Hawk Corporation | Form 10-K

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 report(s)), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES o NO x

The aggregate market value of the voting common equity held by non-affiliates as of June 28, 2002 was $39,945,687 (based on the closing price as quoted on the New York Stock Exchange on that date).

As of February 14, 2003, the Registrant had 8,557,990 shares of Class A Common Stock, net of treasury shares, and 0 shares of Class B non-voting Common Stock outstanding. As of that date, non-affiliates held 5,386,609 shares of Class A Common Stock and 0 shares of Class B non-voting Common Stock.

Portions of the 2003 Proxy Statement of Hawk Corporation are incorporated by reference into Part III of this Form 10-K.

As used in this Form 10-K, the terms “Company,” “Hawk,” “Registrant,” “we,” “us” and “our” mean Hawk Corporation and its consolidated subsidiaries, taken as a whole, unless the context indicates otherwise. Except as otherwise stated, the information contained in this Form 10-K is as of December 31, 2002.

Hawk Corporation, founded in 1989, primarily is a leading supplier of friction products and precision components for industrial, agricultural and aerospace applications. We focus on designing, manufacturing and marketing products requiring sophisticated engineering and production techniques for applications in markets in which we have achieved a significant market share. Our products include friction parts for brakes, clutches and transmissions used in construction vehicles, agricultural vehicles, trucks, motorcycles and race cars, and parts for brake systems used in commercial and general aviation. Our precision components are used in pumps, motors, transmissions, anti-lock brake systems and other applications for industrial equipment, lawn and garden equipment, appliances, small hand tools and trucks. Our friction and precision components are made principally from proprietary formulations and designs of composite materials and metal powders.

We benefit from a deep and diversified customer base, with approximately 2,500 total customers, none of which accounted for more than 5% of our net sales in 2002. We are a preferred supplier to many of the world’s largest and well known brand name original equipment manufacturers, deriving more than 80% of our sales from products for which we are the sole source provider for specific customer applications. We offer our customers full service capabilities, from design through production, and work closely with original equipment manufacturers to improve performance and develop product innovations to generate increased sales. We also benefit from a diversified product list, with over 5,000 total products, none of which accounted for more than 5% of our net sales in 2002. We do not target the cyclical consumer automotive sector. Consequently, less than 7% of our net sales in any of the last five years was to the consumer automotive or light truck market. For the year ended December 31, 2002, we generated net sales of $197.3 million and income from operations of $9.8 million. For the year ended December 31, 2001, we had net sales of $184.4 million and income from operations of $3.6 million. Our common stock has been publicly traded since 1998.

Hawk is a holding company, the principal assets of which consist of the capital stock of its manufacturing subsidiaries, Friction Products Co., S.K. Wellman Corp., S.K. Wellman SpA, S.K. Wellman of Canada Limited, Hawk Composites (Suzhou) Company Limited, Helsel, Inc., Sinterloy Corporation, Allegheny Clearfield, Inc., Hawk MIM, Inc., Hawk Motors, Inc., Hawk Motors de Mexico, Quarter Master Industries, Inc., Tex Racing Enterprises, Inc. and Logan Metal Stampings, Inc. Through our subsidiaries, we operate primarily in four reportable segments: friction products, precision powder metal components, performance automotive and motor components:

We believe that, based on net sales, we are one of the top worldwide manufacturers of friction products used in industrial, agricultural and aerospace applications. Our friction products segment manufactures parts and components made from proprietary formulations of composite materials, primarily consisting of metal powders, synthetic and natural fibers. Friction products are the parts used in brakes, clutches and transmissions to absorb vehicular energy and dissipate it through heat and normal mechanical wear. The principal markets served by our friction products segment include construction vehicles, agricultural vehicles, trucks, commercial aviation and general aviation. We believe we are:


	•	a leading domestic supplier of friction products for construction equipment, agricultural equipment and trucks,

	•	the only independent supplier of friction materials for braking systems for new and existing series of many commercial aircraft models, including the Boeing 737 and 757 and the MD-80, and several regional jets used by commuter airlines, including the Canadair regional jet series,

	•	the largest supplier of friction materials for the growing general aviation market, including numerous new and existing series of Gulfstream, Cessna, Lear and Beech aircraft, and


	•	a leading domestic supplier of friction products into specialty markets such as motorcycles, all terrain vehicles (ATVs) and snowmobiles.


	For the years ended December 31, 2002 and 2001, our friction products segment generated net sales of $106.2 million and $104.1 million, representing 54% and 56% of our total net sales, respectively and income from operations of $7.5 million and $6.4 million, representing 77% and 178%, of our total income from operations, respectively.

We are a leading supplier of powder metal components for industrial equipment, lawn and garden equipment, appliances, hand tools and trucks. We use composite metal alloys in powder form to manufacture high quality custom-engineered metal components. According to the Metal Powder Industries Foundation, the powder metal market is growing at approximately 10% per year as original equipment manufacturers substitute precision components made from metal powders for forged, cast or stamped parts. Our precision components segment serves four specific areas of the powder metal marketplace:


	•	tight tolerance fluid power components such as pump elements and gears,

	•	large powder metal components used primarily in construction equipment, agricultural equipment and trucks,

	•	high volume parts for the lawn and garden, appliance and other markets, and

	•	metal injection molded parts for a variety of industries, including small hand tools and telecommunications.


	For the years ended December 31, 2002 and 2001, our precision components segment generated net sales of $65.8 million and $58.3 million, representing 34% and 32% of our total net sales, respectively and income from operations of $4.1 million and $0.3 million, representing 42% and 8% of our total income from operations, respectively.

We engineer, manufacture and market premium branded clutch, transmissions and driveline systems for the performance automotive racing market. Through this segment, we supply parts for the National Association for Stock Car Auto Racing (NASCAR), the Championship Auto Racing Teams (CART) and the Indy Racing League (IRL) racing series and for the weekend enthusiasts in the Sports Car Club of America (SCCA) and the American Speed Association (ASA) racing clubs and other road racing and competition cars. For the years ended December 31, 2002 and 2001, our performance automotive segment generated net sales of $12.6 million and $13.0 million, representing 6% and 7% of our total net sales, respectively and income from operations of $1.0 million and $0.3 million, representing 10% and 8% of our total income from operations, respectively.

We design and manufacture die-cast aluminum rotors for fractional and subfractional horsepower electric motors. These parts are used in a wide variety of motor applications, including appliances, business equipment, pumps and fans. We believe our motor segment is the largest independent U.S. manufacturer of die-cast aluminum rotors for use in fractional and subfractional horsepower electric motors. We also believe our motor segment has significant growth opportunities arising from the trend by original equipment motor manufacturers, which we estimate still produce more than half of all rotors in the U.S. fractional and subfractional horsepower motor market, to outsource their production of rotors to independent suppliers. For the years ended December 31, 2002 and 2001, our motor segment generated net sales of $12.7 million and $9.0 million, representing 6% and 5% of our total net sales, respectively and operating losses of $2.8 million and $3.4 million, respectively. Our facility in Mexico accounted for $1.5 million of the operating loss in 2002 and $2.3 million of the operating loss in 2001, as it experienced higher than expected operating costs.


	•	Focus on High-Margin, Specialty Applications. We focus on markets that require sophisticated engineering and production techniques and in which we have achieved a significant market share. In developing new applications, we seek to compete in markets requiring a high level of engineering expertise and technical capability, rather than in markets in which the primary competitive factor is product pricing. We believe margins for our products in these markets are higher than in other manufacturing markets that use standardized products. Our gross margins were 22.2% and 21.7% for the years ended December 31, 2002 and 2001, respectively.

	•	Introduce New Products. A key part of our strategy is the introduction of products for new applications, which incorporate improved performance characteristics or reduced costs in response to customer needs. Our engineers proactively focus on developing new product solutions that enhance performance and reduce manufacturing costs, including instances where we are the incumbent supplier. We also grow by applying our existing products and technologies to new specialized applications where our products have a performance or technological advantage.

	•	Expand Customer Relationships. We seek to provide advanced solutions to customers, enhancing our long-term relationships. Our engineers work closely with customers to develop and design new products and improve the performance of existing products. We believe that more than 80% of our net sales are from products and materials for which we are the sole source provider for specific customer applications. Our predecessors formed, and we have continued to build, relationships with a number of customers dating back over 50 years. Our commitment to quality, service and just-in-time delivery enables us to build and maintain strong and stable customer relationships. We believe that strong relationships with our customers provide us with significant competitive advantages in obtaining and maintaining new business opportunities.

	•	Capitalize on Aftermarket Opportunities. Our stable aftermarket sales enable us to minimize our exposure to adverse economic cycles. Because friction products are the consumable, or wear, component of brake, clutch and transmission systems, the use of our friction products in conjunction with a new or existing system provides us with the opportunity to supply the aftermarket for the life of the system, typically through sales to the original equipment manufacturer. For example, the ability to service the aftermarket for a particular aircraft braking system will likely provide us with a stable market for our friction products for the life of the product, which can be 30 years or more. Aftermarket sales of friction products have comprised approximately 50% of our friction product sales in recent years.

	•	Selectively Expand Internationally. Through our friction and motor segments, which have foreign manufacturing facilities in Italy, Canada, China and Mexico, and our friction segment’s worldwide distribution network, we continue to selectively expand our international operations in established markets throughout Europe, Asia, North America and Australia. In our friction products segment, we have recently established a market presence in Latin America. Our international net sales represented $31.1 million, or 15.8%, of our consolidated net sales for the year ended December 31, 2002, and $23.6 million, or 12.8%, of our consolidated net sales in 2001.

We focus on supplying the industrial, agricultural, aerospace, performance automotive and motor markets with components that require sophisticated engineering and production techniques for applications where we have achieved a significant market share. We have diversified our end markets through acquisitions and product line expansions. We believe that diversification has reduced our economic exposure to the cyclical effects of any particular industry.

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. For example, the friction components in construction vehicles enable their braking systems to slow and stop the vehicles and enable their clutches and transmissions to perform their part in controlling the motion of the vehicles. Our friction products also include friction components for use in automatic and power shift transmissions, clutch facings that serve as the main contact point between an engine and a transmission, and brake components for use in many truck, construction, agriculture, aircraft and specialty vehicle braking systems. Our friction products segment manufactures products made from proprietary formulations of composite materials that primarily consist of metal powders, synthetic and natural fibers.

Our friction products are custom-designed to meet the performance requirements of a specific application and must meet temperature, pressure, component life and noise level criteria. The engineering required in designing a friction material for a specific application dictates a balance between the component life cycle and the performance application of the friction material in, for example, stopping or starting movement. Friction products are consumed through customary use in a brake, clutch or transmission system and require regular replacement. Because the friction material is the consumable, or wear, component of these systems, new friction product introduction in conjunction with a new system provides us with the opportunity to supply the aftermarket with that friction product for the life of the system.

The principal markets served by our friction segment include manufacturers of truck clutches, heavy-duty construction and agricultural vehicle brakes, aircraft brakes, motorcycle and snowmobile brakes and transmissions. Based on net sales, we believe that we are among the top worldwide manufacturers of friction products used in industrial and aerospace applications. We estimate that aftermarket sales of friction products have comprised approximately 50% of our net friction product sales in recent years. We believe that our stable aftermarket sales component enables us to minimize our exposure to adverse economic cycles.

Construction/ Agriculture/ Trucks/ Specialty. We supply a variety of friction products for use in brakes, clutches and transmissions on construction and agriculture equipment, trucks and specialty vehicles. These components are designed to precise friction characteristics and mechanical tolerances permitting brakes to stop or slow a moving vehicle and the clutch or transmission systems to engage or disengage. We believe we are a leading supplier to original equipment manufacturers and to the aftermarket. We also believe that our trademarks, including Velvetouch® and Sheepbridge®, are well known in the aftermarket for these components. The use of our friction products in conjunction with a new or existing brake, clutch or transmission system provides us with the opportunity to supply the aftermarket with the friction product for the life of the system.


	•	Construction Equipment. We supply friction products such as transmission discs, clutch facings and brake components to manufacturers of construction equipment, including Caterpillar. We believe we are the second largest domestic supplier of these types of friction products. Replacement components for construction equipment are sold through original equipment manufacturers as well as various aftermarket distributors.

	•	Agriculture Equipment. We supply friction products such as clutch facings, transmission discs and brake components to manufacturers of agriculture equipment, including John Deere and CNH (formerly Case New Holland). We believe we are the second largest domestic supplier of these friction products. Replacement components for agricultural equipment are sold through original equipment manufacturers as well as various aftermarket distributors.

	•	Medium and Heavy Trucks. We supply friction products for clutch facings used in medium and heavy trucks to original equipment manufacturers, such as Eaton. We believe we are the leading domestic supplier of replacement friction products used in these applications. Replacement components are sold through original equipment manufacturers and various aftermarket distributors.

	•	Specialty Friction. We supply friction products for use in specialty applications, such as brake pads for Harley-Davidson motorcycles, General Motors’ Hummer and Bombardier, Polaris and Arctic Cat snowmobiles. We believe that these markets are experiencing significant growth, and that we have


		increased our market share with our combination of superior quality and product performance. Replacement components are sold through original equipment manufacturers and various aftermarket distributors.

Aerospace. We believe we are the only independent supplier of friction materials to the manufacturers of braking systems for the Boeing 727, 737 and 757, the DC-9, DC-10, MD-80 and Bombardier’s Canadair regional jet series used by commuter airlines. We believe we are also the largest supplier of friction materials to the general aviation (non-commercial airline, non-military) market, supplying friction materials for aircraft manufacturers such as Cessna, Lear, Gulfstream and Beech.

Each aircraft braking system, including the friction materials supplied by us, must meet stringent Federal Aviation Administration criteria and certification requirements. New model development and Federal Aviation Administration testing for our aircraft braking system customers generally begins two to five years before full scale production of new braking systems. If we and our aircraft brake system manufacturing partner are successful in obtaining the rights to supply a particular model of aircraft, we will typically supply our friction products for that model’s aircraft braking system for as long as the model continues to fly because it is generally not economically feasible to redesign a braking system once it is certified by the Federal Aviation Administration. Moreover, Federal Aviation Administration maintenance requirements mandate that brake components be changed after a specified number of take-offs and landings, which we expect to result in a continued and steady market for our aerospace friction products.

Our friction products for commercial aerospace applications are primarily used on “single-aisle” aircraft that are flown on shorter routes, resulting in more takeoffs and landings than those experienced by “wide body” aircraft. We believe our friction products provide an attractive combination of performance and cost effectiveness in these applications. According to Boeing’s 2002 Current Market Outlook, approximately 65% of the 15,271 airplanes in the world fleet are single-aisle commercial aircraft. The report also forecasts single-aisle aircraft to more than double by approximately 12,350 to 23,850 by the end of 2021. The Boeing report also states that world airline passenger traffic is projected to increase 4.9% per year through 2021. We expect that long-term growth in world airline traffic, combined with the increasing number of single-aisle aircraft, will cause long-term demand for our aerospace friction products to be stable, although this market remained soft in 2002 and we expect this softness to continue in 2003.

As a result of the terrorist attacks on September 11, 2001, the aerospace markets we serve suffered an immediate downturn. Air travel schedule curtailments by the airlines were significant as a result of the steep declines in customer traffic. Many older airplanes were among the first to be put out of service by the airlines, including DC-9 and 727 models that were among our market’s highest margin products. The weakness in customer traffic continues as evidenced by the bankruptcy filings of some major U.S. airlines and the weak financial condition of others. We are expecting a further decline in our aerospace market for the full year of 2003 of approximately 15 percent compared to 2002.

Our precision components segment is a leading supplier of powder metal components consisting primarily of pump, motor and transmission elements, gears, pistons and other component parts for applications ranging from lawn and garden tractors to industrial equipment. Since we were founded, we have participated in the growing powder metal products industry with a focus on the North American industrial market. The Metal Powder Industries Federation, an industry trade group, estimates that the powder metal market for automotive and non-automotive applications in North America had sales of over $5.0 billion in 2001.

Applications. We manufacture a variety of components made from powder metals for use in (1) fluid power applications, such as pumps and other hydraulic mechanisms, (2) transmissions, other drive mechanisms and anti-lock braking systems used in trucks and off-road and lawn and garden equipment, (3) gears and other components for use in home appliances, small hand tools and office equipment and (4) components used in automotive applications. Powder metal components can often be produced at a lower cost per unit than products manufactured with forging, casting or stamping technologies due to the elimination of, or substantial reduction in, secondary machining, lower material costs and the virtual elimination of raw material waste. In addition, we expect advances in our core powder metal technology to permit production of powder metal components with

improved strength, hardness and durability for demanding applications and with greater design flexibility. As a result, we believe that the current trend of substituting powder metal components for forged, cast or stamped components in industrial applications will continue for the foreseeable future, providing us with increased product and market opportunities.

Our precision component segment proactively targets four specific niches in the market place:


	•	High Precision. Our pressing and finishing capabilities enable us to specialize in tight tolerance fluid power components such as pump elements and gears. In addition, we believe that our machining capabilities provide us with a competitive advantage by giving us the ability to supply a completed part to our customers, typically without any subcontracted precision machining. We expect that our growth in this niche will be driven by existing customers’ new design requirements and new product applications primarily for pumps, motors and transmissions.

	•	Large Size Capability. We have the capability to make powder metal components that are among the largest used in North America. For example, we make reactor plates having diameters up to 19 inches for use in transmissions in construction equipment. We expect our sales of large powder metal components to continue to grow as we create new designs for existing customers and benefit from market growth, primarily in current construction, agricultural and truck applications.

	•	High Volume. We also target smaller, high volume parts where we can use efficient pressing and sintering capabilities to our best advantage. In this niche, our primary markets have been powder metal components for the lawn and garden, home appliance, power hand tool, truck, automotive and business equipment markets. We believe that our high volume capabilities will provide us with opportunities to cross-sell numerous of our other precision components. Several of our leading original equipment customers have a variety of applications that we supply from both our friction and precision components segments.

	•	Metal Injection Molding. We also manufacture small, complex metal injection molded parts for a variety of industries, such as small hand tools and telecommunications. We believe that many of our traditional powder metal customers may also be attractive prospects for metal injected molded parts. For instance, we were able to provide one of our powder metal customers with a hydraulic valve component with a precisely controlled flow path because of the fine details achievable in metal injected molded parts as compared to standard powder metal components.

We supply premium clutch, transmissions and driveline systems under our Quarter Master and Tex Racing brands. These products are used by leading teams in NASCAR, CART, IRL racing series and by weekend enthusiasts in the SCCA and the ASA racing clubs, as well as in other road racing and oval track competition cars. We supply the official brake pad of the SCCA and are a participating manufacturer sponsor of the SCCA, ASA and several other racing series.

We believe our motor segment is the largest independent U.S. manufacturer of die-cast aluminum rotors for use in fractional and subfractional horsepower electric motors. These motors are used in a wide variety of applications such as small household appliances, business equipment, pumps and fans. We believe our motor segment has significant growth opportunities arising from the trend by original equipment motor manufacturers, which we estimate still produce more than half of all rotors in the U.S. fractional and subfractional horsepower motor market, to outsource their production of rotors to independent suppliers. In 2000, we commenced production at our rotor manufacturing factory in Monterrey, Mexico, a city where a large portion of fractional and subfractional motors are manufactured. We also design and market integral horsepower custom motors and generators through a manufacturing and sales relationship with Potencia Industrial, located in Mexico City, Mexico.

The following table sets forth comparative operating results and total assets (in millions) by each of our operating segments:


(1)	In accordance with the non-amortization provisions of SFAS 142 (see “Note B-Significant Accounting Policies” to the accompanying consolidated financial statements beginning on page 27 of this Form 10-K), the Company eliminated the amortization of goodwill in 2002.


	The following table illustrates the pro forma effect on income (loss) from operations had we applied the non-amortization provisions of SFAS 142 for the years ended December 31, 2001 and 2000 by segment:


(2)	As of January 1, 2002, we reclassified an operating unit formerly associated with our performance automotive segment to our friction products segment as a result of changes in the internal operating responsibility of that unit. We have reclassified all prior periods discussed in this Form 10-K to reflect this change.

The manufacturing processes for most of our friction products, performance automotive brake products and powder metal precision components are similar. In general, all use composite metal alloys in powder form to make high quality powder metal components. The basic manufacturing steps of blending/compounding, molding/ compacting, sintering (or bonding) and secondary machining/treatment are as follows:


	•	Blending/compounding: Composite metal alloys in powder form are blended with lubricants and other additives according to scientific formulas, many of which are proprietary. The formulas are designed to produce precise performance characteristics necessary for a customer’s particular application. We often work together with our customers to develop new formulas that will produce materials with greater energy absorption characteristics, durability and strength.

	•	Molding/compacting: At room temperature, a specific amount of a powder alloy is compacted under pressure into a desired shape. Our molding presses are capable of producing pressures of up to 3,000 tons. We believe that we have some of the largest presses in the powder metal industry, enabling us to produce large, complex components. We can also create complex shapes not obtainable with conventional powder metal presses with our metal injection molding equipment.

	•	Sintering: After compacting, molded parts are heated in furnaces to specific temperatures slightly below melting, enabling metal powders to metallurgically bond, harden and strengthen the molded parts while retaining their desired shape. For friction materials, the friction composite part is also bonded directly to a steel plate or core, creating a strong continuous metallic part.

	•	Secondary machining/treatment: If required by customer specifications, a sintered part undergoes additional processing. This processing is generally necessary to attain increased hardness or strength, tighter dimensional tolerances or corrosion resistance. To achieve these specifications, parts are heat or steam treated, precision coined or flattened, ground, machined or treated with a corrosion resistant coating.

Some of our friction products, including those used in oil-cooled brakes and power shift transmissions, do not require all of the foregoing steps. For example, composite friction materials are molded under high temperatures and cured in electronically-controlled ovens and then bonded to a steel plate or core with a resin-based polymer.

Our die-cast aluminum rotors are produced in a three-step process. Steel stamped disks forming the laminations of the rotors are first skewed (stacked) and then loaded into dies into which molten aluminum is injected to create the rotors. The rotor castings created in the dies are then machined to produce finished rotors. We manufacture these rotors in a variety of sizes and shapes to customers’ design specifications.

Throughout our design and manufacturing process, we focus on quality control. For product design, each manufacturing facility uses state-of-the-art testing equipment to replicate virtually any application required by our customers. This equipment is essential to our ability to manufacture components that meet stringent customer specifications. To ensure that tolerances have been met and that the requisite quality is inherent in our finished products, we use statistical process controls, a variety of electronic measuring equipment and computer-controlled testing machinery. We have also established programs within each of our facilities to detect and prevent potential quality problems.

In 2001, we launched a Six Sigma initiative focused on creating a culture of continuous improvement. Six Sigma is a discipline that aims to eliminate costly process variation in a company’s operations and bring more value to its customers. To achieve this, Six Sigma managers use statistical analysis to locate process and product errors. As of December 31, 2002, we have trained approximately 250 employees and have over 80 Six Sigma projects in process throughout our business segments. We completed 40 projects in 2002, many of which involved direct customer participation.

Our foreign operations are subject to the usual risks of operating in foreign jurisdictions. They include, but are not limited to, exchange controls, currency restrictions and fluctuations, changes in local economic and political conditions, changes in laws, regulations, tariffs or taxes, the establishment of trade barriers and difficulties in management and staffing. For financial information regarding our international operations, see “Note M — Business Segments” and “Note N — Supplemental Guarantor Information” to the accompanying consolidated financial statements beginning on page 27 of this Form 10-K.

We believe we are an industry leader in the development of systems, processes and technologies that enable the manufacturing of friction products with numerous performance advantages, such as greater wear resistance, increased stopping power, lower noise and smoother engagement. Our expertise is evidenced by our aircraft brake components, which are currently being installed on many of the braking systems of the Boeing 737-600, -700, -800 and -900 commercial airliners and Bombardier’s Canadair regional jet series of commuter aircraft, as well as new series of industrial equipment from various original equipment manufacturers.

We maintain an extensive library of proprietary friction product formulas that serve as starting points for new product development. Each formula has a specific set of ingredients and processes to generate repeatability in production. A slight change in a mixture can produce significantly different performance characteristics. We use a variety of technologies and materials in developing and producing our products, such as graphitic and cellulose composites. We believe our expertise in the development and production of products using these different technologies and materials gives us a competitive advantage over other friction product manufacturers, which typically have expertise in only one or two types of friction material.

We also believe that our precision components business is able to produce a wide range of products from small precise components to large parts. We have presses that produce some of the largest powder metal parts in the world, and our powder metal technology permits the manufacture of complex components with specific performance characteristics and close dimensional tolerances that would be impractical to produce using conventional metalworking processes such as forging, casting or stamping. With our metal injection molding technology, we are able to create complex shapes previously not available using conventional powder metal technology.

Our motor business is able to produce a wide range of rotors for the fractional and subfractional motor industries. We have developed customized manufacturing processes for rotors and created specialty rotor die construction techniques. We have also designed highly automated machines necessary for the production of our rotors.

We seek to provide advanced solutions to customers, enhancing our long-term relationships. Our engineers work closely with our customers to develop and design new products and improve the performance of existing products. We believe that more than 80% of our sales are from products and materials for which we are the sole source provider for specific customer applications. Our predecessors formed, and we have continued to build, relationships with a number of customers dating back over 50 years. Our commitment to quality, service and just-in-time delivery have enabled us to build and maintain strong and stable customer relationships. We believe that strong relationship with our customers provide us with significant competitive advantages in obtaining and maintaining new business opportunities.

Through various acquisitions since our formation, we have broadened our product lines, increased our technological capabilities, further enhance our customer relationships and further expanded our preferred supplier status. As a result of our commitment to customer service and satisfaction, we are a preferred supplier to many of the world’s leading original equipment manufacturers, including Aircraft Braking Systems, Goodrich, Caterpillar, Eaton, Deere, CNH, Hydro-Gear, Sauer-Danfos, Parker Hannifin, Electrolux, Haldex, AO Smith, Emerson and FASCO.

Our top five customers accounted for 21.6% of our consolidated net sales in 2002, and 24.4% of our consolidated net sales in 2001.

We market our products globally through product managers and direct sales professionals, who operate primarily from our facilities in the United States, Italy, China and Canada and a sales office in Germany. Our product managers and sales force work directly with our engineers who provide the technical expertise necessary for the development and design of new products and for the improvement of the performance of existing products. Our friction products are sold both directly to original equipment manufacturers and to the aftermarket through our original equipment customers and a network of distributors and representatives throughout the world. We also sell our precision components and motor components to original equipment manufacturers through independent sales representatives. Sales to customers in our performance automotive segment are sold directly to race teams and distributors throughout the United States.

The principal segments in which we operate are competitive and fragmented, with many small manufacturers and only a few manufacturers that generate annual sales in excess of $50.0 million. We compete for new business principally at the beginning of the development of new applications and at the redesign of existing applications by our customers. For example, new model development for our aircraft braking system customers generally begins two to five years before full-scale production of new braking systems. Initiatives by customers to upgrade existing products typically involve long lead times as well. We also compete with manufacturers using different technologies, such as carbon composite (“carbon-carbon”) friction materials for aircraft braking systems. Carbon-carbon braking systems are significantly lighter than the metallic aircraft braking systems that we supply friction materials for, but are generally more expensive. The carbon-carbon brakes are typically used on wide-body aircraft, such as the Boeing 747, and on military aircraft, where the advantages in reduced weight may justify the additional expense.

In addition, as our powder metal components are increasingly substituted for wrought steel or iron components due to advances in our powder metal technology, we increasingly compete with companies using forging, casting or stamping technologies to produce precision components. Powder metal components can often be produced at a lower cost per unit than products manufactured with forging, casting or stamping technologies due to the elimination of, or substantial reduction in, secondary machining, lower material costs and the virtual elimination of raw material waste.

The principal raw materials that we use are copper, steel and iron powders, aluminum ingot and custom-fabricated cellulose sheet. We have generally been able to obtain sufficient supplies of raw materials for our operations, and changes in prices of our supplies over the past few years have not had a significant effect on our operations.

Our sales to manufacturers of aircraft braking systems represented 11.1% of our consolidated net sales in 2002 and 14.1% of our consolidated net sales in 2001. Each aircraft braking system, including the friction products supplied by us, must meet stringent Federal Aviation Administration criteria and testing requirements. We have been able to meet these requirements in the past and we continuously review Federal Aviation Administration compliance procedures to help ensure our continued and future compliance.

We are subject to stringent environmental standards imposed by federal, state, local and foreign environmental laws and regulations, including those related to air emissions, wastewater discharges, chemical and hazardous waste management and disposal. Some of these environmental laws hold owners or operators of land or

businesses liable for their own and for previous owners’ or operators’ releases of hazardous or toxic substances, materials or wastes, pollutants or contaminants. Our compliance with environmental laws also may require the acquisition of permits or other authorizations for some kinds of activities and compliance with various standards or procedural requirements. We are also subject to the federal Occupational Safety and Health Act and similar foreign and state laws. The nature of our operations, the long history of industrial uses at some of our current or former facilities, and the operations of predecessor owners or operators of some of the businesses expose us to risk of liabilities or claims with respect to environmental and worker health and safety matters. We review our procedures and policies for compliance with environmental and health and safety laws and regulations and believe that we are in substantial compliance with all material laws and regulations applicable to our operations. Our costs of complying with environmental, health and safety requirements have not been material.

Our federally registered trademarks include Hawk®, Wellman Friction Products®, Velvetouch®, Fibertuff®, Feramic®, Velvetouch Feramic®, Velvetouch Organik®, Hawk Brake®, Hawk Precision Components®, Hawk Motors®, Quarter Master®, and Hawk Performance®. Velvetouch® and Sheepbridge® are our principal trademarks for use in the friction products aftermarket segment and are registered in 26 countries. We have applied for the registration of the Hawk Precision Components Group, Hawk Racing International, Pro V, Tex Racing and Wellman Products Group trademarks. Although we maintain patents related to our business, we do not believe that our competitive position is dependent on patent protection or that our operations are dependent on any individual patent. To protect our intellectual property, we rely on a combination of internal procedures, confidentiality agreements, patents, trademarks, trade secrets law and common law, including the law of unfair competition.

At December 31, 2002, we had approximately 1,260 domestic employees and 420 international employees. Approximately 190 employees at our Brook Park, Ohio plant are covered under a collective bargaining agreement with the Paper, Allied Industrial, Chemical and Energy Workers International Union expiring in October 2004; approximately 60 employees at our Akron, Ohio facility are covered under a collective bargaining agreement with the United Automobile Workers expiring in July 2003; approximately 70 hourly employees at our Alton, Illinois facility are covered under a collective bargaining agreement with the International Association of Machinists and Aerospace Workers expiring in June 2004; approximately 100 employees at our Monterrey, Mexico plant are represented by the Federacion Nacional de Sindicatos Independientes union under a national union agreement which expires in August 2003; and approximately 200 employees at our Orzinuovi, Italy plant are represented by a national mechanics union agreement that expired in December 2002. Negotiations are ongoing between the parties at the national level. The Italian employees are also covered by an local union agreement that expires in December 2004. We have experienced no strikes and believe we have good relations with our employees and their unions.

Hawk’s world headquarters is located in Cleveland, Ohio. We maintain manufacturing and research and development facilities at 16 locations in 5 countries. We are a lessee under operating leases for some of our properties and equipment. Hawk’s principal research facility is located in Solon, Ohio. In addition, research is also performed in a number of the operating divisions’ facilities. We believe that substantially all of our property and equipment is maintained in good condition, adequately insured and suitable for its present and intended use.

We are involved in several lawsuits that have arisen in the ordinary course of our business. We are contesting each of these lawsuits vigorously and believe we have defenses to the allegations that have been made. In our opinion, the outcome of these legal actions will not have a material adverse effect on our financial condition.

No matters were submitted to a vote of security holders during the fourth quarter of 2002.

Our Class A Common Stock has been traded on the New York Stock Exchange since our initial public offering on May 12, 1998 under the symbol “HWK.” The following table sets forth, for the fiscal periods indicated, the high and low closing prices of our Common Stock as reported on the New York Stock Exchange.

Shareholders of record as of February 14, 2003 numbered 84. We estimate that an additional 1,000 shareholders own stock in their accounts at brokerage firms and other financial institutions.

We have never declared or paid, and do not intend to declare or pay, any cash dividends for the foreseeable future and intend to retain earnings for the future operation and expansion of our business. Currently, our Bank Facility and Senior Note indenture prohibit the payment of cash dividends on the Class A Common Stock.

Effective October 25, 2002, we issued 750 shares of our Class A Common Stock, having a market value at the time of issuance of $1,875, to Andrew T. Berlin as part of his annual compensation for services as a director of Hawk. The shares were issued without registration in an offering not involving any public offering as permitted by Section 4(2) of the Securities Act of 1933.


(1)	Reflects primarily a work force reduction at our domestic facilities for approximately 160 salaried and production personnel.

(2)	In accordance with the non-amortization provisions of SFAS 142 (see “Note B — Significant Accounting Policies” to the accompanying consolidated financial statements beginning on page 27 of this Form 10-K), the Company eliminated the amortization of goodwill in 2002.

(3)	Reflects premium paid on partial redemption of Senior Notes and write-off of deferred financing costs in conjunction with the Company’s initial public offering, net of $2.3 million in income taxes.

You should read this discussion in conjunction with the consolidated financial statements, notes and tables included in Part II, Item 8 of this Form 10-K. Management’s discussion and analysis may contain forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. However, this performance involves risks and uncertainties that may cause actual results to differ materially from those expressed in the forward-looking statements. Some of the important factors that could cause our actual results or outcomes to differ from those discussed are listed under “Forward-Looking Statements.”

Through our subsidiaries, we operate primarily in four reportable segments: friction products, precision components, performance automotive and motors. Our results of operations are affected by a variety of factors, including but not limited to, general economic conditions, customer demand for our products, competition, raw material pricing and availability, labor relations with our personnel and political conditions in the countries in which we operate. We sell a wide range of products that have a corresponding range of gross margins. Our consolidated gross margin is affected by product mix, selling prices, material and labor costs as well as our ability to absorb overhead costs resulting from fluctuations in demand for our products.

In 2002, our income from operations increased to $9.8 million, or 172 percent, over the prior year. This increase was attributable primarily to sales volume increases in most of the end-markets we serve in our friction and precision component segments with the notable exception of aircraft, improved absorption of fixed costs as a result of the volume increases, cost reduction initiatives and decreased goodwill amortization expense. Partially offsetting these improvements were higher than expected operating costs incurred at our Mexican facility.

Despite the sales increases we achieved during 2002, we expect that early 2003 will continue to be challenging in most of the markets we serve. Based on discussions with our customer base, we expect our revenue growth during the year will be weighted toward the second half of 2003. We believe that the aerospace market will decline approximately 15% for the full year 2003 compared to 2002, as a result of the continuing softness in that market. Other than aerospace, we expect that our overall sales growth will continue primarily from new product introductions across our segments and sales made from our international facilities. For the full year of 2003, with a gradually improving economy, we are anticipating our segments to provide revenue growth of approximately 10 percent. Although we anticipate improvement in our motor segment as we continue to take steps to improve manufacturing efficiency, we expect that the margins in this segment will continue to lag significantly behind our other segments.

