111 1,094 8,359 Restructuring costs 892 892 Amortization of intangible assets 6 1,128 1,134 ------------------------------------------------------------------------- Total expenses 160 9,131 1,094 10,385 ------------------------------------------------------------------------- (Loss) income from operations (160) 825 (716) (51) Interest (income) expense, net (911) 3,017 224 2,330 Income (loss) from equity investees (2,218) (889) $ 3,107 Other expense 276 63 72 411 ------------------------------------------------------------------------- Income (loss) before income taxes and minority interest (1,743) (3,144) (1,012) 3,107 (2,792) Income tax (benefit) expense (324) (839) (123) (1,286) Minority interest (87) (87) ------------------------------------------------------------------------- NET LOSS $ (1,419) $ (2,218) $ (889) $ 3,107 $ (1,419) =========================================================================
16 17 SUPPLEMENTAL CONSOLIDATING CONDENSED INCOME STATEMENT (UNAUDITED)
THREE MONTHS ENDED JUNE 30, 2000 ------------------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------------------------------------------------------------------------- Net sales $ 47,817 $ 6,020 $ 53,837 Cost of sales $ 120 33,843 4,916 38,879 ------------------------------------------------------------------------------- Gross profit (120) 13,974 1,104 14,958 Expenses: Selling, technical and administrative expenses 24 7,118 1,091 8,233 Amortization of intangible assets 3 1,023 1,026 ------------------------------------------------------------------------------- Total expenses 27 8,141 1,091 9,259 ------------------------------------------------------------------------------- Income (loss) from operations (147) 5,833 13 5,699 Interest (income) expense, net (964) 2,980 176 2,192 Income (loss) from equity investees 1,407 (224) $ (1,183) Other (income) expense (1) 104 (37) 66 ------------------------------------------------------------------------------- Income (loss) before income taxes 2,225 2,525 (126) (1,183) 3,441 Income tax expense 315 1,118 98 1,531 ------------------------------------------------------------------------------- NET INCOME (LOSS) $ 1,910 $ 1,407 $ (224) $ (1,183) $ 1,910 ===============================================================================
17 18 SUPPLEMENTAL CONSOLIDATING CONDENSED CASH FLOW STATEMENT (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2001 -------------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------------------------------------------------------------------------- Net cash provided by operating activities $ 4,474 $ 4,163 $ (2,181) $ 6,456 Cash flows from investing activities: Purchase of property, plant and equipment (3,860) (970) (4,830) -------------------------------------------------------------------------- Net cash used in investing activities (3,860) (970) (4,830) Cash flows from financing activities: Proceeds from long-term debt 12,281 560 3,398 16,239 Payments on long-term debt (16,775) (1,482) (179) (18,436) Payments of preferred stock dividends (75) (75) -------------------------------------------------------------------------- Net cash (used in) provided by financing activities (4,569) (922) 3,219 (2,272) Net (decrease) increase in cash and cash equivalents (95) (619) 68 (646) Effect of exchange rate changes on cash (126) (126) -------------------------------------------------------------------------- Cash and cash equivalents, at beginning of period 553 1,027 2,430 4,010 -------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 458 $ 408 $ 2,372 $ 0 $ 3,238 ==========================================================================
18 19 SUPPLEMENTAL CONSOLIDATING CONDENSED CASH FLOW STATEMENT (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000 -------------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED -------------------------------------------------------------------------- Net cash provided by operating activities $ 7,771 $ 6,193 $ 776 $ 14,740 Cash flows from investing activities: Proceeds from sale of property, plant and equipment 69 69 Purchase of property, plant and equipment (5,377) (210) (5,587) -------------------------------------------------------------------------- Net cash used in investing activities (5,308) (210) (5,518) Cash flows from financing activities: Payments on short-term debt (587) (587) Proceeds from long-term debt 7,867 524 8,391 Payments on long-term debt (15,318) (1,486) (186) (16,990) Payments of preferred stock dividends (76) (76) -------------------------------------------------------------------------- Net cash used in financing activities (7,527) (962) (773) (9,262) Net increase (decrease) in cash and cash equivalents 244 (77) (207) (40) Effect of exchange rate changes on cash (87) (87) -------------------------------------------------------------------------- Cash and cash equivalents, at beginning of period 1,691 193 2,109 3,993 -------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 1,935 $ 116 $ 1,815 $ 0 $ 3,866 ==========================================================================
19 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion should be read in conjunction with the consolidated financial statements, notes and tables included elsewhere in this report. Management's discussion and analysis may contain forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. However, such performance involves risks and uncertainties, which may cause actual results to differ materially from those expressed in the forward-looking statements. GENERAL Hawk operates in four primary reportable segments: friction products, powder metal, performance automotive and motor components. The Company's friction products are made from proprietary formulations of composite materials that primarily consist of metal powders, synthetic and natural fibers. Friction products are the replacement elements used in brakes, clutches and transmissions to absorb vehicular energy and dissipate it through heat and normal mechanical wear. Friction products manufactured by the Company include friction components for use in brakes, transmissions and clutches in aerospace, construction, agriculture, truck and specialty vehicle markets. The Company's powder metal components are made from formulations of composite powder metal alloys. The powder metal segment manufactures a variety of components for use in fluid power, truck, lawn and garden, construction, agriculture, home appliance, automotive and office equipment markets. In its performance automotive segment, the Company manufactures brakes, clutches and gearboxes for the performance automotive markets. Through its motor segment, the Company designs and manufactures die-cast aluminum rotors for small electric motors used in appliances, business equipment and exhaust fans. The Company focuses on manufacturing products requiring sophisticated engineering and production techniques for applications in markets in which it has achieved a significant market share. As of June 30, 2001, Hawk has approximately 1,500 employees and 16 manufacturing sites in five countries. RECENT EVENTS In June 2001, the Company announced the implementation of a cost cutting initiative program to bring its labor, overhead and other variable costs more in line with current business conditions. The cost cutting initiatives announced by the Company include a workforce reduction of approximately 150 employees, or 12 percent of Hawk's workforce, including salary and production personnel, elimination of non-strategic outside service personnel and contracts and cuts in discretionary spending on a worldwide basis. In the second quarter of 2001, the Company recorded a restructuring expense of $0.9 million to expense severance related charges relating to the workforce reduction. On July 31, 2001, the Company executed an amended credit agreement, which decreased the aggregate commitment provided by the Company's revolving credit facility from $50.0 million to $30.0 million, subject to a borrowing base formula. Pursuant to the amended credit agreement, the credit facility is due in May 2003 and bears interest, at the Company's discretion, at either the prime rate or at the London Interbank Offering Rate (LIBOR) plus a margin. The margin over LIBOR, ranging from 150 to 325 basis points, is determined based on the achievement of certain financial ratios. The amended credit agreement is secured by substantially all of the Company's assets. The amended credit agreement contains restrictive covenants, which, among other things, require maintenance of certain financial ratios. See LIQUIDITY AND CAPITAL RESOURCES. 20 21 SECOND QUARTER 2001 COMPARED TO SECOND QUARTER 2000 Net Sales. Net sales decreased $6.4 million, or 11.9 percent, to $47.4 million in the second quarter of 2001 from $53.8 million in the comparable quarter of 2000. The net sales decrease was primarily attributable to declining economic conditions primarily in the Company's powder metal and friction products segments. The decline was partially offset by an increase in net sales in the Company's performance automotive segment as a result of new sales initiatives in the motorsports market and the acquisition of Tex Racing Enterprises, Inc. in November 2000. Net sales in the Company's friction products segment declined $2.9 million, or 9.9 percent, to $26.3 million from $29.2 million in the comparable quarter of 2000. The net sales decrease in this segment reflected soft demand in the heavy truck, agriculture and construction markets served by the Company. These decreases were offset by higher demand in sales to the aerospace and specialty friction markets for the quarter. The powder metal segment reported net sales of $14.4 million in the second quarter of 2001 compared to $19.7 million in the first quarter of 2000, a decline of $5.3 million, or 26.9 percent. The net sales decrease in this segment was primarily the result of softness in the heavy truck, appliance, lawn and garden, appliance and fluid power markets served by the Company. Net sales in the Company's performance automotive segment increased $1.9 million, or 73.1 percent, to $4.5 million in the second quarter of 2001 compared to $2.6 million in the comparable quarter of 2000. The acquisition of Tex Racing in November of 2000 was the primary reason for the net sales increase in this segment for the quarter. In addition, this segment benefited from new sales initiatives directed to the motorsports market during the quarter. Net sales in the Company's motor segment decreased $0.1 million, or 4.3 percent, to $2.2 million in the second quarter of 2001 compared to $2.3 million from the first quarter of 2000. Net sales declines in the segment were the result of continuing soft economic conditions in the domestic motor markets served by the Company. Net sales from the Company's Mexican facility, which began in the first quarter of 2001, partially offset the decline from the Company's domestic operations. Gross Profit. Gross profit decreased $4.7 million, or 31.3 percent, to $10.3 million in the second quarter of 2001 from $15.0 million in the comparable quarter of 2000. Gross profit from the Company's friction products segment decreased in the second quarter of 2001 compared to the prior year period, primarily from net sales declines in certain markets served by the segment and the effects of product mix. The Company's powder metal segment gross profit declined in the second quarter of 2001, primarily as a result of volume declines in most of the markets served by the segment and the effects of product mix and start-up losses at Net Shape Technologies LLC. The performance automotive segment gross profit declined during the second quarter of 2001 compared to the prior year period primarily as a result of product mix effects from the acquisition of Tex Racing. The motor segment incurred margin losses during the second quarter of 2001 primarily due to the continuing start up expenses at the Company's facility in Mexico and lower sales volumes from the Company's domestic facility. As a result of these factors, the gross profit margin decreased to 21.7 percent in the second quarter of 2001 from 27.9 percent in the comparable quarter of 2000. Selling, Technical and Administrative ("ST&A") Expenses. ST&A expenses increased $0.2 million, or 2.4 percent, to $8.4 million in the second quarter of 2001 from $8.2 million in the comparable period of 2000. The increase in ST&A expenses is primarily attributable to the acquisition of Tex Racing and expenditures associated with the Company's investment in Net Shape in December 2000. Partially offsetting this increase were reductions in compensation expense throughout the Company. As a percent of net sales, ST&A expenses increased to 17.7 percent of net sales in the second quarter of 2001 from 15.2 percent in the comparable quarter of 2000. The increase in ST&A 21 22 expenses as a percentage of net sales is primarily due to the lower sales volumes experienced by the Company during the quarter and expenditures associated with the Company's investment in Net Shape. Restructuring Costs. During the second quarter of 2001, the Company recorded an expense of $0.9 million to support its recently announced cost cutting initiatives. The costs incurred during the quarter represent corporate-wide severance costs. Income from Operations. Income from operations decreased by $5.8 million to a loss of $0.1 million in the second quarter of 2001 from income of $5.7 million in the comparable quarter of 2000. Interest Expense. Interest expense increased $0.1 million, or 4.3 percent, to $2.4 million in the second quarter of 2001 from $2.3 million in the comparable quarter of 2000. The increase is attributable to higher debt levels during the quarter. Other (Expense) Income. Other expense was $0.4 million in the second quarter of 2001. The expense in the second quarter of 2001 consisted of an expense to mark to market the Company's interest rate swap agreement, an amendment fee in connection with the Company's recent loan amendment and foreign currency transaction losses incurred by the Company at its Italian facility. Income Taxes. The Company's effective tax rate for the second quarter of 2001 was 46.1 percent compared with a tax rate of 44.5 percent in the comparable quarter of 2000. The increase in the effective tax rate is primarily due to non-deductible items, including amortization, for federal tax purposes. Net Income (Loss). As a result of the factors discussed above, net income decreased $3.3 million to a net loss of $1.4 million in the second quarter of 2001 from net income of $1.9 million in the comparable quarter of 2000. FIRST SIX MONTHS OF 2001 COMPARED TO FIRST SIX MONTHS OF 2000 Net Sales. Consolidated net sales during the first six months of 2001 were $101.2 million, a decrease of $7.8 million, or 7.2 percent, from $109.0 million in the comparable period of 2000. The decrease was primarily attributable to continuing economic softness primarily in the Company's powder metal and friction segments. The decline was partially offset by an increase in net sales in the Company's performance automotive segment primarily as a result of the acquisition of Tex Racing in November of 2000. Net sales in the Company's friction products segment declined $4.7 million, or 7.9 percent, to $54.7 million in the first six months of 2001 from $59.4 million in the comparable period of 2000. The net sales decrease in this segment reflected continuing soft demand in the heavy truck, agriculture and construction markets served by the Company. These decreases were partially offset by higher demand in sales to the aerospace and specialty friction markets during the six month period ended June 30, 2001. The powder metal segment reported net sales of $32.3 million in the first six months of 2001 compared to $39.6 million in the comparable period of 2000, a decline of $7.3 million, or 18.4 percent. The net sales decrease in this segment was primarily the result of softness in the heavy truck, appliance, lawn and garden, appliance and fluid power markets served by the Company. Net sales in the Company's performance automotive segment increased $4.6 million, or 86.8 percent, to $9.9 million in the first six months of 2001 compared to $5.3 million in the comparable period of 2000. The acquisition of Tex Racing in November of 2000 was the primary reason for the net sales increase in this segment for the period. Additionally, the Company experienced sales increases in this segment from new sales initiatives directed to the motorsports market during the quarter. 22 23 Net sales in the Company's motor segment decreased $0.4 million, or 8.3 percent, to $4.4 million in the first six month period of 2001 compared to $4.8 million from the comparable period of 2000. Net sales declines in the segment were the result of continuing soft economic conditions in the domestic motor markets served by the Company, partially offset by sales from the Company's Mexican facility, which began shipments in the first quarter of 2001. Gross Profit. Gross profit decreased $5.7 million to $24.2 million during the first six months of 2001, a 19.1 percent decrease compared to gross profit of $29.9 million in the comparable six month period of 2000. The gross profit margin decreased to 23.9 percent during the six month period ended June 30, 2001 from 27.4 percent in the comparable period in 2000. In the friction products segment, even though the Company experienced volume declines, gross profit improved in the six month period ended June 30, 2001 compared to the comparable period of 2000, primarily as a result of the operating efficiencies initiated within this division beginning in 2000. The decrease in margins in the powder metal segment was primarily the result of net sales volume declines, the effect of product mix, underabsorption of fixed costs primarily as a result of the lower volumes and start up expenditures associated with the Company's investment in Net Shape. Gross profit margins in the Company's performance automotive segment declined primarily as a result of product mix issues while the gross profit margin in the Company's motor segment declined in the first six months of 2001 as compared to the first six months of 2000 primarily as a result of volume declines at the segment's domestic location and the continuing startup costs associated with the Company's Mexican facility. Selling, Technical and Administrative Expenses. ST&A expenses increased $1.1 million, or 6.9 percent, to $17.0 million during the first six months of 2001 from $15.9 million in comparable six month period of 2000. As a percentage of net sales, ST&A increased to 16.8 percent of sales in 2001 from 14.6 percent of sales in 2000. The increase in ST&A expenses as a percent of sales, resulted primarily from sales volume declines and expenditures associated with the Company's investment in Net Shape. Restructuring Costs. As stated above, the Company incurred $1.0 million of restructuring costs during the first six months of 2001 as part of its cost reduction initiative announced in June 2001. Income from Operations. Income from operations decreased $8.0 million, or 67.2 percent, to $3.9 million in the six month period ended June 30, 2001 compared to $11.9 million in the comparable period of 2000. Income from operations as a percentage of net sales decreased to 3.9 percent in 2001 from 10.9 percent in 2000. Interest Expense. Interest expense increased $0.3 million, or 6.7 percent, to $4.8 million in the first six months of 2001 from $4.5 million in the comparable period of 2000. The increase is attributable to higher debt levels during 2001 compared with 2000. Other (Expense) Income. Other expense was $0.4 million during the first six months of 2001 compared to $0.2 million during the comparable period of 2000. The expense incurred in 2001 was from the mark to market adjustment associated with the Company's interest rate swap agreement, the amendment fee in conjunction with the Company's recently signed loan amendment and foreign currency transaction losses incurred by the Company at its Italian facility The expense reported in 2000 was primarily the result of foreign currency transaction losses incurred by the Company at its Italian facility. Income Taxes. The credit for income taxes was $0.6 million during the first six months of 2001 compared to a provision for income taxes of $3.2 million in the comparable period of 2000 as a result of the loss incurred by the Company during the current year to date period. The Company's effective tax rate for the six month period ended June 30, 2001 was 42.7 percent compared to an effective tax rate of 44.2 percent in the comparable period of 2000. 23 24 Minority Interest. The Company reported a benefit of $0.2 million for the six month period ended June 30, 2001 for the portion of the loss incurred by Net Shape which is not owned by the Company. In December 2000, the Company purchased a 66.7 percent interest in Net Shape. Net Income (Loss). As a result of the factors noted above, net income decreased to a loss of $0.6 million for the six month period ended June 30, 2001 compared to net income of $4.1 million for the comparable period of 2000. LIQUIDITY AND CAPITAL RESOURCES The Company's primary source of funds for conducting its business activities and servicing its indebtedness has been cash generated from operations. In addition, the Company has available a credit facility which may be used for general corporate purposes. The facility is currently comprised of a $30.0 million revolving component and a $20.0 million term loan. On July 31, 2001, the Company amended the credit facility, reducing the amount available under the revolving component from $50.0 million to $30.0 million, subject to a borrowing base formula. As of June 30, 2001, the Company had $10.2 million outstanding under its revolving credit facility. The interest rates on the credit facility range from 150 basis points over LIBOR to 325 basis points over LIBOR based on certain quarterly performance criteria. The Company is currently paying a rate of 325 basis points over LIBOR on its credit facility outstandings. The credit facility is collateralized by a security interest in the accounts receivable, inventory, equipment and real estate of the Company and is subsidiaries. Restrictive terms of the credit facility require that the Company maintain specified financial ratios and comply with certain other loan covenants. Based on the amended credit agreement, the Company was in compliance of the financial covenants as of June 30, 2001. As of June 30, 2001, the Company had approximately $14.8 million available for future borrowings under its credit facility, after giving effect to the July 31, 2001 amendment. Net cash provided by operating activities was $6.5 million and $14.7 million for the six month period ended June 30, 2001 and 2000, respectively. The decline in cash from operations was caused primarily by the reduction in net income and an increase in working capital assets during the period. 24 25 Net cash used in investing activities was $4.8 million and $5.5 million for the six month period ended June 30, 2001 and 2000, respectively. The cash used in investing activities during the six month periods ended June 30, 2001 and 2000 was for the purchase of property, plant and equipment. Net cash used in financing activities was $2.3 million and $9.3 million for the six month period ended June 30, 2001 and 2000, respectively, primarily for the payment of outstanding debt. The primary financing requirements of the Company are (1) for capital expenditures for maintenance, replacement and acquisitions of equipment, expansion of capacity, productivity improvements and product development, (2) for funding the Company's day-to-day working capital requirements, (3) for making additional strategic acquisitions of complementary businesses, and (4) to pay interest on, and to repay principal of, indebtedness. As of June 30, 2001, the Company was in compliance with the terms of its indebtedness. The Company believes that cash flow from operating activities, borrowings under the revolver and access to capital markets will be sufficient to satisfy its working capital, capital expenditures and debt requirements and to finance continued internal growth for the next twelve months. 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 growth of existing markets and its ability to expand into new markets, to identify and acquire complementary businesses and to attract new sources of financing, are forward-looking statements that involve risks and uncertainties. In addition to statements which are forward-looking by reason of context, the words "believe," "expect," "anticipate," "intend," "designed," "goal," "objective," "optimistic," "will" and other similar expressions identify forward-looking statements. In light of the risks and uncertainties inherent in all future projections, the inclusion of the forward-looking statements should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. Many factors could cause the Company's actual results to differ materially and adversely from those in the forward-looking statements, including the following: - - the effect of the Company's debt service requirements on funds available for operations and future business opportunities and the Company's vulnerability to adverse general economic and industry conditions and competition; - - the ability of the Company to continue to meet the terms of its credit facilities which contain a number of significant financial covenants and other restrictions; - - the ability of the Company to utilize all of its manufacturing capacity in light of softness in some end-markets served by the Company; - - the effect of any future acquisitions by the Company on its indebtedness and on the funds available for operations and future business opportunities; - - the effect of competition by manufacturers using new or different technologies; - - the effect on the Company's international operations of unexpected changes in regulatory requirements, export restrictions, currency controls, tariffs and other trade barriers, difficulties in staffing and managing foreign operations, political and economic instability, fluctuations in currency exchange rates, difficulty in accounts receivable collection and potentially adverse tax consequences; - - the ability of the Company to successfully integrate acquisitions into the Company's existing businesses; - - the ability of the Company to negotiate new agreements, as they expire, with its unions representing certain of its employees, on terms favorable to the Company or without experiencing work stoppages; 25 26 - - the effect of any interruption in the Company's supply of raw materials or a substantial increase in the price of any of the raw materials; - - the continuity of business relationships with major customers; and - - the ability of the Company's products to meet stringent Federal Aviation Administration criteria and testing requirements. These risks and others that are detailed in this Form 10-Q and other filings by the Company with the Securities and Exchange Commission must be considered by any investor or potential investor in the Company. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The following discussion about the Company's market risk disclosures involves forward-looking statements. Actual results could differ materially and adversely from those projected in the forward-looking statements. The Company is exposed to market risk related to changes in interest rates and foreign currency exchange rates. The Company does not use derivative financial instruments for speculative or trading purposes. Interest Rate Sensitivity. The Company's market risk exposure relates primarily to interest rates, where the Company will periodically use interest rate swaps to hedge interest rates on long-term debt. The Company does not engage in activities using complex or highly leveraged instruments. At June 30, 2001, the Company's variable rate long-term debt totaled approximately $29.7 million. The Company had outstanding an interest rate swap, essentially converting $10.0 million notional amount of its variable rate debt to a fixed rate of 5.34 percent. Foreign Currency Exchange Risk. The Company currently does not hedge its foreign currency exposure and, therefore, has not entered into any forward foreign exchange contracts to hedge foreign currency transactions. The Company has operations outside the United States with foreign-currency denominated assets and liabilities, primarily denominated in Italian lira, Canadian dollars, Mexican pesos and Chinese renminbi. Because the Company has foreign-currency denominated assets and liabilities, financial exposure may result, primarily from the timing of transactions and the movement of exchange rates. The unhedged foreign currency balance sheet exposures as of June 30, 2001 are not expected to result in a significant impact on earnings or cash flows. 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 On May 30, 2001, the Company held its 2001 Annual Meeting of Stockholders to act on proposals to elect Directors and to ratify the appointment of its independent accountants for 2001. 26 27 Paul R. Bishop, Jack F. Kemp and Dan T. Moore, III were re-elected for a one year term of office expiring in 2002 with 8,199,606, 7,052,464, and 8,199,606 affirmative votes, respectively. These candidates had 44,571, 1,191,713 and 44,571 votes withheld, respectively. Pursuant to the terms of the Company's Series D Preferred Stock, the holders of the Series D Preferred Stock have the right to elect a majority of the Company's Board of Directors. The holders of the Series D Preferred Stock are Norman C. Harbert, Ronald E. Weinberg, Byron S. Krantz, the Harbert Family Limited Partnership, the Weinberg Family Limited Partnership and the Krantz Family Limited Partnership. The holders of the Series D Preferred Stock elected Norman C. Harbert, Ronald E. Weinberg, Byron S. Krantz and William J. O'Neill, Jr. at the Annual Meeting. The proposal to ratify the appointment of Ernst and Young LLP as the Company's independent accountants for 2001 received 8,243,272 affirmative votes, 110 votes against and 795 abstentions. ITEM 5. OTHER INFORMATION Immediately following the 2001 Annual Meeting of Stockholders, the Board of Directors of the Company increased the size of the Board of Directors to eight members, and appointed Jeffrey H. Berlin to fill the vacancy created by the increase. Mr. Berlin is the President and Chief Operating Officer of the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.19* Amendment No. 2 to Credit Agreement, dated as of July 31, 2001, by and among the Company, the Lenders identified therein and KeyBank National Association, a national banking association, as the Administrative Agent under the Credit Agreement. 10.20* Form of Security Agreement, dated as of August 10, 2001, by and between KeyBank National Association, the Company and each of the following subsidiaries of the Company: Allegheny Powder Metallurgy, Inc., Clearfield Powdered Metals, Inc., Friction Products Co., Hawk Brake, Inc., Hawk MIM, Inc., Helsel, Inc., Hawk Motors, Inc., Logan Metal Stampings, Inc., Net Shape Technologies LLC, Quarter Master Industries, Inc., S.K. Wellman Corp., S.K. Wellman Holdings, Inc., Sinterloy Corporation, Tex Racing Enterprises, Inc. and Wellman Friction Products U.K. Corp. 10.21* Form of Pledge Agreement, dated as of August 10, 2001, by and between KeyBank National Association, the Company and each of the following subsidiaries of the Company: Allegheny Powder Metallurgy, Inc., Clearfield Powdered Metals, Inc., Friction Products Co., Hawk Brake, Inc., Hawk MIM, Inc., Helsel, Inc., Hawk Motors, Inc., Logan Metal Stampings, Inc., Net Shape Technologies LLC, Quarter Master Industries, Inc., S.K. Wellman Corp., S.K. Wellman Holdings, Inc., Sinterloy Corporation, Tex Racing Enterprises, Inc. and Wellman Friction Products U.K. Corp. 10.22* Form of Intellectual Property Security Agreement, dated as of August 10, 2001, by and between the Company and each of the following subsidiaries of the Company: Allegheny Powder Metallurgy, Inc., Clearfield Powdered Metals, Inc., Friction Products Co., Hawk Brake, Inc., Hawk MIM, Inc., Helsel, Inc., Hawk Motors, Inc., Logan Metal Stampings, Inc., Net Shape Technologies LLC, Quarter Master Industries, Inc., S.K. Wellman Corp., S.K. Wellman Holdings, Inc., Sinterloy Corporation, Tex Racing Enterprises, Inc. and Wellman Friction Products U.K. Corp. 10.23* Form of Guaranty Agreement of Payment of Obligations, dated as of August 10, 2001, by and between KeyBank National Association and each of the following subsidiaries of the Company: Allegheny Powder Metallurgy, Inc., Clearfield Powdered Metals, Inc., Friction Products Co., Hawk Brake, Inc., Hawk MIM, Inc., Helsel, Inc., Hawk Motors, Inc., Logan Metal Stampings, Inc., Net Shape Technologies LLC, Quarter Master Industries, Inc., S.K. Wellman Corp., S.K. Wellman Holdings, Inc., Sinterloy Corporation, Tex Racing Enterprises, Inc. and Wellman Friction Products U.K. Corp. 10.24* Form of Open Ended Ohio Mortgage, executed as of August 10, 2001, in favor of KeyBank National Association by each of the following subsidiaries of the Company: Friction Products Co., Logan Metal Stampings, Inc. and S.K. Wellman Corp. 10.25* Form of Open Ended Pennsylvania Mortgage, executed as of August 10, 2001, in favor of KeyBank National Association by each of the following subsidiaries of the Company: Allegheny Powder Metallurgy, Inc. and Clearfield Powdered Metals, Inc. 10.26* Form of Mortgage, Assignment of Leases and Rents and Fixture Filing, executed as of August 10, 2001, in favor of KeyBank National Association by each of the following subsidiaries of the Company: Hawk Motors, Inc. and Helsel, Inc. 10.27* Common Stock Selling Plan of Thomas A. Gilbride pursuant Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, effective as of June 6, 2001. ------ * filed herewith 27 28 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, 2001 HAWK CORPORATION By: /s/ RONALD E. WEINBERG ---------------------- Ronald E. Weinberg, Co-Chairman and Co-CEO By: /s/ THOMAS A. GILBRIDE ---------------------- Thomas A. Gilbride, Vice President- Finance (Chief Accounting Officer) 28 EX-10.19 3 l89585aex10-19.txt EX-10.19 1 Exhibit 10.19 ================================================================================ ================================================================================ CREDIT AGREEMENT dated as of April 24, 2001 among HAWK CORPORATION, as the Borrower, THE LENDING INSTITUTIONS NAMED THEREIN, as Lenders, and KEYBANK NATIONAL ASSOCIATION as the Administrative Agent --------------------- AMENDMENT NO. 2 to CREDIT AGREEMENT dated as of July 31, 2001 --------------------- ================================================================================ ================================================================================ 2 AMENDMENT NO. 2 TO CREDIT AGREEMENT THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT, is dated as of July 31, 2001 ("this Amendment"), among the following: (i) HAWK CORPORATION, a Delaware corporation (the "Borrower"); (ii) the Lenders a party to the Credit Agreement, as hereinafter defined; and (iii) KEYBANK NATIONAL ASSOCIATION, a national banking association, as the Administrative Agent under the Credit Agreement (the "Administrative Agent"). PRELIMINARY STATEMENTS: (1) The Borrower, the Lenders and the Administrative Agent entered into the Credit Agreement, dated as of May 1, 1998 (as amended and as the same may from time to time be further amended, restated or otherwise modified, the "Credit Agreement"; the terms defined therein are used herein as so defined). (2) The parties hereto desire to modify certain terms and provisions of the Credit Agreement, all as more fully set forth below. NOW, THEREFORE, the parties hereby agree as follows: SECTION 1. AMENDMENTS, ETC. 1.1. Section 1.1 of the Credit Agreement is hereby amended to delete the definitions of "Applicable Eurodollar Margin", "Applicable Facility Fee Rate", "Consolidated Net Debt", "Credit Documents", "General Revolving Facility Percentage", "Interest Coverage Ratio", "Loan", "Note", "Real Property", "Total General Revolving Commitment" and "UCC" therefrom and to insert in place thereof, respectively, the following: "Applicable Eurodollar Margin" shall mean: (a) for any date prior to July 31, 2001, as determined in accordance with section 2.8(h) of this Agreement as in effect prior to July 31, 2001; (b) from July 31, 2001 through August 31, 2001, (i) two hundred seventy-five (275) basis points for General Revolving Loans, and (ii) three hundred twenty-five (325) basis points for Term Loans; and (c) commencing with the fiscal quarter of the Borrower ended June 30, 2001, and continuing with each fiscal quarter thereafter, the number of basis points determined by the Administrative Agent in accordance with the Pricing Grid Table, based upon the 3 Adjusted Leverage Ratio. Changes in the Applicable Eurodollar Margin shall become effective on the first day of the month following the receipt by the Administrative Agent, pursuant to Section 8.1(a) or (b) of the financial statements of the Borrower. Notwithstanding the foregoing, unless otherwise agreed by the Required Lenders, during any period when (A) the Borrower shall have failed to timely deliver its financial statements referred to in Section 8.1(a) or (b), (B) a Default under Section 10.1(a) shall have occurred and be continuing, or (C) an Event of Default shall have occurred and be continuing, the Applicable Eurodollar Margin for Loans shall be the highest number of basis points indicated therefor in the Pricing Grid Table, regardless of the Adjusted Leverage Ratio at such time. Any changes in the Applicable Eurodollar Margin for Loans shall be determined by the Administrative Agent in accordance with the above provisions and the Administrative Agent shall promptly provide notice of such determinations to the Borrower and the Lenders, which determination by the Administrative Agent shall be conclusive and binding absent manifest error. "Applicable Facility Fee Rate" shall mean: (a) for any date prior to July 31, 2001, as determined in accordance with section 2.8(h) of this Agreement as in effect prior to July 31, 2001; (b) from July 31, 2001 through August 31, 2001, (i) fifty (50) basis points; and (c) commencing with the fiscal quarter of the Borrower ended June 30, 2001, and continuing with each fiscal quarter thereafter, the number of basis points determined by the Administrative Agent in accordance with the Pricing Grid Table, based upon the Adjusted Leverage Ratio. Changes in the Applicable Facility Fee Rate shall become effective on the first day of the month following the receipt by the Administrative Agent, pursuant to Section 8.1(a) or (b) of the financial statements of the Borrower. Notwithstanding the foregoing, unless otherwise agreed by the Required Lenders, during any period when (A) the Borrower shall have failed to timely deliver its financial statements referred to in Section 8.1(a) or (b), (B) a Default under Section 10.1(a) shall have occurred and be continuing, or (C) an Event of Default shall have occurred and be continuing, the Applicable Facility Fee Rate shall be the highest number of basis points indicated therefor in the Pricing Grid Table, regardless of the Adjusted Leverage Ratio at such time. Any changes in the Applicable Facility Fee Rate shall be determined by the Administrative Agent in accordance with the above provisions and the Administrative Agent shall promptly provide notice of such determinations to the Borrower and the Lenders, which determination by the Administrative Agent shall be conclusive and binding absent manifest error. "Consolidated Net Debt" shall mean at any time of determination thereof (i) the principal amount (or Capitalized Lease Obligation, in the case of a Capital Lease) of Consolidated Total Debt that would appear on a consolidated balance sheet of the Borrower and its Subsidiaries at such time, reduced by (ii) the amount, if any, in excess of $5,000,000, of all unrestricted and unencumbered (other than the Lien of the 2 4 Administrative Agent, for the benefit of the Lenders) cash and Cash Equivalents that would appear on a consolidated balance sheet of the Borrower and its Subsidiaries at such time. "Credit Documents" shall mean this Agreement, the Notes, the Guaranties of Payment, the Security Documents and the Letter of Credit Documents. "General Revolving Facility Percentage" shall mean, for each Lender, such Lender's "General Revolving Facility Percentage" as set forth opposite such Lender's name on Annex I hereto, or the percentage of the Total General Revolving Commitment held by such Lender as set forth in the Lender Register. "Interest Coverage Ratio" shall mean, for the most recently completed four fiscal quarters of the Borrower, the ratio of (a) Consolidated EBIT to (b) Consolidated Interest Expense. "Loan" shall have the meaning in Sections 2A and 2.1 and shall include any Term Loan, General Revolving Loan, Swing Line Revolving Loan and Alternative Currency Advance. "Note" shall mean any Term Note, General Revolving Note, Swing Line Note or Alternative Currency Note, or any other promissory note executed in connection with this Agreement. "Real Property" shall mean each parcel of real property, or interest therein, owned or leased by a Credit Party (including, but not limited to, the Mortgaged Property), together with all improvements and buildings thereon and all appurtenances, easements or other rights belonging thereto. "Total General Revolving Commitment" shall mean Thirty Million Dollars ($30,000,000), or such lesser amount as may be determined pursuant to section 4.2, 4.3 or 10.2 hereof. "UCC" shall mean the Uniform Commercial Code, as in effect from time to time in the State of Ohio. 1.2. Section 1.1 of the Credit Agreement is hereby amended to add the following new definitions thereto: "Adjusted Leverage Ratio" shall mean, for the most recently completed four fiscal quarters of the Borrower, the ratio of (a) Consolidated Net Debt to (b) Consolidated EBITDA. "Borrowing Base" shall mean an amount not in excess of (a) the sum of (i) eighty-five percent (85%) of the consolidated book value of net accounts receivable of the Borrower and its Subsidiaries, and (ii) sixty percent (60%) of the consolidated book value of inventory (as defined in the UCC) of the Borrower and its Subsidiaries, minus (b) the aggregate principal amount of all Term Loans then outstanding. 3 5 "Capital Distribution" shall mean a payment made, liability incurred or other consideration given for the purchase, acquisition, redemption or retirement of any capital stock or other equity interest of the Borrower or any its Subsidiaries or as a dividend, return of capital or other distribution (other than any stock dividend, stock split or other equity distribution payable only in capital stock or other equity of the Borrower or any of its Subsidiaries in question) in respect of capital stock or other equity interest of the Borrower or any of its Subsidiaries, as the case may be. "Consolidated Fixed Charges" shall mean, for any period, on a consolidated basis for the Borrower and its Subsidiaries in accordance with GAAP, the aggregate of (a) Consolidated Interest Expense, (b) Consolidated Income Tax Expense, (c) current maturities of long term Indebtedness under this Agreement (other than optional prepayments of the General Revolving Notes), (d) Consolidated Capital Expenditures, and (e) Capital Distributions. "Covenant Compliance Date" shall mean the date on which the Interest Coverage Ratio shall have been at least 2.00 to 1.00 and the Leverage Ratio shall have been no more than 3.50 to 1.00 for two consecutive fiscal quarters of the Borrower. "Fixed Charge Coverage Ratio" shall mean, for the most recently completed four fiscal quarters of Borrower, the ratio of (a) Consolidated EBITDA to (b) Consolidated Fixed Charges. "Guarantor of Payment" shall mean each Subsidiary Guarantor and any other Person that shall execute and deliver a Guaranty of Payment to the Administrative Agent. "Guaranty of Payment" shall mean the Subsidiary Guaranty, as supplemented, and any other Guaranty of Payment of Obligations executed and delivered by a Person to the Administrative Agent in connection with this Agreement after the Closing Date, as any of the foregoing may from time to time be amended, restated, supplemented or otherwise modified or replaced. "Intellectual Property Security Agreement" shall mean each of the Intellectual Property Security Agreements, executed and delivered to the Administrative Agent by the Borrower or a Guarantor of Payment, as the case may be, after the Closing Date, pursuant to which the Borrower or such Guarantor of Payment shall have granted to the Collateral Agent a security interest in and an assignment of all intellectual property owned by the Borrower or such Guarantor of Payment, as the same may from time to time be amended, restated or otherwise modified. "Interest Coverage Period" shall mean any period for which the Interest Coverage Ratio shall be less than 2.00 to 1.00. "Leverage Ratio" shall mean, for the most recently completed four fiscal quarters of Borrower, the ratio of (a) Consolidated Total Debt to (b) Consolidated EBITDA. 4 6 "Maximum Available Revolving Commitment" shall mean the obligation of the Lenders hereunder to make General Revolving Loans to the Borrower up to an aggregate principal amount outstanding at any time equal to the lesser of (a) the Total General Revolving Commitment or (b) the Borrowing Base. "Mortgage" shall mean a mortgage, deed of trust or other similar instrument, in form and substance satisfactory to the Administrative Agent, executed and delivered to the Administrative Agent by the Borrower or a Guarantor of Payment, as the case may be, after the Closing Date, with respect to a Mortgaged Property, as the same may from time to time be amended, restated or otherwise modified. "Mortgaged Property" shall mean each of the parcels of real property as set forth on Annex VII hereto, or interests therein, owned or leased by the Borrower or a Guarantor of Payment, together with each other parcel of real property that shall become subject to a Mortgage after the Closing Date, in each case together with all of the right, title and interest of the Borrower or such Guarantor of Payment, as the case may be, in the improvements and buildings thereon and all appurtenances, easements or other rights belonging thereto. "Pledge Agreement" shall mean each Pledge Agreement executed and delivered to the Administrative Agent by the Borrower or a Guarantor of Payment, as the case may be, after the Closing Date, as the same may from time to time be amended, restated or otherwise modified. "Pricing Grid Table" shall mean, (a) during an Interest Coverage Period, the following pricing grid table:
