-----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, CMgay7UUUEKLJee3mZhG2zMQoWN29Z47C/GSjFEOR/EEN8VRv90fyKtr0/bZhk7x SYOXoVkMMSpSWlVMtjnqdw== 0000950152-02-008560.txt : 20021118 0000950152-02-008560.hdr.sgml : 20021118 20021114195053 ACCESSION NUMBER: 0000950152-02-008560 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 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: 02827953 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 l96737ae10vq.txt HAWK CORPORATION FORM 10-Q/QTR END 9-30-02 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 SEPTEMBER 30, 2002 | | 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: 8,557,990 Class B Common Stock, $0.01 par value: None (0) 1
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 24 Item 3. Quantitative and Qualitative Disclosures about Market Risk 35 Item 4. Controls and Procedures 35 PART II. OTHER INFORMATION Item 1. Legal Proceedings 36 Item 5. Other Events 36 Item 6. Exhibits and Reports on Form 8-K 36 SIGNATURES 38
2 PART I. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENTS (UNAUDITED) HAWK CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31, 2002 2001 ------------- ------------- Assets Current assets: Cash and cash equivalents $ 3,343 $ 3,084 Accounts receivable, less allowance of $488 in 2002 and $455 in 2001 33,305 25,773 Inventories 31,241 29,152 Deferred income taxes 1,210 1,200 Other current assets 3,997 4,638 ------------- ------------- Total current assets 73,096 63,847 Property, plant and equipment: Land and improvements 1,608 1,608 Buildings and improvements 18,686 18,657 Machinery and equipment 98,863 96,688 Furniture and fixtures 7,923 7,168 Construction in progress 4,496 1,450 ------------- ------------- 131,576 125,571 Less accumulated depreciation and amortization 65,521 58,208 ------------- ------------- Total property, plant and equipment 66,055 67,363 Other assets: Goodwill 32,495 53,877 Other intangible assets 11,531 12,828 Shareholder notes 1,010 1,010 Other 6,317 5,180 ------------- ------------- Total other assets 51,353 72,895 Total assets $ 190,504 $ 204,105 ============= =============
3 HAWK CORPORATION CONSOLIDATED BALANCE SHEETS - (CONTINUED) (IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31, 2002 2001 ------------- ------------- Liabilities and shareholders' equity Current liabilities: Accounts payable $ 15,349 $ 13,432 Accrued compensation 5,339 5,233 Other accrued expenses 8,099 6,832 Current portion of long-term debt 3,533 6,862 ------------- ------------- Total current liabilities 32,320 32,359 Long-term liabilities: Long-term debt 98,905 90,957 Deferred income taxes 6,735 10,978 Other 3,662 3,374 ------------- ------------- Total long-term liabilities 109,302 105,309 Shareholders' equity: Series D preferred stock, $.01 par value; an aggregate liquidation value of $1,530, plus any unpaid dividends with 9.8% cumulative dividend (1,530 shares authorized, issued and outstanding) 1 1 Series E preferred stock, $.01 par value; 100,000 shares Authorized; none issued or outstanding Class A common stock, $.01 par value; 75,000,000 shares authorized; 9,187,750 issued; and 8,557,240 and 8,552,920 outstanding in 2002 and 2001, respectively 92 92 Class B common stock, $.01 par value; 10,000,000 shares authorized; none issued or outstanding Additional paid-in capital 54,619 54,626 Retained earnings 1,672 19,623 Accumulated other comprehensive loss (2,830) (3,201) Treasury stock, at cost, 630,510 and 634,830 shares in 2002 and 2001, respectively (4,672) (4,704) ------------- ------------- Total shareholders' equity 48,882 66,437 ------------- ------------- Total liabilities and shareholders' equity $ 190,504 $ 204,105 ============= =============
Note: The balance sheet at December 31, 2001 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 HAWK CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Net sales $ 49,447 $ 42,208 $ 149,599 $ 143,408 Cost of sales 39,200 33,504 116,946 110,550 ---------- ---------- ---------- ---------- Gross profit 10,247 8,704 32,653 32,858 Operating Expenses: Selling, technical and administrative expenses 7,845 6,016 25,339 23,047 Restructuring costs 1,000 Amortization of intangibles 348 1,141 1,071 3,406 ---------- ---------- ---------- ---------- Total operating expenses 8,193 7,157 26,410 27,453 ---------- ---------- ---------- ---------- Income from operations 2,054 1,547 6,243 5,405 Interest expense (2,369) (2,352) (7,010) (7,186) Interest income 16 55 92 158 Exchange offer costs (818) (818) Other expense, net (341) (187) (636) (433) ---------- ---------- ---------- ---------- Loss before income taxes (1,458) (937) (2,129) (2,056) Income tax (benefit) provision (1,181) 16 (1,492) (541) ---------- ---------- ---------- ---------- Net loss before cumulative effect of change in accounting principle (277) (953) (637) (1,515) Cumulative effect of change in accounting principle, net of tax of $4,252 (17,200) ---------- ---------- ---------- ---------- Net loss $ (277) $ (953) $ (17,837) $ (1,515) ========== ========== ========== ========== Loss per share: Basic loss per share: Basic loss before cumulative effect of change in accounting principle $ (.04) $ (.12) $ (.09) $ (.19) Cumulative effect of change in accounting principle (2.01) ---------- ---------- ---------- ---------- Net loss per basic share $ (.04) $ (.12) $ (2.10) $ (.19) ========== ========== ========== ========== Diluted loss per share: Diluted loss before cumulative effect of change in accounting principle $ (.04) $ (.12) $ (.09) $ (.19) Cumulative effect of change in accounting principle (2.01) ---------- ---------- ---------- ---------- Net loss per diluted share $ (.04) $ (.12) $ (2.10) $ (.19) ========== ========== ========== ==========
See notes to consolidated financial statements. 5 HAWK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 2002 2001 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (17,837) $ (1,515) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 9,480 11,928 Deferred income taxes (58) Cumulative effect of change in accounting principle, net of tax 17,200 Loss on fixed assets 276 Changes in operating assets and liabilities: Accounts receivable (6,922) (497) Inventories (1,516) 2,773 Other assets (585) (532) Accounts payable 1,612 1,905 Other 936 (2,732) ---------- ---------- Net cash provided by operating activities 2,644 11,272 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment (6,722) (7,440) ---------- ---------- Net cash used in investing activities (6,722) (7,440) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt 48,198 30,316 Payments on long-term debt (43,808) (34,344) Payments of preferred stock dividends (113) (113) ---------- ---------- Net cash provided by (used in) financing activities 4,277 (4,141) ---------- ---------- Effect of exchange rate changes on cash 60 (280) ---------- ---------- Net increase (decrease) in cash and cash equivalents 259 (589) Cash and cash equivalents at beginning of year 3,084 4,010 ---------- ---------- Cash and cash equivalents at end of year $ 3,343 $ 3,421 ========== ==========
See notes to consolidated financial statements. 6 HAWK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2002 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States 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 September 30, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002. For further information, refer to the consolidated financial statements and footnotes thereto in the Form 10-K for Hawk Corporation (Company) for the year ended December 31, 2001. 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 February 28, 2002, the financial statements also include the Company's 100% ownership interest in Net Shape Technologies LLC (Net Shape). Prior to that date, the Company owned a majority interest in Net Shape. All significant intercompany accounts and transactions have been eliminated in the accompanying financial statements. Certain amounts have been reclassified in 2001 to conform to 2002 presentation. NOTE 2 - CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRICIPLE AND GOODWILL AND INTANGIBLE ASSETS In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 141 "Business Combinations" (SFAS No. 141) and No. 142 "Goodwill and Other Intangible Assets" (SFAS No. 142). These statements eliminate the pooling of interest method of accounting for business combinations subsequent to June 30, 2001 and eliminate the amortization of goodwill for all fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 141 and SFAS No. 142 with respect to new goodwill as of July 1, 2001 and adopted SFAS No. 142 with respect to existing goodwill as of January 1, 2002, the first day of its 2002 fiscal year. The adoption of SFAS No. 141 has not impacted the Company's financial condition or results of operations. In accordance with SFAS No. 142, existing goodwill was amortized through fiscal 2001. Upon adoption of SFAS No. 142, the Company stopped amortizing existing goodwill. The pro forma effect of applying SFAS No. 142 for the nine and three months ended September 30, 2001 would have been to decrease amortization expense by approximately $2,361 and $819, respectively and would result in basic and diluted loss per share of $0.02 and $0.06, respectively. Additionally, upon adoption of SFAS No. 142, the Company changed the accounting for goodwill and other indefinite-lived intangible assets from an amortization methodology to an impairment-only methodology. SFAS No. 142 provided for a six month transitional period from the effective date of adoption, to June 30, 2002, for the Company to perform an initial assessment of whether there was an indication that the carrying value of the goodwill was impaired. The Company performed the assessment by comparing the fair value of each of its reporting units, as determined in accordance with SFAS No. 142, to its carrying value. The rules under SFAS No. 142 require that any initial impairment be taken as a charge to income as a cumulative effect of change in accounting principle retroactive to January 1, 2002. 7 The Company, with the assistance of independent valuation experts, completed its initial assessment test and concluded that certain of its goodwill was impaired at January 1, 2002, resulting in a charge of $21,452 ($17,200 after tax). The fair value of goodwill was estimated using a combination of a discounted cash flow valuation model, incorporating a discount rate commensurate with the risks involved for each segment and a market approach of guideline companies and similar transactions. The impairment resulted from the carrying value exceeding the fair value of certain operating segments. This was due primarily to a shortfall in sales from levels anticipated at the time of the respective acquisitions and other costs associated with the Company's global expansion initiatives. In accordance with SFAS No. 142, this charge has been recorded as a cumulative effect of change in accounting principle, retroactive to January 1, 2002. The net loss after the cumulative effect of change in accounting principle for the nine month period ended September 30, 2002 was $2.10 per diluted share. SFAS No. 142 requires a review at least annually of the carrying value of indefinite-lived assets and goodwill. In addition to the transitional impairment test completed in the second quarter of 2002, another impairment test will be completed in the fourth quarter 2002 and at least annually thereafter. There can be no assurance that future goodwill impairments will not occur. The components of goodwill and other intangible assets and the related accumulated amortization are as follows:
SEPTEMBER 30, DECEMBER 31, 2002 2001 ------------ ------------ ACCUMULATED ACCUMULATED GROSS AMORTIZATION NET GROSS AMORTIZATION NET ---------- ------------ ---------- ---------- ------------ ---------- Goodwill, beginning of the period $ 67,808 $ 13,931 $ 53,877 $ 67,380 $ 10,751 $ 56,629 Additions 70 70 428 3,180 2,752 Deletions 21,452 21,452 ---------- ------------ ---------- ---------- ------------ ---------- Goodwill, end of the period $ 46,426 $ 13,931 $ 32,495 $ 67,808 $ 13,931 $ 53,877 Other intangible assets subject to amortization: Product certifications 20,820 10,084 10,736 20,820 9,544 11,276 Deferred financing 4,693 4,055 638 4,693 3,593 1,100 Other intangible assets 2,719 2,562 157 3,013 2,561 452 ---------- ------------ ---------- ---------- ------------ ---------- Other intangible assets subject to amortization-subtotal 28,232 16,701 11,531 28,526 15,698 12,828 ---------- ------------ ---------- ---------- ------------ ---------- Total $ 74,658 $ 30,632 $ 44,026 $ 96,334 $ 29,629 $ 66,705 ========== ============ ========== ========== ============ ==========
8 Product certifications were acquired and valued based on the acquired company's position as a certified supplier of friction materials to the major manufacturers of commercial aircraft brakes. A summary of the Company's net goodwill at September 30, 2002 and December 31, 2001 by reportable operating segment is as follows:
SEPTEMBER 30, DECEMBER 31, 2002 2001 ------------- ------------- Friction products $ 11,100 Precision components $ 28,109 28,039 Performance automotive 4,386 8,392 Motor 6,346 ------------- ------------- Total $ 32,495 $ 53,877 ============= =============
The Company estimates its amortization expense for its definite-lived assets for the next five years to be as follows: 2002-$1,442; 2003-$1,257; 2004-$789; 2005-$789; and 2006-$776. NOTE 3 - COMPREHENSIVE LOSS Comprehensive loss is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Net loss $ (277) $ (953) $ (17,837) $ (1,515) Foreign currency translation (113) 123 (371) (292) ---------- ---------- ---------- ---------- Comprehensive loss $ (390) $ (830) $ (18,208) $ (1,807) ========== ========== ========== ==========
NOTE 4 - 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:
SEPTEMBER 30, DECEMBER 31, 2002 2001 ------------- ------------- Raw materials and work-in-process $ 22,906 $ 19,360 Finished products 11,258 12,542 Inventory reserves (2,923) (2,750) ------------- ------------- $ 31,241 $ 29,152 ============= =============
9 NOTE 5 - LOSS PER SHARE Basic and diluted loss per share are computed as follows:
THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Numerator: Net loss before cumulative effect of change in accounting principle $ (277) $ (953) $ (637) $ (1,515) Preferred stock dividend (38) (38) (113) (113) ---------- ---------- ---------- ---------- Net loss before cumulative effect of change in accounting principle available to common shareholders $ (315) $ (991) $ (750) $ (1,628) ========== ========== ========== ========== Net loss $ (277) $ (953) $ (17,837) $ (1,515) Preferred stock (38) (38) (113) (113) ---------- ---------- ---------- ---------- Net loss available to common shareholders $ (315) $ (991) $ (17,950) $ (1,628) ========== ========== ========== ========== Denominator: Denominator for basic loss per share- Weighted average shares 8,557 8,553 8,556 8,552 Effect of dilutive securities: Stock options -- -- -- -- ---------- ---------- ---------- ---------- Denominator for diluted loss per share- adjusted weighted-average shares and assumed conversions 8,557 8,553 8,556 8,552 Basic loss per share: Basic loss before cumulative effect of change in accounting principle $ (.04) $ (.12) $ (.09) $ (.19) Cumulative effect of change in accounting principle (2.01) ---------- ---------- ---------- ---------- Net loss per basic share $ (.04) $ (.12) $ (2.10) $ (.19) ========== ========== ========== ========== Diluted loss per share: Diluted loss before cumulative effect of change in accounting principle $ (.04) $ (.12) $ (.09) $ (.19) Cumulative effect of change in accounting principle (2.01) ---------- ---------- ---------- ---------- Net loss per diluted share $ (.04) $ (.12) $ (2.10) $ (.19) ========== ========== ========== ==========
For the three and nine months ended September 30, 2002 and 2001 outstanding stock options were not included in the computation of diluted earnings per share since it would have resulted in an anti-dilutive effect. 10 NOTE 6 - BUSINESS SEGMENTS The Company operates in four primary business segments: friction products, precision components, 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 precision component 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 powder metal parts primarily 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 premium branded clutch and drive train components. The Company, through this segment, targets leading teams in the NASCAR, CART and IRL racing series, as well as drivers in the SCCA and ASA racing circuits, high-performance street vehicles and other road race and oval track competition cars. An operating unit formerly associated with the Company's performance automotive segment was reclassified as of January 1, 2002 to the Company's friction products segment as a result of changes in the internal operating responsibility of that unit. All prior periods have been reclassified to reflect this change. The motor segment engineers, manufactures and markets die-cast aluminum rotors for use in the fractional and subfractional electric motors. The Company, through this segment, targets a wide variety of applications such as small household appliances, business equipment, pumps and fans. 11 The information by segment is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Net sales to external customers: Friction products $ 27,017 $ 24,060 $ 80,151 $ 81,238 Precision components 16,147 13,000 50,478 45,268 Performance automotive 2,846 2,825 10,067 10,215 Motor 3,437 2,323 8,903 6,687 ---------- ---------- ---------- ---------- Consolidated $ 49,447 $ 42,208 $ 149,599 $ 143,408 ========== ========== ========== ========== Gross profit (loss): Friction products $ 6,016 $ 5,882 $ 18,999 $ 20,966 Precision components 3,522 2,265 10,225 8,937 Performance automotive 752 761 3,317 3,081 Motor (43) (204) 112 (126) ---------- ---------- ---------- ---------- Consolidated $ 10,247 $ 8,704 $ 32,653 $ 32,858 ========== ========== ========== ========== Depreciation and amortization: Friction products $ 2,002 $ 2,353 $ 5,895 $ 6,973 Precision components 940 1,214 2,807 3,636 Performance automotive 61 185 147 558 Motor 217 271 631 761 ---------- ---------- ---------- ---------- Consolidated $ 3,220 $ 4,023 $ 9,480 $ 11,928 ========== ========== ========== ========== Operating income (loss): Friction products $ 1,668 $ 2,726 $ 5,119 $ 7,010 Precision components 1,019 (132) 2,035 335 Performance automotive 134 41 1,069 514 Motor (767) (1,088) (1,980) (2,454) ---------- ---------- ---------- ---------- Consolidated $ 2,054 $ 1,547 $ 6,243 $ 5,405 ========== ========== ========== ========== Cumulative effect of change in accounting principle, net of tax: Friction products $ 8,373 Performance automotive 2,484 Motor 6,343 ---------- Total $ 17,200 ==========
12 NOTE 7 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144). SFAS No. 144 supersedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121), however it retains the fundamental provisions of that statement related to the recognition and measurement of the impairment of long-lived assets to be "held and used." In addition, SFAS No. 144 provides more guidance on estimating cash flows when performing a recoverability test, requires that a long-lived asset (group) to be disposed of other than by sale (e.g. abandoned) be classified as "held and used" until it is disposed of, and establishes more restrictive criteria to classify an asset (group) as "held for sale." SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 did not have a material impact on the Company's consolidated financial condition or results of operations. In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities." SFAS No. 146 addresses significant issues regarding the recognition, measurement and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance that the Emerging Issues Task Force (EITF) has set forth in Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The scope of SFAS No. 146 also includes (1) costs related to terminating a contract that is not a capital lease and (2) termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred compensation contract. SFAS No. 146 will be effective for fiscal years beginning after December 31, 2002. NOTE 8 - FINANCING ARRANGEMENTS On October 18, 2002, the Company entered into a new senior secured credit facility (new credit facility). The new credit facility has a maximum commitment of $53,000, comprised of a $50,000 revolving credit component and a $3,000 capital expenditure loan facility. The new credit facility matures 120 days prior to the maturity of the New Senior Notes (described below). The new credit facility replaces the $35,000 term loan facility and $25,000 revolving credit facility (old credit facility), of which $13,750 and $14,050 were outstanding as of September 30, 2002, respectively. The old credit facility has been classified as current and long term on the September 30, 2002 balance sheet, based on the maturity terms of the new credit facility. The revolving credit component of the new credit facility is subject to a borrowing base formula. The borrowing base formula is comprised of the Company's domestic accounts receivable, domestic inventory and the Company's domestic real estate, machinery and equipment. The components of the borrowing base under the new credit facility are as follows: - 85% of eligible accounts receivable, plus; - the lesser of (a) 65% of the cost of eligible inventory, excluding work-in-process, plus 25% of the cost of eligible work-in-process (eligible work-in-process is limited to $4.0 million), (b) 85% of the appraised value of inventory, and (c) $15.0 million, plus; - $13.0 million. The availability under the $13.0 million component of the borrowing base will reduce on a 7 year straight-line amortization basis beginning March 31, 2003. The remaining unamortized principal balance of this component is due and payable on the final maturity date of the new credit facility. The capital expenditure loan facility may be used to finance 80% of the cost of equipment purchased after October 18, 2002. At the end of each calendar year, beginning December 31, 2003, the principal amount of all loans under the capital expenditure facility borrowed during the applicable calendar year to begin to amortize monthly over a seven year, straight-line basis. The remaining unamortized principal balance under the capital expenditure loan facility is due and payable on the final maturity date of the new credit facility. The new credit facility is collateralized by a security interest in the accounts receivable, inventory, equipment and real estate and other assets of the Company and its domestic subsidiaries. The Company has also pledged the stock of all of its domestic 13 subsidiaries and certain stock of its foreign subsidiaries as collateral. Restrictive terms of the credit facility require that the Company maintain specified financial ratios including leverage and fixed charge ratios, and comply with other loan covenants. The interest rates on the new credit facility range from 225 to 375 basis points over the London Interbank Offered Rates ("LIBOR"), or alternatively, 0 to 100 basis points over the prime rate. As of October 18, 2002, the Company had approximately $9,600 available for future borrowings, as determined under the new borrowing base formula. Additionally, on October 18, 2002, the Company accepted for exchange $64,417, or approximately 99% of its outstanding $65,000, 10 1/4% Senior Notes due December 1, 2003 (Old Senior Notes), for 12% Senior Notes due December 1, 2006 (New Senior Notes). The New Senior Notes were issued on October 23, 2002. The remaining principal of the Old Senior Notes in the amount of $583 remain outstanding as of October 23, 2002 and will mature on December 1, 2003. In addition, the holders of the Old Senior Notes that participated in the exchange for New Senior Notes received a consent payment of $25.63 for each $1,000 of Old Senior Notes held as of October 23, 2002. The consent payment, which totaled $1,642, was issued in the form of New Senior Notes and is payable to the holders at maturity of the New Senior Notes. The New Senior Notes are general unsecured senior obligations of the Company and are fully and unconditionally guaranteed, on a joint and several basis, by all domestic wholly owned subsidiaries of the Company. The New Senior Notes accrue interest in cash at a rate of 12 percent per annum on the principal amount commencing October 23, 2002. Interest payments are due December 31 and June 30. In addition, in the event that the Company's leverage ratio exceeds 4.0 to 1.0 for the most recently ended four quarters beginning with the semi-annual period ended December 31, 2002, the Company will be required to pay additional payment in kind (PIK) interest at a rate ranging from .25% to 2.00% until the next semi-annual test period. Any interest payment under this test will be made by issuing additional New Senior Notes. The Company expects to pay additional interest in the form of PIK notes for the test period ended December 31, 2002 of approximately .50% to .75%. The Company has the option to redeem the New Senior Notes in whole or in part during the twelve months beginning December 1, 2002 at 105.0% of the aggregate principal amount thereof, beginning December 1, 2003 at 102.50% of the aggregate principal amount thereof and beginning December 1, 2004 at 100% of the aggregate principal amount thereof together with any interest accrued and unpaid to the redemption date. Upon a change of control as defined in the New Senior Note indenture, each holder of the notes will have the right to require the Company to repurchase all or any part of such holder's notes at a purchase price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest to the date of purchase. The New Senior Note indenture permits the Company and its subsidiaries to incur additional indebtedness without limitation, provided that it continues to meet a cash flow coverage ratio. As of October 23, 2002, the Company did not meet the prescribed ratio. The failure to meet the ratio does not constitute a default under the New Senior Note indenture. Rather, the New Senior Note indenture continues to permit certain other types of indebtedness subject to certain limitations. The Company's bank credit facility, which is secured by liens on all of the assets and the assets of the subsidiaries, is permitted. The Company does not believe that its operations will be materially impacted by the limitation on indebtedness arising under the New Senior Note indenture. The New Senior Note indenture prohibits the payment of cash dividends on the Company's Class A Common Stock. The New Senior Note indenture also contains other covenants limiting the Company's ability and its subsidiaries to, among other things, make certain other restricted payments, make certain investments, permit liens, incur dividend and other payment restrictions affecting subsidiaries, enter into consolidation, merger, conveyance, lease or transfer transactions, make asset sales, enter into transactions with affiliates or engage in unrelated lines of business. These covenants are subject to certain exceptions and qualifications. The New Senior Note indenture considers non-compliance with the limitations events of default. In addition to non-payment of interest and principal amounts, the New Senior Note indenture also considers default with respect to other indebtedness in excess of $5,000 an event of default. In the event of a default, the principal and interest could be accelerated upon written notice by 25% or more of the holders of the notes. 14 NOTE 9 - 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 Company's 10.25% Senior Notes due December 1, 2003 (the Old Notes). As of October 23, 2002, the Old Notes are no longer guaranteed by the Guarantor Subsidiaries, but each of the Guarantor Subsidiaries has fully and unconditionally guaranteed, on a joint and several basis, the obligation to pay principal, premium, if any, and interest with respect to the Company's new 12% Senior Notes due December 1, 2006. The following supplemental unaudited consolidating condensed financial statements present (in thousands): 1. Consolidating condensed balance sheets as of September 30, 2002 and December 31, 2001, consolidating condensed statements of operations for the nine month periods ended September 30, 2002 and 2001 and consolidating condensed statements of cash flows for the nine months ended September 30, 2002 and 2001. 2. Hawk Corporation ("Parent") combined Guarantor Subsidiaries and combined Non-Guarantor Subsidiaries (consisting of the Company's non-U.S. subsidiaries) with their investments in subsidiaries accounted for using the equity method. 3. Elimination entries necessary to consolidate the Parent and all of its subsidiaries. Management does not believe that separate financial statements of the Guarantor Subsidiaries of the New Senior Notes are material to investors. Therefore, separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented. 15 SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 2002 ---------------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------ ------------ ------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 1,448 $ 125 $ 1,770 $ 3,343 Accounts receivable, net 24,400 8,905 33,305 Inventories, net 22,828 8,413 31,241 Deferred income taxes 1,111 99 1,210 Other current assets 1,998 1,083 916 3,997 ------------ ------------ ------------ ------------ ------------ Total current assets 4,557 48,436 20,103 73,096 Investment in subsidiaries 793 (2,765) $ 1,972 Inter-company advances, net 160,113 20,813 (20,067) (160,859) Property, plant and equipment, net 11 56,001 10,043 66,055 Intangible assets 72 43,954 44,026 Other 1,010 6,230 1,097 (1,010) 7,327 ------------ ------------ ------------ ------------ ------------ TOTAL ASSETS $ 166,556 $ 172,669 $ 11,176 $ (159,897) $ 190,504 ============ ============ ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 11,524 $ 3,825 $ 15,349 Accrued compensation $ 455 3,777 1,107 5,339 Other accrued expenses 3,386 3,553 1,160 8,099 Current portion of long-term debt 1,083 2,409 41 3,533 ------------ ------------ ------------ ------------ ------------ Total current liabilities 4,924 21,263 6,133 32,320 Long-term liabilities: Long-term debt 91,717 3,044 4,144 98,905 Deferred income taxes 6,642 93 6,735 Other 2,079 1,583 3,662 Inter-company advances, net 1,128 159,546 1,988 $ (162,662) ------------ ------------ ------------ ------------ ------------ Total long-term liabilities 99,487 164,669 7,808 (162,662) 109,302 ------------ ------------ ------------ ------------ ------------ Total liabilities 104,411 185,932 13,941 (162,662) 141,622 Shareholders' equity (deficit) 62,145 (13,263) (2,765) 2,765 48,882 ------------ ------------ ------------ ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 166,556 $ 172,669 $ 11,176 $ (159,897) $ 190,504 ============ ============ ============ ============ ============
16 SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 2001 ---------------------------------------------------------------------------- Combined Combined Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ------------ ------------ ------------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 1,073 $ 247 $ 1,764 $ 3,084 Accounts receivable, net 160 18,828 6,785 25,773 Inventories, net 42 22,566 6,544 29,152 Deferred income taxes 1,111 89 1,200 Other current assets 2,976 1,143 519 4,638 ------------ ------------ ------------ ------------ ------------ Total current assets 5,362 42,784 15,701 63,847 Investment in subsidiaries 794 (1,080) $ 286 Inter-company advances, net 153,455 9,447 (8,555) (154,347) Property, plant and equipment 18 58,026 9,319 67,363 Intangible assets 199 66,506 66,705 Other 1,010 5,082 1,108 (1,010) 6,190 ------------ ------------ ------------ ------------ ------------ TOTAL ASSETS $ 160,838 $ 180,765 $ 17,573 $ (155,071) $ 204,105 ============ ============ ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 10,292 $ 3,140 $ 13,432 Accrued compensation $ (18) 4,440 811 5,233 Other accrued expenses 1,449 4,345 1,038 6,832 Current portion of long-term debt 5,000 1,669 193 6,862 ------------ ------------ ------------ ------------ ------------ Total current liabilities 6,431 20,746 5,182 32,359 Long-term liabilities: Long-term debt 82,450 4,765 3,742 90,957 Deferred income taxes 10,894 84 10,978 Other 2,154 1,220 3,374 Inter-company advances, net 1,350 144,786 8,425 $ (154,561) ------------ ------------ ------------ ------------ ------------ Total long-term liabilities 94,694 151,705 13,471 (154,561) 105,309 ------------ ------------ ------------ ------------ ------------ Total liabilities 101,125 172,451 18,653 (154,561) 137,668 Shareholders' equity (deficit) 59,713 8,314 (1,080) (510) 66,437 ------------ ------------ ------------ ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 160,838 $ 180,765 $ 17,573 $ (155,071) $ 204,105 ============ ============ ============ ============ ============
17 SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2002 --------------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------ ------------ ------------- ------------ ------------ Net sales $ 127,133 $ 22,466 $ 149,599 Cost of sales 97,298 19,648 116,946 ------------ ------------ ------------ ------------ ------------ Gross profit 29,835 2,818 32,653 Expenses: Selling, technical and administrative expenses $ (188) 22,016 3,511 25,339 Amortization of intangible assets 7 1,064 1,071 ------------ ------------ ------------ ------------ ------------ Total expenses (181) 23,080 3,511 26,410 ------------ ------------ ------------ ------------ ------------ Income (loss) from operations 181 6,755 (693) 6,243 Interest income (expense), net 2,736 (8,973) (681) (6,918) Exchange offer costs (818) (818) Loss from equity investees (20,366) (1,728) $ 22,094 Other (expense), net (342) (252) (42) (636) ------------ ------------ ------------ ------------ ------------ Loss before income taxes (18,609) (4,198) (1,416) 22,094 (2,129) Income tax (benefit) provision (851) (953) 312 (1,492) ------------ ------------ ------------ ------------ ------------ Net loss before cumulative effect of change in accounting principle (17,758) (3,245) (1,728) 22,094 (637) Cumulative effect of change in accounting principle, net of tax (79) (17,121) (17,200) ------------ ------------ ------------ ------------ ------------ NET LOSS $ (17,837) $ (20,366) $ (1,728) $ 22,094 $ (17,837) ============ ============ ============ ============ ============
18 SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2001 --------------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------ ------------ ------------- ------------ ------------ Net sales $ 125,473 $ 17,935 $ 143,408 Cost of sales 93,998 16,552 110,550 ------------ ------------ ------------ ------------ ------------ Gross profit 31,475 1,383 32,858 Expenses: Selling, technical and administrative expenses $ (306) 20,235 3,118 23,047 Restructuring costs 1,000 1,000 Amortization of intangible assets 15 3,391 3,406 ------------ ------------ ------------ ------------ ------------ Total expenses (291) 24,626 3,118 27,453 ------------ ------------ ------------ ------------ ------------ Income (loss) from operations 291 6,849 (1,735) 5,405 Interest income (expense), net 2,753 (9,122) (659) (7,028) Loss from equity investees (3,809) (2,458) $ 6,267 Other (expense) income, net (544) 77 34 (433) ------------ ------------ ------------ ------------ ------------ (Loss) before income taxes (1,309) (4,654) (2,360) 6,267 (2,056) Income tax provision (benefit) 206 (845) 98 (541) ------------ ------------ ------------ ------------ ------------ NET LOSS $ (1,515) $ (3,809) $ (2,458) $ 6,267 $ (1,515) ============ ============ ============ ============ ============
19 SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 2002 --------------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------ ------------ ------------- ------------ ------------ Net sales $ 41,707 $ 7,740 $ 49,447 Cost of sales 32,168 7,032 39,200 ------------ ------------ ------------ ------------ ------------ Gross profit 9,539 708 10,247 Expenses: Selling, technical and administrative expenses $ (202) 6,804 1,243 7,845 Amortization of intangible assets 3 345 348 ------------ ------------ ------------ ------------ ------------ Total expenses (199) 7,149 1,243 8,193 ------------ ------------ ------------ ------------ ------------ Income (loss) from operations 199 2,390 (535) 2,054 Interest income (expense), net 913 (3,006) (260) (2,353) Exchange offer costs (818) (818) Loss from equity investees (1,328) (777) $ 2,105 Other expense, net (58) (258) (25) (341) ------------ ------------ ------------ ------------ ------------ Loss before income taxes (1,092) (1,651) (820) 2,105 (1,458) Income tax (benefit) (815) (323) (43) (1,181) ------------ ------------ ------------ ------------ ------------ NET LOSS $ (277) $ (1,328) $ (777) $ 2,105 $ (277) ============ ============ ============ ============ ============
20 SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 2001 --------------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------ ------------ ------------- ------------ ------------ Net sales $ 37,128 $ 5,080 $ 42,208 Cost of sales 28,340 5,164 33,504 ------------ ------------ ------------ ------------ ------------ Gross profit 8,788 (84) 8,704 Expenses: Selling, technical and administrative expenses $ (48) 5,158 906 6,016 Amortization of intangible assets 6 1,135 1,141 ------------ ------------ ------------ ------------ ------------ Total expenses (42) 6,293 906 7,157 ------------ ------------ ------------ ------------ ------------ Income (loss) from operations 42 2,495 (990) 1,547 Interest income (expense), net 917 (2,973) (241) (2,297) Loss from equity investees (1,378) (1,152) $ 2,530 Other (expense) income, net (268) 117 (36) (187) ------------ ------------ ------------ ------------ ------------ Loss before income taxes (687) (1,513) (1,267) 2,530 (937) Income tax provision (benefit) 266 (135) (115) 16 ------------ ------------ ------------ ------------ ------------ NET LOSS $ (953) $ (1,378) $ (1,152) $ 2,530 $ (953) ============ ============ ============ ============ ============
21 SUPPLEMENTAL CONSOLIDATING CONDENSED CASH FLOW STATEMENT (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2002 --------------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------ ------------ ------------- ------------ ------------ Net cash (used in) provided by operating activities $ (4,862) $ 6,886 $ 620 $ 2,644 Cash flows from investing activities: Purchase of property, plant and equipment (6,214) (508) (6,722) ------------ ------------ ------------ ------------ ------------ Net cash used in investing activities (6,214) (508) (6,722) Cash flows from financing activities: Proceeds from debt 47,865 333 48,198 Payments on debt (42,515) (1,127) (166) (43,808) Payment of preferred stock dividend (113) (113) ------------ ------------ ------------ ------------ ------------ Net cash provided by (used in) financing activities 5,237 (794) (166) 4,277 Effect of currency rate changes 60 60 Net increase (decrease) in cash and cash equivalents 375 (122) 6 259 ------------ ------------ ------------ ------------ ------------ Cash and cash equivalents at beginning of period $ 1,073 $ 247 $ 1,764 $ 3,084 ------------ ------------ ------------ ------------ ------------ Cash and cash equivalents at end of period $ 1,448 $ 125 $ 1,770 $ 0 $ 3,343 ============ ============ ============ ============ ============
22 SUPPLEMENTAL CONSOLIDATING CONDENSED CASH FLOW STATEMENT (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2001 --------------------------------------------------------------------------- COMBINED COMBINED GUARANTOR NON-GUARANTOR PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED ------------ ------------ ------------- ------------ ------------ Net cash provided by (used in) operating activities $ 6,435 $ 6,770 $ (1,933) $ 11,272 Cash flows from investing activities: Purchase of property, plant and equipment (6,426) (1,014) (7,440) ------------ ------------ ------------ ------------ ------------ Net cash used in investIng activities (6,426) (1,014) (7,440) Cash flows from financing activities: Proceeds from long-term debt 26,075 848 3,393 30,316 Payments on long-term debt (32,095) (1,989) (260) (34,344) Payments of preferred stock dividends (113) (113) ------------ ------------ ------------ ------------ ------------ Net cash (used in) provided by financing activities (6,133) (1,141) 3,133 (4,141) Effect of exchange rate changes on cash (280) (280) Net increase (decrease) in cash and cash equivalents 302 (797) (94) (589) ------------ ------------ ------------ ------------ ------------ Cash and cash equivalents, at beginning of period 553 1,027 2,430 4,010 ------------ ------------ ------------ ------------ ------------ CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 855 $ 230 $ 2,336 $ 0 $ 3,421 ============ ============ ============ ============ ============
23 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. GENERAL Hawk operates in four primary reportable segments: friction products, precision components, performance automotive and motors. 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. The Company's friction products are made from proprietary formulations of composite materials that primarily consist of cold-rolled steel, metal powders, resins and 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 engineered, manufactured and marketed by the Company include friction components for use in brakes, transmissions and clutches in aerospace, agriculture, construction, truck and specialty vehicle markets. The Company's precision components are made from formulations of composite powder metal alloys. The precision components segment targets three specific areas of the powder metal marketplace: - High precision components specializing in tight tolerance fluid power components; - Large powder metal components, primarily used in agriculture, construction and truck applications; and - Smaller, higher volume parts, utilizing efficient pressing and sintering capabilities, primarily for appliance, automotive, business equipment and lawn and garden markets. In its performance automotive segment, the Company engineers, manufactures and markets high performance premium branded clutch and drive train components for the performance automotive markets. The Company, through this segment, targets teams in the NASCAR and CART racing series, as well as drivers in the SCCA and ASA racing circuits, high-performance street vehicles and other road race and oval track competition cars. Through its motor segment, the Company designs and manufactures die-cast aluminum rotors for fractional and subfractional horsepower electric motors for use in a wide variety of applications, including appliances, business equipment, pumps and fans. The Company also designs and produces integral horsepower custom motors and generators. As of September 30, 2002, Hawk had approximately 1,600 employees and 16 manufacturing sites in five countries. RECENT EVENTS On October 18, 2002, the Company completed a major financial restructuring. The purpose of financial restructuring was to extend the maturity of the majority of the Company's existing debt to 2006 and to improve the Company's future financial flexibility. The new transactions are described below: New Senior Notes. On October 18, 2002, the Company accepted for exchange $64.4 million, or approximately 99 percent of its 10 1/4% Senior Notes due 2003 (the Old Senior Notes) for $64.4 million of new 12% Senior Notes due 2006 (the New Senior Notes). The New Senior Notes were issued on October 23, 2002. The remaining principal of the Old Senior Notes of $0.6 million remains outstanding and will mature on December 1, 2003. In addition, holders of the New Senior Notes received a consent payment of $25.63 in principal amount of New Senior Notes 24 for each $1,000.00 of Old Senior Notes exchanged. The consent payment, which totaled $1.6 million, was issued in the form of New Senior Notes and is payable to holders of the New Senior Notes at maturity. The New Senior Notes are general unsecured senior obligations of the Company and are fully and unconditionally guaranteed, on a joint and several basis, by all domestic wholly owned subsidiaries of the Company. The New Senior Notes accrue interest in cash at a rate of 12% per annum on the outstanding principal amount, which interest will be payable semi-annually in arrears, commencing December 31, 2002. The new notes will mature on December 1, 2006. In addition, in the event that the Company's leverage ratio exceeds 4.0 to 1.0 for the most recently ended four quarters beginning with the semi-annual period ending December 31, 2002, the Company will be required to pay additional interest at a rate ranging from .25% to 2.00% until the next semi-annual test period. Any interest payment under this test will be made by issuing additional New Senior Notes. The Company expects to pay additional interest in the form of payment in kind (PIK) notes for the test period ended December 31, 2002 of approximately ..50% to .75% of the outstanding principal amount of the New Senior Notes. The Company has the option to redeem the New Senior Notes in whole or in part during the twelve months beginning December 1, 2002 at 105.0% of the aggregate principal amount thereof, beginning December 1, 2003 at 102.50% of the aggregate principal amount thereof and beginning December 1, 2004 at 100.0% of the aggregate principal amount thereof, in each case together with any interest accrued and unpaid to the redemption date. Upon a change of control as defined in the New Senior Note indenture, each holder of the notes will have the right to require the Company to repurchase all or any part of such holder's notes at a purchase price equal to 101.0% of the aggregate principal amount thereof, plus accrued and unpaid interest to the date of purchase. The New Senior Note indenture permits the Company and its subsidiaries to incur additional indebtedness without limitation, provided that it continues to meet a cash flow coverage ratio. As of October 23, 2002, the Company did not meet the prescribed ratio. The failure to meet the ratio does not constitute a default under the New Senior Note indenture. Rather, the New Senior Note indenture continues to permit certain other types of indebtedness subject to certain limitations. Borrowings under the Company's senior secured credit facility are permitted. The Company does not believe that its operations will be materially impacted by the limitation on indebtedness arising under the New Senior Note indenture. The New Senior Note indenture prohibits the payment of cash dividends on the Company's Class A Common Stock. The New Senior Note indenture also contains other covenants limiting the ability of the Company and its subsidiaries to, among other things, make certain other restricted payments, make certain investments, permit liens, incur dividend and other payment restrictions affecting subsidiaries, enter into consolidation, merger, conveyance, lease or transfer transactions, make asset sales, enter into transactions with affiliates or engage in unrelated lines of business. These covenants are subject to certain exceptions and qualifications. The New Senior Note indenture considers non-compliance with the limitations events of default. In addition to non-payment of interest and principal, the New Senior Note indenture also considers default with respect to other indebtedness in excess of $5.0 million an event of default. In the event of a default under the New Senior Note Indenture, the principal and interest due under the New Senior Notes could be accelerated upon written notice by 25% or more of the holders of the New Senior Notes. In connection with the exchange offer, the holders of the Old Senior Notes also amended the Old Senior Note indenture to eliminate the guarantees of the Old Senior Notes by the Company's subsidiaries and to eliminate all of the restrictive covenants and certain events of default. New Bank Credit Facility. On October 18, 2002, the Company entered into a new senior secured credit facility with a syndicate of banks led by J.P. Morgan Business Credit Corp. The new credit facility has a maximum commitment of $53.0 million. The new facility matures 120 days prior to the maturity of the New Senior Notes. The Company has used a portion of the proceeds of the new facility to pay off its old credit facility in full and to pay certain fees and expenses associated with the new senior credit facility and the exchange offer, and may use the remaining proceeds to provide for future working capital needs and for general corporate purposes. 25 The new credit facility is comprised of a $50.0 million revolving line of credit component and a $3.0 million capital expenditure loan facility. The revolving credit component of the new credit facility is subject to a borrowing base formula. The borrowing base is comprised of the Company's domestic accounts receivable, domestic inventory and domestic real estate, machinery and equipment. The components of the borrowing base under the new credit facility are as follows: - 85% of eligible accounts receivable, plus; - the lesser of (a) 65% of the cost of eligible inventory, excluding work-in-process, plus 25% of the cost of eligible work-in-process (eligible work-in-process is limited to $4.0 million), (b) 85% of the appraised value of inventory, and (c) $15.0 million, plus; - $13.0 million. The availability under the $13.0 million component of the borrowing base will reduce on a 7 year straight-line amortization basis beginning March 31, 2003. The remaining unamortized principal balance of this component is due and payable on the final maturity date of the new credit facility. The capital expenditure loan facility may be used to finance 80 percent of the cost of equipment purchased after October 18, 2002. At the end of each calendar year, beginning with the year ending December 31, 2003, the principal amount of all loans under the capital expenditure facility borrowed during the applicable calendar year will begin to amortize on a seven year, straight-line basis. The remaining unamortized principal balance under the capital expenditure loan facility is due and payable on the final maturity date of the new credit facility. The new credit facility is collateralized by a security interest in the accounts receivable, inventory, equipment and real estate and other assets of the Company and its domestic subsidiaries, and the Company has pledged the stock of all of its domestic subsidiaries and certain stock of its foreign subsidiaries as collateral. Restrictive terms of the credit facility require that the Company maintain specified financial ratios including leverage and fixed charge ratios, require the Company to achieve a minimum EBITDA for the year ending December 31, 2002, and comply with other loan covenants. The interest rates on the new credit facility range from 225 to 375 basis points over the London Interbank Offered Rates ("LIBOR"), or alternatively, 0 to 100 basis points over the prime rate. As of October 18, 2002, the Company had approximately $9.6 million available for future borrowings, as determined by the borrowing base under its new credit facility after the payoff all outstanding loans under its old credit facility. SIGNIFICANT ACCOUNTING POLICIES The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to bad debts, inventories, intangible assets, income taxes, financing operations, pensions and contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Hawk's significant accounting policies include the following: Revenue Recognition and Credit Risk. The Company's revenue recognition policy is to recognize revenues when products are shipped and title has transferred. The Company maintains an allowance for trade accounts receivable for which collection on specific customer accounts is doubtful. In determining collectibility, management reviews available customer financial statement information, credit rating reports as well as other external documents and public filings. When it is deemed probable that a specific customer account is uncollectible, that balance is included in the reserve calculation set by the Company. Actual results could differ from these estimates. 26 Foreign Currency Translation and Transactions. Assets and liabilities of the Company's foreign operations are translated using period-end exchange rates and revenues and expenses are translated using average exchange rates as determined throughout the period. Gains or losses resulting from translation are included in a separate component of shareholder's equity. Gains or losses resulting from foreign currency transactions are translated to local currency at the rates of exchange prevailing at the dates of the transactions. Accounts receivable or payable in foreign currencies, other than the subsidiary's local currency, are translated at the rates of exchange prevailing at the balance sheet date. The effect of the transaction's gain or loss in included in other expense, net in the Company's statement of operations. THIRD QUARTER 2002 COMPARED TO THIRD QUARTER 2001 Net Sales. Consolidated net sales for the third quarter of 2002 were $49.4 million, an increase of $7.2 million, or 17 percent, from the comparable period in 2001. The increase in net sales was primarily the result of improved conditions in most of the Company's markets, increased sales and production levels at its Mexican and Chinese facilities, and new product introductions leading to market share gains in the Company's friction products and precision component segments. - Friction Segment. Net sales in the friction segment during the third quarter of 2002 were $27.0 million, an increase of 12 percent compared to net sales of $24.1 million in the third quarter of 2001. Most of the major markets served by this segment, including truck, construction, agriculture and automotive, experienced improving operating conditions in the United States and Europe during the quarter when compared to the third quarter of 2001. However, net sales to the aerospace market declined 3 percent during the third quarter of 2002 compared to the same period in 2001, primarily as a result of the continuing softness in worldwide air travel. Net sales to the aerospace market in the third quarter of 2002 were up 20 percent when compared to the second quarter of 2002. This quarter to quarter improvement in the aerospace market was driven by increased sales to military applications and newer model aircraft. The Company continues to expect that most of the markets it serves will continue to experience gradual economic improvement during the remainder of 2002. However, volumes in the aerospace market for all of 2002 are expected to decline by approximately 20 percent compared to 2001, as a result of the continued decline in air travel. The Company experienced strong sales activity at its foreign operations during the quarter. The Company's Italian operation's net sales increased 47 percent in the third quarter of 2002 compared to the third quarter of 2001, as a result of increased sales in the agriculture and construction markets. The Company also benefited from the continuing ramp up of sales activity at its Chinese operation. Net sales from the Company's Chinese operation were up 250 percent when compared to the same year-ago period. The Company expects the sales increases at these locations to continue, although not necessarily at the same rate, as it takes advantage of new sales opportunities and new product introductions. - Precision Component Segment. Net sales in the precision components segment for the third quarter of 2002 were $16.2 million, an increase of $3.2 million, or 25 percent, compared to the third quarter of 2001. The increase in net sales was primarily attributable to increased sales to customers in the lawn and garden, truck, appliance, power tool and fluid power markets, as the general industrial segments of the domestic economy continued to show improvement during the quarter. The Company expects the markets served by this segment to show gradual improvement during the remainder of 2002. - Performance Automotive. Net sales in the Company's performance automotive segment were flat during the third quarter of 2002 at $2.8 million compared to the third quarter of 2001. Net sales increased at the Company's Tex Racing subsidiary by 10 percent during the third quarter of 2002 compared to the third quarter of 2001 primarily as a result of new drive train product introductions. This increase was offset by softness in the Company's high performance clutch business during the quarter. 27 - Motor Segment. Net sales in the Company's motor segment during the third quarter of 2002 were $3.4 million, an increase of $1.1 million, or 48 percent, from the same period in 2001. The sales growth in the motor segment came primarily from new outsourcing business and new product introductions at the Company's manufacturing facilities in the United States and Monterrey, Mexico. This Company expects that the segment's new business volumes will continue to grow, although not necessarily at the same growth rate as the third quarter of 2002. Gross Profit. Gross profit increased $1.5 million to $10.2 million during the third quarter of 2002, a 17 percent increase compared to gross profit of $8.7 million in the comparable period of 2001. The gross profit margin was flat at 21 percent of net sales in the third quarter of 2002 compared to 2001. However, during the third quarter of 2001, the Company benefited from a substantial reduction to employee benefit and incentive compensation costs as a result of cost reduction initiatives implemented by the Company. Eliminating this 2001 reduction, the Company experienced margin improvement in all of its segments, primarily as a result of higher sales volumes and cost containment programs partially offset by changes in product mix as well as continued production ramp-up costs incurred during the quarter at the Company's Chinese and Mexican facilities. - Friction Segment. The Company's friction segment reported gross profit of $6.0 million, or 22 percent, of its net sales in the third quarter of 2002 compared to $5.9 million or 24 percent of its net sales in the third quarter of 2001. The decrease in the segment's gross profit margin during the quarter was primarily the result of the change in product mix, including lower product margin sales to the aerospace market during the quarter, partially offset by volume increases. Additionally, during the third quarter of 2001, the segment benefited from a reduction to employee benefit and incentive compensation costs. There was no corresponding reduction in the third quarter of 2002. - Precision Components Segment. Gross profit in the precision components segment during the third quarter of 2002 was $3.5 million or 22 percent of net sales in third quarter of 2002 compared to $2.3 million, or 18 percent, of net sales in 2001. The increase in margin was primarily the result of sales volume increases in the segment and the ability of the Company to leverage the fixed manufacturing costs associated with this segment to the volume increase. Additionally, during the third quarter of 2001, the segment benefited from a reduction to employee benefit and incentive compensation costs. There was no corresponding reduction in the third quarter of 2002. - Performance Automotive Segment. The Company's performance automotive segment reported gross profit of $0.8 million, or 29 percent, of its sales in the third quarter of 2002 and 2001. The gross profit margin was maintained during the quarter primarily as a result of new drive train product introductions at the Company's Tex Racing subsidiary. Additionally, during the third quarter of 2001, the segment benefited from a reduction to employee benefit and incentive compensation costs. There was no corresponding reduction in the third quarter of 2002. - Motor Segment. The Company's motor segment reported a break even gross margin during the third quarter of 2002 compared to gross margin loss of $0.2 million for the third quarter of 2001. The break-even gross margin was primarily the result of the Company's continued support of its rotor manufacturing facility in Mexico. The Company experienced higher than expected material and labor costs during the third quarter of 2002 as production and sales levels continued to increase as a result of new product introductions at both its U.S. and Mexican facilities. Selling, Technical and Administrative Expenses. ST&A expenses increased $1.8 million, or 30 percent, to $7.8 million in the third quarter of 2002 from $6.0 million in the comparable period of 2001. The increase in ST&A expenses is primarily attributable to the reduction to employee benefit and incentive compensation costs during the third quarter of 2001. There was no corresponding reduction in the third quarter of 2002. 28 Amortization of Intangibles. Results for the third quarter of 2002 were favorably impacted by the adoption of SFAS No. 142 on January 1, 2002, which eliminated the amortization of goodwill and indefinite life intangible assets. This accounting change increased pretax income for the third quarter of 2002 by $0.8 million compared to the prior year period. Income from Operations. Income from operations increased to $2.1 million in the third quarter of 2002, or 40 percent, from $1.5 million in comparable period of 2001. The increase in operating income was primarily the result of the sales volume increases and the reduction of goodwill amortization expense as a result of the implementation of SFAS No. 142. This improvement was partially offset by unfavorable product mix and higher than expected costs incurred during the sales ramp-up at the Company's Mexican facility. Additionally, the Company recorded a reduction to employee benefit and incentive compensation costs of $1.7 million in the third quarter of 2001. Income from operations as a percentage of net sales was flat at 4 percent in both 2002 and 2001. As a result of continuing product mix issues and the higher than expected material and labor costs in Mexico, the Company expects to see continued pressure on income from operations in the fourth quarter of 2002 despite the expected sales volume increases. As a result of the items discussed above, results from operations at the Company's segments were as follows: - The friction segment's income from operations decreased $1.0 million, or 37 percent, to $1.7 million in the third quarter of 2002 from $2.7 million in the comparable period in 2001. - Income from operations in the precision components segment was $1.0 million in the third quarter of 2002, an increase of $1.1 million compared to a loss of $0.1 million in the comparable period in 2001. - Income from operations at the performance automotive segment was $0.1 million in the third quarter of 2002 compared to break even results in the comparable period of 2001. - The loss from operations in the motor segment decreased $0.3 million, or 27 percent, to $0.8 million in the third quarter of 2002 from a loss of $1.1 million in the comparable period in 2001. Interest Expense. Interest expense was flat at $2.4 million in the third quarter of 2002 and 2001. The Company benefited from lower borrowing costs during the quarter. However, this benefit was offset by increased borrowing levels incurred by the Company during the quarter. Exchange Offer Costs. During the third quarter of 2002, the Company incurred third-party fees and expenses of $0.8 million related to its recently completed offer to exchange new 12% Senior Notes due 2006 for its outstanding 10 1/4% Senior Notes due 2003. The Company expects to incur an additional $1.1 million in exchange offer costs in the fourth quarter of 2002. Other Expense, Net. Other expense was $0.3 million in the third quarter of 2002. The expense in the third quarter of 2002 consisted primarily of expense relating to a write-off of a licensing agreement at the Company's metal injection molding subsidiary partially offset by foreign currency transaction income due to the strength of the Euro during the quarter. Income Taxes. The Company's recorded an income tax benefit in the third quarter of 2002 of $1.2 million compared to a provision of $0.1 million in the comparable quarter of 2001. The tax benefit was the result of the losses incurred by the Company. Included in the third quarter of 2002 benefit, is an income tax benefit of $0.6 million as a result of the resolution of a previously provided for tax contingency. Net Loss. As a result of the factors noted above, the Company reported a net loss of $0.3 million in the third quarter of 2002, compared to a net loss of $1.0 million in the comparable quarter of 2001. 29 FIRST NINE MONTHS OF 2002 COMPARED TO FIRST NINE MONTHS OF 2001 Net Sales. Consolidated net sales for the first nine months of 2002 were $149.6 million, an increase of $6.2 million, or 4 percent, from the comparable period in 2001. The increase in net sales was primarily the result of improved conditions in the truck, construction, agriculture, lawn and garden and automotive markets as well increased sales from the Company's Mexican and Chinese facilities. Additionally, the Company benefited from the new product introductions during the period. Partially offsetting this improvement was the continuing weakness in the aerospace market during the nine month period ended September 30, 2002. - Friction Segment. Net sales in the friction segment during the first nine months of 2002 were $80.2 million, a decrease of $1.0 million, or 1 percent, compared to the first nine months of 2001. While the major markets served by this segment experienced improving operating conditions during the first nine months of 2002 when compared to the comparable period 2001, they were not able to overcome the declines experienced by the Company's aerospace segment for the same period. Net sales to the aerospace market declined 22 percent during the first nine months of 2002 compared to the same period in 2001, primarily as a result of the continuing softness in worldwide air travel. The Company experienced increases in net sales to the truck, construction, agriculture and automotive markets as a result of generally improving operating conditions in the United States and Europe. Net sales at the Company's Italian facility were up 16 percent during the first nine months of 2002 as a result of the strength of the agriculture and construction markets in the European markets. Additionally, net sales from the Company's Chinese facility were up by 220 percent during the first nine months of 2002 as the Company continued its sales and production ramp-up. - Precision Component Segment. Net sales in the precision components segment for the first nine months of 2002 were $50.4 million, an increase of $5.1 million, or 11 percent, compared to the first nine months of 2001. The increase in net sales was primarily attributable to increased sales to customers in the lawn and garden, truck and fluid power markets, as the general industrial segments of the domestic economy continued to show improvement during the period. Additionally, this segment benefited from new product introductions during the period. - Performance Automotive. Net sales in the Company's performance automotive segment during the first nine months of 2002 were $10.1 million, a decrease of 1 percent compared to net sales of $10.2 million in the first nine months of 2001. The decrease in net sales was primarily attributable to declines in clutch sales during the period partially offset by new drivetrain product introductions at the Company's Tex Racing subsidiary. - Motor Segment. Net sales in the Company's motor segment during the first nine months of 2002 were $8.9 million, an increase of $2.2 million, or 33 percent, from the same period in 2001. The sales growth during the period came from new business at the Company's facilities in the U.S. and Monterrey, Mexico. Additionally, the Company continued to benefit from new product introductions to its existing customer base during the period. Gross Profit. Gross profit declined $0.2 million to $32.7 million during the first nine months of 2002, a 1 percent decrease compared to gross profit of $32.9 million in the comparable period of 2001. The gross profit margin decreased to 22 percent of net sales in the first nine months of 2002 from 23 percent of net sales in the comparable period in 2001. The decline in the gross margin was primarily the result of product mix issues, especially in the aerospace market in addition to a reduction to employee benefit and incentive compensation costs taken in the third quarter of 2001 as a result of cost reduction initiatives implemented by the Company. There was no corresponding reduction in the nine month period ended September 30, 2002. The decline in the gross profit was partially offset by the sales volume increases experienced during the period. 30 - Friction Segment. The Company's friction segment reported gross profit of $19.0 million, or 24 percent of net sales, in the first nine months of 2002 compared to $21.0 million or 26 percent of net sales in the comparable period of 2001. The decline in the segment's gross profit margin was primarily the result of the decline in aerospace sales during period partially offset by increases in sales to the other markets served by the segment. Additionally, during the nine month period ended September 30, 2001, the segment benefited from a reduction to employee benefit and incentive compensation costs. There was no corresponding reduction in the nine month period ended September 30, 2002. - Precision Components Segment. Gross profit in the precision components segment during the first nine months of 2002 was $10.2 million or 20 percent of net sales, compared to $8.9 million also 20 percent of net sales in 2001. This segment's margins were affected primarily due to volume increases during the period and the ability of the segment to leverage its fixed manufacturing costs as a result of the volume increase. Additionally, during the nine month period ended September 30, 2001, the segment benefited from a reduction to employee benefit and incentive compensation costs. There was no corresponding reduction in the nine month period ended September 30, 2002. - Performance Automotive Segment. The Company's performance automotive segment reported gross profit of $3.3 million or 33 percent of net sales in the first nine months of 2002 compared to $3.1 million or 30 percent of net sales in 2001. The increase in gross profit margin was primarily the result of new drivetrain product introductions at the Company's Tex Racing subsidiary as well as manufacturing efficiencies achieved by the segment during the period. Additionally, during the nine month period ended September 30, 2001, the segment benefited from a reduction to employee benefit and incentive compensation costs. There was no corresponding reduction in the nine month period ended September 30, 2002. - Motor Segment. The Company's motor segment reported gross profit of $0.1 million or 1 percent of net sales, in the first nine months of 2002 compared to a margin loss of $0.1 million in 2001. The increase in gross margin was primarily the result sales volume increases during the periods at both the U.S. and Mexican facilities. Partially offsetting the sales improvement was higher than expected material and labor costs during the nine month period of 2002. Selling, Technical and Administrative Expenses. ST&A expenses increased $2.3 million, or 10 percent, to $25.3 million in the first nine months of 2002 from $23.0 million in the comparable period of 2001. The increase in ST&A expenses is primarily attributable to a reduction in employee benefit and incentive compensation costs during the nine month period ended September 30, 2001. Additionally, the Company incurred increased personnel costs during the nine month period ended September 30, 2002 associated with its long-term sales and growth initiatives. Amortization of Intangibles. Results for the nine month period ended September 30, 2002 were favorably impacted by the adoption of SFAS No. 142 on January 1, 2002, which eliminated the amortization of goodwill and indefinite life intangible assets. This accounting change increased pretax income for the nine month period of 2002 by $2.3 million compared to the prior year period. Income from Operations. Income from operations increased to $6.2 million, or 15 percent, in the first nine months of 2002 from $5.4 million in 2001. The increase was primarily the result of the reduction of goodwill amortization expense as a result of the implementation of SFAS No. 142 offset by changes in product mix. During the nine months ended September 30, 2002, the Company took a reduction to employee benefit and incentive compensation costs of $1.7 million. Additionally, the Company incurred a restructuring charge of $1.0 million during the 2001 reporting period as part of a corporate-wide cost reduction initiative announced in June 2001. Income from operations as a percentage of net sales was flat at 4 percent in 2002 and 2001. As a result of the items discussed above, results from operations at the Company's segments were as follows: 31 - The friction segment's income from operations decreased $1.9 million, or 27 percent, to $5.1 million in the first nine months of 2002 from $7.0 million in the comparable period in 2001. - Income from operations in the precision components segment was $2.0 million in the first nine months of 2002, an increase of $1.7 million, or 567 percent, compared to $0.3 million in the comparable period in 2001. - Income from operations at the performance automotive segment was $1.1 million in the first nine months of 2002, an increase of 120 percent, compared to $0.5 million in the comparable period of 2001. - The loss from operations in the motor segment decreased to $2.0 million in the first nine months of 2002 from $2.5 million in the comparable period in 2001. Interest Expense. Interest expense decreased $0.2 million, or 3 percent, to $7.0 million in the first nine months of 2002 from $7.2 million in the comparable period of 2001. The decrease is primarily attributable to lower borrowing costs partially offset by increased borrowing levels incurred by the Company during the period. Exchange Offer Costs. During the nine month period ended September 30, 2002, the Company incurred third-party fees and expenses of $0.8 million related to its recently completed offer to exchange new 12% Senior Notes due 2006 for its outstanding 10 1/4% Senior Notes due 2003. The Company expects to incur an additional $1.1 million in exchange offer costs in the fourth quarter of 2002. Other Expense, Net. Other expense was $0.6 million in the first nine months of 2002 compared to $0.4 million for the comparable period of 2002. The increase was primarily the result of expense relating to a write-off of a licensing agreement at the Company's metal injection molding subsidiary offset by foreign currency transaction income due to the strength of the Euro during the period. Income Taxes. The Company's recorded a benefit for income taxes during the first nine months of 2002 of $1.5 million compared to a benefit of $0.5 million in the comparable period of 2001. Included in the nine month benefit for the period ended September 30, 2002, is an income tax benefit of $0.6 million as a result of the resolution of a previously provided for tax contingency. Cumulative Effect of Change in Accounting Principle. In accordance with the requirements of SFAS No. 142, the Company recorded a charge for the cumulative effect of change in accounting principle of $17.2 million in the nine months ended September 30, 2002. (See "Notes to Consolidated Financial Statements" for additional information on this charge.) This charge represents the write-off of $21.5 million of goodwill ($17.2 million, net of income taxes). Net Loss. As a result of the factors noted above, the Company reported a net loss of $17.8 million in the first nine months of 2002, compared to a net loss of $1.5 million in 2001. LIQUIDITY AND CAPITAL RESOURCES 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 and (3) to pay interest on, and to repay principal of, indebtedness. The Company's primary source of funds for conducting its business activities and servicing its indebtedness has been cash generated from operations and borrowings under its bank credit facility. At September 30, 2002, the Company had available a bank credit facility used for general corporate purposes. The facility was comprised of a $25.0 million revolving credit component and a $13.8 million amortizing term loan subject 32 to a borrowing base formula. The term loan had quarterly maturities of $1.25 million and the facility had a maturity date of March 31, 2003. As of September 30, 2002, the Company had $17.8 million outstanding under the revolving credit component of the facility. The credit facility was collateralized by a security interest in the accounts receivable, inventory, equipment and real estate and other assets of the Company and its subsidiaries, and the Company had pledged the stock of all of its domestic subsidiaries and certain stock of its foreign subsidiaries as collateral. Restrictive terms of the credit facility required that the Company maintain specified financial ratios including leverage, interest coverage and fixed charge ratios, and comply with other loan covenants. The Company was in compliance with the financial covenants as of September 30, 2002. Additionally, the Company had approximately $5.3 million available for future borrowings, as determined by the borrowing base under that credit facility. On October 23, 2002 the Company completed the exchange of $64.4 million, or approximately 99 percent, in principal amount of its Old Senior Notes for New Senior Notes. Concurrently, the Company entered into a new bank credit facility. A portion of the proceeds from the new credit facility was used to pay off the Company's existing credit facility. See "Recent Events" for additional information about the new credit facility and the amounts currently available for future borrowings under that facility. The Company's Old Senior Notes bear interest at 10.25% per annum and mature December 1, 2003. The Old Senior Notes are general unsecured senior obligations of the Company and, prior to the exchange offer, were fully and unconditionally guaranteed, on a joint and several basis, by all domestic wholly owned subsidiaries of the Company. In connection with the exchange offer, all of the subsidiary guarantees of the Old Senior Notes were eliminated. The New Senior Notes, which bear interest at 12% per annum and mature December 1, 2006, were issued on October 23, 2002 are also general unsecured senior obligations of the Company, and are fully and unconditionally guaranteed, on a joint and several basis, by all domestic wholly owned subsidiaries of the Company. See "Recent Events" for additional information about the exchange offer and the terms of the New Senior Notes. Net cash provided by operating activities was $2.6 million for the nine month period ended September 30, 2002. Net cash provided by operating activities was $11.3 million for the comparable nine month period of 2001. The decline in cash from operations was caused primarily by the net loss for the period and an increase in working capital assets during the quarter. The increase in working capital was caused primarily by the increase in accounts receivables due to increased net sales during the period as well as extended payment terms by customers during the nine month period compared to the comparable period of 2001. Net cash used in investing activities was $6.7 million and $7.4 million for the nine month period ended September 30, 2002 and 2001, respectively, for the purchase of property, plant and equipment. Net cash provided by financing activities was $4.3 million for the nine month period ended September 30, 2002 as a result of increased borrowings by the Company. The increase in borrowings during the nine month period ended September 30, 2002 was used primarily to support the increase in the Company's working capital assets, the purchases of property plant and equipment and the fees and expenses paid in connection with the Company's recently completed financing transactions. Net cash used in financing activities was $4.1 million for the nine month period ended September 30, 2001. The Company believes that cash flow from operating activities and borrowings under the its bank credit facility will be sufficient to satisfy its working capital, capital expenditures and debt requirements and to finance continued internal growth for the next twelve months 33 ACCOUNTING CHANGES Refer to Note 7 "Recently Issued Accounting Pronouncements" of the Notes to Consolidated Financial Statements for a discussion of recent accounting pronouncements. 