Hawk’s critical accounting policies, including the assumptions and judgments underlying them are more fully described in “Note B — Significant Accounting Policies” of the notes to the accompanying consolidated financial statements beginning on page 27 of this Form 10-K. Some of our accounting policies require the application of significant judgment by us in the preparation of our financial statements. In applying these policies, we use our best judgment to determine the underlying assumptions that are used in calculating the estimates that affect the reported values on our financial statements. We base our estimates and assumptions on historical experience and other factors that we consider relevant. If these estimates differ materially from actual results, the impact on our consolidated financial statements may be material. Hawk’s critical accounting policies include the following:


	•	Revenue Recognition. Revenues are recognized when products are shipped and title has transferred to the customer.

	•	Allowance for Doubtful Accounts. Our policy regarding the collectibility of accounts receivables is based on a number of factors. In circumstances where a specific customer is unable to pay its obligations, we record a specific allowance for bad debts against amounts due to reduce the net recognized receivable


		to the amount that we reasonably expect to collect. If circumstances change, estimates of the recoverability of the amounts due us could change.

	•	Inventory Reserves. Reserves for slow moving and obsolete inventories are developed based on historical experience and product demand. We continuously evaluate the adequacy of our inventory reserves and make adjustments to the reserves as required.

	•	Goodwill. Goodwill represents the excess of the cost of companies we acquired over the fair value of their net assets as of the date of acquisition. In accordance with Statement of Financial Accounting Standard (SFAS) No. 142, “Goodwill and Other Intangible Assets” (SFAS 142), our policy is to periodically, and in no case less than annually, review our goodwill and other intangible assets based upon the evaluation of such factors as the occurrence of a significant adverse event or change in the environment in which one of our business unit operates would become less than the amount of the asset as reflected in our financial statements. An impairment loss would be recorded in the period such determination is made based on the fair value of the related assets.

	•	Pension and Postretirement Benefits. We account for our defined benefit pension plans in accordance with SFAS No. 87, “Employers’ Accounting for Pensions” (SFAS 87) which requires that amounts recognized in financial statements be determined on an actuarial basis. The most significant element in determining our pension income (expense) in accordance with SFAS 87 is the expected return on plan assets. We have assumed that the expected weighted average long-term rate of return on plan assets will be 8.6 percent. Based on our existing and forecasted asset allocation and related long-term investment performance results, we believe that our assumption of future returns is reasonable. The assumed long-term rate of return on assets is applied to a calculated value of plan assets, which recognizes changes in the fair value of plan assets in a systematic manner over five years. This produces the expected return on plan assets that is included in pension income (expense). The difference between this expected return and the actual return on plan assets is deferred. The net deferral of past asset gains (losses) affects the calculated value of plan assets and, ultimately, future pension income (expense).

		We determine the discount rate to be used to discount plan liabilities at their measurement date, December 31. The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year. At December 31, 2002, we determined this rate to be 6.75 percent. Changes in discount rates over the past three years have not materially affected pension income (expense), and the net effect of changes in the discount rate, as well as the net effect of other changes in actuarial assumptions and experience, have been deferred as allowed by SFAS 87.

We expect pension expense to be approximately $1.5 million in 2003, compared to $0.4 million in 2002.


	•	Insurance. We use a combination of insurance and self-insurance for a number of risks including property, general liability, directors’ and officers’ liability, workers’ compensation, vehicle liability and employee-related health care benefits. Liabilities associated with the risks that are retained are estimated by considering various historical trends and forward-looking assumptions. The estimated accruals for these liabilities could be significantly affected if future occurrences and claims differ from these assumptions and historical trends.

Over the past year, the cost and availability of commercial insurance as a result of significant changes in the insurance market have impacted our insurance coverages. We have renewed all of our insurance policies for 2003, although at additional premium cost, and with increased exposures to losses.


	•	Contingencies. Our treatment of contingent liabilities in the financial statements is based on the expected outcome of the applicable contingency. In the ordinary course of business, we consult with legal counsel on matters related to litigation and other experts both within and outside of the Company. We will accrue a liability if the likelihood of an adverse outcome is probable of occurrence and the amount is estimable. We will not accrue a liability if either the likelihood of an adverse outcome is only reasonably possible or an estimate is not determinable.


	•	Income Taxes. Our effective tax rate, taxes payable and other tax assets and liabilities reflect the current tax rates in the domestic and foreign tax jurisdictions in which we operate.

	•	Foreign Currency Translation and Transactions. Assets and liabilities of our foreign operations are translated using year-end exchange rates, and revenues and expenses are translated using exchange rates as determined throughout the year. Gains or losses resulting from translation are included in a separate component of our 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 is included in other income (expense) in our statement of operations.

Net Sales. Our consolidated net sales for 2002 were $197.3 million, an increase of $12.9 million or 7 percent from the same period in 2001. The increase in net sales, primarily a result of a gradual economic recovery during the year in the industrial markets we serve, resulted in all of our segments, with the exception of performance automotive. Additionally, net sales in our motor segment were positively impacted by increased sales originating from our Mexican facility.


	•	Friction Segment. Net sales in the friction segment, our largest, were $106.2 million in 2002, an increase of 2 percent compared to 2001. As a result of improved operating environments in the United States and Europe, we experienced increases in most of our major markets, including construction, agriculture and automotive. The notable exception was our aerospace market. As a result of the continuing softness in the commercial aerospace market during 2002, our sales to this market were down 16 percent from the comparable period in 2001. This segment also experienced strong sales growth out of our international operations in 2002. Net sales, exclusive of any translation gains, at our Italian facility increased 14 percent compared to 2001, as a result of new product introductions and market share gains. Net sales at our Chinese facility were up 251 percent compared to 2001.

	•	Precision Component Segment. Net sales in the precision components segment were $65.8 million, an increase of 13 percent compared to 2001. The increase in net sales was primarily attributable to gradually improving conditions in the general industrial segments of the domestic economy. We experienced sales increases in nearly all of the major markets served by this segment, including pump and motor, lawn and garden, truck and appliance.

	•	Performance Automotive. Net sales in our performance automotive segment were $12.6 million, a decrease of 3 percent compared to net sales of $13.0 million in 2001. The decrease in revenues was primarily attributable to the softness in the end markets we serve from our clutch manufacturing operation. Net sales at our transmission and driveline systems manufacturing facility benefited from the continued popularity of racing, particularly in the NASCAR racing series.

	•	Motor Segment. Net sales in our motor segment were $12.7 million, an increase of 41 percent from the same period in 2001. While a majority of the sales growth came as a result of the production ramp up at our Monterrey, Mexico facility, the segment benefited from the establishment of a number of new customer relationships serviced from our U.S. and Mexican facilities.

Gross Profit. Gross profit increased $3.7 million to $43.7 million during 2002, a 9 percent increase compared to gross profit of $40.0 million in 2001. The gross profit margin increased to 22.2 percent of net sales in 2002 from 21.7 percent of net sales in the comparable period of 2001.


	•	Friction Segment. Our friction segment reported gross profit of $25.4 million or 24 percent of net sales in 2002 compared to $24.9 million or 24 percent of net sales in 2001. The flat gross profit margin was primarily the result of product mix, especially in our aerospace market, as older aircraft, which have higher margins for us, were retired or put out of service by the commercial airlines. We also continued to support our new facility in China during 2002. Although the facility operated at negative margins for the


		full year, it achieved break even results for the last half of 2002. The decline in gross margin was partially offset by reductions in incentive compensation costs.

	•	Precision Components Segment. Gross profit in our precision components segment was $14.6 million or 22 percent of net sales in 2002 compared to $11.5 million or 20 percent of net sales in 2001. The increase in this segment’s margins was primarily the result of the volume increases and our ability to leverage and absorb the fixed charges generated by the segment and reductions in incentive compensations costs.

	•	Performance Automotive Segment. Our performance automotive segment reported gross profit of $3.7 million or 29 percent of net sales in 2002 compared to $3.9 million or 30 percent of net sales in 2001. The decline in gross profit was primarily the result of volume declines at our performance clutch manufacturing facility.

	•	Motor Segment. Our motor segment reported break even gross profit in 2002. This compared to a gross margin loss of $0.3 million in 2001. Despite ongoing manufacturing inefficiencies at our facilities, the improvement in our gross margin was primarily the result of the sales volume increases and the resulting absorption of fixed costs at our Mexican facility in 2002.

Selling, Technical and Administrative Expenses. Selling, technical and administrative (ST&A) expenses increased $1.8 million, or 6 percent, to $32.6 million in 2002 from $30.8 million during 2001. As a percentage of net sales, ST&A remained stable at 17 percent in 2002 and 2001. The increase in ST&A expenses resulted primarily from continuing start-up expenditures incurred at our Mexican rotor manufacturing and Chinese friction material facilities, increased insurance and personnel costs associated with our long-term sales and growth initiatives. Additionally, we incurred legal expenses in our performance automotive segment related to litigation that was resolved in the second quarter of 2002. These cost increases were partially offset by reductions in incentive compensation costs. We spent $3.5 million, or 2 percent of our net sales on product research and development compared to $3.9 million in 2001.

Amortization of Intangibles. Results for the year ended December 31, 2002 were favorably impacted by the adoption of SFAS 142 on January 1, 2002, which eliminated the amortization of goodwill on indefinite-life intangible assets. This accounting change reduced our amortization expense for the year by $3.2 million compared to 2001.

Income from Operations. Income from operations increased $6.2 million or 172 percent to $9.8 million in 2002 from $3.6 million in 2001. Income from operations as a percentage of net sales increased to 5 percent in 2002 from 2 percent in 2001. The increase was primarily the result of the increased sales volume, improved absorption of fixed costs as a result of the volume increases, cost reduction initiatives and a reduction of amortization expense of $3.2 million as a result of the adoption of SFAS 142. This improvement to income from operations was partially offset by continuing support of our operations in China, higher than anticipated operating costs incurred at our Mexican rotor manufacturing facility and continued support of our metal injection molding facility during the year. During the year ended December 31, 2001, we recognized an expense of $1.1 million in restructuring charges to adjust our business plan to reflect the economic slowdown. No such charge was taken in 2002.

As a result of the items discussed above, results from operations at our segments were as follows:


	•	Our friction segment’s income from operations increased $1.1 million or 17 percent to $7.5 million in 2002 from $6.4 million in 2001.

	•	Income from operations at our precision components segment was $4.1 million in 2002, an increase of $3.8 million, or 8 percent, compared to $0.3 million in 2001.

	•	Income from operations at our performance automotive segment was $1.0 million in 2002, an increase of $0.7 million, compared to $0.3 million in 2001.

	•	The loss from operations in our motor segment decreased to $2.8 million in 2002 from $3.4 million in 2001.

Other Expense. Other Expense was $0.7 million in 2002 compared to $0.5 million in 2001. The major expense items in 2002 included, fees paid by us in the first quarter of 2002 to effect an amendment to our Term Loan and Revolving Credit Facility, costs associated with our termination of a product licensing agreement in our precision components segment, and to a lesser extent, foreign exchange transaction losses. In 2001, other expense was primarily comprised of the recognition of the fair value of our then outstanding swap agreement, in addition to foreign currency transaction losses.

Interest Expense. Interest expense increased $0.3 million, or 3 percent, to $9.8 million in 2002 from $9.5 million in 2001. The increase is primarily attributable to increased borrowings during the year and an increase in the interest rate on our Senior Notes. Following our exchange offer in October 2002, the interest rate on our Senior Notes increased from 10.25% to 12%. This increase was partially offset by lower interest rates paid under our new Bank Facility, which was also entered into in October 2002. Additionally, we recorded $0.1 million in interest expense in December 2002, to reflect the issuance of payment in kind (PIK) interest under the terms of the Senior Notes leverage ratio test for the period ended December 31, 2002.

Exchange Offer Costs. During the year ended December 31, 2002, we incurred third-party fees and expenses of $1.9 million related to the exchange of our Senior Notes for our then outstanding Old Senior Notes.

Income Taxes. We recorded a tax benefit of $1.5 million, or 59 percent of pre-tax loss, in 2002 compared to a benefit of $1.9 million, or 30 percent of pre-tax loss in 2001. The increase in the effective benefit is primarily the result of the reversal of tax accruals due to the expiration of various statutes of limitations covering periods in which we provided for potential tax liabilities. An analysis of changes in our income taxes and our effective tax rate is contained in “Note J — Income Taxes” in the accompanying consolidated financial statements beginning on page 27 of this Form 10-K.

Cumulative Effect of Change in Accounting Principle. In accordance with the requirements of SFAS 142, we recorded a charge for the cumulative effect of change in accounting principle of $17.2 million for the year ended December 31, 2002. See “Note B — Significant Accounting Policies” in the accompanying consolidated financial statements beginning on page 27 of this Form 10-K. This charge represents the write-off of $21.5 million of goodwill ($17.2 million, net of income taxes of $4.3 million).

Net (Loss) Income. As a result of the factors noted above, we reported a net loss of $18.2 million in 2002, compared to a net loss of $4.3 million in 2001.

Net Sales. Our consolidated net sales for 2001 were $184.4 million, a decrease of $17.9 million or 9% from the same period in 2000. The decline in net sales, primarily a result of the prolonged weakness in the markets we serve, resulted in a difficult operating environment in most of our reporting segments. The terrorist attacks on September 11, 2001, in particular, had a significant negative impact on our aircraft friction business.


	•	Friction Segment. Net sales in the friction segment were $104.1 million in 2001, a decrease of 10% compared to 2000. The major markets served by this segment all experienced weak operating conditions in 2001. We experienced declines in heavy truck, agriculture, construction and specialty friction for the full year 2001 as a result of the soft operating conditions in the United States and Europe. Net sales in the aerospace market showed a decline for the year, most notably in the fourth quarter of 2001, as a result of the events of September 11.

	•	Precision Components Segment. Net sales in the precision components segment were $58.3 million, a decrease of 19% compared to 2000. The decrease was primarily attributable to continuing softness in the general industrial segments of the domestic economy. We experienced sales weakness in nearly all of the markets served by this segment, including heavy truck, lawn and garden, pump and motor, appliance and office equipment. While net sales in the segment were down as a result of the general softness of economic operating environment, we feel the sales declines were further exacerbated by negative inventory realignments by our customers in the last half of 2001.


	•	Performance Automotive Segment. Net sales in our performance automotive segment were $13.0 million, an increase of 132% compared to net sales of $5.6 million in 2000. The increase in revenues was primarily attributable to the acquisition of our Tex Racing subsidiary in November 2000. Additionally, net sales in this segment benefited from the continued popularity of racing, particularly in the NASCAR and CART racing series, both served by us.

	•	Motor Segment. Net sales in our motor segment were $9.0 million, an increase of 7% from the same period in 2000. The sales growth in the motor segment came from our new rotor manufacturing facility in Monterrey, Mexico, which began shipments in 2001. This facility is expected to service the growing motor manufacturing base in that region. Net sales from our Alton, Illinois facility were flat in 2001 as a result of the soft economic conditions experienced in the United States.

Gross Profit. Gross profit decreased $14.9 million to $40.0 million during 2001, a 27% decrease compared to gross profit of $54.9 million in 2000. The gross profit margin decreased to 22% of net sales in 2001 from 27% of net sales in the comparable period in 2000. Each of our segments experienced decreased margins primarily as a result of the deteriorating economic conditions experienced in 2001.


	•	Friction Segment. Our friction segment reported gross profit of $24.9 million or 24% of net sales in 2001 compared to $30.9 million or 27% of net sales in 2000. The decline in our gross profit margin was the result of lower sales volumes, product mix and our inability to absorb all of the fixed costs of our manufacturing facilities as a result of the deteriorated economic conditions experienced in 2001; especially the impact of the reduction in sales to the aircraft market in the fourth quarter as a result of the events of September 11. We also continued to support our start-up facility in China during 2001. Although the facility began shipments in 2001, it operated at negative margins for the entire year.

	•	Precision Components Segment. Gross profit in the precision components segment was $11.5 million or 20% of net sales in 2001 compared to $19.4 million or 27% of net sales in 2000. The sharp decline in this segment’s margins was primarily the result of the severe economic downturn and the resulting volume declines and our inability to cover all of the unabsorbed fixed charges generated by the segment. We also provided operating support to our start-up metal injection molding company, Net Shape, which was acquired in December 2000.

	•	Performance Automotive Segment. Our performance automotive segment reported gross profit of $3.9 million or 30% of net sales in 2001 compared to $2.8 million or 50% of net sales in 2000. The decline in gross profit was primarily the result of manufacturing inefficiencies and inventory realignments at our performance clutch manufacturing facility.

	•	Motor Segment. We reported a gross margin loss in the motor segment for 2001. The loss was $0.3 million compared to a gross profit of $1.8 million in 2000. The negative gross margin was primarily the result of our continued support of our start-up rotor manufacturing facility in Mexico during 2001. Additionally, as a result of softness in the domestic motor business in 2001, our domestic margin declined in 2001, since we were unable to absorb all of the fixed costs.

Selling, Technical and Administrative Expenses. ST&A expenses decreased $0.5 million, or 2%, to $30.8 million in 2001 from $31.3 million during 2000. As a percentage of net sales, ST&A increased to 17% in 2001 from 15% in 2000. The increase in ST&A expenses as a percentage of net sales resulted primarily from sales volume reductions, continuing start-up expenditures incurred at our Mexican rotor manufacturing and Chinese friction material facilities, personnel costs associated with our long-term sales and growth initiatives and charges to settle litigation in our friction segment. We spent $3.9 million, or 2% of our net sales on product research and development compared to $3.5 million in 2000.

Restructuring Costs. In June 2001, we announced a restructuring program to adjust our near-term business plan to reflect the current economic slowdown. This restructuring initiative included a workforce reduction at our domestic facilities and other charges. As a result of the restructuring initiative, we recorded an expense of $1.1 million in 2001. The restructuring program included a reduction of approximately 160 employees, including salary and production personnel, primarily at our domestic locations. Restructuring activities were substantially completed in the first quarter of 2002.

Income from Operations. Income from operations decreased $15.9 million or 82% to $3.6 million in 2001 from $19.5 million in 2000. Income from operations as a percentage of net sales decreased to 2% in 2001 from 10% in 2000. The decline was primarily the result of the sales volume declines due to the economic slowdown affecting our markets, continuing support of our start-up operations, charges to settle litigation in our performance automotive segment, increased depreciation expense and the restructuring charge we took in the second quarter of 2001.

As a result of the items discussed above, results from operations at our segments were as follows:


	•	Our friction segment’s income from operations decreased $5.1 million or 44% to $6.4 million in 2001 from $11.5 million in 2000,

	•	Income from operations at the precision components segment was $0.3 million in 2001, a decrease of $8.1 million or 96% compared to $8.4 million in 2000,

	•	The performance automotive segment reported income from operations of $0.3 million, a decrease of $0.6 million in 2001 compared to 2000, and

	•	The loss from operations in the motor segment increased to $3.4 million in 2001 from $1.3 million in 2000.

Other Expense. Other expense was $0.5 million in 2001, the same as reported in 2000. The expense in 2001 primarily reflected the fair value of our interest rate swap agreement and foreign currency transaction losses we incurred primarily through our Italian facility.

Interest Expense. Interest expense increased $0.5 million, or 6%, to $9.5 million in 2001 from $9.0 million in 2000. The increase is primarily attributable to increased borrowings by us during the year partially offset by lower interest rates.

Income Taxes. The provision for income taxes decreased $6.2 million to a benefit of $1.9 million in 2001 from a tax expense of $4.4 million in 2000 primarily because of the losses incurred in 2001. Our effective tax benefit for the year ended is 30% compared to a tax provision of 43% in 2000. The primary factors affecting our effective tax rate in 2001 are nondeductible goodwill amortization and required state and local tax provisions. An analysis of changes in our income taxes and our effective tax rate is contained in “Note J — Income Taxes” in the accompanying consolidated financial statements beginning on page 27 of this Form 10-K.

Net (Loss) Income. As a result of the factors noted above, we reported a net loss of $4.3 million in 2001, compared to net income of $5.8 million in 2000.

Our primary financing requirements are (1) for capital expenditures for maintenance, replacement and acquisitions of equipment, expansion of capacity, productivity improvements and product development, (2) for funding our day-to-day working capital requirements and (3) to pay interest on, and to repay principal of, our indebtedness. Hawk’s primary source of funds for conducting its business activities and servicing its indebtedness has been cash generated from operations and borrowings under our bank credit facility.

In October 2002, we entered into a new senior secured credit facility (the Bank Facility). The Bank Facility, which is available for general corporate purposes, has a maximum commitment of $53.0 million, including a letter of credit facility of up to $5.0 million, comprised of a $50.0 million revolving credit component and a $3.0 million capital expenditure loan component. The capital expenditure loan component, available to us after December 31, 2002, may be used to finance 80% of the cost of new 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 Bank Facility.

The Bank Facility is collateralized by a security interest in the accounts receivable, inventory, equipment and real estate and other assets of Hawk and our domestic subsidiaries, and we have pledged the stock of all of our domestic subsidiaries and up to 65% of the stock of certain of our foreign subsidiaries as collateral. Restrictive

terms of the Bank Facility require that we maintain specified financial ratios including leverage and fixed charge ratios, and comply with other loan covenants. The interest rates on the Bank Facility range from 225 to 375 basis points over the London Interbank Offered Rates, or alternatively, 0 to 100 basis points over the prime rate. The Bank Facility matures 120 days prior to the maturity of the Senior Notes in 2006. The Bank Facility replaced the Term Loan and Revolving Credit Facility. As of December 31, 2002, $36.3 million was outstanding under the Bank Facility and we had approximately $5.5 million available for future borrowings.

Emerging Issues Task Force (EITF) Issue No. 95-22 “Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements That Include both a Subjective Acceleration Clause and a Lock-Box Arrangement”, we are required to classify all of our outstanding debt under the Bank Facility as a current liability. However, it is our intention to manage the bank credit facility as long-term debt with a final maturity date in 2006, as provided for in the agreement that we signed. We expect the long-term availability under the revolving credit portion of the Bank Facility to be $50.0 million for the next twelve month period, subject to the borrowing base.

In October 2002, we exchanged $64.4 million of our $65.0 million, 10 1/4% Senior Notes due December 1, 2003 (Old Senior Notes), for 12% Senior Notes due December 1, 2006 (Senior Notes). The Senior Notes were issued on October 23, 2002. The remaining principal of the Old Senior Notes in the amount of $0.6 million remain outstanding and will mature on December 1, 2003. In addition, the holders of the Old Senior Notes that participated in the exchange for 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 $1.6 million, was issued in the form of additional Senior Notes and is payable to the holders at maturity of the Senior Notes. We incurred $1.9 million of third party costs in connection with the exchange. The Senior Notes are general unsecured senior obligations of Hawk and are fully and unconditionally guaranteed, on a joint and several basis, by all of our domestic wholly-owned subsidiaries. The Senior Notes accrue interest at a rate of 12% 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 our 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, we will be required to pay additional 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 Senior Notes. As of December 31, 2002, the leverage ratio test will require us to issue $0.1 million of PIK interest, calculated at a rate of 1.00%, in the form of additional Senior Notes.

We have the option to redeem the Senior Notes in whole or in part during the twelve months beginning December 1, 2002 at 105% of the aggregate principal amount thereof, beginning December 1, 2003 at 102.5% 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 Senior Note indenture, each holder of the notes will have the right to require us to repurchase all or any part of their 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 Senior Notes permit Hawk and its subsidiaries to incur additional indebtedness without limitation, provided that we continue to meet a cash flow coverage ratio. As of December 31, 2002, we did not meet the prescribed ratio. The failure to meet the ratio does not constitute a default under the Senior Note indenture. Rather, the Senior Note indenture continues to permit indebtedness subject to limitations. Our Bank Facility, which is secured by liens on all of our assets and the assets of our subsidiaries, is permitted. We do not believe that our operations will be materially impacted by the limitation on indebtedness arising under the Senior Note indenture.

The Senior Notes prohibit the payment of cash dividends on the Company’s Class A Common Stock. The Senior Notes also contain other covenants limiting our ability to make certain 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 Senior Notes considers non-compliance with the limitations events of default. In addition to

non-payment of interest and principal amounts, the Senior Notes also considers default with respect to other indebtedness in excess of $5.0 million 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.

Net cash used in operating activities was $2.7 million in 2002 compared to cash provided by operating activities of $14.5 million in 2001. Cash used in our operations in 2002 was primarily attributable to the loss we incurred in 2002, an increase in our receivables, inventories, other working capital assets and the continued operating support of our foreign facilities, partially offset by non-cash charges of depreciation and amortization. Cash provided by operations in 2001 was primarily attributable to non-cash charges of depreciation and amortization partially offset by the loss we experienced in 2001. Our net working capital, exclusive of the outstanding debt under the Bank Facility, which is classified as a current liability for accounting purposes, was $46.3 million at year-end 2002 compared to $31.5 million at year-end 2001.

We used cash in investing activities of $11.5 million in 2002 and $9.1 million in 2001 for the purchase of property, plant and equipment.

Cash provided by financing activities was $12.8 million in 2002. The increase in 2002 was the primarily the result of our additional borrowings to support the increase in working capital assets, the support of our facilities in Mexico and China and our purchases of property, plant and equipment during the year. Our net cash used in financing activities was $6.2 million in 2001 primarily for the payment of long-term debt.

We believe that cash flow from operating activities and borrowings under our Bank Facility will be sufficient to satisfy our working capital, capital expenditures and debt requirements and to finance our continued internal growth needs for the next twelve months.

As of December 31, 2002, we have available to us U.S. net operating loss tax carrybacks which will result in approximately $3.5 million in federal income tax refunds, which we expect to receive in the first half of 2003.

Statements that are not historical facts, including statements about our confidence in our prospects and strategies and our expectations about growth of existing markets and our 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 us or any other person that our objectives or plans will be achieved. Many factors could cause our actual results to differ materially and adversely from those in the forward-looking statements, including the following:


	•	our ability to continue to meet the terms of our debt and bank credit facilities which contain a number of significant financial covenants and other restrictions;

	•	the effect of our debt service requirements on funds available for operations and future business opportunities and our vulnerability to adverse general economic and industry conditions and competition;

	•	the continuing impact of the reduction in air travel, the bankruptcy filings by a number of major airline companies and the weak financial condition of other airlines on our aircraft brake business, including the decline in gross profit margins in this market as a result of the retirement of many older airplanes that used our product;

	•	our ability to effectively utilize all of our manufacturing capacity as the industrial and commercial end-markets we serve gradually improve;


	•	our ability to generate profits at our facility in Mexico, including our ability to resolve the manufacturing inefficiencies being incurred at that facility;

	•	the effect of competition by manufacturers using new or different technologies;

	•	the effect on our 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;

	•	our ability to negotiate new agreements, as they expire, with our unions representing certain of our employees, on terms favorable to us or without experiencing work stoppages;

	•	the effect of any interruption in our 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 our products to meet stringent Federal Aviation Administration criteria and testing requirements.

You must consider these risks and others that are detailed in this Form 10-K in deciding whether to invest.

In October 2001, the FASB issued SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). SFAS 144 supersedes SFAS No. 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”, 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 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 144 was effective for us in 2002. The adoption of SFAS 144 did not have a material impact on our financial results.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Exit or Disposal Activities” (SFAS 146). SFAS 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 of EITF 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).” SFAS 146 will be effective in 2003. The adoption of SFAS 146 is not expected to have a material impact on our financial results.

In December 2002, we adopted the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure” (SFAS 148). SFAS 148 requires prominent disclosure regarding the method used by us to account for stock based employee compensation and the effect of the method used on reported results.

Market Risk Disclosures. The following discussion about our market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. We do not use derivative financial instruments for speculative or trading purposes.

Interest Rate Sensitivity. At December 31, 2002, approximately 33 percent, or $36.3 million, of our debt obligations bear interest at a variable rate. Our primary interest rate risk exposure results from floating rate debt. If interest rates were to increase 100 basis points (1.0%) from December 31, 2002 rates, and assuming no changes in debt from December 31, 2002 levels, our additional annual interest expense would be approximately

The interest rates on our long-term debt reflect market rates and therefore, the carrying value of long-term debt approximates fair value.

The following table presents our total contractual obligations and other commercial commitments as of December 31, 2002 (in millions):

Foreign Currency Exchange Risk. The majority of our receipts and expenditures are contracted in U.S. dollars, and we do not consider the market risk exposure relating to currency exchange to be material at this time. We currently do not hedge our foreign currency exposure and, therefore, have not entered into any forward foreign exchange contracts to hedge foreign currency transactions. We have operations outside the United States with foreign currency denominated assets and liabilities, primarily denominated in Euro, Canadian dollars, Mexican pesos and Chinese renminbi. Because we have foreign currency denominated assets and liabilities, financial exposure may result, primarily from the timing of transactions and the movement of exchange rates. We do not expect that our unhedged foreign currency balance sheet exposure as of December 31, 2002 will result in a significant impact on our earnings or cash flows.

We have audited the accompanying consolidated balance sheets of Hawk Corporation and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hawk Corporation and subsidiaries at December 31, 2002 and 2001 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.

As discussed in Note B to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill.

Hawk Corporation (the Company) designs, engineers, manufactures and markets specialized components used in a wide variety of aerospace, industrial and commercial applications.

The consolidated financial statements of the Company include its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in the accompanying financial statements.

Certain amounts have been reclassified in prior periods to conform to the 2002 presentation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that effect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

The Company considers investments in highly liquid investments with an initial maturity of three months or less when purchased to be cash equivalents.

Inventories are stated at the lower of cost or market. Cost includes materials, labor and overhead and is determined by the first-in, first-out (FIFO) method.

Property, plant and equipment are stated at cost and include expenditures for additions and major improvements. Expenditures for repairs and maintenance are charged to operations as incurred. The Company uses the straight-line and double declining methods of depreciation for financial reporting purposes. Buildings and improvements are depreciated over periods ranging from 15 to 33 years. Machinery and equipment are depreciated over periods ranging from 4 to 12 years. Furniture and fixtures are depreciated over periods ranging from 3 to 10 years. Accelerated methods of depreciation are used for federal income tax purposes. When assets are sold or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the Statement of Operations. The Company’s depreciation expense was $10,994 in 2002, $11,381 in 2001 and $10,815 in 2000.

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 142 “Goodwill and Other Intangible Assets” (SFAS 142). This statement eliminated the requirement to amortize goodwill and indefinite-lived intangibles for 2002 and future years. The Company adopted SFAS 142 as of January 1, 2002. The pro forma effect of applying the non-amortization provisions of SFAS 142 for the year ended December 31, 2001 and 2000 would have been to decrease amortization expense by approximately $3,180 and $2,810, respectively, and would have resulted in basic and diluted (loss) earnings per share of $(.23) and $.92, in each respective year.

Upon adoption of SFAS 142 the Company changed the accounting for goodwill and other indefinite-lived intangible assets from an amortization methodology to an impairment-only methodology. SFAS 142 provided for a six month transitional period, from the effective date of adoption, for the Company to perform an initial assessment of whether goodwill was impaired. The Company performed the assessment during the second quarter of 2002, by comparing the fair value of each of its reporting units, to their respective carrying values. The Company, with the assistance of independent valuation experts, concluded that certain of its goodwill was impaired at January 1, 2002 by $21,452 ($17,200 after tax) or $2.01 per basic and diluted share and was reflected as a cumulative effect of change in accounting principle. 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 reporting unit and a market approach of guideline companies and similar transactions. The impairment resulted from the carrying value exceeding the fair value of certain reporting units. 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.

SFAS 142 requires a review at least annually of the carrying value of indefinite-lived assets and goodwill. The Company performed the annual impairment test as of October 31, 2002 and concluded the fair value of the reporting units exceeded their respective carrying values.

The Company uses a combination of insurance and self-insurance for a number of risks including property, general liability, directors’ and officers’ liability, workers’ compensation, vehicle liability and employee-related health care benefits. Liabilities associated with the risks that are retained are estimated by considering various historical trends and forward looking assumptions. The estimated accruals for these liabilities could be significantly affected if future occurrences and claims differ from these assumptions and historical trends.

The Company’s treatment of contingent liabilities in the financial statements is based on the expected outcome of the applicable contingency. In the ordinary course of business the Company consults with legal counsel on matters related to litigation and other experts both within and outside of the Company. The Company will accrue a liability if the likelihood of an adverse outcome is probable of occurrence and the amount is estimable. The Company will not accrue a liability if either the likelihood of an adverse outcome is only reasonably possible or an estimate is not determinable.

The Company’s primary functional currency is the U.S. Dollar. Assets and liabilities of the Company denominated in foreign currencies are translated into U.S. dollars at the balance sheet date, while revenues and expenses are translated at weighted average exchange rates. Gains and losses from foreign currency transactions are included in the results of operations. Gains and losses resulting from translation are included in accumulated other comprehensive loss, a component of shareholders’ equity.

Revenue from the sale of the Company’s products is recognized upon shipment to the customer and when title has transferred. Substantially all of the Company’s revenues are derived from fixed price purchase orders. Costs and related expenses to manufacture the products are recorded as costs of sales when the related revenue is recognized. The Company establishes bad debt reserves based on historical experience and believes that the collection of revenues, net of the bad debt reserves, is reasonably assured.

The Company provides credit, in the normal course of its business, to original equipment and aftermarket manufacturers. The Company’s customers are not concentrated in any specific geographic region. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses which, when realized, have been within the range of management’s expectations.

Product research and development costs are expensed as incurred. The Company’s expenditures for product research and development and engineering were approximately $3,470 in 2002, $3,893 in 2001 and $3,533 in 2000.

The Company uses the liability method in measuring the provision for income taxes and recognizing deferred tax assets and liabilities in the balance sheet. The liability method requires that deferred income taxes reflect the tax consequences of currently enacted tax laws and rates for differences between the tax and financial reporting basis of assets and liabilities.

In accordance with the provisions of SFAS 123, “Accounting for Stock-Based Compensation,” the Company has elected to continue applying the provisions of Accounting Principles Board Opinion 25 and related interpretations in accounting for its stock-based compensation plans. Accordingly, the Company does not recognize compensation expense for stock options when the stock option price at the grant date is equal to or greater than the fair market value of the stock at that date. The following illustrates the pro forma effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123:

The fair value of the options granted used to compute pro forma net (loss) income and (loss) earnings per share is the estimated present value at the grant date using the Black-Scholes option-pricing model with the following assumptions:

In December 2002, the Company adopted the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure” (SFAS 148). SFAS 148 requires prominent disclosure

regarding the method used by the Company to account for stock-based employee compensation and the effect of the method used on reported results.

The Company’s financial instruments include cash and cash equivalents, short-term trade receivables, long-term notes receivable, notes payable and debentures. For short-term instruments, the historical carrying value is a reasonable estimate of fair value. Fair values for long-term financial instruments that are not readily marketable are estimated based upon the discounted future cash flows at prevailing market interest rates. Based on these assumptions, management believes that the fair market values of the Company’s financial instruments are not materially different from their respective carrying values as of December 31, 2002.

In October 2001, the FASB issued SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144). SFAS 144 supersedes SFAS No. 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” (SFAS 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 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 144 was effective for the Company in 2002. The adoption of SFAS 144 did not have a material impact on the Company’s financial results.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Exit or Disposal Activities” (SFAS 146). SFAS 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 of Emerging Issues Task Force (EITF) 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).” SFAS 146 will be effective for the Company in 2003. The adoption of SFAS 146 is not expected to have a material impact on the Company’s financial results.