Applicable Eurodollar Margin for Applicable Eurodollar General Revolving Applicable Margin for Adjusted Leverage Ratio Loans Facility Fee Rate Term Loans -------------------------------------------------------------------------------------------- Greater than 3.50 to 1.00 275 basis points 50 basis points 325 basis points -------------------------------------------------------------------------------------------- Greater than 3.00 to 1.00 but less than or equal to 3.50 to 1.00 250 basis points 50 basis points 300 basis points -------------------------------------------------------------------------------------------- Greater than 2.50 to 1.00 but less than or equal to 3.00 to 1.00 225 basis points 50 basis points 275 basis points -------------------------------------------------------------------------------------------- Greater than 2.00 to 1.00 but less than or equal to 2.50 to 1.00 200 basis points 50 basis points 250 basis points -------------------------------------------------------------------------------------------- Less than or equal to 2.00 to 1.00 187.5 basis points 37.5 basis points 225 basis points --------------------------------------------------------------------------------------------
or, (b) at any time other than during an Interest Coverage Period, the following pricing grid table: 5 7
Applicable Eurodollar Margin for Applicable Eurodollar General Revolving Applicable Margin for Adjusted Leverage Ratio Loans Facility Fee Rate Term Loans ---------------------------------------------------------------------------------------------- Greater than 3.50 to 1.00 225 basis points 50 basis points 275 basis points ---------------------------------------------------------------------------------------------- Greater than 3.00 to 1.00 but less than or equal to 3.50 to 1.00 175 basis points 50 basis points 225 basis points ---------------------------------------------------------------------------------------------- Greater than 2.50 to 1.00 but less than or equal to 3.00 to 1.00 160 basis points 40 basis points 200 basis points ---------------------------------------------------------------------------------------------- Greater than 2.00 to 1.00 but less than or equal to 2.50 to 1.00 140 basis points 35 basis points 175 basis points ---------------------------------------------------------------------------------------------- Less than or equal to 2.00 to 1.00 120 basis points 30 basis points 150 basis points ----------------------------------------------------------------------------------------------
"Revolving Credit Exposure" shall mean, at any time, the sum of (a) the aggregate principal amount of all General Revolving Loans outstanding, (b) the aggregate principal amount of all Swing Line Revolving Loans outstanding, (c) the Dollar Equivalent of the Alternative Currency Outstandings, and (d) the Letter of Credit Outstandings. "Security Agreement" shall mean each of the Security Agreements executed and delivered to the Administrative Agent by the Borrower or a Guarantor of Payment, as the case may be, after the Closing Date, as any of the foregoing may from time to time be amended, restated or otherwise modified. "Security Documents" shall mean each Security Agreement, each Intellectual Property Security Agreement, each Pledge Agreement, each Mortgage, and each UCC financing statement executed in connection with any of the foregoing, and any other documents relating to any of the foregoing, as any of the foregoing may from time to time be amended, restated or otherwise modified or replaced. 1.3. The definition of "Permitted Acquisition" contained in Section 1 of the Credit Agreement is hereby amended to delete subpart (v) therefrom and to insert in place thereof the following: (v) after giving effect to such Acquisition, (A) the Borrower would be in compliance on a pro forma basis with the financial covenants contained in sections 9.8, 9.9 and 9.14, and (B) the Leverage Ratio shall be no greater than 3.25 to 1.00 prior to and after giving effect to such Acquisition; and 1.4. Section 2.1(b) of the Credit Agreement is hereby amended to add the following new subpart (vii) thereto: and (vii) shall not be made if the amount of such Loan or Loans, when added to the Revolving Credit Exposure, shall exceed the Maximum Available Revolving Commitment. 6 8 1.5. Section 2.1(c) of the Credit Agreement is hereby amended to add the following new subpart (x) thereto: and (x) shall not be made if the amount of such Loan or Loans, when added to the Revolving Credit Exposure, shall exceed the Maximum Available Revolving Commitment. 1.6. Section 2.8 of the Credit Agreement is hereby amended to delete subsection (h) therefrom in its entirety. 1.7. Section 2A.2 of the Credit Agreement is hereby amended to delete subsection (a) therefrom and to insert in place thereof the following: (a) Alternative Currency Option. From time to time prior to the General Revolving Maturity Date, the Borrower or any Eligible Subsidiary may, as set forth in this section 2A, request the Lenders to make offers to make a loan (each, an "Alternative Currency Advance") to the Borrower or such Eligible Subsidiary, as applicable. Any Lender may, but shall have no obligation to, make such offers, and the Borrower or such Eligible Subsidiary, as applicable, may, but shall have no obligation to, accept any such offers in the manner set forth in this section 2A; provided that neither the Borrower nor any Eligible Subsidiary, as applicable, may accept any offer if, (i) the aggregate Alternative Currency Outstandings would exceed $5,000,000 after taking into account such requested Alternative Currency Advance, or (ii) after such requested Alternative Currency Advance is added to the Revolving Credit Exposure, the Revolving Credit Exposure would exceed the Maximum Available Revolving Commitment. 1.8. Section 2A.10 of the Credit Agreement is hereby amended to delete subsection (b) therefrom and to insert in place thereof the following: (b) Alternative Currency Advances, Other Loans and Letter of Credit Outstandings. If, on any date (after giving effect to any other payments on such date), the Revolving Credit Exposure shall exceed the Maximum Available Revolving Commitment, the Borrower shall immediately prepay, without any prepayment penalty or premium, on such date that principal amount of General Revolving Loans or Alternative Currency Advances and, after General Revolving Loans and Alternative Currency Advances shall have been paid in full, Unpaid Drawings, in an aggregate amount at least equal to such excess and conforming, in the case of partial prepayments of General Revolving Loans, to the requirements as to the amounts of partial prepayments of General Revolving Loans that are contained in section 5.1, and the Borrower shall be obligated to reimburse the Lenders pursuant to section 2A.12 and 2.11. 1.9. Section 2A.17 of the Credit Agreement is hereby amended to add the following new subparts (C), (D) and (E) thereto and the following new paragraph thereto: and (C) the Borrower and each Guarantor of Payment shall have guaranteed the obligations of such Eligible Subsidiary under this Agreement pursuant to the terms of a Guaranty of Payment; (D) the Borrower and such Eligible Subsidiary shall have provided to the Administrative Agent such corporate governance and authorization documents and 7 9 an opinion of counsel as may be deemed necessary or appropriate by the Administrative Agent; and (E) such Eligible Subsidiary shall have executed such other assumption agreements, documents, instruments or other agreements, as may be deemed necessary or appropriate by the Administrative Agent. Upon satisfaction by the Borrower and any such Foreign Subsidiary of the requirements set forth above, the Administrative Agent shall promptly notify the Borrower whereupon such Foreign Subsidiary shall be designated an "Eligible Subsidiary" pursuant to the terms and conditions of this Agreement, and such Eligible Subsidiary shall become bound by all representations, warranties, covenants, provisions and conditions of this Agreement and each other Credit Document applicable to an Eligible Subsidiary as if such Eligible Subsidiary had been the original party making such representations, warranties and covenants. 1.10. Section 3.1(b)(i) of the Credit Agreement is hereby amended to delete subpart (y) therefrom and to insert in place thereof the following: (y) when added to the Revolving Credit Exposure, an amount equal to the "Maximum Available Revolving Commitment". 1.11. Section 4.1(a) of the Credit Agreement is hereby amended to delete subpart (ii) therefrom in its entirety. 1.12. Section 5.3 of the Credit Agreement is hereby amended to delete subsections (a) and (b) therefrom and to insert in place thereof the following: (a) If Outstanding Loans and Letter of Credit Outstandings Exceed Maximum Available Revolving Commitment. If, on any date (after giving effect to any other payments on such date), (i) the Revolving Credit Exposure shall exceed (ii) the Maximum Available Revolving Commitment then in effect, the Borrower shall prepay on such date that principal amount of General Revolving Loans and, after General Revolving Loans have been paid in full, Unpaid Drawings, in an aggregate amount at least equal to such excess and conforming in the case of partial prepayments of General Revolving Loans to the requirements as to the amounts of partial prepayments of General Revolving Loans that are contained in section 5.1. If, after giving effect to the prepayment of General Revolving Loans and Unpaid Drawings, the aggregate amount of Letter of Credit Outstandings shall exceed the Maximum Available Revolving Commitment then in effect, the Borrower shall pay to the Administrative Agent an amount in cash and/or Cash Equivalents equal to such excess and the Administrative Agent shall hold such payment as security for the reimbursement obligations of the Borrower hereunder in respect of Letters of Credit, pursuant to a cash collateral agreement to be entered into in form and substance reasonably satisfactory to the Administrative Agent and the Borrower (which shall permit certain investments in Cash Equivalents satisfactory to the Administrative Agent and the Borrower until the proceeds shall be applied to the secured obligations). (b) If Outstanding Swing Line Revolving Loans Exceed Maximum Available Revolving Commitment. If, on any date (after giving effect to any other payments on such 8 10 date), the aggregate outstanding principal amount of Swing Line Revolving Loans shall exceed an amount equal to the difference between (i) the Maximum Available Revolving Commitment, minus (ii) the difference between (A) the Revolving Credit Exposure, and (B) the aggregate outstanding principal amount of Swing Line Revolving Loans, the Borrower shall prepay on such date Swing Line Revolving Loans an aggregate amount at least equal to such excess and conforming in the case of partial prepayments of Swing Line Revolving Loans to the requirements as to the amounts of partial prepayments of Swing Line Revolving Loans that are contained in section 5.1. 1.13. Section 8.1 of the Credit Agreement is hereby amended to delete the clause that reads "and the computation of its ratio of Consolidated Net Debt as of the end of such fiscal period to Consolidated EBITDA for the Testing Period then ended," from subsection (c) and insert in place thereof the following clause: "and the computation of the Adjusted Leverage Ratio," 1.14. Section 8.10(a) of the Credit Agreement is hereby amended to delete subpart (i) therefrom and to insert in place thereof the following: (i) a Guaranty of Payment, in form and substance satisfactory to the Administrative Agent, 1.15. Section 8 of the Credit Agreement is hereby amended to add the following new subsections 8.14, 8.15 and 8.16 thereto: 8.14. Guaranties of Payment. On or before August 10, 2001 (or such later date as shall be agreed to in writing by the Administrative Agent), each Subsidiary of Borrower that is not a Foreign Subsidiary shall have executed and delivered to the Administrative Agent, a Guaranty of Payment, in form and substance satisfactory to the Administrative Agent. 8.15. Collateral Matters. (a) On or before August 10, 2001 (or such later date as shall be agreed to in writing by the Administrative Agent), the Borrower and each Guarantor of Payment shall have executed and delivered to the Administrative Agent (i) a Mortgage with respect to each Mortgaged Property of the Borrower or any such Guarantor of Payment (as applicable), together with such other information, documents or agreements as may be deemed necessary or advisable by the Administrative Agent in connection with such Mortgage, including, but not limited to, the items set forth in subpart (b) hereof, (ii) a Security Agreement, (iii) an Intellectual Property Security Agreement, (iv) such UCC financing statements as the Administrative Agent shall request, which shall be in form and substance satisfactory to the Administrative Agent, and (v) such corporate governance and authorization documents and opinions of counsel as the Administrative Agent shall request. 9 11 (b) On or before August 10, 2001 (or such later date as shall be agreed to in writing by the Administrative Agent), the Borrower and each Guarantor of Payment that directly owns a Foreign Subsidiary shall have executed and delivered to the Administrative Agent a Pledge Agreement, pledging sixty-five percent (65%) of the stock or other equity interest of such Foreign Subsidiary; provided that any stock certificates (or the foreign equivalent thereof) pledged under any Pledge Agreement shall be delivered to the Administrative Agent within forty-five (45) days after the date of such Pledge Agreement, or such later date as shall be agreed to in writing by the Administrative Agent. (c) With respect to each Mortgaged Property, within thirty (30) days of the Administrative Agent's written request after the occurrence of a Default or Event of Default, the Borrower shall deliver to the Administrative Agent: (i) a loan policy of title insurance, ALTA 1970 Form B (amended 10/17/70 and 10/17/84) (unless such form is unavailable in any particular state, in which case the Borrower shall have provided such other form of a loan policy of title insurance as may reasonably requested by the Administrative Agent) issued by a title company satisfactory to the Administrative Agent and the Required Lenders (collectively, the "Loan Policies" and, individually, a "Loan Policy") in an amount equal to the fair market value of such Mortgaged Property, insuring each Mortgage to be a valid first priority Lien on such Mortgaged Property, free and clear of all defects and encumbrances except such matters of record as permitted pursuant to this Agreement, with such endorsements and affirmative insurance as the Administrative Agent and the Required Lenders may request; (ii) environmental reports or studies prepared by environmental engineering firms acceptable to the Administrative Agent and the Required Lenders (the "Reports"), which Reports shall be in form acceptable to the Administrative Agent and the Required Lenders; (iii) a current (certified not more than thirty (30) days prior to the date of such request) "as-built" survey of the such Mortgaged Property, prepared by a licensed surveyor acceptable to the Administrative Agent and the Required Lenders, certified to the Administrative Agent, on behalf of the Lenders, and the title company pursuant to certificate of survey acceptable to the Administrative Agent and the Required Lenders; such survey shall be in form and substance acceptable to the Administrative Agent and the Required Lenders and shall be made in accordance with the "Minimum Standard Detail Requirements for Land Title Surveys" adopted by the American Land Title Association in 1999; (iv) a copy of the certificate of occupancy for each building located on such Mortgaged Property; (v) evidence of compliance in all material respects with all building and zoning codes applicable to such Mortgaged Property and evidence of the availability and adequacy of utilities for the buildings located on such Mortgaged Property; and 10 12 (vi) evidence, reasonably satisfactory to the Administrative Agent and the Required Lenders, that no portion of any of such Mortgaged Property is located in a Special Flood Hazard Area or is otherwise classified as Class A or Class BX on the Flood Maps maintained by the Federal Emergency Management Agency. (d) On or before September 30, 2001, or such later date as the Administrative Agent shall consent to in writing, (i) each Eligible Subsidiary shall have executed and delivered such security agreements, mortgages and other documents, instruments or agreements, in form and substance satisfactory to the Administrative Agent, as the Administrative Agent shall have deemed necessary or appropriate to secure the Alternative Currency Outstandings, and (ii) the Borrower and each Guarantor of Payment (as applicable) shall deliver to the Administrative Agent, a landlord's waiver, in form and substance satisfactory to the Administrative Agent, for each leased location at which the Borrower or such Guarantor of Payment maintains assets (other than locations owned by the Borrower or a Guarantor of Payment). 8.16. Right to Take Additional Collateral. In addition to any other right that the Administrative Agent and the Lenders may have pursuant to this Agreement or otherwise, upon written request of the Administrative Agent, whenever made, Borrower shall, and shall cause each Subsidiary of Borrower or each Subsidiary of a Guarantor of Payment to grant to the Administrative Agent, as additional security for the obligations of Borrower, a first priority (to the extent not otherwise encumbered) security interest in or Lien on any real or personal property of Borrower or any such Subsidiary, as the case may be, and shall execute and deliver to the Administrative Agent such agreements and other documents, including, but not limited to, any of the documents referenced in section 8.14(a) and (b) hereof, as the Administrative Agent shall request. 1.16. Section 9.2 of the Credit Agreement is hereby amended to delete subsection (b) therefrom and to insert in place thereof the following: (b) Permitted Acquisitions. On the Covenant Compliance Date and thereafter, provided that no Default or Event of Default shall have occurred and be continuing or would result therefrom, the Borrower or any Subsidiary may make any Acquisition that is a Permitted Acquisition, provided that the aggregate consideration for all such Permitted Acquisitions for Borrower and all Subsidiaries, including the principal amount of any assumed Indebtedness and (without duplication) any Indebtedness of the acquired person or persons, shall not exceed $5,000,000. 1.17. Section 9.3 of the Credit Agreement is hereby amended to add the following new subsection (d) thereto: and (d) Liens granted to the Administrative Agent in connection with this Agreement; 1.18. Section 9.5 of the Credit Agreement is hereby amended to delete subsection (o) therefrom and to insert in place thereof the following: 11 13 (o) any other loans, advances, investments (whether in the form of cash or contribution of property, and, if in the form of a contribution of property, such property shall be valued for purposes of this clause at the fair value thereof as reasonably determined by the Borrower), including, without limitation, in or to or for the benefit of, Subsidiaries, joint ventures, or other persons, not otherwise permitted by the foregoing clauses (such loans, advances and investments, collectively, "Basket Investments"), provided that (i) at the time of making any such Basket Investment no Default or Event of Default shall have occurred and be continuing, or would result therefrom, and (ii) (A) prior to the Covenant Compliance Date, no Basket Investments shall be permitted, except that the Borrower may (1) repurchase shares of its outstanding capital stock up to an aggregate amount of $2,500,000, and (2) make investments in Net Shape Technologies LLC up to an aggregate amount of $1,000,000, and (B) after the Covenant Compliance Date, the maximum aggregate cumulative amount of Basket Investments that are so made and outstanding at any time shall not exceed an aggregate amount of $5,000,000, taking into account the repayment of any loans or advances comprising such Basket Investments. 1.19. Section 9 of the Credit Agreement is hereby amended to delete section 9.8 therefrom and to insert in place thereof the following: 9.8. Leverage Ratio. The Borrower shall not permit at any time the Leverage Ratio to exceed (i) 3.80 to 1.00 on the Closing Date through December 30, 1998, (ii) 3.50 to 1.00 on December 31, 1998 through June 29, 2001, (iii) 4.10 to 1.00 on June 30, 2001 through September 29, 2001, (iv) 4.30 to 1.00 on September 30, 2001 through December 30, 2001, (v) 4.00 to 1.00 on December 31, 2001 through March 30, 2002, (vi) 3.75 to 1.00 on March 31, 2002 through June 29, 2002, and (vii) 3.50 to 1.00 on June 30, 2002 and thereafter. 1.20. Section 9 of the Credit Agreement is hereby amended to delete section 9.9 therefrom and to insert in place thereof the following: 9.9. Interest Coverage Ratio. The Borrower shall not permit at any time the Interest Coverage Ratio to be less than (a) 2.00 to 1.00 on the Closing Date through June 29, 2001, (b) 1.20 to 1.00 on June 30, 2001 through September 29, 2001, (c) 1.00 to 1.00 on September 30, 2001 through December 30, 2001, (d) 1.15 to 1.00 on December 31, 2001 through March 30, 2002, (e) 1.25 to 1.00 on March 31, 2002 through June 29, 2002, (f) 1.70 to 1.00 on June 30, 2002 through September 29, 2002, and (g) 2.00 to 1.00 on September 30, 2002 and thereafter. 1.21. Section 9 of the Credit Agreement is hereby amended to add the following new section 9.14 thereto: 9.14. Fixed Charge Coverage Ratio. The Borrower shall not permit at any time the Fixed Charge Coverage Ratio to be less than 1.00 to 1.00, commencing on June 30, 2001 and thereafter. 1.22. Subsection 10.1 of the Credit Agreement is hereby amended to delete subsection (f) therefrom and to insert in place thereof the following: 12 14 (f) Other Credit Documents: any of the Credit Documents (once executed and delivered) shall cease for any reason (other than termination in accordance with its terms) to be in full force and effect; or any Credit Party shall default in any payment obligation thereunder; or any Credit Party shall default in any material respect in the due performance and observance of any other obligation thereunder and such default shall continue unremedied for a period of at least 30 days after notice by the Administrative Agent or the Required Lenders; or any Credit Party shall (or seek to) disaffirm or otherwise limit its obligations thereunder otherwise than in strict compliance with the terms thereof; or 1.23. The Credit Agreement is hereby amended to delete Annex I therefrom and to insert in place thereof a new Annex I thereto in the form of Annex I attached hereto. 1.24. The Credit Agreement is hereby amended to add a new Annex VII thereto in the form of Annex VII attached hereto. 1.25. The Borrower, the Administrative Agent and the Lenders hereby agree that, unless otherwise consented to by the Holders, as defined in the Indenture (as hereinafter defined), under the Indenture, the amount secured under the Security Documents shall not exceed an amount equal to the greater of (a) Twenty-Five Million Dollars ($25,000,000), or (b) the sum, as determined on the date that the Obligations under the Credit Agreement shall have been incurred or such other date on which a greater amount of the Obligations under the Credit Agreement would be permitted to be secured under the Indenture (it being the intent of the parties to secure the highest amount of the Obligations), of (i) eighty-five percent (85%) of the consolidated book value of net accounts receivable of the Borrower and its Subsidiaries, plus (ii) sixty percent (60%) of the consolidated book value of inventory (as defined in the UCC) of the Borrower and its Subsidiaries. As used herein, "Indenture" shall mean the Indenture, dated as of November 27, 1996, among Borrower, the Guarantors, as defined in the Indenture, and the Trustee, as the same may from time to time be amended, restated, supplemented or otherwise modified. 1.26. The Borrower has informed the Administrative Agent and the Lenders that Hutchinson Products LLC, a Delaware limited liability company ("Hutchinson"), desires to convert its form of organization from a limited liability company to a corporation organized under the laws of Delaware (the "Conversion"), and the name of Hutchinson would be changed to Hawk Motors, Inc. Pursuant to Section 8.5 of the Credit Agreement, the Borrower has requested that Administrative Agent and the Required Lenders consent to the Conversion. Administrative Agent and the Required Lenders, by signing this Amendment, hereby consent to the Conversion. Concurrently with the Conversion, Hutchinson shall deliver to the Administrative Agent such replacements or amendments to the Guaranty of Payment and Security Documents that it previously executed as may be deemed necessary or appropriate by the Administrative Agent. 1.27. The Borrower has also informed the Administrative Agent and the Lenders that Wellman Friction Products U.K. Corp., a Guarantor of Payment, which is an inactive Subsidiary of the Borrower that owns no real or personal property, desires to dissolve and terminate its existence as a corporation on or before December 31, 2001 (the "Corporate Termination"). Pursuant to Section 8.5 of the Credit Agreement, the Borrower has requested that Administrative Agent and the Required Lenders consent to the Termination. Administrative Agent and the Required Lenders, by signing this Amendment, hereby consent to the Termination, provided that the Borrower shall 13 15 deliver to the Administrative Agent five Business Days' prior written notice of such Corporate Termination. SECTION 2. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants as follows: 2.1. Authorization and Validity of Amendment. This Amendment has been duly authorized by all necessary corporate action on the part of the Borrower, has been duly executed and delivered by a duly authorized officer of the Borrower, and constitutes the valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its terms. 2.2. Representations and Warranties. The representations and warranties of the Credit Parties contained in the Credit Agreement or in the other Credit Documents are true and correct in all material respects on and as of the date hereof, as though made on and as of the date hereof, except to the extent that such representations and warranties expressly relate to an earlier specified date, in which case such representations and warranties are hereby reaffirmed as true and correct in all material respects as of the date when made. 2.3. No Event of Default. No Default or Event of Default exists or immediately hereafter will begin to exist. 2.4. Compliance. The Borrower is in full compliance with all covenants and agreements contained in the Credit Agreement, as amended hereby, and the other Credit Documents to which it is a party. 2.5. No Claims. The Borrower is not aware of any claim or offset against, or defense or counterclaim to, any of its or any Subsidiary's obligations or liabilities under the Credit Agreement or any other Credit Document. SECTION 3. RATIFICATIONS. Except as expressly modified and superseded by this Amendment, the terms and provisions of the Credit Agreement are ratified and confirmed and shall continue in full force and effect. SECTION 4. BINDING EFFECT. Concurrently herewith: (a) the Borrower shall have caused each Guarantor of Payment to consent and agree to and acknowledge the terms of this Amendment; (b) Borrower shall have caused each Subsidiary of Borrower that is not a Foreign Subsidiary to execute and deliver to the Administrative Agent, a Guaranty of Payment, in form and substance satisfactory to the Administrative Agent; 14 16 (c) Borrower and any Guarantor of Payment that directly owns a Foreign Subsidiary shall have executed and delivered to the Administrative Agent a Pledge Agreement, in form and substance satisfactory to the Administrative Agent; (d) the Borrower shall have executed and delivered, and shall have caused each Guarantor of Payment to execute and deliver, to the Administrative Agent, for the benefit of the Lenders, (i) a Mortgage with respect to each Mortgaged Property set forth on Annex VII to the Credit Agreement owned by the Borrower or any such Guarantor of Payment (as applicable), (ii) a Security Agreement, (iii) an Intellectual Property Security Agreement, (iv) such UCC financing statements as the Administrative Agent shall request, all to be in form and substance satisfactory to the Administrative Agent and the Lenders; (e) with respect to the property owned or leased by the Borrower and each Subsidiary of the Borrower, the Borrower shall have provided to the Administrative Agent (i) the results of UCC, federal and state tax lien and judicial lien searches and other lien searches satisfactory to the Administrative Agent and the Lenders, and (ii) UCC termination statements or, if applicable, other termination statements, reflecting termination of all financing and registration statements previously filed by any other party having a security interest in any part of any property of the Borrower or any Subsidiary and not permitted under the Credit Agreement; (f) the Borrower shall have provided to the Administrative Agent and the Lenders an officer's certificate certifying the names of the officers of the Borrower and each Guarantor of Payment authorized to sign this Amendment and the Security Documents to which the Borrower or such Guarantor of Payment is a party, together with the true signatures of such officers and certified copies of the resolutions of the board of directors or executive committee of the Borrower or such Guarantor of Payment, evidencing approval of the execution and delivery of this Amendment and the Security Documents to which the Borrower or such Guarantor of Payment is a party; (g) the Borrower shall have provided to the Administrative Agent and the Lenders such opinions of counsel for the Borrower and each Guarantor of Payment, in form and substance satisfactory to the Administrative Agent and the Lenders, as the Administrative Agent and the Lenders may deem necessary or appropriate; (h) the Borrower shall have paid to the Administrative Agent, for the pro rata benefit of the Lenders, an amendment fee in the amount of One Hundred Thousand Dollars ($100,000); (i) the Borrower shall have paid all legal fees and expenses of the Administrative Agent in connection with this Amendment and the documents executed in connection herewith; and (j) the Borrower shall have provided such other items and shall have satisfied such other conditions as may be reasonably required by the Administrative Agent and the Lenders. SECTION 5. MISCELLANEOUS. 15 17 5.1. Survival of Representations and Warranties. All representations and warranties made in this Amendment shall survive the execution and delivery of this Amendment, and no investigation by the Administrative Agent or any Lender or any subsequent Loan or other Credit Event shall affect the representations and warranties or the right of the Administrative Agent or any Lender to rely upon them. 5.2. Reference to Credit Agreement. The Credit Agreement and any and all other agreements, instruments or documentation now or hereafter executed and delivered pursuant to the terms of the Credit Agreement as amended hereby, are hereby amended so that any reference therein to the Credit Agreement shall mean a reference to the Credit Agreement as amended hereby. 5.3. Severability. Any term or provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the term or provision so held to be invalid or unenforceable. 5.4. Applicable Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Ohio without regard to conflicts of laws provisions. 5.5. Headings. The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. 5.6. Entire Agreement. This Amendment is specifically limited to the matters expressly set forth herein. This Amendment and all other instruments, agreements and documentation executed and delivered in connection with this Amendment embody the final, entire agreement among the parties hereto with respect to the subject matter hereof and supersede any and all prior commitments, agreements, representations and understandings, whether written or oral, relating to the matters covered by this Amendment, and may not be contradicted or varied by evidence of prior, contemporaneous or subsequent oral agreements or discussions of the parties hereto. There are no oral agreements among the parties hereto relating to the subject matter hereof or any other subject matter relating to the Credit Agreement. Except as set forth herein, the Credit Agreement shall remain in full force and effect and be unaffected hereby. 5.7. Waiver of Claims. The Borrower, by signing below, hereby waives and releases Administrative Agent and each of the Lenders and their respective directors, officers, employees, attorneys, affiliates and subsidiaries from any and all claims, offsets, defenses and counterclaims of which Borrower is aware, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto. 5.8. Counterparts. This Amendment may be executed by the parties hereto separately in one or more counterparts and by facsimile signature, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same agreement. 16 18 5.9. JURY TRIAL WAIVER. EACH OF THE PARTIES TO THIS AMENDMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AMENDMENT, THE OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY HERETO HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AMENDMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date first above written. HAWK CORPORATION By: /s/ Thomas A. Gilbride --------------------------- Name: Thomas A. Gilbride ------------------------- Title: Vice President-Finance ------------------------ KEYBANK NATIONAL ASSOCIATION, as the Administrative Agent and as a Lender By: /s/ Thomas J. Purcell ---------------------------- Name: Thomas J. Purcell -------------------------- Title: Senior Vice President ------------------------- NATIONAL CITY BANK By: /s/ Eric R. Giesecke ---------------------------- Name: Eric R. Giesecke -------------------------- Title: Assistant Vice President ------------------------- LASALLE BANK NATIONAL ASSOCIATION By: /s/ Jefferson M. Green ---------------------------- Name: Jefferson M. Green -------------------------- Title: First Vice President ------------------------- Signature Page 1 of 2 19 COMERICA BANK By: /s/ Jeffrey J. Judge --------------------------- Name: Jeffrey J. Judge ------------------------- Title: Vice President ------------------------ BANK ONE, N.A. By: /s/ Moses R. Jhirad --------------------------- Name: Moses R. Jhirad ------------------------- Title: Vice President ------------------------ HARRIS TRUST AND SAVINGS BANK By: /s/ Kirby M. Law --------------------------- Name: Kirby M. Law ------------------------- Title: Vice President ------------------------ Signature Page 2 of 2 20 ANNEX I INFORMATION AS TO LENDERS
GENERAL GENERAL REVOLVING FACILITY REVOLVING SWING LINE TERM LOAN NOTICE ADDRESS NAME OF LENDER PERCENTAGE COMMITMENT COMMITMENT COMMITMENT FOR THE LENDERS - -------------------------------------------------------------------------------------------------------------------------- KeyBank National Association 26.470588238% $7,941,176.47 $5,000,000.00 $9,264,705.8833 KeyBank National Association 127 Public Square Cleveland, Ohio 44114 Attn: Large Corporate Banking - -------------------------------------------------------------------------------------------------------------------------- LaSalle Bank National Association 20.588235294% $6,176,470.59 $ 0.00 $7,205,882.3529 - -------------------------------------------------------------------------------------------------------------------------- Bank One, N.A. 14.705882352% $4,411,764.71 $ 0.00 $5,147,058.8232 - -------------------------------------------------------------------------------------------------------------------------- Comerica Bank 14.705882352% $4,411,764.71 $ 0.00 $5,147,058.8232 - -------------------------------------------------------------------------------------------------------------------------- National City Bank 11.764705882% $3,529,411.76 $ 0.00 $4,117,647.0587 - -------------------------------------------------------------------------------------------------------------------------- Harris Trust and Savings Bank 11.764705882% $3,529,411.76 $ 0.00 $4,117,647.0587 - --------------------------------------------------------------------------------------------------------------------------
Annex I Page 1 21 ANNEX VII REAL PROPERTY LOCATIONS
OWNER ADDRESS COUNTY - -------------------------------------------------------------------------- Friction Products Co. 920 Lake Road Medina Medina OH 44256 - -------------------------------------------------------------------------- Logan Metal Stampings, Inc. 570 Wolf Ledges Pkwy. Summit Akron OH 44311 - -------------------------------------------------------------------------- Helsel, Inc. 596 Oak Street Washington Campbellsburg IN 47108 - -------------------------------------------------------------------------- Hutchinson Products LLC 4131 Alby Street Madison Alton IL 62002 - -------------------------------------------------------------------------- S.K. Wellman Corp. 5372 W. 130th Street Cuyahoga Brook Park OH 44142 - -------------------------------------------------------------------------- Allegheny Powder Route 950 Jefferson Metallurgy, Inc. PO Box 376 Falls Creek PA 15840 - -------------------------------------------------------------------------- Clearfield Powdered PO Box 1072 Clearfield Metals, Inc. Clearfield PA 16830 - --------------------------------------------------------------------------