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 ability of the Company to continue to meet the terms of its senior notes and bank facility which contain a number of significant financial covenants and other restrictions; - 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 continuing impact of the decline in the aerospace market on the Company's gross margins; - the ability of the Company to utilize all of its manufacturing capacity in light of softness in the commercial and industrial end-markets served by the Company; - continuing start-up costs at the Company's facilities in Mexico and China, as well the ability of the Company to generate a profit at the start-up operations at the Company's Hawk MIM subsidiary; - the effect of any additional impairment of goodwill as a result of future testing of the carrying value of indefinite-lived assets and goodwill; - 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 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; - 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 aircraft brake 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. 34 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Market Risk Disclosures. The following discussion about the Company's market risk disclosures involves forward-looking statements. Actual results could differ materially 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. At September 30, 2002, approximately 31 percent, or $31.6 million, of the Company's debt obligations bear interest at a variable rate. If interest rates were to increase 100 basis points (1.0%) from September 30, 2002 rates, and assuming no changes in debt from September 30, 2002 levels, the additional annual interest expense to the Company would be approximately $0.2 million. To mitigate the risk associated with interest rate fluctuations, in January 2001, the Company entered into an interest rate swap essentially converting $10.0 million notional amount of its variable rate debt to a fixed base rate of 5.34 percent. The notional amount was used to calculate the contractual cash flow to be exchanged and does not represent exposure to credit loss. This financial instrument did not meet the hedge accounting criteria of SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities". The carrying value and the fair value of the interest rate swap at September 30, 2002 was $0.4 million (liability). The change in the fair value was reflected in the Consolidated Statement of Operations in other expense, net. On October 18, 2002, in conjunction with the Company entering into a new bank credit facility, the Company terminated its interest rate swap. The payment made by the Company to terminate the interest rate swap was $0.4 million. The Company's primary interest rate risk exposure results from floating rate debt. The Company does not engage in activities using complex or highly leveraged instruments. Foreign Currency Exchange Risk. The majority of the Company's receipts and expenditures are contracted in U.S. dollars, and the Company does not consider the market risk exposure relating to currency exchange to be material at this time. 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 September 30, 2002 are not expected to result in a significant impact on earnings or cash flows. ITEM 4. CONTROLS AND PROCEDURES. Within the 90 days prior to the filing date of this report, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures. The evaluation was carried out under the supervision of and with the participation of the Company's management, including the Company's Chief Executive Officer, Vice President - Finance and Vice President - Controller. Based on this evaluation, the Chief Executive Officer, Vice President - Finance and Vice President - Controller concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company, including its consolidated subsidiaries, required to be included in reports the Company files with or submits to the Securities and Exchange Commission under the Securities Exchange Act of 1934. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's internal controls subsequent to the date of the evaluation. 35 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 5. OTHER EVENTS On October 22, 2002, Hawk Corporation announced that its Board of Directors appointed Andrew T. Berlin to fill the vacancy on its Board. Berlin's appointment returns Hawk's board to eight directors. Mr. Berlin is no relation to Hawk Corporation's President and Chief Operating Officer, Jeffrey H. Berlin. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.1* Credit Agreement, dated as of October 18, 2002, among the Company, and certain of its domestic subsidiaries from time to time party thereto, as Borrowers and Guarantors, the Lending Institutions party thereto, as Lenders, J.P. Morgan Business Credit Corp., as Advisor, JPMorgan Chase Bank, as Administrative Agent and Collateral Agent, Issuing Bank and Arranger, PNC Bank, National Association as a Documentation Agent and Fleet Capital Corp. as a Documentation Agent. 10.2* Security and Pledge Agreement, dated as of October 18, 2002, among the Company, and its certain Subsidiaries as Grantors, the other Grantors from time to time party thereto, and JPMorgan Chase Bank, as Administrative and Collateral Agent. 10.3* Form of Ohio Open Ended Mortgage, Assignment of Leases and Rents and Fixture Filing, each dated as of October 18, 2002, issued by each of Friction Products Co., Logan Metal Stampings, Inc. and S.K. Wellman Corp. and in Favor of JPMorgan Chase Bank. 10.4* Form of Pennsylvania Open Ended Mortgage Securing Future and/or Revolving Advances up to a Maximum Principal Amount of Fifty Three Million Dollars ($53,000,000) plus accrued interest and other Indebtedness as described in 42 PA. C.S.A.ss.8143, dated as of October 18, 2002, issued by Allegheny Clearfield, Inc. in favor of JPMorgan Chase Bank. 10.5* Form of Illinois Mortgage, Assignment of Leases and Rents and Fixture Filing, dated as of October 18, 2002, issued by Hawk Motors, Inc. in favor of JPMorgan Chase Bank. 10.6* Form of Indiana Mortgage, Assignment of Leases and Rents and Fixture Filing, dated as of October 18, 2002, issued by Helsel, Inc. in favor of JPMorgan Chase Bank. 99.1* Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 36 99.2* Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ----------------- * filed herewith (b) Reports on Form 8-K: Hawk Corporation has filed four reports on Form 8-K since June 30, 2002: A report dated July 24, 2002 reporting information relating to the Company's adoption of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." A report dated September 27, 2002 reporting information relating to the Company entering into a commitment letter with J.P. Morgan Business Credit, JPMorgan Chase Bank, Fleet Capital Corporation and PNC Bank, National Association with respect to a new senior secured credit facility. A report dated October 2, 2002 reporting the extension of the consent payment deadline in connection with the Company's offer to exchange new 12% Senior Notes due 2006 for its outstanding 10 1/4% Senior Notes due 2003 and its related solicitation of consents to amend the indenture for the 10 1/4% Senior Notes due 2003. A report dated October 14, 2002 reporting that on October 14, 2002, Hawk Corporation filed a press release announcing, in connection with its offer to exchange new 12% Senior Notes due 2006 for its outstanding 10 1/4% Senior Notes due 2003 and its related solicitation of consents to amend the indenture for the 10 1/4% Senior Notes due 2003, that it has received valid and unrevoked consents representing a majority in aggregate principal amount of the 10 1/4% Senior Notes due 2003. In addition, Hawk announced the extension of the exchange offer and related consent payment deadline. Hawk also issued press releases on October 16, 17 and 18, 2002, further extending the exchange offer and consent payment deadline. Later in the day on October 18, 2002, Hawk issued another press release announcing the completion of the exchange offer and its acceptance of $64,417,000 or approximately 99% in principal amount of its 10 1/4% Senior Notes due 2003. Hawk further announced that, concurrently with its acceptance of the 10 1/4% Senior Notes due 2003, it completed its new $53.0 million credit facility. 37 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: November 14, 2002 HAWK CORPORATION By: /s/ RONALD E. WEINBERG ------------------------------------- Ronald E. Weinberg Chairman and CEO By: /s/ THOMAS A. GILBRIDE ------------------------------------- Thomas A. Gilbride Vice President - Finance and Treasurer (Principal Financial Officer) 38 CERTIFICATION OF CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER (PRINCIPAL EXECUTIVE OFFICER) I, Ronald E. Weinberg, Chairman of the Board and Chief Executive Officer of Hawk Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Hawk Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ RONALD E. WEINBERG - ------------------------------------------------- Ronald E. Weinberg Chairman of the Board and Chief Executive Officer (Principal Executive Officer) 39 CERTIFICATION OF VICE PRESIDENT - FINANCE (PRINCIPAL FINANCIAL OFFICER) I, Thomas A. Gilbride, Vice President - Finance of Hawk Corporation, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Hawk Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ THOMAS A. GILBRIDE - -------------------------------- Thomas A. Gilbride Vice President - Finance (Principal Financial Officer) 40 EX-10.1 3 l96737aexv10w1.txt EXHIBIT 10.1 Exhibit 10.1 CREDIT AGREEMENT BY AND AMONG HAWK CORPORATION, AND CERTAIN OF ITS DOMESTIC SUBSIDIARIES FROM TIME TO TIME PARTY HERETO, AS BORROWERS AND GUARANTORS, THE LENDING INSTITUTIONS PARTY HERETO, AS LENDERS, J.P. MORGAN BUSINESS CREDIT CORP., AS ADVISOR, JPMORGAN CHASE BANK, AS ADMINISTRATIVE AGENT AND COLLATERAL AGENT, ISSUING BANK AND ARRANGER, PNC BANK, NATIONAL ASSOCIATION AS A DOCUMENTATION AGENT AND FLEET CAPITAL CORP. AS A DOCUMENTATION AGENT DATED AS OF OCTOBER 18, 2002 CREDIT AGREEMENT CREDIT AGREEMENT dated as of October 18, 2002 among Hawk Corporation, a Delaware corporation ("HAWK"), each of the other Borrowers (defined herein) from time to time party hereto, as joint and several co-borrowers, the Lenders from time to time party hereto, J.P. Morgan Business Credit Corp., as Advisor, JPMorgan Chase Bank, as arranger, administrative agent and collateral agent for the Lenders (in such capacities, together with its successors in such capacities, the "AGENT") and as Issuing Bank (defined herein), PNC Bank, National Association, as documentation agent (in such capacity, together with its successors in such capacity, a "DOCUMENTATION AGENT"), and Fleet Capital Corp., as documentation agent (in such capacity, together with its successors in such capacity, a "DOCUMENTATION AGENT". PRELIMINARY STATEMENTS (1) Unless otherwise defined herein, all capitalized terms used herein and defined in Article 1 are used herein as so defined. (2) The Borrowers have applied to the Lenders for credit facilities in the aggregate principal amount of $53,000,000 in order (i) to refinance existing indebtedness and pay related expenses in connection therewith and expenses related to the issuance of the Exchange Notes (defined below), (ii) to provide for working capital, (iii) to, under certain circumstances, redeem Hawk's Pre-Exchange Notes (defined below), and (iv) for general corporate purposes. (3) Subject to and upon the terms and conditions set forth herein, the Lenders are willing to make available to the Borrowers the credit facilities provided for herein. (4) Each of the Borrowers will be jointly and severally liable for all Obligations made hereunder. NOW THEREFORE, it is agreed: ARTICLE 1 DEFINITIONS; ACCOUNTING TERMS SECTION 1.01 DEFINITIONS. As used in this Agreement the following terms have the following meanings (terms defined in the singular to have a correlative meaning when used in the plural and vice versa): "ACCEPTING LENDERS" has the meaning set forth in SECTION 2.18(d). "ACCOUNT" means any account receivable or right of Hawk or any of its Domestic Subsidiaries to payment for goods sold or leased or for services rendered, regardless of how such right is evidenced and whether or not it has been earned by performance, whether secured or unsecured, now existing or hereafter arising, and the proceeds thereof. "ACCOUNT DEBTOR" means each Person obligated in any way on or in connection with an Account. Page 7 "ACQUISITION" means any transaction pursuant to which Hawk or any of its Domestic Subsidiaries: (a) acquires equity securities (or warrants, options or other rights to acquire such securities) of any Person (other than the Borrowers or any Person that is then a Wholly-Owned Subsidiary of any Borrower), pursuant to a solicitation of tenders therefor, or in one or more negotiated block, market or other transactions not involving a tender offer, or a combination of any of the foregoing; (b) makes any Person a Subsidiary of Hawk or any of its Subsidiaries, or causes any such Person to be merged into Hawk or any of its Subsidiaries, in any case pursuant to a merger, purchase of assets or any reorganization providing for the delivery or issuance to the holders of such Person's then outstanding securities, in exchange for such securities, of cash or securities of Hawk or any of its Subsidiaries, or a combination thereof; or (c) purchases all or substantially all of the business or assets of any Person. "ADDITIONAL COSTS" has the meaning set forth in SECTION 3.01(a). "ADJUSTED BASE RATE" means, for any day, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day, and (b) the Federal Funds Rate in effect on such day plus one-half of 1%. Any change in the Adjusted Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective from and including the effective date of such change in the Prime Rate or the Federal Funds Rate, respectively. "ADJUSTED EURODOLLAR RATE" means, with respect to any borrowing for any Eurodollar Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the Eurodollar Rate for such Eurodollar Interest Period multiplied by (b) the Statutory Reserve Rate. "AFFECTED LOANS" has the meaning set forth in SECTION 3.04. "AFFECTED PARTY" has the meaning set forth in SECTION 3.01(a). "AFFECTED TYPE" has the meaning set forth in SECTION 3.04. "AFFILIATE" means any Person which directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, any other Person. "AGENT" has the meaning set forth in the preamble to this Agreement. "AGREEMENT" means this Credit Agreement, as amended, restated, supplemented or otherwise modified from time to time. References to Articles, Sections, Exhibits, Schedules and the like refer to the Articles, Sections, Exhibits, Schedules and the like of this Agreement unless otherwise indicated. "APPLICABLE COMMITMENT FEE RATE" means a rate of interest per year (expressed in basis points), determined by the Agent in accordance with the Pricing Grid, which shall initially be equal to thirty-seven and one-half (37.5) basis points until changed for any Base Rate Margin Period after the earlier of (i) the first Banking Day on which the Agent receives the audited financial statements of Hawk and its Subsidiaries for the fiscal year ending December 31, 2002, or (ii) March 31, 2003. Anything in the Agreement to the contrary notwithstanding, after the occurrence and during the continuance of any Event of Default, the Applicable Commitment Fee Rate shall equal fifty (50) basis points. "APPLICABLE MARGIN" means the Base Rate Margin in respect of each Base Rate Loan and the Eurodollar Margin in respect of each Eurodollar Loan. "ASSIGNMENT AND ACCEPTANCE" means an assignment and acceptance entered into by a Lender and an Eligible Assignee and accepted by the Agent in accordance with SECTION 12.05 and in substantially the form of EXHIBIT G. "AUTHORIZATION LETTER" means the letter agreement executed by the Borrowers in the form of EXHIBIT H. "AVAILABLE FUNDS" means all deposits in the Collateral Account which have been made by 2:00 p.m. on a Banking Day, or such later time in any Banking Day as the Agent shall have expressly consented to. "BANKING DAY" means any day on which commercial banks are not authorized or are not required to be closed in New York, New York and whenever such day relates to a Eurodollar Loan or notice with respect to any Eurodollar Loan, a day on which dealings in Dollar deposits are also carried out in the London interbank market. "BASE RATE LOAN" means any Loan hereunder bearing interest at a rate based upon the Adjusted Base Rate. "BASE RATE MARGIN" means a rate of interest per year (expressed in basis points) equal to: (a) For the period from the date hereof until the earlier of (i) the first Banking Day on which the Agent receives the audited financial statements of Hawk and its Subsidiaries for the fiscal year ending December 31, 2002 or (ii) March 31, 2003, zero (0) basis points for Revolving Credit Loans other than the Fixed Asset Advance, fifty (50) basis points for Revolving Credit Loans that are part of the Fixed Asset Advance and fifty (50) basis points for any CapEx Loans; and (b) For each Base Rate Margin Period thereafter, the Base Rate Margin as set forth in the Pricing Grid for Revolving Credit Loans other than the Fixed Asset Advance, Revolving Credit Loans that are part of the Fixed Asset Advance and CapEx Loans, as applicable. Anything in the Agreement to the contrary notwithstanding, after the occurrence and during the continuance of any Event of Default, interest shall accrue on all Loans at the Default Rate. "BASE RATE MARGIN PERIOD" means each period beginning on the first Banking Day of the month following the date on which the Agent receives the financial statements pursuant to SECTION 6.08(c), accompanied by the Compliance Certificate required to be delivered by Hawk pursuant to SECTION 6.08(d) for the prior month and ending on the day immediately preceding the commencement of the next Base Rate Margin Period. "BORROWERS" means each of Hawk and its Domestic Subsidiaries party hereto as Borrowers, jointly and severally, together with (i) any Domestic Subsidiary of Hawk which becomes a Borrower hereunder pursuant to SECTION 6.17 and pursuant to such documentation as the Agent shall reasonably request and (ii) all of their respective successors and assigns; and "BORROWER" means any one of the Borrowers. "BORROWERS' AGENT" has the meaning set forth in SECTION 1.05. "BORROWING BASE" means the sum in Dollars of the following determined as of the latest Borrowing Base Certificate delivered to the Agent: (a) up to 85% of the aggregate amount of Eligible Accounts; plus (b) up to the lesser of (i) the sum of (a) 65% of Eligible Inventory which is not work-in process and (b) 25% of Eligible Inventory which is work-in-process, up to a maximum of $4,000,000, (ii) 85% of the appraised net recovery value of Eligible Inventory based on an inventory appraisal acceptable to the Agent in its sole discretion and (iii) $15,000,000; plus (c) the Fixed Asset Availability; in each case, as calculated by the Agent from time to time; PROVIDED, HOWEVER, that the Agent, in its reasonable discretion, may on five (5) Banking Days' prior written notice to the Borrowers' Agent from time to time adjust the Borrowing Base by reducing the percentages of Eligible Accounts or Eligible Inventory, establishing reserves, imposing maximum dollar amounts of collateral availability or providing for other reductions in the amount of the Borrowing Base as the Agent deems appropriate in its reasonable judgment from time to time. "BORROWING BASE CERTIFICATE" means and includes the periodic Borrowing Base Certificate delivered by the Borrowers' Agent to the Agent in substantially the form of EXHIBIT F. "CAPEX ASSET" means equipment, fixed assets, real property or improvements (including plant expansion) acquired on or after the Closing Date which should, in accordance with GAAP, be reflected as additions to property, plant or equipment on a Person's balance sheet. "CAPEX AVAILABILITY DATE" means the date on which the Agent has received audited financial statements for Hawk and its Subsidiaries for the Fiscal Year ending December 31, 2002 accompanied by the Compliance Certificate required to be delivered for such Fiscal Year. "CAPEX COMMITMENTS" means the commitments of the Lenders to make CapEx Loans to the Borrowers as in effect from time to time hereunder. The aggregate amount of the CapEx Commitments shall initially equal $3,000,000, as may be reduced pursuant to SECTION 2.10. "CAPEX COMMITMENT AMOUNT" means, with respect to each Lender, the commitment of such Lender to make CapEx Loans hereunder, as such commitment may be (a) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to SECTION 12.05 and (b) reduced from time to time pursuant to SECTION 2.10. The initial CapEx Commitment Amount of each Lender is the amount set forth opposite such Lender's name as such Lender's "CapEx Commitment Amount" on SCHEDULE 2.01 hereto or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Capital Expenditure Commitment, as applicable. "CAPEX LOAN" means a Base Rate Loan or a Eurodollar Loan made pursuant to SECTION 2.01(b). "CAPEX NOTE" means a promissory note of the Borrowers payable to the order of any Lender, substantially in the form of EXHIBIT B (as such form may be amended with the consent of the Agent), evidencing the Indebtedness of the Borrowers to such Lender resulting from the CapEx Loans made by such Lender. "CAPITAL EXPENDITURES" means, for any period, the sum for Hawk and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP) of the aggregate amount of expenditures made or liabilities incurred during such period (including the aggregate amount of Capital Lease Obligations incurred during such period) to acquire or construct fixed assets, plant and equipment (including renewals, improvements and replacements, but excluding repairs) computed in accordance with GAAP; PROVIDED that such term shall not include any such expenditures in connection with any replacement or repair of property that has suffered a Casualty Event. "CAPITAL LEASE OBLIGATIONS" means, with respect to any Person, obligations of such Person and its Subsidiaries under Capitalized Leases, and for purposes hereof, the amount of any such obligation shall be the Capitalized Rentals thereunder. "CAPITALIZED LEASE" means any lease of property, the obligation for Rentals with respect to which is required to be capitalized on a consolidated or combined balance sheet of the lessee and its subsidiaries or related entities in accordance with GAAP. "CAPITALIZED RENTALS" of any Person means as of any date of determination thereof, the amount at which the aggregate present value of future Rentals due and to become due under all Capitalized Leases under which such Person is a lessee would be reflected as a liability on a consolidated or combined balance sheet of such Person in accordance with GAAP. "CAPITAL STOCK" means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing. "CASUALTY EVENT" means with respect to any property of any Person, any loss of or damage to, or any condemnation or other taking of, such property for which such Person receives insurance proceeds, proceeds of a condemnation award or other compensation. "CHANGE OF CONTROL" means the occurrence of any of the following events: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) other than the Current Holder Group, Hawk or any trustee or fiduciary holding securities under any employee benefit plan of Hawk becomes, or obtains rights (whether by means of warrants, options or otherwise) to become, the "beneficial owner," directly or indirectly, of more than 25% of the outstanding Voting Stock or economic interests of Hawk; (b) the board of directors of Hawk ceases to consist of a majority of Continuing Directors; (c) Hawk ceases to own, directly or indirectly, 100% of the outstanding Capital Stock or other equity interests of any other Borrower (other than in connection with a merger expressly permitted under SECTION 7.03 hereof or a sale of assets expressly permitted under SECTION 7.01 hereof); (d) the shareholders of Hawk approve a merger or consolidation of Hawk with any other person, OTHER than a merger or consolidation which would result in the voting securities of Hawk outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted or exchanged for voting securities of the surviving or resulting entity) more than 75% of the combined voting power of the voting securities of Hawk or such surviving or resulting entity outstanding after such merger or consolidation; (e) the shareholders of Hawk approve a plan of complete liquidation of Hawk or an agreement or agreements for the sale or disposition by Hawk or all or substantially all of Hawk's assets; and/or (f) any "Change of Control" or similar term as defined in any agreement or instrument evidencing or governing Indebtedness of Hawk in an original aggregate principal amount of at least $10,000,000. As used in this definition, "beneficial owner" has the meaning provided in Rules 13(d)-3 and 13(d)-5 of the Exchange Act. "CLOSING DATE" means a date on or before November 30, 2002, unless otherwise extended by the Lenders. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "COLLATERAL" means, collectively, all of the property (including Capital Stock and other beneficial interests) in which Liens are purported to be granted pursuant to the Security Documents as security for all Obligations of the Borrowers and the Guarantors hereunder. "COLLATERAL ACCOUNT" means, collectively, any account of Hawk or any of its Domestic Subsidiaries maintained at the Agent or at another financial institution reasonably acceptable to the Agent as an account into which all proceeds of Collateral shall be deposited pursuant to any of the Security Documents and pursuant to any Lock Box Agreement or Controlled Account Agreement which Hawk or any of its Domestic Subsidiaries may enter into with the Agent or at another financial institution reasonably acceptable to the Agent. "COLLATERAL AVAILABILITY" means, as of any date of determination thereof, the amount by which (a) the Borrowing Base at such time exceeds (b) the Total Exposure at such time. "COMMITMENTS" means each Revolving Credit Commitment and CapEx Commitment, collectively. "COMPLIANCE CERTIFICATE" has the meaning set forth in SECTION 6.08(d). "CONTINUING DIRECTORS" means individuals who constituted the board of directors of Hawk on the Closing Date together with any new directors whose election or whose nomination for election by the equity holders of Hawk was approved by a vote of at least two-thirds of the directors then still in office who were directors on the Closing Date or whose election or nomination for election was previously so approved. "CONTROL" and "CONTROLS" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of Voting Stock, by contract or holding or owning the power to vote, or possessing the power to direct any right to vote, or as an officer, director, employee or management consultant or other arrangement where there is the power to direct or cause the direction of the management and policies of a Person; and "CONTROLLED" means to be under the Control of another Person. "CONTROLLED ACCOUNT" means any deposit or other bank account maintained by Hawk or any of its Domestic Subsidiaries with (a) the Agent or (b) any financial institution other than the Agent that is the subject of a Controlled Account Agreement in favor of the Agent. "CONTROLLED ACCOUNT AGREEMENT" means with respect to any deposit or other bank account maintained by Hawk or any of its Domestic Subsidiaries, an agreement among such Borrower or such Subsidiary, the depository institution at which such account is maintained and the Agent, in form and substance satisfactory to the Agent, that provides for the financial institution at which such account is maintained to comply with instructions originated by the Agent with respect to the funds from time to time on deposit in such account without further consent of Hawk or such Subsidiary or any other Person. "CONTROLLED DISBURSEMENTS ACCOUNT" means, collectively, each account identified on SCHEDULE III to the Security and Pledge Agreement and any subsequent account of Hawk or any of its Domestic Subsidiaries with (a) the Agent or (b) a financial institution other than the Agent and acceptable to the Agent as a zero balance, cash management account pursuant to and under controlled disbursement service agreements between Hawk or any of its Domestic Subsidiaries and the Agent or such other financial institution and through which all disbursements by Hawk or any of its Domestic Subsidiaries are made and settled on a daily basis with no uninvested balance remaining overnight. "COPYRIGHTS" has the meaning set forth in the Security and Pledge Agreement. "CURRENT HOLDER GROUP" means (i) those Persons who are officers and directors of Hawk on the Closing Date, (ii) the spouses, heirs, legatees, descendants and blood relatives to the third degree of consanguinity of any such Person, (iii) the executors and administrators of the estate of any such Person and any court-appointed guardian of any such Person and (iv) any trust, family partnership, or similar investment entity for the benefit of any such Person referred to in the foregoing clauses (i) and (ii). "DECLINING LENDERS" has the meaning set forth in SECTION 2.18(d). "DEFAULT" means any event, condition or act which, with the giving of notice or lapse of time, or both, would become an Event of Default. "DEFAULT RATE" means (a) for any principal of any Loan, a rate per annum equal to the Adjusted Base Rate plus two percent (2%) and (b) for any other amount due or payable hereunder, a rate per annum equal to the Adjusted Base Rate plus two percent (2%). "DESIGNATED FINANCIAL OFFICERS" has the meaning set forth in SECTION 1.05. "DISQUALIFIED STOCK" means with respect to any Person, any Capital Stock of such Person that (i) is by its terms subject to mandatory redemption, in whole or in part, pursuant to a sinking fund, scheduled redemption or similar provisions, at any time prior to the Maturity Date; or (ii) otherwise is required to be repurchased or retired on a scheduled date or dates, upon the occurrence of any event or circumstance, at the option of the holder or holders thereof, or otherwise, at any time prior to the Maturity Date, other than any such repurchase or retirement occasioned by a "change of control" or similar event. "DOCUMENTATION AGENT" has the meaning set forth in the preamble to this Agreement. "DOLLARS" and the sign "$" mean lawful money of the United States of America. "DOMESTIC SUBSIDIARY" means any Subsidiary other than a Foreign Subsidiary. "EBITDA" means for any fiscal period and in respect of any Person, the sum of (a) the net income of such Person for such period computed in accordance with GAAP, plus, without duplication, (b) the sum of, in each case as such item was included in the computation of such Person's net income for such period (i) the total interest expense (including capitalized interest, interest in respect of Capital Lease Obligations, net costs under Interest Rate Protection Agreements and amortization of deferred financing costs), of such Person for such period as reported on such Person's financial statements for such period, plus (ii) the income tax expense of such Person for such period as reported on such Person's financial statements for such period, plus (iii) the amount reported on the financial statements of such Person as the depreciation of the assets of such Person for such period computed in accordance with GAAP, plus (iv) the amount reported on the financial statements of such Person as the amortization of intangible assets of such Person for such period computed in accordance with GAAP and amortization of the additional asset realized as a result of the payment of the consent payment in connection with the Exchange Notes, plus (v) the amount reported on the financial statements of such Person as the write-down of intangible assets of such Person that consist of goodwill for such period computed in accordance with GAAP, plus (vi) all (1) cash and non-cash extraordinary or non-operating expenses, (2) non-cash non-recurring losses (3) non-cash gains and losses in respect of unrealized foreign exchange obligations of such Person for such period computed in accordance with GAAP (but excluding, in each case, any non-cash charge to the extent it represents an accrual of a reserve, cash charges in any future period or amortization of any pre-paid cash expense), minus (vii) all cash and non-cash extraordinary or non-operating income and gains of such Person for such period. "EFFECTIVE DATE" means the date on which all conditions under ARTICLE 4 are fully satisfied or waived. "ELIGIBLE ACCOUNTS" means those domestic Accounts owing to any Borrower, now existing or hereafter arising, each of which Accounts met customary criteria for eligibility as determined by the Agent in its reasonable discretion, and continues to meet the same until it is collected in full. Without limiting the Agent's discretion to determine that Accounts are not Eligible Accounts, Accounts not meeting the following specifications shall not be Eligible Accounts: (a) An invoice (in form and substance reasonably satisfactory to the Agent) with respect to such Account has been sent to the applicable Account Debtor and bears an invoice date contemporaneous with or later than the date of the sale of goods or rendering of services giving rise to such invoice; (b) The Account is due and payable in full, is not subject to any bill and hold arrangement, and not more than ninety (90) days have elapsed since the invoice date of such Account (PROVIDED that (i) with respect to Accounts of any Account Debtor approved by the Agent and the Lenders in writing arising during the period from October 1st through June 30th of each year that by their terms are due and payable in full within ninety (90) days after the sale of goods or the rendering of services giving rise to such Account, such Accounts shall be considered Eligible Accounts and PROVIDED FURTHER that (A) not more than the thirty (30) days have elapsed since the due date with respect to such Account, and (B) no more than $3,000,000 of such Accounts shall be considered Eligible Accounts by operation of this clause (i) in the aggregate; and (ii) the Lenders may from time to time, in their reasonable discretion, elect to treat certain other Accounts that are the subject of normal seasonal dating terms programs as Eligible Accounts; PROVIDED that in the case of clauses (i) and (ii) such Accounts are otherwise Eligible Accounts); (c) The Account arose from the sale of goods or the provision of services to the Account Debtor by a Borrower and not by any other Person (in whole or in part); such services or goods have been performed or provided in full; the Account is evidenced by such invoices, shipping documents or other instruments ordinarily used in the trade as shall be reasonably satisfactory to the Agent and no rejection or dispute has occurred with respect to such Account; (d) The Account Debtor is organized under the laws of the United States or any political subdivision thereof and has its chief executive office in the United States, unless either (1) a payment guaranty for such Account has been submitted from a reputable U.S. domiciled corporation, and such guaranty is acceptable in form and substance to the Lenders and their counsel, or (2) a letter of credit has been submitted which secures such Account and is otherwise acceptable to the Lenders and their counsel; (e) The Account is not subject to any assignment, claim, lien or security interest, except in favor of the Agent and the Lenders; (f) The Account is a valid and legally enforceable obligation of the Account Debtor and is not subject to any claim for credit, defense, offset, deduction, chargeback, counterclaim or adjustment by the Account Debtor, other than any discount allowed for prompt payment; (g) The Account arose in the ordinary course of business of the Borrowers and no notice of the bankruptcy, insolvency, failure, or suspension or termination of business of the Account Debtor has been received by the Borrowers; (h) The Account Debtor is not an Affiliate of the Borrowers or any of their Subsidiaries or a supplier (or an Affiliate of a supplier) of goods or services to the Borrowers or any of their Subsidiaries; (i) The Account otherwise conforms to all representations, warranties and other provisions of this Agreement relating to Accounts; (j) The Account Debtor is not an individual or Governmental Authority; (k) The Account is denominated and payable only in United States dollars in the United States; (l) The Account is not evidenced by a promissory note, warrant or other instrument or chattel paper; (m) The Account is subject to an enforceable, perfected, first priority Lien in favor of the Agent; (n) The Account does not by its terms or the terms of any related documentation require the consent of the Account Debtor to the transfer, sale or assignment of such Account; (o) The Account does not include fees charged for services or goods that exceed limitations imposed by applicable law or regulation; (p) The Account Debtor is not the holder of any indebtedness or other obligations due from or payable by any of the Borrowers; (q) The Account is not due from an Account Debtor for which more than 50% (subject to periodic adjustment by the Agent) of the total Accounts due from such Account Debtor fail to meet the other eligibility criteria set forth in this definition; (r) The Agent in its reasonable discretion has not deemed the credit worthiness of the Account or Account Debtor unsatisfactory; and (s) The Account has not been determined by the Agent in its reasonable discretion to be unusual or not customary for the Borrowers' type of business or otherwise ineligible for inclusion in the Borrowing Base. For purposes of determining the Borrowing Base at any time there shall be excluded from Eligible Accounts, the portion, if any, of the aggregate amount of Accounts owing from any single Account Debtor that exceeds 20% of the aggregate balance of all Accounts of the Borrowers at such time. "ELIGIBLE ASSIGNEE" means: (a) a Lender; (b) an Affiliate of a Lender; (c) a commercial bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $1,000,000,000; (d) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $1,000,000,000; (e) a commercial bank organized under the laws of any other country that is a member of the OECD or has concluded special lending arrangements with the International Monetary Fund associated with its General Arrangements to Borrow or of the Cayman Islands, or a political subdivision of any such country, and having total assets in excess of $1,000,000,000, so long as such bank is acting through a branch or agency located in the United States; (f) the central bank of any country that is a member of the OECD; (g) a finance company, insurance company or other financial institution or fund (whether a corporation, partnership, trust or other entity) that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and having total assets in excess of $1,000,000,000; and (h) any other Person approved by the Agent; PROVIDED that none of the Borrowers or any of their Affiliates shall qualify as an Eligible Assignee under this definition. "ELIGIBLE INVENTORY" means such raw material, work in process and finished goods inventory of the Borrowers, valued at the lesser of cost or fair market value and in accordance with GAAP, as the Agent in its reasonable discretion determines to be Eligible Inventory. Without limiting the Agent's discretion to determine that inventory is not Eligible Inventory, inventory that meets any of the following criteria shall not be Eligible Inventory: (a) slow moving, obsolete or unmerchantable inventory, as reasonably determined by the Agent; (b) inventory located outside of the United States; (c) inventory that is not located at premises owned or leased by a Borrower; PROVIDED that, if the aggregate amount of inventory located at any location leased by a Borrower exceeds $50,000 at such location, unless the Agent has received a Landlord's Waiver and Consent, in form and substance satisfactory to the Agent, the Agent shall have the right, in its discretion, to (x) exclude all or any portion of the inventory located at such location from Eligible Inventory and/or (y) establish reserves under the Borrowing Base in respect of such inventory; (d) spare parts, packaging and shipping materials, supplies, returned, damaged or defective inventory; (e) inventory that is subject to any Lien, except Liens in favor of the Agent; (f) inventory that is not subject to an enforceable, perfected, first priority Lien in favor of the Agent; (g) inventory held for return to vendors; (h) goods held by any Borrower on consignment from another Person; (i) inventory that is in transit; (j) inventory that is not adequately insured; or (k) inventory that the Agent, in its good faith discretion, has deemed to be otherwise ineligible. "ENVIRONMENTAL LAW" shall mean the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Sections 9601-9657, as amended by the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499, 100 Stat. 1613 (October 17, 1986), the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6991-6991i, as amended by the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499, 100 Stat. 1613 (October 17, 1986), as the same may be amended from time to time, and any other presently existing or hereafter enacted or decided federal, state or local statutory or common laws relating to pollution or protection of the environment, including without limitation, any common law of nuisance or trespass, and any law or regulation relating to emissions, discharges, releases or threatened release of pollutants, contaminants or chemicals or industrial, toxic or hazardous substances or wastes into the environment (including without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants or chemicals, or industrial, toxic or hazardous substances or wastes. "EQUITY RIGHTS" means, with respect to any Person, any subscriptions, options, warrants, commitments, preemptive rights or agreements of any kind (including any stockholders' or voting trust agreements) for the issuance or sale of securities or securities convertible into any additional shares of capital stock of any class, or partnership or other ownership interests of any type in such Person. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, including any rules and regulations promulgated thereunder. "ERISA AFFILIATE" means any corporation or trade or business which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as Hawk or any of its Subsidiaries or is under common control (within the meaning of Section 414(e) of the Code) with Hawk or any of its Subsidiaries. "EURODOLLAR INTEREST PAYMENT DATE" means with respect to any Eurodollar Loan the last day of the Eurodollar Interest Period applicable to such Eurodollar Loan. "EURODOLLAR INTEREST PERIOD" means the period of time commencing on the day a Eurodollar Rate is made applicable to a Loan Tranche and ending on the numerically corresponding day in the first, second or third calendar month thereafter, as the Borrowers may select pursuant to SECTIONS 2.07 and SECTION 2.08; PROVIDED that each such Eurodollar Interest Period which commences on the last Banking Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Banking Day of the appropriate calendar month. "EURODOLLAR LOAN" means any Loan Tranche the interest rate for which is determined on the basis of the Eurodollar Rate. "EURODOLLAR MARGIN" means a rate of interest per year (expressed in basis points) equal to: (a) For the period from the date hereof until the earlier of (i) the first Banking Day on which the Agent receives the audited financial statements for the fiscal year ended December 31, 2002 or (ii) March 31, 2003, two hundred and fifty (250) basis points for Revolving Credit Loans other than the Fixed Asset Advance, three hundred (300) basis points for Revolving Credit Loans that are part of the Fixed Asset Advance and three hundred (300) basis points for CapEx Loans; and (b) For each Eurodollar Margin Period thereafter, the Eurodollar Margin as set forth in the Pricing Grid for Revolving Credit Loans other than the Fixed Asset Advance, Revolving Credit Loans that are part of the Fixed Asset Advance and CapEx Loans, as applicable. To the extent that a Eurodollar Margin Period commences during the pendency of a Eurodollar Interest Period for an existing Eurodollar Loan, the Eurodollar Margin shall remain the same for the remainder of the Eurodollar Interest Period for such existing Eurodollar Loan. Anything in this Agreement to the contrary notwithstanding, after the occurrence and during the continuance of any Event of Default, interest shall accrue on all Loans at the Default Rate. "EURODOLLAR MARGIN PERIOD" means each period beginning on the first Banking Day of the month following the date on which the Agent receives the financial statements pursuant to SECTION 6.08(c), accompanied by the Compliance Certificate required to be delivered by Hawk pursuant to SECTION 6.08(d) for the prior month and ending on the day immediately preceding the commencement of the next Eurodollar Margin Period. "EURODOLLAR RATE" means, with respect to any Eurodollar Loan for any Eurodollar Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Banking Days prior to the commencement of such Eurodollar Interest Period, as the rate for dollar deposits with a maturity comparable to such Eurodollar Interest Period. In the event that such rate is not available at such time for any reason, then the Eurodollar Rate with respect to such Eurodollar Loan for such Eurodollar Interest Period shall be the rate at which Dollar deposits of $5,000,000 and for a maturity comparable to such Eurodollar Interest Period are offered by the Agent's principal London office in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Banking Days prior to the commencement of such Eurodollar Interest Period. "EVENT OF DEFAULT" has the meaning given such term in SECTION 9.01. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. "EXCHANGE NOTES" has the meaning given such term in SECTION 4.01(w). "EXCLUDED TAXES" means, with respect to any and all payments to the Agent, any Lender or any recipient of any payment to be made by or on account of any obligation of Hawk or any of its Subsidiaries under the Facility Documents, net income taxes, branch profits taxes, franchise and excise taxes (to the extent imposed in lieu of net income taxes) and all interest, penalties and liabilities with respect thereto, imposed on the Agent or any Lender. "FACILITY DOCUMENTS" means this Credit Agreement, the Notes, the Authorization Letter, all Letter of Credit documents, all Security Documents, all foreign exchange contracts and Interest Rate Protection Agreements between any of the Borrowers or Guarantors and the Agent or any of the Lenders, and any other agreement, document or instrument between any of the Borrowers or Guarantors and the Agent or the Lenders that is executed or delivered pursuant to or in connection with this Agreement. "FEDERAL FUNDS RATE" means, for any day, the rate per annum (expressed on a 360 day basis of calculation) equal to the weighted average of the rates on overnight federal funds transactions as published by the Federal Reserve Bank of New York for such day (or for any day that is not a Banking Day, for the immediately preceding Banking Day). "FIRST PRIORITY" means, with respect to any Lien purported to be created in any Collateral pursuant to any Security Document, that such Lien, subject to Permitted Liens (other than Permitted Liens described in SECTION 7.05(f)), is the most senior Lien to which such Collateral is subject. "FISCAL MONTH" means each fiscal month of Hawk. "FISCAL QUARTER" means each of the fiscal three month periods of Hawk commencing on the first day of the Fiscal Year and on the first day of each subsequent fiscal three month period. "FISCAL YEAR" means the fiscal year period of Hawk, each of which shall end on the 31st day of December of each year. "FIXED ASSET ADVANCE" means the principal amount of Revolving Credit Loans, which shall be drawn fully on the Closing Date, attributable to the Fixed Asset Availability. "FIXED ASSET AVAILABILITY" means the lesser of (a) 81% of the sum of (i) the net forced liquidation value of the machinery and equipment of Hawk and its Domestic Subsidiaries, based on an appraisal acceptable to the Agent in its discretion and (ii) the net liquidation value of the real property owned by Hawk and its Domestic Subsidiaries located in the United States, based on an appraisal acceptable to the Agent in its discretion and (b) $13,000,000; PROVIDED, HOWEVER, that as of the last day of each Fiscal Month, beginning with March 2003, the Fixed Asset Availability will be reduced by an amount (the "FIXED ASSET AVAILABILITY REDUCTION AMOUNT") equal to the amount which would fully amortize the principal amount of the Fixed Asset Advance as of the Closing Date in eighty four (84) equal consecutive monthly installments. "FIXED CHARGE COVERAGE RATIO" means, as of any date, the ratio of (a) consolidated EBITDA of Hawk and its Subsidiaries for the period of twelve (12) Fiscal Months most recently ended prior to such date (determined on a consolidated basis without duplication in accordance with GAAP), to (b) the sum for Hawk and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of (i) the aggregate amount of Interest Expense for such period, (ii) the aggregate amount of regularly scheduled payments of principal in respect of long-term Indebtedness for borrowed money paid or required to be paid during such period (PROVIDED, HOWEVER, that for each of the periods of twelve Fiscal Months ending March 31, 2003, June 30, 2003 and September 30, 2003, the amount included in clause (ii) shall be deemed to be $1,238,000, and for the period of twelve Fiscal Months ending December 31, 2003, the amount included in clause (ii) shall be deemed to be $1,548,000), (iii) the aggregate amount of cash dividends and distributions paid by Hawk during such period, (iv) the aggregate amount of income tax expense paid in cash during such period, and (v) the aggregate amount of Non-Financed Capital Expenditures made during such period. "FOREIGN EXCHANGE OBLIGATIONS" means all obligations of the Borrowers or their Subsidiaries pursuant to and under any and all foreign exchange contracts and agreements to which any Borrower or any Subsidiary is a party as of any date of computation as if such foreign exchange agreement were to be terminated or declared to be in default on such date (after giving effect to any netting provisions). "FOREIGN SUBSIDIARY" means any Subsidiary of Hawk (i) that is not organized under the laws of the United States or any political subdivision thereof or (ii) substantially all of whose assets or property are located outside the United States (or substantially all of whose business is conducted outside the United States) or (iii) substantially all of whose assets consist of Foreign Subsidiaries. "FUNDED INDEBTEDNESS" means, in respect of any Person, (a) all Indebtedness of such Person for borrowed money or which has been incurred by such Person in connection with the acquisition of assets (excluding leases defined as "operating leases" under GAAP), (b) all payments in respect of item (a) above that were required to be made within one year prior to the date of any determination of Funded Indebtedness, if the obligation to make such payments constitutes a current liability of the obligor under GAAP, (c) all Capitalized Rentals of such Person and (d) any and all other interest-bearing Indebtedness for borrowed money (other than undrawn Letters of Credit). "GAAP" means, subject to SECTION 1.02, generally accepted accounting principles in the United States of America as in effect from time to time, applied on a basis consistent with those used in the preparation of the financial statements referred to in SECTION 5.05. "GOVERNMENTAL AUTHORITY" means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government and the National Association of Insurance Commissioners. "GUARANTEED OBLIGATIONS" has the meaning set forth in SECTION 10.01. "GUARANTIES" by any Person shall mean all obligations (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) of such Person guaranteeing, or in effect guaranteeing, any Indebtedness, dividend or other obligation of any other Person (the "PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including, without limitation, all obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such Indebtedness or obligation or any property constituting security therefor, (b) to advance or supply funds (i) for the purchase or payment of such Indebtedness or obligation or (ii) to maintain working capital or other balance sheet conditions or otherwise to advance or make available funds for the purchase or payment of such Indebtedness or obligation, (c) to lease property or to purchase securities or other property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of the primary obligor to make payment of the Indebtedness or obligation or (d) otherwise to assure the owner of the Indebtedness or obligation of the primary obligor against loss in respect thereof. For the purposes of all computations made under this Agreement, a Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be Indebtedness equal to the principal amount of such Indebtedness which has been guaranteed, and a Guaranty in respect of any other obligation or liability or any dividend shall be deemed to be Indebtedness equal to the maximum aggregate amount of such obligation, liability or dividend. "GUARANTORS" means any direct or indirect Subsidiary of Hawk that is not a Borrower hereunder and who from time to time agrees to guaranty the Obligations of the Borrowers hereunder pursuant to ARTICLE 10 hereof by executing and delivering to the Agent a counterpart signature page to this Agreement, or such other documentation acceptable to the Agent, together with all of their successors and assigns; PROVIDED, HOWEVER, that no Foreign Subsidiary of Hawk will be required to guaranty the Obligations of the Borrowers hereunder except to the extent required by SECTION 6.17(b). "HARD COSTS" means, with respect to any CapEx Asset consisting of equipment, the invoice price for the item less all taxes, shipping costs to install and other incidental charges, and with respect to any CapEx Asset consisting of improvements to real property, the construction costs of such improvements, including materials and labor, each as determined by the Agent in its sole discretion. "HAWK" has the meaning set forth in the preamble hereto. "HAZARDOUS MATERIALS" means any contaminants, hazardous substances, regulated substances, or hazardous wastes which may be the subject of liability pursuant to any Environmental Law. "INDEBTEDNESS" of any Person means and includes all obligations of such Person which in accordance with GAAP shall be classified upon a balance sheet of such Person as liabilities of such Person and in any event shall include all (a) obligations of such Person for borrowed money or which have been incurred in connection with the acquisition of property, (b) obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (c) all obligations and liabilities, contingent or otherwise, of such Person in respect of letters of credit, acceptances and similar facilities, (d) obligations secured by any Lien upon property owned by such Person, even though such Person has not assumed or become liable for the payment of such obligations, (e) obligations created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person, notwithstanding the fact that the rights and remedies of the seller, lender or lessor under such agreement in the event of default are limited to repossession or sale of property, (f) Capitalized Rentals, (g) Guaranties of obligations of others of the character referred to in this definition, (h) Interest Rate Protection Obligations, (i) Foreign Exchange Obligations and (j) obligations in respect of, and valued at the higher of its stated or liquidation value, all Disqualified Stock. "INDEMNIFIED TAXES" means Taxes other than Excluded Taxes. "INTEREST EXPENSE" means, for any period, the sum, without duplication, for Hawk and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), of the following: (a) all interest in respect of Indebtedness paid in cash during such period, but excluding capitalized debt acquisition costs (including capitalized fees and expenses related to this Agreement) plus (b) the net amounts paid (or minus the net amounts received) in cash in respect of Foreign Exchange Obligations or Interest Rate Protection Agreements during such period excluding reimbursement of legal fees and other similar transaction costs and excluding payments required by reason of the early termination of Foreign Exchange Obligations or Interest Rate Protection Agreements in effect on the date hereof plus (c) all fees, including letter of credit fees and expenses (but excluding reimbursement of legal fees and up-front fees and expenses paid on or prior to the Closing Date in connection with this Agreement and the Facility Documents), paid in cash pursuant to this Agreement during such period. "INTEREST RATE PROTECTION AGREEMENT" means any interest rate cap, swap, collar or other similar protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement to which Hawk or any of its Subsidiaries is a party or for which any such Person is liable. "INTEREST RATE PROTECTION OBLIGATION" means obligations of Hawk or any of its Subsidiaries pursuant to and under any and all Interest Rate Protection Agreements to which any such Person is a party as of any date of computation as if such Interest Rate Protection Agreement were to be terminated or declared to be in default on such date (after giving effect to any netting provisions). "IP COLLATERAL" means, collectively, the Copyrights, Patents, Trademarks and other Collateral relating to intellectual property rights of the Borrowers or the Guarantors under the Security Documents. "ISSUING BANK" has the meaning set forth in SECTION 2.01(c). "JPMORGAN" means JPMorgan Chase Bank, a New York banking corporation. "JPMORGAN CHASE OFFICE" means the office of the Agent at One Chase Square CS-5, Rochester, New York, 14643. "LANDLORD'S WAIVER AND CONSENT" means, with respect to any Leasehold Property, a letter, certificate or other instrument in writing from the lessor under the related lease, in form and substance acceptable to the Agent in its sole discretion. "LEASEHOLD PROPERTY" means any leasehold interest of Hawk or any of its Subsidiaries as lessee under any lease of real property. "LENDERS" means, collectively, each entity identified as "Lender" on the signature pages hereto and each Person, if any, that shall become a Lender hereunder pursuant to SECTION 12.05 other than any Person that ceases to be a party hereto pursuant to an Assignment and Acceptance. "LENDING OFFICE" means, for each Lender and for each type of Loan, the lending office of such Lender (or of an Affiliate of such Lender) designated by such Lender on SCHEDULE 2.01 (or, if applicable, its Assignment and Acceptance), as the lending office of such Lender for such type of Loan, or such other office of such Lender (or of an Affiliate of such Lender) as such Lender may from time to time specify to the Agent and the Borrowers as the office by which such Lender's Loans of such type are to be made and maintained. "LETTER OF CREDIT" means any letter of credit issued from time to time by JPMorgan, in its capacity as Issuing Bank, for any Borrower as the account party. "LETTER OF CREDIT EXPOSURE" means the maximum amount available to be drawn under all outstanding Letters of Credit (converted to Dollars based on the exchange rate in effect at the time the Letter of Credit Exposure is determined). "LETTER OF CREDIT OUTSTANDINGS" means at any time the sum of (a) the Letter of Credit Exposure, assuming compliance with all requirements for drawing referred to therein plus (b) the aggregate amount of drawings under Letters of Credit that have not been reimbursed. "LETTER OF CREDIT SUBLIMIT" means $5,000,000. "LEVERAGE RATIO" means, as of any date, the ratio of (a) the aggregate amount of Funded Indebtedness (including all Loans made hereunder) of Hawk and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP) as of such date to (b) EBITDA of Hawk and its Subsidiaries on a consolidated basis for the period of twelve (12) consecutive Fiscal Months most recently ended. "LIEN" means any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute, or contract, and including but not limited to the security interest or lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. The term "Lien" shall include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances (including, with respect to stock, stockholder agreements, voting trust agreements, buy-back agreements and all similar arrangements) affecting property. For the purposes of this Agreement, Hawk and its Subsidiaries shall be deemed to be the owner of any property which they have acquired or hold subject to a conditional sale agreement, Capitalized Lease or other arrangement pursuant to which title to the property has been retained by or vested in some other Person for security purposes and such retention or vesting shall constitute a Lien. "LOAN TRANCHE" means any portion of the Loans outstanding as Base Rate Loans or any portion of the Loans outstanding as a Eurodollar Loan having a particular Eurodollar Interest Period. Each Eurodollar Loan outstanding having a different Eurodollar Interest Period shall constitute a separate Loan Tranche, and all Base Rate Loans shall constitute a single Loan Tranche. "LOANS" means and includes the Revolving Credit Loans, the CapEx Loans and the Reimbursement Obligations and "LOAN" means any of the Loans. "LOCK BOX" means a post office box established by the Agent or such other financial institutions as shall be acceptable to the Agent pursuant to a Lock Box Agreement with Hawk or any of its Domestic Subsidiaries into which Account Debtors of Hawk and its Domestic Subsidiaries are directed to remit payments. "LOCK BOX AGREEMENT" means an agreement pursuant to which the Agent or another financial institution acceptable to the Agent maintains a post office box into which Account Debtors of Hawk and its Domestic Subsidiaries remit payments of Accounts and which payments are deposited into a Controlled Account. "MATERIAL ADVERSE EFFECT" means: (a) a material adverse effect on the business, operations or condition (financial or otherwise) of Hawk and its Subsidiaries taken as a whole; (b) a material adverse effect on the ability of any Borrower or any Guarantor to perform or comply with any of the terms and conditions contained herein or in any other Facility Document; (c) a material adverse effect on the legality, validity, binding effect, enforceability or admissibility into evidence of any Facility Document or the ability of the Agent or the Lenders to enforce any rights or remedies under or in connection with any Facility Document; or (d) a material adverse effect on the validity, perfection or priority of any Lien in favor of the Agent and the Lenders on any of the Collateral. "MATERIAL INDEBTEDNESS" means (i) Indebtedness (other than the Loans or Letters of Credit) or (ii) obligations in respect of one or more Interest Rate Protection Agreements, in the case of (i) and (ii) of any one or more of Hawk and its Subsidiaries in an aggregate principal amount exceeding $1,000,000. For purposes of determining Material Indebtedness, the "principal amount" of the obligations of any Person in respect of any Foreign Exchange Obligation or Interest Rate Protection Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that such Person would be required to pay if such Foreign Exchange Obligation or Interest Rate Protection Agreement were terminated at such time. "MATURITY DATE" means the earlier of (i) the Scheduled Maturity Date, or (ii) the date which is one-hundred twenty (120) days prior to the maturity date of the Exchange Notes. "MINIMUM BORROWING AMOUNT" means: (i) for Revolving Loans that are Eurodollar Loans, $500,000 and (ii) for CapEx Loans that are (A) Base Rate Loans, $250,000, or (B) Eurodollar Loans, $500,000. "MORTGAGE" means each of the leasehold mortgages and fee mortgages executed in connection with this Agreement, as amended, modified or supplemented from time to time. "MULTIEMPLOYER PLAN" means a Plan defined as such in Section 3(37) of ERISA to which contributions have been made by Hawk or any of its Subsidiaries or any ERISA Affiliate and which is covered by Title IV of ERISA. "NET CASH PAYMENTS" means: (a) with respect to any Casualty Event, the aggregate amount of proceeds of insurance, condemnation awards and other compensation received by Hawk or any of its Domestic Subsidiaries in respect of such Casualty Event net of (A) reasonable expenses incurred by Hawk and its Domestic Subsidiaries in connection therewith and (B) contractually required repayments of Indebtedness to the extent secured by a Permitted Lien on such property and any income and transfer taxes paid by Hawk or any of its Domestic Subsidiaries in respect of such Casualty Event; (b) with respect to any sale or other disposition of assets, the aggregate amount of all cash payments received by Hawk or any of its Domestic Subsidiaries directly or indirectly in connection with such sale or other disposition, whether at the time of such sale or disposition or thereafter under deferred payment arrangements, including all cash payments received in respect of investments entered into or received in connection with any such sale or other disposition of assets; PROVIDED that (i) Net Cash Payments shall be net of (A) the amount of any legal, title, transfer and recording tax expenses, commissions and other fees and expenses paid by Hawk or any of its Domestic Subsidiaries in connection with such sale or other disposition and (B) any federal, state and local income or other taxes paid by Hawk or any of its Subsidiaries as a result of such sale or other disposition; and (ii) Net Cash Payments shall be net of any repayments by Hawk or any of its Domestic Subsidiaries of Indebtedness to the extent that (A) such Indebtedness is secured by a Permitted Lien on the property that is the subject of such sale or other disposition and (B) the transferee of (or holder of such Permitted Lien on) such property requires that such Indebtedness be repaid as a condition to the purchase of such property; and (c) with respect to any sale of debt or equity securities or any incurrence of Indebtedness, the aggregate amount of all cash proceeds received by Hawk and its Domestic Subsidiaries directly or indirectly in connection with such sale or incurrence, (and, in the case of a sale, whether at the time of such sale or thereafter under deferred payment arrangements, including all cash payments received in respect of investments entered into or received in connection with any such sale), less all reasonable legal, underwriting, and similar fees and expenses incurred in connection therewith. "NON-FINANCED CAPITAL EXPENDITURES" means Capital Expenditures paid in cash and not financed with Indebtedness for borrowed money; PROVIDED that Capital Expenditures financed with the proceeds of Revolving Credit Loans shall be deemed to constitute "Non-Financed Capital Expenditures" for purposes of this Agreement. "NON-MATERIAL SUBSIDIARY" means any Subsidiary of Hawk that (a) accounted for no more than two and one half percent (2.5%) of consolidated revenues of Hawk and its Subsidiaries and two and one half percent (2.5%) of consolidated earnings of Hawk and its Subsidiaries before interest and taxes, in each case for the four consecutive Fiscal Quarters of Hawk ending on the last day of the most recently completed Fiscal Quarter with respect to which, pursuant to SECTION 6.08(b), financial statements have been, or are required to have been, delivered by Hawk to the Agent, and (b) has assets which represent no more than two and one half percent (2.5%) of the consolidated assets of Hawk and its Subsidiaries as of the last day of the last Fiscal Quarter of the most recently completed Fiscal Quarter with respect to which, pursuant to SECTION 6.08(b), financial statements have been, or are required to have been, delivered by Hawk to the Agent, to the extent that all Subsidiaries constituting Non-Material Subsidiaries do not (i) account in the aggregate for more than five percent (5%) of consolidated revenues of Hawk and its Subsidiaries or five percent (5%) of consolidated earnings of Hawk and its Subsidiaries before interest and taxes, in each case for the four consecutive Fiscal Quarters of Hawk ending on the last day of the most recently completed Fiscal Quarter with respect to which, pursuant to SECTION 6.08(b), financial statements have been, or are required to have been, delivered by Hawk to the Agent, or (ii) have assets which represent more than five percent (5%) of the consolidated assets of Hawk and its Subsidiaries as of the last day of the last Fiscal Quarter of the most recently completed Fiscal Quarter with respect to which, pursuant to SECTION 6.08(b), financial statements have been, or are required to have been, delivered by Hawk to the Agent. "NOTES" means and includes the Revolving Credit Notes and the CapEx Notes; and "NOTE" means any one of the Notes. "OBLIGATIONS" means all obligations of the Borrowers and the Guarantors to the Lenders and the Agent under this Agreement or any of the other Facility Documents, including, without limitation, all indebtedness evidenced by the Notes, all obligations under, or in respect of the Letters of Credit and all Reimbursement Obligations, and all Foreign Exchange Obligations and Interest Rate Protection Obligations of the Borrowers to the Lenders or the Agent, together with all accrued and unpaid interest (including, without limitation, all interest that, but for the filing of a petition in, or commencement of a case, proceeding or other action relating to, bankruptcy, insolvency or reorganization of any Borrower or any of its Subsidiaries, would have accrued, whether or not a claim is allowed against such Borrower or Subsidiary for such interest in the related bankruptcy proceeding), fees, expenses and charges payable by Borrowers or the Guarantors hereunder or under any of the other Facility Documents. "OECD" means the Organization for Economic Cooperation and Development. "OTHER TAXES" means any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made under any Facility Document or from the execution, delivery or enforcement of, or otherwise with respect to, any Facility Document. "OWNED PROPERTY" means any property owned in fee by Hawk or any of its Domestic Subsidiaries. "PATENT SECURITY AGREEMENT" has the meaning set forth in the Security and Pledge Agreement. "PATENTS" has the meaning set forth in the Security and Pledge Agreement. "PAYOR" has the meaning set forth in SECTION 11.13. "PBGC" means the Pension Benefit Guaranty Corporation and any entity succeeding to any or all of its functions under ERISA. "PERMITTED FOREIGN ASSET TRANSFER" means any sale, lease, assignment or transfer of assets by any Borrower to any Foreign Subsidiary, PROVIDED that the Net Cash Payments, if any, received in connection with such disposition are applied as required by SECTIONS 2.04(d) and (e), and to the extent Net Cash Payments equal to the appraised value of the assets so disposed of are not received by the transferring Borrower, the Fixed Asset Availability shall be reduced (but without a permanent reduction in the Commitments) by an amount equal to the difference between the Net Cash Payments received and the appraised value of the asset. "PERMITTED LIENS" has the meaning set forth in SECTION 7.05. "PERSON" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "PIK NOTES" means Hawk's 12% Senior Notes due 2006 which are identical in all respects to the Exchange Notes, except such PIK Notes will be dated as of, and begin accruing interest as of, the date of issuance thereof, and issued pursuant to the terms of the indenture governing the Exchange Notes as additional interest in certain circumstances as provided in the indenture governing the Exchange Notes as in effect on the Closing Date. "PLAN" means any employee benefit or other plan established or maintained, or to which contributions have been made, by Hawk or any of its Subsidiaries or any ERISA Affiliate and which is covered by Title IV of ERISA or to which Section 412 of the Code applies. "PRE-EXCHANGE NOTE REDEMPTION" has the meaning set forth in SECTION 2.17. "PRE-EXCHANGE NOTES" means Hawk's 10.25% Senior Notes due December 1, 2003. "PREVIOUS FACILITY" means the credit facility evidenced by that certain Credit Agreement dated as of May 1, 1998 by and among Hawk, the lenders party thereto, and KeyBank National Association, as administrative agent, as amended. "PRICING GRID" means the pricing grid attached hereto as EXHIBIT I. "PRIME RATE" means that rate of interest from time to time announced by the Agent at its principal office as its prime commercial lending rate. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate being charged to any customer of the Agent. "PROHIBITED TRANSACTION" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Code. "PROPERTY" means any interest of any kind in property or assets, whether real, personal or mixed, and whether tangible or intangible. "REAL PROPERTY ASSET" means, at any time of determination, any fee ownership or leasehold interest owned by Hawk or any of its Domestic Subsidiaries in any real property. "REGISTER" has the meaning set forth in SECTION 12.05(d). "REGULATION A" means Regulation A of the Board of Governors of the Federal Reserve System as in effect from time to time. "REGULATION D" means Regulation D of the Board of Governors of the Federal Reserve System as in effect from time to time. "REGULATION T" means Regulation T of the Board of Governors of the Federal Reserve System as in effect from time to time. "REGULATION U" means Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time. "REGULATION X" means Regulation X of the Board of Governors of the Federal Reserve System as in effect from time to time. "REGULATORY CHANGE" means, with respect to the Agent, any Lender or the Issuing Bank, any adoption of, or change in, after the date of this Agreement, United States federal, state, municipal or foreign laws or regulations (including Regulation D) or the adoption or making of, or change in, after such date, any interpretations, directives, guidelines or requests applying to a class of banks including such Lender of or under any United States federal, state, municipal or foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "REIMBURSEMENT OBLIGATION" means any obligation of the Borrowers to reimburse the issuer of a Letter of Credit for any amount paid by such issuer from time to time pursuant to and under any Letter of Credit. "RENTALS" means and includes as of the date of any determination thereof all payments (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the property, and all payments, if any, required to be paid by the lessee regardless of sales volume or gross revenues) payable by Hawk and its Subsidiaries, as lessee or sublessee under a lease of real or personal property, but shall be exclusive of any amounts required to be paid by Hawk and its Subsidiaries (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges. "REPLACEMENT LENDERS" has the meaning set forth in SECTION 2.18(d)(ii). "REPORTABLE EVENT" has the same meaning as defined in ERISA. "REQUIRED LENDERS" means, at any time, Lenders having Loans and unused Commitments representing at least 51% of the aggregate amount of all Loans and unused Commitments outstanding at such time; provided, however, in the event that there are only two Lenders, Required Lenders means both such Lenders. "REQUIRED PAYMENT" has the meaning set forth in SECTION 11.13. "RESERVED COMMITMENT AMOUNT" has the meaning set forth in SECTION 2.17. "REVOLVING AVAILABILITY" means, as of any date of determination thereof, the amount by which (a) the lesser of (i) the Borrowing Base at such time and (ii) the aggregate of the Revolving Credit Commitments exceeds (b) the Total Exposure at such time. "REVOLVING CREDIT COMMITMENT AMOUNT" means, with respect to each Lender, the commitment of such Lender to make Revolving Credit Loans hereunder, as such commitment may be (a) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to SECTION 12.05 and (b) reduced from time to time pursuant to SECTION 2.10. The initial Revolving Credit Commitment Amount of each Lender is the amount set forth opposite such Lender's name as such Lender's "Revolving Credit Commitment Amount" on SCHEDULE 2.01 hereto or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Revolving Credit Commitment, as applicable. "REVOLVING CREDIT COMMITMENT PERCENTAGE" means for each Lender the percentage determined by dividing such Lender's Revolving Credit Commitment Amount by the aggregate amount of Revolving Credit Commitments, as such Revolving Credit Commitments may be reduced from time to time pursuant to SECTION 2.10. The initial Revolving Credit Commitment Percentage of each Lender is as set forth opposite such Lender's name on SCHEDULE 2.01 hereto or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Revolving Credit Commitment, as applicable. "REVOLVING CREDIT COMMITMENTS" means the commitments of the Lenders to make Revolving Credit Loans to the Borrowers as in effect from time to time hereunder. The aggregate amount of the Revolving Credit Commitments shall initially equal $50,000,000 and may be reduced pursuant to SECTION 2.10. "REVOLVING CREDIT LOAN" means a Base Rate Loan or a Eurodollar Loan made pursuant to SECTION 2.01(a). "REVOLVING CREDIT OBLIGATIONS" means all Obligations of the Borrowers hereunder in respect of the Revolving Credit Loans and the Revolving Credit Commitments. "REVOLVING CREDIT NOTE" means a promissory note of the Borrowers payable to the order of any Lender, substantially in the form of EXHIBIT A hereto (as such form may be amended with the consent of the Agent), evidencing the Indebtedness of the Borrowers to such Lender resulting from the Revolving Credit Loans made by such Lender. "SCHEDULED MATURITY DATE" means October 18, 2006, as such date may be extended in accordance with SECTION 2.18. "SECURITY AND PLEDGE AGREEMENT" means the Security and Pledge Agreement substantially in the form of EXHIBIT K, executed and delivered by Hawk and each of its Domestic Subsidiaries on the Effective Date, as such agreement may be amended, restated, supplemented or otherwise modified from time to time. "SECURITY DOCUMENTS" means the Security and Pledge Agreement, the Patent Security Agreements, the Trademark Security Agreements, the Mortgages, the other agreements, instruments and documents identified on SCHEDULE 4.01(a) hereto and all other instruments or documents delivered by Hawk or any of its Subsidiaries or any shareholder or other equityholder of Hawk or any of its Subsidiaries pursuant to this Agreement or any of the other Facility Documents in order to grant to the Agent, on behalf of the Lenders, a Lien on any property of Hawk or any of its Subsidiaries as security for any of the Obligations of Hawk and its Subsidiaries hereunder and under the other Facility Documents, as any of the same may be amended, restated, supplemented or otherwise modified from time to time. "SETTLEMENT AMOUNT" has the meaning set forth in SECTION 2.14. "SETTLEMENT DATE" has the meaning set forth in SECTION 2.14. "STATUTORY RESERVE RATE" means a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board of Governors of the Federal Reserve to which the Agent is subject with respect to the Adjusted Eurodollar Rate for eurocurreney funding (currently referred to as "Eurocurrency Liabilities" in Regulation D). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "SUBSIDIARY" means, with respect to any Person (the "PARENT") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held by the parent, or that is, as of such date, otherwise Controlled by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. As used herein without reference to any "parent", the terms "Subsidiary" and "Subsidiaries" shall mean a Subsidiary or Subsidiaries, respectively, of the Borrowers. "TAXES" means any and all present or future taxes, levies, imposts, duties, fees, deductions, charges or withholdings imposed by any Governmental Authority. "TERMINATION DATE" means the earliest of (a) the Maturity Date, PROVIDED that if such date is not a Banking Day, such date shall be the next succeeding Banking Day (or, if such next succeeding Banking Day falls in the next calendar month, the immediately preceding Banking Day), and (b) the date on which the Revolving Credit Commitments are reduced to zero or terminated in full pursuant to SECTION 2.10 or SECTION 9.02. "TOTAL EXPOSURE" means, at any time, the sum of the aggregate outstanding principal amount of Revolving Credit Loans, accrued and unpaid interest, fees and charges, Letter of Credit Exposure and Reimbursement Obligations, Foreign Exchange Obligations and Interest Rate Protection Obligations owing from the Borrowers to the Lenders and the Agent at such time. "TRADEMARKS" has the meaning set forth in the Security and Pledge Agreement. "TRADEMARK SECURITY AGREEMENT" has the meaning set forth in the Security and Pledge Agreement. "UNCOLLECTED FUNDS" means all deposits of items which shall be on deposit in the Collateral Account from time to time during the period from the date on which such deposits became Available Funds to the beginning of the following Banking Day. "UNCOLLECTED FUNDS COMPENSATION" means the compensation payable to the Agent pursuant to SECTION 2.09. "UNUSED FACILITY AMOUNT" means, at any time of determination, the difference between (a) the aggregate Commitments of the Lenders at such time and (b) the sum of the outstanding principal amount of all Loans and Letter of Credit Exposure at such time. "VOTING STOCK" means, with respect to any Person, Capital Stock issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or Persons performing similar functions) of such Person, even though the right so to vote has been suspended by the happening of such a contingency. "WEEKLY COLLATERAL CERTIFICATE" means a certificate substantially in the form of EXHIBIT K, setting forth sales and collection data with respect to the Accounts. "WHOLLY-OWNED SUBSIDIARY" means, with respect to any Person, any corporation, partnership, limited liability company or other entity of which all of the Voting Stock or other equity interest is at the time of determination owned directly or indirectly by such Person. SECTION 1.02 ACCOUNTING PRINCIPLES. Where the character or amount of any asset or liability or item of income or expense is required to be determined, or any consolidation, combination or other accounting computation is required to be made, for the purposes of this Agreement, the same shall be done in accordance with GAAP, to the extent applicable, except where such principles are inconsistent with the requirements of this Agreement. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Facility Document, and either the Borrowers' Agent or the Required Lenders shall so request, the Agent, the Lenders and the Borrowers shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); PROVIDED THAT, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrowers shall provide to the Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. SECTION 1.03 DIRECTLY OR INDIRECTLY. Where any provision in this Agreement refers to action to be taken or not to be taken by any Person, such provision shall be applicable whether the action in question is taken directly or indirectly by such Person. SECTION 1.04 CONSTRUCTION. In the event of any inconsistency between the covenants contained in the Security Documents and the covenants contained in this Agreement, the provisions of this Agreement shall govern and be controlling; provided, however, that to the extent the Security Documents contain covenants which are in addition to the covenants contained herein or covenants that are more restrictive than the covenants contained herein, such covenants shall not be deemed to be inconsistent for the purposes of this SECTION 1.04. SECTION 1.05 JOINT AND SEVERAL OBLIGATIONS; BORROWERS' AGENT. (a) All obligations of the Borrowers hereunder shall be joint and several. Any notice, request, waiver, consent or other action made, given or taken by any Borrower shall bind all of the Borrowers. In any action or proceeding involving any state corporate law, or any state or Federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Borrower would otherwise be held or determined to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its joint and several liability hereunder, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by any Borrower, any Lender, the Agent or any other Person, be automatically limited and reduced to the highest amount that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding. (b) Each of the Borrowers hereby authorizes Hawk to act as agent (the "BORROWERS' AGENT") for the Borrowers, and to execute and deliver on behalf of any Borrower such notices, requests, waivers, consents, certificates, and other documents, and to take any and all actions, required or permitted to be delivered or taken by the Borrowers hereunder. The Borrowers' Agent hereby designates the financial officers of the Borrowers' Agent identified in the Authorization Letter (the "DESIGNATED FINANCIAL OFFICERS") to act for and on behalf of the Borrowers' Agent and each of the Borrowers, and to execute and deliver on behalf of the Borrowers' Agent and each of the Borrowers such notices, requests, waivers, consents, certificates, and other documents, and to take any and all actions, required or permitted to be delivered or taken by the Borrowers' Agent and each of the Borrowers hereunder. The Borrowers' Agent and each of the Borrowers hereby agrees that the Agent and the Lenders shall be entitled to exclusively rely on any instrument, certificate, notice, agreement or other document that is signed by any of the Designated Financial Officers. SECTION 1.06 TIMES OF DAY. Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable). ARTICLE 2 THE CREDIT SECTION 2.01 LOANS AND LETTERS OF CREDIT. (a) THE REVOLVING CREDIT LOANS. (i) Subject to the terms and conditions of this Agreement, each of the Lenders severally agrees to make Revolving Credit Loans to the Borrowers from time to time from and including the date hereof to but excluding the Termination Date in an aggregate principal amount at any one time outstanding up to but not exceeding its Revolving Credit Commitment Amount, as set forth on SCHEDULE 2.01; PROVIDED that the obligation of each Lender to make Revolving Credit Loans hereunder is subject to the condition that the Total Exposure (after giving effect to the funding of such Revolving Credit Loans) shall not exceed the lesser of the Borrowing Base and the aggregate Revolving Credit Commitments. (ii) Any Lender may request that the Revolving Credit Loans made by it be evidenced by a Revolving Credit Note. In such event, the Borrowers shall issue to such Lender, a Revolving Credit Note, substantially in the Form of EXHIBIT A, dated as of the Effective Date payable to the order of such Lender in the aggregate principal amount equal to the Revolving Credit Commitment Amount of such Lender. (b) THE CAPEX LOANS. (i) Subject to the terms and conditions of this Agreement, each of the Lenders severally agrees to make CapEx Loans to the Borrowers from time to time from and including the CapEx Availability Date to but excluding the Termination Date in an aggregate amount up to but not exceeding such Lender's CapEx Commitment Amount, as set forth on SCHEDULE 2.01, minus the principal amount of all CapEx Loans previously made by such Lender; PROVIDED, HOWEVER, that the Borrowers shall not be entitled to request, and the Lenders shall not be required to make, CapEx Loans in excess of (i) $2,000,000 in the aggregate during the Fiscal Year ending December 31, 2003, and (ii) $1,000,000 during any Fiscal Year thereafter; PROVIDED, FURTHER, in no event will any CapEx Loan on any date exceed such amount which constitutes 80% of the Hard Costs of the CapEx Assets to be purchased with the proceeds of such CapEx Loan. The Borrowers may not request CapEx Loans to be made more than once in any Fiscal Quarter. CapEx Loans, once repaid, may not be reborrowed. (ii) Any Lender may request that the CapEx Loans made by it be evidenced by a CapEx Note. In such event, the Borrowers shall issue to such Lender a CapEx Note, substantially in the form of EXHIBIT B, dated as of the Effective Date, payable to the order of such Lender in the aggregate principal amount equal to the CapEx Commitment Amount of such Lender. (c) LETTERS OF CREDIT. Subject to the provisions of SECTION 2.13 and the other terms and conditions of this Agreement, at the request of the Borrowers' Agent, the Agent, on behalf of the Lenders, shall issue Letters of Credit (in its capacity as issuer of Letters of Credit, the "ISSUING BANK") from time to time from and including the date hereof to but excluding the Termination Date up to but not exceeding the lesser of (i) the difference between (A) the lesser of (x) the aggregate amount of all Revolving Credit Commitments and (y) the Borrowing Base and (B) the Total Exposure immediately prior to the issuance of such Letter of Credit and (ii) the difference between (A) the Letter of Credit Sublimit and (B) the aggregate amount of the Letter of Credit Exposure which exists immediately prior to the issuance of such Letter of Credit. SECTION 2.02 FUNDING OF LOANS. (a) Until such time as the Borrowers shall have established a Controlled Disbursements Account with the Agent, to request the funding of any Loans hereunder, the Borrowers' Agent shall deliver to the Agent notice in accordance with SECTION 2.11 setting forth (1) for each borrowing consisting of Revolving Credit Loans, (A) the requested date of such borrowing, (B) the type of Loans comprising such borrowing, (C) the aggregate amount of such borrowing and (D) in the case of a borrowing comprised of Eurodollar Loans, the initial Eurodollar Interest Period for such Loans and (2) for each borrowing consisting of CapEx Loans, in addition to the items described in items (A) through (D) of clause (1), the use of proceeds of such CapEx Loan and shall be accompanied by an invoice (or a copy) or other proper documentation setting forth the invoice price for the equipment to be purchased. The aggregate principal amount of any borrowing incurred by any Borrower on any day, other than any borrowings made as Base Rate Loans pursuant to SECTION 2.02(b), shall not be less than any Minimum Borrowing Amount. Following receipt of such notice, the Agent shall, not later than 2:00 p.m. on (i) the same Banking Day that such notice is given, if such Loans are to be Base Rate Loans or (ii) on the third Banking Day after such notice is given, if such Loans are to be Eurodollar Loans, subject to the conditions of this Agreement, make available to the Borrowers by a credit to an account of the Borrowers maintained at the Agent the amount of such requested Loans. The Loans shall be deemed to be made by each Lender and to be outstanding to each Lender under the Note issued to such Lender as of the date that such credit is made available to the Borrowers without regard to the settlement procedures between the Agent and the Lenders pursuant to SECTION 2.14. (b) After such time as the Borrowers shall have established a Controlled Disbursements Account with the Agent, not later than 2:00 p.m. on each Banking Day, the Agent shall, subject to the conditions of this Agreement (but without any further written notice required), make available to the Borrowers by a credit to an account of the Borrowers maintained at the Agent the proceeds of Base Rate Loans to the extent necessary to pay items to be drawn on the Controlled Disbursements Account that day after giving effect to all Available Funds to be deposited to the Collateral Account on that day. All other Loans and all requests for the making of Eurodollar Loans, or for the conversion of Base Rate Loans into Eurodollar Loans, shall be made upon notice given in accordance with SECTION 2.11. The Loans shall be deemed to be made by each Lender and to be outstanding to each Lender under the Note issued to such Lender as of the date that such credit is made available to the Borrowers without regard to the settlement procedures between the Agent and the Lenders pursuant to SECTION 2.14. SECTION 2.03 PRINCIPAL REPAYMENT OF LOANS. (a) REVOLVING CREDIT LOANS. (i) Each Revolving Credit Loan shall mature and be payable in full on the Termination Date. (ii) Except to the extent otherwise expressly provided in any Security Document, the Agent shall, not later than as of 2:00 p.m. on each Banking Day when any Revolving Credit Loans are outstanding, transfer out of the Collateral Account all funds remitted to the Agent by Account Debtors of the Borrowers or by financial institutions at which Controlled Accounts are maintained, first making payments of the outstanding principal amount of the Revolving Credit Loans (including all Revolving Credit Loans made or to be made that day) by a debit to the Collateral Account in an amount equal to the balance of the Collateral Account after giving effect to all Available Funds deposited to the Collateral Account on that day and prior to any other transfers from the Collateral Account. All such payments shall be applied first to the outstanding principal amount of all Base Rate Loans. To the extent that a payment hereunder creates a credit balance under the Revolving Credit Obligations, JPMorgan Chase Bank, in its capacity as the depository bank, shall pay interest on such credit balance at a rate per annum equal to the greater of (x) zero percent (0%) and (y) the Prime Rate minus three percent (3%). (iii) If at any time (x) the aggregate principal amount of the Revolving Credit Loans then outstanding plus the Letter of Credit Outstandings exceeds (y) the lesser of the Borrowing Base or the aggregate of the Revolving Credit Commitments, then immediately upon demand by the Agent, the Borrowers shall immediately prepay Revolving Credit Loans by an amount equal to such excess. (b) CAPEX LOANS. Beginning with the Fiscal Year ending December 31, 2003, and for each Fiscal Year thereafter, the Borrowers shall begin amortizing and shall repay to the Agent for the ratable account of the Lenders the aggregate amount of principal of the CapEx Loans made during such Fiscal Year in such amounts that would fully amortize such outstanding amount in twenty-eight (28) equal consecutive quarterly payments, and the first of such quarterly payments shall be due on March 31, 2004. The final installment representing any remaining principal balance of all CapEx Loans shall be due and payable on the Termination Date. SECTION 2.04 MANDATORY PREPAYMENTS. In addition to the payments required under SECTION 2.03(a)(iii), the Borrowers shall make the following mandatory prepayments of the Loans: (a) CASUALTY EVENTS. Within ninety (90) days following the receipt by Hawk or any of its Subsidiaries of the proceeds of insurance, condemnation award or other compensation in respect of any Casualty Event affecting any property of Hawk or any of its Subsidiaries (or upon such earlier date as Hawk or any of its Subsidiaries, as the case may be, shall have determined not to repair or replace the property affected by such Casualty Event), the Borrowers shall prepay the Loans by an aggregate amount, if any, equal to 100% of the Net Cash Payments from such Casualty Event not theretofore applied or committed to be applied to the repair or replacement of such property (it being understood that (i) if the Net Cash Payments committed to be applied are not in fact applied within ninety (90) days of the respective Casualty Event, or Hawk or any of its Subsidiaries have not entered into binding contractual agreements as of such 90th day requiring payment of amounts at least equal to such funds in repair or replacement of the property affected by the Casualty Event, then such Net Cash Payments, or such lesser amount that is not required to be paid pursuant to such binding contractual commitment, shall be applied to the prepayment of the Loans as provided in this clause (a) at the expiration of such ninety (90) day period and (ii) if an Event of Default shall have occurred and is continuing on the date such Net Cash Payments are received by Hawk or any of its Subsidiaries or at any time during such ninety (90) day period, then the Borrowers shall prepay the outstanding Loans in an amount equal to 100% of such Net Cash Payments (or, if any portion of such proceeds shall have been reinvested prior to the occurrence of such Event of Default, 100% of such remaining amount of Net Cash Payments not so reinvested) on the later of the date such Net Cash Payments are received by Hawk or any of its Subsidiaries or the date of the occurrence of such Event of Default), such prepayment to be effected in each case in the manner and to the extent specified in paragraph (e) of this SECTION 2.04. (b) SALE OF EQUITY SECURITIES. Without limiting the obligation of Hawk or its Subsidiaries to obtain the consent of the Lenders in accordance with SECTION 12.01 with respect to any sale of equity securities not otherwise permitted hereunder, the Borrowers agree, on or prior to the closing of any sale of equity securities by Hawk or any of its Subsidiaries (other than the issuance of equity securities to employees in accordance with stock option and related employee benefit programs), to deliver to the Agent a statement certified by the principal financial officer of the Borrowers' Agent, in form and detail reasonably satisfactory to the Agent, of the estimated amount of the Net Cash Payments of such sale of equity securities that will (on the date of such sale) be received by Hawk or its Subsidiaries, and, upon the date of such sale of equity securities, the Borrowers shall prepay the Loans by an aggregate amount equal to 100% of the Net Cash Payments of such sale of equity securities received by Hawk or its Subsidiaries, such prepayment to be effected in each case in the manner and to the extent specified in paragraph (e) of this SECTION 2.04. (c) INCURRENCE OF INDEBTEDNESS. Without limiting the obligation of Hawk or any of its Subsidiaries to obtain the consent of the Lenders in accordance with SECTION 12.01 with respect to the incurrence of any Indebtedness not otherwise permitted hereunder, the Borrowers agree, on or prior to the closing of any sale of debt securities or the incurrence of any Indebtedness by Hawk or any of its Subsidiaries (other than Indebtedness permitted under SECTIONS 7.11(a), 7.11(b), 7.11(c), 7.11(d) and 7.11(f)), to deliver to the Agent a statement certified by the principal financial officer of the Borrowers' Agent, in form and detail reasonably satisfactory to the Agent, of the estimated amount of the Net Cash Payments of such sale of debt securities or incurrence of Indebtedness that will (on the date of such sale or incurrence) be received by Hawk or its Subsidiaries and, upon the date of such sale or incurrence, the Borrowers shall prepay the Revolving Credit Loans by an aggregate amount equal to 100% of the Net Cash Payments of such sale or incurrence received by Hawk or its Subsidiaries, such prepayment to be effected in each case in the manner and to the extent specified in paragraph (e) of this SECTION 2.04. (d) SALE OF ASSETS. Without limiting the obligation of Hawk or any of its Subsidiaries to obtain the consent of the Lenders in accordance with SECTION 12.01 with respect to any sale or other disposition of assets not otherwise expressly permitted hereunder, the Borrowers agree that in connection with any sale or other disposition of assets with a fair market value in excess of $25,000 for any such sale or disposition, or in excess of $100,000 for all such sales or dispositions in the aggregate in any Fiscal Year, by Hawk or any of its Subsidiaries (other than dispositions permitted under CLAUSE (a) OR (b) OF SECTION 7.01), to deliver to the Agent a monthly statement as soon as practical after the end of each month, but in any event within five (5) Banking Days after the end of each such month, certified by the principal financial officer of the Borrower's Agent, in form and detail reasonably satisfactory to the Agent, of the estimated amount of the Net Cash Payments of such sale or other disposition that has been or will be received (on the date of such sale or other disposition) by Hawk or its Subsidiaries. The Borrowers shall prepay the Loans within ten (10) days of the date of any sale or other disposition of assets, by an aggregate amount equal to 100% of the Net Cash Payments of any sale or other disposition received by Hawk or its Subsidiaries. Prepayments of the Loans resulting from any sale or other disposition of assets shall be effected in each case in the manner and to the extent specified in paragraph (e) of this SECTION 2.04. (e) APPLICATION. (i) In the event of any mandatory prepayment pursuant to SECTION 2.04(a) or (c), such prepayment shall be applied: first, to Revolving Loans attributable to the Fixed Asset Advance, second to the CapEx Loans, and third to Revolving Loans other than the Fixed Asset Advance, until paid in full, (ii) in the event of any mandatory prepayment pursuant to SECTION 2.04(b), such prepayment shall be applied: first, to the Revolving Loans other than the Fixed Asset Advance, second to Revolving Loans attributable to the Fixed Asset Advance, and third to the CapEx Loans, and (iii) in the case of any mandatory prepayment pursuant to SECTION 2.04(d), such prepayment shall be applied: (A) if the asset disposed of consisted of a CapEx Asset purchased with the proceeds of a CapEx Loan, first, to the CapEx Loans, second to Revolving Loans attributable to the Fixed Asset Advance, and third to Revolving Loans other than the Fixed Asset Advance, and (B) if the asset disposed of consisted of any other machinery, equipment or tangible assets, first, an amount equal to the appraised value of such asset to the Revolving Loans attributable to the Fixed Asset Advance, second, to the Revolving Credit Loans other than the Fixed Asset Advance and third to the CapEx Loans, PROVIDED, HOWEVER, that upon the occurrence and during the continuance of an Event of Default, such prepayment shall be applied to the Loans in such order as the Agent so elects. With respect to any prepayment of any Loans, the Agent shall apply such prepayments: first, to the payment of accrued interest in respect of outstanding Base Rate Loans; second, to the principal amount of outstanding Base Rate Loans; third, to accrued interest in respect of outstanding Eurodollar Loans; fourth, to the principal amount of outstanding Eurodollar Loans; and fifth, to all other outstanding Obligations. In the case of any prepayment of CapEx Loans, such prepayments shall be applied to the installments thereof in reverse order of maturity. The Commitments shall be automatically and permanently reduced as a result of any mandatory prepayment made pursuant to SECTION 2.04(a), SECTION 2.04(c) or SECTION 2.04(d) by an amount corresponding to the amount of such prepayment; PROVIDED, HOWEVER, that if the Borrowers' Agent advises the Agent in writing at the time of any prepayment of Revolving Loans with the Net Cash Proceeds from any asset disposition as required by SECTION 2.04(d) that, as contemplated by SECTION 2.17, a portion of the Revolving Commitments gives rise to a Reserved Commitment Amount, unless any portion of the Reserved Commitment Amount is not utilized on or before the 179th day of receipt to reinvest in assets permitted by SECTION 7.10(f), the Revolving Commitments shall not be permanently reduced by the Reserved Commitment Amount. The Revolving Commitments shall be automatically and permanently reduced by the amount of any Reserved Commitment Amount remaining unutilized after 179 days. In addition, in the event of any prepayment under SECTIONS 2.04(a) OR 2.04(d) above related to any asset included in the Fixed Asset Availability, the Fixed Asset Availability shall be reduced on a dollar for dollar basis in the amount of the portion of such prepayment attributable to such asset. Other than as provided above, the Commitments shall not be subject to permanent reduction as a result of any other mandatory prepayment made pursuant to this SECTION 2.04. (f) PREPAYMENT PENALTIES. The Borrower shall not be required to pay any prepayment premiums or penalties in connection with any mandatory prepayment pursuant to this SECTION 2.04, other than (i) payments required to be paid pursuant to SECTION 3.05 in connection with any prepayment of any Eurodollar Loan and (ii) the early termination fee provided for in SECTION 2.15(d). SECTION 2.05 INTEREST. (a) Interest shall accrue on the outstanding and unpaid principal amount of each Loan for the period from and including the date of such Loan to but excluding the date such Loan is repaid, at the following rates per year: (i) for a Loan Tranche which is outstanding as a Base Rate Loan, at a variable rate per annum equal to the Adjusted Base Rate plus the Applicable Margin; and (ii) for a Loan Tranche which is outstanding as a Eurodollar Loan, at a fixed rate during the applicable Eurodollar Interest Period equal to the corresponding Adjusted Eurodollar Rate plus the Applicable Margin; PROVIDED, HOWEVER, that after the occurrence and during the continuance of any Event of Default, interest shall accrue on all Loans and all other amounts payable hereunder (including, to the extent permitted by law, interest on overdue interest) at the Default Rate. (b) Interest on each Eurodollar Loan and each Base Rate Loan shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. (c) Subject to paragraph (f) below, accrued interest on each Base Rate Loan shall be due and payable to the Agent for account of each Lender in arrears on the first Banking Day of each calendar month, regardless of any payment of the principal thereof. (d) Subject to paragraph (f) below, accrued interest on each Eurodollar Loan shall be due and payable to the Agent for account of each Lender in arrears upon any payment of principal and on each corresponding Eurodollar Interest Payment Date. (e) The Agent shall determine the Adjusted Base Rate, the Adjusted Eurodollar Rate and the Eurodollar Rate and such determination shall be conclusive absent manifest error. Promptly after the determination of any interest rate provided for herein or any change therein, the Agent shall notify the Borrowers and the Lenders thereof. (f) Notwithstanding the foregoing, (i) interest accrued pursuant to the proviso to paragraph (a) above shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (iii) in the event of any conversion of any Eurodollar Loan prior to the end of the current Eurodollar Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. SECTION 2.06 EURODOLLAR INTEREST PERIODS. In the case of each Loan other than a Base Rate Loan, the Borrowers shall select a Eurodollar Interest Period, subject to the following limitations: (a) no Eurodollar Interest Period shall have a duration of less than one (1) month and if any such proposed Eurodollar Interest Period would otherwise be for a shorter period (as a result of the Termination Date or otherwise), such Eurodollar Interest Period shall not be available; and (b) if a Eurodollar Interest Period would end on a day which is not a Banking Day, such Eurodollar Interest Period shall be extended to the next Banking Day, unless such next Banking Day would fall in the next calendar month in which event such Eurodollar Interest Period shall end on the immediately preceding Banking Day. All elections of a Eurodollar Interest Period shall be made by the Borrowers' Agent upon three (3) Banking Days' notice to the Agent in accordance with SECTION 2.11 and the Agent shall quote to the Borrowers the actual Eurodollar Rate to take effect for such Eurodollar Interest Period (based upon the rate quotation described in the definition of Eurodollar Rate) on the next Banking Day. Notwithstanding anything to the contrary set forth herein, the Borrowers shall not be permitted to request any Eurodollar Loans until the Agent has completed its initial syndication of the credit facilities hereunder. SECTION 2.07 CONVERSIONS. Except to the extent specified to the Agent prior to the Effective Date, each Loan shall be a Base Rate Loan unless and until converted to a Eurodollar Loan in accordance with terms of this SECTION 2.07. The Borrowers shall have the right to make payments of principal, or to convert a Loan Tranche from a Base Rate Loan to a Eurodollar Loan or from a Eurodollar Loan to a Base Rate Loan at any time or from time to time, PROVIDED that: (a) if the Loan Tranche is outstanding as a Eurodollar Loan, it may be converted only on the last day of the applicable Eurodollar Interest Period; (b) if the Loan Tranche is outstanding as a Eurodollar Loan, it shall automatically convert to a Base Rate Loan on the last day of the applicable Eurodollar Interest Period, unless the Borrowers' Agent gives notice to the Agent in accordance with SECTION 2.11 three (3) Banking Days prior to the last day of the corresponding Eurodollar Interest Period specifying a new Eurodollar Interest Period to apply to such Loan Tranche; (c) no Loan Tranche comprising a Eurodollar Loan may be in a principal amount less the amount specified in the definition of "MINIMUM BORROWING AMOUNT"; (d) there may be no more than four (4) Loan Tranches comprising Eurodollar Loans outstanding at any one time; and (e) no Loan Tranche comprising a Eurodollar Loan may be created or continued while any Default or Event of Default exists and continues. SECTION 2.08 VOLUNTARY PREPAYMENTS. In addition to repayments made pursuant to SECTION 2.03(a)(iii), the Borrowers shall have the right to prepay Loans at any time or from time to time; PROVIDED that: (i) the Borrowers' Agent shall give the Agent notice of each such prepayment as provided in SECTION 2.11, (ii) the Borrowers shall be responsible for the payment of such amounts as provided in SECTION 3.05 with respect to the prepayment of any Eurodollar Loans prepaid on any date other than the last day of the corresponding Eurodollar Interest Period and (iii) after giving effect to any such prepayments, the amounts of the Loans outstanding shall be in at least the Minimum Borrowing Amounts. In addition, but subject to the foregoing, as a condition to giving effect to any termination of the Commitments pursuant to SECTION 2.10, the aggregate principal of all Loans shall be fully prepaid, together with interest thereon accrued to the date of such payment and all amounts payable pursuant to SECTION 2.13(c) and/or SECTION 3.05 in connection therewith. SECTION 2.09 UNCOLLECTED FUNDS COMPENSATION. Any credit extended by the Agent to the Borrowers by allowing the Uncollected Funds in the Collateral Account maintained by the Borrowers at the Agent to be immediately available funds to the Borrowers shall not be deemed to be Loans hereunder. Uncollected Funds Compensation to the Agent shall accrue on the amount of the Uncollected Funds in existence from time to time at a variable rate per annum equal to the Adjusted Base Rate plus the Applicable Margin for Base Rate Loans for one full day. Upon making such computation, the Agent is authorized to make a Revolving Credit Loan to the Borrowers for the amount thereof (or during the continuance of an Event of Default, debit the Collateral Account) for the payment thereof to the Agent. The Agent shall notify the Borrowers of the amount of the Uncollected Funds Compensation for the preceding calendar month in the next monthly statement rendered by the Agent to the Borrowers. SECTION 2.10 VOLUNTARY TERMINATION OF COMMITMENTS. The Borrowers shall have the right to terminate the amount of Commitments in whole or in part at any time; PROVIDED that (a) the Borrowers' Agent shall give notice of such termination to the Agent as provided in SECTION 2.11, (b) each reduction of the Revolving Credit Commitments shall be in an amount that is at least equal to $5,000,000 or any greater multiple of $1,000,000 and (c) each reduction of the CapEx Commitments shall be in an amount that is at least equal to $250,000 or any greater multiple of $100,000. The Borrowers may not terminate the Revolving Credit Commitments to an amount that is less than the Total Exposure then outstanding, and unless the Commitments have been terminated in whole, the Borrowers may not reduce the amount of the Revolving Credit Commitments to less than $25,000,000. Any portion of the Commitments that has been terminated may not be reinstated. SECTION 2.11 CERTAIN NOTICES. Notices by the Borrowers' Agent to the Agent of borrowings other than pursuant to SECTION 2.02(b), notice of conversion of any Base Rate Loans to Eurodollar Loans pursuant to SECTION 2.07, and notice of each prepayment of a Loan pursuant to SECTION 2.08 (which does not include repayments pursuant to SECTION 2.03(a)(iii) or of termination of the Commitments pursuant to SECTION 2.10) shall be irrevocable and shall be effective only if received by the Agent in writing on a Banking Day and (a) in the case of Base Rate Loans and prepayments of Base Rate Loans, given not later than 11:00 a.m. on the date of such Base Rate Loan or such prepayment; (b) in the case of Eurodollar Loans and prepayments of Eurodollar Loans, given not later than 11:00 a.m. three (3) Banking Days prior to the date of such Eurodollar Loan or such prepayment; and (c) in the case of termination of the Commitments, given not later than 12:00 noon time four (4) Banking Days prior thereto. Each such notice of borrowing or prepayment shall specify the amount of the Loans to be borrowed or prepaid and the date of borrowing or prepayment (which shall be a Banking Day). The Agent shall promptly notify the Lenders of the contents of each such notice. SECTION 2.12 CALCULATION OF BORROWING BASE. The Agent shall calculate from time to time the amount of the Borrowing Base, based upon the most recent Borrowing Base Certificate, and such amount shall be the "Borrowing Base" hereunder. SECTION 2.13 LETTERS OF CREDIT. (a) Subject to the terms and conditions set forth herein, the Borrowers' Agent may request the issuance of Letters of Credit for the account of any of the Borrowers or their Subsidiaries, in a form reasonably acceptable to the Agent, by delivering to the Agent by electronic or facsimile transmission (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a letter of credit application in the form required by the Agent. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit, the Borrowers shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the Total Exposure at such time does not exceed the lesser of (x) the Borrowing Base at such time or (y) the aggregate Revolving Credit Commitments at such time, and (ii) the Letter of Credit Exposure at such time does not exceed the Letter of Credit Sublimit at such time. (b) Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date three-hundred sixty-five (365) days, in the case of standby Letters of Credit, or one-hundred eighty (180) days, in the case of commercial or documentary Letters of Credit, after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension of any standby Letter of Credit, three-hundred sixty-five (365) days after such renewal or extension); PROVIDED that any such standby Letter of Credit may provide for automatic extensions thereof to a date not later than three-hundred sixty-five (365) days beyond its current expiration date, and (ii) the date that is five (5) Banking Days prior to the Termination Date. No Letter of Credit may be extended beyond the date that is five (5) Banking Days prior to the Termination Date. (c) By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Agent or the Lenders, the Agent hereby grants to each Lender, and each Lender hereby acquires from the Agent, a participation in such Letter of Credit equal to such Lender's Revolving Credit Commitment Percentage of the aggregate amount available to be drawn under such Letter of Credit. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstances whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrences and continuance of a Default or Event of Default or reduction or termination of the aggregate Revolving Credit Commitments. If the Agent shall make any disbursement in respect of any Letter of Credit, the resulting Reimbursement Obligation created thereby shall be deemed to be a Revolving Credit Loan from each of the Lenders in accordance with each Lender's Revolving Credit Commitment Percentage. The Agent shall notify the Lenders of the creation of any Reimbursement Obligation within two (2) Banking Days of any disbursement made by the Agent pursuant to or under any Letter of Credit. (d) The Borrowers' Reimbursement Obligations with respect to Letters of Credit shall be absolute, unconditional and irrevocable and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Agent to the beneficiary under a Letter of Credit against presentation of a draft or other document that does not strictly comply with the terms of such Letter of Credit (other than due to the gross negligence or willful misconduct of the Agent), (iv) the existence of any claim, setoff, defense or other right that any Borrower or any other Person may at any time have against the beneficiary under any Letter of Credit, the Agent, or any Lender or any other Person, whether in connection with this Agreement, any other Facility Document or otherwise; and (v) any other event or circumstance whatsoever (other than gross negligence or willful misconduct of the Agent), whether or not similar to any of the foregoing, that might, but for the provisions of this SECTION 2.13, constitute a legal or equitable discharge of the Borrowers' obligations hereunder. (e) In furtherance and extension and not in limitation of the specific provisions hereinabove set forth, any action taken or omitted by the Agent under or in connection with Letters of Credit issued by it or any related certificates shall not, in the absence of gross negligence or willful misconduct by the Agent, result in any liability of the Agent to any Borrower or any of their Subsidiaries or relieve any Borrower of any of its obligations hereunder to the Agent or the Lenders. SECTION 2.14 SETTLEMENT BETWEEN AGENT AND LENDERS. The Agent and the Lenders shall settle on an aggregated and netted basis (the "SETTLEMENT AMOUNT") on a daily basis (each such date on which such a settlement occurs being a "SETTLEMENT DATE") for all amounts which shall have become due to and due from the Agent and the Lenders since the immediately preceding Settlement Date with respect to any Obligations. The Agent shall notify the Lenders by 11:00 A.M. on each Settlement Date of the Settlement Amount which is payable by the Agent or the Lenders and the Agent or the Lenders, as the case may be, shall make payment of the Settlement Amount by an electronic funds transfer not later than 5:00 P.M. on the Settlement Date. Nothing in this SECTION 2.14 or the settlement procedures made pursuant to this SECTION 2.14 shall be deemed to change, as between the Borrowers and the Lenders, the amount of the Loans which are outstanding to each of the Lenders or the accrual of interest due to each of the Lenders on such Loans. SECTION 2.15 FEES. (a) The Borrowers agree to pay, on the Closing Date, to the Agent for the account of each of the Lenders an upfront fee equal to 0.75% of the aggregate Commitments for the Lenders' ratable Commitments. (b) The Borrowers agree to pay to the Agent quarterly after the date hereof through the Termination Date and on the Termination Date for the account of each of the Lenders a commitment fee which shall accrue on the daily average Unused Facility Amount for the period from and including the date hereof through the Termination Date. The commitment fee shall be calculated on the basis of a 360 day year for the actual number of days elapsed at a rate per year equal to the Applicable Commitment Fee Rate. The commitment fee shall be due and payable in arrears quarterly on the first Banking Day of each calendar quarter and shall be computed by the Agent. On each such payment date, the Agent is authorized to make a Revolving Credit Loan to the Borrowers for the amount thereof (or during the continuance of an Event of Default, debit the Collateral Account) for the payment thereof to the Lenders. The Agent shall notify the Borrowers of the amount of the commitment fee for the preceding quarter in the next monthly statement rendered by the Agent to the Borrowers. (c) The Borrowers agree to pay, with respect to Letters of Credit issued hereunder, the following fees: (i) to the Agent for the benefit of the Lenders (according to each Lender's Revolving Credit Commitment Percentage), a letter of credit fee in respect of each standby Letter of Credit issued hereunder which accrues at a rate equal to (x) the face amount of such Letter of Credit multiplied by (y) the applicable Eurodollar Margin for Revolving Loans other than the Fixed Asset Advance, such fees to be calculated on the basis of a 360 day year for actual number of days elapsed and paid by the Borrowers quarterly in advance on the first Banking Day of each Fiscal Quarter, (ii) to the Agent for the benefit of the Lenders (according to each Lender's Revolving Credit Commitment Percentage), a letter of credit fee in respect of each trade or documentary Letter of Credit issued hereunder which accrues at a rate equal to (x) the applicable Eurodollar Margin for Revolving Loans other than the Fixed Asset Advance multiplied by (y) the face amount of such Letter of Credit, such fees to be calculated on the basis of a 360 day year for actual number of days elapsed and paid by the Borrowers quarterly in advance on the first Banking Day of each calendar quarter, (iii) to the Agent for its own account, a letter of credit fronting fee payable in respect of each Letter of Credit issued hereunder which accrues at a rate equal to (x) the face amount of such Letter of Credit multiplied by (y) fifteen (15) basis points per annum, such fees to be calculated on the basis of a 360 day year for the actual number of days elapsed and paid by the Borrowers in advance at the time of the issuance of each Letter of Credit and (iv) to the Agent for its customary processing fees and expenses charged by the Agent for issuing, amending, modifying or extending any Letter of Credit. Upon making a computation of the amount of such Letter of Credit fee, the Agent is authorized to make a Revolving Credit Loan to the Borrowers for the amount thereof The Agent shall notify the Borrowers of the amount of such Letter of Credit fee in the next monthly statement rendered by the Agent to the Borrowers. (d) In the event that the Commitments are terminated in their entirety (or reduced to zero) by the Borrowers during the periods set forth below, the Borrowers shall pay to the Agent for the account of each of the Lenders an early termination fee in an amount equal to (i) 1.00% of the average Commitment of the Lenders as in effect since the Closing Date, if the Commitments are terminated prior to the first anniversary of the Closing Date, (ii) 0.75% of the average Commitments of the Lenders as in effect since the Closing Date, if the Commitments are terminated on or after the first anniversary of the Closing Date but prior to the second anniversary of the Closing Date, and (iii) 0.50% of the average Commitment of the Lenders as in effect since the Closing Date, if the Commitments are terminated on or after the second anniversary of the Closing Date but prior to the third anniversary of the Closing Date. SECTION 2.16 PAYMENTS GENERALLY. All payments under this Agreement or the Notes shall be made in United States Dollars in funds which are immediately available not later than 1:00 p.m. on the relevant dates specified herein at the JPMorgan Chase Office for the account of each Lender and any payment made after such time on such due date will be deemed to have been made on the next succeeding Banking Day. In the event that any payment (other than with respect to the principal of the Loans) under this Agreement becomes due, the Agent, at its discretion without the requirement of obtaining the consent of or giving prior notice to the Borrowers, may make a Revolving Credit Loan to the Borrowers for the amount thereof (or during the continuance of an Event of Default, debiting the Collateral Account for the payment thereof to the Lenders). The Agent, or any Lender (subject to SECTION 11.17) for whose account any such payment is to be made, may (but shall not be obligated to) debit the amount of any such payment which is not made by such time to any ordinary deposit account of the Borrowers with the Agent or such Lender, as the case may be, and any Lender so doing shall promptly notify the Agent. Subject to SECTION 11.16, the Borrowers shall, at the time of making each payment under this Agreement or the Notes, specify to the Agent the principal or other amount payable by the Borrowers under this Agreement or the Notes to which such payment is to be applied and in the event that it fails to so specify, or if a Default or Event of Default has occurred and is continuing, the Agent may, subject to SECTION 11.16, apply such payment as it may elect in its sole discretion. If the due date of any payment under this Agreement or the Notes would otherwise fall on a day which is not a Banking Day, such date shall be extended to the next succeeding Banking Day and interest shall be payable for any principal so extended for the period of such extension. Each payment received by the Agent hereunder or under any Note for the account of a Lender shall be paid promptly to such Lender, in immediately available funds, for the account of such Lender's Lending Office. SECTION 2.17 PURPOSE. The Borrowers shall use the proceeds of the Loans solely (a) to refinance the existing senior secured Indebtedness of the Borrowers and their Subsidiaries listed on SCHEDULE 2.17 hereto, (b) for working capital requirements of the Borrowers and their Subsidiaries, (c) to finance transaction costs associated with the closing of the transactions contemplated by the Facility Documents and the Exchange Notes, (d) to support Letters of Credit up to the Letter of Credit Sublimit, (e) for other general corporate purposes, and (f) commencing on the date on which Hawk shall have submitted audited financial statements for the Fiscal Year ending December 31, 2002, so long as no Default or Event of Default shall have occurred and is continuing on such date or would result therefrom, Hawk may use the proceeds of Revolving Loans to redeem its Pre-Exchange Notes then outstanding, if any, or any portion thereof (the "PRE-EXCHANGE NOTE REDEMPTION"), PROVIDED that Hawk demonstrates average excess Collateral Availability, during the thirty (30) calendar day period immediately preceding such proposed Pre-Exchange Note Redemption (or, in the case that the amount of Pre-Exchange Notes then outstanding is in excess of $3,000,000, during the sixty (60) calendar day period immediately preceding such proposed Pre-Exchange Note Redemption), in excess of the sum of (x) the face amount of Pre-Exchange Notes proposed for such Pre-Exchange Note Redemption, PLUS (y) $6,000,000. Notwithstanding the foregoing, in the event the Borrowers prepay Revolving Loans other than the Fixed Asset Advance as contemplated by the proviso to the third sentence of SECTION 2.04(e) with the proceeds from an Asset Sale, then an amount of the Revolving Commitments, as specified by the Borrowers' Agent, equal to the amount of such prepayment (a "RESERVED COMMITMENT AMOUNT") shall be reserved and shall not be available for borrowing hereunder except and to the extent such proceeds are used to make reinvestments permitted by SECTION 7.10(f). The Borrowers agree that upon any borrowing of Revolving Loans which will utilize the Reserved Commitment Amount to advise the Agent in writing of such fact at the time of borrowing, identifying the amount of the borrowing that is to utilize the Reserved Commitment Amount, the reinvestment in respect of which the proceeds are to be applied and the reduced Reserved Commitment Amount remaining after such utilization. SECTION 2.18 EXTENSION OF THE SCHEDULED MATURITY DATE. (a) Subject to the other provisions of this Agreement and PROVIDED that no Event of Default has occurred and is continuing, the aggregate Commitments shall be effective for an initial period from the Effective Date to the initial Scheduled Maturity Date; PROVIDED that the Scheduled Maturity Date, and concomitantly the aggregate Commitments, may be extended upon the Borrowers' request for an additional one-year period expiring on the date that is one year from the initialed Scheduled Maturity Date, PROVIDED FURTHER, that the Borrowers may request only one (1) extension pursuant to this SECTION 2.18. The Borrowers' Agent shall make any such request on behalf of the Borrowers at least thirty (30) days, but no more than sixty (60) days, prior to the initial Scheduled Maturity Date. (b) Upon receipt of the Borrowers' request to extend the Scheduled Maturity Date, the Agent shall promptly notify each Lender of such request and each Lender shall notify the Agent, no later than fifteen (15) days after such Lender's receipt of notice, whether such Lender, in the exercise of its sole discretion, will extend the Scheduled Maturity Date for an additional one-year period. Any Lender which shall not timely notify the Agent whether it will extend the Scheduled Maturity Date shall be deemed to have rejected the request to extend the Scheduled Maturity Date and its Commitment. No Lender shall have any obligation whatsoever to agree to extend the Scheduled Maturity Date. Any agreement to extend the Scheduled Maturity Date by any Lender shall be irrevocable, except as provided in clause (d) of this SECTION 2.18. (c) If all Lenders notify the Agent pursuant to clause (b) of this SECTION 2.18 of their agreement to extend the Scheduled Maturity Date, then the Agent shall so notify each Lender and the Borrowers' Agent and such extension shall be effective without other or further action by any party hereto for such additional one-year period. (d) If Lenders constituting at least the Required Lenders approve the extension of the Scheduled Maturity Date (such Lenders agreeing to extend the Scheduled Maturity Date herein called the "ACCEPTING LENDERS") and if one or more Lenders shall notify, or be deemed to notify, the Agent pursuant to clause (b) of this SECTION 2.18 that they will not extend the initial Scheduled Maturity Date (such Lenders herein called the "DECLINING Lenders"), then (A) the Agent shall promptly so notify the Borrowers' Agent and the Accepting Lenders, (B) the Accepting Lenders shall, upon the Borrowers' election to extend the initial Scheduled Maturity Date in accordance with clause (i) or (ii) below, extend the initial Scheduled Maturity Date, and (C) the Borrowers' Agent shall, pursuant to a notice delivered to the Agent, the Accepting Lenders and the Declining Lenders, no later than the tenth (10th) day following the date by which each Lender is required, pursuant to clause (b) of this SECTION 2.18 to approve or disapprove the requested extension of the Scheduled Maturity Date, either: (i) elect to extend the Scheduled Maturity Date and direct the Declining Lenders to terminate their Commitments, which termination shall become effective on the date that would have been the Scheduled Maturity Date except for the operation of this SECTION 2.18. On the date that would have been the Scheduled Maturity Date except for the operation of this SECTION 2.18, (x) the Borrowers' Agent shall deliver a notice of the effectiveness of such termination to the Declining Lenders with a copy to the Agent and (y) the Borrowers shall pay in full in immediately available funds all Obligations of the Borrowers owing to the Declining Lenders, including any amounts required pursuant to ARTICLE 3, and (z) upon the occurrence of the events set forth in clauses (x) and (y), the Declining Lenders shall each cease to be a Lender hereunder for all purposes, other than for purposes of ARTICLE 3 and SECTION 12.03, and shall cease to have any obligations or any Commitment hereunder, other than to the Agent pursuant to ARTICLE 11, and the Agent shall promptly notify the Accepting Lenders and the Borrowers' Agent of the new Commitments; or (ii) elect to extend the Scheduled Maturity Date and, prior to or no later than the then scheduled Maturity Date, (A) to replace one or more of the Declining Lenders with another lender or lenders that is an Eligible Assignee and otherwise reasonably acceptable to the Agent (such lenders herein called the "REPLACEMENT LENDERS") and (B) the Borrowers shall pay in full in immediately available funds all Obligations of the Borrowers owing to any Declining Lenders that are not being replaced, as provided in clause (i) above; PROVIDED that (x) any Replacement Lender shall purchase, and any Declining Lender shall sell, such Declining Lender's rights and obligations hereunder without recourse or expense to, or warranty by, such Declining Lender for a purchase price equal to the aggregate outstanding principal amount of the Obligations payable to such Declining Lender plus any accrued but unpaid interest on such Obligations and accrued but unpaid fees or other amounts owing in respect of such Declining Lender's Loans and Commitments hereunder, and (y) upon the payment of such amounts referred to in clause (x) and the execution of an Assignment and Acceptance by such Replacement Lender and such Declining Lender, such Replacement Lender shall constitute a Lender hereunder and such Declining Lender being so replaced shall no longer constitute a Lender other than for purposes of ARTICLE 3 and SECTION 12.03, and shall no longer have any obligations hereunder, other than to the Agent pursuant to ARTICLE 11; or (iii) elect to revoke and cancel the extension request by giving notice of such revocation and cancellation to the Agent (which shall promptly notify the Lenders thereof) no later than the tenth (10th) day following the date by which each Lender is required, pursuant to clause (b) of this SECTION 2.18 to approve or disapprove the requested extension of the Scheduled Maturity Date and concomitantly the total Commitments. (iv) If the Borrowers' Agent fails to timely provide the election notice referred to in this clause (d), the Borrowers shall be deemed to have revoked and cancelled the extension request and to have elected not to extend the Scheduled Maturity Date. (e) The Borrowers request for any extension under this SECTION 2.18 shall be deemed to be a representation and warranty that no Default or Event of Default then exists or will exist on the proposed effective date for any extension of the Scheduled Maturity Date and that all representations and warranties of the Borrowers and Guarantors contained herein and in each other Facility Document are true and correct on the date of such request and the proposed effective date for any extension of the Scheduled Maturity Date. ARTICLE 3 YIELD PROTECTION; ILLEGALITY; ETC. SECTION 3.01 ADDITIONAL COSTS. (a) The Borrowers shall pay directly to each Lender and the Issuing Bank, as applicable (each an "AFFECTED PARTY") from time to time on demand therefor such amounts as such Affected Party may reasonably determine to be necessary to compensate it for any increased costs which such Affected Party determines are attributable to its making or maintaining any Eurodollar Loans under this Agreement or its Note or its obligation to make any such Loans hereunder or issuing, participating in or maintaining any Letter of Credit, or to compensate it for any reduction in any amount receivable by such Affected Party hereunder in respect of any such Loans, obligation to make such Loans or any Letters of Credit (such increases in costs and reductions in amounts receivable being herein called "ADDITIONAL COSTS"), resulting from any Regulatory Change which: (i) changes the basis of taxation of any amounts payable to such Affected Party under this Agreement or its Notes in respect of any of such Loans or Letters of Credit (other than taxes imposed on the overall net income of such Affected Party or of its Lending Office for any of such Loans or Letters of Credit by the jurisdiction in which such Affected Party has its principal office or such Lending Office); (ii) imposes or modifies any reserve, special deposit, deposit insurance or assessment, minimum capital, capital ratio or similar requirements relating to any extensions of credit or other assets of; or any deposits with or other liabilities of such Affected Party; or (iii) imposes any other condition affecting this Agreement, the Eurodollar Loans made by such Lender or its Notes or the Letters of Credit issued, participated in or maintained by such Affected Party (or any of such extensions of credit or liabilities). Each Affected Party will notify the Borrowers' Agent of any event occurring after the date of this Agreement which will entitle such Affected Party to compensation pursuant to this SECTION 3.01(a) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation, PROVIDED that the failure to so notify the Borrowers' Agent shall not affect the obligations of the Borrowers under this SECTION 3.01(a). If any Affected Party requests compensation from the Borrowers under this SECTION 3.01(a), or under SECTION 3.01(c), the Borrowers' Agent may, by notice to such Affected Party with a copy to the Agent, suspend the obligation of such Affected Party to make Loans of the type with respect to which such compensation is requested (in which case the provisions of SECTION 3.04 shall be applicable). (b) Without limiting the effect of the foregoing provisions of this SECTION 3.01, in the event that, by reason of any Regulatory Change, any Affected Party either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of such Affected Party which includes deposits by reference to which the interest rate on Eurodollar Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of such Affected Party which includes Eurodollar Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if such Affected Party so elects by notice to the Borrowers' Agent with a copy to the Agent, the obligation of such Affected Party to make Loans of such type hereunder shall be suspended until the date such Regulatory Change ceases to be in effect (in which case the provisions of SECTION 3.04 shall be applicable). (c) Without limiting the effect of the foregoing provisions of this SECTION 3.01 (but without duplication), the Borrowers shall pay directly to each Affected Party from time to time on demand therefor such amounts as such Affected Party may determine to be necessary to compensate such Affected Party for any costs which it determines are attributable to the maintenance by such Affected Party or its bank holding company or any of its Affiliates, pursuant to any law or regulation of any jurisdiction or any interpretation, directive, guideline or request (whether or not having the force of law) of any court or governmental or monetary authority, whether in effect on the date of this Agreement or thereafter, of capital in respect of its Loans hereunder or its obligation to make Loans hereunder or in respect of its issuance, participation in, or maintenance of Letters of Credit (such compensation to include, without limitation, an amount equal to any reduction in return on assets or equity of such Affected Party or its bank holding company or any of its Affiliates to a level below that which it could have achieved but for such law, regulation, interpretation, directive or request). Each Affected Party will notify the Borrowers' Agent if such Affected Party is entitled to compensation pursuant to this SECTION 3.01(c) as promptly as practicable after it determines to request such compensation, PROVIDED that the failure to so notify the Borrowers' Agent shall not affect the obligations of the Borrowers under this SECTION 3.01(c). (d) Determinations and allocations by a Lender or the Issuing Bank (as applicable) for purposes of this SECTION 3.01 of the affect of any Regulatory Change pursuant to subsections (a) or (b), or of the affect of capital maintained pursuant to subsection (c), on its costs of making or maintaining Loans or its obligation to make Loans or in respect of the Letters of Credit or its issuance, participation in, or maintenance of Letters of Credit, or on amounts receivable by, or the rate of return to, it in respect of Loans or such obligation or in respect of the Letters of Credit or its issuance, participation in, or maintenance of Letters of Credit, and of the additional amounts required to compensate such Lender or the Issuing Bank (as applicable) under this SECTION 3.01, shall be conclusive, PROVIDED that such determinations and allocations are made on a reasonable basis. Each Lender or the Issuing Bank (as applicable) demanding payment from the Borrowers pursuant to this SECTION 3.01 shall furnish to the Borrowers at the time of such demand a statement showing the basis for and the method of calculation of such demand. SECTION 3.02 LIMITATION ON TYPES OF LOANS. Anything herein to the contrary notwithstanding, if (a) the Agent reasonably determines (which determination shall be conclusive) that quotations of interest rates for the relevant deposits referred to in the definition of "Eurodollar Rate" in SECTION 1.01 are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the rate of interest for any type of Eurodollar Loans as provided in this Agreement; or (b) any Lender reasonably determines (which determination shall be conclusive) and notifies the Agent that the relevant rates of interest referred to in the definition of "Eurodollar Rate" in SECTION 1.01 upon the basis of which the rate of interest for any type of Eurodollar Loans is to be determined do not adequately cover the cost to such Lender of making or maintaining such Loans; then the Agent shall give the Borrowers' Agent and each Lender prompt notice thereof and so long as such condition remains in effect, the Lenders shall be under no obligation to make Loans of such type. SECTION 3.03 ILLEGALITY. Notwithstanding any other provision in this Agreement, in the event that it becomes unlawful for any Lender or its Lending Office to honor its obligation to make or maintain Eurodollar Loans hereunder, then such Lender shall promptly notify the Borrowers' Agent thereof (with a copy to the Agent) and such Lender's obligation to make or maintain Eurodollar Loans hereunder shall be suspended until such time as such Lender may again make and maintain such Affected Loans (in which case the provisions of SECTION 3.04 shall be applicable). SECTION 3.04 CERTAIN BASE RATE LOANS PURSUANT TO SECTIONS 3.01 AND 3.03. If the obligations of any Lender to make Loans of a particular type (Loans of such type being herein called "AFFECTED LOANS" and such type being herein called the "AFFECTED TYPE") shall be suspended pursuant to SECTION 3.01 or SECTION 3.03, all Loans which would otherwise be made by such Lender as Loans of the Affected Type shall be made instead as Base Rate Loans and if an event referred to in SECTION 3.01 or SECTION 3.03 has occurred and such Lender so requests by notice to the Borrowers with a copy to the Agent, all Affected Loans of such Lender then outstanding shall be automatically converted into Base Rate Loans on the date specified by such Lender in such notice and, to the extent that Affected Loans are so made as (or converted into) Base Rate Loans, all payments of principal which would otherwise be applied to such Lender's Affected Loans shall be applied instead to its Base Rate Loans. SECTION 3.05 CERTAIN COMPENSATION. The Borrowers shall pay to the Agent for the account of each Lender, upon the request of such Lender through the Agent, such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender) to compensate it for any loss, cost or expense which such Lender determines is attributable to: (a) any payment or conversion of a Eurodollar Loan made by the Borrowers on a date other than the last day of a Eurodollar Interest Period or the Maturity Date, respectively, for such Loan (whether by reason of acceleration or otherwise); (b) any failure by the Borrowers to borrow any Loan to be made by such Lender on the date specified therefor in the relevant notice under SECTION 2.11 or to convert any Loan to a Eurodollar Loan or to continue a Eurodollar Loan on the date specified therefor in the relevant notice under SECTION 2.11; or (c) the failure to make any prepayment of any Eurodollar Loan on the date specified therefor in the relevant notice under SECTION 2.11. Without limiting the foregoing, such compensation shall include an amount equal to the excess, if any, of (i) the amount of interest which otherwise would have accrued on the principal amount so paid or converted (in the case of clause (a) above) or not borrowed, converted or continued (in the case of clause (b) above) or not prepaid (in the case of clause (c) above), for the period from and including the date of such payment or failure but excluding the last day of the Eurodollar Interest Period for such Loan (or, in the case of a failure to borrow, convert, continue or prepay, to but excluding the last day of the Eurodollar Interest Period for such Loan which would have commenced on the date specified therefor in the relevant notice) at the applicable rate of interest for such Loan provided for herein over (ii) the amount of interest (as reasonably determined by such Lender) such Lender would have bid in the London interbank market for Dollar deposits for amounts comparable to such principal amount and maturities comparable to such period. A determination of any Lender as to the amounts payable pursuant to this SECTION 3.05 shall be conclusive, absent manifest error. SECTION 3.06 MITIGATION OBLIGATIONS. If any Lender requests compensation under SECTION 3.01, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if in the sole judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to SECTION 3.01 in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrowers hereby agree to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment. SECTION 3.07 TAXES. (a) All payments with respect to the Loans to the Agent, the Issuing Bank or any Lender shall be made free and clear of and without deduction for, any Indemnified Taxes or Other Taxes; PROVIDED that if the Borrowers shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased by the amount necessary so that after making all required deductions (including deductions applicable to additional sums described in this paragraph) the Agent, the Issuing Bank or any Lender, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrowers shall make such deductions and (iii) the Borrowers shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. In addition, to the extent not paid in accordance with the preceding sentence, the Borrowers shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. (b) The Borrowers shall indemnify the Agent, the Issuing Bank and each Lender for Indemnified Taxes and Other Taxes paid by such Person, PROVIDED, HOWEVER, that the Borrowers shall not be obligated to make payment to the Agent, the Issuing Bank or any Lender in respect of penalties, interest and other similar liabilities attributable to such Indemnified Taxes or Other Taxes if such penalties, interest or other similar liabilities are attributable to the gross negligence or willful misconduct of the Person seeking indemnification. ARTICLE 4 CONDITIONS PRECEDENT SECTION 4.01 CONDITIONS PRECEDENT TO THE INITIAL LOANS. The obligations of the Lenders to make the Loans constituting the initial borrowings are subject to the condition precedent that on or before the Effective Date each of the following documents shall have been delivered to the Agent in form and substance satisfactory to the Agent and its counsel, and each of the following actions shall have been performed to the satisfaction of the Agent and its counsel: (a) The Agent shall have received the Facility Documents (including this Agreement, the Notes and the Security Documents identified on SCHEDULE 4.01(A)) duly executed by each of the parties thereto and the Facility Documents shall be in full force and effect. (b) The Agent shall have received good standing certificates for Hawk and each of its Subsidiaries from the Secretary of State (or the equivalent thereof) of its jurisdiction of organization and each other state in which it is required to be qualified to transact business, each to be dated a recent date prior to the Closing Date and a bring-down good standing certificate or telephonic confirmation from the appropriate Secretary of State in each jurisdiction of organization of Hawk and each of its Subsidiaries dated or telephonically received on the Closing Date; PROVIDED, HOWEVER, that the foregoing shall not be required with respect to Hawk Motors de Mexico, S. de R.L. de C.V., Hawk Motors Monterrey, S.A. de C.V., Hawk Composites (Suzhou) Company Limited or Hawk Mauritius Ltd. (c) The Agent shall have received a certificate of the Secretary or Assistant Secretary (or equivalent thereof) of Hawk and each of its Domestic Subsidiaries and dated the Closing Date certifying as to (i) a copy of its certificate of incorporation, certificate of limited partnership or other similar organizational document as amended, modified or supplemented prior to the Closing Date (which copy shall be certified to be true, correct and complete by the appropriate Secretary of State as of a recent date prior to the Closing Date), (ii) the by-laws, limited partnership agreement or other similar organizational document of such Person as in effect on the Closing Date, (iii) the resolutions of such Person's Board of Directors (or other governing body, as applicable) approving and authorizing the execution, delivery and performance of all Facility Documents to which such Person is a party and each other document to be executed or delivered by such Person pursuant to this Agreement and (iv) the names and true signatures of the incumbent officers of such Person authorized to sign the Facility Documents and the other documents to be executed and delivered by such Person under this Agreement. (d) The Agent shall have received evidence satisfactory to it that the Borrowers and the Guarantors shall have taken or caused to be taken all such actions, executed and delivered or caused to be executed and delivered all such agreements, documents and instruments, and made or caused to be made all such filings and recordings that may be necessary or, in the opinion of the Agent, desirable in order to create in favor of the Agent, for the benefit of the Lenders, a valid and perfected First Priority security interest in the entire Collateral. Such actions shall include, without limitation, the following: (i) delivery to the Lender of all the Security Documents, duly executed by the applicable Borrower or Guarantor, together with accurate and complete schedules to all such Security Documents; (ii) delivery to the Agent of (A) certificates (which certificates shall be accompanied by irrevocable undated stock powers, duly endorsed in blank and otherwise satisfactory in form and substance to the Agent) representing all capital stock and other equity interests pledged pursuant to the Security Documents and (B) all promissory notes or other instruments (duly endorsed, where appropriate, in a manner satisfactory to the Agent) evidencing any Collateral; (iii) delivery to the Agent of (A) the results of a recent search (or a recent bringdown search to prior lien searches), by one or more Persons satisfactory to the Agent, of all effective UCC financing statements and fixture filings and all judgment and tax lien filings which may have been made with respect to any Collateral, together with copies of all such filings disclosed by such search, (B) UCC termination statements duly executed by all applicable Persons for filing in all applicable jurisdictions as may be necessary to terminate any effective UCC financing statements, fixture filings or comparable filings disclosed in such search (other than any such financing statements or fixture filings in respect of Liens permitted to remain outstanding pursuant to the terms of this Agreement), and (C) UCC financing statements duly authorized and/or executed by each applicable Borrower and Guarantor with respect to all Collateral of such party, for filing in all jurisdictions as may be necessary or, in the opinion of the Agent, desirable to perfect the security interests created in such Collateral pursuant to the Security Documents; (iv) delivery to the Agent of all cover sheets or other documents or instruments required to be filed in order to create or perfect Liens in respect of any IP Collateral; and (v) if so requested by the Agent, delivery to the Agent of opinions of counsel (which counsel shall be reasonably satisfactory to the Agent and the Lenders) under the local laws of each jurisdiction where the Borrowers and the Guarantor is organized with respect to the creation and perfection of the security interests in favor of the Agent in the Collateral and such other matters governed by the laws of such jurisdiction regarding such security interests as the Agent may request, in each case in form and substance satisfactory to the Agent. (e) Hawk and its Subsidiaries shall have obtained all required environmental permits, licenses, authorizations and consents that are necessary in connection with the transactions contemplated by the Facility Documents from the appropriate Governmental Authorities, and each of the foregoing permits, licenses, authorizations and consents shall be in full force and effect. Hawk and its Subsidiaries shall have also obtained all other permits, licenses, authorizations and consents from all other Governmental Authorities and all consents of other Persons with respect to Material Indebtedness, Liens and agreements, in each case that are necessary or advisable in connection with the transactions contemplated by the Facility Document, and each of the foregoing shall be in full force and effect. (f) The Agent shall have received and shall be satisfied with (i) the certified financial statements referred to in SECTION 5.05 hereof; including, without limitation, the audited consolidated financial statements of Hawk and its Subsidiaries for the Fiscal Years ended December 31, 1999, 2000 and 2001, (ii) the unaudited consolidated financial statements of Hawk for the Fiscal Quarter ended March 31, 2002 and the Fiscal Quarter ended June 30, 2002 and (iii) any and all written materials, reports, and/or management letters prepared by Hawk's current independent auditors. All such financial statements shall consist of at least a balance sheet, income statement and statement of cash flows in accordance with GAAP. (g) The Agent and each Lender shall have received and shall be satisfied with its review of (i) consolidated monthly balance sheet projections and profit and loss statements and cash flow projections for Hawk and its Subsidiaries, prepared in accordance with GAAP, for the 2002 Fiscal Year (demonstrating projected financial results for the subsequent 12-month period), (ii) consolidated quarterly balance sheet projections and profit and loss statements and cash flow projections for Hawk and its Subsidiaries prepared in accordance with GAAP, for the 2003 Fiscal Year (demonstrating projected financial results for the subsequent 12-month period, and (iii) consolidated annual balance sheet projections and profit and loss statements and cash flow projections for Hawk and its Subsidiaries, prepared in accordance with GAAP, for the Fiscal Year ended 2004 (demonstrating projected financial results for the subsequent 12-month period), in each case, together with the written assumptions on which such projections are based. (h) The Agent shall have received and be satisfied that the August 2002 and September 2002 EBITDA results are at least 95% of the projected EBITDA as set forth in Hawk's August 31, 2002 projections. (i) The Agent shall have received a certificate of a duly authorized officer of the Borrowers dated the Effective Date, stating that the representations and warranties in ARTICLE 5 are true and correct on such date as though made on and as of such date and that no event has occurred and is continuing which constitutes a Default or Event of Default. (j) The Agent shall have received a favorable opinion of Kohrman, Jackson & Krantz, counsel for the Borrowers, dated the Effective Date, and covering such matters as the Agent or any Lender may reasonably request, and an opinion of counsel with respect to the transactions contemplated by the Exchange Notes addressed to the Agent and the Lenders, or a letter of reliance thereon addressed to the Agent and the Lenders. (k) The Agent shall have received solvency certificates of duly authorized officers of the Borrowers in the form of EXHIBIT C, certifying as to the solvency of each of the Borrowers and their Subsidiaries after giving effect to the funding of the initial Loans. (l) The Agent shall have received insurance certificates in form satisfactory to the Agent evidencing casualty, all-risk, product liability, business interruption and other insurance of Hawk, its Subsidiaries and their properties and assets having coverage and issued by insurance companies satisfactory to the Agent and naming the Agent as a lender's loss payee, mortgagee and an additional insured, as appropriate. (m) The Agent shall have received an initial Borrowing Base Certificate, remittance, debit and credit reports and a statement of the aging of accounts in a form reasonably acceptable to the Agent with respect to Hawk and its Subsidiaries and consistent with the requirements of SECTION 6.09 hereof; dated as of not more than thirty (30) days prior to the date of the initial Loans. (n) Hawk shall have delivered to the Agent evidence reasonably satisfactory to the Agent that no material liability to Hawk or any of its Subsidiaries under any Environmental Law exists with respect to the Leasehold Properties or any owned Real Property. (o) The Agent shall be satisfied with its field examinations (including the "take-down" field examinations) and due diligence review of Hawk and its Subsidiaries, including, but not limited to, satisfactory review by the Agent of the projections of Hawk and its Subsidiaries. (p) The Agent shall be satisfied with the cash management arrangements (including domestic lock box arrangements) and management information systems in place with respect to the Borrowers and their Subsidiaries and the Agent shall have received counterparts of a Lockbox Agreement and Controlled Account Agreement with respect to all lockboxes and accounts that receive the proceeds of Collateral and of blocked account agreements with respect to the accounts listed on SCHEDULE 4.01(e) hereto, duly executed by all parties thereto and such Lockbox Agreements and Controlled Account Agreements and blocked account agreements shall be in full force and effect and in form and substance reasonably satisfactory to the Agent. (q) The Agent shall have received a duly executed release and termination, together with proper UCC-3 termination statements in form and substance satisfactory to the Agent, evidencing the termination of the Indebtedness set forth on SCHEDULE 2.17 and the release of all Liens securing such Indebtedness; and immediately following the funding of the initial loans hereunder, the Borrowers shall have caused to be repaid in full all such outstanding Indebtedness and shall have caused to be released all liens in favor of the holders of such Indebtedness. (r) The Agent and the Lenders shall have received all fees and other amounts due and payable to such Persons at or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrowers hereunder; and (s) The Agent shall have received copies of all material contracts and such other documents as the Agent shall have reasonably requested and the same shall be reasonably satisfactory to each of them. (t) The Agent shall have received and be satisfied with an appraisal, performed by a third party appraiser acceptable to the Agent, of Hawk's and its Subsidiaries' inventory. (u) The Agent shall have received, reviewed and be satisfied with an appraisal of Hawk's and its Subsidiaries' machinery, equipment and real property, all prepared using valuation methodology acceptable to the Agent. To the extent existing appraisals are deemed acceptable in form and content to the Agent, Borrower will be required to direct such appraisers to recertify such appraisals directly to the Agent. (v) The Agent shall have received and be satisfied with a Landlord's Waiver and Consent, in the form of EXHIBIT D, with respect to each Leasehold Property. (w) Hawk shall have completed its offer to exchange its Pre-Exchange Notes for new senior notes (the "EXCHANGE NOTES"), with the Exchange Notes being in an amount and having terms, conditions, covenants and a maturity date satisfactory to the Agent and the Lenders in their sole discretion. (x) The Agent shall have received a certificate identifying any Phase I or Phase II reports with respect to Hawk's and its Subsidiaries' Owned Property and be satisfied in its sole discretion with the environmental reviews performed. (y) The Borrowers' shall have a minimum Revolving Availability as of the Effective Date (after giving effect to the funding of all Loans and the issuance of all Letters of Credit to be funded or issued on the Effective Date) of not less than $9,000,000. (z) The Agent shall have received ALTA loan title insurance policies, title reports, flood zone certifications and such other insurance policies, including title, flood and earthquake insurance policies, as the Agent may reasonably request. SECTION 4.02 ADDITIONAL CONDITIONS PRECEDENT. The obligations of the Lenders to make any Loans (including the initial Loans) and the obligation of the Issuing Bank to issue, amend, renew or extend any Letter of Credit shall be subject to the further conditions precedent that on the date of such Loan or Letter of Credit: (a) The following statements shall be true: (i) the representations and warranties contained in ARTICLE 5 of this Agreement are true and correct (or, in the case of the making of any Loan after the initial Loan, true and correct in all material respects, except in the case of any representation or warranty containing a materiality qualifier, then in all respects) on and as of the date of such Loan or Letter of Credit as though made on and as of such date; and (ii) no Default or Event of Default has occurred and is continuing, or would result from such Loan or Letter of Credit; (b) The Agent shall have received such approvals, certificates and other documents as the Agent or any Lender may reasonably request; (c) At or before the time of making the first Revolving Credit Loan hereunder and as of the date of each subsequent Revolving Credit Loan hereunder, the Agent shall determine that the aggregate principal amount of all Revolving Credit Loans (including the one requested) does not exceed the Borrowing Base; (d) At or before the time of making the first CapEx Loan hereunder and as of the date of each subsequent CapEx Loan hereunder, the Agent shall determine that the aggregate principal amount of all CapEx Loans (including the one requested) does not exceed the aggregate CapEx Commitments; and (e) The Borrowers shall have paid to the Agent all accrued fees and expenses payable to the Agent in connection with this Agreement, including all reasonable fees and disbursements of legal counsel to the Agent. SECTION 4.03 DEEMED REPRESENTATIONS. Each notice of a Loan and acceptance by the Borrowers of the proceeds of such Loan and request and acceptance of a Letter of Credit shall constitute a representation and warranty that the conditions set forth in Subsection (a) of SECTION 4.02 are true and correct as of the date of each such Loan or Letter of Credit. The Agent may from time to time require certificate(s) of duly authorized officer(s) of the Borrowers, stating that the representations and warranties in ARTICLE 5 are true and correct in all material respects (except in the case of any representation or warranty containing a materiality qualifier, then in all respects) on such date as though made on and as of such date and that no event has occurred and is continuing which constitutes a Default or an Event of Default. ARTICLE 5 REPRESENTATIONS AND WARRANTIES The Borrowers hereby jointly and severally represent and warrant, as of the date hereof and as of the date of each Loan, that: SECTION 5.01 ORGANIZATION, GOOD STANDING AND DUE QUALIFICATION. Hawk and each of its Subsidiaries is an entity which is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has the corporate or other equivalent power and authority to own its assets and to transact the business in which it is now engaged or proposed to be engaged, and is duly qualified as a foreign corporation or limited liability company or other entity and in good standing under the laws of each other jurisdiction in which the nature of its business requires such qualification except where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect. SECTION 5.02 POWER AND AUTHORITY; NO CONFLICTS. The execution, delivery and performance of the Facility Documents: (a) have been duly authorized by all necessary corporate or limited liability company action by the Borrowers and the Guarantors party thereto and do not and will not require any consent or approval of the equityholders of the Borrowers or the Guarantors or contravene their charters or by-laws or other governance or organizational documents; (b) will not violate any provision of, or require any filing, registration, consent or approval under, any law, rule, regulation (including, without limitation, Regulation T, Regulation U and Regulation X), order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to Hawk or any of its Subsidiaries, except as could not reasonably be expected to have a Material Adverse Effect; (c) will not result in a breach of or constitute a default under or require any consent which has not been obtained under any indenture or loan or credit agreement or any other agreement, lease or instrument to which Hawk or any of its Subsidiaries is a party or by which the properties of Hawk or any of its Subsidiaries may be bound or affected; (d) will not result in, or require, the creation or imposition of, any Lien upon or with respect to any of the properties now owned or hereafter acquired Hawk or any of its Subsidiaries, except as provided in the Security Documents; and (e) will not cause Hawk or any of its Subsidiaries, as the case may be, to be in default under any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any such indenture, agreement, lease or instrument, except as could not be reasonably expected to have a Material Adverse Effect. SECTION 5.03 LEGALLY ENFORCEABLE AGREEMENTS. Each Facility Document is a legal, valid and binding obligation of each Borrower and each Guarantor party thereto, enforceable against each Borrower and each Guarantor party thereto, in accordance with its terms, except to the extent that enforceability may be subject to limitations imposed by general principles of equity or applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally. SECTION 5.04 LITIGATION. There are no actions, suits or proceedings pending or, to the knowledge of the Borrowers, threatened, against or affecting Hawk or any of its Subsidiaries before any court, governmental agency or arbitrator, which could reasonably be expected to, in any one case or in the aggregate, result in a Material Adverse Effect. SECTION 5.05 FINANCIAL STATEMENTS. (a) Hawk has heretofore delivered to the Lenders the following financial statements: (i) the consolidated balance sheets and statements of operations, shareholders' equity and cash flows of Hawk and its Subsidiaries, as of and for the fiscal years ended December 31, 1999, December 31, 2000, and December 31, 2001, audited and accompanied by an opinion of their independent public accountants; (ii) the unaudited consolidated balance sheet and statement of operations of Hawk and its Subsidiaries, as of and for the Fiscal Quarter ended March 31, 2002 and the Fiscal Quarter ended June 30, 2002 and as of and for the year-to-date period ended August 31, 2002, in each case certified by the principal financial officer of Hawk that such financial statements fairly present in all material respects the financial condition of Hawk and its Subsidiaries as of such dates and the results of the operations of Hawk and its Subsidiaries for the period ended on such dates and that all such financial statements, including the related schedules and notes thereto have been prepared in all material respects in accordance with GAAP (subject to normal year-end audit adjustments and the absence of footnotes) applied consistently throughout the periods involved; (iii) consolidated monthly balance sheet projections and profit and loss statements and cash flow projections for Hawk and its Subsidiaries (including all Foreign Subsidiaries), prepared in accordance with GAAP (subject to normal year-end audit adjustments and the absence of footnotes), for the Fiscal Year ended 2002 (demonstrating projected financial results for the subsequent 12-month period), in sufficient detail to determine fixed and variable costs and together with the written assumptions on which such projections are based; (iv) consolidated quarterly pro-forma balance sheet projections and profit and loss statements and cash flow projections for Hawk and its Subsidiaries (including all Foreign Subsidiaries), prepared in accordance with GAAP (subject to normal year-end audit and adjustments and the absence of footnotes), for the Fiscal Year ended 2003 (demonstrating projected financial results for the subsequent 12-month period), in sufficient detail to determine fixed and variable costs and together with the written assumptions on which such projections are based; and (v) consolidated annual balance sheet projections and profit and loss statements and cash flow projections for the Hawk and its Subsidiaries (including all Foreign Subsidiaries), prepared in accordance with GAAP (subject to normal year-end audit adjustments and the absence of footnotes), for the Fiscal Year ended 2004 (demonstrating projected financial results for the subsequent 12-month period), in sufficient detail to determine fixed and variable costs and together with the written assumptions on which such projections are based. Such financial statements (except for the projections) present fairly, in all material respects, the respective consolidated financial position and results of operations and cash flows of the respective entities as of such respective dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of such unaudited or pro forma statements. The projections were prepared by Hawk in good faith after taking into account the existing and historical levels of business activity of Hawk and its Subsidiaries, known trends, including general economic trends, and all other information, assumptions and estimates considered by management of Hawk and its Subsidiaries pertinent thereto. The projections were considered by management of Hawk and its Subsidiaries to be realistically achievable as of the date of preparation and were based on assumptions that were reasonable when made. (b) Since December 31, 2001, there has been no material adverse change in the business, assets, operations or condition, financial or otherwise, of Hawk and its Subsidiaries, taken as a whole, from that set forth in the December 31, 2001 financial statements referred to in clause (i) of paragraph (a) above. (c) Neither Hawk nor any of its Subsidiaries has on the date hereof any contingent liabilities, liabilities for taxes, forward or long-term commitments (other than those entered into in the ordinary course of business) or unrealized or anticipated losses from any unfavorable commitments in each case that are material to Hawk and its Subsidiaries taken as a whole, except as referred to or reflected or provided for in the balance sheets as of the end of their respective fiscal years ended in 2001, referred to above, or as otherwise permitted pursuant to this Agreement, or as referred to or reflected or provided for in the financial statements described in this SECTION 5.05. SECTION 5.06 OWNERSHIP AND LIENS. Hawk and its Domestic Subsidiaries have title to, or valid leasehold interests in, all of its properties and assets, real and personal, including the properties and assets, and leasehold interests reflected in the financial statements for the period ended June 30, 2002 referred to in SECTION 5.05 (other than any properties or assets disposed of in the ordinary course of business) and none of the properties and assets owned by Hawk or any of its Domestic Subsidiaries (excluding any of its leasehold interests) is subject to any Lien, except as for Permitted Liens. The Security Documents create, as security for the Obligations, valid and enforceable Liens on all of the Collateral in favor of the Agent, subject to no other Liens, except for Permitted Liens. Upon the satisfaction of the conditions precedent set forth in SECTION 4.01, the filing of the Patent Security Agreements and the Trademark Security Agreements in the U.S. Patent and Trademark Office and the filing of the UCC financing statements in the filing offices identified on Schedule 1(D) to the Security and Pledge Agreement, such Liens on the Collateral shall be First-Priority Liens and no further recordings or filings are or will be required in connection with the creation, perfection or enforcement of such Liens. SECTION 5.07 EXISTING INDEBTEDNESS. Neither Hawk nor any of its Subsidiaries owes Indebtedness as of the Effective Date for borrowed money or under any title retention agreements (including conditional sale contracts and Capitalized Leases) except as listed on SCHEDULE 5.07 hereto. SECTION 5.08 TAXES. Hawk and its Subsidiaries have filed all tax returns and other material reports (federal, state and local) required to be filed and have paid all taxes, assessments and governmental charges and levies imposed upon Hawk or any of its Subsidiaries or their respective properties which are due and payable, including interest and penalties, except for such taxes which are being contested by Hawk or any of its Subsidiaries in good faith in appropriate proceedings and for which adequate reserves have been set aside on the books of Hawk and its Subsidiaries in accordance with GAAP. SECTION 5.09 ERISA. Except as set forth on SCHEDULE 5.09 hereto, (i) Hawk and its Domestic Subsidiaries are in compliance in all material respects with all applicable provisions of ERISA; (ii) neither a Reportable Event nor a Prohibited Transaction has occurred with respect to any Plan; (iii) no notice of intent to terminate a Plan has been filed nor has any Plan been terminated; (iv) no circumstance exists which constitutes grounds under Section 4042 of ERISA entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings; (v) none of Hawk, its Domestic Subsidiaries or any ERISA Affiliate has completely or partially withdrawn under Sections 4201 or 4204 of ERISA from a Multiemployer Plan; (vi) Hawk and each of its Domestic Subsidiaries and each of their ERISA Affiliates have met all minimum funding requirements under ERISA with respect to all of their Plans; and (vii) none of Hawk, its Domestic Subsidiaries or any ERISA Affiliate has incurred any liability to the PBGC under ERISA in excess of $1,000,000. SECTION 5.10 SUBSIDIARIES AND AFFILIATES. Set forth on SCHEDULE 5.10 is a complete and correct list of all Subsidiaries of Hawk as of the date hereof together with, for each such Subsidiary, (a) the jurisdiction of organization of such Subsidiary, (b) each Person holding ownership interests in such Subsidiary and (c) the nature of the ownership interests held by each such Person and the percentage of ownership of such Subsidiary represented by such ownership interests. Except as disclosed on SCHEDULE 5.10, (i) Hawk and its Subsidiaries own, free and clear of Liens (other than Permitted Liens) and have the unencumbered right to vote all outstanding ownership interests in each Person shown to be held by it on SCHEDULE 5.10, (ii) all of the issued and outstanding capital stock of each such Person organized as a corporation is validly issued, fully paid and nonassessable and (iii) there are no outstanding Equity Rights with respect to such Person. As of the Effective Date, the authorized, issued and outstanding capital stock of Hawk and its Subsidiaries consists of the capital stock described on SCHEDULE 5.10 all of which is duly and validly issued and outstanding, fully paid and nonassessable. SECTION 5.11 OPERATION OF BUSINESS. (a) Hawk and each of its Subsidiaries possesses all licenses, permits, franchises, Patents, Copyrights, Trademarks and trade names, or rights thereto, necessary to conduct their business substantially as now conducted and as presently proposed to be conducted and neither Hawk nor any of its Subsidiaries is in violation of any rights of others with respect to any of the foregoing except any such violation that, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (b) As of the date hereof, SCHEDULE 5.11 contains, with respect to Hawk and its Domestic Subsidiaries, a true, accurate and complete list of (i) all Real Property Assets, whether owned or leased and (ii) all leases, subleases or assignments of leases (together with all amendments, modifications, supplements, renewals or extensions of any thereof) affecting each Leasehold Property, regardless of whether Hawk or any of its Subsidiaries is the landlord or tenant (whether directly or as an assignee or successor in interest) under such lease, sublease or assignment. Each agreement listed in clause (ii) of the immediately preceding sentence is in full force and effect and no default has occurred and is continuing thereunder and each such agreement constitutes the legal, valid and binding obligation of Hawk or its applicable Subsidiary, enforceable against such Person in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles. SECTION 5.12 NO DEFAULT ON OUTSTANDING JUDGMENTS OR ORDERS. Hawk and each of its Subsidiaries have satisfied all judgments against them and neither Hawk nor any of its Subsidiaries is in default with respect to any judgment, writ, injunction, decree, rule or regulation of any court, arbitrator or federal, state, municipal or other governmental authority, commission, board, bureau, agency or instrumentality, domestic or foreign. SECTION 5.13 NO DEFAULTS ON OTHER AGREEMENTS. Neither Hawk nor any of its Subsidiaries is a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction, the noncompliance with which could reasonably be expected to have a Material Adverse Effect. Neither Hawk nor any of its Subsidiaries is in default in any respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument material to its business to which it is a party. SECTION 5.14 LABOR MATTERS. (a) Except as set forth on SCHEDULE 5.14, (i) no employee of Hawk or any of its Subsidiaries is represented by a labor union, no labor union has been certified or recognized as a representative of any such employee, and neither Hawk nor any of its Subsidiaries has any obligation under any collective bargaining agreement or other agreement with any labor union or any obligation to recognize or deal with any labor union and there are no such contracts or other agreements pertaining to or which determine the terms or conditions of employment of any employee of Hawk or any of its Subsidiaries, (ii) there are no pending or threatened representation campaigns, elections or proceedings, (iii) neither Hawk nor any of its Subsidiaries has any knowledge of any strikes, slowdowns or work stoppages of any kind, or threats thereof and no such activities occurred during the 24-month period preceding the date hereof, (iv) neither Hawk nor any of its Subsidiaries has engaged in, admitted committing or been held to have committed any unfair labor practice, and (v) no claims have been filed against Hawk or any of its Subsidiaries by any employees or representatives thereof that could reasonably be expected to have a Material Adverse Effect. (b) Except as set forth on SCHEDULE 5.14, Hawk and each of its Subsidiaries have at all times complied in all material respects, and are in material compliance with, all applicable laws, rules and regulations respecting employment, wages, hours, compensation, benefits, and payment and withholding of taxes in connection with employment. (c) Except as set forth on SCHEDULE 5.14, Hawk and each of its Subsidiaries have at all times complied in all material respects, and are in material compliance with, all applicable laws, rules and regulations respecting occupational health and safety, whether now existing or subsequently amended or enacted, including, without limitation, the Occupational Safety & Health Act of 1970, 29 U.S.C. Section 651 et seq. and the state analogies thereto, all as amended or superseded from time to time, and any common law doctrine relating to worker health and safety. SECTION 5.15 INVESTMENT COMPANY ACT; HOLDING COMPANY ACT. Neither Hawk nor any of its Subsidiaries (a) is an "investment company" within the meaning of, or subject to regulation under, the United States Investment Company Act of 1940, as amended or (b) is a "holding company" within the meaning of, or subject to regulation under, the Public Utility Holding Company Act of 1935, as amended. SECTION 5.16 ENVIRONMENTAL MATTERS. Except as set forth on SCHEDULE 5.16, no real property currently or previously owned or leased by Hawk or any of its Subsidiaries is in material violation of any Environmental Laws, and no Hazardous Materials are present on said real property other than Hazardous Materials used, generated, treated, stored, disposed of or otherwise introduced in material compliance with all applicable Environmental Laws. Except as set forth on SCHEDULE 5.16, neither Hawk nor any of its Subsidiaries has been identified in any litigation, administrative proceedings or investigation as a responsible party or potentially responsible party for any liability under any Environmental Laws. SECTION 5.17 REGULATION U. Neither Hawk nor any of its Subsidiaries owns, directly or indirectly any margin stock (as defined in Regulation U), other than stock of Hawk held in treasury. The proceeds of the Loans are not being used directly or indirectly for the purpose, whether immediate, incidental or ultimate, of buying or carrying any margin stock, or to extend credit to others for such purpose, in violation of Regulation T, Regulation U or Regulation X. SECTION 5.18 NO GUARANTIES OR INDEMNITIES. Except as set forth on SCHEDULE 5.07, neither Hawk nor any of its Subsidiaries is obligated on any Guaranty or any indemnification of any kind for the debts, liabilities or obligations of any Person, including without limitation any Affiliate. SECTION 5.19 BANK ACCOUNTS. SCHEDULE 5.19 lists all banks and other financial institutions at which Hawk or any of its Domestic Subsidiaries maintains deposits and/or other accounts as of the Closing Date and such Schedule correctly identifies the name, address and telephone number of each depository, the name in which the account is held, a description of the purpose of the account and the complete account number. SECTION 5.20 TRADE RELATIONS. There exists no actual or, to the knowledge of Hawk or any of its Subsidiaries, threatened termination, cancellation or limitation of, or any modification or change in, the business relationship between Hawk or any of its Subsidiaries and any customer or any group of customers whose purchases of goods or services individually or in the aggregate are material to the business of Hawk or any of its Subsidiaries, or with any material supplier and, to the knowledge of Hawk or any of its Subsidiaries, there exists no present condition or state of facts or circumstances which would materially adversely affect Hawk or any of its Subsidiaries or prevent Hawk or any of its Subsidiaries from conducting their respective businesses after the consummation of the transactions contemplated by this Agreement in substantially the same manner in which such businesses heretofore have been conducted. SECTION 5.21 TRUE AND COMPLETE DISCLOSURE. All factual information furnished by or on behalf of Hawk and its Subsidiaries to the Agent or any Lender on or prior to the Effective Date, for purposes of or in connection with this Agreement or any of the transactions contemplated hereby is, and all other such factual information hereafter furnished by or on behalf of Hawk and its Subsidiaries to the Agent or any Lender will be, true and accurate in all material respects on the date as of which such information is dated or furnished and not incomplete by omitting to state any fact necessary to make such information not misleading at such time (other than the projections described in SECTION 5.05(a)(iv), as to which no representation is made other than as provided in such section). ARTICLE 6 AFFIRMATIVE COVENANTS So long as any of the Loans or Letters of Credit remain outstanding or any Lender shall have any Commitment under this Agreement, Hawk shall and shall cause each of its Subsidiaries to: SECTION 6.01 MAINTENANCE OF EXISTENCE. Except as permitted by SECTION 7.03, preserve and maintain its legal existence and good standing in the jurisdiction of its organization and qualify and remain qualified as a foreign organization in each jurisdiction in which the nature of its business requires such qualification. SECTION 6.02 CONDUCT OF BUSINESS. Continue to engage in an efficient and commercially reasonable manner in a business of the same general type as conducted by it on the date of this Agreement. SECTION 6.03 MAINTENANCE OF PROPERTIES. Except as permitted by SECTION 7.01, maintain, keep and preserve all of its properties (tangible and intangible) necessary or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. SECTION 6.04 MAINTENANCE OF RECORDS; FISCAL YEAR. Keep adequate records and books of account, in which complete entries will be made in accordance with GAAP, reflecting all financial transactions of Hawk and its Subsidiaries. To enable the ready and consistent determination of compliance with the covenants set forth in ARTICLE 8 of this Agreement, Hawk shall maintain, and shall cause each of its Subsidiaries (including each Foreign Subsidiary) to maintain, December 31 of each year as the end of its Fiscal Year. SECTION 6.05 MAINTENANCE OF INSURANCE. Without limiting the requirements of the Security and Pledge Agreement or any requirement in the Mortgages, maintain insurance with financially sound and reputable insurance companies or associations in such amounts and covering such risks as the Agent deems reasonably appropriate. The Agent will be named lender's loss payee, mortgagee and/or additional named insured, as appropriate, on all such insurance policies maintained by Hawk and its Domestic Subsidiaries. SECTION 6.06 COMPLIANCE WITH LAWS; PAYMENT OF TAXES. (a) Comply in all material respects with all applicable laws, rules, regulations and orders (including ERISA and Environmental Laws). (b) Pay all taxes, assessments and governmental charges imposed upon it or upon its property before the same become delinquent, except for such taxes, assessments, and governmental charges that are being contested by Hawk or any of its Subsidiaries in appropriate proceedings and for which adequate reserves have been set aside on the books of Hawk and its Subsidiaries in accordance with GAAP. SECTION 6.07 RIGHT OF INSPECTION. From time to time during regular business hours and upon reasonable prior notice to the president or chief or principal financial officer of Hawk (except that no such prior notice shall be required after the occurrence and during the continuance of any Default or Event of Default), permit the Agent or any agent or representative thereof, to examine and make copies and abstracts from the records and books of account of, and visit the properties of, Hawk and any of its Subsidiaries and Hawk hereby gives to the Agent and to any of its agents or representatives its irrevocable permission to discuss to the extent necessary the affairs, finances and accounts of Hawk and any of its Subsidiaries with their respective officers and directors and their independent accountants. SECTION 6.08 REPORTING REQUIREMENTS. Furnish to the Agent (which shall in turn furnish to each of the Lenders): (a) As soon as available and in any event within ninety (90) days after the end of each Fiscal Year, consolidated and consolidating balance sheets of Hawk and its Subsidiaries as of the end of such Fiscal Year and consolidated and consolidating statements of income, cash flows and stockholders' equity of Hawk and its Subsidiaries for such Fiscal Year, all in reasonable detail and all prepared in accordance with GAAP, and as to the consolidated statements, accompanied by an opinion thereon by independent accountants of national standing selected by Hawk and reasonably acceptable to Agent, which opinion shall not be qualified by reason of audit limitations imposed by Hawk or its Subsidiaries; (b) As soon as available and in any event within forty-five (45) days after the end of each of the first three Fiscal Quarters of each Fiscal Year, consolidated and consolidating balance sheets of Hawk and its Subsidiaries as of the end of such Fiscal Quarter and consolidated and consolidating statements of income and cash flows of Hawk and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, all in reasonable detail and stating in comparative form the respective consolidated figures for the corresponding date in the current Fiscal Quarter and all prepared in accordance with GAAP and certified by the principal financial officer of Hawk (subject to normal year-end adjustments); (c) As soon as available and in any event within fifteen (15) Banking Days after the end of each Fiscal Month, consolidated and consolidating balance sheets of Hawk and its Subsidiaries as of the end of such Fiscal Month and consolidated and consolidating statements of income, capital expenditures, depreciation and amortization of Hawk and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Month, all in reasonable detail and stating in comparative form the respective consolidated figures for the corresponding date in the current Fiscal Year and all prepared in accordance with GAAP and certified by the principal financial officer of Hawk (subject to year-end adjustments and the absence of footnotes); (d) Simultaneously with the delivery of the financial statements referred to above for each Fiscal Year, each Fiscal Quarter and each Fiscal Month, a certificate of the principal financial officer of Hawk in substantially the form of EXHIBIT E (a "COMPLIANCE CERTIFICATE") (i) certifying that no Default or Event of Default has occurred and is continuing or, if a Default or Event of Default has occurred and is continuing, a statement as to the nature thereof and the action which is proposed to be taken with respect thereto, (ii) with computations set forth in reasonable detail satisfactory to the Lenders which demonstrate compliance with the covenants contained in ARTICLE 8, (iii) with a schedule listing all Liens on the assets of the Borrowers and their Subsidiaries which are in addition to those in favor of the Agent and Lenders or those listed on SCHEDULE 7.05 hereto and (iv) listing all capital assets acquired by Hawk and its Subsidiaries since the date of the last such Compliance Certificate with the proceeds of asset sales permitted by SECTION 7.01(C) and SECTION 7.01(D) and constituting reinvestments as contemplated by SECTION 2.04(E), together with a certification pursuant to Section 302 of the Sarbanes-Oxley Act (whether or not such certification is required by such act) with each Compliance Certificate relating to a Fiscal Year or a Fiscal Quarter; (e) (i) Promptly after the commencement thereof, written notice of all actions, suits, and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, against Hawk or any of its Subsidiaries and (ii) promptly, written notice of any material development in any action, suit or proceeding previously disclosed pursuant to clause (i) above or in SCHEDULE 5.04; (f) As soon as possible and in any event within three (3) days after becoming aware of the occurrence of each Default or Event of Default, a written notice setting forth the details of such Default or Event of Default and the action which is proposed to be taken with respect thereto; (g) Promptly after the receiving thereof, copies of all reports and notices which Hawk or any of its Subsidiaries receives from the PBGC or the U.S. Department of Labor under ERISA and as soon as possible and in any event within ten (10) days after Hawk or any of its Subsidiaries knows or has reason to know that any Reportable Event or Prohibited Transaction has occurred with respect to any Plan or that the PBGC or Hawk or any of its Subsidiaries have instituted or will institute proceedings under Title IV of ERISA to terminate any Plan, Hawk will deliver to each of the Lenders a certificate of the principal financial officer of Hawk setting forth details as to such Reportable Event or Prohibited Transaction or Plan termination and the action Hawk proposes to be taken with respect thereto; (h) As soon as available, but no later than the end of each Fiscal Year, a draft of a forecast of the balance sheet, income statement and statement of cash flows for the subsequent Fiscal Year of Hawk and its Subsidiaries in a form reasonably acceptable to the Agent and prepared on a monthly basis by management in accordance with GAAP, and as soon as available, but no later than thirty (30) days after the end of each Fiscal Year, the final forecast of the same; (i) Contemporaneously with the filing, copies of all materials and reports filed with the Securities and Exchange Commission; and (j) Such other information respecting the condition or operations, financial or otherwise, of Hawk or any of its Subsidiaries as the Agent or any Lender may from time to time reasonably request. SECTION 6.09 SPECIAL PERIODIC REPORTS. Execute and deliver to the Agent, the following documents compiled as of the last day of the applicable fiscal period (and the Borrowers acknowledge that the Agent and the Lenders will rely on such documents in making Loans hereunder): (a) Monthly (or with such greater frequency as the Agent may reasonably request), by the fifteenth (15th) Banking Day of the following month (or by such other date as the Agent may reasonably specify in the event the Agent requests that such information be provided more frequently): (i) a declaration or statement of (A) the aging of Accounts, (B) inventory (identifying Eligible Inventory and ineligible inventory), and (C) of the aging of the accounts payable, all as of the prior month end and certified by the principal financial officer of Hawk and in form reasonably acceptable to the Agent; and (ii) a Borrowing Base Certificate in substantially the form of EXHIBIT F; (b) Weekly, on Wednesday of each week (as of the immediately preceding Saturday), a Weekly Collateral Certificate, certified by the principal financial officer of Hawk; (c) Promptly upon the request of the Agent from time to time, a list of all current customers and their respective addresses; (d) Promptly upon the Agent's request, and in any event within five (5) days of any such request, (i) certified true copies of customers' invoices, or the equivalent, for all services rendered and goods provided and (ii) a declaration or statement of the order backlog; and (e) Promptly upon the Agent's request, and in any event within five (5) days of such request, certified true copies of all contracts, security agreements, mortgages and other documents executed by the customers in connection with all services rendered and any other information, reports, reconciliations, Account Debtors' addresses or documents the Agent may call upon Hawk and its Subsidiaries to submit from time to time. The failure by the Agent or the Lenders to request any or all of the foregoing or the failure of the Borrowers to perform the same shall not affect the security interest of the Agent or the Lenders in or rights to any of the Collateral. SECTION 6.10 FIELD AUDITS; INVENTORY APPRAISALS. Permit the Agent to conduct field audit examinations of, among other things, Hawk's and its Subsidiaries' assets, liabilities, books, records, billing and collection processes and management information systems at least twice each Fiscal Year and inventory appraisals annually (or, in each case, with such greater frequency as the Agent may reasonably require); PROVIDED FURTHER that Hawk will permit, and cause its Subsidiaries to permit, the Agent to conduct such examinations and appraisal at any time and from time to time upon the occurrence and during the continuance of a Default. The Lenders will have the right to participate, on an alternating basis, in field audit examinations and inventory appraisals, PROVIDED that such right shall be limited to every other field audit examination or inventory appraisal (as applicable) performed by the Agent. Hawk will reimburse the Agent for the expense of each field audit examination and inventory appraisal at the Agent's standard per diem rate per person, plus actual out-of-pocket expenses. In connection with such field audits, Hawk will permit the Agent to make test verifications of the Accounts with Hawk's and its Subsidiaries' customers. SECTION 6.11 COOPERATION AND FURTHER ASSURANCE. Cooperate with the Agent and the Lenders to effectuate the intent and purposes of the Facility Documents. Without limiting the foregoing, Hawk agrees to execute and deliver any financing statements or other instruments and do such other acts and things as Agent may deem necessary, appropriate or advisable to effectuate the intent and purposes of this Agreement and shall cause its Subsidiaries to do likewise. SECTION 6.12 DEPOSITS INTO COLLATERAL ACCOUNT. (i) Remit to the Agent promptly following receipt, and hold in trust for the Agent and the Lenders until so remitted, any and all moneys received from any source for deposit into the Collateral Account, including without limitation any proceeds from any equity investment or extraordinary transaction and (ii) direct all financial institutions at which any Controlled Accounts are maintained to remit to the Agent on a daily basis (or at such other frequency as the Agent, in its discretion shall specify to the Borrowers) all collected funds in such Controlled Accounts. At all times from and after the date hereof, Hawk shall, and shall cause its Subsidiaries to, take all actions necessary to maintain, preserve and protect the rights and interests of the Agent with respect to all cash deposits of Hawk and its Subsidiaries and all other proceeds of Collateral and Hawk and its Subsidiaries shall not, without the Agent's prior written consent, open any new or additional deposit or other bank accounts. SECTION 6.13 LOCK BOX OPERATION. At all times direct their Account Debtors to make all payments directly to Lock Boxes on Controlled Accounts under the control of the Agent or under the control of another financial institution reasonably acceptable to the Agent that has entered into a Controlled Account Agreement with the Agent. SECTION 6.14 LANDLORDS WAIVERS. With respect to any Leasehold Property acquired after the Closing Date, deliver to the Agent a Landlord's Waiver and Consent with respect thereto together with a copy of all related leases, in each case, prior to or concurrent with acquiring such Leasehold Property. SECTION 6.15 REAL PROPERTY FINANCING. Concurrently with the consummation of any non-recourse mortgage financing permitted by SECTION 7.11(G), if requested by the Agent, deliver fixture filings, duly authorized and/or executed by each applicable Borrower and Guarantor with respect to all Collateral constituting fixtures, for filing in all jurisdictions as may be necessary or, in the opinion of the Agent, desirable to perfect the security interests created in such Collateral pursuant to the Security Documents. SECTION 6.16 EXISTING LEASES. Deliver to the Agent copies of all leases between Hawk or any of its Subsidiaries and any landlord relating to any Leasehold Property of Hawk or any of its Subsidiaries. SECTION 6.17 ADDITIONAL BORROWERS AND GUARANTORS. (a) In the event that at any time after the Closing Date Hawk has any Subsidiary which is not a party hereto, Hawk shall notify the Agent in writing of such event, identifying the Subsidiary in question and referring specifically to the rights of the Agent and the Lenders under this SECTION 6.17. Hawk shall, within five (5) days after so notifying the Agent and the Lenders, cause such Subsidiary to (w) execute and deliver to the Agent a counterpart to this Agreement (x) as a Borrower, in the case of a Domestic Subsidiary other than a Non-Material Subsidiary, or (y) as a Guarantor otherwise, and a counterpart to the Security and Pledge Agreement and such other documentation in such form as the Lenders may reasonably require, (x) in the case of a Domestic Subsidiary, take such other action as shall be necessary to create and perfect valid and enforceable First Priority Liens in favor of the Agent on all or substantially all of the assets of such Subsidiary consistent with the provisions of the applicable Security Documents, (y) deliver proof of corporate action, incumbency of officers and other documents and opinions as is consistent with those delivered by Hawk and its Subsidiaries pursuant to SECTION 4.01 as of the Effective Date and (z) execute and deliver to the Agent such amendments to the Security and Pledge Agreement, or such new pledge agreements and take such other actions (including delivering the certificates representing such shares of stock or other equity interests to the Agent) as shall be necessary to create and perfect valid and enforceable First Priority Liens in favor of the Agent on all of the issued and outstanding stock or other equity interests of such Subsidiary, all of the foregoing to be in form and substance reasonably satisfactory to the Agent. (b) Notwithstanding the foregoing provisions of this SECTION 6.17, Hawk shall not, unless an Event of Default shall have occurred and be continuing, be required to (i) cause a Foreign Subsidiary to become a party hereto as a Guarantor, or (ii) be required to pledge more than sixty-six percent (66%) of the stock of any Foreign Subsidiary if to do so would subject Hawk to liability for additional United States income taxes by virtue of section 956 of the Internal Revenue Code in a material amount, and (y) Hawk provides the Agent, within the five (5) day period referred to in SECTION 6.17(A), with documentation, including computations prepared by Hawk's internal tax officer, its independent accountants or tax counsel, acceptable to the Required Lenders, in support thereof. SECTION 6.18 PRE-EXCHANGE NOTES. If any Pre-Exchange Notes remain outstanding after the Closing Date, submit to the Lenders, upon the request of any one or more Lenders, a written plan describing Hawk's intended plan to refinance the outstanding Pre-Exchange Notes, which plan shall include, among other things, the proposed execution timetable for the refinancing. At any time on or after June 1, 2003, the Agent or any of the Lenders may require in a notice to Hawk that Hawk fully repay or refinance all Pre-Exchange Notes then outstanding and Hawk shall comply with such requirement within sixty (60) days following the date of such Notice. SECTION 6.19 RANK; MOST FAVORED COVENANT STATUS; GUARANTIES. Cause the Indebtedness of Hawk and its Subsidiaries incurred pursuant to this Agreement and the Facility Documents to at all times be senior to any other Indebtedness of the Company and its Subsidiaries. No indenture, guaranty or other similar instrument evidencing Indebtedness with an initial principal amount in excess of $10,000,000 entered into after the date hereof shall include any affirmative or negative business or financial covenants (or any events of default or other type of restriction which would have the practical effect of any affirmative or negative business or financial covenant, including, without limitation, any 'put' or mandatory prepayment of such Indebtedness upon the occurrence of a 'change of control') applicable to Hawk or any of its Subsidiaries which are more restrictive than those set forth herein or in any of the other Facility Documents. To the extent any amendment, extension, renewal or refinancing of any Indebtedness with an initial principal amount in excess of $10,000,000 which amendment is entered into after the date hereof (whether or not such Indebtedness is outstanding on the date hereof) includes affirmative or negative business or financial covenants (or any events of default or other type of restriction which would have the practical effect of any affirmative or negative business or financial covenant, including, without limitation, any `put' or mandatory prepayment of such Indebtedness upon the occurrence of a 'change of control') applicable to Hawk or any of its Subsidiaries which are more restrictive than those set forth herein or in any of the other Facility Documents, Hawk shall promptly so notify the Agent and, if the Agent shall so request by written notice to Hawk, Hawk and its Subsidiaries shall promptly amend this Agreement to incorporate some or all of such provisions, in the discretion of the Agent, into this Agreement and, to the extent necessary and reasonably desirable to the Agent, into any of the other Facility Documents, all at the election of the Agent. After the date hereof, if and for so long as any Subsidiary or Affiliate of Hawk directly or indirectly enters into any guaranty of any Indebtedness of Hawk or any of its Subsidiaries, Hawk shall cause such Subsidiary or such Affiliate to, and such Subsidiary or such Affiliate shall, execute and deliver a counterpart to this Agreement as a Guarantor, or, in the case of a Domestic Subsidiary other than a Non-Material Subsidiary, as a Borrower, together with such opinions, amendments to the Facility Documents, and other documents that the Agent shall request. ARTICLE 7 NEGATIVE COVENANTS So long as any of the Loans or Letters of Credit shall remain outstanding or any Lender shall have any Commitment under this Agreement, Hawk covenants and agrees that it shall not, and shall not permit any of its Subsidiaries to (unless waived in accordance with the provisions of SECTION 12.01): SECTION 7.01 SALE OF ASSETS. Sell, lease, assign, transfer or otherwise dispose of any of its now owned or hereafter acquired assets (including, without limitation, shares of stock and indebtedness of any Subsidiary, receivables and leasehold interests), except (a) for inventory disposed of, or other assets consumed, in the ordinary course of business; (b) any sale, lease, assignment or other transfer by any Borrower of its assets to any other Borrower or to any Foreign Subsidiary in a Permitted Foreign Asset Transfer, provided that the aggregate amount of all such Permitted Foreign Asset Transfers in any Fiscal Year shall not exceed $1,000,000; (c) any sale or other disposition of assets no longer used or useful in the conduct of its business; and (d) any other sale, lease, assignment, or other transfer of assets (other than Accounts and inventory) by Hawk or any of its Subsidiaries, PROVIDED that (i) after giving effect to any sale, lease, assignment or other transfer pursuant to CLAUSE (D) above, Hawk and its Subsidiaries are in compliance with the covenants set forth in ARTICLE 8, (ii) the consideration for such transaction represents fair value, and at least 75% of such consideration consists of cash; (iii) 100% of the Net Cash Payments received from dispositions under CLAUSE (C) OR CLAUSE (D) above shall be applied to prepay the Loans in accordance with SECTION 2.04(D), and (iv) after giving effect to any sale, lease, assignment or other transfer pursuant to CLAUSE (D) above, the aggregate fair market value of all assets sold, leased, assigned or otherwise transferred pursuant to CLAUSE (D) above during the same Fiscal Year does not exceed $500,000. SECTION 7.02 STOCK OF SUBSIDIARIES, ETC. Sell or otherwise dispose of any shares of capital stock or other equity interest of any Subsidiary, except in connection with a transaction permitted under SECTION 7.03, or permit any Subsidiary to issue any additional shares of its capital stock or other equity interests, except (a) directors' qualifying shares and (b) the issuance of shares by any Subsidiary to any Borrower, PROVIDED that such Borrower shall forthwith deliver to the Agent pursuant to the applicable Security Documents the certificates evidencing such shares of stock or other equity interests, accompanied by undated stock powers executed in blank and shall take such other action as the Agent shall request to create a valid and enforceable First Priority Lien on such shares pursuant to such Security Documents. SECTION 7.03 MERGERS, ETC. Merge or consolidate with, or sell, assign, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to any Person, except that (a) any Wholly-Owned Subsidiary (other than a Foreign Subsidiary) and any Borrower (other than Hawk) or Guarantor may merge into any Borrower (so long as such Borrower or a Borrower is the surviving corporation) and (b) any Borrower may transfer assets to any other Borrower. SECTION 7.04 DIVIDENDS AND STOCK REPURCHASES; MANAGEMENT FEES. Declare or pay any dividends, purchase, redeem, retire or otherwise acquire for value any of its capital stock or other equity interests now or hereafter outstanding, or make any distribution of assets to its equityholders as such whether in cash, assets or in obligations of Hawk or its Subsidiaries, or allocate or otherwise set apart any sum for the payment of any dividend or distribution on, or for the purchase, redemption or retirement of any shares of its capital stock or other equity interests or any warrants, options or other rights to acquire such, or make any other distribution by reduction of capital or otherwise in respect of any shares of its capital stock or other equity interests or permit any Subsidiary to purchase or otherwise acquire for value any stock of Hawk or another Subsidiary, or pay any management fees or any other fees or expenses pursuant to any management, consulting or other services arrangement to any of the equityholders of Hawk or any of its Subsidiaries or other Affiliates (other than those set forth on SCHEDULE 7.06), except that Hawk may declare and deliver dividends and make distributions payable solely in common stock of Hawk. SECTION 7.05 LIENS. Create, incur, assume or suffer to exist, any Lien, upon or with respect to any of its properties, now owned or hereafter acquired, except (the following being called "PERMITTED LIENS"): (a) Liens in favor of the Agent on behalf of the Lenders securing the Loans hereunder; (b) Liens for taxes or assessments or other government charges or levies if not yet due and payable or, if due and payable, if they are being contested in good faith by appropriate proceedings and for which appropriate reserves in accordance with GAAP are maintained; (c) Liens imposed by law, such as mechanic's, materialmen's, landlord's, warehousemen's and carrier's Liens, and other similar Liens arising in the ordinary course of business, securing obligations (other than debt for borrowed money) incurred in the ordinary course of business which are not past due for more than thirty (30) days, or which are being contested in good faith by appropriate proceedings and for which appropriate reserves in accordance with GAAP have been established; (d) Liens under workmen's compensation, unemployment insurance, social security or similar legislation (other than ERISA); (e) Liens, deposits or pledges to secure the performance of bids, tenders, contracts (other than contracts for the payment of money), leases (permitted under the terms of this Agreement), public or statutory obligations, surety, stay, appeal, indemnity, performance or other similar bonds, or other similar obligations arising in the ordinary course of business; (f) Judgment and other similar Liens arising in connection with court proceedings; PROVIDED that the execution or other enforcement of such Liens is effectively stayed and the claims secured thereby are being actively contested in good faith and by appropriate proceedings and for which appropriate reserves have been established on the books of Hawk and its Subsidiaries in accordance with GAAP; (g) Easements, rights-of-way, restrictions and other similar encumbrances that do not secure obligations for the payment of money and which, in the aggregate, do not materially interfere with the occupation, use and enjoyment by Hawk or any of its Subsidiaries of the property or assets encumbered thereby in the normal course of its business or materially impair the value of the property subject thereto; (h) Liens in existence on the Effective Date and listed on SCHEDULE 7.05; (i) Liens on the assets of Foreign Subsidiaries existing on the Closing Date or securing Indebtedness permitted to be incurred pursuant to SECTION 7.11(G); or (j) Liens on fixed or capital assets (other than real property), acquired, constructed or improved by Hawk or any of its Subsidiaries, PROVIDED that (A) such Liens secure Indebtedness (including Capitalized Leases) permitted by SECTION 7.11(B), (B) such Liens and the Indebtedness secured thereby are incurred prior to or within ninety (90) days after such acquisition or the completion of such construction or improvement or were in effect at the time Hawk or its Subsidiaries acquired the assets or stock, (C) the Indebtedness secured thereby does not exceed the cost of acquiring, constructing or improving such fixed or capital assets, (D) such security interests shall not apply to any other property or assets of Hawk or any of its Subsidiaries, and (E) Hawk and its Subsidiaries shall be in compliance with ARTICLE 8 of this Agreement after giving effect to such transactions. SECTION 7.06 TRANSACTIONS WITH AFFILIATES. Except as expressly permitted by this Agreement, take any of the following actions: (a) make any loan, advance or investment in an Affiliate; (b) transfer, sell, lease, assign on otherwise dispose of any property to an Affiliate; (c) merge into or consolidate with an Affiliate or purchase or acquire property from an Affiliate; or (d) enter into any other transaction directly or indirectly with or for the benefit of an Affiliate (including, without limitation, guarantees and assumptions of obligations of an Affiliate); PROVIDED that Hawk and its Subsidiaries may engage in and continue the transactions with or for the benefit of Affiliates which are described on SCHEDULE 7.06 so long as the terms of such transactions are not less favorable to Hawk and its Subsidiaries than the terms of a commercially reasonable, arms length transaction between non-affiliated parties. SECTION 7.07 HAZARDOUS MATERIALS; INDEMNIFICATION. Use, generate, treat, store, dispose of or otherwise introduce any Hazardous Materials into or on any real property owned or leased by any of them and will not cause, suffer, allow or permit anyone else to do so, except in material compliance with all applicable Environmental Laws. SECTION 7.08 ACQUISITIONS. Make or otherwise effect any Acquisition. SECTION 7.09 SUBSIDIARIES. Create any Subsidiary after the date hereof unless Hawk complies with the requirements of SECTION 6.17. SECTION 7.10 CERTAIN INVESTMENTS. Make after the date of this Agreement or permit to remain outstanding any loans, advances or investments of any kind in, or make any distributions of, cash or other assets of any kind (collectively, "INVESTMENTS") (other than as expressly permitted by SECTION 7.04) to any other Person, except: (a) any Borrower may make Investments in any other Borrower; (b) Hawk and its Subsidiaries may hold Investments consisting of promissory notes or evidences of indebtedness received by them in connection with any sale otherwise permitted (PROVIDED THAT such Investments are delivered to the Agent to be held as Collateral pursuant to the terms of the Security Agreement); (c) Hawk and its Subsidiaries may continue to maintain Investments in its Subsidiaries existing as of the date of this Agreement; (d) Hawk and its Domestic Subsidiaries may make Investments in Foreign Subsidiaries PROVIDED that all such Investments permitted by this clause (d) shall not exceed, subject to the provisions of clause (b) of SECTION 7.01, (i) for the period commencing the Closing Date through December 31, 2003, $4,800,000; (ii) for the period commencing January 1, 2004 through December 31, 2004, $4,400,000; and (iii) for the period commencing January 1, 2005 and thereafter, $3,500,000; and PROVIDED FURTHER that it is expressly understood that any and all increases in trade balances by Hawk or any of its Domestic Subsidiaries with any Foreign Subsidiary in excess of the amount of such trade balances as of the Closing Date shall constitute Investments for the purposes of this clause (d); (e) the Foreign Subsidiaries may make Investments; and (f) Hawk and its Domestic Subsidiaries may make acquisitions of assets used or useful in the business of Hawk and its Subsidiaries, so long as (i) such assets are owned by any Borrower or any Guarantor, and (ii) immediately prior to such acquisition and after giving effect hereto, no Default or Event of Default shall have occurred and be continuing. SECTION 7.11 INDEBTEDNESS. Create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness of the Borrowers under this Agreement or the Notes; (b) Other Indebtedness of Hawk and its Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP) consisting of Capitalized Leases and/or secured by Liens permitted under SECTION 7.05(i), in an aggregate principal amount not in excess of $5,000,000 at any one time outstanding, PROVIDED that Hawk and its Subsidiaries shall be in compliance with ARTICLE 8 of this Agreement after giving effect to such transactions; (c) The Pre-Exchange Notes, the Exchange Notes and the PIK Notes, PROVIDED that the aggregate amount of all such Indebtedness in this clause (c) shall not exceed $66,700,000 at any time outstanding (exclusive of the Indebtedness under the PIK Notes); (d) Trade debt incurred in the ordinary course of business; (e) Indebtedness existing on the date hereof which is set forth on SCHEDULE 7.11 annexed hereto and has been designated on such schedule as Indebtedness that will remain outstanding following the funding of the initial Loans; (f) Indebtedness in respect of Foreign Exchange Obligations and Interest Rate Protection Obligations owing to the Agent or any of the Lenders; and (g) Indebtedness of Hawk's Foreign Subsidiaries from financial institutions domiciled in the same country as such Foreign Subsidiary PROVIDED that, in the case of Indebtedness incurred in Italy, the proceeds of such Indebtedness shall be used first to repay any outstanding loans made by Hawk or any of its Domestic Subsidiaries to such Foreign Subsidiary, and PROVIDED FURTHER that neither Hawk nor any of its Domestic Subsidiaries shall become obligated with respect to any Guaranty of such Indebtedness. SECTION 7.12 GUARANTIES, ETC. Except as expressly permitted by SECTION 7.06, assume, enter into or otherwise be or become directly or contingently responsible or liable under, any Guaranty, except (a) Guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business and (b) Guaranties by any Subsidiary of Indebtedness of the Borrowers permitted hereunder. SECTION 7.13 OTHER INDEBTEDNESS. Purchase, redeem, retire or otherwise acquire for value, or set apart any money for a sinking, defeasance or other analogous fund for the purchase, redemption, retirement or other acquisition of, or make, in respect of any voluntary payment or prepayment of the principal of or interest on, or other amount owing in respect of, any Indebtedness other than the Obligations. SECTION 7.14 RESTRICTIVE AGREEMENTS. Enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of Hawk or any of its Subsidiaries to create, incur or permit to exist any Lien upon any of its property or assets in favor of the Agent or the Lenders (other than the restrictions contained in the indenture governing the Exchange Notes dated as of October __, 2002, as in effect on the date hereof) or (b) the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances to the Borrowers or the ability of the Guarantors to guarantee Indebtedness of the Borrowers, PROVIDED that the foregoing shall not apply to restrictions and conditions imposed by law or by this Agreement. ARTICLE 8 FINANCIAL COVENANTS So long as any of the Loans or Letters of Credit shall remain outstanding or any Lender shall have any Commitment under this Agreement: SECTION 8.01 MINIMUM FIXED CHARGE COVERAGE RATIO. Hawk shall not permit the Fixed Charge Coverage Ratio to be less than (a) 1.05 to 1.00 as of the end of any Fiscal Quarter for the Fiscal Quarters ending March 31, 2003 through and including June 30, 2004 and (b) 1.10 to 1.00 as of the end of the Fiscal Quarter ending September 30, 2004 and each Fiscal Quarter thereafter. SECTION 8.02 MINIMUM EBITDA. Hawk shall not permit EBITDA for Fiscal Year ended December 31, 2002 to be less than 95% of the projected EBITDA as set forth in Hawk's August 31, 2002 projections. SECTION 8.03 MAXIMUM LEVERAGE RATIO. Hawk shall not permit the Leverage Ratio at any time to exceed the ratio set forth below for the periods set forth below:
- ----------------------------------------------------------------------- ------------------------------------------------ PERIOD RATIO - ----------------------------------------------------------------------- ------------------------------------------------ On the Closing Date and for the Fiscal Quarter ending December 31, 4.85 to 1.00 2002 - ----------------------------------------------------------------------- ------------------------------------------------ For the Fiscal Quarters ending March 31, 2003 and June 30, 2003 4.25 to 1.00 - ----------------------------------------------------------------------- ------------------------------------------------ For the Fiscal Quarters ending September 30, 2003 and December 31, 4.00 to 1.00 2003 - ----------------------------------------------------------------------- ------------------------------------------------ For the Fiscal Quarters ending March 31, 2004, June 30, 2004 and 3.75 to 1.00 September 30, 2004 - ----------------------------------------------------------------------- ------------------------------------------------ For the Fiscal quarter ending December 31, 2004 and thereafter 3.00 to 1.00 - ----------------------------------------------------------------------- ------------------------------------------------