In November 2000, the Company acquired all of the outstanding stock of Tex Racing Enterprises, Inc. (Tex Racing) for $6,030 in cash and a $1,500 note payable to the selling shareholder. The purchase price also includes future contingent payments based on earnings. The Company does not anticipate these contingent payments to be material. The acquisition was accounted for as a purchase. The excess of the purchase price over the estimated fair value of the net assets acquired of $4,700 was being amortized over 15 years, prior to the adoption of SFAS 142. The results of operations of Tex Racing are included in the Company’s consolidated statements of operations since the date of acquisition.

In December 2000, the Company acquired a majority of Net Shape Technologies LLC (Net Shape) membership interests for $480 in cash. The acquisition was accounted for as a purchase. The excess of the purchase price over the estimated fair value of net assets acquired in the amount of $742 was being amortized over 10 years, prior to the adoption of SFAS 142. In February 2002, the Company acquired the remaining interest in Net Shape. The results of operations of Net Shape are included in the Company’s consolidated statements of operations since the dates of acquisition.

In June 2001, the Company announced a restructuring program to adjust their near-term business plan to reflect the current economic slowdown. This restructuring initiative included a workforce reduction at the domestic facilities and other charges. As a result of the restructuring initiative, an expense of $1,055 was recorded

in 2001. The restructuring program included a reduction of approximately 160 employees, including salary and production personnel. All activities under the Company’s restructuring program were substantially completed during the first quarter of 2002.

The Company estimates its amortization expense for its finite-lived intangible assets for each of the next five years to be $732.

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 December 31, 2002 and 2001 by reportable operating segment is as follows:

In October 2002, the Company entered into a new senior secured credit facility (the Bank Facility). The Bank Facility has a maximum commitment of $53,000, including a letter of credit facility of up to $5,000, comprised of a $50,000 revolving credit component and a $3,000 capital expenditure loan component. The capital expenditure loan component, available to the Company after December 31, 2002, may be used to finance 80% of the cost of new equipment purchased after October 18, 2002. The Bank Facility matures 120 days prior to the maturity of the Senior Notes (described below) in 2006. The Bank Facility replaced the Term Loan and Revolving Credit Facility. As of December 31, 2002, $36,327 was outstanding under the Bank Facility.

The Bank 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 subsidiaries and up to 65% of the stock of certain of its foreign subsidiaries as collateral. Restrictive terms of the Bank 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 Bank 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. At December 31, 2002, the average interest rate on the borrowings outstanding under the Bank Facility was 4.4%. The Company is required to pay a commitment fee equal to 0.375% per annum on the unused amount of the Bank Facility, payable quarterly, in arrears. As of December 31, 2002, the Company had approximately $5,500 available for future borrowings, as determined under the borrowing base formula. Additionally, as of December 31, 2002, the Company was in compliance with all of the loan covenants under the Bank Facility.

The revolving credit component of the Bank 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 Bank Facility are as follows:


	•	85% of eligible accounts receivable, plus;

	•	65% of the cost of eligible inventory, excluding work-in-process, plus 25% of the cost of eligible work-in-process (limited to $4.0 million), plus;

	•	$13,000 — The availability under this component of the borrowing base will reduce on a 7 year straight-line amortization basis beginning March 31, 2003. Any reductions in the availability under this component of the borrowing base may be reborrowed, subject to availability, under the receivable and inventory components of the borrowing base.

Borrowings under the capital expenditure loan component of the Bank Facility are available to the Company in the following increments: a) up to $2,000 through December 31, 2003, beginning January 1, 2003 and, b) up to

$1,000 thereafter. At the end of each borrowing period, the principal amount of all borrowings under the capital expenditure loan component borrowed during the applicable borrowing period will begin to amortize monthly over a seven year, straight-line basis. Any remaining unamortized principal balance under the capital expenditure loan component is due and payable on the final maturity date of the Bank Facility.

Pursuant to the guidance of EITF No. 95-22 “Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements That Include both a Subjective Acceleration Clause and a Lock-Box Arrangement,” the Company is required to classify all of its outstanding debt under the Bank Facility as a current liability. However, it is the intention of the Company to manage the bank credit facility as long-term debt with a final maturity date in 2006. The Company expects the long-term availability under the revolving credit portion of the bank credit facility to be $50,000 for the next twelve month period, subject to the borrowing base.

In October 2002, the Company exchanged $64,417 of its $65,000, 10 1/4% Senior Notes due December 1, 2003 (Old Senior Notes), for 12% Senior Notes due December 1, 2006 (Senior Notes). The Senior Notes were issued on October 23, 2002. The remaining outstanding principal of the Old Senior Notes in the amount of $583 will mature on December 1, 2003. In addition, the holders of the Old Senior Notes that participated in the exchange for 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 additional Senior Notes and is payable to the holders at maturity. The Company incurred $1,928 of third party costs in connection with the exchange. The 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 Senior Notes accrue interest at a rate of 12% 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 Senior Notes. As of December 31, 2002, the leverage ratio test will require the Company to issue $124 of PIK interest, calculated at a rate of 1.00%, in the form of additional Senior Notes.

The Company has the option to redeem the Senior Notes in whole or in part during the twelve months beginning December 1, 2002 at 105% of the aggregate principal amount thereof, beginning December 1, 2003 at 102.5% 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 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 Senior Notes permit the Company and its subsidiaries to incur additional indebtedness without limitation, provided that it continues to meet a cash flow coverage ratio. As of December 31, 2002, the Company did not meet the prescribed ratio. The failure to meet the ratio does not constitute a default under the Senior Note indenture. Rather, the Senior Note indenture continues to permit certain other types of indebtedness subject to certain limitations. The Company’s Bank 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 Senior Note indenture.

The Senior Notes prohibit the payment of cash dividends on the Company’s Class A Common Stock. The Senior Notes also contain 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 Senior Notes considers non-compliance

with the limitations events of default. In addition to non-payment of interest and principal amounts, the Senior Notes 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.

The Company has issued stand-by Letters of Credit totaling $1,284. There are no balances outstanding at December 31, 2002.

Aggregate principal payments due on long-term debt exclusive of the Bank Facility, which matures in 2006, as of December 31, 2002 are as follows: 2003 — $3,103; 2004 — $1,708; 2005 — $1,160; 2006 — $66,184; 2007 — $54; and thereafter — $417.

Dividends on the Series D preferred stock are cumulative at a rate of 9.8%. Each share of Series D preferred stock is (1) entitled to a liquidation preference equal to $1,000 per share plus any accrued or unpaid dividends, (2) not entitled to vote, except in certain circumstances, and (3) redeemable in whole, at the option of the Company, for $1 per share plus all accrued dividends to the date of redemption. The Company also has 100,000 authorized shares of $.01 par value, Series E preferred stock, of which no shares are issued or outstanding. Each share of Series E preferred stock is (1) not redeemable and is entitled to dividends in the amount of 1,000 times the per share dividend received by the holders of common stock, (2) entitled to 1,000 votes per share, and (3) entitled to a liquidation right of 1,000 times the aggregate amount distributed per share to the holder of common stock.

On November 13, 1997, the Board of Directors declared a dividend of one Series E preferred share purchase right (a Right) for each outstanding share of common stock. The dividend was payable to the shareholders of record as of January 16, 1998, and with respect to common stock, issued thereafter until the Distribution Date, as defined in the Rights Agreement, and in certain circumstances, with respect to common stock issued after the Distribution Date. Except as set forth in the Rights Agreement, each Right, when it becomes exercisable, entitles the registered holder to purchase from the Company one one-thousandth of a share of Series E preferred stock at a price of $70 per one one-thousandth share of a Series E preferred stock, subject to adjustment.

The Company grants stock options to certain employees under various plans, to purchase shares of Class A common stock. During 2002, 2001 and 2000, the Company granted stock options to purchase an aggregate of 53,418, 701,594 and 328,878 shares, respectively, at exercise prices representing the closing market price of the Company’s common stock at the date of grant. The options vest ratably over specific defined periods. Canceled options are available for future issuance under the provisions of the stock option plans.

The following table summarizes the stock option activity for the years ended December 31, 2002, 2001 and 2000:

Exercise prices for options outstanding as of December 31, 2002 ranged from $3.40 to $18.70. A summary of the options by range of exercise prices is as follows:

The Company has several defined benefit pension plans that cover certain employees. Benefits payable are based primarily on compensation and years of service or a fixed annual benefit for each year of service. Certain hourly employees are also covered under collective bargaining agreements. The Company funds the plans in amounts sufficient to satisfy the minimum amounts required under the Employee Retirement Income Security Act of 1974.

Amounts applicable to the Company’s underfunded pension plans at December 31, 2002 and 2001 are as follows:

The plans’ assets are primarily invested in fixed income and equity securities. In addition, one of the Company’s defined benefit plans also contains investments in the Company’s stock. As of December 31, 2002 60,000 shares of the Company’s stock were held by a defined benefit plan at a cost of $717. The market value of such investment as of December 31, 2002, was $139.

The following assumptions were used in accounting for the defined benefit plans:

The Company also sponsors several defined contribution plans which provide voluntary employee contributions and, in certain plans, matching and discretionary employer contributions. Expenses associated with these plans were approximately $241 in 2002, $581 in 2001 and $1,444 in 2000. In 2002 and 2001, the Company made no discretionary employer contributions.

The Company has capital lease commitments for buildings and equipment. Future minimum annual rentals are: 2003 — $246; 2004 — $221; 2005 — $163; 2006 — $37; 2007 — $0; and thereafter — $0. Amount representing interest is $78. Total capital lease obligations are included in other long-term debt. Amortization of assets recorded under capital leases is included with depreciation expense.

The Company leases certain office and warehouse facilities and equipment under operating leases. Rental expense was approximately $2,223 in 2002, $2,131 in 2001 and $1,828 in 2000. Future noncancelable minimum lease commitments under these agreements that have an original or existing term in excess of one year as of December 31, 2002 are as follows: 2003 — $2,133; 2004 — $2,028; 2005 — $1,550; 2006 — $940; 2007 — $513; and thereafter — $1,624.

Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 31 are as follows:

The (benefit) provision for income taxes differs from the amounts computed by applying the federal statutory rate as follows:

The adjustment to worldwide tax accrual and other component of the income tax rate reconciliation includes adjustments to tax accruals due to the expiration of various statutes of limitations. Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $7,053 at December 31, 2002. These earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided. The Company cannot determine in any practical manner the amount of income tax liability that would result if such earnings would be repatriated. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes, which may be offset by foreign tax credits, and withholding taxes payable to various foreign countries.

The Company is expecting to receive federal tax refunds in the amount of approximately $3,500 in the first half of 2003 as a result of the utilization of tax loss carrybacks.

Stock options outstanding were not included in the computation of diluted earnings per share for 2002 and 2001, since it would have resulted in an anti-dilutive effect.

In July 1995, certain shareholders of the Company issued interest-bearing notes to the Company in the amount of $2,000, enabling them to repay certain indebtedness incurred by them with respect to an acquisition. The notes are due and payable on December 31, 2005 and bear interest at the prime rate. The balance outstanding at December 31, 2002 and 2001 is $1,010.

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 components segment engineers, manufactures and markets specialized powder metal components, used primarily in industrial applications. The Company, through this segment, targets four areas of the powder metal component marketplace: high precision components that are used in fluid power applications, large structural powder metal parts used in construction, agricultural and truck applications, smaller high-volume parts and metal injected molded parts for a variety of industries.

The performance automotive segment engineers, manufactures and markets high performance friction material for use in racing car brakes in addition to premium branded clutch and drive train components. The Company, through this segment, targets leading teams in the NASCAR racing series, as well as high-performance street vehicles and other road race and oval track competition cars.

The motor segment engineers, manufactures and markets die-cast aluminum rotors for use in subfractional electric motors. The Company, through this segment, targets a wide variety of application such as appliances, business equipment, pumps and fans.


(1)	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.

(2)	In accordance with the non-amortization provisions of SFAS 142 (see Note B), the Company eliminated the amortization of goodwill in 2002.


	The following table illustrates the pro forma effect by operating segment, on depreciation and amortization, and income (loss) from operations had the Company applied the non-amortization provisions of SFAS 142 for the years ended December 31, 2001 and 2000:

Geographic information for the years ended December 31, 2002, 2001 and 2000 is as follows:

As discussed in Note E, each of the Guarantor Subsidiaries has fully and unconditionally guaranteed, on a joint and several basis, to pay principal, premium, and interest with respect to the Senior Notes. The Guarantor Subsidiaries are direct or indirect wholly-owned subsidiaries of the Company.

The following supplemental consolidating condensed financial statements present:


	Consolidating condensed balance sheets as of December 31, 2002 and December 31, 2001, consolidating condensed statements of operations for the years ended December 31, 2002, 2001 and 2000 and consolidating condensed statements of cash flows for the years ended December 31, 2002, 2001 and 2000.

	Hawk Corporation (Parent), combined Guarantor Subsidiaries and combined Non-Guarantor Subsidiaries consisting of the Company’s subsidiaries in Canada, Italy, Mexico and China with their investments in subsidiaries accounted for using the equity method.

	Elimination entries necessary to consolidate the Parent and all of its subsidiaries.

Management does not believe that separate financial statements of the Guarantor Subsidiaries are material to investors. Therefore, separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented.

(1)

In accordance with the non-amortization provisions of SFAS 142 (see Note B), the Company eliminated the amortization of goodwill in 2002. The pro forma effect of applying the non-amortization of provisions of SFAS 142 for the each of the quarters ended 2001 would have been to decrease amortization expense by approximately $770 for the quarter ended March 31, 2001; $770 for the quarter ended June 30, 2001; $820 for the quarter ended September 30, 2001; and $820 for the quarter ended December 31, 2001, and would have resulted in basic and diluted earnings (loss) per share of $.17; $(.10); $(.04) and $(.26), for each respective quarter.

The information required by Item 10 is incorporated herein by reference to the Registrant’s definitive Proxy Statement relating to its 2003 Annual Meeting of Stockholders (the “Proxy Statement”), under the captions “Board of Directors,” “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance.” This Proxy Statement will be filed with the SEC prior to April 30, 2003.

The information required by Item 11 is contained under the caption “Executive Compensation and Other Information” in the Proxy Statement and is incorporated herein by reference.

For additional information regarding our equity compensation plans, see “Note G — Employee Stock Option Plan” in the accompanying consolidated financial statements beginning on page 27 of this Form 10-K.

Additional information required by Item 12 is contained under the caption “Principal Stockholders” in the Proxy Statement and is incorporated herein by reference.

The information required by Item 13 is contained under the caption “Certain Relationships and Related Transactions” in the Proxy Statement and is incorporated herein by reference.

Within the 90 days prior to the filing date of this report, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures. The evaluation was carried out under the supervision of and with the participation of our management, including our 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 our disclosure controls and procedures are effective in timely alerting them to material information relating to Hawk, including our consolidated subsidiaries, required to be included in reports we file with or submit to the Securities and Exchange Commission under the Securities


	(i)	Consolidated Balance Sheets at December 31, 2002 and 2001

	(ii)	Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000

	(iii)	Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2002, 2001 and 2000

	(iv)	Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000

	(v)	Notes to Consolidated Financial Statements for the years ended December 31, 2002, 2001 and 2000

All consolidated financial schedules are omitted because they are inapplicable, not required by the instructions or the information is included in the consolidated financial statements or notes thereto.

A report dated October 2, 2002 reporting the extension of the consent payment deadline in connection with our offer to exchange new 12% Senior Notes due 2006 for our outstanding 10 1/4% Senior Notes due 2003 and our 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, we filed a press release announcing, in connection with our offer to exchange new 12% Senior Notes due 2006 for our outstanding 10 1/4% Senior Notes due 2003 and our related solicitation of consents to amend the indenture for the 10 1/4% Senior Notes due 2003, that we have received valid and unrevoked consents representing a majority in aggregate principal amount of the 10 1/4% Senior Notes due 2003. In addition, we announced the extension of the exchange offer and related consent payment deadline. We 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, we issued another press release announcing the completion of the exchange offer and our acceptance of $64,417,000 or approximately 99% in principal amount of its 10 1/4% Senior Notes due 2003. We further announced that, concurrently with our acceptance of the 10 1/4% Senior Notes due 2003, we completed its new $53.0 million credit facility.

A report dated December 3, 2002, reporting information relating to our financial presentation to investors and financial analysts.

A report dated January 3, 2003, reporting information relating to our announcement that the New York Stock Exchange accepted our proposed plan for complying with all of the NYSE’s continued listing standards.

A report dated February 11, 2003, reporting our financial results for the 4th quarter of 2002 and for the full year of 2002.

Pursuant to the requirements of Section 13 or 15(d) 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.


	BY:	/s/ THOMAS A. GILBRIDE



	Thomas A. Gilbride
	Vice President — Finance and Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of Hawk Corporation as of, and for, the periods presented in this annual report;

4. Hawk Corporation’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for Hawk Corporation and we have:


	a) designed such disclosure controls and procedures to ensure that material information relating to Hawk Corporation, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b) evaluated the effectiveness of Hawk Corporation’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. Hawk Corporation’s other certifying officer and I have disclosed, based on our most recent evaluation, to Hawk Corporation’s auditors and the audit committee of Hawk Corporation’s board of directors:


	a) all significant deficiencies in the design or operation of internal controls which could adversely affect Hawk Corporation’s ability to record, process, summarize and report financial data and have identified for Hawk Corporation’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 Hawk Corporation’s internal controls; and

6. Hawk Corporation’s other certifying officer and I have indicated in this annual 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.


	a) designed such disclosure controls and procedures to ensure that material information relating to Hawk Corporation, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b) evaluated the effectiveness of Hawk Corporation’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	a) all significant deficiencies in the design or operation of internal controls which could adversely affect Hawk Corporation’s ability to record, process, summarize and report financial data and have identified for Hawk Corporation’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 Hawk Corporation’s internal controls; and