Annex VII Page 1 22 GUARANTOR ACKNOWLEDGMENT The undersigned consents and agrees to and acknowledges the terms of the foregoing Amendment No. 2 to Credit Agreement. The undersigned specifically agrees to the waivers set forth in such agreement, including, but not limited to, the jury trial waiver. The undersigned further agrees that the obligations of the undersigned pursuant to the Guaranty of Payment executed by the undersigned shall remain in full force and effect and be unaffected hereby. The undersigned hereby waives and releases the Administrative Agent and the Lenders and the directors, officers, employees, attorneys, affiliates and subsidiaries of the Administrative Agent and the Lenders from any and all claims, offsets, defenses and counterclaims of which the undersigned is aware, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto. FRICTION PRODUCTS CO. S.K. WELLMAN CORP. HELSEL, INC. LOGAN METAL STAMPINGS, INC. HUTCHINSON PRODUCTS LLC SINTERLOY CORPORATION HAWK BRAKE, INC. S.K. WELLMAN HOLDINGS, INC. WELLMAN FRICTION PRODUCTS U.K. CORP. CLEARFIELD POWDERED METALS, INC. ALLEGHENY POWDER METALLURGY, INC. QUARTER MASTER INDUSTRIES, INC. HAWK MIM, INC. TEX RACING ENTERPRISES, INC. NET SHAPE TECHNOLOGIES LLC By: /s/ Thomas A. Gilbride ---------------------------------- Name: Thomas A. Gilbride -------------------------------- Vice President-Finance of each of the foregoing companies EX-10.20 4 l89585aex10-20.txt EX-10.20 1 EXHIBIT 10.20 FORM OF SECURITY AGREEMENT 1. Recitals. [______________________], a [___________] corporation (together with its successors and assigns, "Pledgor"), the lending institutions listed on Annex I to the Credit Agreement, as hereinafter defined (collectively, "Lenders" and, individually, "Lender"), and KEYBANK NATIONAL ASSOCIATION, as administrative agent for the Lenders ("Administrative Agent"), are parties to the Credit Agreement. Pledgor understands that the Lenders are willing to continue to grant the financial accommodations to Pledgor pursuant to the Credit Agreement only upon certain terms and conditions, one of which is that Pledgor grant to Administrative Agent, for the benefit of the Lenders, a security interest in and an assignment of the Collateral, as hereinafter defined, and this Security Agreement (as the same may from time to time be amended, restated or otherwise modified, this "Agreement") is being executed and delivered in consideration of each financial accommodation granted to Pledgor by the Lenders and for other valuable considerations. 2. Definitions. Except as specifically defined herein, capitalized terms used herein that are defined in the Credit Agreement shall have their respective meanings ascribed to them in the Credit Agreement. Unless otherwise defined in this Section 2, terms that are defined in Chapter 1309 of the Ohio Revised Code as in effect from time to time, are used herein as so defined. As used in this Agreement, the following terms shall have the following meanings: "Account" shall mean (a) all of Pledgor's accounts, as defined in Chapter 1309 of the Ohio Revised Code as in effect from time to time; (b)(i) any right to payment now or hereafter owing to Pledgor (including but not limited to any such right to payment by reason of any lease, sale, manufacture, repair, processing or fabrication of personal property formerly, now or hereafter owned or otherwise held by Pledgor, by reason of any services formerly, now or hereafter rendered by or on behalf of Pledgor or by reason of any former, existing or future contract for any such lease, sale, manufacture, repair, processing, fabrication and/or services), whether such right to payment be classified by law as an instrument, chattel paper, contract right, account, document, general intangible or otherwise; (ii) the security, if any, for such right to payment; (iii) Pledgor's right, title and interest (including, without limitation, all of Pledgor's rights as an unpaid vendor, and any applicable right of stoppage in transit) in or to the personal property, if any, that is the subject of such right to payment; and (iv) all books and records pertaining to such right to payment; and (c) all proceeds of any of the foregoing, irrespective of the form or kind thereof. 2 "Account Debtor" shall mean any Person obligated to pay all or any part of any Account in any manner and includes (without limitation) any guarantor thereof or other accommodation party therefor. "Cash Collateral Account" shall mean a commercial Deposit Account designated "cash collateral account" and maintained by Pledgor with Administrative Agent, without liability by Administrative Agent or the Lenders to pay interest thereon, from which account Administrative Agent shall have the exclusive right to withdraw funds until all of the Obligations is paid in full. "Cash Security" shall mean all cash, instruments, Deposit Accounts, and other cash equivalents, whether matured or unmatured, whether collected or in the process of collection, upon which Pledgor presently has or may hereafter have any claim, wherever located, including but not limited to any of the foregoing that are presently or may hereafter be existing or maintained with, issued by, drawn upon, or in the possession of Administrative Agent or any Lender. "Collateral" shall mean all of Pledgor's existing and future (a) personal property; (b) Accounts, Investment Property, letter-of-credit rights, contract rights, instruments, chattel paper, documents, General Intangibles, Inventory and Equipment; (c) funds now or hereafter on deposit in the Cash Collateral Account, if any; (d) Cash Security; and (e) Proceeds, products, profits, and rents of any of (a) through (d) above. "Credit Agreement" shall mean the Credit Agreement executed by and between Pledgor, Administrative Agent and the Lenders, dated as of the 1st day of May, 1998, as amended and as the same may from time to time be further amended, restated or otherwise modified. "Deposit Account" shall mean (a) a deposit account, as defined in Chapter 1309 of the Ohio Revised Code as in effect from time to time, (b) any other deposit account, and (c) any demand, time, savings, passbook, or a similar account maintained with a bank, savings and loan association, credit union, or similar organization. "Equipment" shall mean all of Pledgor's (a) equipment, as defined in Chapter 1309 of the Ohio Revised Code as in effect from time to time, including without limitation, machinery, motor vehicles, trade fixtures, office and other furniture and furnishings; (b) goods that are used or bought for use primarily in Pledgor's business; (c) goods that are not consumer goods, farm products (as defined in Chapter 1309 of the Ohio Revised Code as in effect from time to time), or Inventory; and (d) substitutes or replacements for, and parts, accessories, additions, attachments, or accessions to (a) through (c) above. "Event of Default" shall mean an event or condition that constitutes an Event of Default, as defined in Section 16.1 of this Agreement. "General Intangibles" shall mean all of Pledgor's (a) general intangibles, as defined in Chapter 1309 of the Ohio Revised Code as in effect from time to time; (b) choses in action, causes of action, customer lists, corporate or other business records, inventions, designs, patents, patent applications, service marks, registrations, trade names, trademarks, copyrights, goodwill, computer software, rights to indemnification and tax refunds; and (c) Proceeds of any of the foregoing, irrespective of the form or kind thereof. 2 3 "Hedge Agreement" shall mean any currency swap or hedge agreement, interest rate swap, cap, collar or floor agreement, or other interest rate management device entered into by Pledgor or any Eligible Subsidiary with Administrative Agent or any of the Lenders, or any of their respective affiliates, in connection with the Obligations. "Inventory" shall mean all of Pledgor's (a) inventory, as defined in Chapter 1309 of the Ohio Revised Code as in effect from time to time; (b) goods that are raw materials; (c) goods that are work-in-process; (d) goods that are materials used or consumed in the ordinary course of Pledgor's business; (e) goods that are, in the ordinary course of Pledgor's business, held for sale or lease or furnished or to be furnished under contracts of service; and (f) substitutes and replacements for, and parts, accessories, additions, attachments or accessions to (a) through (e) above. "Investment Property" shall mean all of Pledgor's investment property, as defined in Chapter 1309 of the Ohio Revised Code as in effect from time to time, unless the Uniform Commercial Code as in effect in another jurisdiction would govern the perfection and/or priority of a security interest in investment property, and, in such case, investment property shall be defined in accordance with the law of that jurisdiction as in effect from time to time. "Letter of Credit" shall mean any Letter of Credit, as defined in the Credit Agreement, issued pursuant to the Credit Agreement. "Loan" shall mean any Loan, as defined in the Credit Agreement, granted pursuant to the Credit Agreement. "Obligations" shall mean, collectively, (a) all Loans and Letters of Credit; (b) all other indebtedness now owing or hereafter incurred by Pledgor or any Eligible Subsidiary to Administrative Agent or any Lender pursuant to the Credit Agreement and any Note executed in connection therewith; (c) each renewal, extension, consolidation or refinancing of any of the foregoing, in whole or in part; (d) all interest from time to time accruing on any of the foregoing, and all fees and other amounts payable by Pledgor to Administrative Agent or any Lender pursuant to the Credit Agreement; (e) all obligations and liabilities of Pledgor now existing or hereafter incurred to Administrative Agent or any Lender (or any affiliate of such Lender) under, arising out of, or in connection with any Hedge Agreement; (f) every other liability, now or hereafter owing to Administrative Agent or any Lender by Pledgor or any Eligible Subsidiary pursuant to the Credit Agreement or any other Credit Document; and (g) all Related Expenses. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, unincorporated organization, corporation, limited liability company, institution, trust, estate, government or other agency or political subdivision thereof or any other entity. "Proceeds" shall mean (a) any proceeds, and (b) whatever is received upon the sale, exchange, collection or other disposition of Collateral or proceeds, whether cash or non-cash. Cash proceeds includes, without limitation, moneys, checks, and Deposit Accounts. Proceeds includes, without limitation, any Account arising when the right to payment is earned under a contract right, any insurance payable by reason of loss or damage to the Collateral, and any return or unearned premium upon any cancellation of insurance. Except as expressly authorized in this Agreement, the right of Administrative Agent and the Lenders to Proceeds specifically set 3 4 forth herein, or indicated in any financing statement, shall never constitute an express or implied authorization on the part of Administrative Agent or any Lender to Pledgor's sale, exchange, collection, or other disposition of any or all of the Collateral. "Related Expenses" shall mean any and all reasonable costs, liabilities and expenses (including, without limitation, losses, damages, penalties, claims, actions, reasonable attorneys' fees, legal expenses, judgments, suits and disbursements) (a) incurred by Administrative Agent, or imposed upon or asserted against Administrative Agent or any Lender, in any attempt by Administrative Agent and the Lenders to (i) obtain, preserve, perfect, or enforce any security interest evidenced by this Agreement, the Credit Agreement, any Credit Document, or any other document, instrument or agreement executed in connection with any of the foregoing; (ii) obtain payment, performance or observance of any and all of the Obligations; or (iii) maintain, insure, audit, collect, preserve, repossess or dispose of any of the Collateral or any other collateral securing the Obligations, including, without limitation, costs and expenses for appraisals, assessments and audits of Pledgor or any such collateral; or (b) incidental or related to (a) above, including, without limitation, interest thereupon from the date incurred, imposed or asserted until paid. 3. Security Interest. In consideration of and as security for the full and complete payment of all of the Obligations, Pledgor hereby agrees that Administrative Agent shall at all times have, and hereby grants to Administrative Agent, for the benefit of the Lenders, a security interest in and an assignment of all of the Collateral, including (without limitation) all of Pledgor's future Collateral, irrespective of any lack of knowledge by Administrative Agent or the Lenders of the creation or acquisition thereof. 4. Representations and Warranties. Pledgor hereby represents and warrants to Administrative Agent and each Lender as follows: 4.1. Pledgor is a corporation duly organized, validly existing and in good standing under the laws of its state of incorporation and is duly qualified to do business in each state in which a failure to so qualify would have a material adverse effect on Pledgor. 4.2. Pledgor has full power, authority and legal right to pledge the Collateral, to execute and deliver this Agreement, and to perform and observe the provisions hereof. The officers acting on Pledgor's behalf have been duly authorized to execute and deliver this Agreement and to execute and file appropriate financing statements in respect hereof. This Agreement is valid and binding upon Pledgor in accordance with the terms hereof. 4.3. Neither the execution and delivery of this Agreement, nor the performance and observance of the provisions hereof, by Pledgor will conflict with, or constitute a violation or default under, any provision of any applicable law or of any contract (including, without limitation, Pledgor's certificate (or articles) of incorporation and bylaws (or regulations) or of any other writing binding upon Pledgor in any manner. 4.4. Pledgor's principal place of business and the location where Pledgor keeps records in respect of the Accounts are set forth on Schedule 4.4 hereto. Pledgor has places of business or maintains Collateral at the locations set forth on Schedule 4.4 hereto. Pledgor's 4 5 taxpayer identification number and organizational identification number (if any) are set forth on Schedule 4.4 hereto. 4.5. Pledgor has furnished its most recent financial statements to Administrative Agent and such financial statements are true and complete, have been prepared in accordance with generally accepted accounting principles, in a manner consistent with that used for the immediately preceding fiscal period, and fairly present Pledgor's financial condition as of the date of such financial statements and the results of Pledgor's operations for the period then ending. Since such date, there has been no material adverse change in Pledgor's financial condition, business and properties other than such changes, if any, as have been specifically disclosed to Administrative Agent in writing. 4.6. At the execution and delivery hereof, except as permitted pursuant to the Credit Agreement or as set forth on Schedule 4.6 hereto, (a) there is no financing statement outstanding covering the Collateral, or any part thereof, other than a financing statement in favor of Administrative Agent, for the benefit of the Lenders; (b) none of the Collateral is subject to any security interest or Lien of any kind other than the security interest herein granted to Administrative Agent, for the benefit of the Lenders, or previously granted to Administrative Agent, for the benefit of the Lenders; (c) the Internal Revenue Service has not alleged the nonpayment or underpayment of any tax by Pledgor or threatened to make any assessment in respect thereof; (d) upon execution of this Agreement and the filing of the U.C.C. financing statements being executed in connection herewith, Administrative Agent will have, for the benefit of the Lenders, a valid and enforceable first security interest in the Collateral; and (e) Pledgor has not entered into any contract or agreement that would prohibit Administrative Agent and the Lenders from acquiring a security interest, mortgage or other Lien on, or a collateral assignment of, any of the property or assets of Pledgor. 4.7. Pledgor has received consideration that is the reasonable equivalent value of the obligations and liabilities that Pledgor has incurred to the Lenders. Pledgor is not insolvent, as defined in any applicable state or federal statute, nor will Pledgor be rendered insolvent by the execution and delivery of this Agreement to Administrative Agent or any other documents executed and delivered to Administrative Agent or the Lenders in connection herewith. Pledgor has not engaged, nor is Pledgor about to engage, in any business or transaction for which the assets retained by it are or will be an unreasonably small amount of capital, taking into consideration the obligations to the Lenders incurred hereunder. Pledgor does not intend to, nor does it believe that it will, incur debts beyond its ability to pay such debts as they mature. 4.8. At the execution and delivery hereof, no Event of Default will exist. 5. Insurance. Pledgor shall at all times maintain insurance upon the Inventory, Equipment and other personal and real property in such form, written by Pledgor, in such amounts, for such period, and against such risks as may be reasonably acceptable to Administrative Agent, with provisions satisfactory to Administrative Agent, for payment of all losses thereunder to Administrative Agent, for the benefit of the Lenders, and Pledgor as its interest may appear (loss payable endorsement in favor of Administrative Agent, for the benefit of Lenders), and, if required by Administrative Agent, Pledgor shall deposit the policies with Administrative Agent. Any such policies of insurance shall provide for no fewer than thirty (30) days prior written notice of cancellation to Administrative Agent. Any sums received by 5 6 Administrative Agent, for the benefit of the Lenders, in payment of insurance losses, returns, or unearned premiums under the policies may, at the option of Administrative Agent, be held as Collateral or may be delivered to Pledgor, as appropriate, for the purpose of replacing, repairing, or restoring the insured property. Any sums received by Administrative Agent, for the benefit of Lenders, in payment of insurance losses, returns, or unearned premiums under the policies shall be applied in accordance with the Credit Agreement. In the event of failure to provide such insurance as herein provided, Administrative Agent may, at its option, provide such insurance and Pledgor shall pay to Administrative Agent, upon demand, the cost thereof. Should Pledgor fail to pay such sum to Administrative Agent upon demand, interest shall accrue thereon, from the date of demand until paid in full. Within ten (10) days of any Lender's written request, Pledgor shall furnish to such Lender such information about Pledgor's insurance as such Lender may from time to time reasonably request, which information shall be prepared in form and detail satisfactory to such Lender and certified by a an officer of Pledgor. 6. Taxes and Other Pledgor Obligations. Pledgor shall pay in full (a) all taxes, assessments and governmental charges and levies in accordance with Section 8.4 of the Credit Agreement; (b) all of its wage obligations to its employees in accordance with applicable law; (c) all obligations under the Employees Retirement Income Security Act of 1974, as amended from time to time, in accordance with applicable law; and (d) all of Pledgor's other obligations calling for the payment of money in accordance with any agreement or law applicable thereto. 7. Corporate Names and Location of Collateral. Pledgor shall not change its name, unless, in each case, Pledgor shall provide Administrative Agent with at least thirty (30) days prior written notice thereof. Pledgor shall not use trade names, assumed names or fictitious names without giving Administrative Agent at least thirty (30) days prior written notice thereof. Pledgor shall also provide Administrative Agent with at least thirty (30) days prior written notification of (a) any change in any location where any of the Inventory or Equipment is maintained, and any new locations where any of the Inventory or Equipment is to be maintained; (b) any change in the location of the office where the records pertaining to the Accounts are kept; (c) the location of any new places of business and the changing or closing of any of its existing places of business; and (d) any change in Pledgor's chief executive office or state of organization. In the event of any of the foregoing or as a result of any change of applicable law with respect to the taking of security interests, Pledgor hereby authorizes Administrative Agent to file new U.C.C. financing statements (and Pledgor agrees that Administrative Agent may, where applicable, execute and deliver the same as Pledgor's irrevocable attorney-in-fact) describing the Collateral and otherwise in form and substance sufficient for recordation wherever necessary or appropriate, as determined in Administrative Agent's sole discretion, to perfect or continue perfected the security interest of Administrative Agent, for the benefit of the Lenders, in the Collateral, based upon such new places of business or names or such change in applicable law or state of organization, and Pledgor shall pay all filing and recording fees and taxes in connection with the filing or recordation of such financing statements and shall immediately reimburse Administrative Agent therefor if Administrative Agent pays the same. Such amounts not so paid or reimbursed shall be Related Expenses hereunder. 8. Notice. Pledgor shall give Administrative Agent prompt written notice if any Event of Default shall occur hereunder or if the Internal Revenue Service shall allege the 6 7 nonpayment or underpayment of any tax by Pledgor or threaten to make any assessment in respect thereof. 9. Financial Records. Pledgor shall (a) maintain at all times true and complete financial records and books of accounts in accordance with generally accepted accounting principles consistently applied and, without limiting the generality of the foregoing, prepare authentic invoices, numbered consecutively in chronological order, for all of the Accounts; (b) render to Administrative Agent, forthwith upon each request of Administrative Agent or any Lender, such financial statements of Pledgor's financial condition and operations, including but not limited to Pledgor's tax returns, and such reports of the Accounts, as Administrative Agent or any Lender may from time to time request; (c) give Administrative Agent prompt written notice whenever any Account Debtor shall become in default in any manner or assert any defense or offset and whenever any other event, omission, condition or thing having a material adverse effect on any Account shall occur or arise; and (d) forward to Administrative Agent, upon request of Administrative Agent or any Lender, whenever made, (i) invoices, sales journals or other documents satisfactory to Administrative Agent or such Lender, as the case may be, that summarize the Accounts, certified by an officer of Pledgor, (ii) within the time specified by Administrative Agent, an aging report of the Accounts then outstanding setting forth, in such form and detail and with such representations and warranties as Administrative Agent or such Lender may from time to time require, the unpaid balances of all invoices billed respectively during that period and during each of the three (3) next preceding periods, and certified by an officer of Pledgor, and (iii) with respect to the Inventory and any other Collateral, such reports and other documents that are satisfactory to Administrative Agent and the Lenders. 10. Transfers, Liens and Modifications Regarding Collateral. Except as specifically permitted in Section 14 hereof, Pledgor shall not, without Administrative Agent's prior written consent, (a) sell, assign, transfer or otherwise dispose of, or grant any option with respect to, or create, incur, or permit to exist any pledge, lien, mortgage, hypothecation, security interest, charge, option or any other encumbrance with respect to any of the Collateral, or any interest therein, or any proceeds thereof, except for the lien and security interest provided for by this Agreement and any security agreement securing only Administrative Agent, for the benefit of the Lenders; or (b) enter into or assent to any amendment, compromise, extension, release or other modification of any kind of, or substitution for, any of the Accounts. 11. Collateral. Pledgor shall: (a) at all reasonable times allow Administrative Agent by or through any of its officers, agents, employees, attorneys or accountants to (i) examine, inspect and make extracts from Pledgor's books and other records, including, without limitation, the tax returns of Pledgor, (ii) arrange for verification of the Accounts, under reasonable procedures, directly with Account Debtors or by other methods, and (iii) examine and inspect the Inventory and Equipment, wherever located; (b) promptly furnish to Administrative Agent and the Lenders, upon request, (i) additional statements and information with respect to the Collateral, and all writings and information relating to or evidencing any of the Accounts (including, without limitation, computer printouts or typewritten reports listing the mailing addresses of all present Account Debtors), and (ii) any other writings and information as Administrative Agent may request; 7 8 (c) notify Administrative Agent in writing immediately upon the creation of any Accounts with respect to which the Account Debtor is the United States of America or any state, county, city or other governmental authority or any department, agency or instrumentality of any of them, or any foreign government or instrumentality thereof or any business that is located in a foreign country; (d) mark its books and records of Accounts to indicate the security interest granted to Administrative Agent, for the benefit of the Lenders, hereunder; (e) immediately notify Administrative Agent in writing of any information that Pledgor has or may receive with respect to the Collateral that might in any manner materially and adversely affect the value thereof or the rights of Administrative Agent or the Lenders with respect thereto; (f) maintain the Equipment in good operating condition and repair, ordinary wear and tear excepted, making all necessary replacements thereof so that the value and operating efficiency thereof shall at all times be maintained and preserved, and promptly inform Administrative Agent of any additions to or deletions from the Equipment; and (g) upon request of Administrative Agent, promptly take such action and promptly make, execute, and deliver all such additional and further items, deeds, assurances, instruments and any other writings as Administrative Agent or the Lenders may from time to time deem necessary or appropriate, including, without limitation, financing statements and chattel paper, to carry into effect the intention of this Agreement or so as to completely vest in and ensure to Administrative Agent and the Lenders their rights hereunder and in or to the Collateral. If certificates of title or applications for title are issued or outstanding with respect to any of the Inventory or Equipment, Pledgor shall, upon request of Administrative Agent, (i) execute and deliver to Administrative Agent a short form security agreement, in form and substance satisfactory to Administrative Agent, and (ii) deliver such certificate or application to Administrative Agent and cause the interests of Administrative Agent, on behalf of the Lenders, to be properly noted thereon. Pledgor hereby authorizes Administrative Agent or Administrative Agent's designated agent (but without obligation by Administrative Agent to do so) to incur Related Expenses (whether prior to, upon, or subsequent to any Event of Default hereunder), and Pledgor shall promptly repay, reimburse and indemnify Administrative Agent for any and all Related Expenses. If Pledgor fails to keep and maintain the Equipment in good operating condition, Administrative Agent may (but shall not be required to) so maintain or repair all or any part of the Equipment and the cost thereof shall be a Related Expense. All Related Expenses are payable to Administrative Agent upon demand therefor. 12. Collections and Receipt of Proceeds by Pledgor. Prior to exercise by Administrative Agent and the Required Lenders of their rights under this Agreement, both (a) the lawful collection and enforcement of all of the Accounts, and (b) the lawful receipt and retention by Pledgor of all Proceeds of all of the Accounts and Inventory shall be as the agent of Administrative Agent and the Lenders. Upon written notice to Pledgor from Administrative Agent after the occurrence of an Event of Default, a Cash Collateral Account shall be opened by Pledgor at the main office of Administrative Agent and all such lawful collections of the Accounts and such Proceeds of the Accounts and Inventory shall be remitted daily by Pledgor to 8 9 Administrative Agent in the form in which they are received by Pledgor, either by mailing or by delivering such collections and Proceeds to Administrative Agent, appropriately endorsed for deposit in the Cash Collateral Account. In the event that such notice is given to Pledgor from Administrative Agent, Pledgor shall not commingle such collections or Proceeds with any of Pledgor's other funds or property, but shall hold such collections and Proceeds separate and apart therefrom upon an express trust for Administrative Agent, for the benefit of the Lenders. In such case, Administrative Agent may, in its sole discretion, and shall, at the request of the Required Lenders, at any time and from time to time, apply all or any portion of the account balance in the Cash Collateral Account as a credit against the Obligations. If any remittance shall be dishonored, or if, upon final payment, any claim with respect thereto shall be made against Administrative Agent on its warranties of collection, Administrative Agent may charge the amount of such item against the Cash Collateral Account or any other Deposit Account maintained by Pledgor with Administrative Agent, and, in any event, retain the same and Pledgor's interest therein as additional security for the Obligations. Administrative Agent may, in its sole discretion, at any time and from time to time (provided that, after an Event of Default has occurred, Administrative Agent shall only do so with the consent of the Required Lenders), release funds from the Cash Collateral Account to Pledgor for use in Pledgor's business. The balance in the Cash Collateral Account may be withdrawn by Pledgor upon termination of this Agreement and irrevocable payment in full of all of the Obligations. At Administrative Agent's request, Pledgor shall cause all remittances representing collections and Proceeds of Collateral to be mailed to a lock box in Cleveland, Ohio, to which Administrative Agent shall have access for the processing of such items in accordance with the provisions, terms, and conditions of Administrative Agent's customary lock box agreement. 13. Collections and Receipt of Proceeds by Administrative Agent. Administrative Agent shall at all times have the right, but not the duty, after the occurrence of an Event of Default, to collect and enforce any or all of the Accounts as Administrative Agent may deem advisable and, if Administrative Agent shall at any time or times elect to do so in whole or in part, Administrative Agent shall not be liable to Pledgor except for willful misconduct, if any. Pledgor hereby constitutes and appoints Administrative Agent, or Administrative Agent's designated agent, as Pledgor's attorney-in-fact to exercise, at any time, all or any of the following powers which, being coupled with an interest, shall be irrevocable until the complete and full payment of all of the Obligations: (a) to receive, retain, acquire, take, endorse, assign, deliver, accept and deposit, in Administrative Agent's name or Pledgor's name, any and all of Pledgor's cash, instruments, chattel paper, documents, Proceeds of Accounts, Proceeds of Inventory, collection of Accounts, and any other writings relating to any of the Collateral. Pledgor hereby waives presentment, demand, notice of dishonor, protest, notice of protest and any and all other similar notices with respect thereto, regardless of the form of any endorsement thereof. Neither Administrative Agent nor the Lenders shall be bound or obligated to take any action to preserve any rights therein against prior parties thereto; (b) to transmit to Account Debtors, on any or all of the Accounts, notice of assignment to Administrative Agent, for the benefit of the Lenders, thereof and the security interest of Administrative Agent, for the benefit of the Lenders, and to request from such 9 10 Account Debtors at any time, in Administrative Agent's name or in Pledgor's name, information concerning the Accounts and the amounts owing thereon; (c) to transmit to purchasers of any or all the Inventory, notice of the security interest of Administrative Agent, for the benefit of the Lenders, and to request from such purchasers at any time, in Administrative Agent's name or in Pledgor's name, information concerning the Inventory and the amounts owing thereon by such purchasers; (d) to notify and require Account Debtors on the Accounts and purchasers of the Inventory to make payment of their indebtedness directly to Administrative Agent, for the benefit of the Lenders; (e) to enter into or assent to such amendment, compromise, extension, release or other modification of any kind of, or substitution for, the Accounts, or any thereof, as Administrative Agent, in its sole discretion, may deem to be advisable; (f) to enforce the Accounts or any thereof, or any other Collateral, by suit or otherwise, to maintain any such suit or other proceeding in Administrative Agent's own name or in Pledgor's name, and to withdraw any such suit or other proceeding. Pledgor agrees to lend every assistance requested by Administrative Agent in respect of the foregoing, all at no cost or expense to Administrative Agent or the Lenders and including, without limitation, the furnishing of such witnesses and of such records and other writings as Administrative Agent may require in connection with making legal proof of any Account. Pledgor agrees to reimburse Administrative Agent and the Lenders in full for all court costs and attorneys' fees and every other cost, expense or liability, if any, incurred or paid by Administrative Agent or the Lenders in connection with the foregoing, which obligation of Pledgor shall constitute Obligations, shall be secured by the Collateral and shall bear interest until paid; and (g) to accept all collections in any form relating to the Collateral, including remittances that may reflect deductions, and to deposit the same, into the Cash Collateral Account or, at the option of Administrative Agent, to apply them as a payment on the Obligations. 14. Use of Inventory and Equipment. Until an Event of Default shall occur, Pledgor may (a) retain possession of and use the Inventory and Equipment in any lawful manner not inconsistent with this Agreement or with the terms, conditions, or provisions of any policy of insurance thereon; (b) sell or lease the Inventory in the ordinary course of business, provided, however, that a sale or lease in the ordinary course of business does not include a transfer in partial or total satisfaction of any indebtedness; and (c) use and consume raw materials or supplies, the use and consumption of which are necessary in order to carry on Pledgor's business. 15. Returned or Repossessed Property. If any merchandise or other property the subject of any Account shall for any reason be returned to or repossessed by Pledgor in any manner, Administrative Agent shall have, for the benefit of the Lenders, a security interest in such property as security for the Obligations. Pledgor shall receive the same in trust for Administrative Agent, and upon Administrative Agent's request whenever made, segregate such property and label the same as being held for Administrative Agent and immediately give 10 11 Administrative Agent a detailed written notice of such return or repossession and the reason therefor. Pledgor further agrees that, upon demand from Administrative Agent, Pledgor shall forthwith pay to Administrative Agent, in cash, an amount equal to each Account relating to any returned or repossessed property, provided that Administrative Agent shall thereupon release such Account and said property to Pledgor and apply such payment to the Obligations in such order and by such division as Administrative Agent shall deem advisable. 16. Default and Remedies. 16.1. Any of the following shall constitute an Event of Default under this Agreement: (a) an Event of Default, as defined in the Credit Agreement, shall occur under the Credit Agreement; (b) any representation, warranty or statement made by Pledgor in or pursuant to this Agreement or in any other writing received by Administrative Agent or the Lenders in connection with the Obligations shall be false or erroneous in any material respect; or (c) Pledgor shall fail or omit to perform or observe any agreement made by Pledgor in or pursuant to this Agreement or in any other writing received by Administrative Agent or the Lenders pursuant hereto. 16.2. Upon the occurrence of an Event of Default hereunder, and at all times thereafter, Administrative Agent and the Lenders shall have the rights and remedies of a secured party under the Ohio Revised Code as in effect from time to time, in addition to the rights and remedies of a secured party provided elsewhere within this Agreement or in any other Credit Document or otherwise provided in law or equity. Administrative Agent may require Pledgor to assemble the Collateral, which Pledgor agrees to do, and make it available to Administrative Agent at a reasonably convenient place to be designated by Administrative Agent. Administrative Agent may, with or without notice to or demand upon Pledgor and with or without the aid of legal process, make use of such force as may be necessary to enter any premises where the Collateral, or any thereof, may be found and to take possession thereof (including anything found in or on the Collateral that is not specifically described in this Agreement, each of which findings shall be considered to be an accession to and a part of the Collateral) and for that purpose may pursue the Collateral wherever the same may be found, without liability for trespass or damage caused thereby to Pledgor. After any delivery or taking of possession of the Collateral, or any thereof, pursuant to this Agreement, then, with or without resort to Pledgor or any other Person or property, all of which Pledgor hereby waives, and upon such terms and in such manner as Administrative Agent may deem advisable, Administrative Agent, in its discretion, may sell, assign, transfer and deliver any of the Collateral at any time, or from time to time. No prior notice need be given to Pledgor or to any other Person in the case of any sale of Collateral that Administrative Agent determines to be perishable or to be declining speedily in value or that is customarily sold in any recognized market, but in any other case Administrative Agent shall give Pledgor no fewer than ten (10) days prior notice of either the time and place of any public sale of the Collateral or of the time after which any private sale or other intended disposition thereof is to be made. Pledgor waives advertisement of any such sale and (except to the extent specifically required by the preceding sentence) waives notice of any kind in respect of any such sale. At any such public sale, Administrative Agent or any Lender may purchase the Collateral, or any part thereof, free from any right of redemption, all of which rights Pledgor hereby waives and releases. After deducting all Related Expenses, and after paying all claims, if any, secured by liens having precedence over this Agreement, 11 12 Administrative Agent may apply the net proceeds of each such sale to or toward the payment of the Obligations, whether or not then due, in such order and by such division as Administrative Agent in its sole discretion may deem advisable. Any excess, to the extent permitted by law, shall be paid to Pledgor, and the obligors on the Obligations shall remain liable for any deficiency. In addition, Administrative Agent shall at all times have the right to obtain new appraisals of Pledgor or the Collateral, the cost of which shall be paid by Pledgor. 17. Interpretation. Each right, power or privilege specified or referred to in this Agreement is cumulative and in addition to and not in limitation of any other rights, powers and privileges that Administrative Agent or the Lenders may otherwise have or acquire by operation of law, by contract or otherwise. No course of dealing by Administrative Agent or the Lenders in respect of, nor any omission or delay by Administrative Agent or the Lenders in the exercise of, any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or of any other right, power or privilege, as Administrative Agent and the Lenders may exercise each such right, power or privilege either independently or concurrently with others and as often and in such order as Administrative Agent and the Required Lenders may deem expedient. No waiver, consent or other agreement shall be deemed to have been made by Administrative Agent or the Lenders or be binding upon Administrative Agent or the Lenders in any case unless specifically granted by Administrative Agent in writing, and each such writing shall be strictly construed. If, at any time, one or more provisions of this Agreement is or becomes invalid, illegal or unenforceable in whole or in part, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Pledgor hereby authorizes Administrative Agent to file financing statements with respect to the Collateral, including financing statements that describe the Collateral as "all assets" or "all personal property". A carbon, photographic, or other reproduction of this Agreement may be used as a financing statement. The captions to sections herein are inserted for convenience only and shall be ignored in interpreting the provisions of this Agreement. 18. Notice. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, facsimile transmission or cable communication) and mailed, telegraphed, telexed, transmitted, cabled or delivered, if to Pledgor, at the address specified on the signature page of this Agreement, if to any Lender, at its address specified for such Lender on Annex I to the Credit Agreement, and if to Administrative Agent, at the Notice Office, as defined in the Credit Agreement; or at such other address as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall be mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and shall be effective when received. 