SECTION 8.04 MAXIMUM CAPITAL EXPENDITURES. Hawk shall not permit Capital Expenditures of Hawk and its Subsidiaries to be in excess of $13,000,000 for the Fiscal Year ending December 31, 2002. ARTICLE 9 EVENTS OF DEFAULT SECTION 9.01 EVENTS OF DEFAULT. The occurrence of any of the following events shall be an "EVENT OF Default": (a) Any Borrower shall fail to pay any principal of or interest on the Loans or any Reimbursement Obligation or any fee or other amount due hereunder when the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof by acceleration of such due or prepayment date, or otherwise; (b) Any representation or warranty made or deemed made by Hawk or any of its Subsidiaries in this Agreement or in any other Facility Document or which is contained in any certificate, document, opinion, financial or other statement furnished at any time under or in connection with any Facility Document shall prove to have been incorrect in any material respect on or as of the date made or deemed made; (c) Hawk or any of its Subsidiaries shall fail to perform or observe (i) any of the covenants set forth in SECTIONS 6.01, 6.05 6.07 through 6.10, 6.12, 6.13, 6.17, 6.18 or 6.19 in ARTICLES 7 or 8 or (ii) any term, covenant or agreement contained in this Agreement (other than those referred to elsewhere in this SECTION 9.01) or fail to perform or observe any term, covenant or agreement on its part to be performed or observed in any other Facility Document and, in the case of this clause (ii), such failure shall continue for thirty (30) consecutive days; (d) Hawk or any of its Subsidiaries shall: (i) fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness of Hawk or any such Subsidiary when due (whether by scheduled maturity, required prepayment, demand or otherwise) or (ii) fail to perform or observe any term, covenant or condition on its part to be performed or observed under any agreement or instrument relating to any such Material Indebtedness, when required to be performed or observed, if the effect of such failure to pay, perform or observe is to accelerate the maturity of such Material Indebtedness (or, after the giving of applicable notice or passage of time, or both, to permit the acceleration of the maturity of such Material Indebtedness) or any such Material Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; (e) Hawk or any of its Subsidiaries (i) shall generally not, or be unable to, or shall admit in writing its inability to, pay its debts as such debts become due; (ii) shall make an assignment for the benefit of creditors, petition or apply to any tribunal for the appointment of a custodian, receiver or trustee for it or a substantial part of its assets; (iii) shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; (iv) shall have had any such petition or application filed or any such proceeding shall have been commenced, against it, in which an adjudication or appointment is made or order for relief is entered, or which petition, application or proceeding remains undismissed for a period of sixty (60) days or more; (v) by any act or omission shall indicate its consent to, approval of or acquiescence in any such petition, application or proceeding or order for relief or the appointment of a custodian, receiver or trustee for all or any substantial part of its property; or (vi) shall suffer any such custodianship, receivership or trusteeship to continue undischarged for a period of sixty (60) days or more; (f) One or more judgments, decrees or orders for the payment of money in excess of $500,000 in the aggregate shall be rendered against Hawk or any of its Subsidiaries and such judgments, decrees or orders shall continue unsatisfied and in effect for a period of sixty (60) consecutive days without being vacated, discharged, satisfied or stayed or bonded pending appeal; (g) Any of the following events shall occur or exist with respect to Hawk or any of its Subsidiaries or any ERISA Affiliate: (i) any Prohibited Transaction involving any Plan; (ii) any Reportable Event shall occur with respect to any Plan; (iii) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (iv) any event or circumstance exists which constitutes grounds entitling the PBGC to institute proceedings under Section 4042 of ERISA for the termination of or for the appointment of a trustee to administer, any Plan, or the institution by the PBGC of any such proceedings; or (v) complete or partial withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan or the reorganization, insolvency, or termination of any Multiemployer Plan and in each case above, such event or condition, together with all other events or conditions, if any, could subject Hawk or any of its Subsidiaries to any tax, penalty, or other liability to a Plan, Multiemployer Plan, the PBGC, or otherwise (or any combination thereof) which in the aggregate exceed or may exceed $500,000; (h) A Change of Control shall occur; (i) The Security Documents shall at any time or for any reason cease: (i) to create a valid and perfected security interest or Lien in and to the property purported to be subject to the same with the priority contemplated thereby; or (ii) to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by any party thereto or any party thereto shall deny it has any further liability or obligations to the secured parties thereunder; (j) Any Facility Document shall at any time or for any reason cease to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by Hawk or any of its Subsidiaries or Hawk or any of its Subsidiaries shall deny it has any further liability or obligations thereunder; (k) The Agent shall have reasonably determined that an event or condition has occurred which has had, or which could reasonably be expected to have, a Material Adverse Effect; or (l) Any Borrower or Subsidiary shall (i) withdraw or attempt to withdraw any funds or other items on deposit in any Lock Box or any Controlled Account; (ii) direct or attempt to direct any bank at which any Lock Box or Controlled Account is maintained not to make, or to cease making, transfers of any funds or other items (x) from a Lock Box to a Controlled Account or (y) from a Controlled Account to the Agent or at the direction of the Agent; or (iii) direct any Account Debtor not to make payments to a Lock Box. SECTION 9.02 REMEDIES. If any Event of Default shall occur and be continuing, the Agent may, and shall upon request of the Required Lenders, by a written notice to the Borrowers: (a) declare the Commitments to be terminated, whereupon the same shall forthwith terminate and (b) declare the outstanding principal of the Loans, all interest thereon and all other amounts payable under this Agreement and the other Facility Documents and the Loans to be forthwith due and payable, whereupon the Loans, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrowers; PROVIDED that, in the case of an Event of Default referred to in SECTION 9.01(E) above, the Commitments shall be automatically and immediately terminated without further action of any Person, and the Loans, all interest thereon and all other amounts payable under this Agreement and the Notes shall be automatically and immediately due and payable without notice, presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Borrowers. Further, upon the occurrence and during the continuance of an Event of Default, the Agent, acting on behalf of and at the direction of the Required Lenders, may then exercise any and all rights and remedies available under the Facility Documents or at law or in equity. ARTICLE 10 GUARANTY SECTION 10.01 THE GUARANTEE. Each Person who may from time to time become a Guarantor hereunder, hereby jointly and severally guarantees to each Lender and the Agent and its respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest (including, without limitation, all interest that accrues after the commencement of any case, proceeding or other action relating to bankruptcy, insolvency or reorganization of Hawk or any of its Subsidiaries) on the Loans made by the Lenders to the Borrowers, all fees and other amounts from time to time owing from the Borrowers to the Lenders hereunder, all other Obligations of the Borrower and each of their Subsidiaries under the Facility Documents and all costs and expenses incurred by the Agent or the Lenders in the protection or enforcement of any right or remedies under the guarantee provided in this ARTICLE 10 (such obligations being herein collectively called the "GUARANTEED OBLIGATIONS"). Each Guarantor hereby further agrees that if any Obligations shall be due and payable (whether at stated maturity, by acceleration or otherwise) on any of the Guaranteed Obligations, such Guarantor shall promptly pay the same upon demand therefor by the Agent or the Lenders, without any further demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal. This guarantee is a guarantee of payment and not collection and each Guarantor hereby waives, to the extent permitted by law, any right to require that any action in respect of any Guaranteed Obligations be brought against any Borrower or any other Person or that resort be had to any direct or indirect security for the Guaranteed Obligations or any other remedy. SECTION 10.02 OBLIGATIONS UNCONDITIONAL. The obligations of each Guarantor under SECTION 10.01 are absolute and unconditional irrespective of the value, genuineness, validity, regularity or enforceability of this Agreement, the other Facility Documents or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of or security for any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this SECTION 10.02 that the obligations of each Guarantor hereunder shall be absolute and unconditional under any and all circumstances. Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not, to the extent permitted by applicable law, alter or impair the liability of each Guarantor and each other Guarantor under this ARTICLE 10 which shall remain absolute and unconditional as described above: (a) at any time or from time to time, without notice to such Guarantor, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived; (b) any of the acts mentioned in any of the provisions hereof or of the other Facility Documents or any other agreement or instrument referred to herein or therein shall be done or omitted; (c) the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right hereunder or under the other Facility Documents or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged in whole or in part or otherwise dealt with; or (d) any lien or security interest granted to, or in favor of, the Agent or the Lenders as security for any of the Guaranteed Obligations shall fail to be perfected. Each Guarantor hereby expressly waives, to the extent permitted by applicable law, diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Agent or the Lenders exhaust any right, power or remedy or proceed against the Borrowers hereunder or under the other Facility Documents or any other agreement or instrument referred to herein or therein, or against any other Person under other guarantee of, or security for, any of the Guaranteed Obligations. SECTION 10.03 REINSTATEMENT. The obligations of each Guarantor under this ARTICLE 10 shall be automatically reinstated if and to the extent that for any reason any payment in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy or reorganization or otherwise and each Guarantor agrees that it will indemnify the Agent and each Lender on demand for all reasonable costs and expenses (including reasonable fees and expenses of counsel) incurred by the Agent or any Lender in connection with such rescission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law. SECTION 10.04 SUBROGATION; SUBORDINATION. Unless and until all of the Loans have been repaid in full and the Commitments have been irrevocably terminated, (i) no Guarantor shall have any rights of subrogation, whether arising by contract or operation of law (including, without limitation, any such right arising under the Federal Bankruptcy Code of 1978, as amended) or otherwise by reason of any payment by it pursuant to the provisions of this ARTICLE 10; (ii) no Guarantor will claim any setoff, recoupment or counterclaim against any Borrower or other Guarantor in respect of any liability of such Person to such Guarantor; and (iii) each Guarantor subordinates the payment of any amounts due with respect to any indebtedness of any Borrower or other Guarantor now or hereafter owed to such Guarantor in right of payment and exercise of remedies the prior payment in full of all of the Obligations. SECTION 10.05 REMEDIES. Each Guarantor agrees that, as between such Guarantor and the Lenders, the obligations of the Borrowers hereunder may be declared to be forthwith due and payable as provided in SECTION 9.01 hereof (and shall be deemed to have become automatically due and payable in the circumstances provided in SECTION 9.01) for purposes of SECTION 10.01 notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against the Borrowers and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by the Borrowers) shall forthwith become due and payable by such Guarantor for purposes of SECTION 10.01. SECTION 10.06 INSTRUMENT FOR THE PAYMENT OF MONEY. Each Guarantor hereby acknowledges that the guarantee in this ARTICLE 10 constitutes an instrument for the payment of money and consents and agrees that the Agent and the Lenders, in the event of a dispute by any Guarantor in the payment of any monies due hereunder, shall have the right to summary judgment or such other expedited procedure as may be available for a suit on a note or other instrument for the payment of money. SECTION 10.07 CONTINUING GUARANTEE. The guarantee in this ARTICLE 10 is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising. SECTION 10.08 GENERAL LIMITATION ON GUARANTEE OBLIGATIONS. In any action or proceeding involving any state corporate law, or any state or Federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Guarantor under SECTION 10.01 would otherwise, taking into account the provisions of this SECTION 10.08, be held or determined to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under SECTION 10.01, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by any Guarantor, any Lender, the Agent or any other Person, be automatically limited and reduced to the highest amount that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding. ARTICLE 11 RELATIONS AMONG AGENT AND LENDERS SECTION 11.01 APPOINTMENT, POWERS AND IMMUNITIES OF AGENT. Each Lender hereby irrevocably (but subject to removal by the Required Lenders pursuant to SECTION 11.09) appoints and authorizes the Agent to act as its agent hereunder and under any other Facility Document with such powers as are specifically delegated to the Agent by the terms of this Agreement and any other Facility Document, together with such other powers as are reasonably incidental thereto. The Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and any other Facility Document and shall not by reason of this Agreement be a trustee or fiduciary for any Lender. The Agent shall not be responsible to the Lenders for any recitals, statements, representations or warranties made by the Borrowers or any officer or official of the Borrowers or any other Person contained in this Agreement or any other Facility Document or in any certificate or other document or instrument referred to or provided for in, or received by any of them under or in connection with, this Agreement or any other Facility Document or for the value, legality, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Facility Document or any other document or instrument referred to or provided for herein or therein, for the perfection or priority of any collateral security for the Loans, or for any failure by the Borrowers to perform any of their obligations hereunder or thereunder. The Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Neither the Agent nor any of its directors, officers, employees or agents shall be liable or responsible for any action taken or omitted to be taken by it or them hereunder or under any other Facility Document or in connection herewith or therewith, except for its or their own gross negligence or willful misconduct. Any Lender identified herein as a Documentation Agent or any other title, other than "Agent," "Administrative Agent" and "Collateral Agent," shall have no right, power, obligation, liability, responsibility or duty under this Agreement or any other Facility Document except those applicable to all Lenders as such and except as specifically provided herein. Each Lender acknowledges that it has not relied, and will not rely, on any Lender so identified in deciding to enter into this Agreement or in taking or not taking any action hereunder. SECTION 11.02 RELIANCE BY AGENT. The Agent shall be entitled to rely upon any certification, notice or other communication (including any thereof by telephone, telex, telegram, telecopier or cable) believed by it to be genuine and correct and to have been signed or sent by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. The Agent may deem and treat each Lender as the holder of the Loans made by it for all purposes hereof unless and until a notice of the assignment or transfer thereof satisfactory to the Agent signed by such Lender shall have been furnished to the Agent but the Agent shall not be required to deal with any Person who has acquired a participation in any Loan from a Lender. As to any matters not expressly provided for by this Agreement or any other Facility Document, the Agent shall in all cases be fully protected in acting, or in refraining from acting, hereunder in accordance with instructions signed by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in SECTION 12.01) and such instructions of the Required Lenders (or such other percentage) and any action taken or failure to act pursuant thereto shall be binding on all of the Lenders and any other holder of all or any portion of any Loan. SECTION 11.03 DEFAULTS. The Agent shall not be deemed to have knowledge of the occurrence of a Default or an Event of Default (other than the non-payment of principal of or interest on the Loans to the extent the same is required to be paid to the Agent for the account of the Lenders) unless the Agent has received notice from a Lender or the Borrowers specifying such Default or Event of Default and stating that such notice is a "Notice of Default." In the event that the Agent receives such a notice of the occurrence of a Default or Event of Default, the Agent shall give prompt notice thereof to the Lenders (and shall give each Lender prompt notice of each such non-payment). The Agent shall (subject to SECTION 11.08) take such action with respect to such Default or Event of Default which is continuing as shall be directed by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in SECTION 12.01) PROVIDED that, unless and until the Agent shall have received such directions, the Agent may take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Lenders and PROVIDED, FURTHER, that the Agent shall not be required to take any such action which it determines to be contrary to law. SECTION 11.04 RIGHTS OF AGENT AS A LENDER. With respect to any Commitments and the Loans made by them, the Agent in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as the Agent, and the term "Lenders" shall, unless the context otherwise indicates, include the Agent in its capacity as a Lender. The Agent and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to (on a secured or unsecured basis), and generally engage in any kind of banking, trust or other business with, the Borrowers (and any of their Affiliates) as if it were not acting as the Agent and the Agent may accept fees and other consideration from the Borrowers for services in connection with this Agreement or otherwise without having to account for the same to the Lenders. Although the Agent and its Affiliates may in the course of such relationships and relationships with other Persons acquire information about the Borrowers, their Affiliates and such other Persons, the Agent shall have no duty to disclose such information to the Lenders. SECTION 11.05 INDEMNIFICATION OF AGENT. The Lenders agree to indemnify the Agent (to the extent not reimbursed under SECTION 12.03 or under the applicable provisions of any other Facility Document, but without limiting the obligations of the Borrower under SECTION 12.03 or such provisions), ratably in accordance with the aggregate unpaid principal amount of the Loans made by the Lenders (without giving effect to any participations, in all or any portion of such Loans, sold by them to any other Person) (or, if no Loans are at the time outstanding, ratably in accordance with their respective Commitments), for any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement, any other Facility Document or any other documents contemplated by or referred to herein or the transactions contemplated hereby or thereby (including, without limitation, the costs and expenses which the Borrowers are obligated to pay under SECTION 12.03 or under the applicable provisions of any other Facility Document but excluding, unless a Default or Event of Default has occurred, normal administrative costs and expenses incident to the performance of its agency duties hereunder) or the enforcement of any of the terms hereof or thereof or of any such other documents or instruments; PROVIDED that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of the Agent. SECTION 11.06 DOCUMENTS. The Agent will forward to each Lender, promptly after the Agent's receipt thereof, a copy of each report, notice or other document required by this Agreement or any other Facility Document to be delivered to the Agent for such Lender. SECTION 11.07 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender agrees that it has, independently and without reliance on the Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis of Hawk and its Subsidiaries and its own decision to enter into this Agreement and that it will, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under this Agreement or any other Facility Document. The Agent shall not be required to keep itself informed as to the performance or observance by the Borrowers of this Agreement or any other Facility Document or any other document referred to or provided for herein or therein or to inspect the properties or books of Hawk or any of its Subsidiaries. Except for notices, reports and other documents and information expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of Hawk or any of its Subsidiaries which may come into the possession of the Agent or any of its Affiliates. The Agent shall not be required to file this Agreement, any other Facility Document or any document or instrument referred to herein or therein, for record or give notice of this Agreement, any other Facility Document or any document or instrument referred to herein or therein to anyone. SECTION 11.08 FAILURE OF AGENT TO ACT. Except for action expressly required of the Agent hereunder, the Agent shall in all cases be fully justified in failing or refusing to act hereunder unless it shall have received further assurances (which may include cash collateral) of the indemnification obligations of the Lenders under SECTION 11.05 in respect of any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. SECTION 11.09 RESIGNATION OR REMOVAL OF AGENT. Subject to the appointment and acceptance of a successor Agent as provided below, the Agent may resign at any time by giving written notice thereof to the Lenders and the Borrowers and the Agent may be removed at any time with cause by the Required Lenders; PROVIDED that the Borrowers and the other Lenders shall be promptly notified thereof. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a bank which has an office in the United States. The Required Lenders or the retiring Agent, as the case may be, shall upon the appointment of a successor Agent promptly so notify the Borrower and the other Lenders. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this ARTICLE 11 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as the Agent. SECTION 11.10 AMENDMENTS CONCERNING AGENCY FUNCTION. The Agent shall not be bound by any waiver, amendment, supplement or modification of this Agreement or any other Facility Document which affects its duties hereunder or thereunder unless it shall have given its prior consent thereto. SECTION 11.11 LIABILITY OF AGENT. The Agent shall not have any liabilities or responsibilities to Hawk or any of its Subsidiaries on account of the failure of any Lender to perform its obligations hereunder or to any Lender on account of the failure of Hawk or any of its Subsidiaries to perform their respective obligations hereunder or under any other Facility Document. The Agent shall have no liability to Hawk or any of its Subsidiaries or to any Lender by reason of any error in the computation of the Borrowing Base. SECTION 11.12 TRANSFER OF AGENCY FUNCTION. Without the consent of the Borrowers or any Lender, the Agent may at any time or from time to time transfer its functions as Agent hereunder to any of its offices wherever located, PROVIDED that the Agent shall promptly notify the Borrowers and the Lenders thereof. SECTION 11.13 NON-RECEIPT OF FUNDS BY THE AGENT. Unless the Agent shall have been notified by a Lender or the Borrowers' Agent (any such party as appropriate being the "PAYOR") prior to the date on which such Lender is to make payment hereunder to the Agent of the proceeds of a Loan or the Borrowers are to make payment to the Agent, as the case may be (either such payment being a "REQUIRED PAYMENT"), which notice shall be effective upon receipt, that the Payor does not intend to make the Required Payment to the Agent, the Agent may assume that the Required Payment has been made and may, in reliance upon such assumption (but shall not be required to), make the amount thereof available to the intended recipient on such date and if the Payor has not in fact made the Required Payment to the Agent, the recipient of such payment (and if such recipients are the Borrowers and the Payor Lender fails to pay the amount thereof to the Agent upon demand, the Borrowers) shall, on demand, repay to the Agent the amount made available to the Borrowers together with interest thereon for the period from the date such amount was so made available by the Agent until the date the Agent recovers such amount at a rate per annum equal to the Adjusted Base Rate for such period; PROVIDED that as used in this SECTION 11.13, "Required Payment" does not include any amounts due from a Lender to the Agent which are to be settled on the next Settlement Date pursuant to SECTION 2.14, but "Required Payment" shall include as of each Settlement Date any amounts due from a Lender to the Agent as part of the Settlement Amount to be paid on such Settlement Date pursuant to SECTION 2.14. SECTION 11.14 WITHHOLDING TAXES. Each Lender represents that it is entitled to receive any payments to be made to it hereunder without the withholding of any tax and will furnish to the Agent such forms, certifications, statements and other documents as the Agent may request from time to time to evidence such Lender's exemption from the withholding of any tax imposed by any jurisdiction or to enable the Agent to comply with any applicable laws or regulations relating thereto. Without limiting the effect of the foregoing, if any Lender is not created or organized under the laws of the United States of America or any state thereof, in the event that the payment of interest by the Borrowers is treated for U.S. income tax purposes as derived in whole or in part from sources from within the U.S., such Lender will furnish to the Agent Form 4224 or Form 1001 of the Internal Revenue Service or such other forms, certifications, statements or documents, duly executed and completed by such Lender as evidence of such Lender's exemption from the withholding of U.S. tax with respect thereto. The Agent shall not be obligated to make any payments hereunder to such Lender in respect of any Loan or such Lender's Revolving Credit Commitment until such Lender shall have furnished to the Agent the requested form, certification, statement or document. SECTION 11.15 SEVERAL OBLIGATIONS AND RIGHTS OF LENDERS. The failure of any Lender to make any Loan to be made by it on the date specified therefor shall not relieve any other Lender of its obligation to make its Loan on such date, but no Lender shall be responsible for the failure of any other Lender to make a Loan to be made by such other Lender. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt and each Lender shall be entitled to, subject to SECTION 11.18, protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. SECTION 11.16 PRO RATA TREATMENT OF LOANS, ETC. (a) Each Lender shall at all times maintain a uniform, and not a varying, undivided percentage of all rights and obligations under and in respect of the Commitments and Loans. (b) Except to the extent otherwise provided, (i) each borrowing under SECTION 2.02 shall be made from the Lenders and each payment of commitment fees accruing under SECTION 2.15 shall be made for the account of the Lenders, pro rata according to the relative amounts of the Commitments of each Lender and (ii) each prepayment and payment of principal of or interest on Loans shall be made for the account of the Lenders, pro rata according to each Lender's proportionate share of the principal amount of all Loans then outstanding. (c) If the Agent receives funds for application to the Obligations under the Facility Documents under circumstances for which the Facility Documents do not specify the Loans or other Obligations to which, or the manner in which, such funds are to be applied, the Agent may, but shall not be obligated to, elect to distribute such funds to each Lender ratably in accordance with such Lender's Revolving Credit Commitment Percentage in repayment or prepayment of such of the outstanding Loans or other Obligations owed to such Lender and for application to such principal installments as the Agent shall direct. SECTION 11.17 SHARING OF PAYMENTS AMONG LENDERS. If a Lender shall obtain payment of any principal of or interest on any Loan made by it through the exercise of any right of setoff, banker's lien, counterclaim or by any other means (including any receipt of proceeds from the Collateral Account), it shall promptly purchase from the other Lenders participations in (or, if and to the extent specified by such Lender, direct interests in) the Loans made by the other Lenders in such amounts, and make such other adjustments from time to time as shall be equitable to the end that all the Lenders shall share the benefit of such payment (net of any expenses which may be incurred by such Lender in obtaining or preserving such benefit) pro rata in accordance with the unpaid principal and interest on the Loans held by each of them. To such end, the Lenders shall make appropriate adjustments among themselves (by the resale of participations sold or otherwise) if such payment is rescinded or must otherwise be restored. The Borrowers agree that any Lender so purchasing a participation (or direct interest) in the Loans made by other Lenders may exercise all rights of setoff, banker's lien, counterclaim or similar rights with respect to such participation (or direct interest). Nothing contained herein shall require any Lender to exercise any such right or shall affect the right of any Lender to exercise, and retain the benefits of exercising, any such right with respect to any other Indebtedness of the Borrowers. SECTION 11.18 ENFORCEMENT OF FACILITY DOCUMENTS. After the Agent has received written notice from any Lender that an Event of Default has occurred and is continuing, the Agent shall, subject to the other provisions of this ARTICLE 11 and to the terms of the Facility Documents (and subject to the rights, if any, of other persons holding liens on, security interests in or claims to the Collateral which are prior to those of the Security and Pledge Agreement), take such steps toward collection or enforcement of any Facility Document and the Collateral (or any portion thereof), including without limitation an action to enforce the Security Documents, as may be instructed in writing by the Required Lenders, PROVIDED, HOWEVER, that in no event shall the Agent be required, and in all cases it shall be fully justified in failing or refusing, to take any action under or pursuant to this Agreement (including without limitation this SECTION 11.18) which, in the reasonable opinion of the Agent, would be contrary to law or to the terms of this Agreement or any Facility Document or would subject it or its officers, employees or directors to liability, unless and until the Agent shall be indemnified or tendered security to its satisfaction by the Lenders, ratably as provided in SECTION 11.05, against any and all loss, cost, expense or liability in connection therewith, anything herein or elsewhere contained to the contrary notwithstanding. Except as expressly provided in this SECTION 11.18, the Agent shall not be required to take steps toward the collection of any amounts becoming payable upon any Collateral, or to take any action towards enforcing any Facility Document or to institute, appear in or defend any action, suit or other proceeding in connection therewith. The foregoing provisions of this paragraph shall not be construed to limit the power of the Agent to take any action permitted under any Facility Document to be taken by the Agent, and the Agent may, in accordance with this Agreement, take any aforesaid action without the receipt of indemnity or security or any request therefor and the taking of any such action shall not be construed as a waiver of any provision of this Agreement. Each Lender agrees with the other Lenders and the Agent that (i) such Lender will not take any action whatsoever to enforce any term or provision of any Facility Document or otherwise to realize the benefits of the Collateral, except through the Agent in accordance with this Agreement and (ii) if the Required Lenders shall instruct the Agent pursuant to this SECTION 11.18 to commence action to enforce any Facility Document, such Lender (a) shall not thereafter commence any proceeding of its own seeking payment of the Loans and/or any other Obligation held by such Lender so long as such enforcement action is ongoing and (b) if such a proceeding shall be pending at the time such instructions are given to the Agent, shall promptly (but in no event later than the commencement of such enforcement action) cause such proceeding to be discontinued, PROVIDED that if such Lender shall fail to discontinue such proceeding, the Agent is hereby authorized and directed by such Lender and the other Lenders to commence and maintain such foreclosure action on behalf of such other Lenders (excluding such Lender) and any distribution of amounts required by this Agreement or the Facility Documents shall be made only to such other Lenders and/or the Agent as provided therein and, notwithstanding anything herein or in any Security Document to the contrary, such Lender shall not be entitled to share therein. SECTION 11.19 BORROWING BASE STATEMENTS, ETC. The Agent shall provide to the Lenders and the Borrowers' Agent, promptly, but in any event within five (5) Banking Days after receipt of the reports required under SECTION 6.09, a copy of the computations of the Borrowing Base made by the Agent on the basis of such reports in substantially the same format which has been furnished to the Lenders as of the date of this Agreement; PROVIDED, HOWEVER, that the Agent shall not be liable to the Lenders for the accuracy of any information contained in such statements. The Agent shall provide to the Lenders each Borrowing Base Certificate promptly after receipt thereof from the Borrowers. SECTION 11.20 FIELD AUDITS AND INVENTORY APPRAISALS. The Required Lenders may, by written notice to the Agent, accelerate the timing of any scheduled field audit examination or inventory appraisal to be conducted by the Agent and require the Agent to conduct such field audit examination or inventory appraisal before the next scheduled date of performance. ARTICLE 12 MISCELLANEOUS SECTION 12.01 AMENDMENTS AND WAIVERS. Except as otherwise expressly provided in this Agreement, any provision of this Agreement or any of the other Facility Documents may be amended or modified only by an instrument in writing signed by the Borrowers, the Agent and the Required Lenders, or by the Borrowers and the Agent acting with the consent of the Required Lenders and any provision of this Agreement or the other Facility Documents for the benefit of the Required Lenders or the Agent may be waived by the Required Lenders or by the Agent acting with the consent of the Required Lenders; PROVIDED that no amendment, modification or waiver shall: (a) increase the Commitments of any Lender without the written consent of such Lender and the Agent; (b) reduce the principal amount of any Loan or Reimbursement Obligation or reduce the rate of interest thereon (other than the decision not to charge, or to cease to charge, interest at the Default Rate), or reduce any fees payable hereunder, without the written consent of each Lender directly affected thereby; (c) except as provided in SECTION 2.18, postpone the scheduled date of payment of the principal amount of any Loan or Reimbursement Obligation other than mandatory prepayments of the Loans required under SECTION 2.04, or any interest thereon, or any fees payable hereunder, or reduce the amount of any such payment, change the maturity date of any Loan, or postpone the scheduled date of expiration of any Commitment, or extend the ultimate expiration date of any Letter of Credit beyond the Termination Date, without the written consent of each Lender directly affected thereby; (d) change any of the provisions of this SECTION 12.01, the provisions of SECTION 6.18 or the definition of "Required Lenders," or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or under any other Facility Document or make any determination or grant any consent hereunder or thereunder, without the written consent of each Lender; (e) release any Guarantor from its obligations in respect of its guarantee under ARTICLE 10 or release all or substantially all of the Collateral (or terminate all or substantially all of the Liens in favor of the Agent on the Collateral), except as expressly permitted in this Agreement, without the written consent of each Lender; or (f) (i) modify the Borrowing Base to increase the advance rate percentages applicable to any category of Collateral included therein, to add new categories of eligible Collateral or to make less restrictive the eligibility criteria applicable to any category of Collateral (other than the adjustment or elimination of reserves in the Agent's reasonable discretion), or (ii) increase or modify the Fixed Asset Availability, in the case of (i) or (ii), without the written consent of each Lender and the Agent; (g) PROVIDED FURTHER, that any amendment of ARTICLE 11 hereof or any amendment which increases the obligations of the Agent hereunder shall require the consent of the Agent. No failure by any party (Agent, any Lender or the Borrowers) to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof or preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 12.02 USURY. It is not the intention of the parties to this Agreement to make an agreement violative of the laws of any applicable jurisdiction relating to usury. Regardless of any provision in this Agreement or any Note, the Lenders shall never be entitled to receive, collect or apply, as interest under this Agreement or the Notes, any amount in excess of the maximum amount permitted under applicable law. If any Lender ever receives, collects or applies, as interest, any such excess, such amount which would be excessive interest shall be deemed a partial repayment of principal and treated hereunder as such and if principal is paid in full, any remaining excess shall be promptly paid to the Borrowers. In determining whether or not the interest paid or payable, under any specific contingency, exceeds the maximum amount permitted under applicable law, the Borrowers and the Lenders shall, to the maximum extent permitted under applicable laws, (i) characterize any non-principal payment as an expense, fee or premium rather than as interest, (ii) exclude voluntary prepayments and the effect thereof, and (iii) amortize, prorate, allocate and spread in equal parts, the total amount of interest throughout the entire contemplated term of this Agreement so that the interest rate is uniform throughout the entire term of this Agreement; PROVIDED that if this Agreement is paid and performed in full prior to the end of the full contemplated term hereof, and if the interest received for the actual period of existence thereof exceeds the maximum amount permitted under applicable law, the Lenders shall refund to the Borrowers the amount of such excess or credit the amount of such excess against the total principal amount owing, and, in such event, the Lenders shall not be subject to any penalties provided by any laws for contracting for, charging or receiving interest in excess of the maximum amount permitted under applicable law. This SECTION 12.02 shall control every other inconsistent provision of all agreements among the parties pertaining to the transactions contemplated by or contained in this Agreement, the Notes and any other Facility Document. SECTION 12.03 EXPENSES; INDEMNIFICATION. The Borrowers and the Guarantors jointly and severally agree to pay, or to reimburse the Agent or the Lenders, as applicable, for paying: (a) all reasonable out-of-pocket expenses incurred by the Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel to the Agent, in connection with the preparation and administration of this Agreement and the other Facility Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (b) all reasonable out-of-pocket expenses incurred by the Agent in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder, (c) all out-of-pocket costs and expenses incurred by the Agent or any Lender, including the reasonable fees, charges and disbursements of any counsel for the Agent or any Lender, in connection with the investigation, enforcement or protection of its rights in connection with this Agreement and the other Facility Documents, including its rights under this SECTION 12.03, or in connection with the Loans made or Letters of Credit issued hereunder following a Default or Event of Default, including in connection with any workout, restructuring or negotiations in respect thereof; (d) all actual out-of-pocket costs and reasonable expenses and advances incurred by the Agent in the protection of its security interests (including but not limited to reasonable fees and out-of-pocket expenses incurred in perfection of or checking the status of such security interests and examinations to determine the value of Accounts); (e) all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of or otherwise with respect to this Agreement and the other Facility Documents, all costs, expenses, taxes, assessments and other charges incurred in connection with any filing, registration, recording, perfection or termination of any security interest contemplated hereby or by any other Facility Document or any other document referred to therein; and (f) the amount of any and all out-of-pocket expenses which Agent may incur in connection with the collection of any item deposited in any Controlled Disbursement Account or received by Agent in connection with any Collateral, together with interest on any of the above from the date of such expenditure to the date of repayment in full to Agent at the Adjusted Base Rate. The Borrowers agree, jointly and severally, to indemnify, reimburse, defend and hold harmless the Agent (including in its capacity as Issuing Bank) and each Lender and their respective directors, officers, employees and agents (each, an "INDEMNIFIED PARTY") from and against, any and all losses, liabilities, claims, damages or expenses (including reasonable attorneys' fees and fees and expenses incurred in enforcing this indemnity) asserted against, imposed on or incurred by any of them arising out of or by reason of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of any of the transactions contemplated hereby, (ii) any actual or proposed use by the Borrowers or any of their Subsidiaries of the proceeds of any Loan, (iii) the application of any Environmental Law to acts or omissions occurring at any time on or in connection with any real estate owned or leased by the Borrowers or any Subsidiary or any business conducted thereon and (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnified Party is a party thereto; but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of any Indemnified Party. At its option, Agent may charge such costs, expenses and amounts as a Loan pursuant to this Agreement. SECTION 12.04 SURVIVAL. The obligations of the Borrowers under SECTION 12.03 shall survive the repayment of the Loans and the termination of the Commitments. SECTION 12.05 ASSIGNMENT; PARTICIPATIONS. (a) Each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or an undivided portion of all of its Commitments, Loans, and all Notes held by it); PROVIDED, HOWEVER, that (i) each such assignment shall be of a uniform, and not a varying, undivided percentage of all rights and obligations under and in respect of the Commitments and Loans; (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender or an assignment of all of a Lender's rights and obligations under this Agreement, the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000; (iii) each such assignment shall be to an Eligible Assignee; (iv) no such assignments shall be permitted without the consent of the Agent (such consent not to be unreasonably withheld or delayed); and (v) the parties to each such assignment shall execute and deliver to the Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, substantially in the form of EXHIBIT G, together with any Note or Notes subject to such assignment and a processing and recordation fee of $3,500. (b) Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance, (i) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (ii) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). (c) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any other Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, this Agreement or any other loan document or any other instrument or document furnished pursuant hereto or thereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrowers or any of their Subsidiaries or the performance or observance by the Borrowers or their Subsidiaries of any of their obligations under any Facility Document or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in SECTION 6.08 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Facility Documents as are delegated to the Agent by the terms hereof together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) The Agent shall maintain at its JPMorgan Chase Office a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment and principal amount of the Loans owing to each Lender from time to time (the "REGISTER"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrowers, the Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrowers or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee, together with any Note or Notes subject to such assignment, the Agent shall, if such Assignment and Acceptance has been completed, (i) accept such Assignment and Acceptance; (ii) record the information contained therein in the Register; and (iii) give prompt notice thereof to the Borrowers. In the case of any assignment by a Lender, within five (5) Banking Days after its receipt of such notice, the Borrowers, at their own expense, shall execute and deliver to the Agent in exchange for the surrendered Notes, new Notes to the order of such Eligible Assignee in amounts equal to the Commitment assumed by it pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Commitment hereunder, new Notes to the order of the assigning Lender in amounts equal to the Commitment retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of EXHIBIT A or EXHIBIT B as applicable. (f) Each Lender may sell participations to one or more Persons (other than the Borrowers or any of their Affiliates) in or to all or any portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments or Loans and any Note or Notes held by it); PROVIDED, HOWEVER, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment) shall remain unchanged; (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations; (iii) such Lender shall remain the holder of any such Note for all purposes of this Agreement; (iv) the Borrowers, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement; (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any Facility Document, or any consent to any departure by the Borrowers or any of their Subsidiaries therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or release all or substantially all of the Collateral; and (vi) the identity of the participant shall have been approved by the Agent in writing to such Lender. (g) Subject to the provisions of SECTION 12.06, any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this SECTION 12.05, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrowers furnished to such Lender by or on behalf of the Borrowers. (h) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Loans owing to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A. SECTION 12.06 NOTICES. All notices and other communications provided for herein (including, without limitation, any modifications of, or waivers or consents under, this Agreement) shall be given or made in writing and, telecopied, mailed or delivered or electronically mailed to the intended recipient at the "Address for Notices" specified below its name on the signature page hereof or, as to any party, at such other address as shall be designated by such party in a notice to each other party. Except as otherwise provided in this Agreement, all such communications shall be deemed to have been duly given when transmitted by telecopier, personally delivered or, in the case of a mailed notice, upon receipt, or in the case of electronic mail, upon confirmation of receipt via return electronic mail or telephonically confirmed, in each case given or addressed as aforesaid. SECTION 12.07 CONFIDENTIALITY. Each of the Agent and each Lender agrees to maintain the confidentiality of all information provided to it by the Borrowers relating to the Borrowers or their business in accordance with its customary procedure for handling confidential information of this nature and in accordance with safe and sound banking practices; except that the Agent and each Lender may disclose such information (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors; (b) to any assignee of or participant in, or any prospective assignee of or participant in, any of its rights or obligations under this Agreement that has agreed to maintain the confidentiality of such information on terms described in this SECTION 12.07 and any such assignee, participant, potential assignee or potential participant may disclose such information to its directors, officers, employees and agents, including accountants, legal counsel and other advisors; (c) to the extent required or requested by any Governmental Authority; (d) to the extent required by applicable laws or regulations or by any subpoena, court decree or similar legal process; (e) in connection with the exercise of any right or remedy under the Facility Documents or at law or equity or in connection with any litigation to which the Agent or such Lender is a party; (f) to any other party to this Agreement; (g) with the consent of the Borrowers' Agent; (h) to the extent such information (i) becomes publicly available other than as a result of a breach of this SECTION 12.07 or (ii) becomes available to the Agent or any Lender on a non-confidential basis from a source other than the Borrowers. Any Person required to maintain the confidentiality of information as provided in this SECTION 12.07 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such information as such Person would accord to its own confidential information. SECTION 12.08 TABLE OF CONTENTS; HEADINGS. Any table of contents and the headings and captions hereunder are for convenience only and shall not affect the interpretation or construction of this Agreement. SECTION 12.09 SEVERABILITY. The provisions of this Agreement are intended to be severable. If for any reason any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction. SECTION 12.10 COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing any such counterpart. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 12.11 GOVERNING LAW. Pursuant to Section 5-1401 of the New York General Obligations Law, the whole of this Agreement and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with, the laws of the State of New York without regard to any conflicts-of-laws rules which would require the application of the laws of any other jurisdiction. SECTION 12.12 INCORPORATION BY REFERENCE; CONFLICTS. The rights and remedies of Agent and the Lenders under the other Facility Documents are incorporated herein by reference and the rights and remedies of the Agent and the Lenders under this Agreement and all of the terms of this Agreement, are likewise incorporated in the other Facility Documents by reference. In the case of any conflict between the terms of this Agreement and the terms of any other Facility Document, the terms of this Agreement shall govern. SECTION 12.13 JURISDICTION, VENUE AND SERVICE. For purposes of this Agreement, each of the Borrowers hereby irrevocably consents and submits to the nonexclusive jurisdiction and venue of all federal and state courts located in the County of New York, State of New York and consents that any order, process, notice of motion or other application to or by any of said courts or a judge thereof may be served within or without such court's jurisdiction by registered mail or by personal service, PROVIDED a reasonable time for appearance is allowed, in connection with any action or proceeding arising out of; under or relating to this Agreement or the Facility Documents. At the option of the Agent, upon the instructions of the Required Lenders, the Borrowers may be joined in any action or proceeding commenced by the Agent or the Lenders against any Borrower or Guarantor in connection with or based on the Security Documents, and recovery may be had against the Borrowers in such action or proceeding or in any independent action or proceeding against the Borrowers, without any requirement that the Agent or the Lenders first assert, prosecute or exhaust any remedy or claim against any Borrower or Guarantor. Each of the Borrowers hereby irrevocably waives (to the fullest extent permitted by applicable law) any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of; under or relating to this Agreement or any Facility Document brought in any federal or state court located in the County of New York, State of New York, and hereby further irrevocably waives (to the fullest extent permitted by applicable law) any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum. SECTION 12.14 WAIVER OF JURY TRIAL. EACH OF THE AGENT, THE DOCUMENTATION AGENTS, THE LENDERS, THE GUARANTORS AND THE BORROWERS HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES (TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO THIS AGREEMENT OR ANY FACILITY DOCUMENT, AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. IN ADDITION, EACH OF THE AGENT, THE LENDERS, THE GUARANTORS AND THE BORROWERS WAIVES THE RIGHT TO INTERPOSE ANY DEFENSE BASED UPON ANY STATUTE OF LIMITATIONS OR ANY CLAIM OF LACHES AND ANY SET-OFF OR COUNTER CLAIM OF ANY NATURE OR DESCRIPTION. EACH OF THE AGENT, THE DOCUMENTATION AGENTS, THE LENDERS, THE GUARANTORS AND THE BORROWERS ACKNOWLEDGE THAT THE FOREGOING WAIVERS ARE FREELY MADE. (SIGNATURE PAGES FOLLOW) IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. BORROWERS: HAWK CORPORATION ALLEGHENY CLEARFIELD, INC. FRICTION PRODUCTS CO. HAWK MOTORS, INC. HELSEL, INC. LOGAN METAL STAMPINGS, INC. NET SHAPE TECHNOLOGIES LLC QUARTER MASTER INDUSTRIES, INC. S.K. WELLMAN CORP. SINTERLOY CORPORATION TEX RACING ENTERPRISES, INC. By: /s/ Thomas A. Gilbride -------------------------------------- Thomas A. Gilbride Vice President - Finance & Treasurer Address for Notices: 200 Public Square Suite 30-5000 Cleveland, Ohio 44114 Attention: Vice President-Finance Facsimile: (216) 861-4546 GUARANTORS: S.K. WELLMAN HOLDINGS, INC. HAWK PRECISION COMPONENTS GROUP, INC. HAWK MIM, INC. By: /s/ Thomas A. Gilbride -------------------------------------- Thomas A. Gilbride Vice President - Finance & Treasurer Address for Notices: 200 Public Square Suite 30-5000 Cleveland, Ohio 44114 Attention: Vice President-Finance Facsimile: (216) 861-4546 AGENT: JPMORGAN CHASE BANK, as Administrative and Collateral Agent, Issuing Bank and Arranger By: /s/ Dale A. Pensgen -------------------------------------- Dale A. Pensgen Vice President Address for Notices: One Chase Square, CS-5 Rochester, New York 14643 Attention: Dale A. Pensgen Facsimile: (585) 258-7440 LENDERS: JPMORGAN CHASE BANK By: /s/ Dale A. Pensgen -------------------------------------- Dale A. Pensgen Vice President Address for Notices: One Chase Square, CS-5 Rochester, New York 14643 Attention: Dale A. Pensgen Facsimile: (585) 258-7440 PNC BANK, NATIONAL ASSOCIATION By: /s/ James V. Cannella ------------------------------------- James V. Cannella ------------------------------------- Vice President ------------------------------------- Address for Notices: One PNC Plaza 249 Fifth Ave. Pittsburgh, PA 15222 Attention: Mark D. Hefferan Facsimile: (412) 768-4369 FLEET CAPITAL CORP. By: /s/ Michael P. Shiplett ------------------------------------- Michael P. Shiplett ------------------------------------- Vice President ------------------------------------- Address for Notices: One South Wacker Street Suite 1400 Chicago, IL 60606 Attention: Dave Lehner Fax: (312) 332-6537 J.P. MORGAN BUSINESS CREDIT CORP., as Advisor By: /s/ Kenneth A. Horner -------------------------------------- Kenneth A. Horner Director Address for Notices: 250 West Huron Road, Suite 520 Cleveland, Ohio 44113 Attention: Kenneth A. Horner Facsimile: (216) 479-2732 SCHEDULE 2.01 LENDERS AND COMMITMENTS -----------------------
- ------------------------------------------------------------------------------------------------------------------------------------ NAME OF LENDER REVOLVING CREDIT REVOLVING CREDIT CAPEX CAPEX COMMITMENT LENDING OFFICE COMMITMENT COMMITMENT COMMITMENT PERCENTAGE AMOUNT PERCENTAGE AMOUNT - ------------------------------------------------------------------------------------------------------------------------------------ JPMorgan Chase Bank 18,867,924.52 37.736% 1,132,075.48 37.736% One Chase Square, CS-5 Rochester, New York 14643 Contact: Dale A. Pensgen Phone: (585) 258-6194 Facsimile: (585) 258-7440 - ------------------------------------------------------------------------------------------------------------------------------------ PNC Bank, National Assoc. 15,566,037.74 31.132% 933,962.26 31.132% 2 Tower Center; 8th Floor East Brunswick, NJ 08816 Attn: Pat Loprete Phone: (732) 220-4368 Facsimile: (732) 220-4399 - ------------------------------------------------------------------------------------------------------------------------------------ Fleet Capital Corp. 15,566,037.74 31.132% 933,962.26 31.132% 20800 Swenson Drive Suite 350 Waukesha, WI 53186 Attn: Ann Dempsey Phone: 262-798-4816 Fax: 262-798-4883 - ------------------------------------------------------------------------------------------------------------------------------------ Total $50,000,000 100.0000000% $3,000,000 100.0000000% - ------------------------------------------------------------------------------------------------------------------------------------
94 SCHEDULE 4.01(a) SECURITY DOCUMENTS ------------------ Executed copies of the following documents shall be delivered at the Closing: 1. Security and Pledge Agreement by Hawk Corporation and its Domestic Subsidiaries 2. Patent Security Agreements by each of the following: a. Hawk Corporation; and b. S.K. Wellman Corp. 3. Trademark Security Agreements by each of the following: a. Hawk Corporation; b. Quarter Master Industries, Inc.; c. Tex Racing Enterprises, Inc.; d. S.K. Wellman Corp.; e. Hawk Precision Components Group, Inc.; and f. Hawk Motors, Inc. 4. Mortgages on the following locations: a. Campbellsburg, Washington County, Indiana; b. Jefferson County, Pennsylvania; c. Brook Park, Cuyahoga County, Ohio; d. City of Medina, County of Medina, Ohio; e. City of Akron, Summit County, Ohio; f. City of Alton, Madison County, Illinois; g. Lawrence Township, Clearfield County, Pennsylvania 95 EXHIBIT A FORM OF REVOLVING CREDIT NOTE $[__________] [Date] Hawk Corporation, a Delaware corporation ("HAWK") and the Domestic Subsidiaries of Hawk party to the Credit Agreement referred to below as Borrowers (collectively with Hawk, the "BORROWERS"), for value received, hereby jointly and severally promise to pay to the order of [NAME OF LENDER] (the "LENDER") at the office of the Agent at [ADDRESS], for the account of the Lender, the principal sum of [________________________________] MILLION AND 00/100 DOLLARS ($_________) or, if less, the amount of Revolving Credit Loans loaned by the Lender to the Borrowers pursuant to the Credit Agreement referred to below, in lawful money of the United States of America and in immediately available funds, on the date(s) and in the manner provided in said Credit Agreement. The Borrowers also jointly and severally promise to pay interest on the unpaid principal balance hereof, for the period such balance is outstanding, at said principal office for the account of the Lender, in like money, at the rates of interest as provided in the Credit Agreement described below, on the date(s) and in the manner provided in such Credit Agreement. This is one of the Notes referred to in, and is entitled to the benefits of, that certain Credit Agreement dated as of October 18, 2002 among the Borrowers, certain Subsidiaries of Hawk, as Guarantors, the lenders party thereto (including the Lender), JPMorgan Chase Bank, as Administrative and Collateral Agent, Issuing Bank and Arranger, J.P. Morgan Business Credit Corp., as Advisor, PNC Bank, National Association, as a Documentation Agent, and Fleet Capital Corp., as a Documentation Agent (as amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), and evidences the Revolving Credit Loans made by the Lender to the Borrowers thereunder. All terms not defined herein shall have the meanings given to them in the Credit Agreement. The Credit Agreement provides for the acceleration of the maturity of principal upon the occurrence and during the continuance of certain Events of Default and for prepayments on the terms and conditions specified herein. The Borrowers waive presentment, notice of dishonor, protest and any other notice or formality with respect to this Note. In any action or proceeding involving any state corporate law, or any state or Federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Borrower would otherwise be held or determined to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its joint and several liability hereunder, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by any Borrower or Lender or any other Person, be automatically limited and reduced to the highest amount that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) 96 Pursuant to Section 5-1401 of the New York General Obligations law, this Note, including the validity hereof and the rights of the Lender and obligations of the Borrowers hereunder, shall be governed by, and interpreted and construed in accordance with, the laws of the State of New York. BORROWERS: HAWK CORPORATION ALLEGHENY CLEARFIELD, INC. FRICTION PRODUCTS CO. HAWK MOTORS, INC. HELSEL, INC. LOGAN METAL STAMPINGS, INC. NET SHAPE TECHNOLOGIES LLC QUARTER MASTER INDUSTRIES, INC. S.K. WELLMAN CORP. SINTERLOY CORPORATION TEX RACING ENTERPRISES, INC. By: -------------------------------------- Thomas A. Gilbride Vice President - Finance & Treasurer 97 EXHIBIT B FORM OF CAPEX NOTE $[__________] [Date] Hawk Corporation, a Delaware corporation ("HAWK") and the Domestic Subsidiaries of Hawk party to the Credit Agreement referred to below as Borrowers (collectively with Hawk, the "BORROWERS"), for value received, hereby jointly and severally promise to pay to the order of [NAME OF LENDER] (the "LENDER") at the office of the Agent at [ADDRESS], for the account of the Lender, the principal sum of [________________________________] MILLION AND 00/100 DOLLARS ($_________) or, if less, the amount of CapEx Loans loaned by the Lender to the Borrowers pursuant to the Credit Agreement referred to below, in lawful money of the United States of America and in immediately available funds, on the date(s) and in the manner provided in said Credit Agreement. The Borrowers also jointly and severally promise to pay interest on the unpaid principal balance hereof, for the period such balance is outstanding, at said principal office for the account of the Lender, in like money, at the rates of interest as provided in the Credit Agreement described below, on the date(s) and in the manner provided in such Credit Agreement. This is one of the Notes referred to in, and is entitled to the benefits of, that certain Credit Agreement dated as of October 18, 2002 among the Borrowers, certain Subsidiaries of Hawk, as Guarantors, the lenders party thereto (including the Lender), JPMorgan Chase Bank, as Administrative and Collateral Agent, Issuing Bank and Arranger, J.P. Morgan Business Credit Corp., as Advisor, PNC Bank, National Association, as a Documentation Agent, and Fleet Capital Corp., as a Documentation Agent (as amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), and evidences the CapEx Loans made by the Lender to the Borrowers thereunder. All terms not defined herein shall have the meanings given to them in the Credit Agreement. The Credit Agreement provides for the acceleration of the maturity of principal upon the occurrence and during the continuance of certain Events of Default and for prepayments on the terms and conditions specified herein. The Borrowers waive presentment, notice of dishonor, protest and any other notice or formality with respect to this Note. In any action or proceeding involving any state corporate law, or any state or Federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of any Borrower would otherwise be held or determined to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its joint and several liability hereunder, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by any Borrower or Lender or any other Person, be automatically limited and reduced to the highest amount that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding. 98 (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) 99 Pursuant to Section 5-1401 of the New York General Obligations law, this Note, including the validity hereof and the rights of the Lender and obligations of the Borrowers hereunder, shall be governed by, and interpreted and construed in accordance with, the laws of the State of New York. BORROWERS: HAWK CORPORATION ALLEGHENY CLEARFIELD, INC. FRICTION PRODUCTS CO. HAWK MOTORS, INC. HELSEL, INC. LOGAN METAL STAMPINGS, INC. NET SHAPE TECHNOLOGIES LLC QUARTER MASTER INDUSTRIES, INC. S.K. WELLMAN CORP. SINTERLOY CORPORATION TEX RACING ENTERPRISES, INC. By: -------------------------------------- Thomas A. Gilbride Vice President - Finance & Treasurer 100 EXHIBIT C FORM OF SOLVENCY CERTIFICATE 101 EXHIBIT D FORM OF LANDLORD'S WAIVER AND CONSENT 102 EXHIBIT E FORM OF COMPLIANCE CERTIFICATE 103 EXHIBIT F FORM OF MONTHLY BORROWING BASE CERTIFICATE 104 EXHIBIT G FORM OF ASSIGNMENT AND ACCEPTANCE Reference is made to the Credit Agreement dated as of October 18, 2002 (as amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"; the terms defined therein being used herein as therein defined) among Hawk Corporation, a Delaware corporation ("HAWK") and the Domestic Subsidiaries of Hawk party to the Credit Agreement as Borrowers (collectively with Hawk, the "BORROWERS"), the Lenders from time to time party thereto, JPMorgan Chase Bank, as Administrative and Collateral Agent, Issuing Bank and Arranger, J.P. Morgan Business Credit Corp., as Advisor, PNC Bank, National Association, as a Documentation Agent, and Fleet Capital Corp., as a Documentation Agent. The "Assignor" and the "Assignee" referred to on SCHEDULE 1 hereto agree as follows: 1._______The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor's rights and obligations under the Credit Agreement as of the date hereof equal to the percentage interests specified on SCHEDULE 1 hereto of all outstanding rights and obligations under the Credit Agreement in respect of the Loans, as specified on SCHEDULE 1 hereto. After giving effect to such sale and assignment, the Assignee's Commitment, the amount of the Loans owing to the Assignee will be as set forth on SCHEDULE 1 hereto. 2._______The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Facility Documents or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, the Facility Documents or any other instrument or document furnished pursuant thereto; (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrowers or the Guarantors or the performance or observance by the Borrowers or the Guarantors of any of their obligations under any Facility Document or any other instrument or document furnished pursuant thereto; and (iv) attaches the Notes held by the Assignor and requests that the Agent exchange such Notes for new Notes payable to the order of the Assignee in amounts equal to the Commitments, assumed by the Assignee pursuant hereto and, to the extent the Assignor has retained any Commitment, to the order of the Assignor in amounts equal to the Commitment, respectively, retained by the Assignor under the Credit Agreement as specified on SCHEDULE 1 hereto. 3._______The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to therein and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; 105 (iv) appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Facility Documents as are delegated to the Agent by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (v) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender; (vi) represents that it is entitled to receive any payments to be made to it under the Credit Agreement without the withholding of any tax and will furnish to the Agent such forms, certifications, statements and other documents as the Agent may request from time to time to evidence such Lender's exemption from the withholding of any tax imposed by any jurisdiction or to enable the Agent to comply with any applicable laws or regulations relating thereto; and (vii) attaches any U.S. Internal Revenue Service forms or other forms required under the Credit Agreement. 4._______Following the execution of this Assignment and Acceptance, it will be delivered to the Agent for approval by the Agent and acceptance and recording by the Agent. The effective date for this Assignment and Acceptance (the "EFFECTIVE DATE") shall be the date of acceptance hereof by the Agent, unless otherwise specified on SCHEDULE 1 hereto. 5._______Upon such acceptance and recording by the Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 6._______Upon such acceptance and recording by the Agent, from and after the Effective Date, the Agent shall make all payments under the Credit Agreement and the Notes in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and commitment fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement and the Notes for periods prior to the Effective Date directly between themselves. 7._______This Assignment and Acceptance may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of SCHEDULE 1 to this Assignment and Acceptance by telecopier shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance. 8._______This Assignment and Acceptance shall be governed and construed by the laws of the State of New York. 106 IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date specified on SCHEDULE 1 annexed hereto. [Assignor] [Assignee] By: By: ------------------------------ ------------------------------------ Name: Name: ---------------------------- ---------------------------------- Title: Title: --------------------------- --------------------------------- Acknowledged and Approved: JPMORGAN CHASE BANK, as Agent By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- 107 SCHEDULE I TO ASSIGNMENT AND ACCEPTANCE RELATING TO CREDIT AGREEMENT, DATED AS OF OCTOBER 18, 2002, AMONG HAWK CORPORATION, CERTAIN OF ITS DIRECT AND INDIRECT DOMESTIC SUBSIDIARIES AS CO-BORROWERS, THE LENDERS PARTY THERETO AND JPMORGAN CHASE BANK, AS AGENT Name of Assignor: Name of Assignee: Effective Date of Assignment:
Principal Amount of Revolving Principal Amount of Revolving Principal Amount of Principal Amount of Percent of Credit Commitment Assigned Credit Commitment Retained CapEx Commitment CapEx Commitment Facility Assigned -------------------------- -------------------------- Assigned Retained ----------------- -------- -------- $ $ $ $ %
108 EXHIBIT H FORM OF AUTHORIZATION LETTER 109 EXHIBIT I PRICING GRID
- ------------- -------------------- ------------------ ------------------- ------------------ ------------------- ------------------ Level Leverage Ratio Eurodollar Eurodollar Base Rate Margin Base Rate Margin Applicable Margin- Letters Margin - - Revolving - Revolving Commitment Fee of Credit and Revolving Credit Credit Loans Credit Loans that Rate Revolving Credit Loans that are other than the are part of the Loans other than part of the Fixed Fixed Asset Fixed Asset the Fixed Asset Asset Advance Advance Advance and Advance and CapEx Loans CapEx Loans - ------------- -------------------- ------------------ ------------------- ------------------ ------------------- ------------------ 1 4.75 to 1.00 or 325 375 50 bps 100 bps 50 bps higher - ------------- -------------------- ------------------ ------------------- ------------------ ------------------- ------------------ 2 4.00 to 1.00 or 275 325 25 bps 75 bps 37.5 bps greater and less than 4.75 to 1.00 - ------------- -------------------- ------------------ ------------------- ------------------ ------------------- ------------------ 3 3.00 to 1.00 or 250 300 0 bps 50 bps 37.5 bps greater and less than 4.00 to 1.00 - ------------- -------------------- ------------------ ------------------- ------------------ ------------------- ------------------ 4 Below 3.00 to 225 275 0 bps 50 bps 25 bps 1.00 - ------------- -------------------- ------------------ ------------------- ------------------ ------------------- ------------------
110 EXHIBIT J FORM OF SECURITY AND PLEDGE AGREEMENT 111 EXHIBIT K FORM OF WEEKLY COLLATERAL CERTIFICATE 112 TABLE OF CONTENTS
PAGE ---- ARTICLE 1 DEFINITIONS; ACCOUNTING TERMS................................................................1 Section 1.01 Definitions.........................................................................1 Section 1.02 Accounting Principles..............................................................26 Section 1.03 Directly or Indirectly.............................................................26 Section 1.04 Construction.......................................................................26 Section 1.05 Joint and Several Obligations; Borrowers' Agent....................................27 Section 1.06 Times of Day.......................................................................27 ARTICLE 2 THE CREDIT..................................................................................27 Section 2.01 Loans and Letters of Credit........................................................27 Section 2.02 Funding of Loans...................................................................28 Section 2.03 Principal Repayment of Loans.......................................................29 Section 2.04 Mandatory Prepayments..............................................................30 Section 2.05 Interest...........................................................................32 Section 2.06 Eurodollar Interest Periods........................................................33 Section 2.07 Conversions........................................................................33 Section 2.08 Voluntary Prepayments..............................................................34 Section 2.09 Uncollected Funds Compensation.....................................................34 Section 2.10 Voluntary Termination of Commitments...............................................34 Section 2.11 Certain Notices....................................................................35 Section 2.12 Calculation of Borrowing Base......................................................35 Section 2.13 Letters of Credit..................................................................35 Section 2.14 Settlement Between Agent and Lenders...............................................36 Section 2.15 Fees...............................................................................37 Section 2.16 Payments Generally.................................................................38 Section 2.17 Purpose............................................................................38 Section 2.18 Extension of the Scheduled Maturity Date...........................................39 ARTICLE 3 YIELD PROTECTION; ILLEGALITY; ETC...........................................................41 Section 3.01 Additional Costs...................................................................41 Section 3.02 Limitation on Types of Loans.......................................................42 Section 3.03 Illegality.........................................................................43
-i- TABLE OF CONTENTS (CONTINUED)
PAGE ---- Section 3.04 Certain Base Rate Loans pursuant to Sections 3.01 and 3.03.........................43 Section 3.05 Certain Compensation...............................................................43 Section 3.06 Mitigation Obligations.............................................................44 Section 3.07 Taxes..............................................................................44 ARTICLE 4 CONDITIONS PRECEDENT........................................................................45 Section 4.01 Conditions Precedent to the Initial Loans..........................................45 Section 4.02 Additional Conditions Precedent....................................................49 Section 4.03 Deemed Representations.............................................................50 ARTICLE 5 REPRESENTATIONS AND WARRANTIES..............................................................50 Section 5.01 Organization, Good Standing and Due Qualification..................................50 Section 5.02 Power and Authority; No Conflicts..................................................50 Section 5.03 Legally Enforceable Agreements.....................................................50 Section 5.04 Litigation.........................................................................51 Section 5.05 Financial Statements...............................................................51 Section 5.06 Ownership and Liens................................................................52 Section 5.07 Existing Indebtedness..............................................................52 Section 5.08 Taxes..............................................................................53 Section 5.09 ERISA..............................................................................53 Section 5.10 Subsidiaries and Affiliates........................................................53 Section 5.11 Operation of Business..............................................................53 Section 5.12 No Default on Outstanding Judgments or Orders......................................54 Section 5.13 No Defaults on Other Agreements....................................................54 Section 5.14 Labor Matters......................................................................54 Section 5.15 Investment Company Act; Holding Company Act........................................55 Section 5.16 Environmental Matters..............................................................55 Section 5.17 Regulation U.......................................................................55 Section 5.18 No Guaranties or Indemnities.......................................................55 Section 5.19 Bank Accounts......................................................................55 Section 5.20 Trade Relations....................................................................55 Section 5.21 True and Complete Disclosure.......................................................56 ARTICLE 6 AFFIRMATIVE COVENANTS.......................................................................56 Section 6.01 Maintenance of Existence...........................................................56
-ii- TABLE OF CONTENTS (CONTINUED)
PAGE ---- Section 6.02 Conduct of Business................................................................56 Section 6.03 Maintenance of Properties..........................................................56 Section 6.04 Maintenance of Records; Fiscal Year................................................56 Section 6.05 Maintenance of Insurance...........................................................56 Section 6.06 Compliance with Laws; Payment of Taxes.............................................56 Section 6.07 Right of Inspection................................................................57 Section 6.08 Reporting Requirements.............................................................57 Section 6.09 Special Periodic Reports...........................................................59 Section 6.10 Field Audits; Inventory Appraisals.................................................59 Section 6.11 Cooperation and Further Assurance..................................................60 Section 6.12 Deposits Into Collateral Account...................................................60 Section 6.13 Lock Box Operation.................................................................60 Section 6.14 Landlords Waivers..................................................................60 Section 6.15 Real Property Financing............................................................60 Section 6.16 Existing Leases....................................................................60 Section 6.17 Additional Borrowers and Guarantors................................................61 Section 6.18 Pre-Exchange Notes.................................................................61 Section 6.19 Rank; Most Favored Covenant Status; Guaranties.....................................61 ARTICLE 7 NEGATIVE COVENANTS..........................................................................62 Section 7.01 Sale of Assets.....................................................................62 Section 7.02 Stock of Subsidiaries, Etc.........................................................63 Section 7.03 Mergers, Etc.......................................................................63 Section 7.04 Dividends and Stock Repurchases; Management Fees...................................63 Section 7.05 Liens..............................................................................63 Section 7.06 Transactions with Affiliates.......................................................64 Section 7.07 Hazardous Materials; Indemnification...............................................65 Section 7.08 Acquisitions.......................................................................65 Section 7.09 Subsidiaries.......................................................................65 Section 7.10 Certain Investments................................................................65 Section 7.11 Indebtedness.......................................................................65 Section 7.12 Guaranties, Etc....................................................................66 Section 7.13 Other Indebtedness.................................................................66
-iii- TABLE OF CONTENTS (CONTINUED)
PAGE ---- Section 7.14 Restrictive Agreements.............................................................66 ARTICLE 8 FINANCIAL COVENANTS.........................................................................67 Section 8.01 Minimum Fixed Charge Coverage Ratio................................................67 Section 8.02 Minimum EBITDA.....................................................................67 Section 8.03 Maximum Leverage Ratio.............................................................67 Section 8.04 Maximum Capital Expenditures.......................................................67 ARTICLE 9 EVENTS OF DEFAULT...........................................................................67 Section 9.01 Events of Default..................................................................67 Section 9.02 Remedies...........................................................................69 ARTICLE 10 GUARANTY....................................................................................70 Section 10.01 The Guarantee......................................................................70 Section 10.02 Obligations Unconditional..........................................................70 Section 10.03 Reinstatement......................................................................71 Section 10.04 Subrogation; Subordination.........................................................71 Section 10.05 Remedies...........................................................................72 Section 10.06 Instrument for the Payment of Money................................................72 Section 10.07 Continuing Guarantee...............................................................72 Section 10.08 General Limitation on Guarantee Obligations........................................72 ARTICLE 11 RELATIONS AMONG AGENT AND LENDERS...........................................................72 Section 11.01 Appointment, Powers and Immunities of Agent........................................72 Section 11.02 Reliance by Agent..................................................................73 Section 11.03 Defaults...........................................................................73 Section 11.04 Rights of Agent as a Lender........................................................74 Section 11.05 Indemnification of Agent...........................................................74 Section 11.06 Documents..........................................................................74 Section 11.07 Non-Reliance on Agent and Other Lenders............................................74 Section 11.08 Failure of Agent to Act............................................................75 Section 11.09 Resignation or Removal of Agent....................................................75 Section 11.10 Amendments Concerning Agency Function..............................................75 Section 11.11 Liability of Agent.................................................................75 Section 11.12 Transfer of Agency Function........................................................76 Section 11.13 Non-Receipt of Funds by the Agent..................................................76
-iv- TABLE OF CONTENTS (CONTINUED)
PAGE ---- Section 11.14 Withholding Taxes..................................................................76 Section 11.15 Several Obligations and Rights of Lenders..........................................76 Section 11.16 Pro Rata Treatment of Loans, Etc...................................................77 Section 11.17 Sharing of Payments Among Lenders..................................................77 Section 11.18 Enforcement of Facility Documents..................................................77 Section 11.19 Borrowing Base Statements, Etc.....................................................78 Section 11.20 Field Audits and Inventory Appraisals..............................................78 ARTICLE 12 MISCELLANEOUS...............................................................................79 Section 12.01 Amendments and Waivers.............................................................79 Section 12.02 Usury..............................................................................80 Section 12.03 Expenses; Indemnification..........................................................80 Section 12.04 Survival...........................................................................81 Section 12.05 Assignment; Participations.........................................................81 Section 12.06 Notices............................................................................84 Section 12.07 Confidentiality....................................................................84 Section 12.08 Table of Contents; Headings........................................................84 Section 12.09 Severability.......................................................................84 Section 12.10 Counterparts.......................................................................84 Section 12.11 Governing Law......................................................................85 Section 12.12 Incorporation By Reference; Conflicts..............................................85 Section 12.13 Jurisdiction, Venue and Service....................................................85 Section 12.14 Waiver of Jury Trial...............................................................85