66 EX-4.8 3 l98454aexv4w8.txt EX-4.8 INDENTURE AMONG COMPANY AND HSBC BANK USA EXHIBIT 4.8 EXECUTION COPY ================================================================================ HAWK CORPORATION, THE GUARANTORS NAMED HEREIN and HSBC BANK USA as Trustee -------------------- INDENTURE Dated as of October [15], 2002 -------------------- $100,000,000 12% Senior Notes due 2006 ================================================================================ CROSS-REFERENCE TABLE TIA SECTION INDENTURE SECTION - ----------- ----------------- 310(a)(1) 7.10 (a)(2) 7.10 (a)(3) N.A. (a)(4) N.A. (a)(5) 7.8; 7.10 (b) 7.8; 7.10; 11.2 (c) N.A. 311(a) 7.11 (b) 7.11 (c) N.A. 312(a) 2.6 (b) 11.3 (c) 11.3 313(a) 7.6 (b)(1) N.A. (b)(2) 7.6 (c) 7.6; 11.2 (d) 7.6 314(a) 4.6; 4.9; 11.2 (b) N.A. (c)(1) 11.4 (c)(2) 11.4 (c)(3) N.A. (d) N.A. (e) 11.5 (f) N.A. 315(a) 7.1(b) (b) 7.5; 11.2 (c) 7.1(a) (d) 7.1(c) (e) 6.11 316(a) (last sentence) 2.10 (a)(1)(A) 6.5 (a)(1)(B) 6.4 (a)(2) N.A. (b) 6.7 (c) 9.4 317(a)(1) 6.8 (a)(2) 6.9 (b) 2.5 318(a) 11.1 (b) (c) 11.1 - --------------- N.A. means Not Applicable NOTE: This Cross-Reference table shall not, for any purpose, be deemed to be a part of this Indenture. TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE........................ 1 SECTION 1.1 Definitions............................................... 1 SECTION 1.2 Incorporation by Reference of TIA......................... 16 SECTION 1.3 Rules of Construction..................................... 16 ARTICLE II THE NOTES........................................................ 17 SECTION 2.1 Form and Dating........................................... 17 SECTION 2.2 Execution and Authentication; Aggregate Principal Amount................................................. 17 SECTION 2.3 Additional Interest upon Excess Consolidated Leverage Ratio......................................... 18 SECTION 2.4 Registrar and Paying Agent................................ 20 SECTION 2.5 Paying Agent To Hold Assets in Trust...................... 20 SECTION 2.6 Noteholder Lists.......................................... 21 SECTION 2.7 Transfer and Exchange..................................... 21 SECTION 2.8 Replacement Notes......................................... 21 SECTION 2.9 Outstanding Notes......................................... 22 SECTION 2.10 Treasury Notes............................................ 22 SECTION 2.11 Temporary Notes........................................... 22 SECTION 2.12 Cancellation.............................................. 23 SECTION 2.13 Defaulted Interest........................................ 23 SECTION 2.14 CUSIP Numbers............................................. 24 SECTION 2.15 Deposit of Monies and Additional PIK Notes................ 24 SECTION 2.16 Restrictive Legends....................................... 24 SECTION 2.17 Book-Entry Provisions for Global Security................. 25 ARTICLE III REDEMPTION...................................................... 26 SECTION 3.1 Notices to Trustee........................................ 26 SECTION 3.2 Selection of Notes To Be Redeemed......................... 26 SECTION 3.3 Notice of Redemption...................................... 26 SECTION 3.4 Effect of Notice of Redemption............................ 27 SECTION 3.5 Deposit of Redemption Price............................... 28 SECTION 3.6 Notes Redeemed in Part.................................... 28 ARTICLE IV COVENANTS........................................................ 28 SECTION 4.1 Payment of Notes.......................................... 28 SECTION 4.2 Maintenance of Office or Agency........................... 29 SECTION 4.3 Corporate Existence....................................... 29 SECTION 4.4 Payment of Taxes and Other Claims......................... 29 SECTION 4.5 Maintenance of Properties and Insurance................... 29 SECTION 4.6 Compliance Certificate; Notice of Default................. 30 SECTION 4.7 Compliance with Laws...................................... 30 SECTION 4.8 Waiver of Stay, Extension or Usury Laws................... 31 SECTION 4.9 Provision of Financial Statements and Information......... 31 SECTION 4.10 Limitation on Incurrence of Indebtedness.................. 31 i SECTION 4.11 Limitation on Restricted Payments......................... 34 SECTION 4.12 Limitation on Liens....................................... 36 SECTION 4.13 Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries...................... 37 SECTION 4.14 Limitation on Transactions with Affiliates................ 38 SECTION 4.15 Change of Control......................................... 39 SECTION 4.16 Limitation on Asset Sales................................. 40 SECTION 4.17 Limitation on Designation of Unrestricted Subsidiaries.... 43 ARTICLE V SUCCESSOR CORPORATION............................................. 44 SECTION 5.1 Merger, Consolidation and Sale of Assets.................. 44 SECTION 5.2 Successor Corporation Substituted......................... 46 ARTICLE VI DEFAULT AND REMEDIES............................................. 46 SECTION 6.1 Events of Default......................................... 46 SECTION 6.2 Acceleration.............................................. 47 SECTION 6.3 Other Remedies............................................ 48 SECTION 6.4 Waiver of Past Defaults................................... 48 SECTION 6.5 Control by Majority....................................... 49 SECTION 6.6 Limitation on Suits....................................... 49 SECTION 6.7 Rights of Holders To Receive Payment...................... 50 SECTION 6.8 Collection Suit by Trustee................................ 50 SECTION 6.9 Trustee May File Proofs of Claim.......................... 50 SECTION 6.10 Priorities................................................ 50 SECTION 6.11 Undertaking for Costs..................................... 51 ARTICLE VII TRUSTEE......................................................... 51 SECTION 7.1 Duties of Trustee......................................... 51 SECTION 7.2 Rights of Trustee......................................... 52 SECTION 7.3 Individual Rights of Trustee.............................. 53 SECTION 7.4 Trustee's Disclaimer...................................... 53 SECTION 7.5 Notice of Default......................................... 54 SECTION 7.6 Reports by Trustee to Holders............................. 54 SECTION 7.7 Compensation and Indemnity................................ 54 SECTION 7.8 Replacement of Trustee.................................... 55 SECTION 7.9 Successor Trustee by Merger, Etc.......................... 56 SECTION 7.10 Eligibility; Disqualification............................. 56 SECTION 7.11 Preferential Collection of Claims Against Company......... 56 ARTICLE VIII SATISFACTION AND DISCHARGE; DEFEASANCE......................... 57 SECTION 8.1 Satisfaction and Discharge of Indenture................... 57 SECTION 8.2 Defeasance or Covenant Defeasance......................... 58 SECTION 8.3 Application of Trust Money................................ 60 SECTION 8.4 Repayment to the Company.................................. 60 SECTION 8.5 Reinstatement............................................. 61 SECTION 8.6 Acknowledgment of Discharge by Trustee.................... 61 ii ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS.............................. 61 SECTION 9.1 Without Consent of Holders and any Guarantor.............. 61 SECTION 9.2 With Consent of Holders................................... 62 SECTION 9.3 Compliance with TIA....................................... 63 SECTION 9.4 Payment for Consent....................................... 63 SECTION 9.5 Revocation and Effect of Consents......................... 64 SECTION 9.6 Notation on or Exchange of Notes.......................... 64 SECTION 9.7 Trustee To Sign Amendments, Etc........................... 64 ARTICLE X GUARANTEES........................................................ 65 SECTION 10.1 Unconditional Guarantee................................... 65 SECTION 10.2 Severability.............................................. 66 SECTION 10.3 Successors and Assigns; Release of a Guarantor............ 66 SECTION 10.4 Limitation of Guarantor's Liability....................... 66 SECTION 10.5 Contribution.............................................. 67 SECTION 10.6 Waiver of Subrogation..................................... 67 SECTION 10.7 Execution of Note Guarantee............................... 68 SECTION 10.8 Waiver of Stay, Extension or Usury Laws................... 68 SECTION 10.9 Additional Guarantors..................................... 68 SECTION 10.10 Modification.............................................. 68 ARTICLE XI MISCELLANEOUS.................................................... 69 SECTION 11.1 TIA Controls.............................................. 69 SECTION 11.2 Notices................................................... 69 SECTION 11.3 Communications by Holders with Other Holders.............. 70 SECTION 11.4 Certificate and Opinion as to Conditions Precedent........ 70 SECTION 11.5 Statements Required in Certificate or Opinion............. 70 SECTION 11.6 Rules by Trustee, Paying Agent, Registrar................. 71 SECTION 11.7 Legal Holidays............................................ 71 SECTION 11.8 Governing Law............................................. 71 SECTION 11.9 No Adverse Interpretation of Other Agreements............. 71 SECTION 11.10 No Recourse Against Others................................ 71 SECTION 11.11 Successors................................................ 71 SECTION 11.12 Duplicate Originals....................................... 71 SECTION 11.13 Severability.............................................. 72 SECTION 11.14 Independence of Covenants................................. 72 iii INDENTURE, dated as of October [15], 2002, between Hawk Corporation, a Delaware corporation (the "Company"), the Guarantors (as defined herein), and HSBC Bank USA, a New York banking corporation and trust company, as Trustee (the "Trustee"). The Company has duly authorized the creation of an issue of 12% Senior Notes due 2006 (collectively, the "Notes") such Notes to be issued initially in connection with the exchange of certain 10 1/4% Senior Notes due 2003 (collectively, the "Old Notes") issued by the Company pursuant to an indenture dated November 27, 1996 (as amended and supplemented, the "Old Indenture") and, to provide therefor, the Company has duly authorized the execution and delivery of this Indenture. All things necessary to make the Notes, when duly issued and executed by the Company, and authenticated and delivered hereunder, the valid obligations of the Company, and to make this Indenture a valid and binding agreement of the Company, have been done. Each party hereto agrees as follows for the benefit of the other party and for the equal and ratable benefit of the Holders of the Notes: ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE SECTION 1.1 Definitions. "Acquired Debt" means Indebtedness of an Acquired Person existing at the time the Acquired Person merges with or into, or becomes a Restricted Subsidiary of, such specified Person, including Indebtedness incurred in connection with, or in contemplation of, the Acquired Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person; provided, however, that Indebtedness of such Acquired Person which is redeemed, defeased, retired or otherwise repaid at the time of or immediately upon consummation of the transactions by which such Acquired Person merges with or into or becomes a Restricted Subsidiary of such specified Person shall not be Acquired Debt. "Acquired Person" means a person merged with or into the Company. "Additional Notes" means Notes issued from time to time by the Company under this Indenture as provided in Section 2.2 in addition to the Initial Notes. "Additional PIK Notes" means any Note issued by the Company in order to make a PIK Interest Payment. "Adjusted Consolidated Leverage Ratio" means, with respect to any period, the Consolidated Leverage Ratio; provided that (i) pro forma effect is given to any Asset Sales (including the application of the proceeds of any Asset Sales) that occur during the period, as if they had occurred and the proceeds had been applied on the first day of the period, and (ii) pro forma effect is given to any Asset Sales (including the application of the proceeds of any Asset Sales) that have been made by any Person that has become a Restricted Subsidiary or has merged with or into the Company or any of its Restricted Subsidiaries during the period and would have constituted Asset Sales had the transactions occurred when that Person was a Restricted Subsidiary as if they were Asset Sales that occurred on the first day of the period. "Affiliate" means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "Control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with") of any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "Agent" means any Registrar, Paying Agent or co-Registrar. "Agent Members" has the meaning provided in Section 2.17(a). "Asset Sale" means (i) any sale, lease, conveyance or other disposition by the Company or any Restricted Subsidiary of any assets (including by way of a sale-and-leaseback) other than inventory in the ordinary course of business or equipment not used or no longer useable in the ordinary course of business, or (ii) the issuance or sale of Capital Stock of any Restricted Subsidiary, in the case of each of (i) and (ii), whether in a single transaction or a series of related transactions, to any Person (other than to the Company or a Restricted Subsidiary and other than directors' qualifying shares) for Net Proceeds in cash or Cash Equivalents in excess of $100,000. "Asset Sale Offer" has the meaning provided in Section 4.16(c). "Asset Sale Offer Purchase Date" has the meaning provided in Section 4.16(d). "Asset Sale Offer Trigger Date" has the meaning provided in Section 4.16(c). "Authenticating Agent" has the meaning provided in Section 2.2. "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or foreign law for the relief of debtors. "Board of Directors" means, as to (a) any corporate Person, the board of directors of such Person or any duly authorized committee thereof, (b) any partnership, limited liability company or comparably organized Person which is ultimately controlled by a corporate general partner, managing member or other corporation, the "Board of Directors" of such corporation as specified in clause (a) of this definition and (c) any partnership, limited liability company or comparably organized Person which is ultimately controlled by individuals, such controlling individuals. "Board Resolution" means, with respect to any Person, a copy of a resolution of the Board of Directors certified by an executive officer of such Person to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification and delivered to the Trustee. 2 "Business Day" means a day that is not a Legal Holiday. "Capital Lease Obligation" of any Person means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease for property leased by such Person that would at such time be required to be capitalized on the balance sheet of such Person in accordance with GAAP. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) corporate stock or other equity participations, including partnership and limited liability company interests, whether general or limited, of such Person, including any Preferred Stock. "Cash Equivalents" means (i) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having one of the two highest ratings obtainable from either Standard & Poor's Rating Services or Moody's Investors Service, Inc.; (iii) commercial paper maturing no more than one year from the date of creation thereof and, at the time of acquisition, having a rating of at least A-1 from Standard & Poor's Rating Services or at least P-1 from Moody's Investors Service, Inc.; (iv) certificates of deposit or bankers' acceptances (or, with respect to foreign banks, similar instruments) maturing within one year from the date of acquisition thereof issued by any bank organized under the laws of the United States of America or any state thereof or the District of Columbia or any U.S. branch of a foreign bank having at the date of acquisition thereof combined capital and surplus of not less than $200 million; (v) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clause (i) above entered into with any bank meeting the qualifications specified in clause (iv) above; and (vi) investments in money market funds that invest substantially all their assets in securities of the types described in clauses (i) through (v) above. "Cash Flow" means, with respect to any period, Consolidated Net Income for such period, plus, to the extent deducted in computing such Consolidated Net Income: (i) provision for taxes based on income or profits and any provision for taxes utilized in computing extraordinary gains and losses, plus (ii) Consolidated Interest Expense, plus (iii) depreciation, amortization and all other non-cash charges (including amortization of goodwill and other intangibles but excluding any such non-cash charge to the extent it represents an accrual of a reserve, cash charges in any future period or amortization of a pre-paid cash expense that was paid in a prior period not included in the prior calculation), less (iv) any non-cash items to the extent that they increase Consolidated Net Income (including the partial or entire reversal of reserves taken in a prior period) for such period for the Company and any Restricted Subsidiary; provided that if any Restricted Subsidiary is not a wholly owned Restricted Subsidiary of the Company, then Cash Flow shall be reduced (to the extent not otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount of Cash Flow attributable to such Restricted Subsidiary, multiplied by (B) the percentage ownership interest 3 in such Restricted Subsidiary not owned by the Company or any of its Restricted Subsidiaries on the last day of such period. "Change of Control" means the occurrence of any of the following events after the Issue Date: (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) (other than one or more Permitted Holders) is or becomes (including by merger, consolidation or otherwise) the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person shall be deemed to have beneficial ownership of all shares that such Person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of 50% or more of the voting power of the total outstanding Voting Stock of the Company; (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (together with any new directors whose election to such Board of Directors, or whose nomination for election by the stockholders of the Company, was approved by a vote of 66 2/3% of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of such Board of Directors of the Company then in office; (iii) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the terms of this Indenture); or (iv) the sale or other disposition (including by merger, consolidation or otherwise) of all or substantially all of the Capital Stock or assets of the Company to any Person or group (as defined in Rule 13d-5 of the Exchange Act) (other than to one or more of the Permitted Holders) as an entirety or substantially as an entirety in one transaction or a series of related transactions. "Change of Control Offer" has the meaning provided in Section 4.15(a). "Change of Control Purchase Date" has the meaning provided in Section 4.15(b). "Commission" means the Securities and Exchange Commission, as from time to time constituted or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the TIA, then the body performing such duties at such time. "Common Stock" of any Person means any and all shares, interests, participations, or other equivalents (however designated) of such Person's common stock whether now outstanding or issued after the Issue Date. "Company" means the party named as such in the first paragraph of this Indenture until a successor replaces it pursuant to this Indenture and thereafter means such successor. "Consolidated Cash Flow Coverage Ratio" means, for any period, the ratio of (i) the aggregate amount of Cash-Flow for such period, to (ii) Consolidated Interest Expense for such period, determined on a pro forma basis after giving pro forma effect to (a) the incurrence of the Indebtedness giving rise to the calculation of the Consolidated Cash Flow Coverage Ratio and (if applicable) the application of the net proceeds therefrom, including to refinance 4 other Indebtedness, as if such Indebtedness was incurred, and the application of such proceeds occurred, at the beginning of such period; (b) the incurrence, repayment or retirement of any other Indebtedness by the Company and its Restricted Subsidiaries since the first day of such period as if such Indebtedness was incurred, repaid or retired at the beginning of such period (except that, in making such computation, the amount of Indebtedness under any revolving credit facility shall be computed based upon the average balance of such Indebtedness at the end of each month during such period); (c) in the case of Acquired Debt, the related acquisition as if such acquisition had occurred at the beginning of such period; and (d) any acquisition or disposition by the Company and its Restricted Subsidiaries of any company or any business or any assets out of the ordinary course of business, or any related repayment of Indebtedness, in each case since the first day of such period, assuming such acquisition or disposition had been consummated on the first day of such period. "Consolidated Interest Expense" means, with respect to any period, the sum of (i) the interest expense of the Company and its Restricted Subsidiaries for such period, including, without limitation, (a) amortization of debt discount, (b) the net payments, if any, under interest rate contracts (including amortization of discounts), (c) the interest portion of any deferred payment obligation and (d) accrued interest, plus (ii) the interest component of the Capital Lease Obligations paid, accrued and/or scheduled to be paid or accrued by the Company and its Restricted Subsidiaries during such period, and all capitalized interest of the Company and its Restricted Subsidiaries, plus (iii) any payments or fees with respect to letters of credit, bankers' acceptances and similar facilities, plus (iv) interest on Indebtedness guaranteed by the Company and its Restricted Subsidiaries to the extent paid by the Company or any Restricted Subsidiary, plus (v) all dividends paid during such period by the Company and its Restricted Subsidiaries with respect to any Disqualified Stock (other than by any Restricted Subsidiary to the Company or any other Restricted Subsidiary and other than any dividend paid in Capital Stock (other than Disqualified Stock)), and all dividends paid during such period by any Restricted Subsidiary with respect to any Preferred Stock, in each case, as determined on a consolidated basis in accordance with GAAP consistently applied; provided that, if any Restricted Subsidiary is not a wholly owned subsidiary of the Company, then Consolidated Interest Expense shall be reduced (to the extent not otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount of Consolidated Interest Expense attributable to such Restricted Subsidiary, multiplied by (B) the percentage ownership of such Restricted Subsidiary not owned by the Company or any of its Restricted Subsidiaries on the last day of such period. "Consolidated Leverage Ratio" means, with respect to any period, the ratio of (i) the aggregate actual amount of Indebtedness, including any Permitted Indebtedness, of the Company and its Restricted Subsidiaries outstanding at the end of that period to (ii) the aggregate actual amount of Cash Flow of the Company and its Restricted Subsidiaries for the four fiscal quarter period ending with that period. "Consolidated Net Income" means, with respect to any period, the net income (or loss) of the Company and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP consistently applied, adjusted to the extent included in calculating such net income (or loss), by excluding, without duplication, (i) all extraordinary gains and losses (less all fees and expenses relating thereto), (ii) the portion of net 5 income (or loss) of the Company and its Restricted Subsidiaries allocable to interests in unconsolidated Persons or Unrestricted Subsidiaries, except to the extent of the amount of dividends or distributions actually paid to the Company or its Restricted Subsidiaries by such other Person during such period, (iii) net income (or loss) of any Person combined with the Company or any of its Restricted Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination, (iv) net gains and losses (less all fees and expenses relating thereto) in respect of disposition of assets (including, without limitation, pursuant to sale and leaseback transactions) other than in the ordinary course of business, (v) the net income of any Restricted Subsidiary to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income to the Company is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (vi) the net income of any Person that is not a Restricted Subsidiary, except to the extent of the actual amount of dividends or other distributions paid to the Company or a Restricted Subsidiary by such Person during such period, (vii) the cumulative effect of changes in accounting principles, or (viii) any gain or loss realized on the termination of any employee pension benefit plan. "Consolidated Net Worth" of any Person means the consolidated stockholders' equity of such Person, determined on a consolidated basis in accordance with GAAP, less (without duplication) amounts attributable to Disqualified Stock of such person. "Covenant Defeasance" has the meaning provided in Section 8.2(b). "Currency Agreement Obligations" means the obligations of any person under a foreign exchange contract, currency swap agreement or other similar agreement or arrangement to protect such person against fluctuations in currency values. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. "Default" means any event that is, or after the giving of notice or passage of time or both would be, an Event of Default. "Default Interest" has the meaning provided in Section 2.13. "Default Interest Payment Date" has the meaning provided in Section 2.13. "Defeasance" has the meaning provided in Section 8.2(a). "Designation" has the meaning provided in Section 4.17(a). "Designation Amount" has the meaning provided in Section 4.17(a). "Disposition" means, with respect to any Person, any merger, consolidation or other business combination involving such Person (whether or not such Person is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of such Person's assets. 6 "Disqualified Stock" means (i) any Preferred Stock of any Restricted Subsidiary and (ii) that portion of any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof (other than upon a change of control of the Company in circumstances where the holders of the Notes would have similar rights), in whole or in part on or prior to the stated maturity of the Notes. "Dollars" and "$" means lawful money of the United States of America. "DTC" means The Depository Trust Company, its nominees and successors. "Event of Default" has the meaning provided in Section 6.1. "Excess Proceeds" has the meaning provided in Section 4.16(b). "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Existing Indebtedness" has the meaning provided in Section 4.10(b)(iii). "Fair Market Value" means, with respect to any asset or property, the sale value that would be obtained in an arm's-length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. "Foreign Subsidiary" means a Restricted Subsidiary not organized under the laws of the United States or any political subdivision thereof and the operations of which are located entirely outside the United States. "GAAP" means generally accepted accounting principles in the United States set forth in the Statements of Financial Accounting Standards and the Interpretations, Accounting Principles Board Opinions and American Institute of Certified Public Accountants Accounting Research Bulletins. "Global Note" means a Note that evidences all or part of the Note that is issued to a Depositary or a nominee thereof in accordance with Section 2.1. "Guarantee" means, as applied to any obligation, (1) a guarantee (other than endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner, of any part or all of such obligation and (2) an agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure in any way the payment or performance (or payment of damages in the event of non-performance) of all or any part of such obligation, including, without limiting the foregoing, the payment of amounts drawn down by letters of credit. "Guarantor" means (i) each Subsidiary of the Company in existence on the Issue Date which are each of Allegheny Clearfield, Inc., Friction Products Co., Hawk MIM, Inc., Hawk Motors, Inc., Hawk Precision Components Group, Inc., Helsel, Inc., Logan Metal Stamping, Inc., Net Shape Technologies LLC, Quarter Master Industries, Inc., S.K. Wellman 7 Corp., S.K. Wellman Holdings, Inc., Sinterloy Corp., Tex Racing Enterprises, Inc. and (ii) each Subsidiary (other than Foreign Subsidiaries and Unrestricted Subsidiaries) created or acquired by the Company after the Issue Date that guarantees the Notes. "Holder" means the Person in whose name a Note is registered on the Registrar's books. "incur" has the meaning provided in Section 4.10(a). "Indebtedness" means, with respect to any Person, without duplication, and whether or not contingent, (i) all indebtedness of such Person for borrowed money or which is evidenced by a note, bond, debenture or similar instrument, (ii) all obligations of such Person to pay the deferred or unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such service, (iii) all Capital Lease Obligations of such Person, (iv) all obligations of such Person in respect of letters of credit or bankers' acceptances issued or created for the account of such Person, (v) to the extent not otherwise included in this definition, all net obligations of such Person under Interest Rate Agreement Obligations or Currency Agreement Obligations of such Person, (vi) all liabilities of others of the kind described in the preceding clause (i), (ii) or (iii) secured by any Lien on any property owned by such Person; provided, however, if the obligations secured by a Lien (other than a Permitted Lien not securing any liability that would itself constitute Indebtedness) on any assets or property have not been assumed by such Person in full or are not such Person's legal liability in full, the amount of such Indebtedness for purposes of this definition shall be limited to the lesser of the amount of Indebtedness secured by such Lien and the Fair Market Value of the property subject to such Lien, (vii) all Disqualified Stock issued by such Person and all Preferred Stock issued by a Subsidiary of such Person (provided that such Disqualified Stock shall be valued at the maximum fixed redemption or repurchase price thereof), and (viii) to the extent not otherwise included, any guarantee by such Person of any other Person's indebtedness or other obligations described in clauses (i) through (vii) above (provided that such guarantee shall be valued at the maximum principal amount thereof). "Indebtedness" of the Company and the Restricted Subsidiaries shall not include current trade payables incurred in the ordinary course of business and payable in accordance with customary practices, and non-interest bearing installment obligations and accrued liabilities incurred in the ordinary course of business that are not more than 90 days past due. The principal amount outstanding of any Indebtedness issued with original issue discount is the accreted value of such Indebtedness. Notwithstanding the foregoing, Indebtedness shall not include Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds in the ordinary course of business; provided that such Indebtedness is extinguished within 3 Business Days of the incurrence thereof. "Indenture" means this Indenture, as amended or supplemented from time to time in accordance with the terms hereof. "Independent Director" means a director of the Company other than a director (i) who (apart from being a director of the Company or any Subsidiary of the Company) is an employee, associate or Affiliate of the Company or a Subsidiary of the Company, or (ii) who is 8 a director, employee, associate or Affiliate of another party (other than the Company or any of its Subsidiaries) to the transaction in question. "Initial Notes" means the Notes issued under this Indenture in exchange for the Old Notes as provided in Section 2.2 hereof. "Insider" has the meaning given such term in Title 11 of Chapter 11 of the U.S. Code, as amended, to the date hereof and from time to time hereafter. "Interest" on the Notes means interest, including any Default Interest, on the Notes. "Interest Payment Date" means the stated maturity of a cash payment of interest on the Notes. "Interest Rate Agreement Obligations" means, with respect to any Person, the Obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended, to the date hereof and from time to time hereafter. "Investment" means, with respect to any Person, any direct or indirect loan or other extension of credit (including, without limitation, a guarantee) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition by such Person of any Capital Stock, bonds, notes, debentures or other securities or evidences of Indebtedness issued by, any other Person. "Investment" shall exclude travel and similar advances to officers and employees of the Company in the ordinary course of business and extensions of trade credit by the Company and its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of the Company or such Restricted Subsidiary, as the case may be. For the purposes of Section 4.11, (i) "Investment" shall include and be valued at the Fair Market Value of the net assets of any Restricted Subsidiary (to the extent of the Company's equity interest in such Restricted Subsidiary) at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude the Fair Market Value of the net assets of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary and (ii) the amount of any Investment shall be the original cost of such Investment plus the cost of all additional Investments by the Company or any of its Restricted Subsidiaries, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment, reduced by the payment of dividends or distributions in connection with such Investment or any other amounts received in respect of such Investment; provided, however, that no such payment of dividends or distributions or receipt of any such other amounts shall reduce the amount of any Investment if such payment of dividends or distributions or receipt of any such amounts would be included in Consolidated Net Income. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, the Company no longer owns, 9 directly or indirectly, greater than 50% of the outstanding Common Stock of such Restricted Subsidiary, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Common Stock of such Restricted Subsidiary not sold or disposed of. "Issue Date" means October [15], 2002, the date the Initial Notes are issued under this Indenture. "Junior PIK Indebtedness" means any Indebtedness of the Company that: (i) is unsecured; (ii) is junior in right of payment to the Notes; (iii) does not permit payments of cash interest prior to the Maturity Date; and (iv) does not mature, allow or require any principal or other payments prior to (a) one year after the Maturity Date in the event the payments on such Junior PIK Indebtedness are owed to an Insider of the Company or (b) 90 days after the Maturity Date in all other cases. "Legal Holiday" has the meaning provided in Section 11.7. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in any asset and any filing of any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction). "Maturity Date" means December 1, 2006. "Net Proceeds" means, with respect to any Asset Sale by any Person, the aggregate cash or Cash Equivalent proceeds received by such Person and/or its Affiliates in respect of such Asset Sale, which amount is equal to the excess, if any, of (i) the cash or Cash Equivalent received by such Person and/or its Affiliates (including any cash payments received by way of deferred payment pursuant to, or monetization of, a note or installment receivable or otherwise, but only as and when received) in connection with such Asset Sale, over (ii) the sum of (a) the amount of any Indebtedness that is secured by such asset and which is required to be repaid by such Person in connection with such Asset Sale, plus (b) all fees, commissions and other expenses incurred by such Person in connection with such Asset Sale, plus (c) provision for taxes, including income taxes, directly attributable to the Asset Sale or to required prepayments or repayments of Indebtedness with the proceeds of such Asset Sale, plus (d) if such Person is not a wholly-owned Restricted Subsidiary, any dividends or distributions payable to holders of minority interests in such Restricted Subsidiary from the proceeds of such Asset Sale. "New Credit Facility" means any new senior secured credit facility among the Company, certain of its Subsidiaries, and the lenders named therein as the same may be amended, modified, renewed, refunded, replaced or refinanced from time to time, including (i) any related notes, letters of credit, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time, and (ii) any notes, guarantees, collateral 10 documents, instruments and agreements executed in connection with any such amendment, modification, renewal, refunding, replacement or refinancing. "Non-U.S. Person" means a person who is not a U.S. person, as defined in Regulation S. "Note Guarantee" means the guarantee of the Notes by a Guarantor as described in Section 10.1. "Notes" mean the Initial Notes, any Additional Notes and any Additional PIK Notes, treated as a single class of securities, as amended or supplemented from time to time in accordance with the terms hereof, that are issued pursuant to this Indenture. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursement obligations, damages and other liabilities payable under the documentation governing any Indebtedness including all obligations of the Company and the Guarantors under this Indenture, the Notes and the Note Guarantees. "Officer" means, with respect to any Person, the Chairman of the Board, the Senior Chairman of the Board, the Chief Executive Officer, the President, any Vice President, the Chief Operating Officer, the Controller, or the Secretary of such Person, or any other officer designated by the Board of Directors serving in a similar capacity. "Officers' Certificate" means, with respect to any Person, a certificate signed by two Officers or by an Officer and either an Assistant Treasurer or an Assistant Secretary of such Person and otherwise complying with the requirements of Sections 11.4 and 11.5, as they relate to the making of an Officers' Certificate, and delivered to the Trustee. "Old Indenture" has the meaning provided in the preamble to this Indenture. "Old Notes" has the meaning provide in the preamble to this Indenture. "Original Issue Date" means November 27, 1996, the issue date of the Old Notes under the Old Indenture. "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee complying with the requirements of Sections 11.4 and 11.5, as they relate to the giving of an Opinion of Counsel. "Paying Agent" has the meaning provided in Section 2.4. "Permitted Holders" means any of Norman C. Harbert, Ronald E. Weinberg, Byron S. Krantz or any "group" (as defined in Rule 13d-5 of the Exchange Act) consisting of any or all of the foregoing. "Permitted Indebtedness" has the meaning provided in Section 4.10(b). "Permitted Investments" means (i) any Investment in the Company or any Restricted Subsidiary that is a Guarantor of the Notes; (ii) any investment in cash or Cash 11 Equivalents; (iii) any Investment in an Acquired Person if, as a result of such Investment, (a) the Acquired Person becomes a Restricted Subsidiary and becomes a Guarantor of the Notes or (b) the Acquired Person either (1) is merged, consolidated or amalgamated with or into the Company or one of its Restricted Subsidiaries that is a Guarantor of the Notes and the Company or such Restricted Subsidiary is the Surviving Person, or (2) transfers or conveys substantially all of its assets to, or is liquidated into, the Company or one of its Restricted Subsidiaries that is a Guarantor of the Notes; provided that any Investment pursuant to this clause (iii) in a Person that is or becomes a Foreign Subsidiary shall not constitute the transfer of property (other than cash); (iv) Investments in accounts and notes receivable acquired in the ordinary course of business; (v) any notes, obligations or other securities received in connection with an Asset Sale that complies with Section 4.16; (vi) Interest Rate Obligations and Currency Agreement Obligations permitted pursuant to Section 4.10(b)(v); and (vii) investments in or acquisitions of Capital Stock or similar interests in Persons (other than Affiliates of the Company) received in the bankruptcy or reorganization of or by such Person or any exchange of such investment with the issuer thereof or taken in settlement of or other resolution of claims or disputes. "Permitted Liens" means (i) Liens securing Indebtedness under any New Credit Facility securing Indebtedness permitted to be incurred pursuant to Section 4.10(b)(i); (ii) Liens securing Indebtedness of a Person existing at the time that such Person is merged into or consolidated with the Company or a Restricted Subsidiary; provided, however, that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of such Person; (iii) Liens on property acquired by the Company or a Restricted Subsidiary; provided, however, that such Liens were in existence prior to the contemplation of such acquisition and do not extend to any other property; (iv) Liens in respect of Interest Rate Obligations and Currency Agreement Obligations permitted under this Indenture; (v) Liens in favor of the Company, any Restricted Subsidiary or any Guarantor; (vi) Liens existing on the Issue Date; (vii) Liens securing the Notes or the Note Guarantees, if any; and (viii) Liens securing Permitted Indebtedness of the Company or any Restricted Subsidiary incurred under Section 4.10(b)(viii) hereof. "Permitted Payments" has the meaning provided in Section 4.11(b). "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or government or any agency or political subdivision thereof. "PIK Accrual Period" has the meaning provided in Section 2.3. "PIK Interest Payment" means the payment of the additional interest payable by the issuance of Additional PIK Notes pursuant to Section 2.3 of this Indenture. "PIK Interest Payment Date" has the meaning provided in Section 2.3. "PIK Record Date" means the date 15 days prior to the applicable PIK Interest Payment Date. 12 "Preferred Stock" as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over Capital Stock of any other class of such Person. "Principal" of any Indebtedness (including the Notes) means the principal amount of such Indebtedness plus the premium, if any, on such Indebtedness. "Public Equity Offering" means an underwritten public offering of Capital Stock (other than Disqualified Capital Stock) of the Company pursuant to an effective registration statement filed under the Securities Act. "Purchase Money Obligation" means any Indebtedness secured by a Lien on assets related to the business of the Company or the Restricted Subsidiaries, and any additions and accessions thereto, which are purchased, constructed or improved by the Company or any Restricted Subsidiary at any time after the Issue Date; provided, however, that (i) any security agreement or conditional sales or other title retention contract pursuant to which the Lien on such assets is created (collectively, a "Security Agreement") shall be entered into within 90 days after the purchase or substantial completion of the construction or improvement of such assets and shall at all times be confined solely to the assets so purchased, constructed or improved, any additions and accessions thereto and any proceeds therefrom, (ii) at no time shall the aggregate principal amount of the outstanding Indebtedness secured thereby be increased, except in connection with the purchase of additions and accessions thereto and except in respect of fees and other obligations in respect of such indebtedness and (iii) (a) the aggregate outstanding principal amount of Indebtedness secured thereby (determined on a per asset basis in the case of any additions and accessions) shall not at the time such Security Agreement is entered into exceed 100% of the purchase price or cost of construction or improvement to the Company or any Restricted Subsidiary of the assets subject thereto or (b) the Indebtedness secured thereby shall be with recourse solely to the assets so purchased, constructed or improved, any additions and accessions thereto and any proceeds therefrom. "Record Date" means the Record Dates specified in the Notes; provided, however, that if any such date is a Legal Holiday, the Record Date shall be the first day immediately preceding such specified day that is not a Legal Holiday. "Redemption Date," when used with respect to any Note to be redeemed, means the date fixed for such redemption pursuant to this Indenture and the Notes. "Redemption Price," when used with respect to any Note to be redeemed, means the price fixed for such redemption pursuant to this Indenture and the Notes. "Redesignation" has the meaning provided in Section 4.17(b). "Refinancing" has the meaning provided in Section 4.10(b)(vii). "Refinancing Indebtedness" has the meaning provided in Section 4.10(b)(vii). "Registrar" has the meaning provided in Section 2.4. 13 "Required Filing Dates" has the meaning provided in Section 4.9(a). "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Payment" means (i) any dividend or other distribution declared or paid on any Capital Stock of the Company (other than (a) dividends or distributions payable solely in Capital Stock (other than Disqualified Stock) of the Company or (b) dividends or distributions payable to the Company or any Restricted Subsidiary); (ii) any payment to purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or a Restricted Subsidiary (other than for the Company or a Restricted Subsidiary); (iii) any payment to purchase, redeem, defease or otherwise acquire or retire for value, prior to any scheduled maturity, repayment or sinking fund payment, any Subordinated Indebtedness other than a purchase, redemption, defeasance or other acquisition or retirement for value that is paid for with the proceeds of Refinancing Indebtedness that is permitted under Section 4.10(b)(vii); or (iv) any Restricted Investment. "Restricted Subsidiary" means each direct or indirect Subsidiary of the Company other than an Unrestricted Subsidiary. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Senior Debt" means the principal of and interest (including post-petition interest) on, and all other amounts owing in respect of, any New Credit Facility and Indebtedness evidenced by the Notes. Notwithstanding the foregoing, Senior Debt shall not include (i) any Indebtedness for federal, state, local or other taxes, (ii) any Indebtedness of the Company to any of its Subsidiaries or any of its Affiliates, (iii) any Indebtedness incurred for the purchase of goods or materials, or for services obtained, in the ordinary course of business or any obligations in respect of any such Indebtedness, (iv) any Indebtedness that is incurred in violation of this Indenture or (v) Indebtedness of the Company that is expressly subordinate or junior in right of payment (other than as a result of the indebtedness being unsecured) to any other Indebtedness of the Company. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X promulgated pursuant to the Securities Act, as such Regulation S-X is in effect on the Issue Date. "Subordinated Indebtedness" means Indebtedness of the Company or a Guarantor that is subordinated in right of payment to the Notes. "Subsidiary" of a Person means (i) any corporation more than 50% of the outstanding voting power of the Voting Stock of which is owned or controlled, directly or indirectly, by such Person or by one or more other Subsidiaries of such Person, or by such Person and one or more other Subsidiaries thereof, or (ii) any limited partnership of which such Person or any Subsidiary of such Person is a general partner, or (iii) any limited liability company of which such Person or any Subsidiary of such Person is a manager, or (iv) any other Person (other than a corporation, limited liability company or limited partnership) in which such Person or one or more other Subsidiaries of such Person, or such Person and one or more 14 other Subsidiaries thereof, directly or indirectly, has more than 50% of the outstanding partnership, limited liability company or similar interests or has the power, by contract or otherwise, to direct or cause the direction of the policies, management and affairs thereof. "Surviving Person" means, with respect to any Person involved in or that makes any Disposition, the Person formed by or surviving such Disposition or the Person to which such Disposition is made. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb), as amended, as in effect on the date of this Indenture, except as otherwise provided in Section 9.3. "Trust Officer" means any officer or assistant officer of the Trustee assigned by the Trustee to administer this Indenture, or in the case of a successor trustee, an officer assigned to the department, division or group performing the corporation trust work of such successor and assigned to administer this Indenture. "Trustee" means the party named as such in this Indenture until a successor replaces it in accordance with the provisions of this Indenture and thereafter means such successor. "Unrestricted Subsidiary" means any Subsidiary of the Company designated as such pursuant to and in compliance with Section 4.17 and not redesignated a Restricted Subsidiary in compliance with such covenant. "U.S. Government Obligations" mean direct obligations of, and obligations guaranteed by, the United States of America for the payment of which the full faith and credit of the United States of America is pledged. "U.S. Legal Tender" means such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. "Voting Stock" of a Person means Capital Stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect at least a majority of the board of directors, managers or trustees of such Person (irrespective of whether or not at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required scheduled payment of principal, including payment at final maturity, in respect thereof, with (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding aggregate principal amount of such Indebtedness. 15 SECTION 1.2 Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, such provision is incorporated by reference in, and made a part of, this Indenture. The following TIA terms used in this indenture have the following meanings: "Indenture Securities" means the Notes. "Indenture Security Holder" means a Holder or a Noteholder. "Indenture to be Qualified" means this Indenture. "Indenture Trustee" or "Institutional Trustee" means the Trustee. "Obligor" on the indenture securities means the Company or any other obligor on the Notes. All other TIA terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by Commission rule and not otherwise defined herein have the meanings assigned to them therein. SECTION 1.3 Rules of Construction. Unless the context otherwise requires: 1. a term has the meaning assigned to it; 2. an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP as in effect on the date hereof; 3. unless otherwise specifically set forth herein, all calculations or determinations of a Person shall be performed or made on a consolidated basis in accordance with GAAP but shall not include the accounts of Unrestricted Subsidiaries, except to the extent of dividends and distributions actually paid to the Company or any of its Restricted Subsidiaries; 4. the principal amount of any non-interest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP; 5. unless otherwise expressly provided herein, the principal amount of any Preferred Stock shall be greater of (a) the maximum liquidation value of such Preferred Stock, or (b) the maximum mandatory redemption or mandatory repurchase price with respect to such Preferred Stock; 6. "or" is not exclusive; 7. words in the singular include the plural, and words in the plural include the singular; 16 8. a reference to a Section or Article shall be to a Section or Article of this Indenture; 9. "herein", "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and 10. any reference to a statute, law or regulation means that statute, law or regulation as amended and in effect from time to time and includes any successor statute, law or regulation; provided, however, that any reference to the Bankruptcy Law shall mean the Bankruptcy Law as applicable to the relevant case. ARTICLE II THE NOTES SECTION 2.1 Form and Dating. The Notes and the Trustee's certificate of authentication relating thereto shall be substantially in the form of EXHIBIT A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or depository rule or usage. The Company and the Trustee shall approve the form of the Notes and any notation, legend or endorsement on them. Each Note shall be dated the date of its issuance and shall show the date of its authentication. The terms and provisions contained in the Notes, annexed hereto as EXHIBIT A, shall constitute, and are hereby expressly made, a part of this Indenture and, to the extent applicable, the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. The Notes shall be issued initially in the form of one or more permanent global Notes in registered form, substantially in the form set forth in EXHIBIT A (the "Global Notes"), deposited with the Trustee, as custodian for DTC, duly executed by the Company and authenticated by the Trustee as hereinafter provided and shall bear the legend set forth in Section 2.16. The aggregate principal amount of the Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for DTC, as hereinafter provided. SECTION 2.2 Execution and Authentication; Aggregate Principal Amount. Two Officers, or an Officer and an Assistant Secretary, shall sign, or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to, the Notes for the Company by manual or facsimile signature. If an Officer or Assistant Secretary whose signature is on a Note was an Officer or Assistant Secretary at the time of such execution but no longer holds that office or position at the time the Trustee authenticates the Note, the Note shall nevertheless be valid. 