19. Governing Law; Submission to Jurisdiction. The provisions of this Agreement and the respective rights and duties of Pledgor, Administrative Agent and the Lenders hereunder shall be governed by and construed in accordance with Ohio law, without regard to principles of conflict of laws. Pledgor hereby irrevocably submits to the non-exclusive jurisdiction of any Ohio state or federal court sitting in Cleveland, Ohio, over any action or proceeding arising out of or relating to this Agreement, the Credit Agreement, any Credit Document, or any other document, instrument or agreement executed in connection with any of the foregoing, and Pledgor hereby irrevocably agrees that all claims in respect of such action or proceeding may be 12 13 heard and determined in such Ohio state or federal court. Pledgor hereby irrevocably waives, to the fullest extent permitted by law, any objection it may now or hereafter have to the laying of venue in any action or proceeding in any such court as well as any right it may now or hereafter have to remove such action or proceeding, once commenced, to another court on the grounds of FORUM NON CONVENIENS or otherwise. Pledgor agrees that a final, non-appealable judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. 20. Successors and Assigns. This Agreement shall be binding upon Pledgor and Pledgor's successors and assigns and shall inure to the benefit of and be enforceable and exercisable by Administrative Agent on behalf of and for the benefit of the Lenders and their respective successors and assigns. 21. Termination. At such time as the Obligations shall have been irrevocably paid in full, the Commitment, as defined in the Credit Agreement, terminated, and the Credit Agreement terminated and not replaced by any other credit facility with Administrative Agent and the Lenders, Pledgor shall have the right to terminate this Agreement. Upon written request of Pledgor, Administrative Agent shall promptly execute and deliver to Pledgor appropriate termination statements. 22. Entire Agreement. This Agreement integrates all of the terms and conditions with respect to the Collateral and supersedes all oral representations and negotiations and prior writings with respect to the subject matter hereof. [Remainder of page intentionally left blank.] 13 14 23. JURY TRIAL WAIVER. PLEDGOR, ADMINISTRATIVE AGENT AND THE LENDERS WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG PLEDGOR, ANY ELIGIBLE SUBSIDIARY, ADMINISTRATIVE AGENT AND THE LENDERS, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. Executed as of the _____ day of August, 2001 at Cleveland, Ohio. Address: _________________________ [__________________________] _________________________ _________________________ By:___________________________ Name:_________________________ Title:________________________ 14 15 Schedule 4.4 (Locations) Principal Place of Business: ______________________________ ______________________________ ______________________________ Other Collateral Locations: ______________________________ ______________________________ ______________________________ ______________________________ ______________________________ ______________________________ Taxpayer Identification Number: ______________________________ Organizational Identification Number: ______________________________ (If none, please indicate "none") 15 16 Schedule 4.6 (Existing Liens) 16 EX-10.21 5 l89585aex10-21.txt EX-10.21 1 EXHIBIT 10.21 FORM OF PLEDGE AGREEMENT 1. Recitals. [___________________], a [___________] corporation (together with its successors and assigns, "Pledgor"), the lending institutions listed on Annex I to the Credit Agreement, as hereinafter defined (collectively, "Lenders" and, individually, "Lender"), and KEYBANK NATIONAL ASSOCIATION, as administrative agent for the Lenders ("Administrative Agent"), are parties to the Credit Agreement. Pledgor understands that the Lenders are willing to continue to grant the financial accommodations to Pledgor pursuant to the Credit Agreement only upon certain terms and conditions, one of which is that Pledgor grant to Administrative Agent, for the benefit of the Lenders, a security interest in and an assignment of the Collateral, as hereinafter defined, and this Pledge Agreement (as the same may from time to time be amended, restated or otherwise modified, this "Agreement") is being executed and delivered in consideration of each financial accommodation granted to Pledgor by the Lenders and for other valuable considerations. 2. Definitions. Except as specifically defined herein, capitalized terms used herein that are defined in the Credit Agreement shall have their respective meanings ascribed to them in the Credit Agreement. Unless otherwise defined in this Section 2, terms that are defined in Chapter 1308 or 1309 of the Ohio Revised Code, as in effect from time to time, are used herein as so defined. As used in this Agreement, the following terms shall have the following meanings: 2.1. "Collateral" shall mean, collectively, (a) the Pledged Securities and each addition, if any, thereto and each substitution, if any, therefor, in whole or in part, (b) the certificates representing the Pledged Securities, and (c) the dividends, cash, instruments and other property distributed in respect of and other proceeds of any of the foregoing. 2.2. "Credit Agreement" shall mean the Credit Agreement executed by and among Pledgor, the Lenders and Administrative Agent, dated as of the 1st day of May, 1998, as amended and as the same may from time to time be further amended, restated or otherwise modified. 2.3. "Event of Default" shall mean an event or condition that constitutes an event of default pursuant to Section 8 hereof. 2.4. "Foreign Subsidiary" shall mean a Subsidiary that is organized outside of the United States. 2.5. "Hedge Agreement" shall mean any currency swap or hedge agreement, interest rate swap, cap, collar or floor agreement, or other interest rate management device entered into 2 by Pledgor or any Eligible Subsidiary with Administrative Agent or any of the Lenders, or any of their respective affiliates, in connection with the Obligations. 2.6. "Letter of Credit" shall mean any Letter of Credit, as defined in the Credit Agreement, issued pursuant to the Credit Agreement. 2.7. "Loan" shall mean any Loan, as defined in the Credit Agreement, granted pursuant to the Credit Agreement. 2.8. "Obligations" shall mean, collectively, (a) all Loans and Letters of Credit; (b) all other indebtedness now owing or hereafter incurred by Pledgor or any Eligible Subsidiary to Administrative Agent or any Lender pursuant to the Credit Agreement and any Note executed in connection therewith; (c) each renewal, extension, consolidation or refinancing of any of the foregoing, in whole or in part; (d) all interest from time to time accruing on any of the foregoing, and all fees and other amounts payable by Pledgor to Administrative Agent or any Lender pursuant to the Credit Agreement; (e) all obligations and liabilities of Pledgor now existing or hereafter incurred to Administrative Agent or any Lender under, arising out of, or in connection with any Hedge Agreement; (f) every other liability, now or hereafter owing to Administrative Agent or any Lender by Pledgor or any Eligible Subsidiary pursuant to the Credit Agreement or any other Credit Document; and (g) all Related Expenses. 2.9. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, unincorporated organization, corporation, limited liability company, institution, trust, estate, government or other agency or political subdivision thereof or any other entity. 2.10. "Pledged Securities" shall mean, subject to Section 5 hereof, all of the shares of stock or other equity interest of each Foreign Subsidiary of Pledgor owned by Pledgor, as listed on Exhibit A hereto, and all additional shares of stock or other equity interest of each Foreign Subsidiary of Pledgor owned by Pledgor from time to time or acquired by Pledgor in any manner. 2.11. "Related Expenses" shall mean any and all reasonable costs, liabilities and expenses (including, without limitation, losses, damages, penalties, claims, actions, reasonable attorneys' fees, legal expenses, judgments, suits and disbursements) (a) incurred by Administrative Agent or imposed upon or asserted against Administrative Agent or any Lender, in any attempt by Administrative Agent and the Lenders to (i) obtain, preserve, perfect or enforce any security interest evidenced by this Agreement, the Credit Agreement, any Credit Document, or any other document, instrument or agreement executed in connection with any of the foregoing; (ii) obtain payment, performance or observance of any and all of the Obligations; or (iii) maintain, insure, audit, collect, preserve, repossess or dispose of any of the Collateral or any other collateral securing the Obligations, including, without limitation, costs and expenses for appraisals, assessments and audits of Pledgor or any such collateral; or (b) incidental or related to (a) above, including, without limitation, interest thereupon from the date incurred, imposed or asserted until paid. 3. Security Interest. Pledgor hereby grants to Administrative Agent, for the benefit of the Lenders, a security interest in and an assignment of the Collateral as security for the Obligations. For the better protection of Administrative Agent and the Lenders hereunder, 2 3 Pledgor has executed appropriate transfer powers, in the form of Exhibit B hereto, with respect to the Pledged Securities and, within forty-five (45) days after the date of this Agreement (or such later date as shall be agreed to in writing by Administrative Agent), is depositing the Pledged Securities and the aforesaid transfer powers with Administrative Agent, for the benefit of the Lenders. Pledgor authorizes Administrative Agent, on behalf of the Lenders, at any time after the occurrence of an Event of Default, to transfer the Pledged Securities into the name of Administrative Agent or Administrative Agent's nominee, but Administrative Agent shall be under no duty to do so. Notwithstanding any provision or inference herein or elsewhere to the contrary, Administrative Agent shall have no right to vote the Pledged Securities at any time unless and until there shall have occurred an Event of Default. 4. Pledgor's Representations and Warranties. Pledgor represents and warrants to Administrative Agent and the Lenders as follows: 4.1. Pledgor is the legal record and beneficial owner of, and has good and marketable title to, the Pledged Securities, and the Pledged Securities are not subject to any pledge, lien, mortgage, hypothecation, security interest, charge, option, warrant or other encumbrance whatsoever, nor to any agreement purporting to grant to any third party a security interest in the property or assets of Pledgor that would include such Pledged Securities, except the security interest created by this Agreement or otherwise securing only Administrative Agent and the Lenders. 4.2. All of the Pledged Securities have been duly authorized and validly issued, and are fully paid and non-assessable. 4.3. Pledgor has full power, authority and legal right to pledge all of the Pledged Securities pursuant to the terms of this Agreement. 4.4. No consent, license, permit, approval or authorization, filing or declaration with any governmental authority, domestic or foreign, and no consent of any other Person, is required to be obtained by Pledgor in connection with the pledge of the Pledged Securities hereunder, that has not been obtained or made, and is not in full force and effect. 4.5. The pledge, assignment and delivery of the Pledged Securities hereunder creates a valid first lien on, and a first perfected security interest in, the Pledged Securities and the proceeds thereof. 4.6. The Pledged Securities constitute sixty-five percent (65%) of the outstanding shares of stock or other equity interest of each Foreign Subsidiary's stock or other equity interest pledged in accordance with Section 5 hereof. 4.7. Pledgor fully anticipates that the Obligations will be repaid without the necessity of selling the Pledged Securities. 4.8. Pledgor has received consideration that is the reasonable equivalent value of the obligations and liabilities that Pledgor has incurred to Administrative Agent and the Lenders. Pledgor is not insolvent, as defined in any applicable state or federal statute, nor will Pledgor be rendered insolvent by the execution and delivery of this Agreement to Administrative Agent, for 3 4 the benefit of the Lenders. Pledgor is not engaged or about to engage in any business or transaction for which the assets retained by Pledgor are or will be an unreasonably small amount of capital, taking into consideration the obligations to Administrative Agent and the Lenders incurred hereunder. Pledgor does not intend to incur debts beyond Pledgor's ability to pay them as they mature. 4.9. If the Pledged Securities are "restricted securities" within the meaning of Rule 144, or any amendment thereof, promulgated under the Securities Act of 1933, as amended (the "Securities Act"), as determined by counsel for Pledgor, Pledgor further represents and warrants that, except as disclosed in writing to Lender, (a) Pledgor has been the beneficial owner of the Pledged Securities for a period of at least two years prior to the date hereof, (b) the full purchase price or other consideration for the Pledged Securities has been paid or given at least two years prior to the date hereof, and (c) Pledgor does not have a short position in or any put or other option to dispose of any securities of the same class as the Pledged Securities or any other securities convertible into securities of such class. 5. Foreign Subsidiaries. Notwithstanding anything in this Agreement to the contrary, Pledgor shall not be required to pledge more than sixty-five percent (65%) of the outstanding shares of stock or other equity interest of any Foreign Subsidiary if tax consequences materially adverse to Pledgor would result therefrom. 6. Termination. At such time as the Obligations shall have been irrevocably paid in full, the Commitment, as defined in the Credit Agreement, terminated, and the Credit Agreement terminated and not replaced by any other credit facility with Administrative Agent and the Lenders, Pledgor shall have the right to terminate this Agreement. Upon written request of Pledgor, Administrative Agent shall promptly execute and deliver to Pledgor appropriate releases with respect to the Collateral and return all of the Pledged Securities to Pledgor. 7. Additional Covenants of Pledgor. 7.1. Pledgor covenants and agrees to defend the right, title and security interest of Administrative Agent and the Lenders in and to the Pledged Securities and the proceeds thereof, and to maintain and preserve the lien and security interest provided for by this Agreement against the claim and demands of all Persons, so long as this Agreement shall remain in effect. 7.2. Pledgor covenants and agrees not to sell, assign, transfer, exchange or otherwise dispose of, or grant any option with respect to, or create, incur or permit to exist any pledge, lien, mortgage, hypothecation, security interest, charge, option or any other encumbrance with respect to any of the Pledged Securities, or any interest therein, or any proceeds thereof, except for the lien and security interest provided for by this Agreement and any security agreement securing only Administrative Agent and the Lenders. 7.3. Pledgor covenants and agrees (a) to cooperate, in good faith, with Administrative Agent and the Lenders and to do or cause to be done all such other acts as may be necessary to enforce the rights of Administrative Agent and the Lenders under this Agreement, (b) not to take any action, or to fail to take any action that would be adverse to the interest of Administrative Agent and the Lenders in the Collateral and hereunder, and (c) to make any sale or sales of any portion or all of the Pledged Securities valid and binding and in compliance with any and all 4 5 applicable laws, regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales at Pledgor's expense. 8. Events of Default. 8.1. Any of the following shall constitute an Event of Default under this Agreement: (a) an Event of Default, as defined in the Credit Agreement, shall occur under the Credit Agreement; (b) any representation, warranty or statement made by Pledgor in or pursuant to this Agreement or in any other writing received by Administrative Agent or the Lenders in connection with the Obligations shall be false or erroneous in any material respect; or (c) Pledgor shall fail or omit to perform or observe any agreement made by Pledgor in or pursuant to this Agreement or in any other writing received by Administrative Agent or the Lenders pursuant hereto. 8.2. Upon the occurrence of an Event of Default hereunder, and at all times thereafter, Administrative Agent, in its discretion, may sell, assign, transfer and deliver the Collateral, or any part thereof, at any time, or from time to time. No prior notice need be given to Pledgor or to any other Person in the case of any sale of Collateral that Administrative Agent determines to be declining speedily in value or that is customarily sold in any securities exchange, over-the-counter market or other recognized market, but in any other case Administrative Agent shall give Pledgor no fewer than ten (10) days prior notice of either the time and place of any public sale of the Collateral or of the time after which any private sale or other intended disposition thereof is to be made. Pledgor waives advertisement of any such sale and (except to the extent specifically required by the preceding sentence) waives notice of any kind in respect of any such sale. At any such public sale, Administrative Agent or any Lender may purchase the Collateral, or any part thereof, free from any right of redemption, all of which rights Pledgor hereby waives and releases. After deducting all Related Expenses, and after paying all claims, if any, secured by liens having precedence over this Agreement, Administrative Agent may apply the net proceeds of each such sale to or toward the payment of the Obligations, whether or not then due, in such order and by such division as Administrative Agent in its sole discretion may deem advisable. Any excess, to the extent permitted by law, shall be paid to Pledgor, and the obligors on the Obligations shall remain liable for any deficiency. In addition, Administrative Agent shall at all times have the right to obtain new appraisals of Pledgor or the Collateral, the cost of which shall be paid by Pledgor. 9. Attorney-in-Fact. Pledgor hereby authorizes and empowers Administrative Agent, on behalf of the Lenders, to make, constitute and appoint any officer or agent of Administrative Agent as Administrative Agent may select, in its exclusive discretion, as Pledgor's true and lawful attorney-in-fact, with the power to endorse Pledgor's name on all applications, documents, papers and instruments necessary for Administrative Agent to take actions with respect to the Collateral after the occurrence of an Event of Default, including, without limitation, actions necessary for Administrative Agent to assign, pledge, convey or otherwise transfer title in or dispose of the Collateral to any Person. Pledgor ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney shall be irrevocable for the life of this Agreement. 5 6 10. Costs and Expenses. If Pledgor fails to comply with any of its obligations hereunder, Administrative Agent may do so in Pledgor's name or in Administrative Agent's name, but at Pledgor's expense, and Pledgor hereby agrees to reimburse Administrative Agent and the Lenders in full for all expenses, including reasonable attorneys' fees, incurred by Administrative Agent and the Lenders in protecting, defending and maintaining the Collateral. Without limiting the foregoing, any and all reasonable fees, costs and expenses, of whatever kind or nature, including the reasonable attorneys' fees and expenses incurred in connection with the filing or recording of any documents (including all taxes in connection therewith) in public offices, the payment or discharge of any taxes, maintenance fees, encumbrances or otherwise protecting, maintaining or preserving the Collateral, or in defending or prosecuting any actions or proceedings arising out of or related to the Collateral, shall be borne and paid by Pledgor upon request of Administrative Agent. 11. Notice. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, facsimile transmission or cable communication) and mailed, telegraphed, telexed, transmitted, cabled or delivered, if to Pledgor, at the address specified on the signature page of this Agreement, if to any Lender, at its address specified for such Lender on Annex I to the Credit Agreement, and if to Administrative Agent, at the Notice Office, as defined in the Credit Agreement; or at such other address as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall be mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and shall be effective when received. 12. Interpretation. Each right, power or privilege specified or referred to in this Agreement is in addition to any other rights, powers and privileges that Administrative Agent or the Lenders may have or acquire by operation of law, by other contract or otherwise. No course of dealing in respect of, nor any omission or delay in the exercise of, any right, power or privilege by Administrative Agent and the Lenders shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any further or other exercise thereof or of any other, as each right, power or privilege may be exercised by Administrative Agent and the Lenders either independently or concurrently with other rights, powers and privileges and as often and in such order as Administrative Agent and the Lenders may deem expedient. No waiver or consent granted by Administrative Agent and the Lenders in respect of this Agreement shall be binding upon Administrative Agent and the Lenders unless specifically granted in writing, which writing shall be strictly construed. 13. Assignment and Successors. This Agreement shall not be assigned by Pledgor without the prior written consent of Administrative Agent. This Agreement shall bind the successors and permitted assigns of Pledgor and shall benefit the successors and assigns of Administrative Agent and the Lenders. 14. Severability. If, at any time, one or more provisions of this Agreement is or becomes invalid, illegal or unenforceable in whole or in part, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 15. Governing Law; Submission to Jurisdiction. The provisions of this Agreement and the respective rights and duties of Pledgor and Administrative Agent and the Lenders hereunder shall be governed by and construed in accordance with Ohio law, without regard to 6 7 principles of conflict of laws. Pledgor hereby irrevocably submits to the non-exclusive jurisdiction of any Ohio state or federal court sitting in Cleveland, Ohio, over any action or proceeding arising out of or relating to this Agreement, the Credit Agreement, any Credit Document, or any other document, instrument or agreement executed in connection with any of the foregoing, and Pledgor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such Ohio state or federal court. Pledgor, on behalf of itself and its Subsidiaries, hereby irrevocably waives, to the fullest extent permitted by law, any objection it may now or hereafter have to the laying of venue in any action or proceeding in any such court as well as any right it may now or hereafter have to remove such action or proceeding, once commenced, to another court on the grounds of FORUM NON CONVENIENS or otherwise. Pledgor agrees that a final, non-appealable judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. [Remainder of page intentionally left blank.] 7 8 16. JURY TRIAL WAIVER. PLEDGOR, ADMINISTRATIVE AGENT AND THE LENDERS WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG PLEDGOR, ANY ELIGIBLE SUBSIDIARY, ADMINISTRATIVE AGENT AND THE LENDERS, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION THEREWITH OR THE TRANSACTIONS RELATED THERETO. Executed and delivered at Cleveland, Ohio, as of the ______ day of August, 2001. Address:________________________ [________________________-] ________________________ ________________________ By:________________________ Name:______________________ Title:_____________________ 8 9 EXHIBIT A PLEDGED SECURITIES Name of Subsidiary Number of Shares Certificate Number - ------------------ ---------------- ------------------ 10 EXHIBIT B FORM OF STOCK TRANSFER POWER FOR VALUE RECEIVED, [_____________________], a Delaware corporation, hereby sells, assigns and transfers unto ___________________ (_______) Shares of the _______________________ Capital Stock of ___________________________________________ standing in ___________ name on the books of said corporation and represented by Certificate No. _________ herewith and does hereby irrevocably constitute and appoint ______________________________ attorney to transfer the said stock on the books of the within named corporation with full power of substitution in the premises. [_______________________] Dated __________ By: __________________________ Name: ________________________ Title: _______________________ EX-10.22 6 l89585aex10-22.txt EX-10.22 1 EXHIBIT 10.22 FORM OF INTELLECTUAL PROPERTY SECURITY AGREEMENT 1. Recitals. [______________________], a [___________] corporation (together with its successors and assigns, "Pledgor"), the lending institutions listed on Annex I to the Credit Agreement, as hereinafter defined (collectively, "Lenders" and, individually, "Lender"), and KEYBANK NATIONAL ASSOCIATION, as administrative agent for the Lenders ("Administrative Agent"), are parties to the Credit Agreement. Pledgor understands that the Lenders are willing to continue to grant the financial accommodations to Pledgor pursuant to the Credit Agreement only upon certain terms and conditions, one of which is that Pledgor grant to Administrative Agent, for the benefit of the Lenders, a security interest in and collateral assignment of the Collateral, as hereinafter defined, and this Intellectual Property Security Agreement (as the same may from time to time be amended, restated or otherwise modified, this "Agreement") is being executed and delivered in consideration of each financial accommodation granted to Pledgor by the Lenders and for other valuable considerations. 2. Definitions. Except as specifically defined herein, capitalized terms used herein that are defined in the Credit Agreement shall have their respective meanings ascribed to them in the Credit Agreement. As used in this Agreement, the following terms shall have the following meanings: 2.1. "Assignment" shall mean an Assignment in the form of Exhibit A attached hereto. 2.2. "Collateral" shall mean, collectively, all of Pledgor's existing and future (a) patents, patent registrations, patent applications, trademarks, trademark registrations, trademark applications and copyright registrations, whether federal or state, including, but not limited to, those listed on Schedule 1 hereto (as such Schedule 1 may from time to time be amended, supplemented or otherwise modified); (b) common law trademark rights, copyrights, improvements and inventions; (c) renewals, proceeds on infringement suits, and rights to sue for past, present and future infringements relating to any of the foregoing; (d) goodwill associated with any of the foregoing; and (e) proceeds of any of the foregoing. 2.3. "Credit Agreement" shall mean the Credit Agreement executed by and among Pledgor, the Lenders and Administrative Agent, dated as of the 1st day of May, 1998, as amended and as the same may from time to time be further amended, restated or otherwise modified. 2.4. "Event of Default" shall mean an event or condition that constitutes an event of default pursuant to Section 8 hereof. 2 2.5. "Hedge Agreement" shall mean any currency swap or hedge agreement, interest rate swap, cap, collar or floor agreement, or other interest rate management device entered into by Pledgor or any Eligible Subsidiary with Administrative Agent or any of the Lenders, or any of their respective affiliates, in connection with the Obligations. 2.6. "Letter of Credit" shall mean any Letter of Credit, as defined in the Credit Agreement, issued pursuant to the Credit Agreement. 2.7. "Loan" shall mean any Loan, as defined in the Credit Agreement, granted pursuant to the Credit Agreement. 2.8. "Obligations" shall mean, collectively, (a) all Loans and Letters of Credit; (b) all other indebtedness now owing or hereafter incurred by Pledgor or any Eligible Subsidiary to Administrative Agent or any Lender pursuant to the Credit Agreement and any Note executed in connection therewith; (c) each renewal, extension, consolidation or refinancing of any of the foregoing, in whole or in part; (d) all interest from time to time accruing on any of the foregoing, and all fees or other amounts payable by Pledgor pursuant to the Credit Agreement; (e) all obligations and liabilities of Pledgor now existing or hereafter incurred to Administrative Agent or any Lender (or any affiliate of such Lender) under, arising out of, or in connection with any Hedge Agreement; (f) every other liability, now or hereafter owing to Administrative Agent or any Lender by Pledgor or any Eligible Subsidiary pursuant to the Credit Agreement or any other Credit Document; and (g) all Related Expenses. 2.9. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, unincorporated organization, corporation, limited liability company, institution, trust, estate, government or other agency or political subdivision thereof or any other entity. 2.10. "Related Expenses" shall mean any and all reasonable costs, liabilities and expenses (including, without limitation, losses, damages, penalties, claims, actions, reasonable attorneys' fees, legal expenses, judgments, suits, and disbursements) (a) incurred by Administrative Agent or imposed upon or asserted against Administrative Agent or any Lender, in any attempt by Administrative Agent and the Lenders to (i) obtain, preserve, perfect or enforce any security interest evidenced by this Agreement, the Credit Agreement, any Credit Document, or any other document, instrument or agreement executed in connection with any of the foregoing; (ii) obtain payment, performance or observance of any and all of the Obligations; or (iii) maintain, insure, audit, collect, preserve, repossess or dispose of any of the Collateral or any other collateral securing the Obligations, including, without limitation, costs and expenses for appraisals, assessments and audits of Pledgor or any such collateral; or (b) incidental or related to (a) above, including, without limitation, interest thereupon from the date incurred, imposed or asserted until paid. 2.11. "USPTO" shall mean the United States Patent and Trademark Office in Washington D.C. 3. Grant of Assignment and Security Interest. In consideration of and as security for the full and complete payment of all of the Obligations, Pledgor hereby agrees that the Lenders shall at all times have, and hereby grants to Administrative Agent, for the benefit of the Lenders, 2 3 a security interest in and collateral assignment of all of the Collateral, including (without limitation) all of Pledgor's future Collateral, irrespective of any lack of knowledge by Administrative Agent or any Lender of the creation or acquisition thereof. 4. Representations and Warranties. Pledgor represents and warrants to Administrative Agent and each Lender that: (a) Pledgor owns all of the Collateral and, whether the same are registered or unregistered, no such Collateral has been adjudged invalid or unenforceable; (b) The Collateral is valid and enforceable; (c) Pledgor has no knowledge of any claim that the use of any of the Collateral does or may violate the rights of any Person; (d) Except for liens expressly permitted pursuant to Section 9.3 of the Credit Agreement, Pledgor is the sole and exclusive owner of the entire and unencumbered right, title and interest in and to the Collateral, free and clear of any liens, charges and encumbrances, including, without limitation, pledges, assignments, licenses, registered user agreements and covenants by Pledgor not to sue third Persons; (e) Pledgor has full power, authority and legal right to pledge the Collateral and enter into this Agreement and perform its terms; and (f) Pledgor has used, and shall continue to use, for the duration of this Agreement, proper statutory notice in connection with its use of the Collateral, except where the failure to do so will not have a Material Adverse Effect. 5. Further Assignment Prohibited. Pledgor shall not enter into any agreement that is inconsistent with Pledgor's obligations under this Agreement and shall not otherwise sell or assign its interest in, or grant any license or sublicense with respect to, any of the Collateral, without Administrative Agent's prior written consent. Absent such prior written consent, any attempted sale or license is null and void. 6. Right to Inspect. Pledgor hereby grants to Administrative Agent, for the benefit of the Lenders, and its employees and Administrative Agents the right, during regular business hours, to visit any location of Pledgor or, if applicable, any other location, and to inspect the products and quality control records relating thereto at Pledgor's expense. 7. Standard Patent and Trademark Use. Pledgor shall not use the Collateral in any manner that would jeopardize the validity or legal status thereof. Pledgor shall comply with all patent marking requirements as specified in 35 U.S.C. Section 287. Pledgor shall further conform its usage of any trademarks to standard trademark usage, including, but not limited to, using the trademark symbols (R), (TM), and (SM) where appropriate. 3 4 8. Event of Default. (a) Any of the following shall constitute an Event of Default under this Agreement: (i) an Event of Default, as defined in the Credit Agreement, shall occur under the Credit Agreement; (ii) any representation, warranty or statement made by Pledgor in or pursuant to this Agreement or in any other writing received by Administrative Agent or the Lenders in connection with the Obligations shall be false or erroneous in any material respect; or (iii) Pledgor shall fail or omit to perform or observe any agreement made by Pledgor in or pursuant to this Agreement or in any other writing received by Administrative Agent or the Lenders pursuant hereto. (b) Pledgor expressly acknowledges that Administrative Agent, on behalf of the Lenders, shall record this Agreement with the USPTO. Contemporaneously herewith, Pledgor shall execute and deliver to Administrative Agent the Assignment, which Assignment shall have no force and effect and shall be held by Administrative Agent in escrow until the occurrence of an Event of Default; provided, that, anything herein to the contrary notwithstanding, the security interest and collateral assignment granted herein shall be effective as of the date of this Agreement. After the occurrence of an Event of Default, the Assignment shall immediately take effect upon certification of such fact by an authorized officer of Administrative Agent in the form reflected on the face of the Assignment and Administrative Agent may, in its sole discretion, record the Assignment with USPTO. (c) If an Event of Default shall occur, Pledgor irrevocably authorizes and empowers Administrative Agent, on behalf of the Lenders, to terminate Pledgor's use of the Collateral and to exercise such rights and remedies as allowed by law. Without limiting the generality of the foregoing, after any delivery or taking of possession of the Collateral, or any thereof, pursuant to this Agreement, then, with or without resort to Pledgor or any other Person or property, all of which Pledgor hereby waives, and upon such terms and in such manner as Administrative Agent may deem advisable, Administrative Agent, on behalf of the Lenders, may in its discretion, sell, assign, transfer and deliver any of the Collateral, together with the associated goodwill, or any interest that Pledgor may have therein, at any time, or from time to time. No prior notice need be given to Pledgor or to any other Person in the case of any sale of Collateral that Administrative Agent determines to be declining speedily in value or that is customarily sold in any recognized market, but in any other case Administrative Agent shall give Pledgor no fewer than ten (10) days prior notice of either the time and place of any public sale of the Collateral or of the time after which any private sale or other intended disposition thereof is to be made. Pledgor waives advertisement of any such sale and (except to the extent specifically required by the preceding sentence) waives notice of any kind in respect of any such sale. At any such public sale, Administrative Agent or any Lender may purchase the Collateral, or any part thereof, free from any right of redemption, all of which rights Pledgor hereby waives and releases. After deducting all Related Expenses, and after paying all claims, if any, secured by liens having precedence over this Agreement, Administrative Agent may apply the net proceeds of each such sale to or toward the payment of the Obligations, whether or not then due, in such order and by such division as Administrative Agent in its sole discretion may deem advisable. Any excess, to the extent permitted by law, shall be paid to Pledgor, and the obligors on the Obligations shall remain liable for any deficiency. In addition, Administrative Agent shall at all times have the right to obtain new appraisals of Pledgor or the Collateral, the cost of which shall be paid by Pledgor. 4 5 9. Termination. At such time as the Obligations shall have been irrevocably paid in full, the Commitment, as defined in the Credit Agreement, terminated, and the Credit Agreement terminated and not replaced by any other credit facility with Administrative Agent and the Lenders, Pledgor shall have the right to terminate this Agreement. Upon written request of Pledgor, Administrative Agent shall execute and deliver to Pledgor all deeds, assignments, and other instruments as may be necessary or proper to release Administrative Agent's security interest in and assignment of the Collateral and to re-vest in Pledgor full title to the Collateral, subject to any disposition thereof that may have been made by Administrative Agent, for the benefit of the Lenders, pursuant hereto. 10. Maintaining Collateral; Attorneys' Fees, Costs and Expenses. Pledgor shall have the obligation and duty to perform all acts necessary to maintain or preserve the Collateral, provided that Pledgor shall not be obligated to maintain any Collateral in the event Pledgor determines, in the reasonable business judgment of Pledgor, that the maintenance of such Collateral is no longer necessary in Pledgor's business. Any and all reasonable fees, costs and expenses, of whatever kind or nature, including, without limitation, the attorneys' fees and legal expenses incurred by Administrative Agent and the Lenders in connection with the amendment and enforcement of this Agreement, all renewals, required affidavits and all other documents relating hereto and the consummation of this transaction, the filing or recording of any documents (including all taxes in connection therewith) in public offices, the payment or discharge of any taxes, counsel fees, maintenance fees, encumbrances or otherwise protecting, maintaining or preserving the Collateral, or in defending or prosecuting any actions or proceedings arising out of or related to the Collateral, shall be borne and paid by Pledgor, upon demand by Administrative Agent and, until so paid, shall be added to the principal amount of the Obligations. 11. Pledgor's Obligation to Prosecute. Except as otherwise agreed to by Administrative Agent in writing, Pledgor shall have the duty to prosecute diligently any patent application or trademark application pending as of the date of this Agreement or thereafter until the Obligations shall have been paid in full, to file and prosecute opposition and cancellation proceedings and to do any and all acts that are necessary or desirable to preserve and maintain all rights in the Collateral, including, but not limited to, payment of any maintenance fees. Any expenses incurred in connection with the Collateral shall be borne by Pledgor. Pledgor shall not abandon any Collateral without the prior written consent of Administrative Agent, unless such abandonment will not have a material adverse effect on Pledgor or such abandonment is in connection with the abandonment of a product or product line. 12. Administrative Agent's Right to Enforce. Pledgor shall have the right to bring any opposition proceeding, cancellation proceeding or lawsuit in its own name to enforce or protect the Collateral. Administrative Agent, on behalf of the Lenders, shall have the right, but shall have no obligation, to join in any such action. Pledgor shall promptly, upon demand, reimburse and indemnify Administrative Agent and the Lenders for all damages, reasonable costs and expenses, including attorneys' fees, incurred by Administrative Agent and the Lenders in connection with the provisions of this Section 12, in the event Administrative Agent, on behalf of the Lenders, elects to join in any such action commenced by Pledgor. 5 6 13. Power of Attorney. Pledgor hereby authorizes and empowers Administrative Agent, on behalf of the Lenders, to make, constitute and appoint any officer or agent of Administrative Agent as Administrative Agent may select, in its exclusive discretion, as Pledgor's true and lawful attorney-in-fact, with the power to endorse, after the occurrence of an Event of Default, Pledgor's name on all applications, documents, papers and instruments necessary for Administrative Agent, on behalf of the Lenders, to use the Collateral, or to grant or issue any exclusive or nonexclusive license under the Collateral to any third party, or necessary for Administrative Agent, on behalf of the Lenders, to assign, pledge, convey or otherwise transfer title in or dispose of the Collateral, together with associated goodwill to a third party or parties. Pledgor hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof. This power of attorney shall be irrevocable for the life of this Agreement. 14. Administrative Agent's Right to Perform Obligations. If Pledgor fails to comply with any of its obligations under this Agreement, Administrative Agent, on behalf of the Lenders, may, but is not obligated to, do so in Pledgor's name or in the name of Administrative Agent, on behalf of the Lenders, but at Pledgor's expense, and Pledgor hereby agrees to reimburse Administrative Agent, upon request, in full for all expenses, including attorneys' fees, incurred by Administrative Agent and the Lenders in protecting, defending and maintaining the Collateral. 15. Additional Documents. Pledgor shall, upon written request of Administrative Agent, enter into such additional documents or instruments as may be required by Administrative Agent in order to effectuate, evidence or perfect the interest of Administrative Agent and the Lenders in the Collateral, as evidenced by this Agreement. 