-v- EXHIBITS AND SCHEDULES Exhibit A - Form of Revolving Credit Note Exhibit B - Form of CapEx Note Exhibit C - Form of Solvency Certificate Exhibit D - Form of Landlord's Waiver and Consent Exhibit E - Form of Compliance Certificate Exhibit F - Form of Borrowing Base Certificate Exhibit G - Form of Assignment and Acceptance Exhibit H - Form of Authorization Letter Exhibit I - Pricing Grid Exhibit J - Form of Security and Pledge Agreement Exhibit K - Form of Weekly Collateral Certificate Schedule 2.01 - Lenders and Commitments Schedule 2.17 - Indebtedness to be Refinanced Schedule 4.01(a) - Security Documents Schedule 4.01(b) - Foreign Jurisdictions Schedule 5.04 - Litigation Schedule 5.07 - Existing Indebtedness Schedule 5.09 - Pension Plans Schedule 5.10 - Subsidiaries and Affiliates; Capitalization Schedule 5.11 - Properties Schedule 5.14 - Labor and Employment Matters Schedule 5.16 - Environmental Matters Schedule 5.19 - Bank Accounts Schedule 6.15(a) - Landlord Waivers Schedule 7.05 - Existing Liens Schedule 7.06 - Transactions with Affiliates Schedule 7.11 - Certain Indebtedness Permitted to Remain Outstanding -vi- EX-10.2 4 l96737aexv10w2.txt EXHIBIT 10.2 Exhibit 10.2 SECURITY AND PLEDGE AGREEMENT DATED AS OF OCTOBER 18, 2002 AMONG HAWK CORPORATION, AND ITS CERTAIN SUBSIDIARIES AS GRANTORS, THE OTHER GRANTORS FROM TIME TO TIME PARTY HERETO, AND JPMORGAN CHASE BANK, AS ADMINISTRATIVE AND COLLATERAL AGENT TABLE OF CONTENTS SECTION 1 DEFINITIONS..................................................1 1.1 General Definitions...............................................1 1.2 Definitions; Interpretation.......................................9 SECTION 2 GRANT OF SECURITY...........................................10 2.1 Grant of Security................................................10 2.2 Certain Limited Exclusions.......................................10 SECTION 3 SECURITY FOR OBLIGATIONS....................................11 3.1 Security for Obligations.........................................11 3.2 Continuing Liability under Collateral............................11 SECTION 4 REPRESENTATIONS AND WARRANTIES AND COVENANTS................11 4.1 Generally........................................................11 4.2 Equipment and Inventory..........................................14 4.3 Receivables......................................................16 4.4 Investment Related Property......................................20 4.5 Material Contracts...............................................26 4.6 Letter of Credit Rights..........................................27 4.7 Intellectual Property............................................27 4.8 Commercial Tort Claims...........................................31 4.9 Cash Proceeds....................................................31 SECTION 5 ACCESS; RIGHT OF INSPECTION AND FURTHER ASSURANCES.........32 5.1 Access; Right of Inspection......................................32 5.2 Further Assurances...............................................32 SECTION 6 AGENT APPOINTED ATTORNEY-IN-FACT............................33 6.1 Power of Attorney................................................33 SECTION 7 REMEDIES....................................................35 7.1 Generally........................................................35 7.2 Application of Proceeds..........................................36 7.3 Sales on Credit..................................................37 7.4 Investment Related Property......................................37 7.5 Intellectual Property............................................37 ii TABLE OF CONTENTS (CONTINUED) SECTION 8 AGENT........................................................39 SECTION 9 CONTINUING SECURITY INTEREST; TRANSFER OF SECURED OBLIGATIONS..................................................40 SECTION 10 INDEMNITY AND EXPENSES.......................................41 SECTION 11 MISCELLANEOUS................................................41 11.1 Notices.........................................................41 11.2 Expenses........................................................41 11.3 Amendments and Waivers..........................................42 11.4 General Limitation on Secured Obligations.......................42 11.5 Successors and Assigns..........................................43 11.6 Independence of Covenants.......................................43 11.7 Survival of Representations, Warranties and Agreements..........43 11.8 Marshalling; Payments Set Aside.................................43 11.9 Severability....................................................43 11.10 Foreign Pledge Agreements.......................................43 11.11 Headings........................................................44 11.12 APPLICABLE LAW..................................................44 11.13 CONSENT TO JURISDICTION.........................................44 11.14 WAIVER OF JURY TRIAL............................................44 11.15 Counterparts....................................................45 11.16 Effectiveness...................................................45 11.17 Entire Agreement................................................45 11.18 Joinder.........................................................45 iii SCHEDULES AND EXHIBITS SCHEDULE I - GENERAL INFORMATION SCHEDULE II - LOCATION OF EQUIPMENT, INVENTORY AND COLLATERAL RECORDS SCHEDULE III - INVESTMENT RELATED PROPERTY SCHEDULE IV - MATERIAL CONTRACTS SCHEDULE V - LETTERS OF CREDIT SCHEDULE VI - INTELLECTUAL PROPERTY SCHEDULE VII - COMMERCIAL TORT CLAIMS SCHEDULE VIII - INITIAL ACCOUNTS Exhibit A-1 - FORM OF PATENT SECURITY AGREEMENT Exhibit A-2 - FORM OF TRADEMARK SECURITY AGREEMENT Exhibit B - FORM OF JOINDER SUPPLEMENT Exhibit C - FORM OF SECURITIES ACCOUNT CONTROL AGREEMENT iv This SECURITY AND PLEDGE AGREEMENT, dated as of October 18, 2002, is among Hawk Corporation, a Delaware corporation ("HAWK"), those Subsidiaries of Hawk listed on the signature page hereto and each Person that becomes a Grantor hereunder pursuant to SECTION 11.17 (each such Person, Hawk and the other Subsidiaries of Hawk signatory hereto are collectively referred to herein as the "GRANTORS" and each individually as a "GRANTOR"), and JPMorgan Chase Bank, a New York banking corporation, as the Agent (as hereinafter defined) for the benefit of the Secured Parties (as hereinafter defined). RECITALS: WHEREAS, reference is made to that certain Credit Agreement dated as of the date hereof, among each of the Grantors, the financial institutions from time to time party thereto, as lenders (the "LENDERS"), J.P. Morgan Business Credit Corp., as Advisor, and JPMorgan Chase Bank, as administrative and collateral agent for the Lenders (in such capacities, together with its successors in such capacities, the "AGENT") and as Issuing Bank, PNC Bank, National Association, as documentation agent (in such capacity together with its successors in such capacity, a "DOCUMENTATION AGENT"), and Fleet Capital Corp. as documentation agent (in such capacity, together with its successors in such capacity, a "DOCUMENTATION AGENT"; and together with the other Documentation Agent, the "DOCUMENTATION AGENTS"), (as amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"). WHEREAS, in consideration of the extensions of credit as set forth in the Credit Agreement each Grantor has agreed to secure all obligations under the Credit Agreement and the other Facility Documents as set forth herein. NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, each Grantor and the Agent agree as follows: SECTION 1 DEFINITIONS 1.1 GENERAL DEFINITIONS. Capitalized terms used herein but not otherwise defined shall have the meanings given such terms in the Credit Agreement. In addition, as used herein, the following terms shall have the following meanings: "ACCOUNTS" shall mean (i) all "accounts" as defined in Article 9 of the UCC and (ii) shall include any account receivable or right of any Grantor to payment for goods sold or leased or for services rendered (whether secured or unsecured), regardless of whether classified as an account under the UCC, and all interest, late charges, penalties, collection fees and other sums which shall be due and payable in connection with any Account. "AGENT" shall have the meaning set forth in the recitals. "AGREEMENT" shall mean this Security and Pledge Agreement, as amended, restated, supplemented or otherwise modified from time to time. "AUTHENTICATE" shall mean "authenticate" as defined in Article 9 of the UCC. 1 "BANKRUPTCY CODE" shall mean Title 11 of the United States Code entitled "Bankruptcy," as now and hereafter in effect, or any successor statute. "CASH PROCEEDS" shall mean all proceeds of any Collateral consisting of cash, checks and other near-cash items. "CERTIFICATES OF DEPOSIT" shall have the meaning specified in the UCC. "CHATTEL PAPER" shall mean all "chattel paper" as defined in Article 9 of the UCC, including, without limitation, "electronic chattel paper" or "tangible chattel paper," as each term is defined in the UCC. "COLLATERAL" shall have the meaning set forth in SECTION 2.1 hereof. "COLLATERAL RECORDS" shall mean books, records, ledger cards, files, correspondence, customer lists, blueprints, technical specifications, manuals, computer software, computer printouts, tapes, disks and other electronic storage media and related data processing software and similar items that at any time evidence or contain information relating to any of the Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon. "COLLATERAL SUPPORT" shall mean all property (real or personal) assigned, hypothecated or otherwise securing any Collateral and shall include any security agreement or other agreement granting a lien or security interest in such real or personal property. "COMMERCIAL TORT CLAIMS" shall mean all "commercial tort claims" as defined in the UCC, including, without limitation, all commercial tort claims listed and described with specification on SCHEDULE VII hereto (as such schedule may be amended or supplemented from time to time). "COMMODITIES ACCOUNTS" (i) shall mean all "commodity accounts" as defined in Article 9 of the UCC and (ii) shall include, without limitation, all of the accounts listed on SCHEDULE III hereto under the heading "Commodities Accounts" (as such schedule may be amended or supplemented from time to time). "COPYRIGHT LICENSES" shall mean any and all agreements granting any right in, to or under Copyrights (whether the applicable Grantor is licensee or licensor thereunder) including, without limitation, each agreement referred to in SCHEDULE VI (as such schedule may be amended or supplemented from time to time). "COPYRIGHTS" shall mean all United States and foreign copyrights, including but not limited to copyrights in software and databases, and Mask Works (as defined under 17 U.S.C. 901 of the U.S. Copyright Act), whether registered or unregistered, and, with respect to any and all of the foregoing: (i) all registrations and applications therefor including, without limitation, the registrations and applications referred to in SCHEDULE VI (as such schedule may be amended or supplemented from time to time), (ii) all extensions and renewals thereof, (iii) all rights corresponding thereto throughout the world, (iv) all rights to sue for past, present and future infringements thereof, (v) all licenses, claims, damages, and proceeds of suit arising 2 therefrom, and (vi) all payments and rights to payments arising out of the sale, lease, license, assignment, or other disposition thereof. "CREDIT AGREEMENT" shall have the meaning set forth in the recitals. "DEPOSIT ACCOUNTS" (i) shall mean all "deposit accounts" as defined in Article 9 of the UCC and (ii) shall include, without limitation, all of the accounts listed on SCHEDULE III hereto under the heading "Deposit Accounts" (as such schedule may be amended or supplemented from time to time). "DOCUMENTATION AGENT" shall have the meaning set forth in the recitals. "DOCUMENTS" shall mean all "documents" as defined in Article 9 of the UCC. "DOCUMENTS EVIDENCING GOODS" shall mean all Documents evidencing, representing or issued in connection with Goods. "DOMESTIC SUBSIDIARY" means any Subsidiary other than a Foreign Subsidiary. "EQUIPMENT" shall mean: (i) all "equipment" as defined in the UCC, (ii) all machinery, manufacturing equipment, data processing equipment, computers, office equipment, furnishings, furniture, appliances, and tools (in each case, regardless of whether characterized as equipment under the UCC), (iii) all Fixtures, and (iv) all accessions or additions thereto, all parts thereof, whether or not at any time of determination incorporated or installed therein or attached thereto, and all replacements therefor, wherever located, now or hereafter existing. "FIXTURES" shall mean all "fixtures" as defined in Article 9 of the UCC other than heating, ventilation and cooling systems, alarms and other security or alert devices or systems, fire sprinklers and other fire retarding devices or systems, and lighting fixtures. "FOREIGN PLEDGE AGREEMENT" shall mean any supplemental pledge agreement governed by the laws of the jurisdiction other than the United States or a State thereof executed and delivered by a Grantor pursuant to the terms of this Agreement, in form and substance reasonably satisfactory to the Agent, as may be necessary or desirable under the laws of organization or incorporation of a Subsidiary of the Grantor to further protect or perfect the Lien on and security interest in any Collateral. "GENERAL INTANGIBLES" (i) shall mean all "general intangibles" as defined in Article 9 of the UCC and (ii) shall include, without limitation, all interest rate or currency protection or hedging arrangements, all tax refunds and all licenses, permits, concessions, franchises and authorizations, contracts (including leases of real and personal property, vendor or customer contracts and all franchise, distribution, design, consulting, construction engineering, management and advertising and related agreements) and all websites and, in each case, regardless of whether characterized as general intangibles under the UCC. "GOODS" (i) shall mean all "goods" as defined in Article 9 of the UCC and (ii) shall include, without limitation, all Inventory, Equipment, Documents Evidencing Goods, and Software Embedded In Goods. 3 "GRANTOR" shall have the meaning set forth in the preamble. "GUARANTORS" shall mean, collectively, those Subsidiaries that are or hereafter become, a party to the Credit Agreement as a "Guarantor." "INDEMNITEE" shall mean the Agent and its Affiliates and each of their officers, partners, directors, trustees, employees, and agents. "INITIAL ACCOUNTS" shall have the meaning set forth in SECTION 4.3(d)(i). "INSTRUMENTS" shall mean all "instruments" as defined in Article 9 of the UCC. "INSURANCE" shall mean: (i) all insurance policies covering any or all of the Collateral (regardless of whether the Agent is the loss payee thereof) and (ii) any key man life insurance policies. "INTELLECTUAL PROPERTY" shall mean, collectively, the Copyrights, Patents, Trademarks, Trade Secrets, and Intellectual Property Licenses and the entire goodwill of any Grantor or other general intangible connected with the use of or symbolized by any of the foregoing. "INTELLECTUAL PROPERTY LICENSES" shall mean, collectively, the Copyright Licenses, Patent Licenses, Trademark Licenses, and Trade Secret Licenses. "INVENTORY" shall mean: (i) all "inventory" as defined in the UCC, (ii) all goods held for sale or lease or to be furnished under contracts of service or so leased or furnished, (iii) all raw materials, work in process, finished goods, supplies, merchandise and materials used or consumed in the manufacture, packing, shipping, advertising, selling, leasing, furnishing or production of such inventory or otherwise used or consumed in any Grantor's business, (iv) all goods in which any Grantor has an interest in mass or a joint or other interest or right of any kind, and (v) all goods which are returned to or repossessed by any Grantor, and in each case, all accessions thereto and products thereof (regardless of whether characterized as inventory under the UCC). "INVESTMENT ACCOUNTS" shall mean the Collateral Account, Securities Accounts, Commodities Accounts, and Deposit Accounts. "INVESTMENT RELATED PROPERTY" shall mean: (a) all "investment property" (as such term is defined in Article 9 of the UCC) and (b) all of the following (regardless of whether classified as investment property under the UCC): (i) Pledged Equity Interests, (ii) Pledged Debt, (iii) Investment Accounts, and (iv) Certificates of Deposit. "JOINDER SUPPLEMENT" shall have the meaning set forth in SECTION 11.17. "LENDERS" shall have the meaning set forth in the recitals. "LETTER OF CREDIT RIGHT" shall mean "letter-of-credit right" as defined in the UCC. 4 "MATERIAL ACCOUNT DEBTOR" shall mean each Person who is obligated on any one or more Receivables or any Supporting Obligation related thereto in excess of $1,000,000 in the aggregate. "MATERIAL CONTRACT" shall mean (i) each contract listed on SCHEDULE IV hereto, (ii) each supply contract and customer contract that is material to the business, operations or condition of the Grantors taken as a whole, (iii) each labor contract and (iv) any other contract or other arrangement to which any Grantor is a party which is material to the business, operations or condition, financial or otherwise, of the Grantors taken as a whole. "MONEY" shall mean "money" as defined in the UCC. "NON-ASSIGNABLE CONTRACT" shall mean any Material Contract to which any Grantor is a party that by its terms purports to restrict or prevent or penalize the assignment or granting of a security interest therein (either by its terms or by any federal or state statutory prohibition or otherwise irrespective of whether such prohibition or restriction is enforceable under Sections 9-406 through 409 of the UCC). "NON-PAYMENT CONTRACT" shall mean any contract or agreement to which any Grantor is a party other than any contract where the account debtor's principal obligation is a monetary obligation; PROVIDED, HOWEVER that Non-payment Contracts shall not include any Receivables. "PATENT LICENSES" shall mean all agreements granting any right in, to, or under Patents (whether the applicable Grantor is licensee or licensor thereunder) including without limitation, each agreement referred to in SCHEDULE VI hereto (as such schedule may be amended or supplemented from time to time). "PATENT SECURITY AGREEMENT" shall mean an agreement in the form set forth in EXHIBIT A-1. "PATENTS" shall mean all United States, state and foreign patents and certificates of invention, or similar industrial property rights, including, but not limited to, each patent referred to in SCHEDULE VI hereto (as such schedule may be amended or supplemented from time to time), and with respect to any and all of the foregoing, (i) all applications therefor including, without limitation, the patent applications referred to in SCHEDULE VI hereto (as such schedule may be amended or supplemented from time to time), (ii) all reissues, divisions, continuations, continuations-in-part, extensions, renewals, and reexaminations thereof, (iii) all rights corresponding thereto throughout the world, (iv) all inventions and improvements described therein, (v) all rights to sue for past, present and future infringements thereof, (vi) all licenses, claims, damages, and proceeds of suit arising therefrom, and (vii) all payments and rights to payments arising out of the sale, lease, license, assignment, or other disposition thereof. "PAYMENT INTANGIBLE" shall have the meaning specified in the UCC. "PLEDGED ALTERNATIVE EQUITY INTERESTS" shall mean all participation or other interests in any equity or profits of any business entity and the certificates, if any, representing such interests, all dividends, distributions, cash, warrants, rights, options, instruments, securities 5 and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such interests, and any other warrant, right or option to acquire any of the foregoing; PROVIDED, HOWEVER, that Pledged Alternative Equity Interests shall not include any Pledged Stock, Pledged Partnership Interests, Pledged LLC Interests and Pledged Trust Interests. "PLEDGED DEBT" shall mean all indebtedness for borrowed money owed to any Grantor, whether or not evidenced by any instrument or promissory note, including, without limitation, all indebtedness described on SCHEDULE III hereto under the heading "Pledged Debt" (as such schedule may be amended or supplemented from time to time), all monetary obligations owing to any Grantor from any other Grantor, the instruments evidencing any of the foregoing, and all interest, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing. "PLEDGED EQUITY INTERESTS" shall mean all Pledged Stock, Pledged LLC Interests, Pledged Partnership Interests, Pledged Trust Interests and Pledged Alternative Equity Interests. "PLEDGED LLC INTERESTS" shall mean all interests in any limited liability company owned by any Grantor including, without limitation, all limited liability company interests listed on SCHEDULE III hereto under the heading "Pledged LLC Interests" (as such schedule may be amended or supplemented from time to time) and the certificates, if any, representing such limited liability company interests and any interest of such Grantor on the books and records of such limited liability company or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such limited liability company interests and any other warrant, right or option to acquire any of the foregoing. "PLEDGED PARTNERSHIP INTERESTS" shall mean all interests in any general partnership, limited partnership, limited liability partnership or other partnership owned by any Grantor including, without limitation, all partnership interests listed on SCHEDULE III hereto under the heading "Pledged Partnership Interests" (as such schedule may be amended or supplemented from time to time) and the certificates, if any, representing such partnership interests and any interest of such Grantor on the books and records of such partnership or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such partnership interests and any other warrant, right or option to acquire any of the foregoing. "PLEDGED STOCK" shall mean all shares of capital stock owned by any Grantor, including, without limitation, all shares of capital stock described on SCHEDULE III hereto under the heading "Pledged Stock" (as such schedule may be amended or supplemented from time to time), and the certificates, if any, representing such shares and any interest of such Grantor in the entries on the books of the issuer of such shares or on the books of any securities intermediary pertaining to such shares, and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or 6 otherwise distributed in respect of or in exchange for any or all of such shares and any other warrant, right or option to acquire any of the foregoing; provided, however, that the pledged stock shall not include (a) more than 66% in the aggregate of the combined voting power of all classes of capital stock or similar equity interest of any Foreign Subsidiary of Hawk and (b) any capital stock of Hawk held as treasury shares. "PLEDGED TRUST INTERESTS" shall mean all interests in a Delaware business trust or other trust owned by any Grantor including, without limitation, all trust interests listed on SCHEDULE III hereto under the heading "Pledged Trust Interests" (as such schedule may be amended or supplemented from time to time) and the certificates, if any, representing such trust interests and any interest of such Grantor on the books and records of such trust or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such trust interests and any other warrant, right or option to acquire any of the foregoing. "PROCEEDS" shall mean: (i) all "proceeds" as defined in Article 9 of the UCC, (ii) all payments or distributions made with respect to any Investment Related Property, and (iii) whatever is receivable or received when Collateral or proceeds are sold, leased, licensed, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary. "RECEIVABLES" shall mean all (i) Accounts, (ii) Chattel Paper, (iii) Payment Intangibles, (iv) Instruments, and (v) to the extent not otherwise covered above, all other rights to payment, whether or not earned by performance, for goods or other property sold, leased, licensed, assigned or otherwise disposed of, or services rendered or to be rendered, regardless of how classified under the UCC together with all of each Grantor's rights, if any, in any goods or other property giving rise to such right to payment and all Collateral Support and Supporting Obligations related thereto and all Receivables Records; PROVIDED, HOWEVER, that Receivables shall not include any Investment Related Property. "RECEIVABLES RECORDS" shall mean (i) all original copies of all documents, instruments or other writings or electronic records or other Records evidencing the Receivables, (ii) all books, correspondence, credit or other files, Records, ledger sheets or cards, invoices, and other papers relating to Receivables, including, without limitation, all tapes, cards, computer tapes, computer discs, computer runs, record keeping systems and other papers and documents relating to the Receivables, whether in the possession or under the control of any Grantor or any computer bureau or agent from time to time acting for any Grantor or otherwise, (iii) all evidences of the filing of financing statements and the registration of other instruments in connection therewith, and amendments, supplements or other modifications thereto, notices to other creditors or agents thereof, and certificates, acknowledgments, or other writings, including, without limitation, lien search reports, from filing or other registration officers, (iv) all credit information, reports and memoranda relating thereto, and (v) all other written or non-written forms of information related in any way to the foregoing or any Receivable. "RECORD" shall have the meaning specified in the UCC. 7 "REPRESENTATION DATE" shall mean each of (i) the date hereof and (ii) each day on which a borrowing is made. "SECURED OBLIGATIONS" shall mean (i) all Obligations of every nature of each Grantor from time to time owed to the Agent or any Secured Party hereunder or under any Facility Document, and (ii) all other obligations of every nature of each Grantor from time to time owed to any Affiliate of the Agent. "SECURED PARTY" shall mean each of the Lenders, the Agent, each Affiliate of the Agent, the beneficiaries of each indemnification obligation undertaken by the Grantors under any of the Facility Documents, and the successors and assigns of each of the foregoing. "SECURITIES" shall mean any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "SECURITIES ACCOUNTS" (i) shall mean all "securities accounts" as defined in Article 8 of the UCC and (ii) shall include, without limitation, all of the accounts listed on SCHEDULE III hereto under the heading "Securities Accounts" (as such schedule may be amended or supplemented from time to time). "SOFTWARE EMBEDDED IN GOODS" means, with respect to any Goods, any computer program embedded in Goods and any supporting information provided in connection with a transaction relating to the program if (i) the program is associated with the Goods in such a manner that it customarily is considered part of the Goods or (ii) by becoming the owner of the Goods a person acquires a right to use the program in connection with the Goods. "STATE" shall mean a State of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States. "SUPPORTING OBLIGATION" shall mean all "supporting obligations" as defined in the UCC. "TAX CODE" shall mean the United States Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, and any successor statute. "TRADE SECRET LICENSES" shall mean any and all agreements granting any right in, to, or under Trade Secrets (whether such Grantor is licensee or licensor thereunder) including, without limitation, each agreement referred to in SCHEDULE VI hereto (as such schedule may be amended or supplemented from time to time). "TRADE SECRETS" shall mean all trade secrets and all other confidential or proprietary information and know-how (including, without limitation, customer lists, inventions, 8 procedures, methods and formulae), whether or not reduced to a writing or other tangible form, including, without limitation, with respect to any and all of the foregoing: (i) all documents and things embodying, incorporating, or referring in any way thereto, (ii) all rights to sue for past, present and future infringement thereof, (iii) all licenses, claims, damages, and proceeds of suit arising therefrom, and (iv) all payments and rights to payments arising out of the sale, lease, license, assignment, or other dispositions thereof. "TRADEMARK LICENSES" shall mean any and all agreements granting any right in, to, or under Trademarks (whether a Grantor is licensee or licensor thereunder) including, without limitation, each agreement referred to in SCHEDULE VI hereto (as such schedule may be amended or supplemented from time to time). "TRADEMARK SECURITY AGREEMENT" shall mean an agreement in the form set forth in EXHIBIT A-2. "TRADEMARKS" shall mean all United States, state and foreign trademarks, service marks, certification marks, collective marks, trade names, corporate names, d/b/as, business names, fictitious business names, internet domain names, trade styles, logos, other source or business identifiers, designs and general intangibles of a like nature, rights of publicity and privacy pertaining to the names, likeness, signature and biographical data of natural persons, and, with respect to any and all of the foregoing: (i) all registrations and applications therefor including, but not limited to, the registrations and applications referred to in SCHEDULE VI hereto (as such schedule may be amended or supplemented from time to time) but excluding intent to use applications unless and until statements of use or amendments to allege use are filed with respect to such applications, (ii) the goodwill of the business symbolized thereby, (iii) all rights corresponding thereto throughout the world, (iv) all rights to sue for past, present and future infringement or dilution thereof or for any injury to goodwill, (v) all licenses, claims, damages, and proceeds of suit arising therefrom, and (vi) all payments and rights to payments arising out of the sale, lease, license assignment or other disposition thereof. "UCC" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York. 1.2 DEFINITIONS; INTERPRETATION. All capitalized terms used herein (including the preamble and recitals hereto) and not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement or, if not defined therein, in the UCC. References to "Sections," "Annexes" and "Schedules" shall be to Sections, Annexes and Schedules, as the case may be, of this Agreement unless otherwise specifically provided. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. The use herein of the word "include" or "including", when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such 9 general statement, term or matter. If any conflict or inconsistency exists between this Agreement and the Credit Agreement, the Credit Agreement shall govern. All references herein to provisions of the UCC shall include all successor provisions under any subsequent version or amendment to any Article of the UCC. SECTION 2 GRANT OF SECURITY 2.1 GRANT OF SECURITY. Each Grantor hereby grants to the Agent a security interest and continuing lien on all of such Grantor's right, title and interest in, to and under all personal property of such Grantor including, but not limited to, the following, in each case whether now owned or existing or hereafter acquired or arising and wherever located (all of which being hereinafter collectively referred to as the "COLLATERAL"): (i) Documents; (ii) Goods (including Documents Representing Goods and Software Embedded in Goods); (iii) Insurance; (iv) Intellectual Property; (v) Investment Related Property; (vi) Letter of Credit Rights; (vii) Money; (viii) Non-payment Contracts; (ix) Receivables and Receivables Records; (x) Commercial Tort Claims; (xi) to the extent not otherwise included above, all General Intangibles, motor vehicles, rolling stock and other personal property of any kind and all Collateral Records, Collateral Support and Supporting Obligations relating to any of the foregoing; and (xii) to the extent not otherwise included above, all Proceeds, products, accessions, rents and profits of or in respect of any of the foregoing. 2.2 CERTAIN LIMITED EXCLUSIONS. Notwithstanding anything herein to the contrary, in no event shall the security interest granted under SECTION 2.1 hereof attach to (a) any lease, license, contract, property rights or agreement to which any Grantor is a party or any of its rights or interests thereunder if and for so long as the grant of such security interest shall constitute or result in (i) the abandonment, invalidation or unenforceability of any right, title or interest of any Grantor therein or (ii) in a breach or termination pursuant to the terms of, or a 10 default under, any such lease, license, contract, property rights or agreement (other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code or principles of equity), PROVIDED, HOWEVER, that such security interest shall attach immediately at such time as the condition causing such abandonment, invalidation or unenforceability shall be remedied and, to the extent severable, shall attach immediately upon the execution hereof to any portion of such lease, license, contract, property rights or agreement that does not result in any of the consequences specified in (i) or (ii); or (b) in any of the outstanding capital stock of a Foreign Subsidiary in excess of 66% of the voting power of all classes of capital stock of such Foreign Subsidiary entitled to vote; PROVIDED, that immediately upon the amendment of the Tax Code to allow the pledge of a greater percentage of the voting power of capital stock in a Foreign Subsidiary without adverse tax consequences, the Collateral shall include, and the security interest granted by each Grantor shall attach to, such greater percentage of capital stock of each Foreign Subsidiary. SECTION 3 SECURITY FOR OBLIGATIONS. 3.1 SECURITY FOR OBLIGATIONS. This Agreement secures, and the Collateral is collateral security for, the prompt and complete payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. sec.362(a) (and any successor provision thereof)), of all Secured Obligations. 3.2 CONTINUING LIABILITY UNDER COLLATERAL. Notwithstanding anything herein to the contrary, (i) each Grantor shall remain liable for all obligations under the Collateral and nothing contained herein is intended as or shall be a delegation of duties to the Agent or any Secured Party, (ii) each Grantor shall remain liable under each of the agreements included in the Collateral, including, without limitation, any agreements relating to Pledged Partnership Interests or Pledged LLC Interests, to perform all of the obligations undertaken by it thereunder all in accordance with and pursuant to the terms and provisions thereof and neither the Agent nor any Secured Party shall have any obligation or liability under any of such agreements by reason of or arising out of this Agreement or any other document related thereto nor shall the Agent nor any Secured Party have any obligation to make any inquiry as to the nature or sufficiency of any payment received by it or have any obligation to take any action to collect or enforce any rights under any agreement included in the Collateral, including, without limitation, any agreements relating to Pledged Partnership Interests or Pledged LLC Interests, and (iii) the exercise by the Agent of any of its rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral. SECTION 4 REPRESENTATIONS AND WARRANTIES AND COVENANTS. 4.1 Generally. (a) REPRESENTATIONS AND WARRANTIES. Each Grantor hereby represents and warrants, on each Representation Date, that: 11 (i) it owns the Collateral purported to be owned by it or otherwise has the rights it purports to have in each item of Collateral and, as to all Collateral whether now existing or hereafter acquired, will continue to own or have such rights in each item of the Collateral, in each case free and clear of any and all Liens, rights or claims of all other Persons other than Permitted Liens, including, without limitation, liens arising as a result of such Grantor becoming bound (as a result of merger or otherwise) as debtor under a security agreement entered into by another Person; (ii) it has been duly organized as a corporation, limited liability company or limited partnership, as the case may be, solely under the laws of the jurisdiction identified on SCHEDULE IA hereto opposite its name, as the case may be, and remains duly existing as such, and such Grantor has not filed any certificates of domestication, transfer or continuance in any other jurisdiction; (iii) the execution and delivery of this Agreement by such Grantor and the performance by it of its obligations under this Agreement are within its corporate or other powers and have been duly authorized by all necessary corporate or other action; (iv) upon (A) the timely filing of all UCC financing statements naming such Grantor as "debtor" and the Agent as "secured party" and describing the Collateral in the filing offices set forth opposite such Grantor's name on SCHEDULE I(D) hereof (as such schedule may be amended or supplemented from time to time), (B) the execution and delivery of the Controlled Account Agreements by the Grantors party thereto, and (C) the recording of the Patent Security Agreement and Trademark Security Agreement in the forms set forth in EXHIBIT A-1 and EXHIBIT A-2 in the U.S. Patent and Trademark Office within three (3) months of the date hereof against the U.S. issued Patents and Trademarks included in the Collateral, the security interests granted to the Agent hereunder constitute valid and perfected Liens, which Liens other than in the case of Fixtures are first priority Liens (subject in all cases only to Permitted Liens); (v) other than the financing statements filed in favor of the Agent and financing statements for which such Grantor has delivered proper UCC termination statements to the Agent, no effective UCC financing statement, fixture filing or other instrument similar in effect under any applicable law covering all or any part of the Collateral is on file in any filing or recording office except for financing statements filed in connection with Permitted Liens; (vi) no authorization, approval or other action by, and no notice to or filing with, any Governmental Authority or regulatory body is required for either (y) the pledge or grant by any Grantor of the Liens purported to be created in favor of the Agent hereunder or (z) the exercise by Agent of any rights or remedies in respect of any Collateral (whether specifically granted or created hereunder or created or provided for by applicable law), except (A) for the filings contemplated by clause (iv) above and (B) as may be required, in connection with the disposition of any Investment Related Property, by laws generally affecting the offering and sale of Securities and as may be required under federal laws pertaining to Intellectual Property; 12 (vii) all actions and consents, including all filings, notices, registrations and recordings necessary or desirable for the exercise by the Agent of the voting or other rights provided for in this Agreement or the exercise of remedies in respect of the Collateral have been made or obtained; (viii) it has indicated on SCHEDULE I(A) hereto (as such schedule may be amended or supplemented from time to time): (w) the type of organization of such Grantor, (x) the jurisdiction of organization of such Grantor, (y) its organizational identification number and (z) the jurisdiction where the chief executive office or its sole place of business is (or, if such Grantor is a natural person, principal residence and principal place of business), and for the one-year period preceding the date hereof has been, located; (ix) the full legal name of such Grantor is as set forth on SCHEDULE I(A) and it has not done in the last five (5) years, and does not do, business under any other name (including any trade-name or fictitious business name) except for those names set forth on SCHEDULE I(B) (as such schedule may be amended or supplemented from time to time); (x) except as provided on SCHEDULE I(C), it has not changed its name, jurisdiction of organization, chief executive office or sole place of business (or, if such Grantor is a natural person, principal residence or principal place of business) or its corporate structure in any way (e.g. by merger, consolidation, change in corporate form or otherwise) within the past five (5) years; (xi) such Grantor has not within the last five (5) years become bound (whether as a result of merger or otherwise) as debtor under a security agreement entered into by another Person other than any such security agreement which has heretofore been terminated or which creates a Permitted Lien; (xii) all information supplied by such Grantor with respect to any of the Collateral (in each case taken as a whole with respect to any particular Collateral) is accurate and complete in all material respects; (xiii) none of the Collateral constitutes, or is the Proceeds of, "farm products" (as defined in the UCC); and (xiv) all Collateral Records are and will be kept at one or more of the addresses identified on SCHEDULE II hereto. (b) COVENANTS AND AGREEMENTS. Each Grantor hereby covenants and agrees that: (i) except for the security interest created by this Agreement, it shall not create or suffer to exist any Lien upon or with respect to any of the Collateral, except Permitted Liens, and it shall defend the Collateral against all Persons at any time claiming any interest therein; 13 (ii) it shall not produce, use or permit any Collateral to be used unlawfully or in violation of any provision of this Agreement or any applicable statute, regulation or ordinance or any policy of insurance covering the Collateral; (iii) it shall not change its name, identity, corporate structure (e.g. by merger, consolidation, change in corporate form or otherwise), sole place of business (or principal residence if such Grantor is a natural person), chief executive office, type of organization or jurisdiction of organization or establish any trade names unless it shall have (a) notified the Agent in writing, at least thirty (30) days prior to any such change or establishment, identifying such new proposed name, identity, corporate structure, sole place of business (or principal residence if such Grantor is a natural person), chief executive office, jurisdiction of organization or trade name and providing such other information in connection therewith as the Agent may reasonably request and (b) taken all actions necessary or advisable to maintain the continuous validity, perfection and the same or better priority of the Agent's security interest in the Collateral granted or intended to be granted and agreed to hereby; (iv) it shall pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Collateral, except to the extent the validity thereof is being contested in good faith by appropriate proceedings and for which adequate reserves have been set aside on such Grantor's books in accordance with GAAP; PROVIDED, such Grantor shall in any event pay such taxes, assessments, charges, levies or claims not later than five (5) days prior to the date of any proposed sale under any judgment, writ or warrant of attachment entered or filed against such Grantor or any of the Collateral as a result of the failure to make such payment; (v) upon such Grantor or any officer of such Grantor obtaining knowledge thereof, it shall promptly notify the Agent in writing of any event that may materially and adversely affect the value of the Collateral or any material portion thereof, the ability of such Grantor or the Agent to dispose of the Collateral or any material portion thereof, or the rights and remedies of the Agent in relation thereto, including, without limitation, the levy of any legal process against the Collateral or any material portion thereof; (vi) except as expressly permitted by the Credit Agreement, it shall not take or permit any action which could impair the Agent's rights in the Collateral; (vii) except as expressly permitted by the Credit Agreement, it shall not sell, transfer or assign (by operation of law or otherwise) any Collateral; and (viii) such Grantor will take, and will cause each of its Subsidiaries to take, all action or actions as may be necessary to prevent any of the Collateral from becoming fixtures. 4.2 Equipment and Inventory. 14 (a) REPRESENTATIONS AND WARRANTIES. Each Grantor represents and warrants, on each Representation Date, that: (i) all of the Equipment and Inventory included in the Collateral is currently kept, and since June 14, 2002, has been kept, only at the locations specified in SCHEDULE II hereto (as such schedule may be amended or supplemented from time to time); (ii) any Inventory previously or hereafter produced by such Grantor included in the Collateral was and will be produced in material compliance with the requirements of the Fair Labor Standards Act, as amended; and (iii) no Inventory or Equipment with a value in excess of $750,000 in the aggregate is in the possession of one or more issuers of negotiable documents (as defined in Section 7-104 of the UCC) therefor or otherwise in the possession or control of any one or more third parties, including, without limitation, any warehouseman, bailee or agent. (b) COVENANTS AND AGREEMENTS. Each Grantor covenants and agrees that: (i) it shall keep the Equipment and Inventory in the locations specified on SCHEDULE II hereto (as such schedule may be amended or supplemented from time to time) unless it shall have (a) notified the Agent in writing, at least thirty (30) days prior to any change in locations, identifying such new locations and to the extent required by the Credit Agreement providing Landlord's Waivers and Consents with respect to such new location and such other information in connection therewith as the Agent may reasonably request and (b) taken all actions necessary or advisable to maintain the continuous validity, perfection and the same or better priority of the Agent's security interest in the Collateral intended to be granted and agreed to hereby, or to enable the Agent to exercise and enforce its rights and remedies hereunder, with respect to such Equipment and Inventory; (ii) it shall keep correct and accurate records of the Inventory, itemizing and describing the kind, type and quantity of Inventory, such Grantor's cost therefor and (where applicable) the current list prices for the Inventory, in each case, in reasonable detail; (iii) except as may be required by any applicable law, it shall not deliver any Document Evidencing Goods to any Person other than (x) the issuer of such Document to claim the Goods evidenced therefor or (y) the Agent; (iv) if any Equipment or Inventory is in possession or control of any one or more third parties, including, without limitation, any warehouseman, bailee or agent, such Grantor shall join with the Agent in notifying such third parties of the Agent's security interest and using its best efforts to obtain an Authenticated acknowledgment from such third parties that it is holding the Equipment and Inventory for the benefit of the Agent and will act upon the instructions of the Agent without further consent from any Grantor or any other Person; PROVIDED, HOWEVER, that this 15 SECTION 4.2(b)(iv) shall not be applicable with respect to Equipment and Inventory in possession or control of any one third party with a value of less than $100,000 at any time; and (v) with respect to any item of Equipment which is covered by a certificate of title under a statute of any jurisdiction under the law of which indication of a security interest on such certificate is required as a condition of perfection thereof, upon the request of the Agent, (A) provide information with respect to any such Equipment, (B) execute and file with the registrar of motor vehicles or other appropriate authority in such jurisdiction an application or other document requesting the notation or other indication of the security interest created hereunder on such certificate of title, and (C) deliver to the Agent copies of all such applications or other documents filed and copies of all such certificates of title issued indicating the security interest created hereunder and the items of Equipment covered thereby. 4.3 Receivables. (a) REPRESENTATIONS AND WARRANTIES. Each Grantor represents and warrants, on each Representation Date, that: (i) each Receivable (a) is and will be the legal, valid and binding obligation of the Account Debtor in respect thereof, representing an unsatisfied obligation of such Account Debtor, (b) is and will be enforceable in accordance with its terms, except to the extent that enforceability may be subject to limitations imposed by general principles of equity or applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally, (c) is not and will not be subject to any setoffs, defenses, taxes, counterclaims (except for discounts required by contract or agreement made in the ordinary course of business, corrections of billing errors in the ordinary course of business and discounts, credits and allowances expressly permitted by SECTION 4.3(b)(v)) and (d) is and will be in compliance with all applicable laws, whether federal, state, local or foreign; (ii) none of the Account Debtors in respect of any Receivable that is included in the Borrowing Base calculation set forth on any Borrowing Base Certificate is the government of the United States, any agency or instrumentality thereof, any state or municipality, or any foreign sovereign. No Receivable requires the consent of the Account Debtor in respect thereof in connection with the pledge hereunder, except any consent which has been obtained; and (iii) with respect to Accounts: (A) each existing Account represents, and each future Account shall represent, a bona fide sale or lease and delivery of goods or rendition of services by such Grantor in the ordinary course of business; (B) each existing Account is, and each future Account shall be, at the time any such Account arose and at the time any such Account is billed, for a liquidated amount payable by the Account Debtor thereon on the terms set forth in the invoice therefor, without offset, deduction, defense, or counterclaim, other than discounts required by contract or agreement made in the ordinary course of business (including to resolve warranty claims), corrections of 16 billing errors in the ordinary course of business, and modifications, discounts, credits and allowances expressly permitted by SECTION 4.3(b)(v); (C) each copy of an invoice or claim form delivered to the Agent by such Grantor shall be a genuine copy of the original invoice or claim form sent to the Account Debtor named therein; (D) all goods described in any invoice or claim form representing a sale of goods shall have been delivered to the Account Debtor in the ordinary course of business and all services of such Grantor described in any invoice or claim form shall have been performed in the ordinary course of business; and (E) no direction of any Grantor or any other Person is in effect directing any Account Debtor to make payments in respect of the Accounts other than to a Lock Box or a Controlled Account. (b) COVENANTS AND AGREEMENTS. Each Grantor hereby covenants and agrees that: (i) it shall keep and maintain at its own cost and expense satisfactory and complete records of the Receivables, including, but not limited to, the originals of all documentation with respect to all Receivables and records of all payments received and all credits granted on the Receivables, all merchandise returned and all other dealings therewith; (ii) it shall perform in all material respects all of its obligations with respect to the Receivables; (iii) it shall not (w) grant any extension or renewal of the time of payment of any Receivable, (x) other than as expressly permitted by SECTION 4.3(b)(v) release, wholly or partially, any Person liable for the payment of any Receivable, (y) other than as expressly permitted by SECTION 4.3(b)(v), compromise or settle any dispute, claim or legal proceeding with respect to any Receivable for less than the total unpaid balance thereof, or (z) other than as expressly permitted by SECTION 4.3(b)(v), allow any credit or discount on any Receivable; (iv) it shall mark conspicuously, in form and manner reasonably satisfactory to the Agent, all Chattel Paper, Instruments and other evidence of Receivables (other than any delivered to the Agent as provided herein), as well as the Receivables Records with an appropriate reference to the fact that the Agent has a security interest therein; (v) with respect to Accounts: (A) it shall not re-date any invoice, claim form or sale relating to any Account; (B) if it becomes aware of any matter that is reasonably likely to materially adversely affect any Material Account Debtor's ability to pay on a timely basis its Accounts, such Grantor shall promptly so advise the Agent; (C) it shall not accept any note, warrant or other instrument (except a check or other instrument for the immediate payment of money) with respect to any Account with an outstanding principal balance in excess of two hundred thousand dollars ($200,000) without the written consent of the Agent (it being understood that if the Agent consents to the acceptance of any such note, warrant or other instrument, it shall be considered as evidence of the Account and not payment thereof, and such Grantor shall promptly 17 deliver such note, warrant or instrument to the Agent appropriately endorsed and regardless of the form of presentment, demand, notice of dishonor, protest, and notice of protest with respect thereto, the Grantor to the extent it receives payment thereon shall remain liable thereon until such note, warrant or instrument is paid in full); (D) it shall notify the Agent promptly of all disputes and claims (other than as to discounts required by contract or agreement made in the ordinary course of business, corrections of billing errors in the ordinary course of business and price increases requested or required in the ordinary course of business) with any Material Account Debtor; (E) it shall not grant any discount, credit or allowance with respect to any Account to any Account Debtor without the consent of the Agent, except for modifications, extensions, discounts, credits and allowances: (i) required by contract or agreement made in the ordinary course of business (including to resolve warranty claims) and corrections of billing errors in the ordinary course of business; (ii) outside the ordinary course of business but in accordance with reasonable business practices and involving aggregate concessions not in excess of five hundred thousand dollars ($500,000) in any fiscal year or (iii) outside the ordinary course of business but in accordance with reasonable business practices which are acceptable to the Agent; (F) if an Account Debtor returns any inventory to such Grantor when no Event of Default exists, then such Grantor shall promptly determine the reason for such return and shall issue a credit memorandum to the Account Debtor in the appropriate amount; PROVIDED that such Grantor shall promptly report to the Agent in the event that the aggregate amount of such returns exceed one hundred thousand dollars ($100,000) during any year with respect to any single Account Debtor (which report shall indicate the reasons for the returns and the locations and condition of the returned inventory); and (G) if an Account Debtor returns any inventory to such Grantor when an Event of Default exists and such inventory is returned in a condition that makes it unfit for resale in the ordinary course of business, such Grantor shall: (i) hold such returned inventory in trust for the Agent; (ii) segregate all such returned inventory from all of its other property; (iii) dispose of such returned inventory solely according to the written instructions of the Agent; and (iv) not issue any credits or allowances with respect thereto without the prior written consent of the Required Lenders. All returned inventory shall remain subject to the Agent's security interest. Whenever any inventory is returned for which an Account had been created, such Account shall be credited to the extent of such returned Inventory, with the credit reported in the Weekly Collateral Certificate; and (vi) it shall use its best efforts to keep in full force and effect any Supporting Obligation or Collateral Support relating to any Receivable. (c) DELIVERY AND CONTROL OF RECEIVABLES. With respect to any Receivable in excess of two hundred thousand dollars ($200,000) that is evidenced by, or constitutes, tangible Chattel Paper or Instruments, each Grantor shall, at the request of the Agent, cause each originally executed copy thereof to be delivered to the Agent (or its agent or designee) appropriately endorsed to the Agent or endorsed in blank: (i) with respect to any such Receivables in existence on the date hereof, on or prior to the date hereof and (ii) with respect to any such Receivables hereafter arising, within ten (10) days of such Grantor acquiring rights therein. With respect to any Receivable in excess of two hundred thousand dollars ($200,000) which would constitute "electronic chattel paper" under the UCC, each Grantor shall, at the request of the Agent, take all steps necessary to give the Agent control over such Receivables 18 (within the meaning of Section 9-105 of the UCC): (i) with respect to any such Receivables in existence on the date hereof, on or prior to the date hereof and (ii) with respect to any such Receivables hereafter arising, within ten (10) days of such Grantor acquiring rights therein. Any Receivable not otherwise required to be delivered or subjected to the control of the Agent in accordance with this subsection (c) shall be delivered or subjected to such control upon the request of the Agent. (d) Collection of Accounts. (i) On or as soon as practicable after the Closing Date, each Grantor shall (A) direct all of its Account Debtors to make all payments on Accounts directly to one (1) or more Lock Boxes or Controlled Accounts, (B) establish Controlled Accounts with the Agent or such other financial institutions as shall be acceptable to the Agent, into which all payments received in the Lock Boxes shall be deposited, and into which the Grantors will promptly deposit all payments made for inventory or services sold or rendered by the Grantors and received by the Grantors in the identical form in which such payments were made, whether by cash or check; and (C) cause each other Domestic Subsidiary and Affiliate, and any other Person acting for or in concert with the Grantors or their Domestic Subsidiaries that receives any monies, checks, notes, drafts or other payments relating to or as proceeds of Accounts or other Collateral, to promptly remit the same (or cause the same to be remitted) in hand to the Controlled Accounts. (ii) The Grantors agree to pay all reasonable fees, costs and expenses which the Grantors and their Subsidiaries incur in connection with opening and maintaining any Lock Box and Controlled Account. All of such fees, costs and expenses which remain unpaid pursuant to any Lock Box or Controlled Account Agreement, to the extent same shall have been paid by the Agent hereunder, shall constitute Obligations under the Credit Agreement, shall be payable to the Agent by the Grantors upon demand, and, until paid, shall bear interest at the highest rate then applicable to Base Rate Loans. All checks, drafts, instruments and other items of payment or proceeds of Collateral delivered to the Agent in kind shall be endorsed by the Grantors and their Domestic Subsidiaries, to the Agent, and, if that endorsement of any such item shall not be made for any reason, the Agent is hereby irrevocably authorized to endorse the same on behalf of the Grantors and their Domestic Subsidiaries, notwithstanding the inclusion on any such item of restrictive notations such as "paid in full," "balance of account," or other restrictions. (iii) Without limiting SECTION 6.1, for the purpose of this SECTION 4.3(d), and effective so long as this Agreement shall remain in force and effect, each of the Grantors, on behalf of itself and its Domestic Subsidiaries, irrevocably hereby makes, constitutes and appoints the Agent (and all Persons designated by the Agent for that purpose) as such Grantor's or such Subsidiary's true and lawful attorney and agent-in-fact (A) to endorse the name of such Grantor or its Domestic Subsidiary upon said items of payment and/or proceeds of Collateral of the Grantors and upon any Chattel Paper, Document, Instrument, invoice or similar document or agreement relating to any account receivable of the Grantors and their Domestic Subsidiaries or goods pertaining thereto; (B) to take control in any manner of any item of payment or proceeds thereof; (C) to have 19 access to any Lock Box or postal box into which any checks or other forms of payment in respect of accounts receivable of the Grantors and their Domestic Subsidiaries are remitted; and (D) to open all mail containing checks and other forms of payment in respect of accounts receivable of the Grantors and their Domestic Subsidiaries and process such checks and other forms of payment. (iv) The Agent (and all Persons designated by the Agent for such purpose) may, at any time and from time to time after the occurrence and during the continuance of an Event of Default, whether before or after notification to any Account Debtor and whether before or after the maturity of any of the Secured Obligations, (A) enforce collection of any accounts receivable or contract rights of the Grantors and their Domestic Subsidiaries by suit or otherwise; (B) exercise all of the rights and remedies of the Grantors and their Domestic Subsidiaries with respect to proceedings brought to collect any accounts receivable; (C) surrender, release or exchange all or any part of any accounts receivable of the Grantors and their Domestic Subsidiaries, or compromise or extend or renew for any period (whether or not longer than the original period) any indebtedness thereunder; (D) sell or assign any account receivable of the Grantors and their Domestic Subsidiaries upon such terms, for such amount and at such time or times as the Agent deems advisable; (E) prepare, file and sign the names of the Grantors and their Domestic Subsidiaries on any proof of claim in bankruptcy or other similar document against any account debtor indebted on an account receivable of the Grantors and their Domestic Subsidiaries; and (F) do all other acts and things which are necessary, in the Agent's sole discretion, to fulfill the Secured Obligations and to allow the Agent to collect the accounts receivable. In addition to any other provision hereof or in any of the other Facility Documents, the Agent may at any time on or after the occurrence of an Event of Default, at the sole expense of the Grantors and their Domestic Subsidiaries, notify any parties obligated on any of the accounts receivable of the Grantors and their Domestic Subsidiaries to make payment directly to the Agent of any amounts due or to become due thereunder. (v) In the event that any Account Debtor remits any payments directly to such Grantor rather than to a Lock Box or a Controlled Account, such Grantor shall immediately take all steps, if any, necessary or advisable to ensure the validity, perfection, priority and, if applicable, control of the Agent over such payments (including, without limitation, delivery thereof to the Agent) and pending any such action such Grantor shall be deemed to hold such payments in trust for the benefit of the Agent and such payments shall be segregated from all other property of such Grantor. 4.4 Investment Related Property. 4.4.1 PLEDGED EQUITY INTERESTS. (a) REPRESENTATIONS AND WARRANTIES. Each Grantor hereby represents and warrants, on each Representation Date, that: (i) SCHEDULE III hereto (as such schedule may be amended or supplemented from time to time) sets forth under the headings "Pledged Stock," "Pledged 20 LLC Interests," "Pledged Partnership Interests" and "Pledged Trust Interests," respectively, all of the Pledged Stock, Pledged LLC Interests, Pledged Partnership Interests and Pledged Trust Interests owned by such Grantor and such Pledged Equity Interests constitute the percentage of issued and outstanding shares of stock, percentage of membership interests, percentage of partnership interests or percentage of beneficial interest of the respective issuers thereof indicated on such Schedule; (ii) it is the record and beneficial owner of the Pledged Equity Interests free of all Liens, rights or claims of other Persons other than Permitted Liens and there are no outstanding warrants, options or other rights to purchase, or shareholder, voting trust or similar agreements outstanding with respect to, or property that is convertible into, or that requires the issuance or sale of, any Pledged Equity Interests; (iii) without limiting the generality of SECTION 4.1(a)(vi), no consent of any Person including any other general or limited partner, any other member of a limited liability company, any other shareholder or any other trust beneficiary is necessary or desirable in connection with the creation, perfection or first priority status of the security interest of the Agent in any Pledged Equity Interests or the exercise by the Agent of the voting or other rights provided for in this Agreement or the exercise of remedies in respect thereof; (iv) none of the Pledged LLC Interests or the Pledged Partnership Interests are or represent interests in issuers that: (a) are registered as investment companies, (b) are dealt in or traded on securities exchanges or markets, or (c) have opted to be treated as securities under the uniform commercial code of any jurisdiction; (b) COVENANTS AND AGREEMENTS. Each Grantor hereby covenants and agrees that: (i) without the prior written consent of the Agent, it shall not vote to enable or take any other action to: (a) other than as permitted under the Credit Agreement, amend or terminate any partnership agreement, limited liability company agreement, certificate of incorporation, by-laws or other organizational documents in any way that materially changes the rights of such Grantor with respect to any Investment Related Property or adversely affects the validity, perfection or priority of the Agent's security interest, (b) other than as permitted under the Credit Agreement, permit any issuer of any Pledged Equity Interest to issue any additional stock, partnership interests, limited liability company interests or other equity interests of any nature or to issue securities convertible into or granting the right of purchase or exchange for any stock or other equity interest of any nature of such issuer, (c) other than as permitted under the Credit Agreement, permit any issuer of any Pledged Equity Interest to dispose of all or a material portion of its assets, (d) waive any default under or breach of any terms of any organizational document relating to the issuer of any Pledged Equity Interest or the terms of any Pledged Debt, or (e) cause any issuer of any Pledged Partnership Interests or Pledged LLC Interests which are not securities (for purposes of the UCC) on the date hereof to elect or otherwise take any action to cause such Pledged Partnership Interests or Pledged LLC Interests to be treated as securities for purposes of the UCC; 21 (ii) it shall comply with all of its obligations under any partnership agreement or limited liability company agreement relating to Pledged Partnership Interests or Pledged LLC Interests and shall enforce all of its rights with respect to any Investment Related Property; (iii) without the prior written consent of the Agent, it shall not permit any issuer of any Pledged Equity Interest to merge or consolidate unless such merger or consolidation is permitted by the Credit Agreement and (A) such issuer creates a security interest in favor of the Agent that is perfected by a filed financing statement (that is not effective solely under section 9-508 of the UCC) in collateral in which such new debtor has or acquires rights, and (B) all the outstanding capital stock or other equity interests of the surviving or resulting corporation, limited liability company, partnership or other entity is, upon such merger or consolidation, pledged hereunder and no cash, securities or other property is distributed in respect of the outstanding equity interests of any other constituent Grantors; PROVIDED, that if the surviving or resulting corporation upon any such merger or consolidation constitutes an issuer which is a Foreign Subsidiary, then such Grantor shall only be required to pledge equity interests in accordance with SECTION 2.2; and (iv) each Grantor consents to the grant by each other Grantor of a security interest in all Investment Related Property to the Agent and, without limiting the foregoing, consents to the transfer of any Pledged Partnership Interest and any Pledged LLC Interest to the Agent or its nominee following an Event of Default and to the substitution of the Agent or its nominee as a partner in any partnership or as a member in any limited liability company with all the rights and powers related thereto. 4.4.2 PLEDGED DEBT. (a) REPRESENTATIONS AND WARRANTIES. Each Grantor hereby represents and warrants, on each Representation Date, that SCHEDULE III hereto (as such schedule may be amended or supplemented from time to time) sets forth under the heading "Pledged Debt" all of the Pledged Debt owned by such Grantor and all of such Pledged Debt (i) to the knowledge of such Grantor, (x) has been duly authorized, authenticated or issued and delivered and (y) is the legal, valid and binding obligation of the issuers thereof, (ii) is not in default and (iii) constitutes all of the issued and outstanding inter-company indebtedness evidenced by an instrument or certificated security of the respective issuers thereof owing to such Grantor. (b) COVENANTS AND AGREEMENTS. Each Grantor hereby covenants and agrees that it shall notify the Agent of any default under any Pledged Debt that has caused, either in any case or in the aggregate, a Material Adverse Effect. 4.4.3 INVESTMENT ACCOUNTS. (a) REPRESENTATIONS AND WARRANTIES. Each Grantor hereby represents and warrants, on each Representation Date, that: (i) SCHEDULE III hereto (as such schedule may be amended or supplemented from time to time) sets forth under the headings "Securities Accounts" and 22 "Commodities Accounts," respectively, all of the Securities Accounts and Commodities Accounts in which such Grantor has an interest. Such Grantor is the sole entitlement holder of each such Securities Account and Commodities Account, and such Grantor has not consented to, and is not otherwise aware of, any Person (other than the Agent pursuant hereto) having "control" (within the meanings of Sections 8-106 and 9-106 of the UCC) over, or any other interest in, any such Securities Account or Commodity Account or any securities or other property credited thereto; (ii) SCHEDULE III hereto (as such schedule may be amended or supplemented from time to time) sets forth under the heading "Deposit Accounts" all of the Deposit Accounts in which such Grantor has an interest and such Grantor is the sole account holder of each such Deposit Account and such Grantor has not consented to, and is not otherwise aware of, any Person (other than the Agent pursuant hereto) having either sole dominion and control (within the meaning of common law) or "control" (within the meaning of Section 9-104 of the UCC) over, or any other interest in, any such Deposit Account or any money or other property deposited therein; and (iii) each Grantor has taken all actions necessary or desirable, including those specified in SECTIONS 4.4.3(b) and 4.4.4(b), to: (a) establish the Agent's "control" (within the meanings of Sections 8-106 and 9-106 of the UCC) over any portion of the Investment Related Property constituting Certificated Securities, uncertificated Securities, Securities Accounts, Securities entitlements or Commodity Accounts (each as defined in the UCC); (b) establish the Agent's "control" (within the meaning of Section 9-104 of the UCC) over all Deposit Accounts; and (c) deliver all Instruments to the Agent. (b) Delivery and Control. (i) Each Grantor agrees that with respect to any Investment Related Property owned by such Grantor consisting of Securities Accounts or Securities entitlements, it shall cause the securities intermediary maintaining such Securities Account or Securities entitlement to enter into an agreement substantially in the form of EXHIBIT C hereto pursuant to which it shall agree to comply with the Agent's "entitlement orders" without further consent by such Grantor. Each Grantor also agrees that with respect to any Investment Related Property owned by such Grantor that is a Deposit Account, it shall cause the depositary institution maintaining such account to enter into a Controlled Account Agreement, pursuant to which the Agent shall have both sole dominion and control over such Deposit Account (within the meaning of the common law) and "control" (within the meaning of Section 9-104 of the UCC) over such Deposit Account. Each Grantor shall have entered into such control agreement or agreements with respect to: (i) any Securities Accounts, Securities entitlements or Deposit Accounts that exist on the Representation Date, as of or prior to the Representation Date and any Securities Accounts, Securities entitlements or Deposit Accounts that are created or acquired after the Representation Date, as of or prior to the deposit or transfer of any such Securities entitlements or funds, whether constituting moneys or investments, into such Securities Accounts or Deposit Accounts. 23 4.4.4 INVESTMENT RELATED PROPERTY GENERALLY. (a) COVENANTS AND AGREEMENTS. Each Grantor hereby covenants and agrees that: (i) in the event it acquires rights in any Investment Related Property after the date hereof, it shall immediately notify the Agent thereof and deliver to the Agent supplements to Schedules hereto identifying such new Investment Related Property and all other Investment Related Property. Notwithstanding the foregoing, it is understood and agreed that the security interest of the Agent shall attach to all Investment Related Property immediately upon any Grantor's acquisition of rights therein and shall not be affected by the failure of any Grantor to deliver a supplement to SCHEDULE III as required hereby; (ii) in the event such Grantor receives any dividends, interest or distributions on any Investment Related Property, or any securities or other property upon the merger, consolidation, liquidation or dissolution of any issuer of any Investment Related Property, then (a) such dividends, interest or distributions and securities or other property shall be included in the definition of Collateral without further action and (b) such Grantor shall immediately take all steps, if any, necessary or advisable to ensure the validity, perfection, priority and, if applicable, control of the Agent over such Investment Related Property (including, without limitation, delivery thereof to the Agent) and pending any such action such Grantor shall be deemed to hold such dividends, interest, distributions, securities or other property in trust for the benefit of the Agent and shall be segregated from all other property of such Grantor; and (iii) if any issuer of any Investment Related Property is located in a jurisdiction outside of the United States, such Grantor shall, upon the request of the Agent, take such additional actions, including, without limitation, causing the issuer to register the pledge on its books and records or making such filings or recordings, in each case as may be necessary or advisable, under the laws of such issuer's jurisdiction to insure the validity, perfection and priority of the security interest of the Agent. Upon the occurrence of an Event of Default and during the continuance thereof, the Agent shall have the right, without notice to any Grantor, to transfer all or any portion of the Investment Related Property to its name or the name of its nominee or agent. In addition, the Agent shall have the right at any time, without notice to any Grantor, to exchange any certificates or instruments representing any Investment Related Property for certificates or instruments of smaller or larger denominations. (b) DELIVERY AND CONTROL. (i) Each Grantor agrees that with respect to any Investment Related Property in which it currently has rights it shall comply with the provisions of this SECTION 4.4.4(b) on or before the Representation Date and with respect to any Investment Related Property hereafter acquired by such Grantor it shall comply with the provisions of this SECTION 4.4.4(b) immediately upon acquiring rights therein, in each case in form and substance satisfactory to the Agent. Each Grantor agrees that with respect to any 24 Investment Related Property that is represented by a certificate or that is an "instrument" (other than any Investment Related Property credited to a Securities Account) it shall cause such certificate or instrument to be delivered to the Agent, endorsed in blank by an "effective endorsement" (as defined in Section 8-107 of the UCC), regardless of whether such certificate constitutes a "certificated security" for purposes of the UCC. With respect to any Investment Related Property that is an "uncertificated security" for purposes of the UCC (other than any "uncertificated securities" credited to a Securities Account), it shall cause the issuer of such uncertificated security to either (i) register the Agent as the registered owner thereof on the books and records of the issuer or (ii) execute an agreement in form and substance satisfactory to the Agent, pursuant to which such issuer agrees to comply with the Agent's instructions with respect to such uncertificated security without further consent by such Grantor. (c) Voting and Distributions. (i) So long as no Event of Default shall have occurred and be continuing: (A) except as otherwise provided under the covenants and agreements relating to Investment Related Property in this Agreement or elsewhere herein or in the Credit Agreement, each Grantor shall be entitled to exercise or refrain from exercising any and all voting and other consensual rights pertaining to the Investment Related Property or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement; and (B) the Agent shall promptly execute and deliver (or cause to be executed and delivered) to each Grantor all proxies, and other instruments as such Grantor may from time to time reasonably request for the purpose of enabling such Grantor to exercise the voting and other consensual rights when, and to the extent which, it is entitled to exercise pursuant to clause (A) above; (ii) Upon the occurrence and during the continuation of an Event of Default: (A) all rights of each Grantor to exercise or refrain from exercising the voting and other consensual rights which it would otherwise be entitled to exercise pursuant hereto shall cease and all such rights shall thereupon become vested in the Agent who shall thereupon have the sole right to exercise such voting and other consensual rights; and (B) in order to permit the Agent to exercise the voting and other consensual rights which it may be entitled to exercise pursuant hereto and to receive all dividends and other distributions which it may be entitled to receive hereunder: (1) each Grantor shall promptly execute and deliver (or cause to be executed and delivered) to the Agent all proxies, 25 dividend payment orders and other instruments as the Agent may from time to time reasonably request and (2) each Grantor acknowledges that the Agent may utilize the power of attorney set forth in SECTION 6. 