17 A Note shall not be valid until an authorized signatory of the Trustee manually signs the certificate of authentication on the Note. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall authenticate (i) Notes for original issue in an aggregate principal amount not to exceed $66,700,000 upon a written order of the Company (the "Initial Notes") and (ii) Additional Notes upon a written order issued from time to time by the Company. In addition, the Trustee shall authenticate Additional PIK Notes from time to time upon a written order of the Company. Such order or orders shall specify the amount of Notes to be authenticated and the date on which the Notes are to be authenticated, whether the Notes are to be issued as definitive Notes or Global Notes or such other information as the Trustee may reasonably request. The aggregate principal amount of Notes outstanding at any time may not exceed $100,000,000, including, but not limited to, the aggregate principal amount of Additional PIK Notes issued pursuant to Section 2.3 of this Indenture, except as provided in Section 2.8. The aggregate principal amount of the Notes may be changed from time to time in an aggregate principal amount not to exceed $100,000,000, except as provided in Section 2.8. All of the Notes need not be issued at the same time and, unless otherwise provided, a previous issuance of Notes may be reopened, without notice to or the consent of any Holder, for issuance of Additional Notes of the same tranche, and the Additional Notes will be consolidated and form a single tranche with the previously issued Notes. The Trustee may appoint an authenticating agent (the "Authenticating Agent") reasonably acceptable to the Company to authenticate Notes. Unless otherwise provided in the appointment, an Authenticating Agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such Authenticating Agent. An Authenticating Agent has the same rights as an Agent to deal with the Company or with any Affiliate of the Company. Unless otherwise specified in the written order of the Company pertaining to an issuance of Notes, the Notes shall be issuable in fully registered form only, without coupons, and in denominations of $1,000 and integral multiples thereof. Notwithstanding the foregoing, Additional PIK Notes may be issued in any denomination. SECTION 2.3 Additional Interest upon Excess Consolidated Leverage Ratio. The Company will determine on March 31 (or if earlier, on the Required Filing Date for an annual report) and August 14 (or if earlier, on the Required Filing Date for a quarterly report for the second quarter) of each year (a "PIK Interest Payment Date"), the Consolidated Leverage Ratio of the Company as of the end of the immediately preceding six-month, semi-annual period ending on the immediately preceding Interest Payment Date (a "PIK Accrual Period"). If the Consolidated Leverage Ratio of the Company exceeds 4.00 to 1.00 as of the end of such PIK Accrual Period, beginning with the PIK Accrual Period ending on December 31, 2002, then the Company shall pay, to each Holder of record on the PIK Record Date immediately preceding such PIK Interest Payment Date, an amount of additional interest on the principal amount of the Notes held by that Holder, from the first day of the applicable PIK Accrual Period (or, in the case of the PIK Accrual Period ending December 31, 2002, from the 18 Issue Date) through the immediately preceding Interest Payment Date, at the applicable rate per annum set forth below: Rate of PIK Interest Consolidated Leverage Ratio Payment --------------------------- -------------------- More than 4.00 and equal to or less than 4.24 to 1.00 0.25% 4.25 or more and to equal to or less than 4.49 to 1.00 0.50% 4.50 or more and to equal to or less than 4.74 to 1.00 0.75% 4.75 or more and to equal to or less than 4.99 to 1.00 1.00% 5.00 or more and to equal to or less than 5.24 to 1.00 1.25% 5.25 or more and to equal to or less than 5.49 to 1.00 1.50% 5.50 or more and to equal to or less than 5.74 to 1.00 1.75% 5.75 or more to 1.00 2.00% Any such interest payable pursuant to this Section shall be paid by the Company in the form of Additional PIK Notes that are (a) identical in all respects to the Notes with respect to which such Additional PIK Notes are issued and (b) dated as of the day following the Interest Payment Date immediately preceding the applicable PIK Interest Payment Date. Interest on such Additional PIK Notes shall accrue from the day following the Interest Payment Date immediately preceding the applicable PIK Interest Payment Date. The Additional PIK Notes shall be issued in an aggregate principal amount equal to the amount of additional interest that is to be paid on the aggregate principal amount of Notes (including any previously issued Additional PIK Notes) outstanding as of the applicable PIK Record Date at the applicable rate of additional interest set forth above, calculated on the basis of a 360-day year (without any compounding of such interest). The Additional PIK Notes shall be issued on or as soon as practicable (and in any event within ten days) after the applicable PIK Interest Payment Date. Notwithstanding the foregoing, if the Company shall be required to pay any additional interest in a denomination less than $1,000, the Company, may, at its option, pay such additional interest by making cash payments in the amount of any Additional PIK Note that would be required pursuant to this Section 2.3. By way of example, if on August 14, 2003 (the PIK Interest Payment Date) the Company determines that its Consolidated Leverage Ratio for the PIK Accrual Period ending June 30, 2003 is 4.25 to 1.00, then the Company will issue Additional PIK Notes to each Holder of record of Notes on July 30, 2003 (the PIK Record Date) in a principal amount equal to $2.50 for each $1,000 of Notes held by that Holder ($2.50 being the amount of additional interest accrued during that PIK Accrual Period on $1,000 of Notes at the rate of 0.50% per annum). Those Additional PIK Notes will be dated as of July 1, 2003, and will start accruing cash interest as of July 1, 2003, but will be issued on or within ten days after August 14, 2003. 19 If a Redemption Date, Change of Control Purchase Date or Asset Sale Offer Purchase Date occurs during the period after the immediately preceding PIK Accrual Period but before the next PIK Interest Payment Date, then the Company shall pay to the Holder of any redeemed or purchased Note an amount in cash equal to the sum of (a) the principal amount of the Additional PIK Note, if any, that would have been issued to that Holder with respect to the preceding PIK Accrual Period, plus (b) the premium, if any, payable on that Additional PIK Note had it been issued and outstanding on the Redemption Date, Change of Control Purchase Date or Asset Sale Offer Purchase Date, plus (c) all accrued and unpaid cash interest due in respect of such Additional PIK Note from the day after the preceding Interest Payment Date. SECTION 2.4 Registrar and Paying Agent. The Company shall maintain an office or agency (which shall be located in the Borough of Manhattan in The City of New York, State of New York) where (a) Notes may be presented or surrendered for registration of transfer or for exchange ("Registrar"), (b) Notes may be presented or surrendered for payment ("Paying Agent") and (c) notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Registrar shall keep a register of the Notes and of their registration of transfer and exchange. The Company, upon prior written notice to the Trustee, may have one or more co-Registrars and one or more additional Paying Agents reasonably acceptable to the Trustee. The term "Paying Agent" includes any additional Paying Agent. The Company may act as its own Paying Agent, except that for the purposes of payments on the Notes pursuant to Sections 4.15 and 4.16, neither the Company nor any Affiliate of the Company may act as Paying Agent. The Company shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which agreement shall incorporate the provisions of the TIA and implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee, in advance, of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such. The Company initially appoints the Trustee as Registrar, Paying Agent and agent for service of demands and notices in connection with the Notes, until such time as the Trustee has resigned or a successor has been appointed. Any of the Registrar, the Paying Agent or any other agent may resign upon 30 days' notice to the Company. SECTION 2.5 Paying Agent to Hold Assets in Trust. The Company shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of the Holders or the Trustee all assets held by the Paying Agent for the payment of principal of, or interest on, the Notes (whether such assets have been distributed to it by the Company or any other obligor on the Notes), and the Company and the Paying Agent shall notify the Trustee of any Default by the Company (or any other obligor on the Notes) in making any such payment. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment Default, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the 20 Trustee of all assets that shall have been delivered by the Company to the Paying Agent, the Paying Agent shall have no further liability for such assets. SECTION 2.6 Noteholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of the Holders. If the Trustee is not the Registrar, the Company shall furnish or cause the Registrar to furnish to the Trustee before each Record Date and at such other times as the Trustee may request in writing a list as of such date and in such form as the Trustee may reasonably require of the names and addresses of the Holders, which list may be conclusively relied upon by the Trustee. SECTION 2.7 Transfer and Exchange. When Notes are presented to the Registrar or a co-Registrar with a request to register the transfer of such Notes or to exchange such Notes for an equal principal amount of Notes of other authorized denominations, the Registrar or co-Registrar shall register the transfer or make the exchange as requested if its requirements for such transaction are met; provided, however, that the Notes presented or surrendered for registration of transfer or exchange shall be duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Company or the Registrar or co-Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. To permit registrations of transfer and exchanges, the Company shall execute and the Trustee shall authenticate Notes at the Registrar's or co-Registrar's request. No service charge shall be made for any registration of transfer or exchange, but the Company or the Trustee may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchanges or transfers pursuant to Sections 2.11, 3.6, 4.15, 4.16 or 9.5, in which event the Company shall be responsible for the payment of such taxes). The Registrar or co-Registrar shall not be required to register the transfer of or exchange of any Note (i) during a period beginning at the opening of business 15 days before the mailing of a notice of redemption of Notes and ending at the close of business on the day of such mailing, (ii) selected for redemption in whole or in part pursuant to Article III, except the unredeemed portion of any Note being redeemed in part and (iii) during a Change of Control Offer or an Asset Sale Offer if such Note is tendered pursuant to such Change of Control Offer or Asset Sale Offer and not withdrawn. Any Holder of the Global Note shall, by acceptance of such Global Note, agree that transfers of beneficial interests in such Global Notes may be effected only through a book-entry system maintained by the Holder of such Global Note (or its agent), and that ownership of a beneficial interest in the Note shall be required to be reflected in a book-entry system. SECTION 2.8 Replacement Notes. If a mutilated Note is surrendered to the Trustee or if the Holder of a Note claims that the Note has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Note if the Trustee's requirements are met. If required by the 21 Trustee or the Company, such Holder must provide an indemnity bond or other indemnity of reasonable tenor, sufficient in the reasonable judgment of both the Company and the Trustee, to protect the Company, the Trustee or any Agent from any loss which any of them may suffer if a Note is replaced. Every replacement Note shall constitute an additional obligation of the Company. SECTION 2.9 Outstanding Notes. Notes outstanding at any time are all the Notes that have been authenticated by the Trustee except those cancelled by it, those delivered to it for cancellation and those described in this Section as not outstanding. Subject to the provisions of Section 2.10, a Note does not cease to be outstanding because the Company or any of its Affiliates holds the Note. If a Note is replaced pursuant to Section 2.8 (other than a mutilated Note surrendered for replacement), it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser. A mutilated Note ceases to be outstanding upon surrender of such Note and replacement thereof pursuant to Section 2.8. If on a Redemption Date or the Maturity Date the Paying Agent (other than the Company) holds U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the principal and interest due on the Notes payable on that date and is not prohibited from paying such money to the Holders thereof pursuant to the terms of this Indenture, then on and after that date such Notes cease to be outstanding and interest on them ceases to accrue. SECTION 2.10 Treasury Notes. In determining (i) whether the Holders of the required principal amount of Notes have concurred in any direction, waiver, consent or notice or (ii) how much principal amount of Notes remains outstanding after a redemption under Paragraph 6(b) of the Notes, Notes owned by the Company or an Affiliate shall be considered as though they are not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent under clause (i) above, only Notes which a Trust Officer of the Trustee actually knows are so owned shall be so considered. The Company shall notify the Trustee, in writing, when it or, to the Company's knowledge, any of its Affiliates repurchases or otherwise acquires Notes, of the aggregate principal amount of such Notes so repurchased or otherwise acquired. SECTION 2.11 Temporary Notes. Until definitive Notes are ready for delivery, the Company may prepare and the Trustee shall authenticate temporary Notes upon receipt, or a written order of the Company in the form of an Officers' Certificate. The Officers' Certificate shall specify the amount of temporary Notes to be authenticated and the date on which the temporary Notes are to be authenticated. Temporary Notes shall be substantially in the form of definitive Notes but may have variations that the Company considers appropriate for temporary Notes and so indicates in the Officers' Certificate. Without unreasonable delay, the Company shall prepare and the Trustee shall 22 authenticate upon receipt of a written order of the Company pursuant to Section 2.2 definitive Notes in exchange for temporary Notes. SECTION 2.12 Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent, and no one else, shall cancel and, at the written direction of the Company, shall dispose, in its customary manner, of all Notes surrendered for registration of transfer, exchange, payment or cancellation. Subject to Section 2.8, the Company may not issue new Notes to replace Notes that it has paid or delivered to the Trustee for cancellation. If the Company shall acquire any of the Notes, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Notes unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.12. SECTION 2.13 Defaulted Interest. If the Company defaults in a payment of interest on the Notes (including interest payable in the form of Additional PIK Notes), it shall pay the defaulted interest, plus (to the extent lawful) (i) any interest payable on the defaulted interest in cash and (ii) an additional amount equal to 2% per annum, computed on the basis of a 360-day year of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed, in cash (the "Default Rate"), to the Persons who are Holders on a subsequent special record date, which special record date shall be the fifteenth day next preceding the date fixed by the Company for the payment of defaulted interest or the next succeeding Business Day if such date is not a Business Day. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment (a "Default Interest Payment Date"), and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such defaulted interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such defaulted interest as provided in this Section; provided, however, that in no event shall the Company deposit monies proposed to be paid in respect of defaulted interest later than 11:00 a.m. of the proposed Default Interest Payment Date. At least 15 days before the subsequent special record date, the Company shall mail (or cause to be mailed) to each Holder, as of a recent date selected by the Company, with a copy to the Trustee, a notice that states the subsequent special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. Notwithstanding the foregoing, any interest which is paid prior to the expiration of the 30-day period set forth in Section 6.1(i) shall be paid to Holders as of the regular record date for the Interest Payment Date for which interest has not been paid. Notwithstanding the foregoing, the Company may make payment of any defaulted interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange. 23 SECTION 2.14 CUSIP Numbers. The Company in issuing the Notes may use "CUSIP" numbers, and, if so, the Trustee shall use the CUSIP numbers in notices of redemption or exchange as a convenience to Holders; provided, however, that no representation is hereby deemed to be made by the Trustee as to the correctness or accuracy of the CUSIP numbers printed in the notice or on the Notes, and that reliance may be placed only on the other identification numbers printed on the Notes. The Company shall promptly notify the Trustee of any change in the CUSIP numbers. SECTION 2.15 Deposit of Monies and Additional PIK Notes. Prior to 10:00 a.m. New York City time on each Interest Payment Date, Maturity Date, Redemption Date, Change of Control Purchase Date and Asset Sale Offer Purchase Date, the Company shall have deposited with the Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such Interest Payment Date, Maturity Date, Redemption Date, Change of Control Purchase Date and Asset Sale Control Purchase Date, as the case may be, in a timely manner which permits the Paying Agent to remit payment to the Holders on such Interest Payment Date, Maturity Date, Redemption Date, Change of Control Purchase Date and Asset Sale Offer Purchase Date, as the case may be. On or as soon as practicable (and in any event within ten days) after each PIK Interest Payment Date, Redemption Date, Change of Control Purchase Date and Asset Sale Offer Purchase Date, the Company shall deposit with the Paying Agent duly issued and authenticated Additional PIK Notes, dated as of the immediately preceding Interest Payment Date, or in immediately available funds, money sufficient to make cash payments, for any and all additional interest due on such PIK Interest Payment Date, Redemption Date, Change of Control Purchase Date or Asset Sale Offer Purchase Date, as the case may be, pursuant to Section 2.3 hereof. SECTION 2.16 Restrictive Legends. Each Global Note shall bear the following legend on the face thereof: UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. 24 TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE. SECTION 2.17 Book-Entry Provisions for Global Security. (a) The Global Note initially shall (i) be registered in the name of DTC or the nominee of such DTC, (ii) be delivered to the Trustee as custodian for such DTC and (iii) bear legends as set forth in Section 2.16. Members of, or participants in, DTC ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by DTC, or the Trustee as its custodian, or under the Global Note, and DTC may be treated by the Company, the Trustee and any Agent as the absolute owner of the Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any Agent from giving effect to any written certification, proxy or other authorization furnished by DTC or impair, as between DTC and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any Note. (b) Transfers of the Global Note shall be limited to transfers in whole, but not in part, to DTC, its successors or their respective nominees. Interests of beneficial owners in the Global Note may be transferred or exchanged for definitive Notes in accordance with the rules and procedures of DTC. In addition, definitive Notes shall be transferred to all beneficial owners in exchange for their beneficial interest in the Global Note if (i) DTC notifies the Company that it is unwilling or unable to continue as DTC for the Global Note and a successor depositary is not appointed by the Company within 90 days of such notice or (ii) an Event of Default has occurred and is continuing and the Registrar has received a written request from DTC to issue definitive Notes. (c) In connection with any transfer or exchange of a portion of the beneficial interest in the Global Note to beneficial owners pursuant to paragraph (b), the Registrar shall (if one or more definitive Notes are to be issued) reflect on its books and records the date and a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more definitive Notes of like tenor and amount. (d) In connection with the transfer of the entire Global Note to beneficial owners pursuant to paragraph (b), the Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by DTC in exchange for its beneficial interest in the Global Note, an equal aggregate principal amount of definitive Notes of authorized denominations. (e) The Holder of the Global Note may grant proxies and otherwise authorize any person, including Agent Members and persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes. 25 (f) The Registrar shall retain copies of all letters, notices and other written communications received pursuant to this Section 2.17. The Company shall have the right to inspect and make copies of all such letters, notices and other written communications at any reasonable time during the Registrar's normal business hours upon the giving of reasonable written notice to the Registrar. ARTICLE III REDEMPTION SECTION 3.1 Notices to Trustee. If the Company elects to redeem Notes pursuant to Paragraph 6 of the Notes, it shall notify the Trustee and the Paying Agent in writing of the Redemption Date and the principal amount of the Notes to be redeemed. The Company shall give each notice provided for in this Section 3.1 at least 60 days before the Redemption Date (unless a shorter notice period shall be satisfactory to the Trustee, as evidenced in a writing signed on behalf of the Trustee), together with an Officers' Certificate stating that such redemption shall comply with the conditions contained herein and in the Notes. SECTION 3.2 Selection of Notes to be Redeemed. If fewer than all of the Notes are to be redeemed at any time, the Trustee shall select the Notes to be redeemed in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not listed on a national securities exchange, by lot or by such method as the Trustee shall deem fair and appropriate; provided, however, that if the Notes are redeemed pursuant to Paragraph 6(b) of the Notes, the Notes shall be redeemed solely on a pro rata basis or on as nearly a pro rata basis as practicable (subject to the procedures of DTC or any other depositary), unless such method is otherwise prohibited. If the Notes are listed on any national securities exchange, the Company shall notify the Trustee of the requirements of such exchange in respect of any redemption. The Trustee shall make the selection from the Notes outstanding and not previously called for redemption and shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes in denominations of $1,000 or less may be redeemed only in whole. The Trustee may select for redemption portions (equal to $1,000 or any integral multiple thereof) of the principal of Notes that have denominations larger than $1,000. Provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. SECTION 3.3 Notice of Redemption. At least 30 days but not more than 60 days before a Redemption Date, the Company shall mail or cause to be mailed a notice of redemption by first class mail to each Holder whose Notes are to be redeemed, with a copy to the Trustee and any Paying Agent. At the Company's 26 request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. The Company shall provide such notices of redemption to the Trustee at least five days before the intended mailing date. Each notice for redemption shall identify (including the CUSIP number) the Notes to be redeemed and shall state: 1. the Redemption Date and, if applicable, the next PIK Interest Payment Date; 2. the Redemption Price and the amount of accrued interest, if any, to be paid; 3. the procedures, if applicable, for the redemption of any Additional PIK Notes that would otherwise be issued on the next PIK Interest Payment Date; 4. the name and address of the Paying Agent; 5. the subparagraph of the Notes pursuant to which such redemption is being made; 6. that Notes called for redemption must be surrendered to the Paying Agent to collect the Redemption Price plus accrued interest, if any; 7. that, unless the Company defaults in making the redemption payment, interest on Notes called for redemption ceases to accrue on and after the Redemption Date (except as described in Section 2.3 hereof with respect to any Additional PIK Notes that would be issuable with regard to such Notes on the next PIK Interest Payment Date, if such redemption shall occur after the immediately preceding Interest Payment Date and on or prior to such PIK Interest Payment Date), and the only remaining right of the Holders of such Notes is to receive payment of the Redemption Price plus accrued interest, if any, upon surrender to the Paying Agent of the Notes redeemed; 8. if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date, and upon surrender of such Note, a new Note or Notes in the aggregate principal amount equal to the unredeemed portion thereof will be issued; and 9. if fewer than all the Notes are to be redeemed, the identification of the particular Notes (or portion thereof) to be redeemed, as well as the aggregate principal amount of Notes to be redeemed and the aggregate principal amount of Notes to be outstanding after such partial redemption. SECTION 3.4 Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.3, Notes called for redemption become due and payable on the Redemption Date and at the Redemption Price plus accrued interest, if any. Upon surrender to the Trustee or Paying Agent, such Notes called for 27 redemption shall be paid at the Redemption Price plus accrued interest thereon to the Redemption Date, but installments of interest, the maturity of which is on or prior to the Redemption Date, shall be payable to Holders of record at the close of business on the relevant record dates referred to in the Notes. SECTION 3.5 Deposit of Redemption Price. On or before 10:00 a.m., New York City time, on any the Redemption Date and in accordance with Section 2.15 hereof, the Company shall deposit with the Paying Agent U.S. Legal Tender sufficient into pay the Redemption Price plus accrued interest, if any, of all Notes to be redeemed on that date, plus an amount in cash sufficient to redeem any Additional PIK Notes after the Redemption Date pursuant to the procedures provided in Section 2.3 therefor. The Paying Agent shall promptly return to the Company any U.S. Legal Tender so deposited which is not required for those purposes, except with respect to monies owed as obligations to the Trustee pursuant to Article Seven. If the Company complies with the preceding paragraph, then, unless the Company defaults in the payment of such Redemption Price plus accrued interest, if any, interest on the Notes to be redeemed will cease to accrue on and after the applicable Redemption Date, whether or not such Notes are presented for payment. SECTION 3.6 Notes Redeemed in Part. Upon surrender of a Note that is to be redeemed in part, the Trustee shall authenticate for the Holder a new Note or Notes equal in principal amount to the unredeemed portion of the Note surrendered. ARTICLE IV COVENANTS SECTION 4.1 Payment of Notes. (a) The Company shall pay the principal of and interest on the Notes on the dates and in the manner provided in the Notes and in this Indenture. (b) An installment of principal of or interest on the Notes shall be considered paid on the date it is due if the Trustee or Paying Agent (other than the Company or any of its Affiliates) holds, prior to 10:00 a.m. New York City time on that date, U.S. Legal Tender (or Additional PIK Notes, in the case of a PIK Interest Payment) designated for and sufficient to pay the installment in full and is not prohibited from paying such money to the Holders pursuant to the terms of this Indenture or the Notes. (c) The Company shall pay in cash, to the extent such payments are lawful, interest on overdue principal and on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the Default Rate. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. 28 (d) Notwithstanding anything to the contrary contained in this Indenture, the Company may, to the extent it is required to do so by law, deduct or withhold income or other similar taxes imposed by the United States of America from principal or interest payments hereunder. SECTION 4.2 Maintenance of Office or Agency. The Company shall maintain the office or agency required under Section 2.4. The Company shall give prior written notice to the Trustee of the location, and any change in the location of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address, of the Trustee set forth in Section 11.2. SECTION 4.3 Corporate Existence. Except as otherwise permitted by Article V or by Section 4.16, the Company shall do or cause to be done, at its own cost and expense, all things necessary to preserve and keep in full force and effect its corporate existence and the corporate existence of each of the Restricted Subsidiaries in accordance with the respective organizational documents of each such Restricted Subsidiary and the material rights (charter and statutory) and franchises of the Company and each such Restricted Subsidiary; provided, however, that the Company shall not be required to preserve, with respect to itself, any material right or franchise and, with respect to any Restricted Subsidiary, any such existence, material right or franchise, if the Board of Directors of the Company shall determine in good faith that the preservation thereof is no longer desirable in the conduct of the business of the Company and the Restricted Subsidiaries, taken as a whole. SECTION 4.4 Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges (including withholding taxes and any penalties, interest and additions to taxes) levied or imposed upon it or any Restricted Subsidiary or properties of it or any Subsidiary and (ii) all material lawful claims for labor, materials and supplies that, if unpaid, might by law become a Lien upon the property of it or any Restricted Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate negotiations or proceedings properly instituted and diligently conducted for which adequate reserves, to the extent required under GAAP, have been taken. SECTION 4.5 Maintenance of Properties and Insurance. (a) The Company shall, and shall cause each Restricted Subsidiary to, maintain all properties used or useful in the conduct of its business in good working order and condition (subject to ordinary wear and tear) and make all necessary repairs, renewals, replacements, additions, betterments and improvements thereto and actively conduct and carry on its business; provided, however, that nothing in this Section 4.5 shall prevent the Company 29 or any Restricted Subsidiary from discontinuing the operation and maintenance of any of its properties, if such discontinuance is (i) in the ordinary course of business pursuant to customary business terms or (ii) in the good faith judgment of the Board of Directors or other governing body of the Company or the Restricted Subsidiary, as the case may be, desirable in the conduct of their respective businesses and is not disadvantageous in any material respect to the Holders. (b) The Company shall provide or cause to be provided, for itself and each Restricted Subsidiary, insurance (including appropriate self-insurance) against loss or damage of the kinds that, in the good faith judgment of the Company, are adequate and appropriate for the conduct of the business of the Company and such Restricted Subsidiary in a prudent manner, with reputable insurers or with the government of the United States of America or an agency or instrumentality thereof, in such amounts, with such deductibles, and by such methods as shall be customary, in the good faith judgment of the Company, for companies similarly situated in the industry. SECTION 4.6 Compliance Certificate; Notice of Default. (a) The Company shall deliver to the Trustee, within 105 days after the end of the Company's fiscal year, a certificate signed by the Chairman of the Board of Directors, the Vice-Chairman of the Board of Directors, the Chief Executive Officer, the President or any Vice President and by the Chief Financial Officer, Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary of the Company (provided, however, that one of such signatories shall be the Company's principal executive officer, principal financial officer or principal accounting officer), as to such Officers' knowledge of the Company's compliance with all conditions and covenants under this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and in the event any Default exists, such Officers shall specify the nature of such Default. The Officers' Certificate shall also notify the Trustee should the Company elect to change the manner in which it fixes its fiscal year end or change its independent certified public accountants. (b) (i) If any Default or Event of Default has occurred and is continuing or (ii) if any Holder seeks to exercise any remedy hereunder with respect to a claimed Default under this Indenture or the Notes, the Company shall deliver to the Trustee, at its address set forth in Section 11.2 hereof, by registered or certified mail or by facsimile transmission followed by hard copy by registered or certified mail an Officers' Certificate specifying such event, notice or other action within five Business Days of its becoming aware of such occurrence. SECTION 4.7 Compliance with Laws. The Company shall comply, and shall cause each Restricted Subsidiary to comply, with all applicable statutes, rules, regulations, orders and restrictions of the United States of America, all states and municipalities hereof, and of any governmental department, commission, board, regulatory authority, bureau, agency and instrumentality of the foregoing, in respect of the conduct of their respective businesses and the ownership of their respective properties, except for such noncompliances as would not singly or in the aggregate have a 30 material adverse effect on the financial condition, business or results of operations of the Company and the Restricted Subsidiaries, taken as a whole. SECTION 4.8 Waiver of Stay, Extension or Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company from paying all or any portion of the principal of or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 4.9 Provision of Financial Statements and Information. (a) So long as any Notes are outstanding, whether or not the Company is then subject to Section 13(a) or 15(d) of the Exchange Act, the Company will file with the Commission, the annual reports, quarterly reports and other periodic reports which the Company would have been required to file with the Commission pursuant to such Section 13(a) or 15(d) if the Company were so subject, and such documents shall be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been required so to file such documents if the Company were so subject; provided the Commission will accept such filings. (b) The Company will also in any event (i) within 15 days of each Required Filing Date, file with the Trustee, and supply the Trustee with copies for delivery to the holders of the Notes, the annual reports, quarterly reports and other periodic reports which the Company would have been required to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if the Company were subject to such Sections and (ii) if the Commission will not accept the filing of such documents promptly upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such documents to any prospective holder of the Notes. SECTION 4.10 Limitation on Incurrence of Indebtedness. (a) On and after the Issue Date, the Company shall not, and shall not permit any Restricted Subsidiary to, create, incur, issue, assume or directly or indirectly guarantee or in any other manner become directly or indirectly liable for ("incur") any Indebtedness (including Acquired Debt), except that the Company may incur Indebtedness (including Acquired Debt) if, at the time of, and immediately after giving pro forma effect to, such incurrence of Indebtedness, (i) the Consolidated Cash Flow Coverage Ratio of the Company for the most recently ended four fiscal quarters would be at least 2.5 to 1.0 and (ii) the Adjusted Consolidated Leverage Ratio for the most recently ended four fiscal quarters of the Company would be no greater than 3.5 to 1.0. 31 (b) The foregoing limitations will not apply to the incurrence of any of the following (collectively, "Permitted Indebtedness"), each of which shall be given independent effect: (i) Indebtedness of the Company and any Restricted Subsidiary arising under the New Credit Facility in an aggregate principal amount not to exceed, at any time outstanding, the lesser of (A) $53.0 million or (B) the amount permitted to be borrowed under the New Credit Facility at such time; (ii) Indebtedness of the Company represented by the Additional PIK Notes and Indebtedness in the form of Note Guarantees issued by any Subsidiaries that the Company directly or indirectly creates or acquires after the Issue Date; (iii) other Indebtedness of the Company or any Restricted Subsidiary that is outstanding on the Issue Date in an aggregate principal amount not to exceed $6.0 million ("Existing Indebtedness"); (iv) Indebtedness owed by any Restricted Subsidiary to the Company or to another Restricted Subsidiary, or owed by the Company to any Restricted Subsidiary that, if owed to a Restricted Subsidiary that is not a Guarantor, is unsecured and subordinated in right of payment to the payment and performance of the Company's obligations under the Indenture and the Notes; provided, however, that any such Indebtedness shall at all times be held by a Person which is either the Company or a Restricted Subsidiary; provided, further, however, that upon either (A) the transfer or other disposition of any such Indebtedness to a Person other than the Company or another Restricted Subsidiary or (B) the sale, lease, transfer or other disposition of shares of Capital Stock (including by consolidation or merger) of any such Restricted Subsidiary to a Person other than the Company or another Restricted Subsidiary, the incurrence of such Indebtedness shall be deemed to be an incurrence that is not permitted by this clause (iv); (v) Indebtedness of the Company or any Restricted Subsidiary arising with respect to Interest Rate Agreement Obligations and Currency Agreement Obligations incurred for the purpose of fixing or hedging interest rate risk or currency risk with respect to any fixed or floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding or with respect to any receivable or liability the payment of which is determined by reference to a foreign currency; (vi) Indebtedness represented by performance, completion, guarantee, surety and similar bonds provided by the Company or any Restricted Subsidiary in the ordinary course of business consistent with past practice; (vii) Indebtedness incurred in connection with or given in exchange for the renewal, extension, substitution, refunding, defeasance, refinancing or replacement, in whole or in part, (a "Refinancing") of any Indebtedness of the Company or a Restricted Subsidiary incurred as permitted under Section 4.10(a) or any Indebtedness described in clauses (i), (ii) or (iii) above and this clause (vii) ("Refinancing Indebtedness"); provided, however, that (A) the principal amount of such 32 Refinancing Indebtedness shall not exceed the principal amount (or accreted amount, if less) of the Indebtedness so refinanced (plus the premiums and reasonable expenses to be paid in connection therewith, which, with respect to such premiums, shall not exceed the stated amount of any premium or other payment required to be paid in connection with such a refinancing pursuant to the terms of the Indebtedness being refinanced); (B) the maturity of the Refinancing Indebtedness shall not be shorter than the maturity of the Indebtedness being refinanced (provided that such Refinancing Indebtedness does not permit the redemption or other retirement of such Refinancing Indebtedness prior to its stated maturity); (C) the Refinancing Indebtedness shall have a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being refinanced; and (D) the Refinancing Indebtedness shall be at least as subordinated in right of payment to the Notes as the Indebtedness being refinanced; (viii) Indebtedness of the Company or any Restricted Subsidiary (A) representing Capitalized Lease Obligations and any refinancings thereof and/or (B) in respect of Purchase Money Obligations for property acquired, constructed or improved in the ordinary course of business and any refinancings thereof, which taken together in the aggregate do not exceed $5.0 million at any time outstanding; (ix) commodity agreements entered into in the ordinary course of business to protect against fluctuations in the prices of raw materials and not for speculative purposes; (x) Indebtedness incurred by the Company or any Restricted Subsidiary constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business (but not issued to support Indebtedness for money borrowed), including, without limitation, letters of credit in respect of workers' compensation claims or self-insurance, or other Indebtedness with respect to reimbursement type obligations regarding workers' compensation claims or self-insurance; (xi) Guarantees by the Company of Indebtedness of a Restricted Subsidiary permitted to be incurred under this Indenture; (xii) Indebtedness of the Company or any Restricted Subsidiary arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, in each case incurred or assumed in connection with the disposition of any business, assets or a Subsidiary, other guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or a Subsidiary for the purpose of financing such acquisition; provided that the maximum liability in respect of such Indebtedness shall not exceed the gross proceeds actually received by the Company and its Restricted Subsidiaries in connection with such disposition; and (xiii) Junior PIK Indebtedness of the Company in an aggregate amount not to exceed at any time $25.0 million. (c) For purposes of determining any particular amount of Indebtedness under this Section 4.10: 33 (i) in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Indebtedness described in clauses (i) through (xii) of Section 4.10(b) or is entitled to be incurred pursuant to Section 4.10(a), the Company will, in its sole discretion, classify that item of Indebtedness on the date of incurrence in any manner that complies with this Section 4.10, and (ii) guarantees, Liens or obligations with respect to letters of credit supporting Indebtedness otherwise included in the determination of such particular amount shall not be included. (d) Accrual of interest, accretion or amortization of original issue discount, the payment of interest on Indebtedness in the term of additional indebtedness with the same terms and the payment of dividends in Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of additional Indebtedness or an issuance of Disqualified Stock for purposes of this Section 4.10. (e) Indebtedness of any Person which is outstanding at the time such Person becomes a Restricted Subsidiary or is merged with or into or consolidated with the Company or a Restricted Subsidiary shall be deemed to have been incurred at the time such Person becomes a Restricted Subsidiary or is merged with or into or consolidated with the Company or a Restricted Subsidiary, and Indebtedness which is assumed at the time of the acquisition of any asset shall be deemed to have been incurred at the time of such acquisition. SECTION 4.11 Limitation on Restricted Payments. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, make any Restricted Payment, unless at the time of and immediately after giving effect to the proposed Restricted Payment (with the value of any such Restricted Payment, if other than cash, to be determined reasonably and in good faith by the Board of Directors of the Company): (i) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; (ii) the Company could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.10(a); and (iii) the aggregate amount of all Restricted Payments made after the Original Issue Date shall not exceed the sum of: (A) an amount equal to 50% of the Company's aggregate cumulative Consolidated Net Income accrued on a cumulative basis during the period (treated as one accounting period) beginning on the Original Issue Date and ending on the date of such proposed Restricted Payment (or, if such aggregate cumulative Consolidated Net Income for such period shall be a deficit, minus 100% of such deficit); plus 34 (B) the aggregate amount of all net cash proceeds received since the Original Issue Date by the Company from the issuance and sale (other than to a Restricted Subsidiary) of, or equity contribution with respect to, Capital Stock (other than Disqualified Stock) and the principal amount of Indebtedness of the Company or any Restricted Subsidiary that has been converted into or exchanged for Capital Stock (other than Disqualified Stock), in any such case to the extent that such proceeds are not used (x) to redeem, repurchase, retire or otherwise acquire Capital Stock or any Indebtedness of the Company or any Restricted Subsidiary pursuant to clause (ii) of the next paragraph or (y) to make any Restricted Investment pursuant to clause (iv) of the next paragraph; plus (C) the amount of the net reduction in Investments in Unrestricted Subsidiaries resulting from (x) the payment of cash dividends or the repayment in cash of the principal of loans or the cash return on any Investment, in each case to the extent received by the Company or any Restricted Subsidiary from Unrestricted Subsidiaries, (y) the release or extinguishment of any guarantee of Indebtedness of any Unrestricted Subsidiary, and (z) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued as provided in the definition of "Investment"), except, in each case, to the extent that such payment or proceeds are included in the calculation of Consolidated Net Income, such aggregate amount of the net reduction in Investments not to exceed in the case of any Unrestricted Subsidiary the amount of Restricted Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary, which amount was included in the calculation of the amount of Restricted Payments; plus (D) to the extent that any Restricted Investment that was made after the Original Issue Date is sold for cash or otherwise liquidated or repaid for cash, the amount of cash proceeds received with respect to such Restricted Investment, except, in each case, to the extent that such payment or proceeds are included in the calculation of Consolidated Net Income, net of taxes and the cost of disposition, which amount may not exceed the amount of Restricted Investments made after the Original Issue Date. (b) Section 4.11(a) shall not prohibit the following actions (collectively, "Permitted Payments"): (i) the payment of any dividend within 60 days after the date of declaration thereof, if at such declaration date such payment would have been permitted under this Indenture (which payment shall be deemed to have been paid on such date of declaration for purposes of Section 4.11(a)(iii)); (ii) the redemption, repurchase, retirement or other acquisition of any Capital Stock or any Subordinated Indebtedness of the Company or any Restricted Subsidiary in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Restricted Subsidiary) of, or equity contribution with respect to, Capital Stock of the Company (other than any Disqualified Stock); 35 (iii) any purchase or defeasance of Subordinated Indebtedness to the extent (A) made with permitted Refinancing Indebtedness or (B) required by the other agreement or instrument pursuant to which such Subordinated Indebtedness was issued upon a change of control or other asset sale (as defined therein), but only if the Company (x) in the case of such a change of control, has complied with its obligations under Section 4.15 or (y) in the case of such an asset sale, has applied the Net Proceeds from such asset sale in accordance with Section 4.16; (iv) any Restricted Investment the sole consideration for which consists of, or is made with the proceeds of the substantially concurrent sale (other than to a Restricted Subsidiary) of, or equity contribution with respect to, Capital Stock of the Company (other than any Disqualified Stock); (v) loans or advances to employees of the Company or any of its Subsidiaries which loans or advances exist on the Original Issue Date, and other loans or advances to employees of the Company or any Subsidiary to pay reasonable relocation expenses; (vi) Restricted Investments in an amount such that the sum of the aggregate amount of Restricted Investments made pursuant to this clause (vi) after the Original Issue Date does not exceed $2.0 million at any one time outstanding; and (vii) the payment of any dividend on, or redemption of any or all of, the Company's redeemable 9.8% cumulative preferred stock, par value, $0.01 per share, Series D, outstanding on the Original Issue Date. provided, however, that in the case of clauses (iii), (iv), (vi) and (vii) of this Section 4.11(b), no Default or Event of Default shall have occurred and be continuing. (c) For purposes of Section 4.11(a)(iii), the Permitted Payments referred to in clauses (i), (vi) and (vii) of Section 4.11(b) shall be included in the aggregate amount of Restricted Payments made since the Original Issue Date, and any other Permitted Payments described above shall be excluded. (d) Not later than thirty (30) days after the end of any fiscal quarter of the Company during which any Restricted Payment or Restricted Investment has been made, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment or Restricted Investment complies with this Indenture and setting forth in reasonable detail the basis upon which the required calculations were computed, which calculations may be based upon the Company's latest available internal quarterly financial statements. SECTION 4.12 Limitation on Liens. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any Lien securing Indebtedness (other than Permitted Liens) on any asset now owned or hereafter acquired, or any income or profits therefrom, or assign or convey any right to receive income therefrom to secure any such Indebtedness, unless (i) if such Lien secures Indebtedness that is pari passu with the Notes, then 36 the Notes are secured on an equal and ratable basis with the obligations so secured until such time as such obligation is no longer secured by a Lien or (ii) if such Lien secures Indebtedness that is subordinated to the Notes, any such Lien shall be subordinated to a Lien granted to the Holders of the Notes in the same collateral as that securing such Lien to the same extent as such subordinated Indebtedness is subordinated to the Notes. SECTION 4.13 Limitation on Dividends and Other Payment Restrictions Affecting Restricted Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create or otherwise cause to become effective any consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions to the Company or any other Restricted Subsidiary on its Capital Stock or with respect to any other interest or participation in, or measured by, its profits, or pay any Indebtedness owed to the Company or any other Restricted Subsidiary, (ii) make loans or advances to, or issue guarantees for the benefit of, the Company or any other Restricted Subsidiary or (iii) transfer any of its properties or assets to the Company or any other Restricted Subsidiary, except for such encumbrances or restrictions existing under or by reason of: (a) any New Credit Facility; (b) applicable law; (c) any instrument governing Indebtedness or Capital Stock of an Acquired Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition); provided, however, that no such encumbrance or restriction is applicable to any Person, or the properties or assets of any Person, other than the Acquired Person; (d) customary non-assignment, subletting or net worth provisions in leases or other agreements entered into the ordinary course of business and consistent with past practices; (e) Purchase Money Indebtedness for property acquired in the ordinary course of business that impose restrictions only on the property so acquired; (f) an agreement for the sale or disposition of assets or the Capital Stock of a Restricted Subsidiary; provided, however, that such restriction or encumbrance is only applicable to such Restricted Subsidiary or assets, as applicable, and such sale or disposition otherwise is permitted by Section 4.16; provided, further, however, that such restriction or encumbrance shall be effective only for a period from the execution and delivery of such agreement through a termination date not later than 180 days after such execution and delivery; (g) this Indenture, the Notes and the Note Guarantees; (h) Indebtedness (including Refinancing Indebtedness) permitted to be incurred subsequent to the Issue Date pursuant to Section 4.10; provided, however, that any 37 such restrictions are ordinary and customary with respect to the type of Indebtedness being incurred; (i) encumbrances and restrictions imposed by Liens incurred in accordance with Section 4.12; (j) customary provisions in joint venture agreements and other similar agreements; and (k) encumbrances and restrictions imposed by amendments, restatements, renewals, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (a) through (j) above; provided that such encumbrances and restrictions are, in the good faith judgment of the Company's Board of Directors, no more restrictive, in any material respect, than those contained in such contracts, instruments or obligations immediately prior to such amendment, restatement, renewal, replacement or refinancing. SECTION 4.14 Limitation on Transactions with Affiliates. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, enter into, suffer to exist, renew or extend any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate of the Company unless (i) such transaction or series of transactions is on terms that are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could reasonably be obtainable at such time in a comparable transaction in arm's-length dealings with an unrelated third party, and (ii) the Company delivers to the Trustee (A) with respect to any transaction or series of transactions involving aggregate payments in excess of $500,000, an Officers' Certificate certifying that such transaction or series of related transactions complies with clause (i) above and (B) with respect to any transaction or series of transactions involving aggregate payments in excess of $2.0 million, an Officers' Certificate certifying that such transaction or series of related transactions has been approved by a majority of the members of the Board of Directors of the Company (and approved by a majority of the Independent Directors or, in the event there is only one Independent Director, by such Independent Director), and (iii) with respect to any transaction or series of transactions involving aggregate payments in excess of $5.0 million, an opinion as to the fairness to the Company from a financial point of view issued by an investment banking firm of national standing. (b) Section 4.14(a) will not apply to (i) employment agreements or compensation or employee benefit arrangements with any officer, director or employee of the Company or any of its Restricted Subsidiaries entered into in the ordinary course of business (including customary benefits thereunder and including reimbursement or advancement of out-of-pocket expenses, and director's and officer's liability insurance); (ii) the expense sharing arrangement between the Company and Weinberg Capital Corporation regarding the expenses incurred with respect to the Company's Cleveland, Ohio headquarters; (iii) any transaction entered into by or among the Company or one of its Restricted Subsidiaries with one or more Restricted Subsidiaries of the Company; (iv) any transaction permitted by Section 4.11(b); (v) transactions permitted by, and complying with, Article Five; and (vi) transactions with suppliers or other purchases or sales of goods or services, in each case in the ordinary course of 38 business (including, without limitation, pursuant to joint venture agreements) and otherwise in compliance with the terms of this Indenture which, in the reasonable determination of the Board of Directors of the Company, are on terms no less favorable to the Company or its Restricted Subsidiaries than those that could reasonably have been obtained at such time from an unaffiliated party. SECTION 4.15 Change of Control. (a) In the event of a Change of Control, each Holder of the Notes shall have the right, unless the Company has given a notice of redemption, subject to the terms and conditions of this Indenture, to require the Company to offer to purchase all or any portion (equal to $1,000, or, if lesser denominations have been issued, such lesser denominations, or an integral multiple thereof) of such Holder's Notes (and, if the Change of Control Purchase Date occurs during the period following the immediately preceding Interest Payment Date to and including the next PIK Interest Payment Date, any Additional PIK Notes that would be issuable on such PIK Interest Payment Date pursuant to Section 2.3 hereof) at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase, in accordance with the terms set forth below (a "Change of Control Offer"). In the event of any Change of Control, the Company shall not, and shall not cause or permit any of the Restricted Subsidiaries to, purchase, redeem or otherwise acquire or retire any Indebtedness of the Company ranking junior or subordinate to the Notes pursuant to any analogous provisions relating to such Indebtedness until after the 91st day after the Change of Control Payment Date (as such date may be extended). (b) On or before the 30th day following the occurrence of any Change of Control, the Company shall mail, by first-class mail (with a copy to the Trustee), to each Holder at such Holder's registered address a notice stating: (i) that a Change of Control has occurred and that such holder has the right to require the Company to purchase all or a portion (equal to $1,000, or if lesser denominations have been issued, such lesser denominations, or an integral multiple thereof) of such holder's Notes (including any Additional PIK Notes that would be issuable on the next PIK Interest Payment Date pursuant to Section 2.3 hereof) at a purchase price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase (the "Change of Control Purchase Date"), which shall be a Business Day, specified in such notice, that is not earlier than 30 days or later than 60 days from the date such notice is mailed; (ii) the amount of accrued and unpaid interest, if any, as of the Change of Control Purchase Date (including any amounts that would be payable in respect of any Additional PIK Notes that would be issuable on the next PIK Interest Payment Date pursuant to Section 2.3 hereof); (iii) that any Note not tendered will continue to accrue interest; (iv) that, unless the Company defaults in the payment of the purchase price for the Notes payable pursuant to the Change of Control Offer, any Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on the Change of Control Purchase Date (excluding the interest payable under Section 2.3 hereof on any Additional PIK Notes that would be issuable on the next PIK Interest Payment Date); 39 (v) that Holders electing to have a Note purchased pursuant to a Change of Control Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the second Business Day prior to the Change of Control Purchase Date; (vi) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the second Business Day prior to the Change of Control Purchase Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; (vii) that Holders whose Notes are purchased only in part will be issued new Notes in a principal amount equal to the unpurchased portion of the Notes surrendered; provided, however, that each Note purchased and each new Note issued shall be in an original principal amount of $1,000 or integral multiples thereof (or if the Notes purchased were issued in lesser denominations, such lesser denomination); (viii) the circumstances and relevant facts regarding such Change of Control; and (ix) such other information as may be required by applicable laws and regulations. (c) On the Change of Control Purchase Date, the Company will (i) accept for payment all Notes or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender Sufficient to pay the aggregate purchase price of all Notes or portions thereof accepted for payment, (iii) deposit with the Paying Agent an amount in cash sufficient to pay the aggregate purchase price of any Additional PIK Notes that would be issuable on the next PIK Interest Payment Date pursuant to Section 2.3 hereof, and (iv) deliver or cause to be delivered to the Trustee all Notes tendered pursuant to the Change of Control Offer. The Paying Agent shall promptly mail to each holder of Notes or portions thereof accepted for payment an amount equal to the purchase price for such Notes plus accrued and unpaid interest, if any, thereon, and the Trustee shall promptly authenticate and mail to each holder of Notes accepted for payment in part a new Note equal in principal amount to any unpurchased portion of the Notes, and any Note not accepted for payment in whole or in part shall be promptly returned to the holder of such Note. On and after a Change of Control Purchase Date, interest will cease to accrue on the Notes (excluding any Additional PIK Notes that would be issuable on the next PIK Interest Payment Date pursuant to Section 2.3 hereof) or portions thereof accepted for payment, unless the Company defaults in the payment of the purchase price therefor. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Purchase Date. (d) The Company will comply with the applicable tender offer rules, including the requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, and all other applicable securities laws and regulations in connection with any Change of Control Offer and will be deemed not to be in violation of any of the covenants under this Indenture to the extent such compliance is in conflict with such covenants. SECTION 4.16 Limitation on Asset Sales. (a) The Company shall not, and shall not permit any Restricted Subsidiary to, make any Asset Sale unless (i) the Company or such Restricted Subsidiary, as the case may 40 be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value (as evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee) of the assets or other property sold or disposed of in the Asset Sale and (ii) at least 75% of such consideration consists of either cash or Cash Equivalents; provided, however, that for purposes of this Section 4.16, "cash" shall include (x) the amount of any Indebtedness (other than any Indebtedness that is by its terms subordinated to the Notes) of the Company or such Restricted Subsidiary as shown on the Company's or such Restricted Subsidiary's most recent balance sheet or in the notes thereto that is assumed by the transferee of any such assets or other property in such Asset Sale (and excluding any liabilities that are incurred in connection with or in anticipation of such Asset Sale), but only to the extent that such assumption is effected on a basis such that there is no further recourse to the Company or any of the Restricted Subsidiaries with respect to such liabilities and (y) any notes, obligations or securities received by the Company or such Restricted Subsidiary from such transferee that are converted within 60 days by the Company or such Restricted Subsidiary into cash (to the extent of the cash received). (b) Within 180 days after any Asset Sale, the Company may elect to apply the Net Proceeds from such Asset Sale to (a) permanently reduce any Senior Debt of the Company and/or (b) make an investment in, or acquire assets and properties that will be used in, the business of the Company and the Restricted Subsidiaries existing on the Issue Date or in businesses reasonably related thereto. Pending the final application of any such Net Proceeds, the Company or any Restricted Subsidiary may temporarily reduce Indebtedness of the Company under any New Credit Facility or temporarily invest such Net Proceeds in any Investments described under clauses (i) through (iii) of the definition of Permitted Investments. Any Net Proceeds from an Asset Sale not applied or invested as provided in the first sentence of this Section 4.16(b) within 180 days of such Asset Sale will be deemed to constitute "Excess Proceeds." (c) Each date that the aggregate amount of Excess Proceeds in respect of which an Asset Sale Offer (as defined below) has not been made exceeds $5.0 million shall be deemed an "Asset Sale Offer Trigger Date." As soon as practicable, but in no event later than 20 business days after each Asset Sale Offer Trigger Date, the Company shall commence an offer (an "Asset Sale Offer") to purchase the maximum principal amount of Notes (and, if the Asset Sale Offer Purchase Date occurs during the period following the immediately preceding Interest Payment Date to and including the next PIK Interest Payment Date, any Additional PIK Notes that would be issuable on such PIK Interest Payment Date pursuant to Section 2.3 hereof) that may be purchased out of the Excess Proceeds. Any Notes to be purchased pursuant to an Asset Sale Offer shall be purchased pro rata based on the aggregate principal amount of Notes outstanding, and all Notes shall be purchased at an offer price in cash in an amount equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase. To the extent that any Excess Proceeds remain after completion of an Asset Sale Offer, the Company may use the remaining amount to pay Indebtedness for money borrowed (other than Junior PIK Indebtedness) and, if any Excess Proceeds remain after the payment in full of such Indebtedness, for general corporate purposes otherwise permitted by this Indenture. In the event that the Company is prohibited under the terms of any agreement governing outstanding Senior Debt of the Company from repurchasing Notes with Excess Proceeds pursuant to an Asset Sale Offer as set forth in the first sentence of this Section 4.16(c), the 41 Company shall promptly use all Excess Proceeds to permanently reduce such outstanding Senior Debt of the Company. Upon the consummation of any Asset Sale Offer, the amount of Excess Proceeds shall be deemed to be reset to zero. (d) Notice of an Asset Sale Offer shall be mailed, by first-class mail (with a copy to the Trustee), by the Company not later than the 20th business day after the related Asset Sale Offer Trigger Date to each holder of Notes at such holder's registered address, stating: (i) that an Asset Sale Offer Trigger Date has occurred and that the Company is offering to purchase the maximum principal amount of Notes (including any Additional PIK Notes that would be issuable on the next PIK Interest Payment Date pursuant to Section 2.3 hereof) that may be purchased out of the Excess Proceeds (to the extent provided in the immediately preceding paragraph), at an offer price in cash in an amount equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of the purchase (the "Asset Sale Offer Purchase Date"), which shall be a business day, specified in such notice, that is not earlier than 30 days or later than 60 days from the date such notice is mailed, (ii) the amount of accrued and unpaid interest, if any, on the Notes (including any amounts that would be payable in respect of any Additional PIK Notes that would be issuable on the next PIK Interest Payment Date pursuant to Section 2.3 hereof) as of the Asset Sale Offer Purchase Date, (iii) that any Note not tendered will continue to accrue interest, (iv) that, unless the Company defaults in the payment of the purchase price for the Notes payable pursuant to the Asset Sale Offer, any Notes accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Asset Sale Offer Purchase Date (excluding any Additional PIK Notes that would be issuable on the next PIK Interest Payment Date pursuant to Section 2.3 hereof), (v) that Holders electing to have a Note purchased pursuant to a Asset Sale Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day prior to the Asset Sale Offer Purchase Date, (vi) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the second Business Day prior to the Asset Sale Offer Purchase Date, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased, (vii) that Holders whose Notes are purchased only in part will be issued new Notes in a principal amount equal to the unpurchased portion of the Notes surrendered; provided, however, that each Note purchased and each new Note issued shall be in an original principal amount of $1,000 or integral multiples thereof (or if the Notes purchased were issued in lesser denominations, such lesser denomination), and (viii) such other information as may be required by applicable laws and regulations. (e) On the Asset Sale Offer Purchase Date, the Company will (i) accept for payment the maximum principal amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer that can be purchased out of Excess Proceeds from such Asset Sale that are to be applied to an Asset Sale Offer, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the aggregate purchase price of all Notes or portions thereof accepted for payment, (iii) deposit with the Paying Agent an amount in cash sufficient to pay the aggregate purchase price of any Additional PIK Notes that would be issuable on the next PIK Interest Payment Date pursuant to Section 2.3 hereof, and (iv) deliver or cause to be delivered to the Trustee all Notes tendered pursuant to the Asset Sale Offer. If less than all Notes tendered 42 pursuant to the Asset Sale Offer are accepted for payment by the Company for any reason consistent with this Indenture, selection of the Notes to be purchased by the Company shall be in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis or by lot; provided, however, that Notes accepted for payment in part shall only be purchased in integral multiples of $1,000, and provided further, that if all of a Holder's Notes are to be purchased, an amount shall be retained by the Paying Agent to purchase any Additional PIK Notes that would be issuable to the Holder on the next PIK Interest Payment Date pursuant to Section 2.3 hereof. The Paying Agent shall promptly mail to each holder of Notes or portions thereof accepted for payment an amount equal to the purchase price for such Notes plus accrued and unpaid interest, if any, thereon, and the Trustee shall promptly authenticate and mail to such holder of Notes accepted for payment in part a new Note equal in principal amount to any unpurchased portion of the Notes, and any Note not accepted for payment in whole or in part shall be promptly returned to the holder of such Note. On and after an Asset Sale Offer Purchase Date, interest will cease to accrue on the Notes or portions thereof accepted for payment (excluding the interest payable under Section 2.3 on any Additional PIK Notes that would be issuable on the next PIK Interest Payment Date), unless the Company defaults in the payment of the purchase price therefor. The Company will publicly announce the results of the Asset Sale Offer on or as soon as practicable after the Asset Sale Offer Purchase Date. (f) This Section 4.16 will not apply to a transaction consummated in compliance with Article Five. (g) The Company will comply with the applicable tender offer rules, including the requirements of Section 14(e) and Rule 14e-1 under the Exchange Act, and all other applicable securities laws and regulations in connection with any Asset Sale Offer and will be deemed not to be in violation of any of the covenants under this Indenture to the extent such compliance is in conflict with such covenants. SECTION 4.17 Limitation on Designation of Unrestricted Subsidiaries. (a) The Company shall not designate any Subsidiary of the Company (other than a newly created Subsidiary in which no Investment has previously been made) as an "Unrestricted Subsidiary" under this Indenture (a "Designation") unless: (i) no Default shall have occurred and be continuing at the time of or after giving effect to such Designation; (ii) immediately after giving effect to such Designation, the Company would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under Section 4.10(a); and (iii) the Company would not be prohibited under this Indenture from making an Investment at the time of Designation in an amount (the "Designation Amount") equal to the greater of (x) the book value of such Restricted Subsidiary on such date and (y) the Fair Market Value of such Restricted Subsidiary on such date. 43 In the event of any such Designation, the Company shall be deemed to have made an Investment constituting a Restricted Payment pursuant to for all purposes of this Indenture in an amount equal to the Designation Amount. (b) The Company shall not designate an Unrestricted Subsidiary as a Restricted Subsidiary (a "Redesignation"), unless: (i) no Default shall have occurred and be continuing at the time of and after giving effect to such Redesignation; and (ii) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding immediately following such Redesignation shall be deemed to have been incurred at such time and shall have been permitted to be incurred for all purposes of this Indenture. An Unrestricted Subsidiary shall be deemed to be redesignated as a Restricted Subsidiary at any time if (a) the Company or any other Restricted Subsidiary (i) provides credit support for, or a guarantee of, any Indebtedness of such Unrestricted Subsidiary (including any undertaking, agreement or instrument evidencing such Indebtedness) or (ii) is directly or indirectly liable for any Indebtedness of such Unrestricted Subsidiary, (b) a default with respect to any Indebtedness of such Unrestricted Subsidiary (including any right which the holders thereof may have to take enforcement action against it) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness of the Company or any Restricted Subsidiary to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its final scheduled maturity, or (c) such Unrestricted Subsidiary incurs indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any Restricted Subsidiary, except in the case of clause (i) to the extent permitted under Section 4.11. (c) All Designations and Redesignations shall be evidenced by Board Resolutions delivered to the Trustee certifying compliance with the foregoing provisions. Subsidiaries that are not designated by the Board of Directors as Restricted or Unrestricted Subsidiaries will be deemed to be Restricted Subsidiaries. The Designation of a Restricted Subsidiary as an Unrestricted Subsidiary shall be deemed a Designation of all of the Subsidiaries of such Unrestricted Subsidiary as Unrestricted Subsidiaries. ARTICLE V SUCCESSOR CORPORATION SECTION 5.1 Merger, Consolidation and Sale of Assets. (a) The Company shall not, in any single transaction or series of related transactions, consolidate or merge with or into (whether or not the Company is the Surviving Person), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets (determined on a consolidated basis for the Company and its Restricted Subsidiaries) in one or more related transactions to, another Person, and the Company will not 44 permit any Restricted Subsidiary to enter into any such transaction or series of related transactions if such transaction or series of related transactions, in the aggregate, would result in a sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the properties and assets of the Company and the Restricted Subsidiaries, taken as a whole, to another Person, unless (i) the Surviving Person is a corporation organized or existing under the laws of the United States, any state thereof or the District of Columbia; (ii) the Surviving Person (if other than the Company or a Guarantor) assumes all the obligations of the Company under the Notes and this Indenture pursuant to a supplemental indenture or other written agreement, as the case may be, in a form reasonably satisfactory to the Trustee; (iii) immediately after such transaction, no Default or Event of Default shall have occurred and be continuing; (iv) immediately after giving effect to such transaction or series of related transactions, (a) in the case of a transaction involving the Company, the Surviving Person shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction or series of related transactions or (b) in the case of a transaction involving a Restricted Subsidiary of the Company, the Surviving Person shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of such Restricted Subsidiary immediately prior to such transaction or series of related transactions; and (v) after giving pro forma effect to such transaction, the Surviving Person would be permitted to incur at least $1.00 of additional indebtedness (other than Permitted Indebtedness) pursuant to Section 4.10(a). Notwithstanding clauses (iii), (iv) and (v) above, any Restricted Subsidiary that is a Guarantor may consolidate with, merge into or transfer all or part of its properties and assets to the Company or another Restricted Subsidiary that is a Guarantor. In the event of any transaction (other than a lease) described in and complying with the conditions listed in the immediately preceding paragraph in which the Company or a Guarantor is not the Surviving Person, such Surviving Person shall succeed to, and be substituted for, and may exercise every right and power of, the Company, and the Company shall be discharged from its obligations under, this Indenture and the Notes. (b) In connection with any such consolidation, merger, amalgamation, transfer, lease or disposition, the Company or such Person shall have delivered to the Trustee (i) an Officers' Certificate and an Opinion of Counsel, each in form and substance reasonably satisfactory to the Trustee, stating that such consolidation, amalgamation, merger, sale, assignment, conveyance, transfer, lease or disposition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this Indenture and that all conditions precedent therein provided for relating to such transaction have been complied with, and (ii) if a supplemental indenture is required in connection with such transaction, an Opinion of Counsel, in form and substance reasonably satisfactory to the Trustee, that such supplemental indenture constitutes the legal, valid, binding and enforceable obligation of the Surviving Entity. (c) For purposes of the foregoing, the transfer (by lease, assignment, sale or otherwise, in a single transaction or series of transactions) of all or substantially all of the properties or assets of one or more Subsidiaries, the Capital Stock of which constitutes all or substantially all of the properties and assets of the Company, shall be deemed to be the transfer of all or substantially all of the properties and assets of the Company. 45 SECTION 5.2 Successor Corporation Substituted. Upon any consolidation, amalgamation or merger, or any sale, assignment, conveyance, transfer, lease or disposition of all or substantially all of the properties and assets of the Company in accordance with Section 5.1, the Surviving Entity or the Transaction Survivor, as the case may be, shall succeed to, and be substituted for, and may exercise every rich and power of the Company under this Indenture, with the same effect as if such successor had been named as the Company in this Indenture; and thereafter, except in the case of a lease, the Company shall be discharged from all obligations and covenants under this Indenture and the Notes. ARTICLE VI DEFAULT AND REMEDIES SECTION 6.1 Events of Default. "Events of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (i) the Company defaults in the payment when due of interest (including the issuance of any Additional PIK Notes) on any Note and, in the case of cash interest, such default continues for a period of 30 days; (ii) the Company defaults in the payment when due of principal on any Note, whether upon maturity, acceleration, optional or mandatory redemption, required repurchase or otherwise; (iii) the Company's or any Guarantor's failure to perform or comply with any covenant, agreement or warranty in this Indenture (other than the defaults specified in clauses (i) and (ii) above) which failure continues for 60 days after written notice thereof has been given to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the then outstanding Notes; (iv) the occurrence of one or more defaults under any agreements, indentures or instruments under which the Company or any Restricted Subsidiary then has outstanding Indebtedness in excess of $5.0 million in the aggregate and, if not already matured at its final maturity in accordance with its terms, such Indebtedness shall have been accelerated and such acceleration is not rescinded, annulled or cured within 10 days thereafter; (v) one or more judgments, orders or decrees for the payment of money in excess of $5.0 million, either individually or in the aggregate, shall be entered against the Company or any Restricted Subsidiary or any of their respective properties 46 and which judgments, orders or decrees are not paid, discharged, bonded or stayed or stayed pending appeal for a period of 60 days after their entry; or (vi) the Company or any Significant Subsidiary shall (A) commence a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (B) consent to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (C) consent to the appointment of a Custodian of it or for substantially all of its property, (D) consent to or acquiesce in the institution of a bankruptcy or an insolvency proceeding against it, (E) make a general assignment for the benefit of its creditors, (F) admit in writing its inability to pay its debts as they become due, or (G) take any corporate action to authorize or effect any of the foregoing; or (vii) a court of competent jurisdiction shall enter a judgment, decree or order for relief in respect of the Company or any Significant Subsidiary in an involuntary case or proceeding under any Bankruptcy Law which shall (A) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of the Company or any Significant Subsidiary, (B) appoint a Custodian of the Company or any Significant Subsidiary or for substantially all of its property or (C) order the winding-up or liquidation of its affairs; and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (viii) any Note Guarantee ceases to be in full force and effect (except as contemplated by the terms of this Indenture) or any Guarantor denies or disaffirms its obligations under this Indenture or its Note Guarantee. The Company shall provide an Officers' Certificate to the Trustee within five days of the occurrence of any Default or Event of Default (provided, however, that pursuant to Section 4.6 hereof the Company shall provide such certification at least annually whether or not they know of any Default or Event of Default) that has occurred and, if applicable, describe such Default or Event of Default and the status thereof. SECTION 6.2 Acceleration. (a) If any Event of Default (other than as specified in clause (vi) or (vii) of Section 6.1 with respect to the Company) occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may, and the Trustee at the request of such Holders shall, declare all the Notes to be due and payable immediately by notice in writing to the Company, and to the Company and the Trustee if by the Holders, specifying the respective Event of Default and that such notice is a "notice of acceleration," and the Notes shall become immediately due and payable. Following the delivery of such a notice of acceleration, any interest that would have otherwise been payable through the issuance of Additional PIK Notes shall be payable in cash. Notwithstanding the foregoing, in the case of an Event of Default arising from the events specified in clause (vi) or (vii) of Section 6.1 with respect to the Company, the principal of, premium, if any, and any accrued interest on all outstanding Notes shall ipso facto become immediately due and payable without further action or notice. 47 (b) Any time after a declaration of acceleration, but before a judgment or decree for payment of the money due has been obtained by the Trustee, the Holders of a majority in principal amount of the Notes outstanding, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (i) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all sums paid or advanced by the Trustee and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (B) all overdue interest (including any interest accrued subsequent to an Event of Default specified in clause (vi) or (vii) of Section 6.1 hereof) on all Notes, (C) the principal of and premium, if any, on any Notes which have become due otherwise than by such declaration or occurrence of acceleration and interest thereon at the rate borne by the Notes, and (D) to the extent that payment of such interest is lawful, interest upon overdue interest at the Default Rate; and (ii) all Events of Default, other than the non-payment of principal of Notes which have become due solely by such declaration or occurrence of acceleration, have been cured or waived; and (iii) the rescission would not conflict with any judgment, order or decree of any court of competent jurisdiction. (c) The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may, on behalf of the Holders of all of the Notes, waive any existing Default or Event of Default and its consequences under this Indenture except (i) a continuing Default or Event of Default in the payment of the principal of, or premium, if any, or interest on, the Notes (which may be waived only with the consent of each Holder of Notes affected), or (ii) in respect of a covenant or provision which under this Indenture cannot be modified or amended without the consent of the Holder of each affected Note outstanding. SECTION 6.3 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of the principal of or interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. SECTION 6.4 Waiver of Past Defaults. Subject to Sections 2.10, 6.2, 6.7 and 9.2, prior to the declaration of acceleration of the Notes, the Holders of not less than a majority in principal amount of the outstanding Notes by written notice to the Trustee may on behalf of all of the Holders waive any past Default or Event of Default and its consequences, except a Default in the payment of principal of or interest on any Note as specified in clauses (i) and (ii) of Section 6.1 or a Default in respect of any term or provision of this Indenture that may not be modified or amended without the consent of each Holder affected as provided in Section 9.2. In case of any such waiver, the Company, the Trustee and the Holders shall be restored to their former positions and rights 48 hereunder and under the Notes, respectively. This paragraph of this Section 6.4 shall be in lieu of Section 316(a)(1)(B) of the TIA and such Section 316(a)(1)(B) of the TIA is hereby expressly excluded from this Indenture and the Notes, as permitted by the TIA. Upon any such waiver, such Default shall cease to exist and be deemed to have been cured and not to have occurred, and any Event of Default arising therefrom shall be deemed to have been cured and not to have occurred for every purpose of this Indenture and the Notes, but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereon. SECTION 6.5 Control by Majority. Subject to Section 2.9, the Holders of a majority in principal amount of the outstanding Notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it, including, without limitation, any remedies provided for in Section 6.3; provided, however, that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Subject to Section 7.1, however, the Trustee may refuse to follow any direction that the Trustee reasonably believes conflicts with any law or this Indenture, that the Trustee determines may be unduly prejudicial to the rights of another Holder or that exposes the Trustee to personal liability. This Section 6.5 shall be in lieu of Section 316(a)(1)(A) of the TIA, and such Section 316(a)(1)(A) of the TIA is hereby expressly excluded from this Indenture and the Notes, as permitted by the TIA. SECTION 6.6 Limitation on Suits. No Holder shall have any right to institute any proceeding, judicial or otherwise with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (b) the Holders of not less than 25% in principal amount of the outstanding Notes shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee; (c) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the outstanding Notes. 49 A Holder may not use this Indenture to prejudice the rights of another Holder or to obtain a preference or priority over such other Holder. SECTION 6.7 Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture or of the Notes, the right of any Holder to receive payment of the principal of and interest (including interest in the form of Additional PIK Notes) on a Note, on or after the respective due dates expressed in such Note and this Indenture, or to bring suit for the enforcement of any such payment or issuance on or after such respective dates, shall not be impaired or affected without the express prior written consent of such Holder. SECTION 6.8 Collection Suit by Trustee. If an Event of Default in payment of principal or interest specified in clause (i) or (ii) of Section 6.1 of this Indenture occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company or any other obligor on the Notes for the whole amount of the principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest as set forth in Section 4.1 and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 6.9 Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, taxes, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relating to the Company or any other obligor upon the Notes, any of their respective creditors or any of their respective property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same, and any Custodian in any such judicial proceedings is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, taxes, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee under Section 7.7. The Company's payment obligations under this Section 6.9 shall be secured in accordance with the provisions of Section 7.7 hereunder. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 6.10 Priorities. If the Trustee collects any money or property pursuant to this Article Six, it shall pay out the money in the following order: 50 First: to the Trustee for amounts due under Section 7.7, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and its counsel; Second: if the Holders are forced to proceed against the Company directly without the Trustee, to Holders for their collection costs; Third: subject to Article Ten, to Holders for amounts due and unpaid on the Notes for principal and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and interest, respectively; and Fourth: to the Company or any other obligor on the Notes, as their interests may appear, or as a court of competent jurisdiction may direct. The Trustee, upon prior notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10. SECTION 6.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.6, or a suit by a Holder or group of Holders of more than 10% in principal amount of the outstanding Notes. ARTICLE VII TRUSTEE SECTION 7.1 Duties of Trustee. (a) If a Default or an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise thereof as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of a Default or an Event of Default: (i) The Trustee need perform only those duties as are specifically set forth in this Indenture and no covenants or obligations shall be implied in this Indenture that are adverse to the Trustee; and (ii) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions 51 expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) Notwithstanding anything to the contrary herein contained, the Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) This paragraph does not limit the effect of paragraph(b) of this Section 7.1; (ii) The Trustee shall not be liable for any error of judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.2, 6.4 or 6.5. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. (e) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.1 and Section 7.2. (f) The Trustee shall not be liable for interest on any money or assets received by it except as the Trustee may agree in writing with the Company. Assets held in trust by the Trustee need not be segregated from other assets of the Trustee except to the extent required by law. SECTION 7.2 Rights of Trustee. Subject to Section 7.1: (a) The Trustee may rely and shall be fully protected in acting or refraining from acting upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may consult with counsel of its selection and may require an Officers' Certificate or an Opinion of Counsel, which shall conform to Sections 11.4 and 11.5. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. 52 (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action that it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers. (e) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, notice, request, direction, consent, order, bond, debenture, or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled, upon reasonable notice to the Company, to examine the books, records, and premises of the Company, personally or by agent or attorney and to consult with the officers and representatives of the Company, including the Company's accountants and attorneys. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee security or indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities which may be incurred by it in compliance with such request, order or direction. (g) The Trustee shall not be required to give any bond or surety in respect of the performance of its powers and duties hereunder. (h) Delivery of reports, information and documents to the Trustee under Section 4.9 hereof is for informational purposes only and the Trustee's receipt of the foregoing shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). (i) The Trustee shall not be charged with knowledge of any Default or Event of Default unless a trust officer of the Trustee (i) has actual knowledge of such Default or Event of Default or (ii) the Trustee has been notified in writing by the Company or any Holder of Notes. SECTION 7.3 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company, any Subsidiary, or their respective Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. However, the Trustee must comply with Sections 7.10 and 7.11 hereof. SECTION 7.4 Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Notes, and it shall not be accountable for the Company's use of the proceeds from the 53 Notes, and it shall not be responsible for any statement of the Company in this Indenture or the Notes other than the Trustee's certificate of authentication. SECTION 7.5 Notice of Default. If a Default or an Event of Default occurs and is continuing and if it is known to a Trust Officer, the Trustee shall mail to each Holder notice of the uncured Default or Event of Default within 90 days after such Default or Event of Default occurs. Except in the case of a Default or an Event of Default in payment of principal of, or interest on, any Note, including an accelerated payment, a Default in payment on the Change of Control Payment Date pursuant to a Change of Control Offer or on the Proceeds Purchase Date pursuant to an Asset Sale Offer or a Default in compliance with Article Five hereof, the Trustee may withhold the notice if and so long as its Board of Directors, the executive committee of its Board of Directors or a committee of its directors and/or Trust Officers in good faith determines that withholding the notice is in the interest of the Holders. The foregoing sentence of this Section 7.5 shall be in lieu of the proviso to Section 315(b) of the TIA and such proviso to Section 315(b) of the TIA is hereby expressly excluded from this Indenture and the Notes, as permitted by the TIA. SECTION 7.6 Reports by Trustee to Holders. Within 60 days after each May 15 of each year beginning with 2003, the Trustee shall, to the extent that any of the events described in TIA Section 313(a) occurred within the previous twelve months, but not otherwise, mail to each Holder a brief report dated as of such date that complies with TIA Section 313(a). The Trustee also shall comply with TIA Sections 313(b), (c) and (d). A copy of each report at the time of its mailing to Holders shall be mailed to the Company and filed with the Commission and each stock exchange, if any, on which the Notes are listed. The Company shall promptly notify the Trustee if the Notes become listed on any stock exchange and the Trustee shall comply with TIA Section 313(d). SECTION 7.7 Compensation and Indemnity. The Company shall pay to the Trustee from time to time such compensation for its services as has been agreed to in writing signed by the Company and Trustee. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee upon request for all reasonable out-of-pocket expenses incurred or made by it in connection with the performance of its duties under this Indenture. Such expenses shall include the reasonable fees and expenses of the Trustee's agents and counsel. The Company shall indemnify each of the Trustee (or any predecessor Trustee) and its agents, employees, stockholders, Affiliates and directors and officers for, and hold them harmless against, any and all loss, liability, damage, claim or expense (including reasonable fees and expenses of counsel), including taxes (other than taxes based on the income of the Trustee) incurred by them except for such actions to the extent caused by any negligence, bad 54 faith or willful misconduct on their part, arising out of or in connection with the acceptance or administration of this trust including the reasonable costs and expenses of defending themselves against any claim or liability in connection with the exercise or performance of any of their rights, powers or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. At the Trustee's sole discretion, the Company shall defend the claim and the Trustee shall cooperate and may participate in the defense; provided, however, that any settlement of a claim shall be approved in writing by the Trustee. Alternatively, the Trustee may at its option have separate counsel of its own choosing and the Company shall pay the reasonable fees and expenses of such counsel. To secure the Company's payment obligations in this Section 7.7, the Trustee shall have a lien prior to the Notes on all assets or money held or collected by the Trustee, in its capacity as Trustee, except assets or money held in trust to pay principal of or interest on particular Notes. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(vi) or (vii) occurs, such expenses and the compensation for such services are intended to constitute expenses of administration under any Bankruptcy Law. The provisions of this Section 7.7 shall survive the resignation or removal of the Trustee and the termination of this Indenture. SECTION 7.8 Replacement of Trustee. The Trustee may resign by so notifying the Company. The Holders of a majority in principal amount of the outstanding Notes may remove the Trustee by so notifying the Company and the Trustee and may appoint a successor Trustee. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10; (b) the Trustee is adjudged bankrupt or insolvent; (c) a receiver or other public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall notify each Holder of such event and shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall transfer all 55 property held by it as Trustee to the successor Trustee, subject to the lien provided in Section 7.7, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Holder. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10, any Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. Notwithstanding any resignation or replacement of the Trustee pursuant to this Section 7.8, the Company's obligations under Section 7.7 shall continue for the benefit of the retiring Trustee. SECTION 7.9 Successor Trustee by Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the resulting, surviving or transferee corporation without any further act shall, if such resulting, surviving or transferee corporation is otherwise eligible hereunder, be the successor Trustee; provided, however, that such corporation shall be otherwise qualified and eligible under this Article Seven. SECTION 7.10 Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirement of TIA Sections 310(a)(1), (2) and (5). The Trustee (or, in the case of a corporation included in a bank holding company system, the related bank holding company) shall have a combined capital and surplus of at least $50 million as set forth in its most recent published annual report of condition. In addition, if the Trustee is a corporation included in a bank holding company system, the Trustee, independently of such bank holding company, shall meet the capital requirements of TIA Section 310(a)(2). The Trustee shall comply with TIA Section 310(b); provided, however, that there shall be excluded from the operation of TIA Section 310(b)(1) any indenture or indentures under which other securities, or certificates of interest or participation in other securities, of the Company are outstanding, if the requirements for such exclusion set forth in TIA Section 310(b)(1) are met. The provisions of TIA Section 310 shall apply to the Company, as obligor of the Notes. SECTION 7.11 Preferential Collection of Claims Against Company. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. The provisions of TIA Section 311 shall apply to the Company, as obligor on the Notes. 