16. New Collateral. If, before the Obligations shall have been satisfied in full and the terminated, Pledgor shall obtain rights to any new Collateral, the provisions of Section 1 hereby shall automatically apply thereto as if the same were identified on Schedule 1 as of the date hereof and Pledgor shall give Administrative Agent prompt written notice thereof. 17. Modification for New Collateral. Pledgor hereby authorizes Administrative Agent to modify this Agreement by amending Schedule 1 to include any future Collateral as contemplated by Sections 1 and 16 hereof and, at Administrative Agent's request, Pledgor shall execute any documents or instruments required by Administrative Agent in order to modify this Agreement as provided in this Section 17, provided that any such modification to Schedule 1 shall be effective without the signature of Pledgor. 18. No Waiver. No course of dealing between Pledgor and Administrative Agent or any Lender, nor any failure to exercise, nor any delay in exercising, on the part of Administrative Agent or any such Lender, any right, power or privilege hereunder or under any of the Credit Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. 19. Remedies Cumulative. All of the rights and remedies of Administrative Agent and the Lenders with respect to the Collateral, whether established hereby or by the Credit 6 7 Documents, or by any other agreements or by law shall be cumulative and may be executed singularly or concurrently. 20. Severability. The provisions of this Agreement are severable, and, if any clause or provision shall be held invalid and unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Agreement in any jurisdiction. 21. Modifications. This Agreement may be amended or modified only by a writing signed by Pledgor and Administrative Agent. In the event that any provision of this Agreement is deemed to be inconsistent with any provision of any other document, other than the Credit Agreement, the provisions of this Agreement shall control. 22. Assignment and Successors. This Agreement shall not be assigned by Pledgor without the prior written consent of Administrative Agent. This Agreement shall bind the successors and permitted assigns of Pledgor and shall benefit the respective successors and assigns of Administrative Agent and the Lenders. Any attempted assignment or transfer without the prior written consent of Administrative Agent shall be null and void. 23. Notice. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, facsimile transmission or cable communication) and mailed, telegraphed, telexed, transmitted, cabled or delivered, if to Pledgor, at the address specified on the signature page of this Agreement, if to any Lender, at its address specified for such Lender on Annex I to the Credit Agreement, and if to Administrative Agent, at the Notice Office, as defined in the Credit Agreement; or at such other address as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall be mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and shall be effective when received. 24. Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Ohio, without regard to principles of conflicts of law. Pledgor hereby irrevocably submits to the non-exclusive jurisdiction of any Ohio state or federal court sitting in Cleveland, Ohio, over any action or proceeding arising out of or relating to this Agreement, the Credit Agreement, any Credit Document, or any other document, instrument or agreement executed in connection with any of the foregoing, and Pledgor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such Ohio state or federal court. Pledgor hereby irrevocably waives, to the fullest extent permitted by law, any objection it may now or hereafter have to the laying of venue in any action or proceeding in any such court as well as any right it may now or hereafter have to remove such action or proceeding, once commenced, to another court on the grounds of FORUM NON CONVENIENS or otherwise. Pledgor agrees that a final, non-appealable judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. [Remainder of page intentionally left blank.] 7 8 25. JURY TRIAL WAIVER. PLEDGOR, ADMINISTRATIVE AGENT AND THE LENDERS, TO THE EXTENT PERMITTED BY LAW, EACH WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG ADMINISTRATIVE AGENT, THE LENDERS, PLEDGOR, ANY ELIGIBLE SUBSIDIARY, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION THEREWITH OR THE TRANSACTIONS RELATED THERETO. IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the ____ day of August, 2001. Address: ____________________ [______________________________] ____________________ ____________________ By:______________________________ Name:____________________________ Title:___________________________ This Agreement is hereby acknowledged and agreed to by: KEYBANK NATIONAL ASSOCIATION, as Administrative Agent By_________________________________ Name:______________________________ Title:_______________________________ 8 9 ACKNOWLEDGMENTS THE STATE OF OHIO ) ) SS: COUNTY OF CUYAHOGA ) BEFORE ME, the undersigned authority, on this day personally appeared _________________, known to me to be the person and officer whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said [__________________], a [____________] corporation, and that she/he executed the same as the act of such corporation for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE this _____ day of _______, 2001. _______________________________ NOTARY PUBLIC THE STATE OF OHIO ) ) SS: COUNTY OF CUYAHOGA ) BEFORE ME, the undersigned authority, on this day personally appeared _________________, known to me to be the person and officer whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of the said KEYBANK NATIONAL ASSOCIATION, as Administrative Agent, and that she/he executed the same as the act of such Lender for the purposes and consideration therein expressed, and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE this _____ day of _______, 2001. _______________________________ NOTARY PUBLIC 10 SCHEDULE 1 11 EXHIBIT A FORM OF ASSIGNMENT THIS DOCUMENT SHALL BE HELD BY ADMINISTRATIVE AGENT, FOR THE BENEFIT OF THE LENDERS, IN ESCROW PURSUANT TO AND IN ACCORDANCE WITH THE PROVISIONS OF THE INTELLECTUAL PROPERTY SECURITY AGREEMENT (THE "AGREEMENT"), DATED AS OF AUGUST __, 2001, EXECUTED BY [______________________], A [___________] CORPORATION ("PLEDGOR"), IN FAVOR OF KEYBANK NATIONAL ASSOCIATION, AS ADMINISTRATIVE AGENT FOR THE LENDERS, AS DEFINED IN THE AGREEMENT (TOGETHER WITH ITS SUCCESSORS AND ASSIGNS, "ADMINISTRATIVE AGENT"). BY SIGNING IN THE SPACE PROVIDED BELOW, THE UNDERSIGNED OFFICER OF ADMINISTRATIVE AGENT CERTIFIES THAT AN EVENT OF DEFAULT, AS DEFINED IN THE AGREEMENT, HAS OCCURRED AND THAT ADMINISTRATIVE AGENT HAS ELECTED TO TAKE POSSESSION OF THE COLLATERAL, AS DEFINED BELOW, AND TO RECORD THIS DOCUMENT WITH THE UNITED STATES PATENT AND TRADEMARK OFFICE. UPON RECORDING OF THIS DOCUMENT WITH THE UNITED STATES PATENT AND TRADEMARK OFFICE, THIS LEGEND SHALL CEASE TO HAVE ANY FORCE OR EFFECT. KEYBANK NATIONAL ASSOCIATION, as Administrative Agent By:_________________________________ Title:______________________________ Date:_______________________________ ASSIGNMENT WHEREAS, [_________________], a [___________]e corporation ("Pledgor"), is the owner of the Collateral, as hereinafter defined; WHEREAS, Pledgor has executed an Intellectual Property Security Agreement, dated as of August ___, 2001 (as the same may from time to time be amended, restated or otherwise modified, the "Agreement"), in favor of KEYBANK NATIONAL ASSOCIATION, as administrative agent for the Lenders, as defined in the Agreement (together with its successors and assigns, "Administrative Agent"), pursuant to which Pledgor has granted to Administrative Agent, for the benefit of the Lenders, a security interest in and collateral assignment of the Collateral as security for the Obligations, as defined in the Agreement; WHEREAS, the Agreement provides that the security interest in and collateral assignment of the Collateral is effective as of the date of the Agreement; WHEREAS, the Agreement provides that this Assignment shall become effective upon the occurrence of an Event of Default, as defined in the Agreement, and Administrative Agent's election to take actual title to the Collateral; 12 NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, Pledgor, its successors and assigns, subject to the limitations stated in the paragraph immediately following, does hereby transfer, assign and set over unto Administrative Agent, for the benefit of the Lenders, and their respective successors, transferees and assigns, all of its existing and future (a) patents, patent registrations, patent applications, trademarks, trademark registrations, trademark applications and copyright registrations, whether federal or state; (b) common law trademark rights, copyrights, improvements and inventions; (c) renewals, proceeds on infringement suits, and rights to sue for past, present and future infringements relating to any of the foregoing; (d) goodwill associated with any of the foregoing; and (e) proceeds of any of the foregoing (collectively, the "Collateral"), including, but not limited to, the Collateral listed on Schedule 1 hereto that is registered in the United States Patent and Trademark Office in Washington D.C. or that is the subject of pending applications in the United States Patent and Trademark Office. This Assignment shall be effective only upon certification of an authorized officer of Administrative Agent, as provided above, that (a) an Event of Default, as defined in the Agreement, has occurred, and (b) Administrative Agent, on behalf of the Lenders, has elected to take actual title to the Collateral. IN WITNESS WHEREOF, the undersigned has caused this Agreement to be executed by its duly authorized officer as of August __, 2001. ATTEST: [__________________________] ________________________________ By:________________________________ Print Name:_____________________ Name:______________________________ Title:_____________________________ ________________________________ Print Name:_____________________ 13 ACKNOWLEDGMENT THE STATE OF OHIO ) ) SS: COUNTY OF CUYAHOGA ) BEFORE ME, a Notary Public, the undersigned, on this day personally appeared _______________, known to me to be the person and officer whose name is subscribed to the foregoing instrument and acknowledged to me that the same was the act of [_________________________], a [____________] corporation, and that she/he executed the same as the act of such corporation for the purposes and consideration therein expressed and in the capacity therein stated. GIVEN UNDER MY HAND AND SEAL OF OFFICE this _____ day of _______, 2001. _______________________________ Notary Public EX-10.23 7 l89585aex10-23.txt EX-10.23 1 Exhibit 10.23 FORM OF GUARANTY OF PAYMENT OF OBLIGATIONS 1. Recitals. HAWK CORPORATION, a Delaware corporation (together with its successors and assigns, "Borrower"), the financial institutions listed on Annex I to the Credit Agreement, as hereinafter defined (together with their respective successors and assigns, collectively, "Lenders" and, individually, "Lender"), and KEYBANK NATIONAL ASSOCIATION, as administrative agent for the Lenders ("Administrative Agent"), are parties to the Credit Agreement. [ ], [a corporation]("Guarantor"), desires that the Lenders continue to grant the financial accommodations to Borrower and each Eligible Subsidiary as described in the Credit Agreement. Guarantor, a subsidiary of Borrower whose financing is provided by the Loans, as hereinafter defined, and Letters of Credit, as hereinafter defined, deems it to be in the direct pecuniary and business interests of Guarantor that Borrower continue to obtain from the Lenders the Commitment, as defined in the Credit Agreement, and the Loans and Letters of Credit provided for in the Credit Agreement, and that Borrower and each Eligible Subsidiary continue to obtain Alternative Currency Advances, as defined in the Credit Agreement. Guarantor understands that the Lenders are willing to continue to grant such financial accommodations under the Credit Agreement only upon certain terms and conditions, one of which is that Guarantor guarantee the payment of the Obligations, as hereinafter defined, and this Guaranty of Payment of Obligations (as the same may from time to time be amended, restated or otherwise modified, this "Agreement") is being executed and delivered in consideration of each financial accommodation granted to Borrower and each Eligible Subsidiary and for other valuable considerations. 2. Definitions. Except as specifically defined herein, capitalized terms used herein that are defined in the Credit Agreement shall have their respective meanings ascribed to them in the Credit Agreement. As used herein, the following terms shall have the following meanings: 2.1. "Collateral" shall mean, collectively, all property, if any, securing the Obligations or any part thereof at the time in question. 2.2. "Credit Agreement" shall mean the Credit Agreement, dated as of May 1, 1998, among Borrower, the Lenders and Administrative Agent, as amended and as the same may from time to time be further amended, restated or otherwise modified. 2 2.3. "Letter of Credit" shall mean any Letter of Credit, as defined in the Credit Agreement, issued pursuant to the Credit Agreement. 2.4. "Loan" shall mean any Loan, as defined in the Credit Agreement, granted pursuant to the Credit Agreement. 2.5. "Obligations" shall mean, collectively, (a) all Loans and Letters of Credit; (b) all other indebtedness now owing or hereafter incurred by Borrower or any Eligible Subsidiary to Administrative Agent and the Lenders pursuant to the Credit Agreement and the Notes executed in connection therewith; (c) each renewal, extension, consolidation or refinancing of any of the foregoing, in whole or in part; (d) all interest from time to time accruing on any of the foregoing, and all fees and other amounts payable to Administrative Agent or any of the Lenders pursuant to the Credit Agreement or any other Credit Document; and (e) all Related Expenses. 2.6. "Obligor" shall mean any Person that, or any of whose property, is or shall be obligated on the Obligations or any part thereof in any manner and includes, without limiting the generality of the foregoing, Borrower or Guarantor, and any other co-maker, endorser, guarantor of payment, subordinating creditor, assignor, grantor of a security interest, pledgor, mortgagor or any hypothecator of property, if any. 2.7. "Person" shall mean any individual, sole proprietorship, partnership, joint venture, unincorporated organization, corporation, limited liability company, institution, trust, estate, government or other agency or political subdivision thereof or any other entity. 2.8. "Related Expenses" shall mean any and all reasonable costs, liabilities and expenses (including, without limitation, losses, damages, penalties, claims, actions, reasonable attorneys' fees, legal expenses, judgments, suites and disbursements) (a) incurred by Administrative Agent, or imposed upon or asserted against Administrative Agent or any Lender, in any attempt by Administrative Agent and the Lenders to (i) obtain, preserve, perfect or enforce any security interest evidenced by this Agreement, the Credit Agreement, any Credit Document, or any other agreement, document or instrument executed in connection with any of the foregoing; (ii) obtain payment, performance or observance of any and all of the Obligations; or (iii) maintain, insure, audit, collect, preserve, repossess or dispose of any of the Collateral or any other collateral securing the Obligations, including, without limitation, costs and expenses for appraisals, assessments and audits of Borrower of any such collateral; or (b) incidental or related to (a) above, including without limitation, interest thereupon from the date incurred, imposed or asserted until paid. 3. Guaranty of Obligations. Guarantor hereby absolutely and unconditionally guarantees the prompt payment in full of all of the Obligations as and when the respective parts thereof become due and payable. If the Obligations, or any part thereof, shall not be paid in full when due and payable, Administrative Agent, on behalf of the Lenders, in each case, shall have the right to proceed directly against Guarantor under this Agreement to collect the payment in full of the Obligations, regardless of whether or not Administrative Agent, on behalf of the Lenders, shall have theretofore proceeded or shall then be proceeding against Borrower or any other Obligor or Collateral, if any, or any of the foregoing, it being understood that 2 3 Administrative Agent and the Required Lenders, in their sole discretion, may proceed against any Obligor and any Collateral, and may exercise each right, power or privilege that Administrative Agent or the Lenders may then have, either simultaneously or separately, and, in any event, at such time or times and as often and in such order as Administrative Agent and the Required Lenders, in their sole discretion, may from time to time deem expedient to collect the payment in full of the Obligations. 4. Payments Conditional. Whenever Administrative Agent or any Lender shall credit any payment to the Obligations, or any part thereof, whatever the source or form of payment, the credit shall be conditional as to Guarantor unless and until the payment shall be final and valid as to all the world. Without limiting the generality of the foregoing, Guarantor agrees that if any check or other instrument so applied shall be dishonored by the drawer or any party thereto, or if any proceeds of Collateral or payment so applied shall thereafter be recovered by any trustee in bankruptcy or any other Person, each Lender, in each case, may reverse any entry relating thereto on its books and Guarantor shall remain liable therefor, even if such Lender may no longer have in its possession any evidence of the Obligations to which the payment in question was applied. 5. Guarantor's Obligations Absolute and Unconditional. Regardless of the duration of time, regardless of whether Borrower or any Eligible Subsidiary may from time to time cease to be indebted to the Lenders and irrespective of any act, omission or course of dealing whatever on the part of Administrative Agent or any Lender, Guarantor's liabilities and other obligations under this Agreement shall remain in full effect until the payment in full of the Obligations and termination of the Credit Agreement. Without limiting the generality of the foregoing: 5.1. Lenders Have No Duty To Make Advances. No Lender shall at any time be under any duty to Guarantor to grant any financial accommodation to Borrower or any Eligible Subsidiary, irrespective of any duty or commitment of any of the Lenders to Borrower or such Eligible Subsidiary, or to follow or direct the application of the proceeds of any such financial accommodation; 5.2. Guarantor's Waiver of Notice, Presentment, etc. Guarantor waives (a) notice of the granting of any Loan to Borrower, the issuance of any Letter of Credit or any Eligible Subsidiary or the incurring of any other indebtedness by Borrower or any Eligible Subsidiary or the terms and conditions thereof, (b) presentment, demand for payment and notice of dishonor of the Obligations or any part thereof, or any other indebtedness incurred by Borrower or any Eligible Subsidiary to any of the Lenders, (c) notice of any indulgence granted to any Obligor, and (d) any other notice to which Guarantor might, but for this waiver, be entitled; 5.3. Lenders' Rights Not Prejudiced by Action or Omission. Administrative Agent and the Lenders, in their sole discretion, may, without any prejudice to their rights under this Agreement, at any time or times, without notice to or the consent of Guarantor, (a) grant Borrower or any Eligible Subsidiary whatever financial accommodations that Administrative Agent and the Lenders may from time to time deem advisable, even if Borrower or such Eligible Subsidiary might be in default in any respect and even if those financial accommodations might not constitute indebtedness the payment of which is guaranteed hereunder, (b) assent to any 3 4 renewal, extension, consolidation or refinancing of the Obligations, or any part thereof, (c) forbear from demanding security, if Administrative Agent and the Lenders shall have the right to do so, (d) release any Obligor or Collateral or assent to any exchange of Collateral, if any, irrespective of the consideration, if any, received therefor, (e) grant any waiver or consent or forbear from exercising any right, power or privilege that Administrative Agent and the Lenders may have or acquire, (f) assent to any amendment, deletion, addition, supplement or other modification in, to or of any writing evidencing or securing any Obligations or pursuant to which any Obligations are created, (g) grant any other indulgence to any Obligor, (h) accept any Collateral for, or any other Obligor upon, the Obligations or any part thereof, and (i) fail, neglect or omit in any way to realize upon any Collateral or to protect the Obligations or any part thereof or any Collateral therefor; 5.4. Liabilities Survive Guarantor's Dissolution. Guarantor's liabilities and other obligations under this Agreement shall survive any dissolution of Guarantor; and 5.5. Liabilities Absolute and Unconditional. Guarantor's liabilities and other obligations under this Agreement shall be absolute and unconditional irrespective of any lack of validity or enforceability of the Credit Agreement, the Notes, any Credit Document or any other agreement, instrument or document evidencing the Loans or Letters of Credit or related thereto, or any other defense available to Guarantor in respect of this Agreement. 6. Representations and Warranties. Guarantor represents and warrants to Administrative Agent and each of the Lenders that (a) Guarantor is a duly organized and validly existing corporation, in good standing under the laws of the state of its incorporation (as referenced in the first paragraph of this Agreement), and is qualified to do business in each state where a failure to so qualify would have a material adverse effect on Guarantor; (b) Guarantor has legal power and right to execute and deliver this Agreement and to perform and observe the provisions hereof; (c) the officers executing and delivering this Agreement on behalf of Guarantor have been duly authorized to do so, and this Agreement, when executed, is legal and binding upon Guarantor in every respect; (d) except for matters described or referenced in the Credit Agreement or any schedule thereto, no litigation or proceeding is pending or threatened against Guarantor before any court or any administrative agency that, in Guarantor's opinion, after consultation with Guarantor's counsel, is reasonably expected to have a material adverse effect on Guarantor; (e) Guarantor has received consideration that is the reasonable equivalent value of the obligations and liabilities that Guarantor has incurred to Administrative Agent, for the benefit of the Lenders; (f) Guarantor is not insolvent, as defined in any applicable state or federal statute, nor will Guarantor be rendered insolvent by the execution and delivery of this Agreement to Administrative Agent and the Lenders; (g) Guarantor is not engaged or about to engage in any business or transaction for which the assets retained by Guarantor are or will be an unreasonably small amount of capital, taking into consideration the obligations to the Lenders incurred hereunder; and (h) Guarantor does not intend to, nor does Guarantor believe that Guarantor will, incur debts beyond Guarantor's ability to pay such debts as they mature. 7. Disability of Obligor. Without limiting the generality of any of the other provisions hereof, Guarantor specifically agrees that upon the dissolution of any Obligor and/or the filing or other commencement of any bankruptcy or insolvency proceedings by, for or against 4 5 any Obligor, including without limitation, any assignment for the benefit of creditors or other proceedings intended to liquidate or rehabilitate any Obligor, Administrative Agent and the Required Lenders, in their sole discretion, may declare the unpaid principal balance of and accrued interest on the Obligations to be forthwith due and payable in full without notice. Upon the occurrence of any of the events enumerated in the immediately preceding sentence, Guarantor shall, upon the demand of Administrative Agent, on behalf of the Lenders, whenever made, pay to Administrative Agent, for the benefit of the Lenders, an amount equal to the then unpaid principal balance of and accrued interest on the Obligations. 8. Waiver of Guarantor's Rights Against Borrower and Collateral. To the extent permitted by law, Guarantor waives any claim or other right that Guarantor might now have or hereafter acquire against Borrower, any Eligible Subsidiary or any other Obligor that arises from the existence or performance of Guarantor's liabilities or other obligations under this Agreement, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution, indemnification, and any right to participate in any claim or remedy of Administrative Agent or any Lender against Borrower, any Eligible Subsidiary or any Collateral that Administrative Agent or any Lender now has or hereafter acquires, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law. 9. Maximum Liability of Guarantor. Anything in this Agreement to the contrary notwithstanding, in no event shall the amount of Guarantor's liability hereunder exceed the maximum amount that (after giving effect to the incurring of the obligations hereunder and to any rights to contribution of Guarantor from other affiliates of Borrower) would not render the rights to payment of Administrative Agent and the Lenders hereunder void, voidable or avoidable under any applicable fraudulent transfer law. 10. Notice. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, facsimile transmission or cable communication) and mailed, telegraphed, telexed, transmitted, cabled or delivered, if to Guarantor, at the address specified on the signature page of this Agreement, if to any Lender, at its address specified for such Lender on Annex I to the Credit Agreement, and if to Administrative Agent, at the Notice Office, as defined in the Credit Agreement; or at such other address as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall be mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and shall be effective when received. 11. Miscellaneous. This Agreement shall bind Guarantor and Guarantor's successors and assigns and shall inure to the benefit of Administrative Agent and each Lender and their respective successors and assigns, including (without limitation) each holder of any Note evidencing any Obligation. If, at any time, one or more provisions of this Agreement is or becomes invalid, illegal or unenforceable in whole or in part, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. This Agreement constitutes a final written expression of all of the terms of this Agreement, is a complete and exclusive statement of those terms and supersedes all oral representations, negotiations and prior writings, if any, with respect to the subject matter hereof. The relationship between (a) Guarantor and (b) Administrative Agent and the Lenders with respect to this 5 6 Agreement is and shall be solely that of debtor and creditors, respectively, and Administrative Agent and the Lenders shall have no fiduciary obligation toward Guarantor with respect to this Agreement or the transactions contemplated hereby. The captions herein are for convenience of reference only and shall be ignored in interpreting the provisions of this Agreement. 12. Governing Law; Submission to Jurisdiction. The provisions of this Agreement and the respective rights and duties of Guarantor, Administrative Agent and the Lenders hereunder shall be governed by and construed in accordance with Ohio law, without regard to principles of conflict of laws. Guarantor hereby irrevocably submits to the non-exclusive jurisdiction of any Ohio state or federal court sitting in Cleveland, Ohio, over any action or proceeding arising out of or relating to this Agreement, the Credit Agreement, any Credit Document or any other agreement, document or instrument executed in connection with any of the foregoing, and Guarantor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such court. Guarantor, on behalf of itself and its Subsidiaries, hereby irrevocably waives, to the fullest extent permitted by law, any objection it may now or hereafter have to the laying of venue in any action or proceeding in any such Ohio state or federal court as well as any right it may now or hereafter have to remove such action or proceeding, once commenced, to another court on the grounds of FORUM NON CONVENIENS or otherwise. Guarantor agrees that a final, non-appealable judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. [Remainder of page intentionally left blank.] 6 7 13. JURY TRIAL WAIVER. GUARANTOR, ADMINISTRATIVE AGENT AND THE LENDERS, TO THE EXTENT PERMITTED BY LAW, EACH WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG ADMINISTRATIVE AGENT, ANY OF THE LENDERS, BORROWER AND/OR GUARANTOR ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN EACH OF THEM AND GUARANTOR IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER AGREEMENT, INSTRUMENT OR DOCUMENT EXECUTED OR DELIVERED IN CONNECTION THEREWITH OR THE TRANSACTIONS RELATED THERETO. Executed as of the day of August, 2001, at , Ohio. Address: -------------------------------- -------------------------------- -------------------------------- By: -------------------------------- -------------------------------- Name: -------------------------------- Title: -------------------------------- EX-10.24 8 l89585aex10-24.txt EX-10.24 1 Exhibit 10.24 FORM OF OPEN ENDED OHIO MORTGAGE OPEN-END MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING Maximum Principal Amount Not to Exceed $65,000,000 THIS OPEN-END MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING (as the same may from time to time be amended, restated or otherwise modified, this "Agreement") is made as of the 31st day of July, 2001, by [ ], an Ohio corporation, 200 Public Square, Suite 30-5000, Cleveland, Ohio 44114 ("Mortgagor") in favor of KEYBANK NATIONAL ASSOCIATION, a national banking association, as administrative agent for the Lenders, as hereinafter defined (in its capacity as agent, for the benefit of and on behalf of the Lenders, "Administrative Agent"). WHEREAS, HAWK CORPORATION, a Delaware corporation ("Borrower"), Administrative Agent, and the other financial institutions listed on Annex I to the Credit Agreement, as hereinafter defined (collectively, together with their respective successors and assigns, "Lenders" and, individually, "Lender"), are parties to that certain Credit Agreement, dated as of May 1, 1998 (as amended and as the same may from time to time be further amended, restated or otherwise modified, the "Credit Agreement"; the capitalized terms defined therein and not otherwise defined in this Agreement being used herein as therein defined), pursuant to which the Lenders will, among other things, continue to grant to Borrower the Loans, as defined in the Credit Agreement, and Letters of Credit, as defined in the Credit Agreement, and other extensions of credit pursuant to the Credit Agreement; WHEREAS, Mortgagor, a subsidiary of Borrower whose financing is provided by the Loans and Letters of Credit, deems it to be in the direct pecuniary and business interests of Mortgagor that Borrower continue to obtain from the Lenders the Commitment, as defined in the Credit Agreement, and the Loans and Letters of Credit provided for in the Credit Agreement; and WHEREAS, Mortgagor understands that the Lenders are willing to continue to grant such financial accommodations to Borrower only upon certain terms and conditions, one of which is that Mortgagor execute and deliver this Agreement and this Agreement is being executed and delivered in consideration of each financial accommodation, granted to Borrower by Administrative Agent and the Lenders and for other valuable considerations. NOW, THEREFORE, TO SECURE TO ADMINISTRATIVE AGENT, for the benefit of the Lenders, all of the following (collectively, the "Obligations"): (a) all Loans and Letters of Credit; (b) all other indebtedness now owing or hereafter incurred by Borrower to Administrative 2 Agent or any Lender pursuant to the Credit Agreement and any Note executed in connection therewith; (c) each renewal, extension, consolidation or refinancing of any of the foregoing, in whole or in part; (d) all interest from time to time accruing on any of the foregoing, and all fees and other amounts payable by Borrower pursuant to the Credit Agreement; (e) all obligations and liabilities of Borrower now existing or hereafter incurred to Administrative Agent or any Lender (or any affiliate of such Lender) under, arising out of, or in connection with any Hedge Agreement between Borrower and the Administrative Agent or any Lender (or any of their respective affiliates) in connection with the Obligations; (f) every other liability, now or hereafter owing to Administrative Agent or any Lender by Borrower or Mortgagor pursuant to the Credit Agreement or any other Credit Document; (g) the payment of all other sums, with interest thereon, advanced in accordance herewith to protect the security of this Agreement; and (h) the performance of the covenants and agreements of Mortgagor contained in this Agreement, Mortgagor does hereby MORTGAGE, GRANT, CONVEY AND ASSIGN to Administrative Agent, for the benefit of the Lenders, the real property described in Exhibit A attached hereto and made a part hereof, together with all present and future right, title and interest of Mortgagor therein or in any way appertaining thereto, and all buildings, improvements and tenements now or hereafter erected on the property, and all heretofore or hereafter vacated alleys and streets abutting the property, and all easements, rights, appurtenances, rents, royalties, mineral, oil and gas rights and profits, water, water rights, and water stock appurtenant to the property, and all fixtures, machinery, equipment, engines, boilers, incinerators, building materials, appliances and goods of every nature whatsoever now or hereafter owned by Mortgagor and located in, or on, or used, or intended to be used in connection with the property, including, but not limited to, those for the purposes of supplying or distributing heating, cooling, electricity, gas, water, air and light; all cranes and materials handling equipment; and all elevators, and related machinery and equipment, fire prevention and extinguishing apparatus, security and access control apparatus, plumbing, bath tubs, water heaters, water closets, stoves, refrigerators, dishwashers, disposals, washers, dryers, awnings, storm windows, storm doors, screens, blinds, shades, curtains and curtain rods, mirrors, cabinets, paneling, rugs, attached floor coverings, furniture, fixtures, equipment; and all rentals, revenues, payments, repayments, deposits, income, charges and moneys derived from the use, lease, sublease, rental or other disposition of the property and the proceeds from any insurance or condemnation award pertaining thereto; and all other property (tangible and intangible) now owned or hereafter acquired by Mortgagor and used in, on or about the subject real estate or arising from the operation of the property, all of which, including replacements and additions thereto and proceeds therefrom, shall be deemed to be and remain a part of the real property covered by this Agreement; and all of the foregoing, including said real property, are herein referred to as the "Property". TO HAVE AND TO HOLD, Mortgagor represents and warrants that (i) Mortgagor is lawfully seized of the estate hereby conveyed and has the right to mortgage, grant, convey and assign the Property, (ii) the Property is unencumbered except for the matters approved by Administrative Agent and the Lenders and described on Exhibit B attached hereto and made a part hereof ("Permitted Encumbrances"), and (iii) Mortgagor will warrant and defend generally the title to the Property against all claims and demands whatsoever, except as aforesaid. 2 3 Mortgagor and Administrative Agent, on behalf of the Lenders, covenant and agree as follows: 1. Payment of Obligations. Mortgagor shall promptly pay and perform all of the Obligations when due. 2. Open-End Mortgage. This Agreement is an Open-End Mortgage under Section 5301.232 of the Ohio Revised Code and is intended to secure all of the Obligations, including such Obligations that may be advanced to or payable by Mortgagor after the date of this Agreement. This Agreement shall secure the maximum principal amount of up to Sixty-Five Million Dollars ($65,000,000), together with interest thereon and such other amounts as shall become due and owing to Administrative Agent and the Lenders from Mortgagor pursuant this Agreement. 3. Insurance. Mortgagor shall keep all improvements now existing or hereafter erected on the Property insured against loss by fire and such other hazards, casualties, and contingencies in such form, written by Mortgagor, in such amounts, for such period, and against such risks as may be acceptable to Administrative Agent, with provisions satisfactory to Administrative Agent, for payment of all losses thereunder to Administrative Agent, for the benefit of the Lenders, and Mortgagor as its interest may appear (loss payable endorsement in favor of Administrative Agent, for the benefit of Lenders), and, if required by Administrative Agent, Mortgagor shall deposit the policies with Administrative Agent. Any such policies of insurance shall provide for no fewer than thirty (30) days prior written notice of cancellation to Administrative Agent. In the event of foreclosure of this Agreement, all right, title, and interest of Mortgagor in and to any insurance policies then in force shall pass to the purchaser at foreclosure sale, and Administrative Agent is hereby appointed attorney in fact for Mortgagor for the purpose of assigning and transferring such policies and receiving all or any part of the proceeds therefrom. The insurance proceeds or any part thereof may be applied by Administrative Agent, at Administrative Agent's option, either to the reduction of the Obligations or to restoration or repair of the property damaged. 4. Funds for Taxes, Insurance and Other Charges. Upon default in payment by Mortgagor of any of the following described items, or upon the occurrence of an Event of Default, as hereinafter defined, Administrative Agent shall have the right, at Administrative Agent's option, to require Mortgagor to pay to Administrative Agent on the first day of each month, until the Obligations have been paid in full, a sum (herein "Funds") equal to one-twelfth of (a) the yearly water and sewer rates and taxes and assessments that may be levied on the Property and (b) the yearly premium installments for fire and other hazard insurance, rent loss insurance (if applicable) and such other insurance covering the Property as Administrative Agent may require pursuant to the Credit Agreement, all as reasonably estimated initially and from time to time by Administrative Agent on the basis of assessments and bills and reasonable estimates thereof. Any waiver by Administrative Agent of a requirement that Mortgagor pay such Funds may be revoked by Administrative Agent, in Administrative Agent's sole discretion, at any time upon notice in writing to Mortgagor. Administrative Agent may require Mortgagor to pay to Administrative Agent, in advance, such other Funds for other taxes, charges, premiums, assessments and impositions in connection with Mortgagor or the Property that Administrative Agent shall reasonably deem necessary to protect Administrative Agent's interests (herein 3 4 "Other Impositions"). Unless otherwise provided by applicable law, Administrative Agent, at Administrative Agent's option, may require Funds for Other Impositions to be paid by Mortgagor in a lump sum (not exceeding Other Impositions due for a one-year period) or in periodic installments. The Funds shall be held by Administrative Agent and shall be applied to pay such rates, rents, taxes, assessments, insurance premiums and Other Impositions so long as no Event of Default has occurred. Administrative Agent shall make no charge for so holding and applying the Funds, analyzing such account or for verifying and compiling said assessments and bills, unless Administrative Agent pays Mortgagor interest, earnings or profits on the Funds and applicable law permits Administrative Agent to make such a charge. Unless applicable law requires interest, earnings or profits on the Funds to be paid, Administrative Agent shall not be required to pay Mortgagor any interest, earnings or profits on the Funds. Administrative Agent shall give to Mortgagor, without charge, an annual accounting of the Funds showing credits and debits to the Funds and the purpose for which each debit to such Funds was made. The Funds are pledged as additional security for the Obligations and shall be subject to the right of set off. If the amount of the Funds held by Administrative Agent at the time of the annual accounting thereof shall exceed the amount deemed necessary by Administrative Agent to provide for the payment of water and sewer rates, taxes, assessments, insurance premiums, rents and Other Impositions, as such payments become due, Administrative Agent (in its sole discretion) may either (i) return the amount of the excess to Mortgagor or (ii) apply a part or all of such excess at such time or times as Administrative Agent may elect to the Obligations. If, at any time, the amount of the Funds held by Administrative Agent shall be less than the amount deemed necessary by Administrative Agent to pay water and sewer rates, taxes, assessments, insurance premiums, rents and Other Impositions, as such payments become due, Mortgagor shall, on demand, pay such deficiency. Upon the occurrence of an Event of Default, Administrative Agent may apply, in any amount and in any order as Administrative Agent shall determine, in Administrative Agent's sole discretion, any Funds held by Administrative Agent at the time of application (A) to pay rates, rents, taxes, assessments, insurance premiums and Other Impositions that are now or shall hereafter become due; or (B) as a credit against sums secured by this Agreement. Upon release of this Agreement and payment in full of the Obligations, Administrative Agent shall promptly refund to Mortgagor any Funds held by Administrative Agent. 