4.5 Material Contracts. (a) REPRESENTATIONS AND WARRANTIES. Each Grantor hereby represents and warrants, on each Representation Date, that: (i) SCHEDULE IV hereto (as such schedule may be amended or supplemented from time to time) sets forth all of the Material Contracts to which such Grantor has rights; (ii) the Material Contracts, true and complete copies (including any amendments or supplements thereof) of which have been furnished to the Agent, have been duly authorized, executed and delivered by all parties thereto, are in full force and effect and are binding upon and enforceable against all parties thereto in accordance with their respective terms. There exists no default under any Material Contract by such Grantor or, to the knowledge of such Grantor, any other party thereto and neither such Grantor, nor to its knowledge, any other Person party thereto is likely to become in default thereunder in a manner which is reasonably likely to result in a Material Adverse Effect and no Person party thereto has any defenses, counterclaims or right of set-off with respect to any Material Contract. If an Event of Default occurs and is continuing, and at the request of the Agent, each Grantor shall cause each Person party to a Material Contract (other than any Grantor) to execute and deliver to the applicable Grantor a consent to the assignment of such Material Contract to the Agent pursuant to this Agreement; and (iii) other than as indicated on SCHEDULE IV hereto, no Material Contract prohibits assignment or requires consent of or notice to any Person in connection with the assignment to the Agent hereunder, except such as has been given or made. (b) COVENANTS AND AGREEMENTS. Each Grantor hereby covenants and agrees that: (i) in addition, after the occurrence and during the continuance of an Event of Default, the Agent may upon written notice to the applicable Grantor, notify, or require any Grantor to notify, the counterparty that such counterparty is to make all payments under the Material Contracts directly to the Agent; (ii) after the occurrence and during the continuance of an Event of Default, each Grantor shall deliver promptly to the Agent a copy of each material demand, notice or document received by it relating to any Material Contract; (iii) each Grantor shall deliver promptly to the Agent, and in any event within ten (10) Banking Days, after any Material Contract of such Grantor is terminated or amended in a manner that is materially adverse to such Grantor; 26 (iv) it shall perform in all material respects all of its obligations with respect to the Material Contracts; (v) it shall use its best efforts to keep in full force and effect any Supporting Obligation or Collateral Support relating to any Material Contract; and (vi) if an Event of Default has occurred and is continuing, and at the request of the Agent, with respect to any Non-Assignable Contract, each Grantor shall, unless the relevant restrictions on transfer are overridden by Section 9-406 of the UCC, within thirty (30) days of the date hereof with respect to any Non-Assignable Contract in effect on the date hereof and within thirty (30) days after entering into any Non-Assignable Contract after the Closing Date, request in writing the consent of the counterparty or counterparties to the Non-Assignable Contract pursuant to the terms of such Non-Assignable Contract or applicable law to the assignment or granting of a security interest in such Non-Assignable Contract to Agent and use its best efforts to obtain such consent as soon as practicable thereafter. 4.6 Letter of Credit Rights. (a) REPRESENTATIONS AND WARRANTIES. Each Grantor hereby represents and warrants, on each Representation Date, that: (i) all letters of credit to which such Grantor has rights are listed on SCHEDULE V (as such schedule may be amended or supplemented from time to time); and (ii) it has obtained the consent of each issuer of any letter of credit to the assignment of the proceeds of the letter of credit to the Agent (provided that unless an Event of Default has occurred and is continuing, no such consent of the issuer of a Letter of Credit need be obtained with respect to any letter of Credit in an amount of less than $200,000 except upon the request of the Agent). (b) COVENANTS AND AGREEMENTS. Each Grantor hereby covenants and agrees that with respect to any letter of credit hereafter arising it shall use its best efforts to obtain the consent of the issuer thereof to the assignment of the proceeds of the letter of credit to the Agent and shall immediately notify the Agent thereof and deliver to the Agent supplements to Schedules hereto. 4.7 Intellectual Property. (a) REPRESENTATIONS AND WARRANTIES. Except as disclosed on SCHEDULE VI (as such schedule may be amended or supplemented from time to time), each Grantor hereby represents and warrants, on each Representation Date, that: (i) SCHEDULE VI (as such schedule may be amended or supplemented from time to time) sets forth a true and complete list of (A) all United States, state and foreign registrations of and applications for Patents, Trademarks, and Copyrights owned by each Grantor, (B) all registrations for internet domain names owned by each Grantor, and (C) all Patent Licenses, Trademark Licenses, Copyright Licenses, and Trade Secret 27 Licenses (y) granting rights to any third party to use any Intellectual Property owned by or licensed to any Grantor or (z) granting rights to any Grantor to use Intellectual Property owned by a third party and that is material to the business of such Grantor; (ii) it is listed in the records of the applicable United States, state or foreign office or agency as the sole owner of record for each of its issued Patents and registrations and applications for other Intellectual Property included in the Collateral; (iii) it is the sole and exclusive owner of the entire right, title, and interest in and to all Intellectual Property on SCHEDULE VI (as such schedule may be amended or supplemented from time to time), and owns or has the valid right to use all other Intellectual Property used in or necessary to conduct its business free and clear of all Liens, claims, encumbrances and material licenses, granted by such Grantor, except for Permitted Liens and the Intellectual Property Licenses set forth on SCHEDULE VI (as such schedule may be amended or supplemented from time to time); (iv) all Intellectual Property owned by such Grantor and, to the best of such Grantor's knowledge, licensed to such Grantor: (A) is subsisting, (B) to the best of such Grantor's knowledge is valid and enforceable, except to the extent that enforceability may be subject to limitations imposed by general principles of equity or applicable bankruptcy, insolvency and other similar laws affecting creditors' rights generally, and (C) has not been adjudged invalid or unenforceable, in whole or in part, and such Grantor has performed all acts and has paid all renewal, maintenance, and other fees and taxes required to maintain each item of Intellectual Property set forth on SCHEDULE VI in full force and effect; (v) no action or proceeding before any court or administrative authority is pending or, to the best of Grantor's knowledge, threatened against such Grantor challenging the validity of any Intellectual Property, or such Grantor's rights to register, own, use, or license any Intellectual Property; (vi) such Grantor has been in accordance with reasonable business practice using statutory notices of registration in connection with its use of registered Trademarks, proper marking practices in connection with the use of Patents, and appropriate notices of copyright in connection with the publication of Copyright material to the business of such Grantor to the extent; (vii) such Grantor uses adequate and consistent standards of quality in the manufacture, distribution, and sale of all products and services sold under or in connection with each Trademark owned by such Grantor and has taken all action necessary in accordance with reasonable business practice to insure that licensees of each such Trademark use such adequate and consistent standards of quality; (viii) to the knowledge of such Grantor, the conduct of its business does not infringe upon any trademark, patent, copyright, trade secret or similar intellectual property right owned or controlled by a third party; and no claim has been made, is pending, or to the best of such Grantor's knowledge, is threatened, that the conduct of 28 such Grantor's business or the use of any Intellectual Property owned or used by Grantor violates the asserted rights of any third party; (ix) no third party is, to the best of such Grantor's knowledge, infringing upon any Intellectual Property owned or used by such Grantor and no claims of infringement have been asserted by such Grantor that remain unresolved; (x) no settlements or consents, covenants not to sue, nonassertion assurances, or releases have been entered into by such Grantor, or to which such Grantor is bound, that adversely effect such Grantor's rights to own or use any Intellectual Property; (xi) such Grantor has not entered into any contracts to assign, sell, transfer, or grant an option to assign, sell or transfer any Intellectual Property, that has not been terminated or released; (xii) such Grantor is not a party to any contract pursuant to which it has obtained the exclusive rights to use any third party's Copyrights, except as set forth on SCHEDULE VI, and no license of Intellectual Property to which such Grantor is a party is reasonably likely to be construed as an assignment of such licensed Intellectual Property to such Grantor; and (xiii) there is no effective financing statement or other document or instrument now executed, or on file or recorded in any public office, granting a security interest in or otherwise encumbering any part of the Intellectual Property, other than in favor of the Agent or for which such Grantor has delivered proper termination statements to the Agent. (b) COVENANTS AND AGREEMENTS. Each Grantor hereby covenants and agrees as follows: (i) except for Intellectual Property that is not in use and has no material value as determined by such Grantor in its reasonable business judgment, such Grantor shall not do any act or omit to do any act whereby any of the Intellectual Property included in the Collateral may lapse, or become abandoned, dedicated to the public, or unenforceable; (ii) except for Copyrights of no material value, such Grantor shall, within thirty (30) days of the creation or acquisition of any Copyrightable work, apply to register the Copyright in the United States Copyright Office and such Grantor shall record its interest in any exclusive license of a Copyright to such Grantor in the U.S. Copyright Office within thirty (30) days of the execution of such license; (iii) such Grantor shall promptly notify the Agent if it knows or has reason to know that any item of Intellectual Property included in the Collateral that is in use or has more than negligible value may become (A) abandoned or dedicated to the public or placed in the public domain, (B) invalid or unenforceable, or (C) subject to any adverse determination or development (including the institution of proceedings) in any 29 action or proceeding in the United States Patent and Trademark Office, the United States Copyright Office, any state registry, any foreign counterpart of the foregoing, or any court arbitral tribunal or regulatory agency, and such event could be reasonably expected to have a Material Adverse Effect; (iv) such Grantor shall take all reasonable steps in the United States Patent and Trademark Office, the United States Copyright Office, any state registry or any foreign counterpart of the foregoing, including the payment of applicable fees, to pursue any application for, and maintain any issued Patent and registration of, each Trademark, Patent, and Copyright owned by such Grantor that is now or shall become included in the Collateral including, but not limited to, those items on SCHEDULE VI (as such schedule may be amended or supplemented from time to time) except for those items of Intellectual Property that are no longer in use or have no material value; (v) in the event that any Intellectual Property owned by or exclusively licensed to such Grantor is infringed, misappropriated, diluted or otherwise violated by a third party, such Grantor shall promptly take all actions deemed advisable in its reasonable business judgment to stop such infringement, misappropriation, dilution or other violation and to protect its exclusive rights in such Intellectual Property including, but not limited to, the initiation of a suit for injunctive relief and to recover damages; (vi) such Grantor shall maintain the quality of products and services sold under any Trademark owned by such Grantor at a level that is at least substantially consistent to that prevailing as of the date hereof, and such Grantor shall take all steps necessary in accordance with reasonable business practice to insure that licensees of such Trademarks observe the standards of quality contained in their related license agreements; (vii) such Grantor shall take all steps reasonably necessary to protect the secrecy of all material Trade Secrets; (viii) such Grantor shall promptly (but in any event within thirty (30) days) report to the Agent any and all of the following: (i) the filing by such Grantor or on its behalf of any application to register any Intellectual Property owned by such Grantor in whole or in part, with the United States Patent and Trademark Office, the United States Copyright Office, any state registry or foreign counterpart of the foregoing, (ii) the registration of any Intellectual Property owned by such Grantor in whole or in part by any such office, (iii) the acquisition by such Grantor of any issued Patent, or application or registration of any other Intellectual Property, or (iv) the existence of any contract granting an Intellectual Property license which is in the nature of a contract described in SECTION 4.7(a)(xii), and, in each case, such Grantor shall immediately notify the Agent thereof and deliver to the Agent supplements to Schedules hereto and signed counterparts of a Patent Security Agreement and a Trademark Security Agreement suitable for recording a security interest in the applicable type of Intellectual Property, together with all supplements to the schedules thereto; 30 (ix) except with the prior consent of the Agent or as permitted under the Credit Agreement, such Grantor shall not execute, and there will not be on file in any public office, any financing statement or other document or instrument, except financing statements or other documents or instruments filed or to be filed in favor of the Agent and such Grantor shall not sell, assign, transfer, license, grant any option with respect to, or create any Lien upon, any Intellectual Property, except for Permitted Liens and the Liens created by and under this Security and Pledge Agreement and the other Facility Documents; (x) it shall use commercially reasonable efforts to avoid the inclusion in any Patent License, Copyright License, Trademark License, Trade Secret License or any other Contract regarding Intellectual Property to which it hereafter becomes a party, of provisions that would impair or prevent the creation of a security interest in, or the assignment of, such Grantor's rights and interests under such Contract or in, any Intellectual Property acquired under such Contracts; (xi) it shall use statutory notices of registration in connection with its use of any registered Trademarks, proper marking practices in connection with the use of Patents, if any, and appropriate notices of copyright in connection with the publication of material Copyrighted works; and (xii) it shall continue to collect, at its own expense, all amounts due or to become due to such Grantor in respect of any Intellectual Property. In connection with such collections, such Grantor may take (and, at the Agent's reasonable direction, shall take) such action as such Grantor or the Agent may deem reasonably necessary or advisable to enforce collection of such amounts. Notwithstanding the foregoing, the Agent shall have the right at any time, to notify, or require any Grantor to notify, any obligors with respect to any such amounts of the existence of the security interest created hereby. 4.8 Commercial Tort Claims. (a) REPRESENTATIONS AND WARRANTIES. Each Grantor hereby represents and warrants, on each Representation Date, that SCHEDULE VII (as such schedule may be amended or supplemented from time to time) sets forth all Commercial Tort Claims of such Grantor in excess of $100,000 individually or $250,000 in the aggregate; and (b) COVENANTS AND AGREEMENTS. Each Grantor hereby covenants and agrees that with respect to any Commercial Tort Claim in excess of $100,000 individually or $250,000 in the aggregate hereafter arising it shall immediately notify the Agent thereof and deliver to the Agent supplements to Schedules hereto identifying such new Commercial Tort Claim. 4.9 CASH PROCEEDS. In addition to the rights of the Agent specified in the Section of this Agreement relating to Receivables with respect to payments of Receivables, Cash Proceeds shall be held by each Grantor in trust for the Agent, segregated from other funds of such Grantor, and shall, forthwith upon receipt by such Grantor, be turned over to the Agent in 31 the exact form received by such Grantor (duly endorsed by such Grantor to the Agent, if required). SECTION 5 ACCESS; RIGHT OF INSPECTION AND FURTHER ASSURANCES. 5.1 ACCESS; RIGHT OF INSPECTION. The Agent shall at all times have full and free access during regular business hours and upon reasonable prior notice to the president or principal financial officer of a Grantor (except that no such prior notice shall be required after the occurrence and during the continuance of any Default or Event of Default) to all the books, correspondence and records of each Grantor, and the Agent and its representatives may examine the same, take extracts therefrom and make photocopies thereof, and each Grantor agrees to render to the Agent, at such Grantor's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. The Agent and its representatives shall at all times also have the right to enter any premises of each Grantor during regular business hours and upon reasonable prior notice (except that no such prior notice shall be required after the occurrence and during the continuance of any Default or Event of Default) and inspect any property of each Grantor where any of the Collateral of such Grantor granted pursuant to this Agreement is located for the purpose of inspecting the same, observing its use or otherwise protecting its interests therein. 5.2 Further Assurances. (a) Each Grantor agrees that from time to time, at the expense of such Grantor, it shall promptly Authenticate, execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Agent may reasonably request, in order to create and/or maintain the validity, perfection or priority of and protect any security interest granted or purported to be granted hereby or to enable the Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, each Grantor shall: (i) file such financing or continuation statements, or amendments thereto, and execute and deliver such other agreements, instruments, endorsements, powers of attorney or notices, as may be necessary or desirable, or as the Agent may reasonably request, in order to perfect and preserve the security interests granted or purported to be granted hereby; (ii) take all actions necessary to ensure the recordation of appropriate evidence of the liens and security interest granted hereunder in Intellectual Property with any intellectual property registry in which said Intellectual Property is registered or in which an application for registration is pending including, without limitation, the United States Patent and Trademark Office, the United States Copyright Office, the various Secretaries of State, and the foreign counterparts of any of the foregoing; (iii) at any reasonable time, upon request by the Agent, allow inspection of the Collateral by the Agent, or persons designated by the Agent; at the 32 Agent's request, appear in and defend any action or proceeding that may affect such Grantor's title to or the Agent's security interest in all or any part of the Collateral; (iv) deliver to the Agent warehouse receipts covering any portion of the Collateral located in warehouses and for which warehouse receipts are issued and transfer inventory to warehouses designated by the Agent from time to time; and (v) in the case of the pledge hereunder of any capital stock or equity interest issued by a Foreign Subsidiary, the applicable Grantor will, at the request of the Agent, promptly execute and deliver to the Agent a separate pledge document covering such capital stock or equity interests, conforming to the requirements of the law in which the Foreign Subsidiary is organized and satisfactory to the Agent, together with an opinion of local counsel as in the perfection of the security interest provided for therein. (b) Each Grantor hereby authorizes the Agent to take all steps it deems reasonably necessary to maintain and preserve the Collateral, consistent with each Grantor's obligations to do so hereunder, including, with respect to Intellectual Property included in the Collateral, the making of additional filings, the payment of maintenance fees, and the defense of challenges to such Grantor's title or validity, all at such Grantor's expense. (c) Each Grantor hereby authorizes the filing of any financing statements or continuation statements, and amendments to financing statements, or any similar document in any jurisdictions and with any filing offices as the Agent may determine, in its sole discretion, are necessary or advisable to perfect the security interest granted to the Agent herein. Such financing statements may describe the Collateral in the same manner as described herein or may contain an indication or description of collateral that describes such property in any other manner as the Agent may determine, in its sole discretion, is necessary, advisable or prudent to ensure the perfection of the security interest in the Collateral granted to the Agent herein, including, without limitation, describing such property as "all personal property," whether now owned or hereafter acquired. Each Grantor shall furnish to the Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Agent may reasonably request, all in reasonable detail. (d) Each Grantor hereby authorizes the Agent to modify this Agreement after obtaining such Grantor's approval of or signature to such modification by amending SCHEDULE VI hereto (as such schedule may be amended or supplemented from time to time) to include reference to any right, title or interest in any existing Intellectual Property or any Intellectual Property acquired or developed by any Grantor after the execution hereof. SECTION 6 AGENT APPOINTED ATTORNEY-IN-FACT. 6.1 POWER OF ATTORNEY. Each Grantor hereby irrevocably appoints the Agent (such appointment being coupled with an interest) as such Grantor's attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor, the Agent or otherwise, from time to time in the Agent's discretion to take any action and to execute any instrument that the Agent may deem reasonably necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, the following: 33 (a) to prepare, sign, and file for recordation in any Intellectual Property registry, appropriate evidence of the lien and security interest granted herein in the Intellectual Property in the name of such Grantor as assignor or pledgor; (b) to take or cause to be taken all actions necessary to perform or comply or cause performance or compliance with the terms of this Agreement, including, without limitation, access to pay or discharge taxes or Liens (other than Permitted Liens and tax and judgment Liens being disputed in good faith and as to which appropriate reserves have been taken) levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by the Agent in its sole discretion, any such payments made by the Agent to become obligations of such Grantor to the Agent, due and payable immediately without demand; and (c) upon the occurrence and during the continuance of any Event of Default: (i) to obtain and adjust insurance required to be maintained by such Grantor or paid to the Agent pursuant to the Facility Documents; and (ii) to sell, transfer, assign, lease, license, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Agent were the absolute owner thereof for all purposes, and to do, at the Agent's option and such Grantor's expense, at any time or from time-to-time, all acts and things that the Agent deems reasonably necessary to protect, preserve, or realize upon the Collateral and the Agent's security interest therein as fully and effectively as such Grantor might do; (iii) to ask for, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for monies due and to become due under or in respect of any of the Collateral; (iv) to receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with clause (b) above; and (v) to file any claims or take any action or institute any proceedings that the Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Agent with respect to any of the Collateral. The powers conferred on the Agent hereunder are solely to protect its interest in the Collateral and the interests of the Secured Parties and shall not impose any duty upon it to exercise any such powers. Except for the exercise of reasonable care in the custody of any Collateral in its possession and the accounting for monies or other Collateral actually received by it hereunder, the Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. The Agent shall be deemed to have exercised reasonable care in the custody and preservation of Collateral in its possession if such Collateral is accorded treatment substantially equal to that which the Agent accords its own property. Neither the Agent nor any of its directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise 34 dispose of any Collateral upon the request of any Grantor or otherwise. If any Grantor fails to perform any agreement contained herein, the Agent may itself perform, or cause performance of, such agreement, and the expenses of the Agent incurred in connection therewith shall be payable by each Grantor under the Section in this Agreement relating to the payment of expenses (SECTION 11.2 hereof). SECTION 7 REMEDIES. 7.1 Generally. (a) If any Event of Default shall have occurred and be continuing, the Agent may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it at law or in equity, all the rights and remedies of the Agent on default under the UCC (whether or not the UCC applies to the affected Collateral) to collect, enforce or satisfy any Secured Obligations then owing, whether by acceleration or otherwise, and also may pursue any of the following separately, successively or simultaneously: (i) require any Grantor to, and each Grantor hereby agrees that it shall at its expense and promptly upon request of the Agent forthwith, assemble all or part of the Collateral as directed by the Agent and make it available to the Agent at a place to be designated by the Agent that is reasonably convenient to both parties or transfer any information related to the Collateral to the Agent by electronic medium; (ii) enter onto the property where any Collateral is located and take possession thereof with or without judicial process and thereafter hold, store and/or use, operate, manage and control the same; (iii) prior to the disposition of the Collateral, store, process, repair or recondition the Collateral or otherwise prepare the Collateral for disposition in any manner to the extent the Agent deems appropriate; PROVIDED that processed, reconditioned, or repaired products that are sold under any Grantor's Trademarks shall be of at least substantially comparable quality to the same products sold under such Trademarks at the time of the Event of Default, and shall, if applicable, be labeled as "reconditioned," or the like, to the extent required by law; and (iv) without notice, except as specified below or under the UCC, sell, assign, lease, license (on an exclusive or nonexclusive basis, to the extent the Grantor has the lawful right to do so), or otherwise dispose of the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Agent's offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as the Agent may deem commercially reasonable. (b) The Agent or any Secured Party may be the purchaser of any or all of the Collateral at any public or private (to the extent the portion of the Collateral being privately sold is of a kind that is customarily sold on a recognized market or the subject of widely distributed standard price quotations) sale in accordance with the UCC and the Agent, as collateral agent for and representative of the Secured Parties, shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at 35 any such sale made in accordance with the UCC, to use and apply any of the Secured Obligations as a credit on account of the purchase price for any Collateral payable by the Agent at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of any Grantor, and each Grantor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Each Grantor agrees that it would not be commercially unreasonable for the Agent to dispose of the Collateral or any portion thereof by using internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets. Each Grantor hereby waives any claims against the Agent arising by reason of the fact that the price at which any Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if the Agent accepts the first offer received and does not offer such Collateral to more than one offeree. If the proceeds of any sale or other disposition of the Collateral are insufficient to pay all the Secured Obligations, each Grantor shall be liable for the deficiency and the fees of any attorneys employed by the Agent to collect such deficiency. Each Grantor further agrees that a breach of any of the covenants contained in this Section will cause irreparable injury to the Agent, that the Agent has no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Default has occurred giving rise to the Secured Obligations becoming due and payable prior to their stated maturities. Nothing in this Section shall in any way alter the rights of the Agent hereunder. (c) The Agent may sell the Collateral without giving any warranties as to the Collateral. The Agent may specifically disclaim or modify any warranties of title or the like. This procedure will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral. (d) The Agent shall have no obligation to marshall any of the Collateral. 7.2 APPLICATION OF PROCEEDS. Except as expressly provided elsewhere in this Agreement, all proceeds received by the Agent in respect of any sale, any collection from, or other realization upon all or any part of the Collateral shall be applied in full or in part by the Agent against, the Secured Obligations in the following order of priority: FIRST, to the payment of all costs and expenses of such sale, collection or other realization, including reasonable compensation to the Agent and its agents and counsel, and all other expenses, liabilities and advances made or incurred by the Agent in connection therewith, and all amounts for which the Agent is entitled to indemnification hereunder (in its capacity as the Agent) and all advances made by the Agent hereunder for the account of any Grantor, and to the payment of all costs and 36 expenses paid or incurred by the Agent in connection with the exercise of any right or remedy hereunder or under any Facility Document, all in accordance with the terms hereof or thereof; SECOND, to the extent of any excess of such proceeds, to the payment of all other Secured Obligations for the ratable benefit of each Secured Party; and THIRD, to the extent of any excess of such proceeds, to the payment to or upon the order of the Grantors or to whomever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. 7.3 SALES ON CREDIT. If the Agent sells any of the Collateral upon credit, the Grantors will be credited only with payments actually made by the purchaser and received by the Agent and applied to indebtedness of the purchaser. In the event the purchaser fails to pay for the Collateral, the Agent may resell the Collateral and the Grantors shall be credited with proceeds of the sale in accordance with the provisions of this SECTION 7. 7.4 Investment Related Property. (a) Each Grantor recognizes that, by reason of certain prohibitions contained in the Securities Act of 1933 and applicable state securities laws, the Agent may be compelled, with respect to any sale of all or any part of the Investment Related Property conducted without prior registration or qualification of such Investment Related Property under the Securities Act of 1933 and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Investment Related Property for their own account, for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges that any such private sale may be at prices and on terms less favorable than those obtainable through a public sale without such restrictions (including a public offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances, each Grantor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that the Agent shall have no obligation to engage in public sales and no obligation to delay the sale of any Investment Related Property for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act of 1933 or under applicable state securities laws, even if such issuer would, or should, agree to so register it. If the Agent determines to exercise its right to sell any or all of the Investment Related Property, upon written request, each Grantor shall and shall cause each issuer of any Pledged Equity Interests to be sold hereunder to furnish to the Agent all such information as the Agent may request in order to determine the number and nature of interests, shares or other instruments included in the Investment Related Property which may be sold by the Agent in exempt transactions under the Securities Act of 1933 and the rules and regulations of the Securities and Exchange Commission thereunder, as the same are from time to time in effect. (b) Upon the occurrence and during the continuation of an Event of Default, the Agent shall have the right to apply the balance from any Deposit Account or instruct the bank at which any Deposit Account is maintained to pay the balance of any Deposit Account to or for the benefit of the Agent. 7.5 Intellectual Property. (a) Anything contained herein to the contrary notwithstanding, upon the occurrence and during the continuation of an Event of Default: 37 (i) the Agent shall have the right (but not the obligation) to bring suit or otherwise commence any action or proceeding in the name of any Grantor, the Agent or otherwise, in the Agent's sole discretion, to enforce any Intellectual Property which is included in the Collateral, in which event, each Grantor shall, at the request of the Agent, do any and all lawful acts and execute any and all documents required by the Agent in aid of such enforcement and each Grantor shall promptly, upon demand, reimburse and indemnify the Agent as provided in the Section in this Agreement relating to indemnity and expenses (SECTION 10 hereof) in connection with the exercise of its rights under this Section, and, to the extent that the Agent shall elect not to bring suit to enforce any Intellectual Property as provided in this Section, each Grantor agrees to take all reasonable measures, whether by action, suit, proceeding or otherwise, to prevent the infringement of any of the Intellectual Property by others, and for that purpose, agrees to diligently maintain any action, suit or proceeding against any Person so infringing as shall be necessary to prevent such infringement; (ii) upon written demand from the Agent, each Grantor shall assign, convey or otherwise transfer to the Agent, or such Agent's designee, all of such Grantor's right, title and interest in and to the Intellectual Property included in the Collateral, and shall execute and deliver to the Agent such documents as are necessary to effectuate and record such assignment, conveyance, or transfer of, or other evidence of foreclosure upon, such Intellectual Property; (iii) in the event of any assignment, conveyance or other transfer of any of the Trademarks included in the Collateral, the goodwill symbolized by any such Trademarks shall be included in such sale or transfer, and such Grantor shall supply to the Agent or its designee such Grantor's manufacturing, advertising, and distribution know-how, and copies of records embodying such know-how, relating to products and services theretofore sold under such Trademarks; (iv) each Grantor agrees that an assignment, conveyance, or transfer of any Intellectual Property included in the Collateral shall be applied to reduce the Secured Obligations outstanding only to the extent that the Agent receives cash proceeds in respect of such assignment, conveyance, or other transfer of the Intellectual Property; (v) within five (5) Banking Days after written notice from the Agent, each Grantor shall make available to the Agent, to the extent within such Grantor's power and authority, such personnel in such Grantor's employ on the date of such Event of Default as the Agent may reasonably designate, by name, title or job responsibility, to permit such Grantor to continue, directly or indirectly, to produce, advertise, and sell the products and services sold or delivered by such Grantor under Intellectual Property included in the Collateral on the Agent's behalf and to be compensated by the Agent (at such Grantor's expense) in a manner consistent with the salary and benefit structure applicable to each, as of the date of such Event of Default; (vi) the Agent shall have the right to notify, or require each Grantor to notify, any obligors with respect to payments due or to become due to such Grantor in respect of the Intellectual Property, of the existence of the security interest created herein, 38 to direct such obligors to make payment of all such amounts directly to the Agent, and, upon such notification and at the expense of such Grantor, to enforce collection of any such amounts and to adjust, settle or compromise the amount of such payment, to the same extent as such Grantor could have done; (vii) all amounts and proceeds (including checks and other instruments) received by any Grantor in respect of amounts due to such Grantor in respect of the Collateral or any portion thereof shall be received in trust for the benefit of the Agent hereunder, shall be segregated from other funds of such Grantor and shall be forthwith paid over or delivered to the Agent in the same form as so received (with any necessary endorsement); and (viii) the Grantors shall not adjust, settle or compromise the amount or payment of any such amount or release wholly or partly of any obligor with respect thereto or allow any credit or discount thereon. (b) If (i) an Event of Default shall have occurred and, by reason of cure, waiver, modification, amendment or otherwise, no longer be continuing, (ii) no other Event of Default shall have occurred and be continuing, (iii) an assignment or other transfer to the Agent of any rights, title and interests in and to the Intellectual Property shall have been previously made and shall have become absolute and effective, and (iv) the Secured Obligations shall not have become immediately due and payable, upon the written request of any Grantor, the Agent shall promptly execute and deliver to such Grantor, at such Grantor's sole cost and expense, such assignments or other transfers as may be necessary to reassign to such Grantor any such rights, title and interests as may have been assigned to the Agent as aforesaid, subject to any disposition thereof (including a lease or license) that may have been made by the Agent; PROVIDED, that after giving effect to such reassignment, the Agent's security interest granted pursuant hereto, as well as all other rights and remedies of the Agent granted hereunder, shall continue to be in full force and effect; and PROVIDED further, the rights, title and interests so reassigned shall be free and clear of any Liens granted by or on behalf of the Agent and the Lenders. (c) Solely for the purpose of enabling the Agent to exercise its rights and remedies under this SECTION 7, at such time as the Agent shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to the Agent, to the extent it has the lawful right to do so, an irrevocable, non-exclusive worldwide license (exercisable without payment of royalty or other compensation to such Grantor), to use, operate under, license, or sublicense any Intellectual Property now or hereafter owned by or licensed to such Grantor, subject, in the case of Trademarks, to the maintenance of quality standards with respect to the products and services sold under such Trademarks at a level at least substantially comparable to that prevailing at the time of the Event of Default. The foregoing license grant to the Agent is in addition to, and not in limitation of, the Agent's rights under SECTION 7.1 or the Power of Attorney granted under SECTION 6. SECTION 8 AGENT. The Agent has been appointed to act as collateral agent hereunder by each Secured Party either pursuant to the Facility Documents or by their acceptance of the benefits 39 hereof. The Agent shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action (including, without limitation, the release or substitution of Collateral), solely in accordance with this Agreement and the Credit Agreement. Without the written consent of each Secured Party that would be affected thereby, no amendment, modification, termination, or consent shall be effective if the effect thereof would release all or substantially all of the Collateral except as expressly provided herein. In furtherance of the foregoing provisions of this Section, each Secured Party, by its acceptance of the benefits hereof, agrees that it shall have no right individually to realize upon any of the Collateral hereunder, it being understood and agreed by such Secured Party that all rights and remedies hereunder may be exercised solely by the Agent for the benefit of each Secured Party in accordance with the terms of this Section. The Agent may resign or be removed in accordance with SECTION 11.09 of the Credit Agreement. Upon the acceptance of any appointment as administrative agent under the terms of the Credit Agreement by a successor administrative agent, that successor administrative agent shall thereby also be deemed the successor Agent and such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Agent under this Agreement, and the retiring or removed Agent under this Agreement shall promptly (i) transfer to such successor Agent all sums, Securities and other items of Collateral held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Agent under this Agreement, and (ii) execute and deliver to such successor Agent such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Agent of the security interests created hereunder, whereupon such retiring or removed Agent shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Agent's resignation or removal hereunder as the Agent, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was the Agent hereunder. SECTION 9 CONTINUING SECURITY INTEREST; TRANSFER OF SECURED OBLIGATIONS. This Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until the payment in full of all Secured Obligations, the cancellation or termination of the commitments and any other contingent obligation included in the Secured Obligations, be binding upon each Grantor, its successors and assigns, and inure, together with the rights and remedies of the Agent hereunder, to the benefit of the Agent and its successors, transferees and assigns. Without limiting the generality of the foregoing, but subject to the terms of the Facility Documents, including, without limitation, Section 12.05 of the Credit Agreement, each Secured Party may assign or otherwise transfer any Secured Obligations held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to each Secured Party herein or otherwise. Upon the payment in full of all Secured Obligations, the cancellation or termination of the commitments and any other contingent obligation included in the Secured Obligations and the termination of the Credit Agreement, the security interest granted hereby shall terminate hereunder and all rights to the Collateral shall revert and be deemed reassigned to the Grantors. Upon any such termination, the Agent shall, at the Grantors' request and expense, execute and deliver to the Grantors such 40 documents as the Grantors shall reasonably request to evidence such termination, reversions and/or reassignment, without recourse, representation, or warranty of any kind. This Agreement shall continue to be effective or shall be automatically reinstated, as the case may be, if at any time payment, in whole or in part, of any of the Secured Obligations is rescinded or must otherwise be restored or returned by the Agent or any Secured Party as a preference, fraudulent conveyance or otherwise under any bankruptcy, insolvency or similar law or otherwise, all as though such payment had not been made; PROVIDED, that in the event payment of all or any part of the Secured Obligations is rescinded or must be restored or returned, all costs and expenses (including without limitation the fees and expenses of counsel) incurred by the Agent or any Secured Party in defending and enforcing such reinstatement shall be deemed to be included as a part of the Secured Obligations. SECTION 10 INDEMNITY AND EXPENSES. (a) Each Grantor agrees: (i) to defend, indemnify, pay and hold harmless each Indemnitee, from and against any and all claims, losses and liabilities in any way relating to, growing out of or resulting from this Agreement and the transactions contemplated hereby (including without limitation enforcement of this Agreement), except to the extent such claims, losses or liabilities result from such Indemnitee's gross negligence or willful misconduct; and (ii) to pay to the Agent promptly following written demand the amount of any and all costs and expenses, including the fees and expenses of its counsel and of any experts and agents, in accordance with the terms and conditions of this Agreement and the Credit Agreement. (b) The obligations of each Grantor in this SECTION 10 shall survive the termination of this Agreement and the discharge of such Grantor's other obligations under this Agreement, the Credit Agreement and any other Facility Documents. SECTION 11 MISCELLANEOUS. 11.1 NOTICES. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given to a Grantor or Agent shall be in writing and given as provided in Section 12.06 of the Credit Agreement. 11.2 EXPENSES. Without limiting Section 12.03 of the Credit Agreement, whether or not the transactions contemplated under the Facility Documents shall be consummated, Grantors agree to pay all the actual costs and reasonable expenses of creating and perfecting Liens in favor of the Agent, for the benefit of each Secured Party pursuant hereto, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance premiums and reasonable fees, expenses and disbursements of counsel to the Agent and of counsel providing any opinions that Agent may request in respect of the Collateral or the Liens created pursuant to the Security Documents; all the actual costs and reasonable fees, expenses and disbursements of any auditors, accountants, consultants or appraisers; all the actual 41 costs and reasonable expenses (including the reasonable fees, expenses and disbursements of any appraisers, consultants, advisors and agents employed or retained by the Agent and its counsel) in connection with the custody or preservation of any of the Collateral; and after the occurrence of a Default or an Event of Default, all costs and expenses, including reasonable attorneys' fees (including allocated costs of internal counsel) and costs of settlement, incurred by the Agent in enforcing any Secured Obligations of or in collecting any payments due from any Grantor hereunder or under the other Facility Documents by reason of such Default or Event of Default (including in connection with the sale of, collection from, or other realization upon any of the Collateral). 11.3 Amendments and Waivers. (a) AGENT'S CONSENT. Subject to SECTION 11.3(b), no amendment, modification, termination or waiver of any provision of this Agreement, or consent to any departure by any Grantor therefrom, shall in any event be effective without the written concurrence of the Agent. (b) NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of the Agent in the exercise of any power, right or privilege hereunder or under any other Facility Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights, powers and remedies existing under this Agreement and the other Facility Documents are cumulative, and not exclusive of, any rights or remedies otherwise available. Any forbearance or failure to exercise, and any delay in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy. 11.4 General Limitation on Secured Obligations. (a) Subject to paragraph (c) of this SECTION 11.4, each of the Grantors is accepting joint and several liability hereunder in consideration of the financial accommodation to be provided by the Lenders under the Credit Agreement, for the mutual benefit, directly and indirectly, of each of the Grantors and in consideration of the undertakings of each of the Grantors to accept joint and several liability for the obligations of each of them. (b) Subject to paragraph (c) of this SECTION 11.4, each of the Grantors jointly and severally hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Grantors with respect to the payment and performance of all of the Secured Obligations arising under this Agreement and the other Facility Documents, it being the intention of the parties hereto that all the Secured Obligations shall be the joint and several obligations of each of the Grantors without preferences or distinction among them. (c) Notwithstanding any provision to the contrary contained herein or in any other Facility Document (including, without limitation, paragraphs (a) and (b) of this SECTION 11.4), if the obligations of any Grantor under this Agreement would otherwise, taking 42 into account the provisions of this SECTION 11.4, be held or determined to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability hereunder, then the amount of such liability shall, without any further action by any Grantor, any Lender, the Agent or any other Person, be automatically limited and reduced to the highest amount that is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding. 11.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the parties hereto and their respective successors and assigns including all persons who become bound as debtor to this Agreement. No Grantor shall, without the prior written consent of the Agent, assign any right, duty or obligation hereunder. 11.6 INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists. 11.7 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All representations, warranties and agreements made herein shall survive the execution and delivery hereof. Notwithstanding anything herein or implied by law to the contrary, the agreements of each Grantor set forth in SECTIONS 10 and 11.2 shall survive the payment of the Secured Obligations and the termination hereof. 11.8 MARSHALLING; PAYMENTS SET ASIDE. The Agent shall not be under any obligation to marshall any assets in favor of any Grantor or any other Person or against or in payment of any or all of the Secured Obligations. 11.9 SEVERABILITY. In case any provision hereof or obligation hereunder shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 11.10 FOREIGN PLEDGE AGREEMENTS. Without limiting any of the rights, remedies, privileges or benefits provided hereunder to the Agent for its benefit and the ratable benefit of the other Secured Parties, each Grantor and the Agent hereby agree that the terms and provisions of this Agreement in respect of any Collateral subject to the pledge or other Lien of a Foreign Pledge Agreement are, and shall be deemed to be, supplemental and in addition to the rights, remedies, privileges and benefits provided to the Agent and the other Secured Parties under such Foreign Pledge Agreement and under applicable law to the extent consistent with applicable law; PROVIDED, that, in the event that the terms of this Agreement conflict or are inconsistent with the applicable Foreign Pledge Agreement or applicable law governing such Foreign Pledge Agreement, (i) to the extent that the provisions of such Foreign Pledge Agreement or applicable foreign law are, under applicable foreign lawn, necessary for the creation, perfection or priority of the security interests in the Collateral subject to such Foreign Pledge Agreement, the terms of such Foreign Pledge Agreement or such applicable law shall be controlling and (ii) otherwise, the terms hereof shall be controlling. 43 11.11 HEADINGS. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect. 11.12 APPLICABLE LAW. PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, THE WHOLE OF THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS-OF-LAWS RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION. 11.13 CONSENT TO JURISDICTION. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY GRANTOR ARISING OUT OF OR RELATING HERETO OR ANY OTHER FACILITY DOCUMENT, OR ANY OF THE OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION LOCATED IN THE CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH GRANTOR, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE GRANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 11.1; AGREES THAT SERVICE AS PROVIDED ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH GRANTOR IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND AGREES THAT THE AGENT RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY GRANTOR IN THE COURTS OF ANY OTHER JURISDICTION. 11.14 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER OR UNDER ANY OF THE OTHER FACILITY DOCUMENTS. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING 44 CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 11.14 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 11.15 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. 11.16 EFFECTIVENESS. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by the Grantors and the Agent of written or telephonic notification of such execution and authorization of delivery thereof. 11.17 ENTIRE AGREEMENT. This Agreement and the other Facility Documents embody the entire agreement and understanding between the Grantors and the Agent and supersede all prior agreements and understandings between such parties relating to the subject matter hereof and thereof. Accordingly, the Facility Documents may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. 11.18 JOINDER. Any other Person may become a Grantor under and become bound by the terms and provisions hereof by executing and delivering to the Agent a supplement hereto substantially in the form of EXHIBIT B hereto (each a "JOINDER SUPPLEMENT"), accompanied by such documentation as the Agent may request to establish, among other things, the due organization, valid existence and good standing of such Person, its qualification to engage in business in each jurisdiction in which it is required to be so qualified, its authority to execute, deliver and perform its obligations hereunder, and the identity, authority and capacity of each officers thereof authorized to act on its behalf. The rights and obligations of each Grantor hereunder shall remain in full force and effect notwithstanding the addition of any new Grantor as a party hereto. [Signature pages follow.] 45 IN WITNESS WHEREOF, each Grantor and the Agent have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. HAWK CORPORATION ALLEGHENY CLEARFIELD, INC. HELSEL, INC. HAWK MOTORS, INC. SINTERLOY CORPORATION FRICTION PRODUCTS CO. LOGAN METAL STAMPINGS, INC. QUARTER MASTER INDUSTRIES, INC. TEX RACING ENTERPRISES, INC. S.K. WELLMAN CORP. NET SHAPE TECHNOLOGIES, LLC S.K. WELLMAN HOLDINGS, INC. HAWK PRECISION COMPONENTS GROUP, INC. HAWK MIM, INC. By: /s/ Thomas A. Gilbride ---------------------------------------- Thomas A. Gilbride a Vice President of, and on behalf of, each of the above companies JPMORGAN CHASE BANK, as the Agent By: /s/ Dale Pensgen ---------------------------------------- Dale Pensgen Vice President 46 SCHEDULE I TO SECURITY AND PLEDGE AGREEMENT GENERAL INFORMATION (A) Full Legal Name, Type of Organization, Jurisdiction of Organization, Chief Executive Office/Sole Place of Business (or Residence if Grantor is a Natural Person) and Organizational Identification Number of each Grantor:
Chief Executive Office/Sole Place of business (or Residence if Grantor is a Natural Jurisdiction of Person for the Organization Full Legal Name Type of Organization Organization past one (1) year I.D. # --------------- -------------------- ------------ ----------------- -------------
(B) Other Names (including any Trade-Name or Fictitious Business Name) under which each Grantor has conducted business for the past five (5) years:
Name of Grantor Date of Change Description of Change --------------- -------------- ---------------------
(C) Changes in Name, Jurisdiction of Organization, Chief Executive Office or Sole Place of Business (or Principal Residence if Grantor is a Natural Person) and Corporate Structure within past five (5) years:
Full Legal Name Trade Name or Fictitious Business Name --------------- --------------------------------------
S-I-1 (D) Financing Statements: Name of Grantor Filing Jurisdiction(s) --------------- ---------------------- S-I-2 SCHEDULE II TO SECURITY AND PLEDGE AGREEMENT Location of Equipment, Inventory, and Name of Grantor Collateral Records - ------------------------- -------------------------------------------- S-II-1 SCHEDULE III TO SECURITY AND PLEDGE AGREEMENT INVESTMENT RELATED PROPERTY
Pledged Stock: ================ ============== ============= ============== ============= ============== ============ =============== % OF STOCK NO. OF OUTSTANDING CLASS OF CERTIFICATED CERTIFICATE PLEDGED STOCK OF THE GRANTOR STOCK ISSUER STOCK (Y/N) NO. PAR VALUE STOCK STOCK ISSUER ================ ============== ============= ============== ============= ============== ============ =============== ================ ============== ============= ============== ============= ============== ============ =============== ================ ============== ============= ============== ============= ============== ============ =============== ================ ============== ============= ============== ============= ============== ============ =============== Pledged LLC Interests: ===================== ================== =================== ================== =================== ================== % OF OUTSTANDING LLC INTERESTS OF LIMITED CERTIFICATED CERTIFICATE NO. NO. OF PLEDGED THE LIMITED GRANTOR LIABILITY COMPANY (Y/N) (IF ANY) UNITS LIABILITY COMPANY ===================== ================== =================== ================== =================== ================== ===================== ================== =================== ================== =================== ================== ===================== ================== =================== ================== =================== ================== ===================== ================== =================== ================== =================== ================== Pledged Partnership Interests: ===================== ================== =================== ================== =================== ================== TYPE OF PARTNERSHIP % OF OUTSTANDING INTERESTS (E.G., PARTNERSHIP GENERAL OR CERTIFICATED CERTIFICATE NO. INTERESTS OF THE GRANTOR PARTNERSHIP LIMITED) (Y/N) (IF ANY) PARTNERSHIP ===================== ================== =================== ================== =================== ================== ===================== ================== =================== ================== =================== ================== ===================== ================== =================== ================== =================== ================== ===================== ================== =================== ================== =================== ================== Pledged Trust Interests: ===================== ================== =================== ================== =================== ================== % OF OUTSTANDING CLASS OF TRUST CERTIFICATED CERTIFICATE NO. TRUST INTERESTS GRANTOR TRUST INTERESTS (Y/N) (IF ANY) OF THE TRUST ===================== ================== =================== ================== =================== ================== ===================== ================== =================== ================== =================== ================== ===================== ================== =================== ================== =================== ================== ===================== ================== =================== ================== =================== ==================
S-III-1
Pledged Debt: ===================== ================== =================== ================== =================== ================== ORIGINAL OUTSTANDING GRANTOR ISSUER PRINCIPAL AMOUNT PRINCIPAL BALANCE ISSUE DATE MATURITY DATE ===================== ================== =================== ================== =================== ================== ===================== ================== =================== ================== =================== ================== ===================== ================== =================== ================== =================== ================== ===================== ================== =================== ================== =================== ================== Securities Account: =============================== ============================ ============================ ============================ SHARE OF SECURITIES GRANTOR INTERMEDIARY ACCOUNT NUMBER ACCOUNT NAME =============================== ============================ ============================ ============================ =============================== ============================ ============================ ============================ =============================== ============================ ============================ ============================ =============================== ============================ ============================ ============================ Commodities Accounts: =============================== ============================ ============================ ============================ NAME OF COMMODITIES GRANTOR INTERMEDIARY ACCOUNT NUMBER ACCOUNT NAME =============================== ============================ ============================ ============================ =============================== ============================ ============================ ============================ =============================== ============================ ============================ ============================ =============================== ============================ ============================ ============================ Deposit Accounts: =============================== ============================ ============================ ============================ GRANTOR NAME OF DEPOSITARY BANK ACCOUNT NUMBER ACCOUNT NAME =============================== ============================ ============================ ============================ =============================== ============================ ============================ ============================ =============================== ============================ ============================ ============================ =============================== ============================ ============================ ============================ (B) NAME OF GRANTOR DATE OF ACQUISITION DESCRIPTION OF ACQUISITION --------------- ------------------- --------------------------
S-III-2 SCHEDULE IV TO SECURITY AND PLEDGE AGREEMENT Name of Grantor Description of Material Contract - -------------------------------- ------------------------------------ S-IV-1 SCHEDULE V TO SECURITY AND PLEDGE AGREEMENT Name of Grantor Description of Letters of Credit - ---------------------------------- ---------------------------------------- S-V-1 SCHEDULE VI TO SECURITY AND PLEDGE AGREEMENT INTELLECTUAL PROPERTY SECTION 1 Copyrights [include jurisdiction, title of work, date registered (or filed, for copyright applications) and registration number (for copyright registrations)] SECTION 2 Patents [include jurisdiction, Title of Patent (for issued patents), date issued (or filed, for patent applications), patent number (or serial number, for patent applications)] SECTION 3 Trademarks [include jurisdiction, mark, date registered (or filed, for trademark applications), registration number (or serial number, for trademark applications)] SECTION 4 Internet domain names [include domain name, date registered and registrar] SECTION 5 Intellectual Property Licenses SECTION 6 Intellectual Property Matters S-VI-1 SCHEDULE VII TO SECURITY AND PLEDGE AGREEMENT Name of Grantor Commercial Tort Claims Letters of Credit - --------------- ---------------------------------------- S-VII-1 EXHIBIT A-1 ----------- FORM OF PATENT SECURITY AGREEMENT PATENT SECURITY AGREEMENT This PATENT SECURITY AGREEMENT (this "AGREEMENT"), dated as of [__________] [ ], 2002, is entered into between [Name of Assignor], a ________ corporation, located at ______________________________________________________ (the "ASSIGNOR"), and JP Morgan Chase Bank, a New York banking corporation, located at c/o J. P. Morgan Business Credit Corporation, One Chase Square, CS-5, Rochester, NY, 14643, as the Agent for the benefit of the Secured Parties (the "ASSIGNEE"). Capitalized terms not otherwise defined herein have the meanings set forth in the Security and Pledge Agreement. WHEREAS, pursuant to the Security and Pledge Agreement, dated as of ________ ___, 2002, between Assignor, among other grantors, and Assignee (the "SECURITY AND PLEDGE AGREEMENT"), Assignor is granting to Assignee a security interest and continuing lien on all of Assignor's right, title and interest in, to and under certain collateral, including the Patents (as defined below). NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Assignor and the Assignee hereby agree as follows: 1. Grant of Security Interest A. Assignor hereby grants to the Assignee a security interest and continuing lien on all of Assignor's right, title and interest in, to and under the Patents, whether now owned or existing or hereafter acquired or arising and the proceeds, products, accessions, rents and products of or in respect of any Patents. For purposes of this Agreement, "Patents" shall mean all United States, state and foreign patents and certificates of invention, or similar industrial property rights, including, but not limited to, each patent referred to in SCHEDULE A hereto (as such schedule may be amended or supplemented from time to time), and with respect to any and all of the foregoing, (i) all applications therefor including, without limitation, the patent applications referred to in SCHEDULE A hereto (as such schedule may be amended or supplemented from time to time), (ii) all reissues, divisions, continuations, continuations-in-part, extensions, renewals, and reexaminations thereof, (iii) all rights corresponding thereto throughout the world, (iv) all inventions and improvements described therein, (v) all rights to sue for past, present and future infringements thereof, (vi) all licenses, claims, damages, and proceeds of suit arising therefrom, and (vii) all payments and rights to payments arising out of the sale, lease, license, assignment, or other disposition thereof. B. The security interest granted hereby is granted in conjunction with the security interest and continuing lien granted to the Assignee under the Security and Pledge Agreement, which is deemed incorporated by reference herein. The rights and remedies of the Assignee with respect to the security interest and continuing lien granted hereby are in addition to those rights and remedies set forth in the Security and Pledge Agreement and the other loan documents, and EXHIBIT A-1-1 those rights and remedies which are now or hereafter available to the Assignee as a matter of law or equity. The exercise by the Assignee of any one or more of the rights or remedies provided for in this Agreement, the Security and Pledge Agreement, the other loan documents, or now or hereafter existing at law or in equity, shall not preclude the simultaneous or later exercise by any person, including Assignee, of any or all other rights or remedies. 2. Modification of Agreement Neither this Agreement, nor any provision hereof may be amended, modified, waived, or terminated, except in accordance with the "Amendments and Waivers" provisions of the Security and Pledge Agreement. Notwithstanding the foregoing, Assignor authorizes the Assignee, upon notice to Assignor, to modify this Agreement in the name of and on behalf of the Assignor without obtaining the Assignor's signature to such modification, to the extent that such modification constitutes an amendment of SCHEDULE A hereto in order to add any right, title, or interest in any Patents owned or subsequently acquired by Assignor. Assignor additionally agrees to execute any additional agreement or amendment hereto, as may be required by the Assignee from time to time, to subject any such owned or subsequently-acquired right, title, or interest in any Patents to the security interest and continuing liens and perfection created or contemplated hereby, or by the Security and Pledge Agreement. 3. Termination of Agreement Upon the payment in full of all Secured Obligations, the cancellation or termination of the commitments and any other contingent obligation included in the Secured Obligations and the termination of the Credit Agreement, the security interest and continuing lien granted hereby shall terminate hereunder and all rights to the Patents shall revert and be deemed reassigned to the Assignor. Upon any such termination, the Assignee shall, at the Assignor's request and expense, execute and deliver to the Assignor such documents as the Assignor shall reasonably request to evidence such termination, reversions and/or reassignment, without recourse, representation, or warranty of any kind. 4. Governing Law PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, THE WHOLE OF THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS-OF-LAWS RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION. EXHIBIT A-1-2 5. Counterparts This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. [Signatures Appear on Following Page] EXHIBIT A-1-3 IN WITNESS WHEREOF, Assignor and Assignee have caused this PATENT SECURITY AGREEMENT to be duly executed and delivered by their respective officers duly authorized as of the date first above written. [ASSIGNOR], as the Assignor By: --------------------------------------- Name: Title: JPMORGAN CHASE BANK, as Agent, as the Assignee By: --------------------------------------- Name: Title: EXHIBIT A-1-4 STATE OF OHIO ) ) COUNTY OF CUYAHOGA ) ss: I, a notary public in and for the county and state aforesaid, do hereby certify that ____________________, personally known to me (or proved to me on the basis of satisfactory evidence), to be the person who executed the within instrument as the ___________________, of Hawk Corporation, a Delaware corporation, appeared before me in person and acknowledged that (s)he signed the within instrument as his/her free and voluntary act and as the free and voluntary act of said corporation pursuant to its bylaws or a resolution of its board of directors. IN WITNESS WHEREOF, I have hereunto set my hand as notarial seal this ___ day of ________, 2002. (NOTARIAL STAMP OR SEAL) _____________________________ Notary Public My Commission Expires: _____________________________ EXHIBIT A-1-5 SCHEDULE A TO PATENT SECURITY AGREEMENT PATENTS EXHIBIT A-1-6 EXHIBIT A-2 ----------- FORM OF TRADEMARK SECURITY AGREEMENT TRADEMARK SECURITY AGREEMENT This TRADEMARK SECURITY AGREEMENT (this "AGREEMENT"), dated as of [__________] [ ], 2002, is entered into between [Name of Assignor], a __________ corporation, located at _____________________________________________ (the "ASSIGNOR"), and JP Morgan Chase Bank, a New York banking corporation, located at c/o JPMorgan Business Credit Corporation, One Chase Square, CS-5, Rochester, NY, 14643, as the Agent for the benefit of the Secured Parties (the "ASSIGNEE"). Capitalized terms not otherwise defined herein have the meanings set forth in the Security and Pledge Agreement. WHEREAS, pursuant to the Security and Pledge Agreement, dated as of ________ ___, 2002, between Assignor, among other grantors, and Assignee (the "SECURITY AND PLEDGE AGREEMENT"), Assignor is granting to Assignee a security interest and continuing lien on all of Assignor's right, title and interest in, to and under certain collateral, including the Trademarks (as defined below). NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Assignor and the Assignee hereby agree as follows: 1. Grant of Security Interest A. Assignor hereby grants to the Assignee a security interest and continuing lien on all of Assignor's right, title and interest in, to and under the Trademarks, whether now owned or existing or hereafter acquired or arising and the proceeds, products, accessions, rents and products of or in respect of any Trademarks. For purposes of this Agreement, "Trademarks" shall mean all United States, state and foreign trademarks, service marks, certification marks, collective marks, trade names, corporate names, d/b/as, business names, fictitious business names, internet domain names, trade styles, logos, other source or business identifiers, designs and general intangibles of a like nature, rights of publicity and privacy pertaining to the names, likeness, signature and biographical data of natural persons, and, with respect to any and all of the foregoing: (i) all registrations and applications therefor including, but not limited to, the registrations and applications referred to in SCHEDULE A hereto (as such schedule may be amended or supplemented from time to time)but excluding intent to use applications unless and until statements of use or amendments to allege use are filed with respect to such applications, (ii) the goodwill of the business symbolized thereby, (iii) all rights corresponding thereto throughout the world, (iv) all rights to sue for past, present and future infringement or dilution thereof or for any injury to goodwill, (v) all licenses, claims, damages, and proceeds of suit arising therefrom, and (vi) all payments and rights to payments arising out of the sale, lease, license assignment or other disposition thereof. B. The security interest granted hereby is granted in conjunction with the security interest and continuing lien granted to the Assignee under the Security and Pledge Agreement, EXHIBIT A-2-1 which is deemed incorporated by reference herein. The rights and remedies of the Assignee with respect to the security interest and continuing lien granted hereby are in addition to those rights and remedies set forth in the Security and Pledge Agreement and the other loan documents, and those rights and remedies which are now or hereafter available to the Assignee as a matter of law or equity. The exercise by the Assignee of any one or more of the rights or remedies provided for in this Agreement, the Security and Pledge Agreement, the other loan documents, or now or hereafter existing at law or in equity, shall not preclude the simultaneous or later exercise by any person, including Assignee, of any or all other rights or remedies. 2. Modification of Agreement Neither this Agreement, nor any provision hereof may be amended, modified, waived, or terminated, except in accordance with the "Amendments and Waivers" provisions of the Security and Pledge Agreement. Notwithstanding the foregoing, Assignor authorizes the Assignee, upon notice to Assignor, to modify this Agreement in the name of and on behalf of the Assignor without obtaining the Assignor's signature to such modification, to the extent that such modification constitutes an amendment of SCHEDULE A hereto in order to add any right, title, or interest in any Trademarks owned or subsequently acquired by Assignor. Assignor additionally agrees to execute any additional agreement or amendment hereto, as may be required by the Assignee from time to time, to subject any such owned or subsequently-acquired right, title, or interest in any Trademarks to the security interest and continuing liens and perfection created or contemplated hereby, or by the Security and Pledge Agreement. 