56 ARTICLE VIII SATISFACTION AND DISCHARGE; DEFEASANCE SECTION 8.1 Satisfaction and Discharge of Indenture. (a) This Indenture shall be discharged and shall cease to be of further effect (except as to surviving rights of registration of transfer or exchange of Notes herein expressly provided for) as to all outstanding Notes and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when: (i) either (A) all Notes theretofore authenticated and delivered (other than (x) Notes which have been lost, stolen or destroyed and which have been replaced or paid as provided in Section 2.8 hereof and (y) Notes for whose payment money has theretofore been deposited in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation; or (B) all Notes not theretofore delivered to the Trustee for cancellation (other than (x) Notes which have been lost, stolen or destroyed and which have been replaced or paid as provided in Section 2.8 hereof and (y) Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been called for redemption pursuant to the terms of this Indenture or have otherwise become due and payable, and the Company, in each case, has irrevocably deposited or caused to be deposited with the Trustee in trust for the purpose U.S. Legal Tender sufficient to pay and discharge the entire indebtedness on such Notes not theretofore delivered to the Trustee for cancellation, for the principal of, premium, if any, and interest to the date of such deposit or redemption together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment or redemption thereof, as the case may be, including in each such case, any amounts required to redeem or purchase any Additional PIK Notes that would be issuable on the next PIK Interest Payment Date pursuant to Section 2.3 hereof; (ii) the Company and the Guarantors have paid or caused to be paid all other sums payable hereunder by the Company and the Guarantors; and (iii) the Company has delivered to the Trustee an Officers' Certificate and an opinion of Counsel each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. (b) Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 7.7 hereof shall survive and, if money 57 shall have been deposited with the Trustee pursuant to clause (a)(i)(B) of this Section 8.1, the obligations of the Trustee under Sections 8.3 and 8.4 shall survive. SECTION 8.2 Defeasance or Covenant Defeasance. (a) Subject to the satisfaction of the conditions in Section 8.2(c) hereof, the Company may, at its option by Board Resolution, at any time, with respect to the Notes, elect to have the obligations of the Company and the Guarantors discharged with respect to the outstanding Notes ("defeasance"). Upon such defeasance, the Company shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes and the Note Guarantees, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.4 hereof and the other Sections of and matters under this Indenture referred to in clauses (i) and (ii) below, and to have satisfied all its other obligations under such Notes and this Indenture, except for the following, which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of Notes to receive solely from the trust fund described in Section 8.2(c) and as more fully set forth in such Section, payments in respect of the principal of and interest on such Notes when such payments are due, (ii) the Company's obligations under Sections 2.3, 2.4, 2.6, 2.7, 2.8 and 4.2, the rights, powers, trusts, duties and immunities of the Trustee hereunder, including, without limitation, the Trustee's rights under Section 7.7, and (iv) this Article Eight. Subject to compliance with this Article Eight, the Company may exercise its option under this Section 8.2(a) notwithstanding the prior exercise of its option under Section 8.2(b) with respect to the Notes. (b) Subject to the satisfaction of the conditions in Section 8.2(c) hereof, the Company may, at its option by Board Resolution, at any time, elect to effect covenant defeasance ("covenant defeasance"). On and after the date such conditions are satisfied, (i) the Company shall be released from its obligations under any covenant or provision contained in Sections 4.4, 4.5, 4.6(a), 4.7 and 4.9 through 4.19, (ii) clauses (iii) through (vi) of Section 6.1 hereof shall not apply, and (iii) the provisions of Articles Five, Ten and Eleven shall not apply, and the Notes shall thereafter be deemed to be not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants and the provisions of Articles Five, Ten and Eleven, but shall continue to be deemed "outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to the Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section or Article, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or Article or by reason of any reference in any such Section or Article to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under clauses (iii) through (vi) of Section 6.1 hereof, but, except as specified above, the remainder of this Indenture shall be unaffected thereby. (c) In order to effect defeasance or covenant defeasance, the following conditions must be satisfied: (i) the Company shall have irrevocably deposited with the Trustee (or another trustee satisfying the requirements of Section 7.10 hereof who agrees to comply with the provisions of this Article Eight applicable to it), as trust funds in trust, 58 for the benefit of the Holders of such Notes, U.S. Legal Tender, U.S. Government Obligations or a combination thereof, in such amounts as will be sufficient (in the opinion of a nationally recognized firm of independent public accountants or a nationally recognized investment banking firm, as evidenced by a written report), without consideration of reinvestment of interest of such U.S. Government Obligations, to pay the principal of, premium, if any, and interest on the outstanding Notes (including on any Additional PIK Notes that would be issuable on the next PIK Interest Payment Date pursuant to Section 2.3 hereof but excluding any lost, stolen or destroyed Notes which have been replaced or paid) to maturity or redemption, as the case may be, and the Company shall have irrevocably instructed the Trustee (or such other trustee) to apply such U.S. Legal Tender or U.S. Government Obligations to said payments in respect of the Notes; (ii) the Company shall have delivered to the Trustee one or more Opinions of Counsel in the United States (which counsel or counsels shall be independent of the Company) to the effect that: (A) the holders of the outstanding Notes will not recognize income gain or loss for Federal income tax purposes as a result of such defeasance or covenant defeasance, as the case may be, and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance or covenant defeasance, as the case may be, had not occurred (which opinion, in the case of defeasance, shall be based upon a ruling of the Internal Revenue Service or a change in applicable Federal income tax law occurring after the Issue Date); (B) the trust funds will not be subject to any rights of holders of Indebtedness of the Company (other than holders of the Notes); and (C) assuming no bankruptcy of the Company occurs between the date of deposit and the 91st day following the deposit, after the 91st day following the deposit the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (iii) no Default or Event of Default shall have occurred and be continuing on the date of such deposit, at any time during the period ending on the 91st day after the date of such deposit; (iv) such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, any other material agreement or instrument to which the Company is a party or by which it is bound; (v) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company or others; 59 (vi) no event or condition shall exist that would prevent the Company from making payments of the principal of and interest on the Notes on the date of such deposit or at any time during the period ending on the 91st day after the date of such deposit; and (vii) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent (other than conditions requiring the passage of time) to either defeasance or covenant defeasance, as the case may be, have been complied with and that no violations under agreements governing any other outstanding Indebtedness of the Company would result therefrom. Opinions required to be delivered under this Section may have qualifications customary for opinions of the type required. SECTION 8.3 Application of Trust Money. The Trustee or Paying Agent shall hold in trust U.S. Legal Tender or U.S. Government Obligations deposited with it pursuant to Section 8.1 or 8.2, and shall apply the deposited U.S. Legal Tender and the money from U.S. Government Obligations in accordance with this Indenture to the payment of the principal of and interest on the Notes. The Trustee shall be under no obligation to invest said U.S. Legal Tender or U.S. Government Obligations except as it may agree in writing with the Company. The Company shall pay, and indemnify the Trustee against, any tax, fee or other charge imposed on or assessed against the Legal Tender or U.S. Government Obligations deposited pursuant to Section 8.1 or 8.2 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of outstanding Notes. SECTION 8.4 Repayment to the Company. Subject to Sections 8.1 and 8.2, the Trustee and the Paying Agent shall promptly pay to the Company upon request any excess U.S. Legal Tender or U.S. Government Obligations held by them at any time and thereupon shall be relieved from all liability with respect to such money. The Trustee and the Paying Agent shall pay to the Company upon request any money held by them for the payment of principal or interest that remains unclaimed for one year; provided, however, that the Trustee or such Paying Agent, before being required to make any payment, may at the expense of the Company cause to be published once in a newspaper of general circulation in the City of New York or mail to each Holder entitled to such money notice that such money remains unclaimed and that after a date specified therein which shall be at least 30 days from the date of such publication or mailing any unclaimed balance of such money then remaining will be repaid to the Company. After payment to the Company, Holders entitled to such money must look to the Company for payment as general creditors unless an applicable law designates another Person. 60 SECTION 8.5 Reinstatement. If the Trustee or Paying Agent is unable to apply any U.S. Legal Tender or U.S. Government Obligations in accordance with Section 8.1 or 8.2 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's and the Guarantors' obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.1 or 8.2, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such U.S. Legal Tender or U.S. Government Obligations in accordance with Section 8.1 or 8.2, as the case may be; provided, however, that if the Company has made any payment of interest on or principal of any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the U.S. Legal Tender or U.S. Government Obligations held by the Trustee or Paying Agent. SECTION 8.6 Acknowledgment of Discharge by Trustee. After (i) the conditions of Section 8.1 or 8.2(a) have been satisfied, (ii) the Company has paid or caused to be paid all other sums payable hereunder by the Company and (iii) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent referred to in clause (i), above, relating to the satisfaction and discharge or defeasance of this Indenture have been complied with, the Trustee upon request shall acknowledge in writing the discharge of the Company's and the Guarantors' obligations under this Indenture except for those surviving obligations specified in Section 8.1 or 8.2, as the case may be. ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS SECTION 9.1 Without Consent of Holders and any Guarantor. The Company, when authorized by a Board Resolution, and the Trustee, together, may amend or supplement this Indenture, the Notes or the Note Guarantees without notice to or consent of any Holder or any Guarantor: (i) to cure any ambiguity, defect or inconsistency; provided, however, that such amendment or supplement does not adversely affect the rights of any Holder; (ii) to effect the assumption by a successor Person of all obligations of the Company under the Notes and this Indenture in the event of any Disposition involving the Company in which the Company is not the Surviving Person; (iii) to provide for uncertificated Notes in addition to or in place of certificated Notes; 61 (iv) to comply with any requirements of the Commission in order to effect or maintain the qualification of this Indenture under the TIA; (v) to make any change that would provide any additional benefit or rights to the Holders; (vi) to make any other change that does not adversely affect the rights of any Holder under this Indenture; or (vii) to add Guarantees with respect to the Notes or to secure the Notes, or to release any Note Guarantee that is permitted to be released under this Indenture; provided, however, that the Company has delivered to the Trustee an Opinion of Counsel stating that such amendment or supplement complies with the provisions of this Section 9.1. SECTION 9.2 With Consent of Holders. (a) Subject to Section 6.7, the Company and the Guarantors, when authorized by a Board Resolution, and the Trustee, together, with the written consent of the Holder or Holders of not less than a majority in aggregate principal amount of the then outstanding Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes), may amend or supplement this Indenture, the Notes and the Note Guarantees without notice to any other Holder. Subject to Section 6.2 and 6.7, the Holder or Holders of not less than a majority in aggregate principal amount of the then outstanding Notes may waive compliance by the Company with any provision of this Indenture or the Notes without notice to any other Holder. (b) Notwithstanding Section 9.2(a) hereof, no amendment, supplement or waiver, including a waiver pursuant to Section 6.4, shall, without the prior written consent of each Holder of each Note affected thereby: (i) reduce the principal amount of the Notes whose holders must consent to an amendment, supplement or waiver; (ii) reduce the principal of or change the fixed maturity of any Note, or alter or waive the provisions with respect to the redemption of the Notes in a manner adverse to the holders of the Notes other than with respect to a Change of Control Offer or an Asset Sale Offer and except to the extent covered by Section 9.2(b)(vii) hereof; (iii) reduce the rate of or change the time for payment of interest (including interest in the form of Additional PIK Notes or cash in respect thereof) on any Notes; (iv) waive a Default or Event of Default in the payment of principal of, premium, if any, or interest on the Notes (except that holders of at least a majority in aggregate principal amount of the then outstanding Notes may (A) rescind 62 an acceleration of the Notes that resulted from a non-payment default and (B) waive the payment default that resulted from such acceleration); (v) make any Note payable in money other than that stated in the Notes; (vi) make any change in the provisions of this Indenture relating to waivers of (A) past Defaults or Events of Default or (B) the rights of holders of Notes to receive payments of principal of, or premium, if any, or interest on, the Notes; or (vii) following the occurrence of a Change of Control, amend, change or modify the Company's obligation to make and consummate a Change of Control Offer in the event of a Change of Control or modify any of the provisions or definitions with respect thereto in a manner adverse to the holders of the Notes, or following the occurrence of an Asset Sale, amend, change or modify the Company's obligation to make and consummate an Asset Sale Offer or modify any of the provisions or definitions with respect thereto in a manner adverse to the holders of the Notes. (c) It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. (d) After an amendment, supplement or waiver under this Section 9.2 becomes effective, the Company shall mail to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. SECTION 9.3 Compliance with TIA. Every amendment, waiver or supplement of this Indenture or the Notes shall comply with the TIA as then in effect; provided, however, that this Section 9.3 shall not of itself require that this Indenture or the Trustee be qualified under the TIA or constitute any admission or acknowledgment by any party hereto that any such qualification is required prior to the time this Indenture and the Trustee are required by the TIA to be so qualified. SECTION 9.4 Payment for Consent. Neither the Company nor any Affiliate of the Company shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes, unless such consideration is offered to be paid to all Holders that so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. 63 SECTION 9.5 Revocation and Effect of Consents. Until an amendment, waiver or supplement becomes effective, a consent to it by a Holder is a continuing consent by the Holder and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. Subject to the following paragraph, any such Holder or subsequent Holder may revoke the consent as to such Holder's Note or portion of such Note by notice to the Trustee or the Company received before the date on which the Trustee receives an Officers' Certificate certifying that the Holders of the requisite principal amount of Notes have consented (and not theretofore revoked such consent) to the amendment, supplement or waiver. An amendment, supplement or waiver becomes effective upon receipt by the Trustee of such Officers' Certificate and evidence of consent by the Holders of the requisite percentage in principal amount of outstanding Notes. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement or waiver, which record date shall be at least 30 days prior to the first solicitation of such consent. If a record date is fixed, then notwithstanding the second sentence of the immediately preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date. After an amendment, supplement or waiver becomes effective, it shall bind every Holder, unless it makes any change described in Section 9.2(b), in which case, the amendment, supplement or waiver shall bind only each Holder of a Note who has consented to it and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note; provided, however, that any such waiver shall not impair or affect the right of any Holder to receive payment of principal of and interest on a Note, on or after the respective due dates expressed in such Note, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. SECTION 9.6 Notation on or Exchange of Notes. If an amendment, supplement or waiver changes the terms of a Note, the Trustee may require the Holder of such Note to deliver it to the Trustee. The Trustee may place an appropriate notation on the Note about the changed terms and return it to the Holder. Alternatively, if the Company or the Trustee so determines, the Company in exchange for the Note shall issue and the Trustee shall authenticate a new Note that reflects the changed terms. SECTION 9.7 Trustee to Sign Amendments, Etc. The Trustee shall execute any amendment, supplement or waiver authorized pursuant to this Article Nine; provided, however, that the Trustee may, but shall not be obligated to, execute any such amendment, supplement or waiver which affects the Trustee's own rights, duties or immunities under this Indenture. The Trustee shall be entitled to receive, in addition to the documents required by Section 11.4, and shall be fully protected in relying upon, an Opinion of Counsel and an Officers' Certificate each stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article Nine is authorized or 64 permitted by this Indenture. Such Opinion of Counsel shall not be an expense of the Trustee or the Holders. ARTICLE X GUARANTEES SECTION 10.1 Unconditional Guarantee. Each Guarantor hereby unconditionally, jointly and severally, guarantees of a senior unsecured basis (such guarantee to be referred to herein as a "Note Guarantee") to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns that: (i) the principal of, premium, if any, and interest on the Notes will be promptly paid in full when due, subject to any applicable grace period, whether at maturity, by acceleration or otherwise and interest on the overdue principal and interest on any overdue interest, to the extent lawful, of the Notes and all other Obligations of the Company to the Holders of the Notes or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (ii) in case of any extension of time of payment or renewal of any Notes or of any such other Obligations, the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, subject to any applicable grace period, whether at stated maturity, by acceleration or otherwise, subject, however, in the case of clauses (i) and (ii) above, to the limitations set forth in Section 10.4. Each Guarantor hereby agrees that its obligations hereunder shall be unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, and action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenants that this Note Guarantee will not be discharged except by complete performance of the Obligations contained in the Notes, this Indenture and in this Note Guarantee. Each Guarantor hereby further waives its obligation and right to execute, and agrees to be bound by the terms of any, supplemental indenture entered into by the Company and the Trustee, pursuant to Section 9.1. If any Holder of the Notes or the Trustee is required by any court or otherwise to return to the Company or any Guarantor, or any custodian, trustee, liquidator or other similar official acting in relation to the Company or any Guarantor, any amount paid by the Company or any Guarantor to the Trustee or such Holder, this Note Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Guarantor further agrees that, as between each Guarantor, on the one hand, and the Holders of the Notes and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article VI for the purposes of this Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (y) in the event of any acceleration of such Obligations as provided in Article VI, such 65 obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of this Note Guarantee. SECTION 10.2 Severability. In case any provision of this Article X or any Note Guarantee shall be invalid, illegal or unenforceable, the validity, legality, and enforceability of the remaining provisions hereof or thereof shall not in any way be affected or impaired thereby. SECTION 10.3 Successors and Assigns; Release of a Guarantor. This Article X shall be binding upon the Guarantors and their successors and assigns and shall enure to the benefit of the successors and assigns of the Trustee and the Holders and, in the event of any transfer or assignment of rights by any Holder or the Trustee, the rights and privileges conferred upon that party in this Indenture and in the Notes shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions of this Indenture. If no Default exists or would exist under this Indenture, if all of the assets of any Guarantor or all of the Capital Stock of any Guarantor is sold or disposed of (including by merger, consolidation, issuance or otherwise) by the Company or any of the Restricted Subsidiaries to any person that is not an Affiliate of the Company or any of the Restricted Subsidiaries if a transaction constituting an Asset Sale (other than pursuant to a transaction subject to the provisions of clause (a) or (b) of Section 5.1), and if the Net Proceeds from such Asset Sale are used in accordance with Section 4.16, then such Guarantor and each wholly-owned Restricted Subsidiary of such Guarantor that is also a Guarantor (in the event of a sale or other disposition of all of the Capital Stock of such Guarantor) or (b) the corporation or other entity acquiring such assets (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) shall be released and discharged of its Note Guarantee obligations. The Trustee shall deliver an appropriate instrument evidencing such release upon receipt of a request by the Company accompanied by an Officers' Certificate of the Company and Opinion of Counsel certifying as to the compliance with this Section 10.3. Any Guarantor not so released remains liable for the full amount of principal of, premium and interest on the Securities and other Obligations as provided in this Article X. SECTION 10.4 Limitation of Guarantor's Liability. Each Guarantor and by its acceptance hereof each Holder of Notes hereby confirms that it is the intention of all such parties that the guarantee by such Guarantor pursuant to its Note Guarantee not constitute a fraudulent transfer or conveyance for purposes of any Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar Federal or state law. To effectuate the foregoing intention, the Holders of Notes and such Guarantor hereby irrevocably agree that the obligations of such Guarantor under its Note Guarantee shall be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the Obligations of such 66 other Guarantor under its Note Guarantee or pursuant to Section 10.5, result in the obligations of such Guarantor under its Note Guarantee not constituting such fraudulent transfer or conveyance. SECTION 10.5 Contribution. In order to provide for just and equitable contribution among the Guarantors, the Guarantors agree, inter se, that in the event any payment or distribution is made by any Guarantor (a "Funding Guarantor") under its Note Guarantee, such Funding Guarantor shall be entitled to a contribution from all other Guarantors in a pro rata amount based on the Adjusted Net Assets (as defined below) of each Guarantor (including the Funding Guarantor) for all payments, damages and expenses incurred by that Funding Guarantor in discharging the Company's obligations with respect to the Notes or any other Guarantor's obligations with respect to its Note Guarantee. "Adjusted Net Assets" of such Guarantor at any date shall mean the lesser of (i) the amount by which the fair value of the property of such Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date (other than liabilities of such Guarantor under Indebtedness subordinated to such Guarantor's Note Guarantee)), but excluding liabilities under the Note Guarantee, of such Guarantor at such date and (ii) the amount by which the present fair salable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Guarantor on its debts (after giving effect to all other fixed and contingent liabilities incurred or assumed on such date and after giving effect to any collection from any Subsidiary of such Guarantor in respect of the obligations of such Subsidiary under its Note Guarantee, if any), excluding debt in respect of the Note Guarantee of such Guarantor, as they become absolute and matured. SECTION 10.6 Waiver of Subrogation. Until all Note Guarantee Obligations are paid in full, each Guarantor hereby irrevocably waives any claims or other rights which it may now or hereafter acquire against the Company that arise from the existence, payment, performance or enforcement of such Guarantor's obligations under its Note Guarantee and this Indenture, including, without limitation, any right of subrogation, reimbursement, exoneration, indemnification, and any right to participate in any claim or remedy of any holder of Notes against the Company, whether or not such claim, remedy or right arises in equity, or under contract, statute or common law, including, without limitation, the right to take or receive from the Company, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim or other rights. If any amount shall be paid to any Guarantor in violation of the preceding sentence and the Notes shall not have been paid in full, such amount shall have been deemed to have been paid to such Guarantor for the benefit of, and held in trust for the benefit of, the Holders of the Notes, and shall forthwith be paid to the Trustee for the benefit of such Holders to be credited and applied upon the Notes, whether matured or unmatured, in accordance with the terms of this Indenture. Each Guarantor acknowledges that it will receive direct and indirect benefits from the financing arrangements contemplated by this Indenture and that the waiver set forth in this Section 10.6 is knowingly made in contemplation of such benefits. 67 SECTION 10.7 Execution of Note Guarantee. To evidence its guarantee to the Holders of Notes set forth in this Article X, each Guarantor hereby agrees to execute its Note Guarantee in substantially the form included in the Notes, which shall be endorsed on each Note ordered to be authenticated and delivered by the Trustee. Each Guarantor hereby agrees that its Note Guarantee set forth in this Article X shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Note Guarantee. Each such Note Guarantee shall be signed on behalf of each Guarantor by two Officers, or an Officer and an Assistant Secretary or one Officer shall sign and one Officer or an Assistant Secretary (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to such Note Guarantee prior to the authentication of the Notes on which it is endorsed, and the delivery of such Notes by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of such Note Guarantee on behalf of such Guarantor. Such signatures upon the Note Guarantee may be by manual or facsimile signature of such officers and may be imprinted or otherwise reproduced on the Note Guarantee, and in case any such officer who shall have signed the Note Guarantee shall cease to be such officer before the Notes on which such Note Guarantee is endorsed shall have been authenticated and delivered by the Trustee or disposed of by the Company, such Notes nevertheless may be authenticated and delivered or disposed of as though the person who signed the Note Guarantee had not ceased to be such officer of the Guarantor. SECTION 10.8 Waiver of Stay, Extension or Usury Laws. Each Guarantor covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive each such Guarantor from performing its Note Guarantee as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) such Guarantor hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 10.9 Additional Guarantors. Concurrently with the creation or acquisition by the Company of any Subsidiary (other than a Foreign Subsidiary and other than an Unrestricted Subsidiary), the Company, such Subsidiary and the Trustee shall execute and deliver a supplement to this Indenture providing that such Subsidiary will be a Guarantor hereunder. Each such supplement shall be in a form reasonably satisfactory to the Trustee. SECTION 10.10 Modification. No modification, amendment or waiver of any provision of this Article X, nor the consent to any departure by the Guarantors therefrom, shall in any event be effective unless the same shall be in writing and signed by the Trustee, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on the Guarantors in any case shall entitle the Guarantors to any other or further notice or demand in the same, similar or other circumstances. 68 ARTICLE XI MISCELLANEOUS SECTION 11.1 TIA Controls. If any provision of this Indenture limits, qualifies, or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control; provided, however, that this Section 11.1 shall not of itself require that this Indenture or the Trustee be qualified under the TIA or constitute any admission or acknowledgment by any party hereto that any such qualification is required prior to the time this Indenture and the Trustee are required by the TIA to be so qualified. SECTION 11.2 Notices. Any notices or other communications required or permitted hereunder shall be in writing, and shall be sufficiently given if made by hand delivery, by telecopier or registered or certified mail, postage prepaid, return receipt requested, addressed as follows: if to the Company or any Guarantor: Hawk Corporation 200 Public Square, Suite 30-5000 Cleveland, OH 44114 Telecopier No.: (216) 861-4546 Attn: Chief Executive Officer if to the Trustee: HSBC Bank USA 452 Fifth Avenue New York, NY 10018-2706 Telecopier No.: (212) 525-1300 Attention: Issuer Services Each of the Company, the Guarantors the Trustee by written notice to the other may designate additional or different addresses for notices to such Person. Any notice or communication to the Company or the Trustee shall be deemed to have been given or made as of the date so delivered if personally delivered; when answered back, if telexed; when receipt is acknowledged, if faxed; and five (5) calendar days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). 69 Any notice or communication mailed to a Holder shall be mailed to him by first class mail or other equivalent means at his address as it appears on the registration books of the Registrar and shall be sufficiently given to him if so mailed within the time prescribed. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above, it is duly given, whether or not the addressee receives it. SECTION 11.3 Communications by Holders with Other Holders. Holders may communicate pursuant to TIA Section 312(b) with their Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and any other Person shall have the protection of TIA Section 312(c). SECTION 11.4 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate, in form and substance satisfactory to the Trustee, stating that, in the opinion of the signers, all conditions precedent to be performed by the Company, if any, provided for in this Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel stating that, in the opinion of such counsel, such action is authorized or permitted by this Indenture and that all such conditions precedent to be performed by the Company, if any, provided for in this Indenture relating to the proposed action have been complied with. SECTION 11.5 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture, other than the Officers' Certificate required by Section 4.6 shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he has made such examination or investigation as is reasonably necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of each such Person, such condition or covenant has been complied with. 70 SECTION 11.6 Rules by Trustee, Paying Agent, Registrar. The Trustee may make reasonable rules in accordance with the Trustee's customary practices for action by or at a meeting of Holders. The Paying Agent or Registrar may make reasonable rules for its functions. SECTION 11.7 Legal Holidays. A "Legal Holiday" used with respect to a particular place of payment is a Saturday, a Sunday or a day on which banking institutions in New York, New York or at such place of payment are not required to be open. If a payment date is a Legal Holiday at such place, payment may be made at such place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. SECTION 11.8 Governing Law. THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF OHIO WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICT OF LAWS. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of Ohio in any action or proceeding arising out of or relating to this Indenture. SECTION 11.9 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan or debt agreement of the Company or any of the subsidiaries. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. SECTION 11.10 No Recourse Against Others. A director, officer, employee, stockholder or incorporator, as such, of the Company or of the Trustee shall not have any liability for any obligations of the Company under the Notes, the Note Guarantees or this Indenture or for any claim based on, in respect of or by reason of such obligations or their creations. Each Holder by accepting a Note waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Notes and the Note Guarantees. SECTION 11.11 Successors. All agreements of the Company and the Guarantors in this Indenture and the Notes shall bind their respective successors. All agreements of the Trustee in this Indenture shall bind its successors. SECTION 11.12 Duplicate Originals. All parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together shall represent the same agreement. 71 SECTION 11.13 Severability. In case any one or more of the provisions in this Indenture or in the Notes shall be held invalid, illegal or unenforceable, in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions shall not in any way be affected or impaired thereby, it being intended that all of the provisions hereof shall be enforceable to the full extent permitted by law. SECTION 11.14 Independence of Covenants. All covenants and agreements in this Indenture and the Notes shall be given independent effect so that if any particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or 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. 72 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, all as of the date first written above. HAWK CORPORATION By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman ALLEGHENY CLEARFIELD, INC. By: /S/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman FRICTION PRODUCTS CO. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman HAWK MIM, INC. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman HAWK MOTORS, INC. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman HAWK PRECISION COMPONENTS GROUP, INC. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman HELSEL, INC. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman LOGAN METAL STAMPINGS, INC. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman NET SHAPE TECHNOLOGIES LLC By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman QUARTER MASTER INDUSTRIES, INC. /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman S.K. WELLMAN HOLDINGS, INC. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman S.K. WELLMAN CORP. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman SINTERLOY CORPORATION /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman 2 TEX RACING ENTERPRISES, INC. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman HSBC BANK USA, as Trustee By: /s/ Frank J. Godino ------------------------------------ Name: Frank J. Godino Title: Vice President 3 EXHIBIT A UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR SECURITIES IN DEFINITIVE FORM, THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY, OR BY ANY SUCH NOMINEE OF THE DEPOSITORY, OR BY THE DEPOSITORY OR NOMINEE OF SUCH SUCCESSOR DEPOSITORY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITORY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITORY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE. HAWK CORPORATION 12% SENIOR NOTE DUE 2006 CUSIP No.:____________ No.___________ $________ HAWK CORPORATION, a Delaware corporation (the "Company", which term includes any successor entity), for value received promises to pay to or registered assigns, the principal sum of __________ on December 1, 2006. Interest Payment Dates: June 30 and December 31 PIK Interest Payment Dates: March 31 (or earlier under certain circumstances) and August 14 (or earlier under certain circumstances) Record Dates: June 15 and December 15 PIK Record Date: the date 15 days prior to the applicable PIK Interest Payment Date Reference is made to the further provisions of this Note contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officer. HAWK CORPORATION By:_____________________________________ Name: Title: Attested to by: ___________________________________ Name: Title: Certificate of Authentication This is one of the 12% Senior Notes due 2006 referred to in the within-mentioned Indenture. HSBC BANK USA, as Trustee By: ____________________________________ Authorized Officer Date of Authentication:_________________ (REVERSE OF SECURITY) 12% Senior Note due 2006 1. INTEREST. HAWK CORPORATION, a Delaware corporation (the "Company"), promises to pay cash interest on the principal amount of this Note at the rate per annum shown above. Cash interest on the Notes will accrue from the most recent date on which interest has been paid or, if no interest has been paid, from October [15], 2002. The Company will pay cash interest semi-annually in arrears on each Interest Payment Date. Interest will be computed on the basis of a 360-day year of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed. Under certain circumstances set forth in the Indenture, the Company may be required to pay additional interest on this Note to the holder of record on the applicable PIK Record Date. Such additional interest shall be payable in the form of an Additional PIK Note that is identical in all respects to this Note and dated as of, and starts accruing interest on, the first day of the PIK Accrual Period in which the applicable PIK Interest Payment Date occurs. Notwithstanding the foregoing, if the Company is required to pay any such additional interest in a denomination less than $1,000, then the Company, may, at its option, pay such additional interest by making cash payments in the amount of any Additional PIK Note that would be required pursuant to the Indenture. The Company shall pay interest on overdue principal and on overdue installments of interest (without regard to any applicable grace periods) to the extent lawful, from time to time on demand at the Default Rate. 2. METHOD OF PAYMENT. The Company shall pay cash interest on the Notes (except defaulted interest) to the Persons who are the registered Holders at the close of business on the Record Date immediately preceding the Interest Payment Date even if the Notes are cancelled on registration of transfer or registration of exchange after such Record Date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company shall pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts ("U.S. Legal Tender"). However, the Company may pay principal and interest by its check payable in such U.S. Legal Tender. The Company may deliver any such interest payment to the Paying Agent or to a Holder at the Holder's registered address. Any Additional PIK Notes shall be issued and delivered to each Holder at the Company's expense on or as soon as practicable (and in any event within 10 days) after the applicable PIK Interest Payment Date. 3. PAYING AGENT AND REGISTRAR. Initially, HSBC Bank USA (the "Trustee") will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-Registrar without notice to the Holders. 4. INDENTURE. The Company issued the Notes under an indenture, dated as of October [15], 2002 (the "Indenture"), between the Company, the Guarantors named therein (the "Guarantors") and the Trustee. This Note is one of a duly authorized issue of Initial Notes of the Company designated as its 12% Senior Notes due 2006. The Notes are limited in aggregate principal amount to $100,000,000. All of the Notes need not be issued at the same time and, unless otherwise provided, a previous issuance of Notes may be reopened, without notice to or the consent of any Holder, for issuance of Additional Notes of the same tranche, and the Additional Notes will be consolidated and form a single tranche with the previously issued Notes. Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code Section Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the Indenture. Notwithstanding anything to the contrary herein, the Notes are subject to all such terms, and Holders of Notes are referred to the Indenture and the TIA for a statement of them. The Notes are general unsecured senior obligations of the Company. Each Holder, by accepting a Note, agrees to be bound by all of the terms and provisions of the Indenture, as the same may be amended from time to time in accordance with its terms. 5. NOTE GUARANTEES. To guarantee the due and punctual payment of the principal and interest, if any, on the Notes and all other amounts payable by the Company under the Indenture and the Notes when and as the same shall be due and payable, whether at maturity, by acceleration or otherwise, according to the terms of the Notes and the Indenture, the Guarantors have, jointly and severally, unconditionally guaranteed such obligations on a senior unsecured basis pursuant to the terms of the Indenture. The Note Guarantees are general unsecured senior obligations of the Company. 6. OPTIONAL REDEMPTION. The Notes (including any Additional PIK Notes that would be issuable on the next PIK Interest Payment Date pursuant to Section 2.3 of the Indenture) are redeemable, at the Company's option, in whole or in part, at any time on and after December 1, 2002 at the redemption prices (expressed as percentages of the principal amount of the Notes) if redeemed during the twelve-month period commencing on December 31 of the year set forth below, plus, in each case, accrued and unpaid interest thereon, if any, to the Redemption Date: YEAR PERCENTAGE ---- ---------- 2002 105.000% 2003 102.500% 2004 and thereafter 100.000% The Notes are not entitled to the benefit of any sinking fund. 7. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Notes to be redeemed at such Holder's registered address. Notes in denominations larger than $1,000 may be redeemed in part. Except as set forth in the Indenture, if monies for the redemption of the Notes (including any Additional PIK Notes that would be issuable on the next PIK Interest Payment Date pursuant to Section 2.3 of the Indenture) called for redemption shall have been deposited with the Paying Agent for redemption on such Redemption Date, then, unless the Company defaults in the payment of such Redemption Price plus accrued interest, if any, the Notes called for redemption will cease to bear interest from and after such Redemption Date and the only right of the Holders of such Notes will be to receive payment of the Redemption Price plus accrued interest, if any. 8. OFFERS TO PURCHASE. Sections 4.15 and 4.16 of the Indenture provide that, after certain Asset Sales (as defined in the Indenture) and upon the occurrence of a Change of Control (as defined in the Indenture), and subject to further limitations contained therein, the Company will make an offer to purchase certain amounts of the Notes in accordance with the procedures set forth in the Indenture. 9. DENOMINATIONS; TRANSFER; EXCHANGE. The Notes are in registered form, without coupons, and in denominations of $1,000 and integral multiples of $1,000, or in such other denominations as the Company may elect. A Holder shall register the transfer of or exchange Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay certain transfer taxes or similar governmental charges payable in connection therewith as permitted by the Indenture. The Registrar need not register the transfer of or exchange of any Notes or portions thereof selected for redemption. 10. PERSONS DEEMED OWNERS. The registered Holder of a Note shall be treated as the owner of it for all purposes. 11. UNCLAIMED MONEY. If money for the payment of principal or interest remains unclaimed for one year, the Trustee and the Paying Agent will pay the money back to the Company. After that, all liability of the Trustee and such Paying Agent with respect to such money shall cease. 12. DISCHARGE PRIOR TO REDEMPTION OR MATURITY. If the Company at any time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations sufficient to pay the principal of and interest on the Notes (including any amounts in U.S. Legal Tender required to redeem or purchase any Additional PIK Notes that would be issuable on the next PIK Interest Payment Date) to redemption or maturity and complies with the other provisions of the Indenture relating thereto, the Company will be discharged from certain provisions of the Indenture and the Notes (including certain covenants, but excluding its obligation to pay the principal of and interest on the Notes). 13. AMENDMENT; SUPPLEMENT; WAIVER. Subject to certain exceptions set forth in the Indenture, the Indenture or the Notes may be amended or supplemented with the written consent of the Holders of not less than a majority in aggregate principal amount of the Notes then outstanding, and any past Default or Event of Default or noncompliance with any provision may be waived with the written consent of the Holders of not less than a majority in aggregate principal amount of the Notes then outstanding. Without notice to or consent of any Holder, the parties thereto may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency, provide for uncertificated Notes in addition to or in place of certificated Notes, or comply with Article Five of the Indenture or make any other change that does not adversely affect the rights of any Holder of a Note. 14. RESTRICTIVE COVENANTS. The Indenture imposes certain limitations on the ability of the Company and the Restricted Subsidiaries to, among other things, incur additional Indebtedness, make Restricted Payments or Restricted Investments, create or incur Liens, enter into transactions with Affiliates, create dividend or other payment restrictions affecting Restricted Subsidiaries and issue Preferred Stock of Restricted Subsidiaries, and on the ability of the Company and the Restricted Subsidiaries to merge or consolidate with any other Person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company and the Restricted Subsidiaries. Such limitations are subject to a number of important qualifications and exceptions. Pursuant to Section 4.6 of the Indenture, the Company must annually report to the Trustee on compliance with such limitations. 15. SUCCESSORS. When a successor assumes, in accordance with the Indenture, all the obligations of its predecessor under the Notes and the Indenture, the predecessor, subject to certain exceptions, will be released from those obligations. 16. DEFAULTS AND REMEDIES. If an Event of Default occurs and is continuing, the Trustee or the Holders of not less than 25% in aggregate principal amount of Notes then outstanding may declare all the Notes to be due and payable in the manner, at the time and with the effect provided in the Indenture. Holders of Notes may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee is not obligated to enforce the Indenture or the Notes unless it has received indemnity reasonably satisfactory to it. The Indenture permits, subject to certain limitations therein provided, Holders of a majority in aggregate principal amount of the Notes then outstanding to direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of Notes notice of any continuing Default or Event of Default (except a Default in payment of principal or interest when due, for any reason or a Default in compliance with Article V of the Indenture) if it determines that withholding notice is in their interest. 17. TRUSTEE DEALINGS WITH COMPANY. The Trustee under the Indenture, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company, the Subsidiaries or their respective Affiliates as if it were not the Trustee. 18. NO RECOURSE AGAINST OTHERS. No stockholder, director, officer, employee or incorporator, as such, of the Company or any Guarantor shall have any liability for any obligation of the Company or any Guarantor under the Notes, the Note Guarantees or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Note by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes and the Note Guarantees. 19. AUTHENTICATION. This Note shall not be valid until the Trustee or Authenticating Agent manually signs the certificate of authentication on this Note. 20. GOVERNING LAW. This Note and the Indenture shall be governed by and construed in accordance with the laws of the State of Ohio, as applied to contracts made and performed within the State of Ohio without regard to principles of conflict of laws. 21. ABBREVIATIONS AND DEFINED TERMS. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 22. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes as a convenience to the Holders of the Notes. No representation is made as to the accuracy of such numbers as printed on the Notes and reliance may be placed only on the other identification numbers printed hereon. The Company will furnish to any Holder of a Note upon written request and without charge a copy of the Indenture, which has the text of this Note in larger type. Requests may be made to: Hawk Corporation, 200 Public Square, Suite 30-5000, Cleveland, OH 44114, Attn: Vice President - Finance. GUARANTEE The Guarantors (as defined in the Indenture referred to in the Note upon which this notation is endorsed and each hereinafter referred to as a "Guarantor," which term includes any successor person under the Indenture) have unconditionally guaranteed on a senior unsecured basis (such guarantee by each Guarantor being referred to herein as the "Guarantee") (i) the due and punctual payment of the principal of, premium and interest (including interest payable in the form of Additional PIK Notes) on the Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal and interest, if any, on the Notes, to the extent lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms set forth in Article X of the Indenture and (ii) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. No stockholder, officer, director, employee or incorporator, as such, past, present or future, of any Guarantor shall have any liability under the Guarantee by reason of his or its status as such stockholder, officer, director, employee or incorporator. The Guarantee shall not be valid or obligatory for any purpose until the certificate of authentication on the Notes upon which the Guarantee is noted shall have been executed by the Trustee under the Indenture by the manual signature of one of its authorized officers. SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Guarantee to be signed manually or by facsimile by the respective parties' duly authorized officers. GUARANTORS: ALLEGHENY CLEARFIELD, INC. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman FRICTION PRODUCTS CO. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman HAWK MIM, INC. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman HAWK MOTORS, INC. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman HAWK PRECISION COMPONENTS GROUP, INC. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman HELSEL, INC. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman LOGAN METAL STAMPINGS, INC. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman NET SHAPE TECHNOLOGIES LLC By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman QUARTER MASTER INDUSTRIES, INC. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman S.K. WELLMAN HOLDINGS, INC. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman S.K. WELLMAN CORP. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman SINTERLOY CORPORATION By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman TEX RACING ENTERPRISES, INC. By: /s/ Ronald E. Weinberg ------------------------------------ Name: Ronald E. Weinberg Title: Chairman ASSIGNMENT FORM If you the Holder want to assign this Note, fill in the form below and have your signature guaranteed: I or we assign and transfer this Note to: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type name, address and zip code and social security or tax ID number of assignee) and irrevocably appoint _________________________________, agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. Dated: _______________ ___, _____ Signed: ___________________________________ (sign exactly as your name appears on the other side of this Note) Signature Guarantee: __________________________________________________________ (Signature must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Exchange Act.) OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate box: Section 4.15 [__] Section 4.16 [__] If you want to elect to have only part of this Note purchased by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the amount you elect to have purchased: $________________________ Dated: ____________ ___, _____ Signed: ____________________________________ NOTICE: The signature on this assignment must correspond with the name as it appears upon the face of the within Note in every particular without alteration or enlargement or any change whatsoever and be guaranteed. Signature Guarantee: ___________________________________________________________ (Signature must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Exchange Act.) EX-21.1 4 l98454aexv21w1.txt EX-21.1 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT


Part I
	ITEM 1. BUSINESS
	ITEM 2. PROPERTIES
	ITEM 3. LEGAL PROCEEDINGS
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Part II
	ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
	ITEM 6. SELECTED FINANCIAL DATA
	ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Part III
	ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
	ITEM 11. EXECUTIVE COMPENSATION
	ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
	ITEM 14. CONTROLS AND PROCEDURES
Part IV
	ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
SIGNATURES
CERTIFICATION Chairman of the Board and Chief Executive Officer
CERTIFICATION
EX-4.8 Indenture Among Company and HSBC Bank USA
EX-21.1 Subsidiaries of the Registrant
EX-23.1 Consent of Ernst & Young LLP
EX-99.1 Certification of CEO
EX-99.2 Certification of CFO


DELAWARE		34-1608156

(State of Incorporation)		(I.R.S. Employer Identification No.)

200 Public Square, Suite 30-5000, Cleveland, Ohio		44114-2301

(Address of principal executive offices)		(Zip Code)



			Year ended December 31,


			2002					2001					2000


Net sales to external customers:
	Friction products⁽²⁾		$	106.2		53.8	%	$	104.1		56.5	%	$	116.3		57.5	%
	Precision components			65.8		33.4	%		58.3		31.6	%		72.0		35.6	%
	Performance automotive⁽²⁾			12.6		6.4	%		13.0		7.0	%		5.6		2.8	%
	Motor			12.7		6.4	%		9.0		4.9	%		8.4		4.1	%

		Consolidated	$	197.3		100.0	%	$	184.4		100.0	%	$	202.3		100.0	%

Gross profit (loss):
	Friction products⁽²⁾		$	25.4		58.1	%	$	24.9		62.3	%	$	30.9		56.3	%
	Precision components			14.6		33.4	%		11.5		28.8	%		19.4		35.3	%
	Performance automotive⁽²⁾			3.7		8.5	%		3.9		9.7	%		2.8		5.1	%
	Motor								(0.3	)	(0.8	)%		1.8		3.3	%

		Consolidated	$	43.7		100.0	%	$	40.0		100.0	%	$	54.9		100.0	%

Income (loss) from operations⁽¹⁾
	Friction products⁽²⁾		$	7.5		76.5	%	$	6.4		177.8	%	$	11.5		59.0	%
	Precision components			4.1		41.8	%		0.3		8.3	%		8.4		43.1	%
	Performance automotive⁽²⁾			1.0		10.2	%		0.3		8.3	%		0.9		4.6	%
	Motor			(2.8	)	(28.5	)%		(3.4	)	(94.4	)%		(1.3	)	(6.7	)%

		Consolidated	$	9.8		100.0	%	$	3.6		100.0	%	$	19.5		100.0	%



			December 31,

			2002		2001

Total assets:
	Friction products⁽²⁾		$	96.0	$	103.5
	Precision components			74.6		69.0
	Performance automotive⁽²⁾			10.9		14.6
	Motor			12.4		16.0

		Consolidated	$	193.9	$	203.1


	Quarter Ended	High		Low

2002
	March 31, 2002	$	5.20	$	3.41
	June 30, 2002	$	5.35	$	3.55
	September 30, 2002	$	3.80	$	2.26
	December 31, 2002	$	2.66	$	1.70
2001
	March 31, 2001	$	7.25	$	5.31
	June 30, 2001	$	7.20	$	5.37
	September 30, 2001	$	6.29	$	3.95
	December 31, 2001	$	4.20	$	2.65


For the fiscal year ended December 31, 2002	Commission File No. 001-13797


Title of Each Class		Name of Exchange on Which Registered

12% Senior Notes due 2006		New York Stock Exchange
Class A Common Stock, par value $.01		New York Stock Exchange


	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS


Years ended December 31,		2002			2001			2000		1999		1998


		(In millions, except per share data)
Income Statement Data:
Net sales		$	197.3		$	184.4		$	202.3	$	187.6	$	182.3
Gross profit			43.7			40.0			54.9		48.8		57.7
Restructuring costs⁽¹⁾						1.1
Income from operations⁽²⁾			9.8			3.6			19.5		18.6		32.8
(Loss) income before cumulative effect of change in accounting principle and extraordinary charge			(1.0	)		(4.3	)		5.8		6.3		12.2
Extraordinary charge, net of tax of $2.3⁽³⁾													3.1
Cumulative effect of change in accounting principle, net of tax of $4.3			17.2
Net (loss) income		$	(18.2	)	$	(4.3	)	$	5.8	$	6.3	$	9.1
(Loss) Earnings Per Share:
	Basic (loss) earnings before extraordinary charges and cumulative effect of change in accounting principle	$	(.14	)	$	(.52	)	$	.66	$	.71	$	1.59
	Extraordinary charge⁽²⁾												(.41	)
	Cumulative effect of change in accounting principle		(2.01	)

	Basic (loss) earnings per share	$	(2.15	)	$	(.52	)	$	.66	$	.71	$	1.18

	Diluted (loss) earnings before extraordinary charge and cumulative effect of change in accounting principle	$	(.14	)	$	(.52	)	$	.66	$	.71	$	1.51
	Extraordinary charge⁽²⁾												(.39	)
	Cumulative effect of change in accounting principle		(2.01	)

	Diluted (loss) earnings per share	$	(2.15	)	$	(.52	)	$	.66	$	.71	$	1.12

Other Data:
Depreciation		$	11.0		$	11.4		$	10.8	$	9.9	$	8.0
Amortization⁽²⁾		$	1.4		$	4.5		$	4.2	$	3.8	$	3.5
Capital expenditures (including capital leases)		$	11.5		$	9.1		$	10.5	$	10.2	$	15.2


ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


		Total		2003				Thereafter
						2004 - 2007
Contractual cash obligations
	Bank Facility	$	36.3			$	36.3
	Senior notes		66.7	$	0.6		66.1
	Capital lease and other obligations		6.0		2.6		3.0	$	0.4
	Operating leases		8.8		2.1		5.1		1.6

Total contractual cash obligations		$	117.8	$	5.3	$	110.5	$	2.0

Other commercial commitments
	Stand-by letters of credit	$	1.3	$	1.3


Report of Independent Auditors			28
Consolidated Balance Sheets			29
Consolidated Statements of Operations			31
Consolidated Statements of Shareholders’ Equity			32
Consolidated Statements of Cash Flows			33
Notes to Consolidated Financial Statements			34



			December 31

			2002		2001

Assets
Current assets:
	Cash and cash equivalents		$	1,702	$	3,084
	Accounts receivable, less allowance of $482 in 2002 and $455 in 2001			32,761		25,773
	Inventories:
		Raw materials and work-in-process		20,597		19,224
		Finished products		12,664		9,928

				33,261		29,152
	Deferred income taxes			745		1,200
	Taxes receivable			4,321		2,030
	Other current assets			4,008		2,608

Total current assets				76,798		63,847
Property, plant and equipment:
	Land and improvements			1,676		1,608
	Buildings and improvements			19,604		18,657
	Machinery and equipment			100,840		96,688
	Furniture and fixtures			7,920		7,168
	Construction in progress			6,385		1,450

				136,425		125,571
	Less accumulated depreciation and amortization			68,533		58,208

Total property, plant and equipment				67,892		67,363
Other assets:
	Goodwill			32,495		53,877
	Other intangible assets			10,701		11,728
	Shareholder notes			1,010		1,010
	Other			4,972		5,243

Total other assets				49,178		71,858

Total assets			$	193,868	$	203,068


	•	Motor


	*Friction Products*


	*Precision Components*


	*Performance Automotive*



			Year ended December 31

			2002			2001			2000

Net sales			$	197,286		$	184,388		$	202,329
Cost of sales				153,582			144,409			147,387

Gross profit				43,704			39,979			54,942
Operating expenses:
	Selling, technical and administrative expenses			32,568			30,804			31,318
	Restructuring costs						1,055
	Amortization of intangibles			1,379			4,548			4,161

Total operating expenses				33,947			36,407			35,479

Income from operations				9,757			3,572			19,463
Interest expense				(9,754	)		(9,469	)		(9,016	)
Interest income				118			233			218
Exchange offer costs				(1,928	)
Other expense, net				(734	)		(530	)		(535	)

(Loss) income before income taxes				(2,541	)		(6,194	)		10,130
Income tax (benefit) provision				(1,496	)		(1,858	)		4,360

Net (loss) income before cumulative effect of change in accounting principle				(1,045	)		(4,336	)		5,770
Cumulative effect of change in accounting principle, net of tax of $4,252				(17,200	)

Net (loss) income			$	(18,245	)	$	(4,336	)	$	5,770

(Loss) earnings per share:
	Basic (loss) earnings per share:
		(Loss) earnings before cumulative effect of change in accounting principle	$	(.14	)	$	(.52	)	$	.66
		Cumulative effect of change in accounting principle		(2.01	)

	Net (loss) earnings per basic share		$	(2.15	)	$	(.52	)	$	.66

	Diluted (loss) earnings per share:
		(Loss) earnings before cumulative effect of change in accounting principle	$	(.14	)	$	(.52	)	$	.66
		Cumulative effect of change in accounting principle		(2.01	)

	Net (loss) earnings per diluted share		$	(2.15	)	$	(.52	)	$	.66



													Accumulated Other
													Comprehensive Loss

							Additional						Foreign			Minimum
			Preferred		Common		Paid-in			Retained			Currency			Pension			Treasury
			Stock		Stock		Capital			Earnings			Translation			Liability			Stock			Total

Balance at January 1, 2000			$	1	$	92	$	54,645		$	18,491		$	(1,949	)				$	(4,791	)	$	66,489
	Net income										5,770												5,770
	Other comprehensive income (loss):
		Minimum pension liability (net of tax)															(83	)					(83	)
		Foreign currency translation												(377	)								(377	)

	Total comprehensive income																						5,310
	Preferred stock dividends										(152	)											(152	)
	Issuance of common stock from treasury as compensation							(14	)											56			42

Balance at December 31, 2000				1		92		54,631			24,109			(2,326	)		(83	)		(4,735	)		71,689
	Net loss										(4,336	)											(4,336	)
	Other comprehensive loss:
		Minimum pension liability (net of tax)															(495	)					(495	)
		Foreign currency translation												(297	)								(297	)

	Total comprehensive loss																						(5,128	)
	Preferred stock dividends										(150	)											(150	)
	Issuance of common stock from treasury as compensation							(5	)											31			26

Balance at December 31, 2001				1		92		54,626			19,623			(2,623	)		(578	)		(4,704	)		66,437
	Net loss										(18,245	)											(18,245	)
	Other comprehensive income (loss):
		Minimum pension liability (net of tax)															(3,901	)					(3,901	)
		Foreign currency translation												666									666

	Total comprehensive loss																						(21,480	)
	Preferred stock dividends										(150	)											(150	)
	Issuance of common stock from treasury as compensation							(10	)											37			27

Balance at December 31, 2002			$	1	$	92	$	54,616		$	1,228		$	(1,957	)	$	(4,479	)	$	(4,667	)	$	44,834



		December 31, 2002						December 31, 2001

				Accumulated						Accumulated
		Gross		Amortization		Net		Gross		Amortization		Net

Intangible assets subject to amortization:
	Product certifications	$	20,820	$	10,264	$	10,556	$	20,820		9,544	$	11,276
	Other intangible assets		2,719		2,574		145		3,013		2,561		452

Intangible assets subject to amortization		$	23,539	$	12,838	$	10,701	$	23,833	$	12,105	$	11,728



	Outstanding						Exercisable

					Weighted
			Weighted		Average				Weighted
			Average		Remaining				Average
Range of			Exercise		Contractual				Exercise
Exercise Price	Options		Price		Life (years)		Options		Price

$3.40 to $3.50		366,622	$	3.40		8.6		187,273	$	3.40
$3.51 to $5.00		285,177	$	3.85		8.7		133,982	$	3.82
$5.01 to $8.00		328,270	$	6.13		7.5		131,557	$	6.30
$8.01 to $18.70		237,660	$	15.58		4.9		183,820	$	15.90


		2002		2001

Deferred tax assets:
	Accrued vacation	$	555	$	529
	Other accruals		3,350		836
	Foreign net operating loss carryforwards		352		496
	Book over tax goodwill amortization		2,161
	Inventory		527		472

Total deferred tax assets			6,945		2,333
Deferred tax liabilities:
	Tax over book depreciation		9,409		8,047
	Tax over book intangibles amortization		1,708		2,295
	Tax over book goodwill amortization				1,039
	Employee benefits				373
	Foreign leased property		340		349
	Debt financing costs		746
	Other		230		8

Total deferred tax liabilities			12,433		12,111

Net deferred tax liabilities		$	5,488	$	9,778



		Year ended December 31⁽¹⁾

		2002			2001			2000

Net sales to external customers:
	Friction products	$	106,134		$	104,127		$	116,267
	Precision components		65,810			58,272			72,019
	Performance automotive		12,627			12,967			5,612
	Motor		12,715			9,022			8,431

Consolidated		$	197,286		$	184,388		$	202,329

Depreciation and amortization:⁽²⁾
	Friction products	$	7,781		$	9,276		$	9,297
	Precision components		3,545			4,886			4,525
	Performance automotive		200			742			386
	Motor		847			1,025			768

Consolidated		$	12,373		$	15,929		$	14,976

Gross profit (loss):
	Friction products	$	25,403		$	24,899		$	30,901
	Precision components		14,589			11,495			19,360
	Performance automotive		3,711			3,854			2,856
	Motor		1			(269	)		1,825

Consolidated		$	43,704		$	39,979		$	54,942

Income (loss) from operations:⁽²⁾
	Friction products	$	7,509		$	6,386		$	11,403
	Precision components		4,092			312			8,419
	Performance automotive		907			285			907
	Motor		(2,751	)		(3,411	)		(1,266	)

Consolidated		$	9,757		$	3,572		$	19,463

Capital expenditures: (including capital leases):
	Friction products	$	5,742		$	5,000		$	3,888
	Precision components		3,486			2,882			4,416
	Performance automotive		521			171			230
	Motor		1,708			1,043			1,955

Consolidated		$	11,457		$	9,096		$	10,489



		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		42			22,566			6,544						29,152
	Deferred income taxes		1,111						89						1,200
	Taxes receivable		2,030												2,030
	Other current assets		946			1,143			519						2,608

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			65,406									65,605
Other			1,010			5,145			1,108			(1,010	)		6,253

Total assets		$	160,838		$	179,728		$	17,573		$	(155,071	)	$	203,068

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					1,117			1,220						2,337
	Inter-company advances, net		1,350			144,786			8,425		$	(154,561	)

Total long-term liabilities			94,694			150,668			13,471			(154,561	)		104,272

Total liabilities			101,125			171,414			18,653			(154,561	)		136,631
Shareholders’ equity			59,713			8,314			(1,080	)		(510	)		66,437

Total liabilities and shareholders’ equity		$	160,838		$	179,728		$	17,573		$	(155,071	)	$	203,068



		Year ended December 31, 2001

					Combined			Combined
					Guarantor			Non-Guarantor
		Parent			Subsidiaries			Subsidiaries			Eliminations		Consolidated

Net sales					$	160,810		$	23,578				$	184,388
Cost of sales						122,070			22,339					144,409

Gross profit						38,740			1,239					39,979
Expenses:
	Selling, technical and administrative expenses	$	(545	)		27,757			4,647					31,859
	Amortization of intangible assets		9			4,539								4,548

Total expenses			(536	)		32,296			4,647					36,407

Income (loss) from operations			536			6,444			(3,408	)				3,572
Interest (income) expense, net			(3,686	)		12,050			872					9,236
Loss from equity investees			(7,520	)		(4,125	)				$	11,645
Other expense (income)			579			(114	)		65					530

Loss before income taxes			(3,877	)		(9,617	)		(4,345	)		11,645		(6,194	)
Income tax provision (benefit)			459			(2,097	)		(220	)				(1,858	)

Net loss		$	(4,336	)	$	(7,520	)	$	(4,125	)	$	11,645	$	(4,336	)



		Year ended December 31, 2000

					Combined			Combined
					Guarantor			Non-Guarantor
		Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated

Net sales					$	180,632		$	21,697					$	202,329
Cost of sales		$	285			129,265			17,837						147,387

Gross profit			(285	)		51,367			3,860						54,942
Expenses:
	Selling, technical and administrative expenses		(274	)		27,696			3,896						31,318
	Amortization of intangible assets		9			4,152									4,161

Total expenses			(265	)		31,848			3,896						35,479

Income from operations			(20	)		19,519			(36	)					19,463
Interest (income) expense, net			(3,803	)		11,947			654						8,798
Income (loss) from equity investees			2,898			(1,504	)				$	(1,394	)
Other expense						394			141						535

Income (loss) before income taxes			6,681			5,674			(831	)		(1,394	)		10,130
Income taxes			911			2,776			673						4,360

Net income (loss)		$	5,770		$	2,898		$	(1,504	)	$	(1,394	)	$	5,770


		March 31,			June 30,		September 30,			December 31,			March 31,		June 30,			September 30,			December 31,
		2002			2002		2002			2002			2001		2001			2001			2001

Net sales		$	49,804		$	50,349	$	49,447		$	47,686		$	53,781	$	47,419		$	42,208		$	40,980
Gross profit			10,779			11,626		10,247			11,052			13,820		10,334			8,704			7,121
Net (loss) income before cumulative effect of change in accounting principle			(600	)		239		(277	)		(407	)		857		(1,419	)		(953	)		(2,821	)
Cumulative effect of change in accounting principle, net of tax			(17,200	)

Net income (loss)⁽¹⁾		$	(17,800	)	$	239	$	(277	)	$	(407	)	$	857	$	(1,419	)	$	(953	)	$	(2,821	)

Basic and Diluted (loss) earnings per share:⁽¹⁾
	(Loss) earnings per share before cumulative effect of change in accounting principle	$	(.07	)	$	.02	$	(.04	)	$	(.05	)	$	.10	$	(.17	)	$	(.12	)	$	(.33	)
	Cumulative effect of change in accounting principle, net of tax		(2.01	)

	Net (loss) earnings per basic and diluted share	$	(2.08	)	$	.02	$	(.04	)	$	(.05	)	$	.10	$	(.17	)	$	(.12	)	$	(.33	)


ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K


	3.1			Form of the Company’s Second Amended and Restated Certificate of Incorporation (Incorporated by reference to the Company’s Registration Statement on Form S-1 as filed with the Securities and Exchange Commission (Reg. No.333-40535))


	3.2			The Company’s Amended and Restated By-laws (Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the Securities and Exchange Commission (Reg. No. 001-13797))
	4.1			Form of Rights Agreement between the Company and Continental Stock Transfer & Trust Company, as Rights Agent (Incorporated by reference to the Company’s Registration Statement on Form S-1 as filed with the Securities and Exchange Commission (Reg. No. 333-40535))
	4.2			Indenture, dated as of November 27, 1996, by and among the Company, Friction Products Co., Hawk Brake, Inc., Logan Metal Stampings, Inc., Helsel, Inc., S.K. Wellman Holdings, Inc., S.K. Wellman Corp., Wellman Friction Products U.K. Corp., Hutchinson Products Corporation, and Bank One Trust Company, NA, as Trustee (Incorporated by reference to the Company’s Registration Statement on Form S-4 as filed with the Securities and Exchange Commission (Reg. No. 333-18433))
	4.3			Form of 10 1/4% Senior Note due 2003 (Incorporated by reference to the Company’s Registration Statement on Form S-4 as filed with the Securities and Exchange Commission(Reg. No. 333-18433))
	4.4			Form of Series B 10 1/4% Senior Note due 2003 (Incorporated by reference to the Company’s Registration Statement on Form S-4 as filed with the Securities and Exchange Commission(Reg. No. 333-18433))
	4.5			Stockholders’ Voting Agreement, effective as of November 27,1996, by and among the Company, Norman C. Harbert, the Harbert Family Limited Partnership, Ronald E. Weinberg, the Weinberg Family Limited Partnership, Byron S. Krantz and the Krantz Family Limited Partnership (Incorporated by reference to the Company’s Registration Statement on Form S-4 as filed with the Securities and Exchange Commission (Reg. No.333-18433))
	4.6			Letter agreement, dated January 5, 1998, amending the Stockholders’ Voting Agreement, effective as of November 27, 1996, by and among the Company, Norman C. Harbert, the Harbert Family Limited Partnership, Ronald E. Weinberg, the Weinberg Family Limited Partnership, Byron S. Krantz and the Krantz Family Limited Partnership (Incorporated by reference to the Company’s Registration Statement on Form S-1 as filed with the Securities and Exchange Commission (Reg. No. 333-40535))
	4.7			Supplemental Indenture among the Company, certain of its domestic subsidiaries from time to time a party thereto, as Guarantors, and HSBC Bank USA, as successor trustee to Bank One Trust Company, N.A., relating to the Company’s Series A 10.25% Senior Notes due December 1, 2003, and Series B 10.25% Senior Notes due December 1, 2002 (incorporated herein by reference to Amendment No. 1 to the Registration Statement on Form S-4 (Registration Number 333-90556), as filed with the Commission on August 1, 2002)
	4.8*			Indenture among the Company, certain of its domestic subsidiaries from time to time a party thereto, as Guarantors, and HSBC Bank USA, as trustee, relating to the Company’s 12% Senior Notes due 2006
	10.1			Employment Agreement, dated as of November 1, 1996, between the Company and Norman C. Harbert (Incorporated by reference to the Company’s Registration Statement on Form S-4 as filed with the Securities and Exchange Commission (Reg. No. 333-18433))
	10.2			Form of Amended and Restated Wage Continuation Agreement between the Company and Norman C. Harbert (Incorporated by reference to the Company’s Registration Statement on Form S-1 as filed with the Securities and Exchange Commission (Reg. No. 333-40535))
	10.3			Employment Agreement, dated as of November 1, 1996, between the Company and Ronald E. Weinberg (Incorporated by reference to the Company’s Registration Statement on Form S-4 as filed with the Securities and Exchange Commission (Reg. No. 333-18433))
	10.4			Amendment No. 1 to the Employment Agreement, dated as of October 24, 2000, between the Company and Norman C. Harbert (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended March 31, 2001 as filed with the Securities and Exchange Commission)
	10.5			Amendment No. 1 to the Employment Agreement, dated as of October 24, 2000, between the Company and Ronald E. Weinberg (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended March 31, 2001 as filed with the Securities and Exchange Commission)
	10.6			Amended and Restated Employment Agreement, dated as of December 31, 2001, by and among the Company, Friction Products Co. and Ronald E. Weinberg


	10.7			Amended and Restated Employment Agreement, dated as of December 31, 2001, by and among the Company, Friction Products Co. and Norman C. Harbert
	10.8			Amended and Restated Wage Continuation Agreement, dated as of December 31, 2001, by and among the Company, Friction Products Co. and Norman C. Harbert
	10.9			Consultant Agreement, dated as of December 31, 2001, by and among the Company, Friction Products Co. and Norman C. Harbert
	10.10			Letter agreement, dated as of March 26, 1998, amending the Employment Agreement and the Consulting Agreement, each dated July 1, 1994, between Helsel, Inc. and Jess F. Helsel (Incorporated by reference to the Company’s Form 10-K for the year ended December 31, 1998 as filed with the Securities and Exchange Commission)
	10.11			Form of the Promissory Notes, each dated June 30, 1995, issued by of Norman C. Harbert and Ronald E. Weinberg to the Company (Incorporated by reference to the Company’s Registration Statement on Form S-4 as filed with the Securities and Exchange Commission (Reg. No. 333-18433))
	10.12			Letter agreement, dated October 1, 1996, amending the Promissory Notes, dated June 30, 1995, issued by each of Norman C. Harbert and Ronald E. Weinberg to the Company (Incorporated by reference to the Company’s Registration Statement on Form S-4 as filed with the Securities and Exchange Commission (Reg. No. 333-18433))
	10.13			Credit Agreement, dated as of May 1, 1998, among the Company and KeyBank National Association, as Swing Line Lender, Administrative Agent and as Syndication Agent (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended June 30, 1998 as filed with the Securities and Exchange Commission)
	10.14			Subsidiary Guaranty, dated as of May 1, 1998, among the subsidiaries of the Company, as guarantors, and KeyBank National Association, as Administrative Agent (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended June 30, 1998 as filed with the Securities and Exchange Commission)
	10.15			Amendment No. 1, dated as of November 22, 2000 to Credit Agreement among the Company and KeyBank National Association, as Lender, the Swing Line Lender, a Letter of Credit Issuer and as the Syndication Agent and the Administrative Agent
	10.16			Hawk Corporation 1997 Stock Option Plan (Incorporated by reference to the Company’s Registration Statement on Form S-1 as filed with the Securities and Exchange Commission (Reg. No. 333-40535))
	10.17			Hawk Corporation 2000 Long Term Incentive Plan
	10.18			Hawk Corporation Annual Incentive Compensation Plan
	10.19			Amendment No. 2 to Credit Agreement, dated as of July 31, 2001, by and among the Company, the Lenders identified therein and KeyBank National Association, a national banking association, as the Administrative Agent under the Credit Agreement (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 as filed with the Securities and Exchange Commission)
	10.20			Form of Security Agreement, dated as of August 10, 2001, by and between KeyBank National Association, the Company and each of the following subsidiaries of the Company: Allegheny Powder Metallurgy, Inc., Clearfield Powdered Metals, Inc., Friction Products Co., Hawk Brake, Inc., Hawk MIM, Inc., Helsel, Inc., Hawk Motors, Inc., Logan Metal Stampings, Inc., Net Shape Technologies LLC, Quarter Master Industries, Inc., S.K. Wellman Corp., S.K. Wellman Holdings, Inc., Sinterloy Corporation, Tex Racing Enterprises, Inc. and Wellman Friction Products U.K. Corp (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 as filed with the Securities and Exchange Commission)


	10.21			Form of Pledge Agreement, dated as of August 10, 2001, by and between KeyBank National Association, the Company and each of the following subsidiaries of the Company: Allegheny Powder Metallurgy, Inc., Clearfield Powdered Metals, Inc., Friction Products Co., Hawk Brake, Inc., Hawk MIM, Inc., Helsel, Inc., Hawk Motors, Inc., Logan Metal Stampings, Inc., Net Shape Technologies LLC, Quarter Master Industries, Inc., S.K. Wellman Corp., S.K. Wellman Holdings, Inc., Sinterloy Corporation, Tex Racing Enterprises, Inc. and Wellman Friction Products U.K. Corp (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 as filed with the Securities and Exchange Commission)
	10.22			Form of Intellectual Property Security Agreement, dated as of August 10, 2001, by and between the Company and each of the following subsidiaries of the Company: Allegheny Powder Metallurgy, Inc., Clearfield Powdered Metals, Inc., Friction Products Co., Hawk Brake, Inc., Hawk MIM, Inc., Helsel, Inc., Hawk Motors, Inc., Logan Metal Stampings, Inc., Net Shape Technologies LLC, Quarter Master Industries, Inc., S.K. Wellman Corp., S.K. Wellman Holdings, Inc., Sinterloy Corporation, Tex Racing Enterprises, Inc. and Wellman Friction Products U.K. Corp. (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 as filed with the Securities and Exchange Commission)
	10.23			Form of Guaranty Agreement of Payment of Obligations, dated as of August 10, 2001, by and between KeyBank National Association and each of the following subsidiaries of the Company: Allegheny Powder Metallurgy, Inc., Clearfield Powdered Metals, Inc., Friction Products Co., Hawk Brake, Inc., Hawk MIM, Inc., Helsel, Inc., Hawk Motors, Inc., Logan Metal Stampings, Inc., Net Shape Technologies LLC, Quarter Master Industries, Inc., S.K. Wellman Corp., S.K. Wellman Holdings, Inc., Sinterloy Corporation, Tex Racing Enterprises, Inc. and Wellman Friction Products U.K. Corp. (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 as filed with the Securities and Exchange Commission)
	10.24			Form of Open Ended Ohio Mortgage, executed as of August 10, 2001, in favor of KeyBank National Association by each of the following subsidiaries of the Company: Friction Products Co., Logan Metal Stampings, Inc. and S.K. Wellman Corp. (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 as filed with the Securities and Exchange Commission)
	10.25			Form of Open Ended Pennsylvania Mortgage, executed as of August 10, 2001, in favor of KeyBank National Association by each of the following subsidiaries of the Company: Allegheny Powder Metallurgy, Inc. and Clearfield Powdered Metals, Inc. (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 as filed with the Securities and Exchange Commission)
	10.26			Form of Mortgage, Assignment of Leases and Rents and Fixture Filing, executed as of August 10, 2001, in favor of KeyBank National Association by each of the following subsidiaries of the Company: Hawk Motors, Inc. and Helsel, Inc. (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 as filed with the Securities and Exchange Commission)
	10.27			Common Stock Selling Plan of Thomas A. Gilbride pursuant Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, effective as of June 6, 2001 (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended June 30, 2001 as filed with the Securities and Exchange Commission)
	10.28			Amendment No. 3 to Credit Agreement, dated as of November 9, 2001, by and among the Company, the Lenders identified therein and KeyBank National Association, a national banking association, as the Administrative Agent under the Credit Agreement (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended September 30, 2001 as filed with the Securities and Exchange Commission)


	10.29			Form of Pledge Agreement, dated as of November 9, 2001, by and between KeyBank National Association, the Company and each of the following subsidiaries of the Company: Allegheny Powder Metallurgy, Inc., Clearfield Powdered Metals, Inc., Friction Products Co., Hawk Brake, Inc., Hawk MIM, Inc., Helsel, Inc., Hawk Motors, Inc., Logan Metal Stampings, Inc., Net Shape Technologies LLC, Quarter Master Industries, Inc., S.K. Wellman Corp., S.K. Wellman Holdings, Inc., Sinterloy Corporation, Tex Racing Enterprises, Inc. and Wellman Friction Products U.K. Corp (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended September 30, 2001 as filed with the Securities and Exchange Commission)
	10.30			Amendment No. 4 to Credit Agreement, dated as of March 25, 2002, by and among the Company, the Lenders identified therein and KeyBank National Association, a national banking association, as the Administrative Agent under the Credit Agreement (Incorporated by reference to the Company’s Form 10-K for the period ended December 31, 2001 as filed with the Securities and Exchange Commission)
	10.31			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 (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended September 30, 2002 as filed with the Securities and Exchange Commission)
	10.32			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 (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended September 30, 2002 as filed with the Securities and Exchange Commission)
	10.33			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 (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended September 30, 2002 as filed with the Securities and Exchange Commission)
	10.34			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 (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended September 30, 2002 as filed with the Securities and Exchange Commission)
	10.35			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 (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended September 30, 2002 as filed with the Securities and Exchange Commission)
	10.36			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 (Incorporated by reference to the Company’s Form 10-Q for the quarterly period ended September 30, 2002 as filed with the Securities and Exchange Commission)
	21.1*			Subsidiaries of the Registrant
	23.1*			Consent of Ernst & Young LLP
	99.1*			Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	99.2*			Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


SIGNATURE	TITLE	DATE


/s/ RONALD E. WEINBERG Ronald E. Weinberg	Chairman of the Board, Chief Executive Officer and Director (principal executive officer)	February 24, 2003

/s/ NORMAN C. HARBERT Norman C. Harbert	Senior Chairman of the Board, Founder and Director	February 24, 2003

/s/ JEFFERY H. BERLIN Jeffery H. Berlin	President, Chief Operating Officer and Director	February 24, 2003

/s/ THOMAS A. GILBRIDE Thomas A. Gilbride	Vice President — Finance and Treasurer (principal financial accounting officer)	February 24, 2003

/s/ BYRON S. KRANTZ Byron S. Krantz	Secretary and Director	February 24, 2003

/s/ PAUL R. BISHOP Paul R. Bishop	Director	February 24, 2003

/s/ JACK KEMP Jack Kemp	Director	February 24, 2003

/s/ DAN T. MOORE, III Dan T. Moore, III	Director	February 24, 2003

/s/ ANDREW T. BERLIN Andrew T. Berlin	Director	February 24, 2003