5. Charges; Mechanics Liens. Mortgagor shall pay all water and sewer rates, rents, taxes assessments, premiums, and Other Impositions (not being diligently contested by Mortgagor (a) in a timely manner and (b) with the support of adequate financial reserves), attributable to the Property. Mortgagor shall promptly discharge any lien that has, or may have, priority over or equality with, the lien of this Agreement, other than Permitted Encumbrances. If a mechanic's lien is filed against the Property, Mortgagor shall promptly notify Administrative Agent and, at Administrative Agent's request, shall deliver to Administrative Agent, either of the following, at Mortgagor's option, (i) a cash deposit or (ii) an indemnity bond satisfactory to Administrative Agent issued by a surety satisfactory to Administrative Agent, in the amount claimed by any such lien, together with an additional sum necessary to pay all costs, interest and penalties that may be payable in connection therewith. Without Administrative 4 5 Agent's prior written consent, Mortgagor shall not allow any lien, encumbrance, or other interest in the Property to be perfected against the Property, other than Permitted Encumbrances, unless Mortgagor is then diligently contesting same and has, as to the lien, encumbrance or interest being contested, complied with (i) or (ii) of the preceding sentence. 6. Preservation and Maintenance of Property. Mortgagor (a) shall not commit waste or permit impairment or deterioration of the Property; (b) shall not abandon the Property; (c) shall, unless Administrative Agent withholds insurance proceeds as security for or application to the Obligations as provided in the Credit Agreement, restore or repair promptly and in a good and workmanlike manner all or any part of the Property to the equivalent of its original condition, or such other condition as Administrative Agent may approve in writing, in the event of any damage, injury or loss thereto, whether or not insurance proceeds are available to cover in whole or in part the costs of such restoration or repair unless the improvements constituting the Property are (i) totally destroyed, (ii) insurance has been maintained thereon as required by this Agreement, and (iii) Administrative Agent applies the proceeds of such insurance to payment of the Obligations; (d) shall keep the Property, including improvements, fixtures, equipment, machinery and appliances, in good repair and shall replace improvements, fixtures, equipment, machinery and appliances on the Property owned by Mortgagor when necessary to keep such items in good repair; (e) shall comply in all material respects with all laws, ordinances, regulations and requirements of any governmental body applicable to the Property, including, without limitation, the American with Disabilities Act, as it may be amended from time to time; and (f) shall give notice in writing to Administrative Agent of, appear in and defend, any action or proceeding purporting to affect the Property, the security of this Agreement or the rights or powers of Administrative Agent, except for any such action or proceeding caused by the gross negligence or intentional misconduct of Administrative Agent. Unless required by applicable law or unless Administrative Agent has otherwise consented in writing, neither Mortgagor nor any tenant or other Person shall remove, demolish or alter any improvement now existing or hereafter erected on the Property or any fixture (other than trade fixtures), equipment, machinery or appliance in or on the Property owned by Mortgagor and used or intended to be used in connection with the Property, except as permitted pursuant to the Credit Agreement. 7. Use of Property. Unless required by applicable law or unless Administrative Agent has otherwise agreed in writing, Mortgagor shall not allow changes in the use for which all or any part of the Property was intended at the time this Agreement was executed. Mortgagor shall not initiate or acquiesce in a change in the zoning classification of the Property without Administrative Agent's prior written consent. 8. Protection of Administrative Agent's Security. If Mortgagor fails to perform the covenants and agreements contained in this Agreement, or if any action or proceeding is commenced that affects the Property or title thereto or the interest of Administrative Agent therein, including, but not limited to, eminent domain, insolvency, enforcement of local laws, or arrangements or proceedings involving a bankrupt or decedent, then Administrative Agent, at Administrative Agent's option, may make such appearances, disburse such sums and take such action as Administrative Agent deems necessary, in its sole discretion, to protect the interests of Administrative Agent and the Lenders, including, but not limited to, (a) disbursement of attorneys' fees; (b) entry upon the Property to remedy any failure of Mortgagor to perform hereunder; and (c) procurement of satisfactory insurance. 5 6 Any amounts disbursed by Administrative Agent pursuant to this Section 8, with interest thereon, shall become part of the Obligations and shall be secured by this Agreement. Unless Mortgagor and Administrative Agent agree in writing to other terms of payment, such amounts shall be immediately due and payable and shall bear interest from the date of disbursement, unless collection from Mortgagor of interest at such rate would be contrary to applicable law, in which event such amounts shall bear interest at the highest rate that may be collected from Mortgagor under applicable law. Mortgagor hereby covenants and agrees that Administrative Agent shall be subrogated to the lien of any mortgage or other lien discharged, in whole or in part, by the Obligations. Nothing contained in this Section 8 shall require Administrative Agent to incur any expense or take any action hereunder. The procurement of insurance of the payment of taxes or other liens or charges by Administrative Agent shall not be a waiver of the right of Administrative Agent or the Lenders to accelerate the maturity of any of the Obligations secured by this Agreement. Administrative Agent's receipt of any awards, proceeds or damages under the insurance or condemnation provisions of the Credit Agreement or this Agreement shall not operate to cure or waive any default in payment of sums secured by this Agreement. 9. Condemnation. Mortgagor shall promptly notify Administrative Agent of any action or proceeding relating to any condemnation or other taking, whether direct or indirect, of the Property, or part thereof, and Mortgagor shall appear in and prosecute any such action or proceeding unless otherwise directed by Administrative Agent in writing. Mortgagor authorizes Administrative Agent, at Administrative Agent's option, as attorney-in-fact for Mortgagor, to commence, appear in and prosecute, after the occurrence of an Event of Default, in Administrative Agent's or Mortgagor's name, any action or proceeding relating to any condemnation or other taking of the Property, whether direct or indirect, and to settle or compromise any claim in connection with such condemnation or other taking. The proceeds of any award, payment or claim for damages, direct or consequential, in connection with any condemnation or other taking, whether direct or indirect, of the Property, or part thereof, or for conveyances in lieu of condemnation, are hereby assigned to and shall be paid to Administrative Agent. With the consent of Administrative Agent, which consent may be withheld in Administrative Agent's sole discretion, Mortgagor may apply such awards, payments, proceeds or damages, after the deduction of Administrative Agent's expenses incurred in the collection of such amounts, to restoration or repair of the Property. Otherwise, such sums so received shall be applied to payment of the Obligations. Mortgagor agrees to execute such further evidence of assignment of any awards, proceeds, damages or claims arising in connection with such condemnation or taking as Administrative Agent may reasonably require. 10. Estoppel Certificate. Mortgagor shall, within ten (10) days of a written request from Administrative Agent, furnish Administrative Agent with a written statement, duly acknowledged, setting forth the sums secured by this Agreement and any right of set-off, counterclaim or other defense that exists against such sums and any Obligations. 11. Uniform Commercial Code and Fixture Filing. This Agreement shall also constitute a "fixture filing" under the Uniform Commercial Code, as adopted in Ohio for the 6 7 purpose of perfecting Administrative Agent's security interest in all of Mortgagor's property now owned or hereafter acquired which is or becomes a "fixture" to the Property under the Uniform Commercial Code, as in effect from time to time in Ohio, with the names and addresses of the "debtor" and "secured party" for such purpose being: Debtor: [ ] [ ] [ ] Attn: President Secured Party: KeyBank National Association, as Administrative Agent 127 Public Square Cleveland, Ohio 44114 Attn: Large Corporate Group 12. Leases of the Property. Mortgagor shall comply with and observe Mortgagor's obligations as landlord or as tenant, as the case may be, under any leases of the Property or any part thereof. Mortgagor shall furnish Administrative Agent with executed copies of the leases now existing or hereafter made of all or any part of the Property, and all future leases and amendments or modifications thereto shall be subject to Administrative Agent's prior written approval. Unless otherwise directed by Administrative Agent, all leases of the Property made after the date hereof shall specifically provide that such leases are subordinate to this Agreement; that the tenant attorns to Administrative Agent, such attornment to be effective upon Administrative Agent's acquisition of title to the Property; that the tenant agrees to execute such further evidences of attornment as Administrative Agent may from time to time request; and that the attornment of the tenant shall not be terminated by foreclosure. Mortgagor shall not, without Administrative Agent's written consent, execute, modify, surrender or terminate, either orally or in writing, any lease hereafter made of all or any part of the Property, permit an assignment or sublease of such a lease, or request or consent to the subordination of any lease of all or any part of the Property to any lien subordinate to this Agreement, provided that such leases are on commercially reasonable terms. If Mortgagor becomes aware that any tenant proposes to do, or is doing, any act or thing that may give rise to any right to set-off against rent, Mortgagor shall (a) take such steps as shall be reasonably calculated to prevent the accrual of any right to a set-off against rent, (b) notify Administrative Agent thereof and of the amount of said set-offs, and (c) within twenty (20) days after such accrual, reimburse the tenant who shall have acquired such right to set-off or take such other steps as shall effectively discharge such set-off and as shall assure that rents thereafter due shall continue to be payable without set-off or deduction. 13. Remedies Cumulative. Each remedy provided in this Agreement is distinct and cumulative to all other rights or remedies under this Agreement or the Credit Agreement or afforded by law or in equity, and may be exercised concurrently, independently, or successively, in any order whatsoever. 14. Transfers of the Property; Changes in Control or Ownership of Mortgagor. Except as expressly permitted pursuant to the Credit Agreement, Mortgagor shall not (a) voluntary or involuntary sell, lease, exchange, assign, convey, transfer or otherwise dispose of all or any portion of the Property (or any interest therein), or all or any of the beneficial ownership 7 8 interest in Mortgagor, or (b) convey to any Person, other than Administrative Agent, a security interest in the Property or any part thereof or voluntarily or involuntarily permit or suffer the Property to be further encumbered. 15. Credit Agreement Provisions. Mortgagor agrees to comply with the covenants and conditions of the Credit Agreement that is hereby incorporated by reference in and made a part of this Agreement. All sums disbursed by Administrative Agent to protect the security of this Agreement shall be treated as Related Expenses. All such sums shall bear interest from the date of disbursement. In the event of any conflict or inconsistency between this Agreement and the Credit Agreement, the terms of the Credit Agreement shall control. As used herein, "Related Expenses" shall mean any and all reasonable costs, liabilities and expenses (including, without limitation, losses, damages, penalties, claims, actions, reasonable attorneys' fees, legal expenses, judgments, suits and disbursements) (a) incurred by Administrative Agent, or imposed upon or asserted against Administrative Agent or any Lender, in any attempt by Administrative Agent and the Lenders to (i) obtain, preserve, perfect, or enforce any security interest evidenced by this Agreement, the Credit Agreement, any Credit Document, or any other document, instrument or agreement executed in connection with any of the foregoing; (ii) obtain payment, performance or observance of any and all of the Obligations; or (iii) maintain, insure, audit, collect, preserve, repossess or dispose of any of the Property or any other collateral securing the Obligations, including, without limitation, costs and expenses for appraisals, assessments and audits of Borrower or any such collateral; or (b) incidental or related to (a) above, including, without limitation, interest thereupon from the date incurred, imposed or asserted until paid. 16. Notice. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, facsimile transmission or cable communication) and mailed, telegraphed, telexed, transmitted, cabled or delivered, if to Mortgagor, at 200 Public Square, Suite 30-5000, Cleveland, Ohio 44114, Attn: Vice President-Finance, if to any Lender, at its address specified for such Lender on Annex I to the Credit Agreement, and if to Administrative Agent, at the Notice Office, as defined in the Credit Agreement; or at such other address as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall be mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and shall be effective when received. 17. Successors and Assigns Bound; Agents; Captions. The covenants and agreements herein contained shall bind, and the rights hereunder shall inure to, the respective successors and permitted assigns of Administrative Agent, the Lenders and Mortgagor. In exercising any rights hereunder or taking any actions provided for herein, Administrative Agent may act through its employees, agents or independent contractors as authorized by Administrative Agent. The captions and headings of the Sections of this Agreement are for convenience only and are not to be used to interpret or define the provisions hereof. 18. Governing Law; Severability. This Agreement shall be governed by the laws of the State of Ohio, without regard to principles of conflicts of laws. In the event that any provision of this Agreement conflicts with applicable law, such conflict shall not affect other provisions of this Agreement that can be given effect without the conflicting provisions, and to this end the provisions of this Agreement are declared to be severable. 8 9 19. Waiver of Marshaling. In the event of foreclosure of the lien of this Agreement, the Property may be sold in one or more parcels or as an entirety as Administrative Agent may elect. Notwithstanding the existence of any other security interests in the Property held by Administrative Agent, or by any other Person, Administrative Agent shall have the right to determine the order in which any or all of the Property shall be subjected to the remedies provided herein. Administrative Agent shall have the right to determine the order in which any or all of the Obligations are satisfied from the proceeds realized upon the exercise of the remedies provided herein. Mortgagor, any Person that consents to this Agreement, and any Person that now or hereafter acquires a security interest in the Property and that has actual or constructive notice hereof, hereby waives any and all right to require the marshaling of assets in connection with the exercise of any of the remedies permitted by applicable law or provided herein. 20. Assignment of Rents; Appointment of Receiver; Agent in Possession. Mortgagor hereby absolutely and unconditionally assigns and transfers to Administrative Agent all of the leases, rents and revenues of the Property, including those now due, past due, or to become due by virtue of any lease or other agreement for the occupancy or use of all or any part of the Property, regardless to whom the rents and revenues of the Property are payable. Although this Agreement is a present assignment, Administrative Agent shall not exercise any of the rights or powers herein conferred upon it until an Event of Default shall have occurred. Mortgagor hereby authorizes Administrative Agent or Administrative Agent's agents to collect the aforesaid rents and revenues and hereby directs each tenant of the Property to pay such rents to Administrative Agent or Administrative Agent's agents. Upon the occurrence of an Event of Default, and without the necessity of Administrative Agent entering upon and taking and maintaining full control of the Property in person, by agent or by a court appointed receiver, Administrative Agent shall immediately be entitled to possession of all rents and revenues of the Property as specified in this Section 20 as the same become due and payable (including but not limited to rents then due and unpaid) and all such rents received by Mortgagor shall immediately, upon delivery of such notice, be held by Mortgagor, as trustee for the benefit of Administrative Agent only. This Section 20 may be supplemented by a separate assignment of leases and rents agreement entered into by and between Administrative Agent and Mortgagor, which instrument shall set forth more fully Administrative Agent's rights with respect to the leases, rents and revenue of the Property. 21. Assignment of Construction Rights. From time to time, as Administrative Agent deems necessary to protect its interests, Mortgagor shall, upon request of Administrative Agent, execute and deliver to Administrative Agent, in such form as Administrative Agent shall direct, assignments of any and all rights or claims that relate to the construction of improvements on the Property and which Mortgagor may have against any Person supplying or who has supplied labor, materials or services in connection with construction of the Property. 22. Event of Default; Acceleration; Remedies. Each of the following shall constitute an Event of Default hereunder, (a) if any Event of Default, as defined in the Credit Agreement, occurs under the Credit Agreement, or (b) if Mortgagor defaults in the performance or observance of any of the covenants or agreements of Mortgagor contained in this Agreement. In 9 10 addition to any other right or remedy that Administrative Agent may now or hereafter have at law or in equity, upon the occurrence of an Event of Default, Administrative Agent shall have the right and power (i) to foreclose upon this Agreement and the lien hereof; (ii) to sell the Property according to law at one or more sales as an entirety or in parcels, if applicable, and at such time and place upon such terms and conditions and after such notices thereof as may be required by law; (iii) to enter upon and take possession of the Property; and (iv) apply for the appointment of a receiver, trustee, liquidator or conservator of the Property, without notice and without regard for the adequacy of the security for the Obligations and without regard for the solvency of Mortgagor or Borrower or any other Person liable for the payment of the Obligations, or any thereof. If all sums secured by this Agreement become immediately due and payable in accordance with this Section, Administrative Agent, at Administrative Agent's option, may foreclose this Agreement by judicial proceeding and may invoke any other remedies permitted by applicable law or as provided herein. Administrative Agent shall be entitled to collect all costs and expenses incurred in pursuing such remedies, including, but not limited to, costs of documentary evidence abstracts, title reports and attorneys' fees. 23. Indemnification. Mortgagor shall protect, indemnify and save harmless Administrative Agent and the Lenders from and against all liabilities and expenses (including, without limitation, reasonable attorneys' fees and expenses, including those incurred in connection with appellate, bankruptcy and post-judgment proceedings) imposed upon or incurred by or asserted against Administrative Agent or any Lender, and not caused by the gross negligence or intentional misconduct of Administrative Agent or such Lender, by reason of (a) ownership of this Agreement, the Property or any interest therein or receipt of any rents, (b) any accident, injury to or death of persons or loss of or damage to property occurring in, on or about the Property or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas or streets, (c) any use, non-use or condition in, on or about the Property, or any part thereof, or on the adjoining sidewalks, curbs, adjacent property, parking areas or streets, (d) any failure on the part of Mortgagor to perform or comply with any of the terms of this Agreement, or (e) the performance of any labor or services or the furnishing of any materials or other property in respect of the Property or any part thereof. The obligations of Mortgagor under this Section 23 shall survive any termination or satisfaction of this Agreement. 24. Hazardous Waste Covenants and Indemnification. (a) Mortgagor covenants and warrants that Mortgagor's use of the Property shall at all times comply with and conform, in all material respects, to all laws, statutes, ordinances, rules and regulations of any governmental, quasi-governmental or regulatory authority now or hereafter in effect ("Laws") which relate to the transportation, storage, placement, handling, treatment, discharge, release, generation, production or disposal (collectively "Treatment") of any waste, waste products, petroleum or petroleum based products, radioactive materials, poly-chlorinated biphenyls, asbestos, hazardous materials or substances of any kind, pollutants, contaminants and any substance which is regulated by any law, statute, ordinance, rule or regulation (collectively "Waste"). Mortgagor further covenants that it shall not engage in or permit any Person to engage in any Treatment of any Waste on or that affects the Property except for activities which comply with all Laws in all material respects. 10 11 (b) Except as specifically disclosed to Administrative Agent in writing in any schedule to the Credit Agreement, Mortgagor has no actual knowledge that the Property is the subject of any Notice, as hereinafter defined, from any governmental authority or Person. (c) Promptly upon receipt of any Notice from any Person, Mortgagor shall deliver to Administrative Agent a true, correct and complete copy of any written Notice or a true, correct and complete report of any non-written Notice. Additionally, Mortgagor shall notify Administrative Agent immediately after having knowledge or Notice of any Waste in or affecting the Property. "Notice" shall mean any note, notice, information, or report of any of the following: (i) any suit, proceeding, investigation, order, consent order, injunction, writ, award or action related to or affecting or indicating the Treatment of any Waste in or affecting the Property; (ii) any spill, contamination, discharge, leakage, release, threatened release, or escape of any Waste in or affecting the Property, whether sudden or gradual, accidental or anticipated, or of any other nature ("Spill"); (iii) any dispute relating to Mortgagor's or any other Person's Treatment of any Waste or any Spill in or affecting the Property; (iv) any claims by or against any insurer related to or arising out of any Waste or Spill in or affecting the Property; (v) any recommendations or requirements of any governmental or regulatory authority, insurer or board of underwriters relating to any Treatment of Waste or a Spill in or affecting the Property; (vi) any legal requirement or deficiency related to the Treatment of Waste or any Spill in or affecting the Property; or (vii) any tenant, licensee, concessionaire, manager, or other Person occupying or using the Property or any part thereof which has engaged in or engages in the Treatment of any Waste in or affecting the Property in violation of applicable Laws. (d) In the event that (i) Mortgagor has caused, suffered or permitted, directly or indirectly, any Spill in or affecting the Property during the term of this Agreement, or (ii) any Spill of any Waste has occurred on the Property during the term of this Agreement, then Mortgagor shall immediately take all of the following actions: (A) notify Administrative Agent, as provided herein; (B) take all steps necessary or appropriate to clean up such Spill and any contamination related to the Spill, all in accordance with the requirements, rules or regulations of any local, state or federal governmental or regulatory authority or agency having jurisdiction over the Spill; provided that Mortgagor may contest any such requirement, rule or regulation by appropriate proceedings diligently and in good faith, so 11 12 long as (1) Mortgagor provides Administrative Agent, at Mortgagor's cost, such sureties, performance bonds and other assurances as Administrative Agent may from time to time request in respect of such Spill and contamination and the cleanup thereof, (2) any governmental or other action against Mortgagor and the Property is effectively stayed during Mortgagor's efforts so to contest, and (3) in Administrative Agent's determination, a delay in such clean-up will not result in or increase any loss or liability to Administrative Agent; (C) restore the Property, provided that such restoration shall be no less than, but need not be more than, what is otherwise required by applicable federal, state or local law or authorities; (D) allow any local, state or federal governmental or regulatory authority or agency having jurisdiction thereof to monitor and inspect all cleanup and restoration related to such Spill; and (E) at the written request of Administrative Agent, post a bond or obtain a letter of credit for the benefit of Administrative Agent (drawn upon a company or bank satisfactory to Administrative Agent) or deposit an amount of money in an escrow account under Administrative Agent's name upon which bond, letter of credit or escrow Mortgagor may draw, and which bond, letter of credit or escrow shall be in an amount sufficient to meet all of Mortgagor's obligations under this Section 24; and Administrative Agent shall have the unfettered right to draw against the bond, letter of credit or escrow in its discretion in the event that Mortgagor is unable or unwilling to meet its obligation under this Section 24 or, if Mortgagor fails to post a bond or obtain a letter of credit or deposit such cash as is required herein, then Administrative Agent, at Mortgagor's cost and expense, may, but shall have no obligation to do so for the benefit of Mortgagor and do those things that Mortgagor is required to do under clauses (B), (C) and (D) of this subsection (d). (e) Mortgagor hereby agrees that it shall indemnify, defend, save and hold harmless Administrative Agent and the Lenders and their respective officers, directors employees, agents, successors, assigns and affiliates (collectively, "Indemnified Parties") against and from, and to reimburse the Indemnified Parties with respect to, any and all damages, claims, liabilities, losses, costs and expenses (including, without limitation, reasonable attorneys', engineers' and consultants' fees and expenses, court costs, administrative costs, costs of appeals and all clean up, administrative, fines, penalties and enforcement costs of applicable governmental agencies) that are incurred by or asserted against the Indemnified Parties by reason or arising out of: (i) the breach of any representation, warranty or undertaking of Mortgagor under this Section 24, or (ii) the Treatment of any Waste by Mortgagor or any tenant, licensee, concessionaire, manager, or other Person occupying or using the Property, in or affecting the Property, or (iii) any Spill governed by the terms of this Section 24. (f) The obligations of Mortgagor under this Section 24 shall survive any termination or satisfaction of this Agreement. 12 13 25. Priority of Mortgage Lien. Administrative Agent, at Administrative Agent's option, is authorized and empowered to do all things provided to be done by a mortgagee under Section 1311.14 of the Revised Code of Ohio, as in effect from time to time, for the protection of Administrative Agent's interests in the Property. 26. Adjustments to Maximum Liability. Anything in this Agreement to the contrary notwithstanding, in no event shall the amount of the Obligations secured by this Agreement exceed the maximum amount that (after giving effect to the incurring of the obligations hereunder and to any rights to contribution of Mortgagor from other affiliates of Borrower) would not render the rights to payment of Administrative Agent and the Lenders hereunder void, voidable or avoidable under any applicable fraudulent transfer law. [Remainder of page intentionally left blank] 13 14 27. JURY TRIAL WAIVER. MORTGAGOR, ADMINISTRATIVE AGENT AND THE LENDERS WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG THEM ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. IN WITNESS WHEREOF, Mortgagor has executed this Agreement as of the day and year first set forth above. Signed and acknowledged MORTGAGOR: in the presence of: [ ] By: - ----------------------------------- ----------------------------------- Print Name: - ----------------------------------- ----------------------------------- Title: ----------------------------------- - ----------------------------------- Print - ----------------------------------- 14 15 STATE OF OHIO ) ) SS: COUNTY OF CUYAHOGA ) On this 10th day of August, 2001, before me, a Notary Public in and for said County and State, personally appeared , the of [ ], an Ohio corporation, who acknowledged the signing of the foregoing instrument on behalf of said corporation to be her/his free act and deed and the free act and deed of said corporation for the uses and purposes set forth therein. IN WITNESS WHEREOF, I have hereunto set my hand and official seal at Cleveland, Ohio. ----------------------------------- Notary Public This instrument was prepared by: John E. Mazey, Esq. Jones, Day, Reavis & Pogue 901 Lakeside Avenue Cleveland, Ohio 44114 216/586-3939 15 16 EXHIBIT A LEGAL DESCRIPTION 16 17 EXHIBIT B PERMITTED ENCUMBRANCES 17 EX-10.25 9 l89585aex10-25.txt EX-10.25 1 EXHIBIT 10.25 FORM OF OPEN ENDED PENNSYLVANIA MORTGAGE THIS IS AN OPEN-END MORTGAGE SECURING FUTURE AND/OR REVOLVING ADVANCES UP TO A MAXIMUM PRINCIPAL AMOUNT OF SIXTY-FIVE DOLLARS ($65,000,000) PLUS ACCRUED INTEREST AND OTHER INDEBTEDNESS AS DESCRIBED IN 42 PA. C.S.A. Section 8143 OPEN-END MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING (All notices to be given to Administrative Agent pursuant to 42 Pa. C.S.A. Section 8143 shall be given as set forth in Section 16 of this Agreement.) THIS OPEN-END MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING (as the same may from time to time be amended, restated or otherwise modified, this "Agreement") is made as of the 31st day of July, 2001, [______________________________], a Pennsylvania corporation, 200 Public Square, Suite 30-5000, Cleveland, Ohio 44114 ("Mortgagor") in favor of KEYBANK NATIONAL ASSOCIATION, a national banking association, as administrative agent for the Lenders, as hereinafter defined (in its capacity as agent, for the benefit of and on behalf of the Lenders, "Administrative Agent"). WHEREAS, HAWK CORPORATION, a Delaware corporation ("Borrower"), Administrative Agent, and the other financial institutions listed on Annex I to the Credit Agreement, as hereinafter defined (collectively, together with their respective successors and assigns, "Lenders" and, individually, "Lender"), are parties to that certain Credit Agreement, dated as of May 1, 1998 (as amended and as the same may from time to time be further amended, restated or otherwise modified, the "Credit Agreement"; the capitalized terms defined therein and not otherwise defined in this Agreement being used herein as therein defined), pursuant to which the Lenders will, among other things, continue to grant to Borrower the Loans, as defined in the Credit Agreement, and Letters of Credit, as defined in the Credit Agreement, and other extensions of credit pursuant to the Credit Agreement; WHEREAS, Mortgagor, a subsidiary of Borrower whose financing is provided by the Loans and Letters of Credit, deems it to be in the direct pecuniary and business interests of Mortgagor that Borrower continue to obtain from the Lenders the Commitment, as defined in the Credit Agreement, and the Loans and Letters of Credit provided for in the Credit Agreement; and 2 WHEREAS, Mortgagor understands that the Lenders are willing to continue to grant such financial accommodations to Borrower only upon certain terms and conditions, one of which is that Mortgagor execute and deliver this Agreement and this Agreement is being executed and delivered in consideration of each financial accommodation, granted to Borrower by Administrative Agent and the Lenders and for other valuable considerations. NOW, THEREFORE, TO SECURE TO ADMINISTRATIVE AGENT, for the benefit of the Lenders, all of the following (collectively, the "Obligations"): (a) all Loans and Letters of Credit; (b) all other indebtedness now owing or hereafter incurred by Borrower to Administrative Agent or any Lender pursuant to the Credit Agreement and any Note executed in connection therewith; (c) each renewal, extension, consolidation or refinancing of any of the foregoing, in whole or in part; (d) all interest from time to time accruing on any of the foregoing, and all fees and other amounts payable by Borrower pursuant to the Credit Agreement; (e) all obligations and liabilities of Borrower now existing or hereafter incurred to Administrative Agent or any Lender (or any affiliate of such Lender) under, arising out of, or in connection with any Hedge Agreement between Borrower and the Administrative Agent or any Lender (or any of their respective affiliates) in connection with the Obligations; (f) every other liability, now or hereafter owing to Administrative Agent or any Lender by Borrower or Mortgagor pursuant to the Credit Agreement or any other Credit Document; (g) the payment of all other sums, with interest thereon, advanced in accordance herewith to protect the security of this Agreement; and (h) the performance of the covenants and agreements of Mortgagor contained in this Agreement, Mortgagor does hereby MORTGAGE, GRANT, CONVEY AND ASSIGN to Administrative Agent, for the benefit of the Lenders, the real property described in Exhibit A attached hereto and made a part hereof, together with all present and future right, title and interest of Mortgagor therein or in any way appertaining thereto, and all buildings, improvements and tenements now or hereafter erected on the property, and all heretofore or hereafter vacated alleys and streets abutting the property, and all easements, rights, appurtenances, rents, royalties, mineral, oil and gas rights and profits, water, water rights, and water stock appurtenant to the property, and all fixtures, machinery, equipment, engines, boilers, incinerators, building materials, appliances and goods of every nature whatsoever now or hereafter owned by Mortgagor and located in, or on, or used, or intended to be used in connection with the property, including, but not limited to, those for the purposes of supplying or distributing heating, cooling, electricity, gas, water, air and light; all cranes and materials handling equipment; and all elevators, and related machinery and equipment, fire prevention and extinguishing apparatus, security and access control apparatus, plumbing, bath tubs, water heaters, water closets, stoves, refrigerators, dishwashers, disposals, washers, dryers, awnings, storm windows, storm doors, screens, blinds, shades, curtains and curtain rods, mirrors, cabinets, paneling, rugs, attached floor coverings, furniture, fixtures, equipment; and all rentals, revenues, payments, repayments, deposits, income, charges and moneys derived from the use, lease, sublease, rental or other disposition of the property and the proceeds from any insurance or condemnation award pertaining thereto; and all other property (tangible and intangible) now owned or hereafter acquired by Mortgagor and used in, on or about the subject real estate or arising from the operation of the property, all of which, including replacements and additions thereto and proceeds therefrom, shall be deemed to be and remain a part of the real property covered by this Agreement; and all of the foregoing, including said real property, are herein referred to as the "Property". 2 3 TO HAVE AND TO HOLD, Mortgagor represents and warrants that (i) Mortgagor is lawfully seized of the estate hereby conveyed and has the right to mortgage, grant, convey and assign the Property, (ii) the Property is unencumbered except for the matters approved by Administrative Agent and the Lenders and described on Exhibit B attached hereto and made a part hereof ("Permitted Encumbrances"), and (iii) Mortgagor will warrant and defend generally the title to the Property against all claims and demands whatsoever, except as aforesaid. Mortgagor and Administrative Agent, on behalf of the Lenders, covenant and agree as follows: 1. Payment of Obligations. Mortgagor shall promptly pay and perform all of the Obligations when due. 2. Open-End Mortgage. This Agreement constitutes an "Open-End Mortgage" under 42 Pa. C.S.A. Section 8143 and secures obligations that include future and/or revolving advances made pursuant to the Credit Agreement. The total amount of the principal indebtedness that may be secured by this Agreement may increase or decrease from time to time, but the total unpaid principal balance so secured at any one time shall not exceed Sixty Five Million Dollars ($65,000,000), plus interest thereon, collection costs, sums advanced for the payment of taxes, assessments, maintenance and repair charges, insurance premiums and any other costs incurred to protect the security encumbered hereby or the lien of this Agreement, expenses incurred by Administrative Agent or the Lenders or the existing and future holders of the Notes by reason of any default by Mortgagor under the terms of this Agreement, with interest on any such advances and disbursements, together with all other sums secured hereby. 3. Insurance. Mortgagor shall keep all improvements now existing or hereafter erected on the Property insured against loss by fire and such other hazards, casualties, and contingencies in such form, written by Mortgagor, in such amounts, for such period, and against such risks as may be acceptable to Administrative Agent, with provisions satisfactory to Administrative Agent, for payment of all losses thereunder to Administrative Agent, for the benefit of the Lenders, and Mortgagor as its interest may appear (loss payable endorsement in favor of Administrative Agent, for the benefit of Lenders), and, if required by Administrative Agent, Mortgagor shall deposit the policies with Administrative Agent. Any such policies of insurance shall provide for no fewer than thirty (30) days prior written notice of cancellation to Administrative Agent. In the event of foreclosure of this Agreement, all right, title, and interest of Mortgagor in and to any insurance policies then in force shall pass to the purchaser at foreclosure sale, and Administrative Agent is hereby appointed attorney in fact for Mortgagor for the purpose of assigning and transferring such policies and receiving all or any part of the proceeds therefrom. The insurance proceeds or any part thereof may be applied by Administrative Agent, at Administrative Agent's option, either to the reduction of the Obligations or to restoration or repair of the property damaged. 4. Funds for Taxes, Insurance and Other Charges. Upon default in payment by Mortgagor of any of the following described items, or upon the occurrence of an Event of Default, as hereinafter defined, Administrative Agent shall have the right, at Administrative Agent's option, to require Mortgagor to pay to Administrative Agent on the first day of each month, until the Obligations have been paid in full, a sum (herein "Funds") equal to one-twelfth 3 4 of (a) the yearly water and sewer rates and taxes and assessments that may be levied on the Property and (b) the yearly premium installments for fire and other hazard insurance, rent loss insurance (if applicable) and such other insurance covering the Property as Administrative Agent may require pursuant to the Credit Agreement, all as reasonably estimated initially and from time to time by Administrative Agent on the basis of assessments and bills and reasonable estimates thereof. Any waiver by Administrative Agent of a requirement that Mortgagor pay such Funds may be revoked by Administrative Agent, in Administrative Agent's sole discretion, at any time upon notice in writing to Mortgagor. Administrative Agent may require Mortgagor to pay to Administrative Agent, in advance, such other Funds for other taxes, charges, premiums, assessments and impositions in connection with Mortgagor or the Property that Administrative Agent shall reasonably deem necessary to protect Administrative Agent's interests (herein "Other Impositions"). Unless otherwise provided by applicable law, Administrative Agent, at Administrative Agent's option, may require Funds for Other Impositions to be paid by Mortgagor in a lump sum (not exceeding Other Impositions due for a one-year period) or in periodic installments. The Funds shall be held by Administrative Agent and shall be applied to pay such rates, rents, taxes, assessments, insurance premiums and Other Impositions so long as no Event of Default has occurred. Administrative Agent shall make no charge for so holding and applying the Funds, analyzing such account or for verifying and compiling said assessments and bills, unless Administrative Agent pays Mortgagor interest, earnings or profits on the Funds and applicable law permits Administrative Agent to make such a charge. Unless applicable law requires interest, earnings or profits on the Funds to be paid, Administrative Agent shall not be required to pay Mortgagor any interest, earnings or profits on the Funds. Administrative Agent shall give to Mortgagor, without charge, an annual accounting of the Funds showing credits and debits to the Funds and the purpose for which each debit to such Funds was made. The Funds are pledged as additional security for the Obligations and shall be subject to the right of set off. If the amount of the Funds held by Administrative Agent at the time of the annual accounting thereof shall exceed the amount deemed necessary by Administrative Agent to provide for the payment of water and sewer rates, taxes, assessments, insurance premiums, rents and Other Impositions, as such payments become due, Administrative Agent (in its sole discretion) may either (i) return the amount of the excess to Mortgagor or (ii) apply a part or all of such excess at such time or times as Administrative Agent may elect to the Obligations. If, at any time, the amount of the Funds held by Administrative Agent shall be less than the amount deemed necessary by Administrative Agent to pay water and sewer rates, taxes, assessments, insurance premiums, rents and Other Impositions, as such payments become due, Mortgagor shall, on demand, pay such deficiency. Upon the occurrence of an Event of Default, Administrative Agent may apply, in any amount and in any order as Administrative Agent shall determine, in Administrative Agent's sole discretion, any Funds held by Administrative Agent at the time of application (A) to pay rates, rents, taxes, assessments, insurance premiums and Other Impositions that are now or shall hereafter become due; or (B) as a credit against sums secured by this Agreement. Upon release of this Agreement and payment in full of the Obligations, Administrative Agent shall promptly refund to Mortgagor any Funds held by Administrative Agent. 