3. Termination of Agreement Upon the payment in full of all Secured Obligations, the cancellation or termination of the commitments and any other contingent obligation included in the Secured Obligations and the termination of the Credit Agreement, the security interest and continuing lien granted hereby shall terminate hereunder and all rights to the Trademarks shall revert and be deemed reassigned to the Assignor. Upon any such termination, the Assignee shall, at the Assignor's request and expense, execute and deliver to the Assignor such documents as the Assignor shall reasonably request to evidence such termination, reversions and/or reassignment, without recourse, representation, or warranty of any kind. 4. Governing Law PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, THE WHOLE OF THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO SHALL BE GOVERNED, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICTS-OF-LAWS RULES WHICH WOULD REQUIRE THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION. EXHIBIT A-2-2 5. Counterparts This Agreement may be executed in any number of counterparts, each of which, when so executed and delivered, shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. [Signatures Appear on Following Page] EXHIBIT A-2-3 IN WITNESS WHEREOF, Assignor and Assignee have caused this TRADEMARK SECURITY AGREEMENT to be duly executed and delivered by their respective officers duly authorized as of the date first above written. [ASSIGNOR], as the Assignor By: ---------------------------------------- Name: Title: JPMORGAN CHASE BANK, as Agent, as the Assignee By: ----------------------------------------- Name: Title: EXHIBIT A-2-4 STATE OF OHIO ) ) COUNTY OF CUYAHOGA ) ss: I, a notary public in and for the county and state aforesaid, do hereby certify that ____________________, personally known to me (or proved to me on the basis of satisfactory evidence), to be the person who executed the within instrument as the ___________________, of Hawk Corporation, a Delaware corporation, appeared before me in person and acknowledged that (s)he signed the within instrument as his/her free and voluntary act and as the free and voluntary act of said corporation pursuant to its bylaws or a resolution of its board of directors. IN WITNESS WHEREOF, I have hereunto set my hand as notarial seal this ___ day of ________, 2002. (NOTARIAL STAMP OR SEAL) _____________________________ Notary Public My Commission Expires: _____________________________ EXHIBIT A-2-5 SCHEDULE A TO TRADEMARK SECURITY AGREEMENT TRADEMARKS EXHIBIT A-2-6 EXHIBIT B --------- JOINDER SUPPLEMENT This JOINDER SUPPLEMENT, dated [MM/DD/YY], is delivered by [NAME OF NEW GRANTOR] a [NAME OF STATE OF INCORPORATION] [CORPORATION] (the "NEW GRANTOR") pursuant to the Security and Pledge Agreement, dated as of ________ ___, 2002 (as it may be from time to time amended, restated, modified or supplemented, the "SECURITY AND PLEDGE AGREEMENT"), among Hawk Corporation, a Delaware corporation ("HAWK") and its Subsidiaries and each Person that becomes a Grantor thereunder pursuant to Section 11.17 (each such Person, Hawk and its Domestic Subsidiaries are collectively referred to as the "GRANTORS" and each individually as a "GRANTOR"), and JPMorgan Chase Bank, a New York banking corporation, as the Agent for the benefit of the Secured Parties. Capitalized terms used herein not otherwise defined herein shall have the meanings ascribed thereto in the Security and Pledge Agreement. New Grantor hereby confirms the grant to the collateral agent set forth in the Security and Pledge Agreement of, and does hereby grant to the collateral agent, a security interest in all of New Grantor's right, title and interest in and to all Collateral to secure the Secured Obligations, in each case whether now or hereafter existing or in which New Grantor now has or hereafter acquires an interest and wherever the same may be located. From and after the date hereof, New Grantor shall be a "Grantor" for all purposes of the Security and Pledge Agreement. New Grantor hereby makes all of the representations and warranties set forth in the Security and Pledge Agreement. New Grantor represents and warrants that the attached Supplements to Schedules accurately and completely set forth all additional information required pursuant to the Security and Pledge Agreement and hereby agrees that such Supplements to Schedules shall constitute part of the Schedules to the Security and Pledge Agreement. IN WITNESS WHEREOF, New Grantor has caused this Joinder Supplement to be duly executed and delivered by its duly authorized officer as of [MM/DD/YY]. [NAME OF NEW GRANTOR] By: -------------------------------------------- Name: Title: EXHIBIT B - 1 EXHIBIT C --------- FORM OF SECURITIES ACCOUNT CONTROL AGREEMENT SECURITIES ACCOUNT CONTROL AGREEMENT This Securities Account Control Agreement, dated as of [o] (this "AGREEMENT"), among ________________ (the "DEBTOR"), JPMorgan Chase Bank, as administrative agent and as collateral agent (in such capacities, the "AGENT"), and ________________ (the "SECURITIES INTERMEDIARY"). Capitalized terms used but not defined herein shall have the meaning assigned in the Security and Pledge Agreement, dated as of ________ ___, 2002, among the Debtor, the various other parties thereto and the Agent (as amended, restated, supplemented, or otherwise modified from time to time, the "SECURITY AND PLEDGE Agreement"). SECTION 1. ESTABLISHMENT OF SECURITIES ACCOUNT. The Securities Intermediary hereby confirms and agrees that: (a) The Securities Intermediary has established account number [IDENTIFY ACCOUNT NUMBER] in the name "[IDENTIFY EXACT TITLE OF ACCOUNT]" (such account and any successor account, the "SECURITIES ACCOUNT") and the Securities Intermediary shall not change the name or account number of the Securities Account without the prior written consent of the Agent; (b) All securities or other property underlying any financial assets credited to the Securities Account shall be registered in the name of the Securities Intermediary, endorsed to the Securities Intermediary or in blank or credited to another securities account maintained in the name of the Securities Intermediary and in no case will any financial asset credited to the Securities Account be registered in the name of the Debtor, payable to the order of the Debtor or specially endorsed to the Debtor except to the extent the foregoing have been specially endorsed to the Securities Intermediary or in blank; (c) All property delivered to the Securities Intermediary pursuant to the Security and Pledge Agreement will be promptly credited to the Securities Account; and (d) The Securities Account is an account to which financial assets are or may be credited, and the Securities Intermediary shall, subject to the terms of this Agreement, treat the Debtor as entitled to exercise the rights that comprise any financial asset credited to the account. SECTION 2. "FINANCIAL ASSETS" ELECTION. The Securities Intermediary hereby agrees that each item of property (including, without limitation, any investment property, financial assets, securities, instruments, general intangibles or cash) credited to the Securities Account shall be treated as a "financial asset" within the meaning of Section 8-102(a)(9) of the UCC. SECTION 3. ENTITLEMENT ORDERS. If at any time the Securities Intermediary shall receive any order directing transfer or redemption of any financial asset relating to the Securities EXHIBIT C - 1 Account (any such order, an "ENTITLEMENT ORDER") from the Agent, the Securities Intermediary shall comply with such Entitlement Order without further consent by the Debtor or any other Person. If the Debtor is otherwise entitled to issue Entitlement Orders and such orders conflict with any Entitlement Order issued by the Agent, the Securities Intermediary shall follow the orders issued by the Agent. SECTION 4. SUBORDINATION OF LIEN; WAIVER OF SET-OFF. In the event that the Securities Intermediary has or subsequently obtains by agreement, operation of law or otherwise a security interest in the Securities Account or any security entitlement credited thereto, the Securities Intermediary hereby agrees that such security interest shall be subordinate to the security interest of the Agent. The financial assets and other items deposited to the Securities Account will not be subject to deduction, set-off, banker's lien, or any other right in favor of any Person other than the Agent (except that the Securities Intermediary may set off (i) all amounts due to the Securities Intermediary in respect of customary fees and expenses for the routine maintenance and operation of the Securities Account and (ii) the face amount of any checks which have been credited to the Securities Account but are subsequently returned unpaid because of uncollected or insufficient funds). SECTION 5. CHOICE OF LAW. This Agreement shall be governed by the laws of the State of New York. Regardless of any provision in any other agreement, for purposes of the UCC, New York shall be deemed to be the Securities Intermediary's jurisdiction (within the meaning of Section 8-110 of the UCC). The Securities Account (as well as the securities entitlements related thereto) shall be governed by the laws of the State of New York. SECTION 6. CONFLICT WITH OTHER AGREEMENTS. (a) In the event of any conflict between this Agreement (or any portion hereof) and any other agreement now existing or hereafter entered into, the terms of this Agreement shall prevail; (b) No amendment or modification of this Agreement or waiver of any right hereunder shall be binding on any party hereto unless it is in writing and is signed by all of the parties hereto; (c) The Securities Intermediary hereby confirms and agrees that: (i) There are no other agreements entered into between the Securities Intermediary and the Debtor with respect to the Securities Account; (ii) It has not entered into, and until the termination of this Agreement will not enter into, any agreement with any other Person relating to the Securities Account and/or any financial assets credited thereto pursuant to which it has agreed to comply with Entitlement Orders of such other Person; and (iii) It has not entered into, and until the termination of this agreement will not enter into, any agreement with the Debtor or the Agent purporting to EXHIBIT C - 2 limit or condition the obligation of the Securities Intermediary to comply with Entitlement Orders of the Agent as set forth in SECTION 3 hereof. SECTION 7. ADVERSE CLAIMS. Except for the claims and interest of the Agent and of the Debtor in the Securities Account, the Securities Intermediary does not know of any claim to, or interest in, the Securities Account or in any "financial asset" (as defined in Section 8-102(a) of the UCC) credited thereto. If any person asserts any lien, encumbrance or adverse claim (including any writ, garnishment, judgment, warrant of attachment, execution or similar process) against the Securities Account or in any financial asset carried therein, the Securities Intermediary will promptly notify the Agent and the Debtor thereof. SECTION 8. MAINTENANCE OF SECURITIES ACCOUNT. In addition to, and not in lieu of, the obligation of the Securities Intermediary to honor Entitlement Orders of the Agent as agreed in SECTION 3 hereof, the Securities Intermediary agrees to maintain the Securities Account as follows: (a) NOTICE OF SOLE CONTROL. If at any time the Agent delivers to the Securities Intermediary a Notice of Sole Control in substantially the form set forth in EXHIBIT A hereto, the Securities Intermediary agrees that after receipt of such notice, it will take all instruction with respect to the Securities Account solely from the Agent. (b) VOTING RIGHTS. Until such time as the Securities Intermediary receives a Notice of Sole Control pursuant to subsection (a) of this SECTION 8, the Debtor shall direct the Securities Intermediary with respect to the voting of any financial assets credited to the Securities Account. (c) PERMITTED INVESTMENTS. Until such time as the Securities Intermediary receives a Notice of Sole Control signed by the Agent, the Debtor shall direct the Securities Intermediary with respect to the selection of investments to be made; PROVIDED, HOWEVER, that the Securities Intermediary shall not honor any instruction to purchase any investments other than [INVESTMENTS OF A TYPE DESCRIBED ON EXHIBIT B HERETO]. (d) STATEMENTS AND CONFIRMATIONS. The Securities Intermediary will promptly send copies of all statements, confirmations and other correspondence concerning the Securities Account and/or any financial assets credited thereto simultaneously to each of the Debtor and the Agent at the address for each set forth in SECTION 12 of this Agreement. (e) TAX REPORTING. All items of income, gain, expense and loss recognized in the Securities Account shall be reported to the Internal Revenue Service and all state and local taxing authorities under the name and taxpayer identification number of the Debtor. SECTION 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SECURITIES INTERMEDIARY. The Securities Intermediary hereby makes the following representations, warranties and covenants: (a) The Securities Account has been established as set forth in SECTION 1 above and the Securities Account will be maintained in the manner set forth herein until termination of this Agreement; and EXHIBIT C - 3 (b) This Agreement is the valid and legally binding obligation of the Securities Intermediary. SECTION 10. INDEMNIFICATION OF SECURITIES INTERMEDIARY. The Debtor and the Agent hereby agree that (a) the Securities Intermediary is released from any and all liabilities to the Debtor and the Agent arising from the terms of this Agreement and the compliance of the Securities Intermediary with the terms hereof, except to the extent that such liabilities arise from the Securities Intermediary's negligence or willful misconduct and (b) the Debtor and its successors and assigns shall at all times indemnify and save harmless the Securities Intermediary from and against any and all claims, actions and suits of others arising out of the terms of this Agreement or the compliance of the Securities Intermediary with the terms hereof, except to the extent that such arises from the Securities Intermediary's negligence or willful misconduct, and from and against any and all liabilities, losses, damages, costs, charges, counsel fees and other expenses of every nature and character arising by reason of the same, until the termination of this Agreement. SECTION 11. SUCCESSORS; ASSIGNMENT. The terms of this Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors or heirs and personal representatives who obtain such rights solely by operation of law. The Agent may assign its rights hereunder only with the express written consent of the Securities Intermediary and by sending written notice of such assignment to the Debtor; PROVIDED, that the Securities Intermediary will not unreasonably withhold or delay its consent to any assignment by Agent to any successor Agent under the Security and Pledge Agreement. SECTION 12. NOTICES. Any notice, request or other communication required or permitted to be given under this Agreement shall be in writing and deemed to have been properly given when delivered in person, or when sent by telecopy or other electronic means and electronic confirmation of error free receipt is received or two days after being sent by certified or registered United States mail, return receipt requested, postage prepaid, addressed to the party at the address set forth below. Debtor: Agent: Securities Intermediary: Any party may change his address for notices in the manner set forth above. SECTION 13. TERMINATION. The obligations of the Securities Intermediary to the Agent pursuant to this Agreement shall continue in effect until the security interests of the Agent in the Securities Account have been terminated pursuant to the terms of the Security and Pledge Agreement and the Agent has notified the Securities Intermediary of such termination in writing. The Agent agrees to provide Notice of Termination in substantially the form of EXHIBIT C hereto to the Securities Intermediary upon the request of the Debtor on or after the termination of the Agent's security interest in the Securities Account pursuant to the terms of the Security and Pledge Agreement. The termination of this Agreement shall not terminate the Securities EXHIBIT C - 4 Account or alter the obligations of the Securities Intermediary to the Debtor pursuant to any other agreement with respect to the Securities Account. SECTION 14. COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing and delivering one or more counterparts. IN WITNESS WHEREOF, the parties hereto have executed this Agreement by their duly authorized officers as of the day and year first above written. [NAME OF DEBTOR] By: ----------------------------------------- Name: Title: JPMORGAN CHASE BANK, as Agent By: ----------------------------------------- Name: Title: [NAME OF INSTITUTION SERVING AS SECURITIES INTERMEDIARY] By: ----------------------------------------- Name: Title: EXHIBIT C - 5 Exhibit A to ------------ Securities Account Control Agreement ------------------------------------ [Letterhead of Agent] [Date] [Name and Address of Securities Intermediary] Attention: __________________ Re: Notice of Sole Control ---------------------- Ladies and Gentlemen: As referenced in the Securities Account Control Agreement, dated [o], among [insert name of the Debtor], you and the undersigned (a copy of which is attached) we hereby give you notice of our sole control over securities account number ____________ (the "SECURITIES ACCOUNT") and all financial assets credited thereto. You are hereby instructed not to accept any direction, instructions or Entitlement Orders with respect to the Securities Account or the financial assets credited thereto from any Person other than the undersigned, unless otherwise ordered by a court of competent jurisdiction. You are instructed to deliver a copy of this notice by facsimile transmission to [insert name of the Debtor]. Very truly yours, [Name of Agent] By: ---------------------------------- Title cc: [Name of Debtor] Exhibit B to ------------ Securities Account Control Agreement ------------------------------------ Permitted Investments --------------------- Exhibit C to ------------ Securities Account Control Agreement ------------------------------------ [Letterhead of Agent] [Date] [Name and Address of Securities Intermediary] Attention: ------------------------ Re: Termination of Control Agreement -------------------------------- You are hereby notified that the Securities Account Control Agreement between you, [THE DEBTOR] and the undersigned (a copy of which is attached) is terminated and you have no further obligations to the undersigned pursuant to such Agreement. Notwithstanding any previous instructions to you, you are hereby instructed to accept all future directions with respect to Securities Account number ________________ from [THE DEBTOR]. This notice terminates any obligations you may have to the undersigned with respect to such account, however nothing contained in this notice shall alter any obligations which you may otherwise owe to [THE DEBTOR] pursuant to any other agreement. You are instructed to deliver a copy of this notice by facsimile transmission to [THE DEBTOR]. Very truly yours, [Name of Agent] By: ----------------------------------------- Title: -------------------------------------- -i- EX-10.3 5 l96737aexv10w3.txt EXHIBIT 10.3 Exhibit 10.3 FORM OF OPEN-END MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING MAXIMUM PRINCIPAL AMOUNT NOT TO EXCEED $53,000,000 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 ____ day of October, 2002, by _____________ , a ___________ corporation, ("Mortgagor") in favor of JPMORGAN CHASE BANK, a national banking association, as Agent for the Lenders, as hereinafter defined (in its capacity as agent, for the benefit of and on behalf of the Lenders, "Agent"). WHEREAS, HAWK CORPORATION, a Delaware corporation, and each of the other Borrowers from time to time party to the Credit Agreement (collectively, together with their respective successors and assigns, "Borrowers"), Agent, PNC BANK, NATIONAL ASSOCIATION, as a documentation agent, FLEET CAPITAL CORP., as a documentation agent, and the other entities identified on SCHEDULE 2.01 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 October __, 2002 (as the same may from time to time be amended, restated, supplemented 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, grant to Borrowers the Loans, Letters of Credit, and other extensions of credit pursuant to the Credit Agreement; WHEREAS, Mortgagor understands that the Lenders are willing to grant such financial accommodations to the Borrowers, including the Mortgagor, 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 the Borrowers by Agent and the Lenders and for other valuable considerations. NOW, THEREFORE, TO SECURE TO AGENT, for the benefit of the Lenders, all of the following (collectively, the "Obligations"): (a) all obligations of the Borrowers and the Guarantors to the Lenders and the Agent under the Credit Agreement or any of the other Facility Documents, including, without limitation, all indebtedness evidenced by the Notes; (b) all obligations under, or in respect of the Letters of Credit and all Reimbursement Obligations, and all Foreign Exchange Obligations and Interest Rate Protection Obligations of the Borrowers to the Lenders or the Agent, together with all accrued and unpaid interest (including, without limitation, all interest that, but for the filing of a petition in, or commencement of a case, proceeding or other action relating to, bankruptcy, insolvency or reorganization of any Borrowers or any of its Subsidiaries, would have accrued, whether or not a claim is allowed against such Borrowers or Subsidiary for such interest in the related bankruptcy proceeding), fees, expenses and charges payable by the Borrowers or the Guarantors under the Credit Agreement or under any of the other Facility Documents; and (c) the performance of the covenants and agreements of Mortgagor contained in this Agreement, Mortgagor does hereby MORTGAGE, GRANT, CONVEY AND ASSIGN to 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 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 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 Fifty-Three Million Dollars ($53,000,000), together with interest thereon and such other amounts as shall become due and owing to Agent and the Lenders from Mortgagor pursuant this Agreement. 2 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 Agent, with provisions satisfactory to Agent, for payment of all losses thereunder to Agent, for the benefit of the Lenders, and Mortgagor as its interest may appear (loss payable endorsement in favor of Agent, for the benefit of Lenders), and, if required by Agent, Mortgagor shall deposit the policies with Agent. Any such policies of insurance shall provide for no fewer than thirty (30) days prior written notice of cancellation to 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 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 Agent, at 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, Agent shall have the right, at Agent's option, to require Mortgagor to pay to 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 Agent may require pursuant to the Credit Agreement, all as reasonably estimated initially and from time to time by Agent on the basis of assessments and bills and reasonable estimates thereof. Any waiver by Agent of a requirement that Mortgagor pay such Funds may be revoked by Agent, in Agent's sole discretion, at any time upon notice in writing to Mortgagor. Agent may require Mortgagor to pay to Agent, in advance, such other Funds for other taxes, charges, premiums, assessments and impositions in connection with Mortgagor or the Property that Agent shall reasonably deem necessary to protect Agent's interests (herein "Other Impositions"). Unless otherwise provided by applicable law, Agent, at 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 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. 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 Agent pays Mortgagor interest, earnings or profits on the Funds and applicable law permits Agent to make such a charge. Unless applicable law requires interest, earnings or profits on the Funds to be paid, Agent shall not be required to pay Mortgagor any interest, earnings or profits on the Funds. 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 Agent at the time of the annual accounting thereof shall exceed the amount deemed necessary by Agent to provide for the payment of water 3 and sewer rates, taxes, assessments, insurance premiums, rents and Other Impositions, as such payments become due, 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 Agent may elect to the Obligations. If, at any time, the amount of the Funds held by Agent shall be less than the amount deemed necessary by 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, Agent may apply, in any amount and in any order as Agent shall determine, in Agent's sole discretion, any Funds held by 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, Agent shall promptly refund to Mortgagor any Funds held by 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 Agent and, at Agent's request, shall deliver to Agent, either of the following, at Mortgagor's option, (i) a cash deposit or (ii) an indemnity bond satisfactory to Agent issued by a surety satisfactory to 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 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 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 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) 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 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 Agent, except for any such action or proceeding caused by the gross 4 negligence or intentional misconduct of Agent. Unless required by applicable law or unless 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 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 Agent's prior written consent. 8. PROTECTION OF 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 Agent therein, including, but not limited to, eminent domain, insolvency, enforcement of local laws, or arrangements or proceedings involving a bankrupt or decedent, then Agent, at Agent's option, may make such appearances, disburse such sums and take such action as Agent deems necessary, in its sole discretion, to protect the interests of 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 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 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 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 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 Agent shall not be a waiver of the right of Agent or the Lenders to accelerate the maturity of any of the Obligations secured by this Agreement. 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 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 Agent in writing. Mortgagor authorizes Agent, at Agent's option, as attorney-in-fact for Mortgagor, to commence, appear in and prosecute, after the occurrence of an Event of Default, in 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 5 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 Agent. With the consent of Agent, which consent may be withheld in Agent's sole discretion, Mortgagor may apply such awards, payments, proceeds or damages, after the deduction of 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 Agent may reasonably require. 10. ESTOPPEL CERTIFICATE. Mortgagor shall, within ten (10) days of a written request from Agent, furnish 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 purpose of perfecting 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: ______________________ ______________________ ______________________ Secured Party: JPMorgan Chase Bank, as Agent One Chase Square, CS-5 Rochester, New York 14643 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 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 Agent's prior written approval. Unless otherwise directed by 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 Agent, such attornment to be effective upon Agent's acquisition of title to the Property; that the tenant agrees to execute such further evidences of attornment as Agent may from time to time request; and that the attornment of the tenant shall not be terminated by foreclosure. Mortgagor shall not, without 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 6 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 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 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 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 Agent, or imposed upon or asserted against Agent or any Lender, in any attempt by 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 the Borrowers 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 ___________________, Attn: Vice President-Finance, if to any Lender, at its address specified for such Lender on SCHEDULE 2.01 to the Credit 7 Agreement, and if to Agent, at the JPMorgan Chase 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 Agent, the Lenders and Mortgagor. In exercising any rights hereunder or taking any actions provided for herein, Agent may act through its employees, agents or independent contractors as authorized by 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. 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 Agent may elect. Notwithstanding the existence of any other security interests in the Property held by Agent, or by any other Person, 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. 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 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, 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 Agent or Agent's agents to collect the aforesaid rents and revenues and hereby directs each tenant of the Property to pay such rents to Agent or Agent's agents. Upon the occurrence of an Event of Default, and without the necessity of Agent entering upon and taking and maintaining full control of the Property in person, by agent or by a court appointed receiver, 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 Agent only. This Section 20 may be supplemented by a 8 separate assignment of leases and rents agreement entered into by and between Agent and Mortgagor, which instrument shall set forth more fully Agent's rights with respect to the leases, rents and revenue of the Property. 21. ASSIGNMENT OF CONSTRUCTION RIGHTS. From time to time, as Agent deems necessary to protect its interests, Mortgagor shall, upon request of Agent, execute and deliver to Agent, in such form as 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 Agent may now or hereafter have at law or in equity, upon the occurrence of an Event of Default, 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 the Borrowers 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, Agent, at Agent's option, may foreclose this Agreement by judicial proceeding and may invoke any other remedies permitted by applicable law or as provided herein. 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 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 Agent or any Lender, and not caused by the gross negligence or intentional misconduct of 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. 9 (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 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 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 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. 10 (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 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 Agent, at Mortgagor's cost, such sureties, performance bonds and other assurances as 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 Agent's determination, a delay in such clean-up will not result in or increase any loss or liability to 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 Agent, post a bond or obtain a letter of credit for the benefit of Agent (drawn upon a company or bank satisfactory to Agent) or deposit an amount of money in an escrow account under 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 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 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 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) 11 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. Agent, at 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 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 the Borrowers) would not render the rights to payment of Agent and the Lenders hereunder void, voidable or avoidable under any applicable fraudulent transfer law. [Remainder of page intentionally left blank] 12 27. JURY TRIAL WAIVER. MORTGAGOR, 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: _____________________________ 13 STATE OF OHIO ) ) SS: COUNTY OF CUYAHOGA ) On this ____ day of October, 2002, before me, a Notary Public in and for said County and State, personally appeared __________________________________________________, the _______________________ of _______________________, a _____________ 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_____________, Ohio. ____________________________________ Notary Public This instrument was prepared by: 14 EXHIBIT A LEGAL DESCRIPTION 15 EXHIBIT B PERMITTED ENCUMBRANCES 16 EX-10.4 6 l96737aexv10w4.txt EXHIBIT 10.4 Exhibit 10.4 FORM OF OPEN-END MORTGAGE SECURING FUTURE AND/OR REVOLVING ADVANCES UP TO A MAXIMUM PRINCIPAL AMOUNT OF FIFTY-THREE MILLION DOLLARS ($53,000,000) PLUS ACCRUED INTEREST AND OTHER INDEBTEDNESS AS DESCRIBED IN 42 PA. C.S.A. SEC.8143 OPEN-END MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING (All notices to be given to Agent pursuant to 42 Pa. C.S.A. Sec.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 ____ day of October, 2002, by _____________________, a _______________ corporation ("Mortgagor") in favor of JPMORGAN CHASE BANK, a national banking association, as Agent for the Lenders, as hereinafter defined (in its capacity as agent, for the benefit of and on behalf of the Lenders, "Agent"). WHEREAS, HAWK CORPORATION, a Delaware corporation, and each of the other Borrowers from time to time party to the Credit Agreement (collectively, together with their respective successors and assigns, "Borrowers"), Agent, PNC BANK, NATIONAL ASSOCIATION, as a documentation agent, FLEET CAPITAL CORP., as a documentation agent, and the other entities identified on SCHEDULE 2.01 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 October __, 2002 (as the same may from time to time be amended, restated, supplemented 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, grant to Borrowers the Loans, Letters of Credit, and other extensions of credit pursuant to the Credit Agreement; WHEREAS, Mortgagor understands that the Lenders are willing to grant such financial accommodations to the Borrowers, including the Mortgagor, 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 the Borrowers by Agent and the Lenders and for other valuable considerations. NOW, THEREFORE, TO SECURE TO AGENT, for the benefit of the Lenders, all of the following (collectively, the "Obligations"): (a) all obligations of the Borrowers and the Guarantors to the Lenders and the Agent under the Credit Agreement or any of the other Facility Documents, including, without limitation, all indebtedness evidenced by the Notes; (b) all obligations under, or in respect of the Letters of Credit and all Reimbursement Obligations, and all Foreign Exchange Obligations and Interest Rate Protection Obligations of the Borrowers to the Lenders or the Agent, together with all accrued and unpaid interest (including, without limitation, all interest that, but for the filing of a petition in, or commencement of a case, proceeding or other action relating to, bankruptcy, insolvency or reorganization of any Borrowers or any of its Subsidiaries, would have accrued, whether or not a claim is allowed against such Borrowers or Subsidiary for such interest in the related bankruptcy proceeding), fees, expenses and charges payable by the Borrowers or the Guarantors under the Credit Agreement or under any of the other Facility Documents; and (c) the performance of the covenants and agreements of Mortgagor contained in this Agreement, Mortgagor does hereby MORTGAGE, GRANT, CONVEY AND ASSIGN to 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 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 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 2. OPEN-END MORTGAGE. This Agreement constitutes an "Open-End Mortgage" under 42 Pa. C.S.A. Sec.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 Fifty-Three Million Dollars ($53,000,000), 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 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 Agent, with provisions satisfactory to Agent, for payment of all losses thereunder to Agent, for the benefit of the Lenders, and Mortgagor as its interest may appear (loss payable endorsement in favor of Agent, for the benefit of Lenders), and, if required by Agent, Mortgagor shall deposit the policies with Agent. Any such policies of insurance shall provide for no fewer than thirty (30) days prior written notice of cancellation to 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 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 Agent, at 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, Agent shall have the right, at Agent's option, to require Mortgagor to pay to 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 Agent may require pursuant to the Credit Agreement, all as reasonably estimated initially and from time to time by Agent on the basis of assessments and bills and reasonable estimates thereof. Any waiver by Agent of a requirement that Mortgagor pay such Funds may be revoked by Agent, in Agent's sole discretion, at any time upon notice in writing to Mortgagor. Agent may require Mortgagor to pay to Agent, in advance, such other Funds for other taxes, charges, premiums, assessments and impositions in connection with Mortgagor or the Property that Agent shall reasonably deem necessary to protect Agent's interests (herein "Other Impositions"). Unless otherwise provided by applicable law, Agent, at 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 Agent and shall be applied to pay such rates, rents, taxes, assessments, insurance premiums and Other Impositions so long as no Event of Default 3 has occurred. 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 Agent pays Mortgagor interest, earnings or profits on the Funds and applicable law permits Agent to make such a charge. Unless applicable law requires interest, earnings or profits on the Funds to be paid, Agent shall not be required to pay Mortgagor any interest, earnings or profits on the Funds. 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 Agent at the time of the annual accounting thereof shall exceed the amount deemed necessary by Agent to provide for the payment of water and sewer rates, taxes, assessments, insurance premiums, rents and Other Impositions, as such payments become due, 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 Agent may elect to the Obligations. If, at any time, the amount of the Funds held by Agent shall be less than the amount deemed necessary by 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, Agent may apply, in any amount and in any order as Agent shall determine, in Agent's sole discretion, any Funds held by 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, Agent shall promptly refund to Mortgagor any Funds held by 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 Agent and, at Agent's request, shall deliver to Agent, either of the following, at Mortgagor's option, (i) a cash deposit or (ii) an indemnity bond satisfactory to Agent issued by a surety satisfactory to 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 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 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 Agent may approve in writing, in the event of any damage, injury or loss thereto, 4 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) 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 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 Agent, except for any such action or proceeding caused by the gross negligence or intentional misconduct of Agent. Unless required by applicable law or unless 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 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 Agent's prior written consent. 8. PROTECTION OF 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 Agent therein, including, but not limited to, eminent domain, insolvency, enforcement of local laws, or arrangements or proceedings involving a bankrupt or decedent, then Agent, at Agent's option, may make such appearances, disburse such sums and take such action as Agent deems necessary, in its sole discretion, to protect the interests of 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 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 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 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 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 Agent shall not be a waiver of the right of Agent or the Lenders to accelerate the maturity of any 5 of the Obligations secured by this Agreement. 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 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 Agent in writing. Mortgagor authorizes Agent, at Agent's option, as attorney-in-fact for Mortgagor, to commence, appear in and prosecute, after the occurrence of an Event of Default, in 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 Agent. With the consent of Agent, which consent may be withheld in Agent's sole discretion, Mortgagor may apply such awards, payments, proceeds or damages, after the deduction of 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 Agent may reasonably require. 10. ESTOPPEL CERTIFICATE. Mortgagor shall, within ten (10) days of a written request from Agent, furnish 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 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: JPMorgan Chase Bank, as Agent One Chase Square, CS-5 Rochester, New York 14643 6 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 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 Agent's prior written approval. Unless otherwise directed by 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 Agent, such attornment to be effective upon Agent's acquisition of title to the Property; that the tenant agrees to execute such further evidences of attornment as Agent may from time to time request; and that the attornment of the tenant shall not be terminated by foreclosure. Mortgagor shall not, without 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 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 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 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 Agent, or imposed upon or asserted against Agent or any Lender, in any attempt by 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 7 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 the Borrowers 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 ___________________, Attn: Vice President-Finance, if to any Lender, at its address specified for such Lender on SCHEDULE 2.01 to the Credit Agreement, and if to Agent, at the JPMorgan Chase 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. Notwithstanding the foregoing, (a) all notices given to Agent by any person or entity (other than Mortgagor) pursuant to 42 Pa. C.S.A. sec.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 Agent at the address set forth above, and (b) all notices given by Mortgagor to Agent pursuant to 42 Pa. C.S.A. sec.8143(c) shall be given to 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 Agent, the Lenders and Mortgagor. In exercising any rights hereunder or taking any actions provided for herein, Agent may act through its employees, agents or independent contractors as authorized by 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 Agent may elect. Notwithstanding the existence of any other security interests in the Property held by Agent, or by any other Person, 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. 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 8 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 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, 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 Agent or Agent's agents to collect the aforesaid rents and revenues and hereby directs each tenant of the Property to pay such rents to Agent or Agent's agents. Upon the occurrence of an Event of Default, and without the necessity of Agent entering upon and taking and maintaining full control of the Property in person, by agent or by a court appointed receiver, 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 Agent only. This Section 20 may be supplemented by a separate assignment of leases and rents agreement entered into by and between Agent and Mortgagor, which instrument shall set forth more fully Agent's rights with respect to the leases, rents and revenue of the Property. 21. ASSIGNMENT OF CONSTRUCTION RIGHTS. From time to time, as Agent deems necessary to protect its interests, Mortgagor shall, upon request of Agent, execute and deliver to Agent, in such form as 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 Agent a notice pursuant to 42 Pa. C.S.A. sec.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 Agent may now or hereafter have at law or in equity, upon the occurrence of an Event of Default, 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 the Borrowers 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, Agent, at Agent's option, may foreclose this Agreement by judicial proceeding and may invoke any other 9 remedies permitted by applicable law or as provided herein. 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 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 Agent or any Lender, and not caused by the gross negligence or intentional misconduct of 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 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 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 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; 10 (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 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 Agent, at Mortgagor's cost, such sureties, performance bonds and other assurances as 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 Agent's determination, a delay in such clean-up will not result in or increase any loss or liability to 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 11 (E) at the written request of Agent, post a bond or obtain a letter of credit for the benefit of Agent (drawn upon a company or bank satisfactory to Agent) or deposit an amount of money in an escrow account under 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 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 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 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. Agent, at 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 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 the Borrowers) would not render the rights to payment of Agent and the Lenders hereunder void, voidable or avoidable under any applicable fraudulent transfer law. [Remainder of page intentionally left blank] 27. JURY TRIAL WAIVER. MORTGAGOR, 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 12 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 Agent is: ______________________________ On Behalf of Agent 13 STATE OF OHIO ) ) SS: COUNTY OF CUYAHOGA ) On this ____day of October, 2002, before me, a Notary Public in and for said County and State, personally appeared ____________________________________, the ______________________ of __________________, a _______________ 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 _____________. ___________________________________ Notary Public CERTIFICATE OF RESIDENCE The undersigned certifies that the residence of Agent _______________. ___________________________________ EXHIBIT A LEGAL DESCRIPTION EXHIBIT B PERMITTED ENCUMBRANCES EX-10.5 7 l96737aexv10w5.txt EXHIBIT 10.5 Exhibit 10.5 _______________________________________________________________________________ FORM OF MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING _______________________________________________________________________________ Prepared by and after recording return to: _______________________ _______________________ _______________________ _______________________ Property Address: _______________________ _______________________ _______________________ _______________________ Property Index Numbers: _______________________ _______________________ _______________________ _______________________ MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING MAXIMUM PRINCIPAL AMOUNT NOT TO EXCEED $53,000,000 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 ____ day of October, 2002, by _________________, a ________________ corporation ("Mortgagor") in favor of JPMORGAN CHASE BANK, a national banking association, as Agent for the Lenders, as hereinafter defined (in its capacity as agent, for the benefit of and on behalf of the Lenders, "Agent"). WHEREAS, HAWK CORPORATION, a Delaware corporation, and each of the other Borrowers from time to time party to the Credit Agreement (collectively, together with their respective successors and assigns, "Borrowers"), Agent, PNC BANK, NATIONAL ASSOCIATION, as a documentation agent, FLEET CAPITAL CORP., as a documentation agent, and the other entities identified on SCHEDULE 2.01 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 October __, 2002 (as the same may from time to time be amended, restated, supplemented 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, grant to Borrowers the Loans, Letters of Credit, and other extensions of credit pursuant to the Credit Agreement; WHEREAS, Mortgagor understands that the Lenders are willing to grant such financial accommodations to the Borrowers, including the Mortgagor, 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 the Borrowers by Agent and the Lenders and for other valuable considerations. NOW, THEREFORE, TO SECURE TO AGENT, for the benefit of the Lenders, all of the following (collectively, the "Obligations"): (a) all obligations of the Borrowers and the Guarantors to the Lenders and the Agent under the Credit Agreement or any of the other Facility Documents, including, without limitation, all indebtedness evidenced by the Notes; (b) all obligations under, or in respect of the Letters of Credit and all Reimbursement Obligations, and all Foreign Exchange Obligations and Interest Rate Protection Obligations of the Borrowers to the Lenders or the Agent, together with all accrued and unpaid interest (including, without limitation, all interest that, but for the filing of a petition in, or commencement of a case, proceeding or other action relating to, bankruptcy, insolvency or reorganization of any Borrowers or any of its Subsidiaries, would have accrued, whether or not a claim is allowed against such Borrowers or Subsidiary for such interest in the related bankruptcy proceeding), fees, expenses and charges payable by the Borrowers or the Guarantors under the Credit Agreement or under any of the other Facility Documents; and (c) the performance of the covenants and agreements of Mortgagor contained in this Agreement, 2 Mortgagor does hereby MORTGAGE, GRANT, CONVEY, WARRANT AND ASSIGN to 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 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 Illinois. Mortgagor and 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. 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 Fifty-Three Million Dollars ($53,000,000), together with interest thereon and such other amounts as shall become due and owing to 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 3 contingencies in such form, written by Mortgagor, in such amounts, for such period, and against such risks as may be acceptable to Agent, with provisions satisfactory to Agent, for payment of all losses thereunder to Agent, for the benefit of the Lenders, and Mortgagor as its interest may appear (loss payable endorsement in favor of Agent, for the benefit of Lenders), and, if required by Agent, Mortgagor shall deposit the policies with Agent. Any such policies of insurance shall provide for no fewer than thirty (30) days prior written notice of cancellation to 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 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 Agent, at 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, Agent shall have the right, at Agent's option, to require Mortgagor to pay to 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 Agent may require pursuant to the Credit Agreement, all as reasonably estimated initially and from time to time by Agent on the basis of assessments and bills and reasonable estimates thereof. Any waiver by Agent of a requirement that Mortgagor pay such Funds may be revoked by Agent, in Agent's sole discretion, at any time upon notice in writing to Mortgagor. Agent may require Mortgagor to pay to Agent, in advance, such other Funds for other taxes, charges, premiums, assessments and impositions in connection with Mortgagor or the Property that Agent shall reasonably deem necessary to protect Agent's interests (herein "Other Impositions"). Unless otherwise provided by applicable law, Agent, at 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 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. 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 Agent pays Mortgagor interest, earnings or profits on the Funds and applicable law permits Agent to make such a charge. Unless applicable law requires interest, earnings or profits on the Funds to be paid, Agent shall not be required to pay Mortgagor any interest, earnings or profits on the Funds. 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 Agent at the time of the annual accounting thereof shall exceed the amount deemed necessary by Agent to provide for the payment of water and sewer rates, taxes, assessments, insurance premiums, rents and Other Impositions, as such payments become due, Agent (in its sole discretion) may either (i) return the amount of the 4 excess to Mortgagor or (ii) apply a part or all of such excess at such time or times as Agent may elect to the Obligations. If, at any time, the amount of the Funds held by Agent shall be less than the amount deemed necessary by 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, Agent may apply, in any amount and in any order as Agent shall determine, in Agent's sole discretion, any Funds held by 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, Agent shall promptly refund to Mortgagor any Funds held by 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 Agent and, at Agent's request, shall deliver to Agent, either of the following, at Mortgagor's option, (i) a cash deposit or (ii) an indemnity bond satisfactory to Agent issued by a surety satisfactory to 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 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 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 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) 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 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 Agent, except for any such action or proceeding caused by the gross negligence or intentional misconduct of Agent. Unless required by applicable law or unless Agent has otherwise consented in writing, neither Mortgagor nor any tenant or other Person shall 5 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 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 Agent's prior written consent. 8. PROTECTION OF 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 Agent therein, including, but not limited to, eminent domain, insolvency, enforcement of local laws, or arrangements or proceedings involving a bankrupt or decedent, then Agent, at Agent's option, may make such appearances, disburse such sums and take such action as Agent deems necessary, in its sole discretion, to protect the interests of 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 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 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 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 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 Agent shall not be a waiver of the right of Agent or the Lenders to accelerate the maturity of any of the Obligations secured by this Agreement. 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 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 Agent in writing. Mortgagor authorizes Agent, at Agent's option, as attorney-in-fact for Mortgagor, to commence, appear in and prosecute, after the occurrence of an Event of Default, in 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 6 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 Agent. With the consent of Agent, which consent may be withheld in Agent's sole discretion, Mortgagor may apply such awards, payments, proceeds or damages, after the deduction of 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 Agent may reasonably require. 10. ESTOPPEL CERTIFICATE. Mortgagor shall, within ten (10) days of a written request from Agent, furnish 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 Illinois for the purpose of perfecting 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 Illinois, with the names and addresses of the "debtor" and "secured party" for such purpose being: Debtor: ______________________ ______________________ ______________________ ______________________ Secured Party: JPMorgan Chase Bank, as Agent One Chase Square, CS-5 Rochester, New York 14643 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 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 Agent's prior written approval. Unless otherwise directed by 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 Agent, such attornment to be effective upon Agent's acquisition of title to the Property; that the tenant agrees to execute such further evidences of attornment as Agent may from time to time request; and that the attornment of the tenant shall not be terminated by foreclosure. Mortgagor shall not, without 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 7 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 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 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 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 Agent, or imposed upon or asserted against Agent or any Lender, in any attempt by 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 the Borrowers 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 _____________________, Attn: Vice President-Finance, if to any Lender, at its address specified for such Lender on SCHEDULE 2.01 to the Credit Agreement, and if to Agent, at the JPMorgan Chase 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 8 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 Agent, the Lenders and Mortgagor. In exercising any rights hereunder or taking any actions provided for herein, Agent may act through its employees, agents or independent contractors as authorized by 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 Illinois, 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 Agent may elect. Notwithstanding the existence of any other security interests in the Property held by Agent, or by any other Person, 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. 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 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, 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 Agent or Agent's agents to collect the aforesaid rents and revenues and hereby directs each tenant of the Property to pay such rents to Agent or Agent's agents. Upon the occurrence of an Event of Default, and without the necessity of Agent entering upon and taking and maintaining full control of the Property in person, by agent or by a court appointed receiver, 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 Agent only. This Section 20 may be supplemented by a separate assignment of leases and rents agreement entered into by and between Agent and 9 Mortgagor, which instrument shall set forth more fully Agent's rights with respect to the leases, rents and revenue of the Property. 21. ASSIGNMENT OF CONSTRUCTION RIGHTS. From time to time, as Agent deems necessary to protect its interests, Mortgagor shall, upon request of Agent, execute and deliver to Agent, in such form as 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 Agent may now or hereafter have at law or in equity, upon the occurrence of an Event of Default, 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 Agent to the full extent permitted by the laws of the State of Illinois, 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 the Borrowers 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, Agent, at Agent's option, may foreclose this Agreement by judicial proceeding and may invoke any other remedies permitted by applicable law or as provided herein. 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 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 Agent or any Lender, and not caused by the gross negligence or intentional misconduct of 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. 10 (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 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 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 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. 11 (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 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 Agent, at Mortgagor's cost, such sureties, performance bonds and other assurances as 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 Agent's determination, a delay in such clean-up will not result in or increase any loss or liability to 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 Agent, post a bond or obtain a letter of credit for the benefit of Agent (drawn upon a company or bank satisfactory to Agent) or deposit an amount of money in an escrow account under 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 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 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 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) 12 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 Illinois Responsible Property Transfer Act, Ill. Rev. Stat. ch. 30, par. 901 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. 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 Borrowers) would not render the rights to payment of Agent and the Lenders hereunder void, voidable or avoidable under any applicable fraudulent transfer law. [Remainder of page intentionally left blank] 13 27. JURY TRIAL WAIVER. MORTGAGOR, 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 ILLINOIS 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 ILLINOIS 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. MORTGAGOR: Signed and acknowledged in the presence of: ________________________________ _______________________________ Print: ________________________ By:____________________________ _____________________________ Name: _________________________ Print: ________________________ Title: ________________________ 14 STATE OF OHIO ) ) SS: COUNTY OF CUYAHOGA ) On this ____ day of October, 2002, before me, a Notary Public in and for said County and State, personally appeared _______________________________, the _______________________ of ________________, a _______________ 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 __________________________. __________________________________ Notary Public 15 EXHIBIT A LEGAL DESCRIPTION 16 EXHIBIT B PERMITTED ENCUMBRANCES 17 EX-10.6 8 l96737aexv10w6.txt EXHIBIT 10.6 Exhibit 10.6 FORM OF MORTGAGE, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING MAXIMUM PRINCIPAL AMOUNT NOT TO EXCEED $53,000,000 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 ___ day of October, 2002, by _______________, a ____________ corporation ("Mortgagor") in favor of JPMORGAN CHASE BANK, a national banking association, as Agent for the Lenders, as hereinafter defined (in its capacity as agent, for the benefit of and on behalf of the Lenders, "Agent"). WHEREAS, HAWK CORPORATION, a Delaware corporation, and each of the other Borrowers from time to time party to the Credit Agreement (collectively, together with their respective successors and assigns, "Borrowers"), Agent, PNC BANK, NATIONAL ASSOCIATION, as a documentation agent, FLEET CAPITAL CORP., as a documentation agent, and the other entities identified on SCHEDULE 2.01 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 October __, 2002 (as the same may from time to time be amended, restated, supplemented 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, grant to Borrowers the Loans, Letters of Credit, and other extensions of credit pursuant to the Credit Agreement; WHEREAS, Mortgagor understands that the Lenders are willing to grant such financial accommodations to the Borrowers, including the Mortgagor, 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 the Borrowers by Agent and the Lenders and for other valuable considerations. NOW, THEREFORE, TO SECURE TO AGENT, for the benefit of the Lenders, all of the following (collectively, the "Obligations"): (a) all obligations of the Borrowers and the Guarantors to the Lenders and the Agent under the Credit Agreement or any of the other Facility Documents, including, without limitation, all indebtedness evidenced by the Notes; (b) all obligations under, or in respect of the Letters of Credit and all Reimbursement Obligations, and all Foreign Exchange Obligations and Interest Rate Protection Obligations of the Borrowers to the Lenders or the Agent, together with all accrued and unpaid interest (including, without limitation, all interest that, but for the filing of a petition in, or commencement of a case, proceeding or other action relating to, bankruptcy, insolvency or reorganization of any Borrowers or any of its Subsidiaries, would have accrued, whether or not a claim is allowed against such Borrowers or Subsidiary for such interest in the related bankruptcy proceeding), fees, expenses and charges payable by the Borrowers or the Guarantors under the Credit Agreement or under any of the other Facility Documents; and (c) the performance of the covenants and agreements of Mortgagor contained in this Agreement, Mortgagor does hereby MORTGAGE, GRANT, CONVEY AND ASSIGN to 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 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 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. MORTGAGE. 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 Fifty-Three Million Dollars ($53,000,000), together with interest thereon and such other amounts as shall become due and owing to 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 Agent, with provisions satisfactory to Agent, for payment of 2 all losses thereunder to Agent, for the benefit of the Lenders, and Mortgagor as its interest may appear (loss payable endorsement in favor of Agent, for the benefit of Lenders), and, if required by Agent, Mortgagor shall deposit the policies with Agent. Any such policies of insurance shall provide for no fewer than thirty (30) days prior written notice of cancellation to 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 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 Agent, at 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, Agent shall have the right, at Agent's option, to require Mortgagor to pay to 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 Agent may require pursuant to the Credit Agreement, all as reasonably estimated initially and from time to time by Agent on the basis of assessments and bills and reasonable estimates thereof. Any waiver by Agent of a requirement that Mortgagor pay such Funds may be revoked by Agent, in Agent's sole discretion, at any time upon notice in writing to Mortgagor. Agent may require Mortgagor to pay to Agent, in advance, such other Funds for other taxes, charges, premiums, assessments and impositions in connection with Mortgagor or the Property that Agent shall reasonably deem necessary to protect Agent's interests (herein "Other Impositions"). Unless otherwise provided by applicable law, Agent, at 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 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. 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 Agent pays Mortgagor interest, earnings or profits on the Funds and applicable law permits Agent to make such a charge. Unless applicable law requires interest, earnings or profits on the Funds to be paid, Agent shall not be required to pay Mortgagor any interest, earnings or profits on the Funds. 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 Agent at the time of the annual accounting thereof shall exceed the amount deemed necessary by Agent to provide for the payment of water and sewer rates, taxes, assessments, insurance premiums, rents and Other Impositions, as such payments become due, 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 Agent may elect to the Obligations. If, at any time, the amount of the Funds held by Agent shall be less than 3 the amount deemed necessary by 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, Agent may apply, in any amount and in any order as Agent shall determine, in Agent's sole discretion, any Funds held by 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, Agent shall promptly refund to Mortgagor any Funds held by 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 Agent and, at Agent's request, shall deliver to Agent, either of the following, at Mortgagor's option, (i) a cash deposit or (ii) an indemnity bond satisfactory to Agent issued by a surety satisfactory to 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 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 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 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) 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 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 Agent, except for any such action or proceeding caused by the gross negligence or intentional misconduct of Agent. Unless required by applicable law or unless 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 4 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 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 Agent's prior written consent. 8. PROTECTION OF 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 Agent therein, including, but not limited to, eminent domain, insolvency, enforcement of local laws, or arrangements or proceedings involving a bankrupt or decedent, then Agent, at Agent's option, may make such appearances, disburse such sums and take such action as Agent deems necessary, in its sole discretion, to protect the interests of 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 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 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 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 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 Agent shall not be a waiver of the right of Agent or the Lenders to accelerate the maturity of any of the Obligations secured by this Agreement. 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 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 Agent in writing. Mortgagor authorizes Agent, at Agent's option, as attorney-in-fact for Mortgagor, to commence, appear in and prosecute, after the occurrence of an Event of Default, in 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 5 thereof, or for conveyances in lieu of condemnation, are hereby assigned to and shall be paid to Agent. With the consent of Agent, which consent may be withheld in Agent's sole discretion, Mortgagor may apply such awards, payments, proceeds or damages, after the deduction of 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 Agent may reasonably require. 10. ESTOPPEL CERTIFICATE. Mortgagor shall, within ten (10) days of a written request from Agent, furnish 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 Indiana for the purpose of perfecting 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 Indiana, with the names and addresses of the "debtor" and "secured party" for such purpose being: Debtor: __________________________ __________________________ __________________________ Attn: President Secured Party: JPMorgan Chase Bank, as Agent One Chase Square CS-5 Rochester, New York 14643 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 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 Agent's prior written approval. Unless otherwise directed by 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 Agent, such attornment to be effective upon Agent's acquisition of title to the Property; that the tenant agrees to execute such further evidences of attornment as Agent may from time to time request; and that the attornment of the tenant shall not be terminated by foreclosure. Mortgagor shall not, without 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 6 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 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 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 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 Agent, or imposed upon or asserted against Agent or any Lender, in any attempt by 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 the Borrowers 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 ____________________, Attn: Vice President-Finance, if to any Lender, at its address specified for such Lender on SCHEDULE 2.01 to the Credit Agreement, and if to Agent, at the JPMorgan Chase 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 7 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 Agent, the Lenders and Mortgagor. In exercising any rights hereunder or taking any actions provided for herein, Agent may act through its employees, agents or independent contractors as authorized by 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 Indiana, 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 Agent may elect. Notwithstanding the existence of any other security interests in the Property held by Agent, or by any other Person, 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. 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 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, 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 Agent or Agent's agents to collect the aforesaid rents and revenues and hereby directs each tenant of the Property to pay such rents to Agent or Agent's agents. Upon the occurrence of an Event of Default, and without the necessity of Agent entering upon and taking and maintaining full control of the Property in person, by agent or by a court appointed receiver, 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 Agent only. This Section 20 may be supplemented by a separate assignment of leases and rents agreement entered into by and between Agent and 8 Mortgagor, which instrument shall set forth more fully Agent's rights with respect to the leases, rents and revenue of the Property. 21. ASSIGNMENT OF CONSTRUCTION RIGHTS. From time to time, as Agent deems necessary to protect its interests, Mortgagor shall, upon request of Agent, execute and deliver to Agent, in such form as 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 Agent may now or hereafter have at law or in equity, upon the occurrence of an Event of Default, 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 the Borrowers 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, Agent, at Agent's option, may foreclose this Agreement by judicial proceeding and may invoke any other remedies permitted by applicable law or as provided herein. 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 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 Agent or any Lender, and not caused by the gross negligence or intentional misconduct of 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. 9 (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 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 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 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. 10 (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 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 Agent, at Mortgagor's cost, such sureties, performance bonds and other assurances as 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 Agent's determination, a delay in such clean-up will not result in or increase any loss or liability to 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 Agent, post a bond or obtain a letter of credit for the benefit of Agent (drawn upon a company or bank satisfactory to Agent) or deposit an amount of money in an escrow account under 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 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 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 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) 11 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. Agent, at Agent's option, is authorized and empowered to do all things provided to be done by a mortgagee under Indiana law, as in effect from time to time, for the protection of 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 the Borrowers) would not render the rights to payment of Agent and the Lenders hereunder void, voidable or avoidable under any applicable fraudulent transfer law. [Remainder of page intentionally left blank] 12 27. JURY TRIAL WAIVER. MORTGAGOR, 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 __________________________ 13 STATE OF OHIO ) ) SS: COUNTY OF CUYAHOGA ) On this ____ day of _________, 2002, before me, a Notary Public in and for said County and State, personally appeared _______________________________, the ____________________________ of _____________, a ____________ 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 _____________________. ______________________________________ Notary Public Printed Name: County, State of Residence: This instrument was prepared by: 14 EXHIBIT A LEGAL DESCRIPTION 15 EXHIBIT B PERMITTED ENCUMBRANCES 16 EX-99.1 9 l96737aexv99w1.txt EXHIBIT 99.1 Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Hawk Corporation (the "Company") on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ronald E. Weinberg, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ RONALD E. WEINBERG - ------------------------------------ Ronald E. Weinberg Chairman and Chief Executive Officer November 14, 2002 This certification is made solely for the purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained in that statute, and not for any other purpose. 41 EX-99.2 10 l96737aexv99w2.txt EXHIBIT 99.2 Exhibit 99.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Hawk Corporation (the "Company") on Form 10-Q for the period ending September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas A. Gilbride, Vice President-Finance and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ THOMAS A. GILBRIDE - ------------------------------------ Thomas A. Gilbride Vice President-Finance and Treasurer November 14, 2002 This certification is made solely for the purpose of 18 U.S.C. Section 1350, subject to the knowledge standard contained in that statute, and not for any other purpose. 42 -----END PRIVACY-ENHANCED MESSAGE-----