4 5 5. Charges; Mechanics Liens. Mortgagor shall pay all water and sewer rates, rents, taxes assessments, premiums, and Other Impositions (not being diligently contested by Mortgagor (a) in a timely manner and (b) with the support of adequate financial reserves), attributable to the Property. Mortgagor shall promptly discharge any lien that has, or may have, priority over or equality with, the lien of this Agreement, other than Permitted Encumbrances. If a mechanic's lien is filed against the Property, Mortgagor shall promptly notify Administrative Agent and, at Administrative Agent's request, shall deliver to Administrative Agent, either of the following, at Mortgagor's option, (i) a cash deposit or (ii) an indemnity bond satisfactory to Administrative Agent issued by a surety satisfactory to Administrative Agent, in the amount claimed by any such lien, together with an additional sum necessary to pay all costs, interest and penalties that may be payable in connection therewith. Without Administrative Agent's prior written consent, Mortgagor shall not allow any lien, encumbrance, or other interest in the Property to be perfected against the Property, other than Permitted Encumbrances, unless Mortgagor is then diligently contesting same and has, as to the lien, encumbrance or interest being contested, complied with (i) or (ii) of the preceding sentence. 6. Preservation and Maintenance of Property. Mortgagor (a) shall not commit waste or permit impairment or deterioration of the Property; (b) shall not abandon the Property; (c) shall, unless Administrative Agent withholds insurance proceeds as security for or application to the Obligations as provided in the Credit Agreement, restore or repair promptly and in a good and workmanlike manner all or any part of the Property to the equivalent of its original condition, or such other condition as Administrative Agent may approve in writing, in the event of any damage, injury or loss thereto, whether or not insurance proceeds are available to cover in whole or in part the costs of such restoration or repair unless the improvements constituting the Property are (i) totally destroyed, (ii) insurance has been maintained thereon as required by this Agreement, and (iii) Administrative Agent applies the proceeds of such insurance to payment of the Obligations; (d) shall keep the Property, including improvements, fixtures, equipment, machinery and appliances, in good repair and shall replace improvements, fixtures, equipment, machinery and appliances on the Property owned by Mortgagor when necessary to keep such items in good repair; (e) shall comply in all material respects with all laws, ordinances, regulations and requirements of any governmental body applicable to the Property, including, without limitation, the American with Disabilities Act, as it may be amended from time to time; and (f) shall give notice in writing to Administrative Agent of, appear in and defend, any action or proceeding purporting to affect the Property, the security of this Agreement or the rights or powers of Administrative Agent, except for any such action or proceeding caused by the gross negligence or intentional misconduct of Administrative Agent. Unless required by applicable law or unless Administrative Agent has otherwise consented in writing, neither Mortgagor nor any tenant or other Person shall remove, demolish or alter any improvement now existing or hereafter erected on the Property or any fixture (other than trade fixtures), equipment, machinery or appliance in or on the Property owned by Mortgagor and used or intended to be used in connection with the Property, except as permitted pursuant to the Credit Agreement. 7. Use of Property. Unless required by applicable law or unless Administrative Agent has otherwise agreed in writing, Mortgagor shall not allow changes in the use for which all or any part of the Property was intended at the time this Agreement was executed. Mortgagor 5 6 shall not initiate or acquiesce in a change in the zoning classification of the Property without Administrative Agent's prior written consent. 8. Protection of Administrative Agent's Security. If Mortgagor fails to perform the covenants and agreements contained in this Agreement, or if any action or proceeding is commenced that affects the Property or title thereto or the interest of Administrative Agent therein, including, but not limited to, eminent domain, insolvency, enforcement of local laws, or arrangements or proceedings involving a bankrupt or decedent, then Administrative Agent, at Administrative Agent's option, may make such appearances, disburse such sums and take such action as Administrative Agent deems necessary, in its sole discretion, to protect the interests of Administrative Agent and the Lenders, including, but not limited to, (a) disbursement of attorneys' fees; (b) entry upon the Property to remedy any failure of Mortgagor to perform hereunder; and (c) procurement of satisfactory insurance. Any amounts disbursed by Administrative Agent pursuant to this Section 8, with interest thereon, shall become part of the Obligations and shall be secured by this Agreement. Unless Mortgagor and Administrative Agent agree in writing to other terms of payment, such amounts shall be immediately due and payable and shall bear interest from the date of disbursement, unless collection from Mortgagor of interest at such rate would be contrary to applicable law, in which event such amounts shall bear interest at the highest rate that may be collected from Mortgagor under applicable law. Mortgagor hereby covenants and agrees that Administrative Agent shall be subrogated to the lien of any mortgage or other lien discharged, in whole or in part, by the Obligations. Nothing contained in this Section 8 shall require Administrative Agent to incur any expense or take any action hereunder. The procurement of insurance of the payment of taxes or other liens or charges by Administrative Agent shall not be a waiver of the right of Administrative Agent or the Lenders to accelerate the maturity of any of the Obligations secured by this Agreement. Administrative Agent's receipt of any awards, proceeds or damages under the insurance or condemnation provisions of the Credit Agreement or this Agreement shall not operate to cure or waive any default in payment of sums secured by this Agreement. 9. Condemnation. Mortgagor shall promptly notify Administrative Agent of any action or proceeding relating to any condemnation or other taking, whether direct or indirect, of the Property, or part thereof, and Mortgagor shall appear in and prosecute any such action or proceeding unless otherwise directed by Administrative Agent in writing. Mortgagor authorizes Administrative Agent, at Administrative Agent's option, as attorney-in-fact for Mortgagor, to commence, appear in and prosecute, after the occurrence of an Event of Default, in Administrative Agent's or Mortgagor's name, any action or proceeding relating to any condemnation or other taking of the Property, whether direct or indirect, and to settle or compromise any claim in connection with such condemnation or other taking. The proceeds of any award, payment or claim for damages, direct or consequential, in connection with any condemnation or other taking, whether direct or indirect, of the Property, or part thereof, or for conveyances in lieu of condemnation, are hereby assigned to and shall be paid to Administrative Agent. 6 7 With the consent of Administrative Agent, which consent may be withheld in Administrative Agent's sole discretion, Mortgagor may apply such awards, payments, proceeds or damages, after the deduction of Administrative Agent's expenses incurred in the collection of such amounts, to restoration or repair of the Property. Otherwise, such sums so received shall be applied to payment of the Obligations. Mortgagor agrees to execute such further evidence of assignment of any awards, proceeds, damages or claims arising in connection with such condemnation or taking as Administrative Agent may reasonably require. 10. Estoppel Certificate. Mortgagor shall, within ten (10) days of a written request from Administrative Agent, furnish Administrative Agent with a written statement, duly acknowledged, setting forth the sums secured by this Agreement and any right of set-off, counterclaim or other defense that exists against such sums and any Obligations. 11. Uniform Commercial Code and Fixture Filing. This Agreement shall also constitute a "fixture filing" under the Uniform Commercial Code, as adopted in Pennsylvania for the purpose of perfecting Administrative Agent's security interest in all of Mortgagor's property now owned or hereafter acquired which is or becomes a "fixture" to the Property under the Uniform Commercial Code, as in effect from time to time in Pennsylvania, with the names and addresses of the "debtor" and "secured party" for such purpose being: Debtor: [__________________________] [____________] [____________] [____________] Attn: President Secured Party: KeyBank National Association, as Administrative Agent 127 Public Square Cleveland, Ohio 44114 Attn: Large Corporate Group 12. Leases of the Property. Mortgagor shall comply with and observe Mortgagor's obligations as landlord or as tenant, as the case may be, under any leases of the Property or any part thereof. Mortgagor shall furnish Administrative Agent with executed copies of the leases now existing or hereafter made of all or any part of the Property, and all future leases and amendments or modifications thereto shall be subject to Administrative Agent's prior written approval. Unless otherwise directed by Administrative Agent, all leases of the Property made after the date hereof shall specifically provide that such leases are subordinate to this Agreement; that the tenant attorns to Administrative Agent, such attornment to be effective upon Administrative Agent's acquisition of title to the Property; that the tenant agrees to execute such further evidences of attornment as Administrative Agent may from time to time request; and that the attornment of the tenant shall not be terminated by foreclosure. Mortgagor shall not, without Administrative Agent's written consent, execute, modify, surrender or terminate, either orally or in writing, any lease hereafter made of all or any part of the Property, permit an assignment or sublease of such a lease, or request or consent to the subordination of any lease of all or any part of the Property to any lien subordinate to this Agreement, provided that such leases are on commercially reasonable terms. If Mortgagor becomes aware that any tenant proposes to do, or 7 8 is doing, any act or thing that may give rise to any right to set-off against rent, Mortgagor shall (a) take such steps as shall be reasonably calculated to prevent the accrual of any right to a set-off against rent, (b) notify Administrative Agent thereof and of the amount of said set-offs, and (c) within twenty (20) days after such accrual, reimburse the tenant who shall have acquired such right to set-off or take such other steps as shall effectively discharge such set-off and as shall assure that rents thereafter due shall continue to be payable without set-off or deduction. 13. Remedies Cumulative. Each remedy provided in this Agreement is distinct and cumulative to all other rights or remedies under this Agreement or the Credit Agreement or afforded by law or in equity, and may be exercised concurrently, independently, or successively, in any order whatsoever. 14. Transfers of the Property; Changes in Control or Ownership of Mortgagor. Except as expressly permitted pursuant to the Credit Agreement, Mortgagor shall not (a) voluntary or involuntary sell, lease, exchange, assign, convey, transfer or otherwise dispose of all or any portion of the Property (or any interest therein), or all or any of the beneficial ownership interest in Mortgagor, or (b) convey to any Person, other than Administrative Agent, a security interest in the Property or any part thereof or voluntarily or involuntarily permit or suffer the Property to be further encumbered. 15. Credit Agreement Provisions. Mortgagor agrees to comply with the covenants and conditions of the Credit Agreement that is hereby incorporated by reference in and made a part of this Agreement. All sums disbursed by Administrative Agent to protect the security of this Agreement shall be treated as Related Expenses. All such sums shall bear interest from the date of disbursement. In the event of any conflict or inconsistency between this Agreement and the Credit Agreement, the terms of the Credit Agreement shall control. As used herein, "Related Expenses" shall mean any and all reasonable costs, liabilities and expenses (including, without limitation, losses, damages, penalties, claims, actions, reasonable attorneys' fees, legal expenses, judgments, suits and disbursements) (a) incurred by Administrative Agent, or imposed upon or asserted against Administrative Agent or any Lender, in any attempt by Administrative Agent and the Lenders to (i) obtain, preserve, perfect, or enforce any security interest evidenced by this Agreement, the Credit Agreement, any Credit Document, or any other document, instrument or agreement executed in connection with any of the foregoing; (ii) obtain payment, performance or observance of any and all of the Obligations; or (iii) maintain, insure, audit, collect, preserve, repossess or dispose of any of the Property or any other collateral securing the Obligations, including, without limitation, costs and expenses for appraisals, assessments and audits of Borrower or any such collateral; or (b) incidental or related to (a) above, including, without limitation, interest thereupon from the date incurred, imposed or asserted until paid. 16. Notice. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, facsimile transmission or cable communication) and mailed, telegraphed, telexed, transmitted, cabled or delivered, if to Mortgagor, at 200 Public Square, Suite 30-5000, Cleveland, Ohio 44114, Attn: Vice President-Finance, if to any Lender, at its address specified for such Lender on Annex I to the Credit Agreement, and if to Administrative Agent, at the Notice Office, as defined in the Credit Agreement; or at such other address as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall be mailed, 8 9 telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and shall be effective when received. Notwithstanding the foregoing, (a) all notices given to Administrative Agent by any person or entity (other than Mortgagor) pursuant to 42 Pa. C.S.A. Section 8143(c) or (d) shall be in writing and shall be sent exclusively by registered or certified mail, return receipt mail, return receipt requested, to Administrative Agent at the address set forth above, and (b) all notices given by Mortgagor to Administrative Agent pursuant to 42 Pa. C.S.A. Section 8143(c) shall be given to Administrative Agent in writing, by registered or certified mail, return receipt requested, and must be signed by all parties necessary to bind Mortgagor in accordance with all applicable documents of formation of Mortgagor and all applicable laws. 17. Successors and Assigns Bound; Agents; Captions. The covenants and agreements herein contained shall bind, and the rights hereunder shall inure to, the respective successors and permitted assigns of Administrative Agent, the Lenders and Mortgagor. In exercising any rights hereunder or taking any actions provided for herein, Administrative Agent may act through its employees, agents or independent contractors as authorized by Administrative Agent. The captions and headings of the Sections of this Agreement are for convenience only and are not to be used to interpret or define the provisions hereof. 18. Governing Law; Severability. This Agreement shall be governed by the laws of the State of Pennsylvania, without regard to principles of conflicts of laws. In the event that any provision of this Agreement conflicts with applicable law, such conflict shall not affect other provisions of this Agreement that can be given effect without the conflicting provisions, and to this end the provisions of this Agreement are declared to be severable. 19. Waiver of Marshaling. In the event of foreclosure of the lien of this Agreement, the Property may be sold in one or more parcels or as an entirety as Administrative Agent may elect. Notwithstanding the existence of any other security interests in the Property held by Administrative Agent, or by any other Person, Administrative Agent shall have the right to determine the order in which any or all of the Property shall be subjected to the remedies provided herein. Administrative Agent shall have the right to determine the order in which any or all of the Obligations are satisfied from the proceeds realized upon the exercise of the remedies provided herein. Mortgagor, any Person that consents to this Agreement, and any Person that now or hereafter acquires a security interest in the Property and that has actual or constructive notice hereof, hereby waives any and all right to require the marshaling of assets in connection with the exercise of any of the remedies permitted by applicable law or provided herein. 20. Assignment of Rents; Appointment of Receiver; Agent in Possession. Mortgagor hereby absolutely and unconditionally assigns and transfers to Administrative Agent all of the leases, rents and revenues of the Property, including those now due, past due, or to become due by virtue of any lease or other agreement for the occupancy or use of all or any part of the Property, regardless to whom the rents and revenues of the Property are payable. Although this Agreement is a present assignment, Administrative Agent shall not exercise any of the rights or powers herein conferred upon it until an Event of Default shall have occurred. Mortgagor hereby authorizes Administrative Agent or Administrative Agent's agents to collect the aforesaid rents 9 10 and revenues and hereby directs each tenant of the Property to pay such rents to Administrative Agent or Administrative Agent's agents. Upon the occurrence of an Event of Default, and without the necessity of Administrative Agent entering upon and taking and maintaining full control of the Property in person, by agent or by a court appointed receiver, Administrative Agent shall immediately be entitled to possession of all rents and revenues of the Property as specified in this Section 20 as the same become due and payable (including but not limited to rents then due and unpaid) and all such rents received by Mortgagor shall immediately, upon delivery of such notice, be held by Mortgagor, as trustee for the benefit of Administrative Agent only. This Section 20 may be supplemented by a separate assignment of leases and rents agreement entered into by and between Administrative Agent and Mortgagor, which instrument shall set forth more fully Administrative Agent's rights with respect to the leases, rents and revenue of the Property. 21. Assignment of Construction Rights. From time to time, as Administrative Agent deems necessary to protect its interests, Mortgagor shall, upon request of Administrative Agent, execute and deliver to Administrative Agent, in such form as Administrative Agent shall direct, assignments of any and all rights or claims that relate to the construction of improvements on the Property and which Mortgagor may have against any Person supplying or who has supplied labor, materials or services in connection with construction of the Property. 22. Event of Default; Acceleration; Remedies. Each of the following shall constitute an Event of Default hereunder, (a) if any Event of Default, as defined in the Credit Agreement, occurs under the Credit Agreement, (b) Mortgagor shall at any time deliver or cause to be delivered to Administrative Agent a notice pursuant to 42 Pa. C.S.A. Section 8143 electing to limit the indebtedness secured by this Agreement, or (c) if Mortgagor defaults in the performance or observance of any of the covenants or agreements of Mortgagor contained in this Agreement . In addition to any other right or remedy that Administrative Agent may now or hereafter have at law or in equity, upon the occurrence of an Event of Default, Administrative Agent shall have the right and power (i) to foreclose upon this Agreement and the lien hereof; (ii) to sell the Property according to law at one or more sales as an entirety or in parcels, if applicable, and at such time and place upon such terms and conditions and after such notices thereof as may be required by law; (iii) to enter upon and take possession of the Property; and (iv) apply for the appointment of a receiver, trustee, liquidator or conservator of the Property, without notice and without regard for the adequacy of the security for the Obligations and without regard for the solvency of Mortgagor or Borrower or any other Person liable for the payment of the Obligations, or any thereof. If all sums secured by this Agreement become immediately due and payable in accordance with this Section, Administrative Agent, at Administrative Agent's option, may foreclose this Agreement by judicial proceeding and may invoke any other remedies permitted by applicable law or as provided herein. Administrative Agent shall be entitled to collect all costs and expenses incurred in pursuing such remedies, including, but not limited to, costs of documentary evidence abstracts, title reports and attorneys' fees. 23. Indemnification. Mortgagor shall protect, indemnify and save harmless Administrative Agent and the Lenders from and against all liabilities and expenses (including, without limitation, reasonable attorneys' fees and expenses, including those incurred in connection with appellate, bankruptcy and post-judgment proceedings) imposed upon or incurred by or asserted against Administrative Agent or any Lender, and not caused by the gross 10 11 negligence or intentional misconduct of Administrative Agent or such Lender, by reason of (a) ownership of this Agreement, the Property or any interest therein or receipt of any rents, (b) any accident, injury to or death of persons or loss of or damage to property occurring in, on or about the Property or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas or streets, (c) any use, non-use or condition in, on or about the Property, or any part thereof, or on the adjoining sidewalks, curbs, adjacent property, parking areas or streets, (d) any failure on the part of Mortgagor to perform or comply with any of the terms of this Agreement, or (e) the performance of any labor or services or the furnishing of any materials or other property in respect of the Property or any part thereof. The obligations of Mortgagor under this Section 23 shall survive any termination or satisfaction of this Agreement. 24. Hazardous Waste Covenants and Indemnification. (a) Mortgagor covenants and warrants that Mortgagor's use of the Property shall at all times comply with and conform, in all material respects, to all laws, statutes, ordinances, rules and regulations of any governmental, quasi-governmental or regulatory authority now or hereafter in effect ("Laws") which relate to the transportation, storage, placement, handling, treatment, discharge, release, generation, production or disposal (collectively "Treatment") of any waste, waste products, petroleum or petroleum based products, radioactive materials, poly-chlorinated biphenyls, asbestos, hazardous materials or substances of any kind, pollutants, contaminants and any substance which is regulated by any law, statute, ordinance, rule or regulation (collectively "Waste"). Mortgagor further covenants that it shall not engage in or permit any Person to engage in any Treatment of any Waste on or that affects the Property except for activities which comply with all Laws in all material respects. (b) Except as specifically disclosed to Administrative Agent in writing in any schedule to the Credit Agreement, Mortgagor has no actual knowledge that the Property is the subject of any Notice, as hereinafter defined, from any governmental authority or Person. (c) Promptly upon receipt of any Notice from any Person, Mortgagor shall deliver to Administrative Agent a true, correct and complete copy of any written Notice or a true, correct and complete report of any non-written Notice. Additionally, Mortgagor shall notify Administrative Agent immediately after having knowledge or Notice of any Waste in or affecting the Property. "Notice" shall mean any note, notice, information, or report of any of the following: (i) any suit, proceeding, investigation, order, consent order, injunction, writ, award or action related to or affecting or indicating the Treatment of any Waste in or affecting the Property; (ii) any spill, contamination, discharge, leakage, release, threatened release, or escape of any Waste in or affecting the Property, whether sudden or gradual, accidental or anticipated, or of any other nature ("Spill"); (iii) any dispute relating to Mortgagor's or any other Person's Treatment of any Waste or any Spill in or affecting the Property; 11 12 (iv) any claims by or against any insurer related to or arising out of any Waste or Spill in or affecting the Property; (v) any recommendations or requirements of any governmental or regulatory authority, insurer or board of underwriters relating to any Treatment of Waste or a Spill in or affecting the Property; (vi) any legal requirement or deficiency related to the Treatment of Waste or any Spill in or affecting the Property; or (vii) any tenant, licensee, concessionaire, manager, or other Person occupying or using the Property or any part thereof which has engaged in or engages in the Treatment of any Waste in or affecting the Property in violation of applicable Laws. (d) In the event that (i) Mortgagor has caused, suffered or permitted, directly or indirectly, any Spill in or affecting the Property during the term of this Agreement, or (ii) any Spill of any Waste has occurred on the Property during the term of this Agreement, then Mortgagor shall immediately take all of the following actions: (A) notify Administrative Agent, as provided herein; (B) take all steps necessary or appropriate to clean up such Spill and any contamination related to the Spill, all in accordance with the requirements, rules or regulations of any local, state or federal governmental or regulatory authority or agency having jurisdiction over the Spill; provided that Mortgagor may contest any such requirement, rule or regulation by appropriate proceedings diligently and in good faith, so long as (1) Mortgagor provides Administrative Agent, at Mortgagor's cost, such sureties, performance bonds and other assurances as Administrative Agent may from time to time request in respect of such Spill and contamination and the cleanup thereof, (2) any governmental or other action against Mortgagor and the Property is effectively stayed during Mortgagor's efforts so to contest, and (3) in Administrative Agent's determination, a delay in such clean-up will not result in or increase any loss or liability to Administrative Agent; (C) restore the Property, provided that such restoration shall be no less than, but need not be more than, what is otherwise required by applicable federal, state or local law or authorities; (D) allow any local, state or federal governmental or regulatory authority or agency having jurisdiction thereof to monitor and inspect all cleanup and restoration related to such Spill; and (E) at the written request of Administrative Agent, post a bond or obtain a letter of credit for the benefit of Administrative Agent (drawn upon a company or bank satisfactory to Administrative Agent) or deposit an amount of money in an escrow account under Administrative Agent's name upon which bond, letter of credit or escrow Mortgagor may draw, and which bond, letter of credit or escrow shall be in an 12 13 amount sufficient to meet all of Mortgagor's obligations under this Section 24; and Administrative Agent shall have the unfettered right to draw against the bond, letter of credit or escrow in its discretion in the event that Mortgagor is unable or unwilling to meet its obligation under this Section 24 or, if Mortgagor fails to post a bond or obtain a letter of credit or deposit such cash as is required herein, then Administrative Agent, at Mortgagor's cost and expense, may, but shall have no obligation to do so for the benefit of Mortgagor and do those things that Mortgagor is required to do under clauses (B), (C) and (D) of this subsection (d). (e) Mortgagor hereby agrees that it shall indemnify, defend, save and hold harmless Administrative Agent and the Lenders and their respective officers, directors employees, agents, successors, assigns and affiliates (collectively, "Indemnified Parties") against and from, and to reimburse the Indemnified Parties with respect to, any and all damages, claims, liabilities, losses, costs and expenses (including, without limitation, reasonable attorneys', engineers' and consultants' fees and expenses, court costs, administrative costs, costs of appeals and all clean up, administrative, fines, penalties and enforcement costs of applicable governmental agencies) that are incurred by or asserted against the Indemnified Parties by reason or arising out of: (i) the breach of any representation, warranty or undertaking of Mortgagor under this Section 24, or (ii) the Treatment of any Waste by Mortgagor or any tenant, licensee, concessionaire, manager, or other Person occupying or using the Property, in or affecting the Property, or (iii) any Spill governed by the terms of this Section 24. (f) The obligations of Mortgagor under this Section 24 shall survive any termination or satisfaction of this Agreement. 25. Priority of Mortgage Lien. Administrative Agent, at Administrative Agent's option, is authorized and empowered to do all things provided to be done by a mortgagee under Pennsylvania law, and any present or future amendments or supplements thereto, as in effect from time to time, for the protection of Administrative Agent's interests in the Property. 26. Adjustments to Maximum Liability. Anything in this Agreement to the contrary notwithstanding, in no event shall the amount of the Obligations secured by this Agreement exceed the maximum amount that (after giving effect to the incurring of the obligations hereunder and to any rights to contribution of Mortgagor from other affiliates of Borrower) would not render the rights to payment of Administrative Agent and the Lenders hereunder void, voidable or avoidable under any applicable fraudulent transfer law. [Remainder of page intentionally left blank] 13 14 27. JURY TRIAL WAIVER. MORTGAGOR, ADMINISTRATIVE AGENT AND THE LENDERS WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG THEM ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. IN WITNESS WHEREOF, Mortgagor has executed this Agreement as of the day and year first set forth above. MORTGAGOR: [________________________________], By:________________________________ Name:______________________________ Title:_____________________________ ATTEST: ___________________________________ Name:______________________________ Title:_____________________________ I certify that the address of Administrative Agent is: 127 Public Square Cleveland, Ohio 44114 _________________________________ On Behalf of Administrative Agent 14 15 STATE OF OHIO ) ) SS: COUNTY OF CUYAHOGA ) On this 10th day of August, 2001, before me, a Notary Public in and for said County and State, personally appeared _____________________________________ _____________, the _______________________ of [___________________________], a Pennsylvania corporation, who acknowledged the signing of the foregoing instrument on behalf of said corporation to be her/his free act and deed and the free act and deed of said corporation for the uses and purposes set forth therein. IN WITNESS WHEREOF, I have hereunto set my hand and official seal at Cleveland, Ohio. ____________________________________ Notary Public CERTIFICATE OF RESIDENCE The undersigned certifies that the residence of Administrative Agent is 127 Public Square, Cleveland, Ohio 44114. ____________________________________ John E. Mazey, Attorney for Administrative Agent 15 16 EXHIBIT A LEGAL DESCRIPTION 16 17 EXHIBIT B PERMITTED ENCUMBRANCES 17 EX-10.26 10 l89585aex10-26.txt EX-10.26 1 EXHIBIT 10.26 - -------------------------------------------------------------------------------- MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING - -------------------------------------------------------------------------------- Prepared by and after recording return to: John E. Mazey, Esq. Jones, Day, Reavis & Pogue 901 Lakeside Avenue Cleveland, Ohio 44114 Property Address: __________________ __________________ Property Index Numbers: _______________________ _______________________ _______________________ _______________________ 2 MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING Maximum Principal Amount Not to Exceed $65,000,000 THIS MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING (as the same may from time to time be amended, restated or otherwise modified, this "Agreement") is made as of the 31st day of July, 2001, by [______________________], a [_________________], 200 Public Square, Suite 30-5000, Cleveland, Ohio 44114 ("Mortgagor") in favor of KEYBANK NATIONAL ASSOCIATION, a national banking association, as administrative agent for the Lenders, as hereinafter defined (in its capacity as agent, for the benefit of and on behalf of the Lenders, "Administrative Agent"). WHEREAS, HAWK CORPORATION, a Delaware corporation ("Borrower"), Administrative Agent, and the other financial institutions listed on Annex I to the Credit Agreement, as hereinafter defined (collectively, together with their respective successors and assigns, "Lenders" and, individually, "Lender"), are parties to that certain Credit Agreement, dated as of May 1, 1998 (as amended and as the same may from time to time be further amended, restated or otherwise modified, the "Credit Agreement"; the capitalized terms defined therein and not otherwise defined in this Agreement being used herein as therein defined), pursuant to which the Lenders will, among other things, continue to grant to Borrower the Loans, as defined in the Credit Agreement, and Letters of Credit, as defined in the Credit Agreement, and other extensions of credit pursuant to the Credit Agreement; WHEREAS, Mortgagor, a subsidiary of Borrower whose financing is provided by the Loans and Letters of Credit, deems it to be in the direct pecuniary and business interests of Mortgagor that Borrower continue to obtain from the Lenders the Commitment, as defined in the Credit Agreement, and the Loans and Letters of Credit provided for in the Credit Agreement; and WHEREAS, Mortgagor understands that the Lenders are willing to continue to grant such financial accommodations to Borrower only upon certain terms and conditions, one of which is that Mortgagor execute and deliver this Agreement and this Agreement is being executed and delivered in consideration of each financial accommodation, granted to Borrower by Administrative Agent and the Lenders and for other valuable considerations. NOW, THEREFORE, TO SECURE TO ADMINISTRATIVE AGENT, for the benefit of the Lenders, all of the following (collectively, the "Obligations"): (a) all Loans and Letters of Credit; (b) all other indebtedness now owing or hereafter incurred by Borrower to Administrative Agent or any Lender pursuant to the Credit Agreement and any Note executed in connection therewith; (c) each renewal, extension, consolidation or refinancing of any of the foregoing, in whole or in part; (d) all interest from time to time accruing on any of the foregoing, and all fees and other amounts payable by Borrower pursuant to the Credit Agreement; (e) all obligations and liabilities of Borrower now existing or hereafter incurred to Administrative Agent or any Lender (or any affiliate of such Lender) under, arising out of, or in connection with any Hedge Agreement between Borrower and the Administrative Agent or any Lender (or any of their 2 3 respective affiliates) in connection with the Obligations; (f) every other liability, now or hereafter owing to Administrative Agent or any Lender by Borrower or Mortgagor pursuant to the Credit Agreement or any other Credit Document; (g) the payment of all other sums, with interest thereon, advanced in accordance herewith to protect the security of this Agreement; and (h) the performance of the covenants and agreements of Mortgagor contained in this Agreement, Mortgagor does hereby MORTGAGE, GRANT, CONVEY, WARRANT AND ASSIGN to Administrative Agent, for the benefit of the Lenders, the real property described in Exhibit A attached hereto and made a part hereof, together with all present and future right, title and interest of Mortgagor therein or in any way appertaining thereto, and all buildings, improvements and tenements now or hereafter erected on the property, and all heretofore or hereafter vacated alleys and streets abutting the property, and all easements, rights, appurtenances, rents, royalties, mineral, oil and gas rights and profits, water, water rights, and water stock appurtenant to the property, and all fixtures, machinery, equipment, engines, boilers, incinerators, building materials, appliances and goods of every nature whatsoever now or hereafter owned by Mortgagor and located in, or on, or used, or intended to be used in connection with the property, including, but not limited to, those for the purposes of supplying or distributing heating, cooling, electricity, gas, water, air and light; all cranes and materials handling equipment; and all elevators, and related machinery and equipment, fire prevention and extinguishing apparatus, security and access control apparatus, plumbing, bath tubs, water heaters, water closets, stoves, refrigerators, dishwashers, disposals, washers, dryers, awnings, storm windows, storm doors, screens, blinds, shades, curtains and curtain rods, mirrors, cabinets, paneling, rugs, attached floor coverings, furniture, fixtures, equipment; and all rentals, revenues, payments, repayments, deposits, income, charges and moneys derived from the use, lease, sublease, rental or other disposition of the property and the proceeds from any insurance or condemnation award pertaining thereto; and all other property (tangible and intangible) now owned or hereafter acquired by Mortgagor and used in, on or about the subject real estate or arising from the operation of the property, all of which, including replacements and additions thereto and proceeds therefrom, shall be deemed to be and remain a part of the real property covered by this Agreement; and all of the foregoing, including said real property, are herein referred to as the "Property". TO HAVE AND TO HOLD, Mortgagor represents and warrants that (i) Mortgagor is lawfully seized of the estate hereby conveyed and has the right to mortgage, grant, convey and assign the Property, (ii) the Property is unencumbered except for the matters approved by Administrative Agent and the Lenders and described on Exhibit B attached hereto and made a part hereof ("Permitted Encumbrances"), and (iii) Mortgagor will warrant and defend generally the title to the Property against all claims and demands whatsoever, except as aforesaid. Mortgagor hereby releases and waives all rights under and by virtue of the Homestead Exemption Laws, if any, of the State of [___________]. Mortgagor and Administrative Agent, on behalf of the Lenders, covenant and agree as follows: 1. Payment of Obligations. Mortgagor shall promptly pay and perform all of the Obligations when due. 3 4 2. Future Advances. This Agreement is intended to secure all of the Obligations, including such Obligations that may be advanced to or payable by Mortgagor after the date of this Agreement. This Agreement shall secure the maximum principal amount of up to Sixty-Five Million Dollars ($65,000,000), together with interest thereon and such other amounts as shall become due and owing to Administrative Agent and the Lenders from Mortgagor pursuant this Agreement. 3. Insurance. Mortgagor shall keep all improvements now existing or hereafter erected on the Property insured against loss by fire and such other hazards, casualties, and contingencies in such form, written by Mortgagor, in such amounts, for such period, and against such risks as may be acceptable to Administrative Agent, with provisions satisfactory to Administrative Agent, for payment of all losses thereunder to Administrative Agent, for the benefit of the Lenders, and Mortgagor as its interest may appear (loss payable endorsement in favor of Administrative Agent, for the benefit of Lenders), and, if required by Administrative Agent, Mortgagor shall deposit the policies with Administrative Agent. Any such policies of insurance shall provide for no fewer than thirty (30) days prior written notice of cancellation to Administrative Agent. In the event of foreclosure of this Agreement, all right, title, and interest of Mortgagor in and to any insurance policies then in force shall pass to the purchaser at foreclosure sale, and Administrative Agent is hereby appointed attorney in fact for Mortgagor for the purpose of assigning and transferring such policies and receiving all or any part of the proceeds therefrom. The insurance proceeds or any part thereof may be applied by Administrative Agent, at Administrative Agent's option, either to the reduction of the Obligations or to restoration or repair of the property damaged. 4. Funds for Taxes, Insurance and Other Charges. Upon default in payment by Mortgagor of any of the following described items, or upon the occurrence of an Event of Default, as hereinafter defined, Administrative Agent shall have the right, at Administrative Agent's option, to require Mortgagor to pay to Administrative Agent on the first day of each month, until the Obligations have been paid in full, a sum (herein "Funds") equal to one-twelfth of (a) the yearly water and sewer rates and taxes and assessments that may be levied on the Property and (b) the yearly premium installments for fire and other hazard insurance, rent loss insurance (if applicable) and such other insurance covering the Property as Administrative Agent may require pursuant to the Credit Agreement, all as reasonably estimated initially and from time to time by Administrative Agent on the basis of assessments and bills and reasonable estimates thereof. Any waiver by Administrative Agent of a requirement that Mortgagor pay such Funds may be revoked by Administrative Agent, in Administrative Agent's sole discretion, at any time upon notice in writing to Mortgagor. Administrative Agent may require Mortgagor to pay to Administrative Agent, in advance, such other Funds for other taxes, charges, premiums, assessments and impositions in connection with Mortgagor or the Property that Administrative Agent shall reasonably deem necessary to protect Administrative Agent's interests (herein "Other Impositions"). Unless otherwise provided by applicable law, Administrative Agent, at Administrative Agent's option, may require Funds for Other Impositions to be paid by Mortgagor in a lump sum (not exceeding Other Impositions due for a one-year period) or in periodic installments. The Funds shall be held by Administrative Agent and shall be applied to pay such rates, rents, taxes, assessments, insurance premiums and Other Impositions so long as no Event 4 5 of Default has occurred. Administrative Agent shall make no charge for so holding and applying the Funds, analyzing such account or for verifying and compiling said assessments and bills, unless Administrative Agent pays Mortgagor interest, earnings or profits on the Funds and applicable law permits Administrative Agent to make such a charge. Unless applicable law requires interest, earnings or profits on the Funds to be paid, Administrative Agent shall not be required to pay Mortgagor any interest, earnings or profits on the Funds. Administrative Agent shall give to Mortgagor, without charge, an annual accounting of the Funds showing credits and debits to the Funds and the purpose for which each debit to such Funds was made. The Funds are pledged as additional security for the Obligations and shall be subject to the right of set off. If the amount of the Funds held by Administrative Agent at the time of the annual accounting thereof shall exceed the amount deemed necessary by Administrative Agent to provide for the payment of water and sewer rates, taxes, assessments, insurance premiums, rents and Other Impositions, as such payments become due, Administrative Agent (in its sole discretion) may either (i) return the amount of the excess to Mortgagor or (ii) apply a part or all of such excess at such time or times as Administrative Agent may elect to the Obligations. If, at any time, the amount of the Funds held by Administrative Agent shall be less than the amount deemed necessary by Administrative Agent to pay water and sewer rates, taxes, assessments, insurance premiums, rents and Other Impositions, as such payments become due, Mortgagor shall, on demand, pay such deficiency. Upon the occurrence of an Event of Default, Administrative Agent may apply, in any amount and in any order as Administrative Agent shall determine, in Administrative Agent's sole discretion, any Funds held by Administrative Agent at the time of application (A) to pay rates, rents, taxes, assessments, insurance premiums and Other Impositions that are now or shall hereafter become due; or (B) as a credit against sums secured by this Agreement. Upon release of this Agreement and payment in full of the Obligations, Administrative Agent shall promptly refund to Mortgagor any Funds held by Administrative Agent. 5. Charges; Mechanics Liens. Mortgagor shall pay all water and sewer rates, rents, taxes assessments, premiums, and Other Impositions (not being diligently contested by Mortgagor (a) in a timely manner and (b) with the support of adequate financial reserves), attributable to the Property. Mortgagor shall promptly discharge any lien that has, or may have, priority over or equality with, the lien of this Agreement, other than Permitted Encumbrances. If a mechanic's lien is filed against the Property, Mortgagor shall promptly notify Administrative Agent and, at Administrative Agent's request, shall deliver to Administrative Agent, either of the following, at Mortgagor's option, (i) a cash deposit or (ii) an indemnity bond satisfactory to Administrative Agent issued by a surety satisfactory to Administrative Agent, in the amount claimed by any such lien, together with an additional sum necessary to pay all costs, interest and penalties that may be payable in connection therewith. Without Administrative Agent's prior written consent, Mortgagor shall not allow any lien, encumbrance, or other interest in the Property to be perfected against the Property, other than Permitted Encumbrances, unless Mortgagor is then diligently contesting same and has, as to the lien, encumbrance or interest being contested, complied with (i) or (ii) of the preceding sentence. 6. Preservation and Maintenance of Property. Mortgagor (a) shall not commit waste or permit impairment or deterioration of the Property; (b) shall not abandon the Property; (c) 5 6 shall, unless Administrative Agent withholds insurance proceeds as security for or application to the Obligations as provided in the Credit Agreement, restore or repair promptly and in a good and workmanlike manner all or any part of the Property to the equivalent of its original condition, or such other condition as Administrative Agent may approve in writing, in the event of any damage, injury or loss thereto, whether or not insurance proceeds are available to cover in whole or in part the costs of such restoration or repair unless the improvements constituting the Property are (i) totally destroyed, (ii) insurance has been maintained thereon as required by this Agreement, and (iii) Administrative Agent applies the proceeds of such insurance to payment of the Obligations; (d) shall keep the Property, including improvements, fixtures, equipment, machinery and appliances, in good repair and shall replace improvements, fixtures, equipment, machinery and appliances on the Property owned by Mortgagor when necessary to keep such items in good repair; (e) shall comply in all material respects with all laws, ordinances, regulations and requirements of any governmental body applicable to the Property, including, without limitation, the American with Disabilities Act, as it may be amended from time to time; and (f) shall give notice in writing to Administrative Agent of, appear in and defend, any action or proceeding purporting to affect the Property, the security of this Agreement or the rights or powers of Administrative Agent, except for any such action or proceeding caused by the gross negligence or intentional misconduct of Administrative Agent. Unless required by applicable law or unless Administrative Agent has otherwise consented in writing, neither Mortgagor nor any tenant or other Person shall remove, demolish or alter any improvement now existing or hereafter erected on the Property or any fixture (other than trade fixtures), equipment, machinery or appliance in or on the Property owned by Mortgagor and used or intended to be used in connection with the Property, except as permitted pursuant to the Credit Agreement. 7. Use of Property. Unless required by applicable law or unless Administrative Agent has otherwise agreed in writing, Mortgagor shall not allow changes in the use for which all or any part of the Property was intended at the time this Agreement was executed. Mortgagor shall not initiate or acquiesce in a change in the zoning classification of the Property without Administrative Agent's prior written consent. 8. Protection of Administrative Agent's Security. If Mortgagor fails to perform the covenants and agreements contained in this Agreement, or if any action or proceeding is commenced that affects the Property or title thereto or the interest of Administrative Agent therein, including, but not limited to, eminent domain, insolvency, enforcement of local laws, or arrangements or proceedings involving a bankrupt or decedent, then Administrative Agent, at Administrative Agent's option, may make such appearances, disburse such sums and take such action as Administrative Agent deems necessary, in its sole discretion, to protect the interests of Administrative Agent and the Lenders, including, but not limited to, (a) disbursement of attorneys' fees; (b) entry upon the Property to remedy any failure of Mortgagor to perform hereunder; and (c) procurement of satisfactory insurance. Any amounts disbursed by Administrative Agent pursuant to this Section 8, with interest thereon, shall become part of the Obligations and shall be secured by this Agreement. Unless Mortgagor and Administrative Agent agree in writing to other terms of payment, such amounts shall be immediately due and payable and shall bear interest from the date of disbursement, unless collection from Mortgagor of interest at such rate would be contrary to applicable law, in which event such amounts shall bear interest at the highest rate that may be 6 7 collected from Mortgagor under applicable law. Mortgagor hereby covenants and agrees that Administrative Agent shall be subrogated to the lien of any mortgage or other lien discharged, in whole or in part, by the Obligations. Nothing contained in this Section 8 shall require Administrative Agent to incur any expense or take any action hereunder. The procurement of insurance of the payment of taxes or other liens or charges by Administrative Agent shall not be a waiver of the right of Administrative Agent or the Lenders to accelerate the maturity of any of the Obligations secured by this Agreement. Administrative Agent's receipt of any awards, proceeds or damages under the insurance or condemnation provisions of the Credit Agreement or this Agreement shall not operate to cure or waive any default in payment of sums secured by this Agreement. 9. Condemnation. Mortgagor shall promptly notify Administrative Agent of any action or proceeding relating to any condemnation or other taking, whether direct or indirect, of the Property, or part thereof, and Mortgagor shall appear in and prosecute any such action or proceeding unless otherwise directed by Administrative Agent in writing. Mortgagor authorizes Administrative Agent, at Administrative Agent's option, as attorney-in-fact for Mortgagor, to commence, appear in and prosecute, after the occurrence of an Event of Default, in Administrative Agent's or Mortgagor's name, any action or proceeding relating to any condemnation or other taking of the Property, whether direct or indirect, and to settle or compromise any claim in connection with such condemnation or other taking. The proceeds of any award, payment or claim for damages, direct or consequential, in connection with any condemnation or other taking, whether direct or indirect, of the Property, or part thereof, or for conveyances in lieu of condemnation, are hereby assigned to and shall be paid to Administrative Agent. With the consent of Administrative Agent, which consent may be withheld in Administrative Agent's sole discretion, Mortgagor may apply such awards, payments, proceeds or damages, after the deduction of Administrative Agent's expenses incurred in the collection of such amounts, to restoration or repair of the Property. Otherwise, such sums so received shall be applied to payment of the Obligations. Mortgagor agrees to execute such further evidence of assignment of any awards, proceeds, damages or claims arising in connection with such condemnation or taking as Administrative Agent may reasonably require. 10. Estoppel Certificate. Mortgagor shall, within ten (10) days of a written request from Administrative Agent, furnish Administrative Agent with a written statement, duly acknowledged, setting forth the sums secured by this Agreement and any right of set-off, counterclaim or other defense that exists against such sums and any Obligations. 11. Uniform Commercial Code and Fixture Filing. This Agreement shall also constitute a "fixture filing" under the Uniform Commercial Code, as adopted in [_________] for the purpose of perfecting Administrative Agent's security interest in all of Mortgagor's property now owned or hereafter acquired which is or becomes a "fixture" to the Property under the Uniform Commercial Code, as in effect from time to time in [___________], with the names and addresses of the "debtor" and "secured party" for such purpose being: 7 8 Debtor: [_____________] [_____________] [_____________] Attn: President Secured Party: KeyBank National Association, as Administrative Agent 127 Public Square Cleveland, Ohio 44114 Attn: Large Corporate Group 12. Leases of the Property. Mortgagor shall comply with and observe Mortgagor's obligations as landlord or as tenant, as the case may be, under any leases of the Property or any part thereof. Mortgagor shall furnish Administrative Agent with executed copies of the leases now existing or hereafter made of all or any part of the Property, and all future leases and amendments or modifications thereto shall be subject to Administrative Agent's prior written approval. Unless otherwise directed by Administrative Agent, all leases of the Property made after the date hereof shall specifically provide that such leases are subordinate to this Agreement; that the tenant attorns to Administrative Agent, such attornment to be effective upon Administrative Agent's acquisition of title to the Property; that the tenant agrees to execute such further evidences of attornment as Administrative Agent may from time to time request; and that the attornment of the tenant shall not be terminated by foreclosure. Mortgagor shall not, without Administrative Agent's written consent, execute, modify, surrender or terminate, either orally or in writing, any lease hereafter made of all or any part of the Property, permit an assignment or sublease of such a lease, or request or consent to the subordination of any lease of all or any part of the Property to any lien subordinate to this Agreement, provided that such leases are on commercially reasonable terms. If Mortgagor becomes aware that any tenant proposes to do, or is doing, any act or thing that may give rise to any right to set-off against rent, Mortgagor shall (a) take such steps as shall be reasonably calculated to prevent the accrual of any right to a set-off against rent, (b) notify Administrative Agent thereof and of the amount of said set-offs, and (c) within twenty (20) days after such accrual, reimburse the tenant who shall have acquired such right to set-off or take such other steps as shall effectively discharge such set-off and as shall assure that rents thereafter due shall continue to be payable without set-off or deduction. 13. Remedies Cumulative. Each remedy provided in this Agreement is distinct and cumulative to all other rights or remedies under this Agreement or the Credit Agreement or afforded by law or in equity, and may be exercised concurrently, independently, or successively, in any order whatsoever. 14. Transfers of the Property; Changes in Control or Ownership of Mortgagor. Except as expressly permitted pursuant to the Credit Agreement, Mortgagor shall not (a) voluntary or involuntary sell, lease, exchange, assign, convey, transfer or otherwise dispose of all or any portion of the Property (or any interest therein), or all or any of the beneficial ownership interest in Mortgagor, or (b) convey to any Person, other than Administrative Agent, a security interest in the Property or any part thereof or voluntarily or involuntarily permit or suffer the Property to be further encumbered. 15. Credit Agreement Provisions. Mortgagor agrees to comply with the covenants and conditions of the Credit Agreement that is hereby incorporated by reference in and made a 8 9 part of this Agreement. All sums disbursed by Administrative Agent to protect the security of this Agreement shall be treated as Related Expenses. All such sums shall bear interest from the date of disbursement. In the event of any conflict or inconsistency between this Agreement and the Credit Agreement, the terms of the Credit Agreement shall control. As used herein, "Related Expenses" shall mean any and all reasonable costs, liabilities and expenses (including, without limitation, losses, damages, penalties, claims, actions, reasonable attorneys' fees, legal expenses, judgments, suits and disbursements) (a) incurred by Administrative Agent, or imposed upon or asserted against Administrative Agent or any Lender, in any attempt by Administrative Agent and the Lenders to (i) obtain, preserve, perfect, or enforce any security interest evidenced by this Agreement, the Credit Agreement, any Credit Document, or any other document, instrument or agreement executed in connection with any of the foregoing; (ii) obtain payment, performance or observance of any and all of the Obligations; or (iii) maintain, insure, audit, collect, preserve, repossess or dispose of any of the Property or any other collateral securing the Obligations, including, without limitation, costs and expenses for appraisals, assessments and audits of Borrower or any such collateral; or (b) incidental or related to (a) above, including, without limitation, interest thereupon from the date incurred, imposed or asserted until paid. 16. Notice. Except as otherwise expressly provided herein, all notices and other communications provided for hereunder shall be in writing (including telegraphic, telex, facsimile transmission or cable communication) and mailed, telegraphed, telexed, transmitted, cabled or delivered, if to Mortgagor, at 200 Public Square, Suite 30-5000, Cleveland, Ohio 44114, Attn: Vice President-Finance, if to any Lender, at its address specified for such Lender on Annex I to the Credit Agreement, and if to Administrative Agent, at the Notice Office, as defined in the Credit Agreement; or at such other address as shall be designated by any party in a written notice to the other parties hereto. All such notices and communications shall be mailed, telegraphed, telexed, telecopied, or cabled or sent by overnight courier, and shall be effective when received. 17. Successors and Assigns Bound; Agents; Captions. The covenants and agreements herein contained shall bind, and the rights hereunder shall inure to, the respective successors and permitted assigns of Administrative Agent, the Lenders and Mortgagor. In exercising any rights hereunder or taking any actions provided for herein, Administrative Agent may act through its employees, agents or independent contractors as authorized by Administrative Agent. The captions and headings of the Sections of this Agreement are for convenience only and are not to be used to interpret or define the provisions hereof. 18. Governing Law; Severability. This Agreement shall be governed by the laws of the State of [___________], without regard to principles of conflicts of laws. In the event that any provision of this Agreement conflicts with applicable law, such conflict shall not affect other provisions of this Agreement that can be given effect without the conflicting provisions, and to this end the provisions of this Agreement are declared to be severable. 19. Waiver of Marshaling. In the event of foreclosure of the lien of this Agreement, the Property may be sold in one or more parcels or as an entirety as Administrative Agent may elect. 9 10 Notwithstanding the existence of any other security interests in the Property held by Administrative Agent, or by any other Person, Administrative Agent shall have the right to determine the order in which any or all of the Property shall be subjected to the remedies provided herein. Administrative Agent shall have the right to determine the order in which any or all of the Obligations are satisfied from the proceeds realized upon the exercise of the remedies provided herein. Mortgagor, any Person that consents to this Agreement, and any Person that now or hereafter acquires a security interest in the Property and that has actual or constructive notice hereof, hereby waives any and all right to require the marshaling of assets in connection with the exercise of any of the remedies permitted by applicable law or provided herein. 20. Assignment of Rents; Appointment of Receiver; Agent in Possession. Mortgagor hereby absolutely and unconditionally assigns and transfers to Administrative Agent all of the leases, rents and revenues of the Property, including those now due, past due, or to become due by virtue of any lease or other agreement for the occupancy or use of all or any part of the Property, regardless to whom the rents and revenues of the Property are payable. Although this Agreement is a present assignment, Administrative Agent shall not exercise any of the rights or powers herein conferred upon it until an Event of Default shall have occurred. Mortgagor hereby authorizes Administrative Agent or Administrative Agent's agents to collect the aforesaid rents and revenues and hereby directs each tenant of the Property to pay such rents to Administrative Agent or Administrative Agent's agents. Upon the occurrence of an Event of Default, and without the necessity of Administrative Agent entering upon and taking and maintaining full control of the Property in person, by agent or by a court appointed receiver, Administrative Agent shall immediately be entitled to possession of all rents and revenues of the Property as specified in this Section 20 as the same become due and payable (including but not limited to rents then due and unpaid) and all such rents received by Mortgagor shall immediately, upon delivery of such notice, be held by Mortgagor, as trustee for the benefit of Administrative Agent only. This Section 20 may be supplemented by a separate assignment of leases and rents agreement entered into by and between Administrative Agent and Mortgagor, which instrument shall set forth more fully Administrative Agent's rights with respect to the leases, rents and revenue of the Property. 21. Assignment of Construction Rights. From time to time, as Administrative Agent deems necessary to protect its interests, Mortgagor shall, upon request of Administrative Agent, execute and deliver to Administrative Agent, in such form as Administrative Agent shall direct, assignments of any and all rights or claims that relate to the construction of improvements on the Property and which Mortgagor may have against any Person supplying or who has supplied labor, materials or services in connection with construction of the Property. 22. Event of Default; Acceleration; Remedies. Each of the following shall constitute an Event of Default hereunder, (a) if any Event of Default, as defined in the Credit Agreement, occurs under the Credit Agreement, or (b) if Mortgagor defaults in the performance or observance of any of the covenants or agreements of Mortgagor contained in this Agreement . In addition to any other right or remedy that Administrative Agent may now or hereafter have at law or in equity, upon the occurrence of an Event of Default, Administrative Agent shall have the right and power (i) to foreclose upon this Agreement and the lien hereof; (ii) to sell the Property according to law, which power of sale is hereby granted to Administrative Agent to the 10 11 full extent permitted by the laws of the State of [___________], at one or more sales as an entirety or in parcels, if applicable, and at such time and place upon such terms and conditions and after such notices thereof as may be required by law; (iii) to enter upon and take possession of the Property; and (iv) apply for the appointment of a receiver, trustee, liquidator or conservator of the Property, without notice and without regard for the adequacy of the security for the Obligations and without regard for the solvency of Mortgagor or Borrower or any other Person liable for the payment of the Obligations, or any thereof. If all sums secured by this Agreement become immediately due and payable in accordance with this Section, Administrative Agent, at Administrative Agent's option, may foreclose this Agreement by judicial proceeding and may invoke any other remedies permitted by applicable law or as provided herein. Administrative Agent shall be entitled to collect all costs and expenses incurred in pursuing such remedies, including, but not limited to, costs of documentary evidence abstracts, title reports and attorneys' fees. 23. Indemnification. Mortgagor shall protect, indemnify and save harmless Administrative Agent and the Lenders from and against all liabilities and expenses (including, without limitation, reasonable attorneys' fees and expenses, including those incurred in connection with appellate, bankruptcy and post-judgment proceedings) imposed upon or incurred by or asserted against Administrative Agent or any Lender, and not caused by the gross negligence or intentional misconduct of Administrative Agent or such Lender, by reason of (a) ownership of this Agreement, the Property or any interest therein or receipt of any rents, (b) any accident, injury to or death of persons or loss of or damage to property occurring in, on or about the Property or any part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent parking areas or streets, (c) any use, non-use or condition in, on or about the Property, or any part thereof, or on the adjoining sidewalks, curbs, adjacent property, parking areas or streets, (d) any failure on the part of Mortgagor to perform or comply with any of the terms of this Agreement, or (e) the performance of any labor or services or the furnishing of any materials or other property in respect of the Property or any part thereof. The obligations of Mortgagor under this Section 23 shall survive any termination or satisfaction of this Agreement. 24. Hazardous Waste Covenants and Indemnification. (a) Mortgagor covenants and warrants that Mortgagor's use of the Property shall at all times comply with and conform, in all material respects, to all laws, statutes, ordinances, rules and regulations of any governmental, quasi-governmental or regulatory authority now or hereafter in effect ("Laws") which relate to the transportation, storage, placement, handling, treatment, discharge, release, generation, production or disposal (collectively "Treatment") of any waste, waste products, petroleum or petroleum based products, radioactive materials, poly-chlorinated biphenyls, asbestos, hazardous materials or substances of any kind, pollutants, contaminants and any substance which is regulated by any law, statute, ordinance, rule or regulation (collectively "Waste"). Mortgagor further covenants that it shall not engage in or permit any Person to engage in any Treatment of any Waste on or that affects the Property except for activities which comply with all Laws in all material respects. (b) Except as specifically disclosed to Administrative Agent in writing in any schedule to the Credit Agreement, Mortgagor has no actual knowledge that the Property is the subject of any Notice, as hereinafter defined, from any governmental authority or Person. 11 12 (c) Promptly upon receipt of any Notice from any Person, Mortgagor shall deliver to Administrative Agent a true, correct and complete copy of any written Notice or a true, correct and complete report of any non-written Notice. Additionally, Mortgagor shall notify Administrative Agent immediately after having knowledge or Notice of any Waste in or affecting the Property. "Notice" shall mean any note, notice, information, or report of any of the following: (i) any suit, proceeding, investigation, order, consent order, injunction, writ, award or action related to or affecting or indicating the Treatment of any Waste in or affecting the Property; (ii) any spill, contamination, discharge, leakage, release, threatened release, or escape of any Waste in or affecting the Property, whether sudden or gradual, accidental or anticipated, or of any other nature ("Spill"); (iii) any dispute relating to Mortgagor's or any other Person's Treatment of any Waste or any Spill in or affecting the Property; (iv) any claims by or against any insurer related to or arising out of any Waste or Spill in or affecting the Property; (v) any recommendations or requirements of any governmental or regulatory authority, insurer or board of underwriters relating to any Treatment of Waste or a Spill in or affecting the Property; (vi) any legal requirement or deficiency related to the Treatment of Waste or any Spill in or affecting the Property; or (vii) any tenant, licensee, concessionaire, manager, or other Person occupying or using the Property or any part thereof which has engaged in or engages in the Treatment of any Waste in or affecting the Property in violation of applicable Laws. (d) In the event that (i) Mortgagor has caused, suffered or permitted, directly or indirectly, any Spill in or affecting the Property during the term of this Agreement, or (ii) any Spill of any Waste has occurred on the Property during the term of this Agreement, then Mortgagor shall immediately take all of the following actions: (A) notify Administrative Agent, as provided herein; (B) take all steps necessary or appropriate to clean up such Spill and any contamination related to the Spill, all in accordance with the requirements, rules or regulations of any local, state or federal governmental or regulatory authority or agency having jurisdiction over the Spill; provided that Mortgagor may contest any such requirement, rule or regulation by appropriate proceedings diligently and in good faith, so long as (1) Mortgagor provides Administrative Agent, at Mortgagor's cost, such sureties, performance bonds and other assurances as Administrative Agent may from time to time request in respect of such Spill and contamination and the cleanup thereof, (2) any governmental or other action against Mortgagor and the Property is effectively stayed 12 13 during Mortgagor's efforts so to contest, and (3) in Administrative Agent's determination, a delay in such clean-up will not result in or increase any loss or liability to Administrative Agent; (C) restore the Property, provided that such restoration shall be no less than, but need not be more than, what is otherwise required by applicable federal, state or local law or authorities; (D) allow any local, state or federal governmental or regulatory authority or agency having jurisdiction thereof to monitor and inspect all cleanup and restoration related to such Spill; and (E) at the written request of Administrative Agent, post a bond or obtain a letter of credit for the benefit of Administrative Agent (drawn upon a company or bank satisfactory to Administrative Agent) or deposit an amount of money in an escrow account under Administrative Agent's name upon which bond, letter of credit or escrow Mortgagor may draw, and which bond, letter of credit or escrow shall be in an amount sufficient to meet all of Mortgagor's obligations under this Section 24; and Administrative Agent shall have the unfettered right to draw against the bond, letter of credit or escrow in its discretion in the event that Mortgagor is unable or unwilling to meet its obligation under this Section 24 or, if Mortgagor fails to post a bond or obtain a letter of credit or deposit such cash as is required herein, then Administrative Agent, at Mortgagor's cost and expense, may, but shall have no obligation to do so for the benefit of Mortgagor and do those things that Mortgagor is required to do under clauses (B), (C) and (D) of this subsection (d). (e) Mortgagor hereby agrees that it shall indemnify, defend, save and hold harmless Administrative Agent and the Lenders and their respective officers, directors employees, agents, successors, assigns and affiliates (collectively, "Indemnified Parties") against and from, and to reimburse the Indemnified Parties with respect to, any and all damages, claims, liabilities, losses, costs and expenses (including, without limitation, reasonable attorneys', engineers' and consultants' fees and expenses, court costs, administrative costs, costs of appeals and all clean up, administrative, fines, penalties and enforcement costs of applicable governmental agencies) that are incurred by or asserted against the Indemnified Parties by reason or arising out of: (i) the breach of any representation, warranty or undertaking of Mortgagor under this Section 24, or (ii) the Treatment of any Waste by Mortgagor or any tenant, licensee, concessionaire, manager, or other Person occupying or using the Property, in or affecting the Property, or (iii) any Spill governed by the terms of this Section 24. (f) The obligations of Mortgagor under this Section 24 shall survive any termination or satisfaction of this Agreement. 25. IRPTA. Mortgagor represents and warrants that if the disclosure requirements of the [_______] Responsible Property Transfer Act, [___________________] et seq. ("IRPTA") apply to the loan transaction contemplated by this Agreement, Mortgagor agrees to comply with the provisions of IRPTA and pay all costs and expenses associates therewith, including, but not limited to, the costs associated with the recording of a disclosure document. 13 14 26. Adjustments to Maximum Liability. Anything in this Agreement to the contrary notwithstanding, in no event shall the amount of the Obligations secured by this Agreement exceed the maximum amount that (after giving effect to the incurring of the obligations hereunder and to any rights to contribution of Mortgagor from other affiliates of Borrower) would not render the rights to payment of Administrative Agent and the Lenders hereunder void, voidable or avoidable under any applicable fraudulent transfer law. [Remainder of page intentionally left blank] 14 15 27. JURY TRIAL WAIVER. MORTGAGOR, ADMINISTRATIVE AGENT AND THE LENDERS WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, AMONG THEM ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. 28. WAIVER OF RIGHT OF REDEMPTION. EXCEPT AS MAY OTHERWISE BE PROHIBITED OR IN THE EVENT THE PROPERTY IS AND CONTINUES TO QUALIFY AS RESIDENTIAL PROPERTY AS DEFINED BY THE LAWS OF [__________] REGARDING FORECLOSURE OF MORTGAGES, THE MORTGAGOR WAIVES ANY AND ALL RIGHTS OF REDEMPTION FROM SALE UNDER ANY ORDER OR JUDGMENT OF FORECLOSURE OF THIS MORTGAGE AND ANY RIGHTS OF REINSTATEMENT PURSUANT TO THE LAWS OF THE STATE OF [__________] REGARDING FORECLOSURE OF MORTGAGES, ON ITS OWN BEHALF AND ON BEHALF OF EACH AND EVERY PERSON, EXCEPT JUDGMENT CREDITORS OF THE MORTGAGOR, ACQUIRING ANY INTEREST IN OR TITLE TO THE PROPERTY AS OF OR SUBSEQUENT TO THE DATE OF THIS AGREEMENT. IN WITNESS WHEREOF, Mortgagor has executed this Agreement as of the day and year first set forth above. Signed and acknowledged MORTGAGOR: in the presence of: [________________________]v ___________________________________ By:_________________________________ Print _____________________________ Name:_______________________________ Title:______________________________ ___________________________________ Print _____________________________ 15 16 STATE OF OHIO ) ) SS: COUNTY OF CUYAHOGA ) On this 10th day of August, 2001, before me, a Notary Public in and for said County and State, personally appeared __________________________________________________, the _______________________ of [___________________], a [________________], who acknowledged the signing of the foregoing instrument on behalf of said limited liability company to be her/his free act and deed and the free act and deed of said limited liability company for the uses and purposes set forth therein. IN WITNESS WHEREOF, I have hereunto set my hand and official seal at Cleveland, Ohio. _________________________________ Notary Public 16 17 EXHIBIT A LEGAL DESCRIPTION 17 18 EXHIBIT B PERMITTED ENCUMBRANCES 18 EX-10.27 11 l89585aex10-27.txt EX-10.27 1 EXHIBIT 10.27 COMMON STOCK SELLING PLAN HAWK CORPORATION June 6, 2001 through July 31, 2001 THIS STOCK SELLING PLAN (this "Plan") is executed by Thomas A. Gilbride ("Executive"), an executive officer and stockholder of Hawk Corporation ("Hawk"). RECITALS A. Executive has decided to enter into this written plan of disposition to sell up to eleven thousand three hundred (11,300) shares of Class A Common Stock, par value $.01, of Hawk ("Common Stock"), which shares are comprised of one thousand (1,000) registered shares of Common Stock acquired on October 20, 1998, three hundred (300) registered shares of Common Stock acquired on December 21, 1998 (collectively, the "Registered Shares"), and ten thousand (10,000) unregistered shares of Common Stock acquired prior to the initial public offering of Hawk (the "Unregistered Shares"). The Registered Shares and Unregistered Shares to be sold pursuant to this Plan shall be referred to herein collectively as the "Plan Shares." B. Executive has engaged McDonald Investments, Inc. ("Broker") to effect the sales of the Plan Shares in accordance with this Plan. AGREEMENT In consideration of the foregoing, Executive agrees to enter into this Plan in accordance with the following terms and conditions: 1. Sales Plan. (a) Executive agrees to instruct Broker to sell the Plan Shares as provided below: (i) For the period commencing on June 6, 2001 and ending on and including June 12, 2001 (the "Initial Sales Period"), Broker will sell as many as possible of the Registered Shares, at any share price of $7.00, or higher; and (ii) For the period commencing on June 7, 2001 and ending on July 31, 2001 (the "Subsequent Sales Period"), Broker will sell as many as possible of the Unregistered Shares and any Registered Shares that remain unsold following the Initial Sales Period, at any share price of $6.50, or higher. (b) All sales of the Plan Shares will be placed through or effected by Broker. The timing 2 (within each sales period specified above) and execution of all sales will be made at the sole discretion of Broker to maximize the value to Executive. Executive will provide no other instruction or guidance to Broker with respect to any sales of the Plan Shares during the term of this Plan. Executive will provide Broker with a copy of this Plan. Executive will obtain from Broker an acknowledgment of the receipt of this Plan and an agreement that Broker will cease sales under this Plan at such time as Broker may become in possession of material non-public information regarding Hawk (as that phrase is used in 17 C.F.R. Section 240.10b-5). (c) Notwithstanding the sales provisions of this Plan, Executive will cease all sales under this Plan, and will instruct Broker to cease all sales, promptly upon notice from the Secretary of Hawk that the executive committee of the Hawk Board of Directors has determined that sales under this Plan must be suspended for any period determined by those directors. In this regard, Executive acknowledges that it may be necessary or appropriate for Hawk to instruct Executive to suspend sales under this Plan in connection with certain events, including without limitation a public or private offering of securities, a merger or acquisition, tender offer or any similar event. (d) Broker will conduct all sales of the Unregistered Shares in accordance with the requirements of Rule 144 under the Securities Act of 1933, as amended (the "Act"). Broker will be instructed by Executive to provide Hawk with any information requested by Hawk or its counsel in connection with Hawk's efforts to determine compliance with the terms of this Plan by Executive and Broker. Executive will be responsible for all filings required under Section 16 of the Securities and Exchange Act of 1934 (i.e., Form 4 filings). Executive intends for this Plan to comply with the requirements of Rule 10b5-1(c) under the Exchange Act of 1934, and this Plan shall be interpreted to comply with the requirements of Rule 10b5-1(c). (e) Notwithstanding this Plan, Executive may sell or purchase shares of Common Stock (other than the Plan Shares) pursuant to Hawk's Statement Regarding Insider Trading and Confidentiality, as supplemented and amended from time to time (the "Policy") and Section 16 of the Securities and Exchange Act of 1934, and such sales or purchases shall not be subject to this Plan. 2. Term. This Plan shall become effective on the date executed by Executive and shall terminate on the earliest to occur of: (i) July 31, 2001, (ii) the date on which all of the Plan Shares have been sold in accordance with the terms of this Plan or (iii) the death of Executive; provided; however, that Executive may terminate this Plan at any time upon written notice delivered to Broker with a copy to the Secretary of Hawk. 3. Covenants. Subject to the terms of this Plan, Executive acknowledges and agrees that he will not exert any influence over how, when or whether to effect sales of Plan Shares subsequent to the effective date of this Plan and during the time period this Plan remains in effect. Executive acknowledges that he is not subject to any legal, regulatory or contractual restriction or undertaking 2 3 that would prevent Broker from effecting sales in accordance with this Plan and is entering into this Plan in good faith. Further, Executive acknowledges that he is subject to the Policy and the limitations on selling stock imposed by Rule 144 under the Act. 4. Filing of Plan. Executive agrees to file a copy of this Plan with the Secretary of Hawk. Executive further acknowledges and agrees that a copy of this Plan may be filed with the Securities and Exchange Committee ("SEC") and disclosed in reports filed by Hawk with the SEC. IN WITNESS WHEREOF, this Stock Selling Plan is executed and effective as of the date set forth below the Executive's signature below. ------------------------------ Thomas A. Gilbride Dated: June 6, 2001 Receipt of the Stock Selling Plan is acknowledged as of June 6, 2001. By: ----------------------------------- Marc C. Krantz, Assistant Secretary of Hawk Corporation Receipt of the Stock Selling Plan is acknowledged as of June __, 2001. MCDONALD INVESTMENTS, INC. By: ----------------------------------- Its: ----------------------------------- 3 -----END PRIVACY-ENHANCED MESSAGE-----