Hawk Corporation 10-K/Fiscal Year End 12-31-03

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. x

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 30, 2003 was $19,469,887 (based on the closing price as quoted on the New York Stock Exchange on that date).

As of February 27, 2004, the Registrant had 8,624,826 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 5,705,003 shares of Class A Common Stock and 0 shares of Class B non-voting Common Stock.

Portions of the 2004 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, 2003.

Hawk Corporation, founded in 1989, is a leading supplier of friction products and powder metal precision components for industrial, agricultural, powersports and aerospace applications. Our common stock has been publicly traded since 1998. 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 friction products include parts for brakes, clutches and transmissions used in construction vehicles, agricultural vehicles, trucks, motorcycles and race cars, and brake parts for landing 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 8.5% of our net sales in 2003. 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 2003. We do not target the cyclical consumer automotive sector. Consequently, less than 9% of our net sales in any of the last five years were to the consumer automotive market. For the year ended December 31, 2003, we generated net sales of $202.6 million and income from operations of $10.9 million. For the year ended December 31, 2002, we had net sales of $185.9 million and income from operations of $13.0 million.

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, Hawk International Trading (Shanghai) Company, Ltd., Helsel, Inc., Sinterloy Corporation, Allegheny Clearfield, Inc., Net Shape Technologies LLC, Quarter Master Industries, Inc., Tex Racing Enterprises, Inc. and Logan Metal Stampings, Inc. Through our subsidiaries, we operate primarily in three reportable segments: friction products, precision components and performance racing. For the year ended December 31, 2003, our sales by segment were:

We believe that, based on net sales, we are one of the top worldwide manufacturers of friction products used in industrial, agricultural, powersports and aerospace applications. Our friction products segment manufactures parts and components made from proprietary formulations of composite materials, primarily consisting of metal powders and synthetic and natural fibers. Friction products are 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, motorcycles, race cars, all-terrain vehicles (ATVs) and commercial and general aircraft. We believe we are:


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

	•	the leading North American 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,

	•	a leading domestic supplier of friction products into powersport and specialty markets such as motorcycles, race cars, ATV’s and snowmobiles, and

	•	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.

For the years ended December 31, 2003 and 2002, our friction products segment generated net sales of $121.6 million and $106.1 million, representing 60.0% and 57.1% of our total net sales, respectively and income from operations of $8.3 million and $7.8 million, representing 76.1% and 60.0%, of our total income from operations, respectively. The foreign operations of our friction segment represented 37.3% of total friction segment net sales in 2003 compared to 30.9% in 2002.


	We are a leading supplier of powder metal precision 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. 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, medical and telecommunications.


	For the years ended December 31, 2003 and 2002, our precision components segment generated net sales of $68.1 million and $67.2 million, representing 33.6% and 36.1% of our total net sales, respectively and income from operations of $2.2 million and $4.3 million, representing 20.2% and 33.1% of our total income from operations, respectively.

We engineer, manufacture and market premium branded clutch, transmissions and driveline systems for the performance racing market. Through this segment, we supply parts for the National Association for Stock Car Auto Racing (NASCAR) 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, 2003 and 2002, our performance racing segment generated net sales of $12.9 million and $12.6 million,


	representing 6.4% and 6.8% of our total net sales, respectively and income from operations of $0.4 million and $0.9 million, representing 3.7% and 6.9% of our total income from operations, respectively.

In the fourth quarter of 2003 we committed to a plan to sell our motor segment, which has operations in Alton, Illinois and Monterrey, Mexico. This segment, which manufactures die-cast aluminum rotors for fractional and sub-fractional horsepower electric motors, failed to achieve a certain level of profitability, and, after completing extensive analysis, we determined that a divestiture of this segment would allow us to concentrate on our major segments of friction products and precision components. We have initiated an active marketing plan and anticipate selling the segment prior to the end of 2004.

Results of operations for this segment have been restated to reclassify its net operations, assets and liabilities as discontinued for all periods presented in this report. Certain corporate expenses and interest expense previously allocated to this segment have been reallocated to our remaining continued operations, which have resulted in a restatement of our results by business segment. The loss from discontinued operations in 2003 includes a $4.5 million pre-tax, non-cash charge to reduce the net assets of this segment to its estimated fair value, less costs to sell.


	•	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. 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 23.4% and 23.8% for the years ended December 31, 2003 and 2002, 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 aftermarket sales enable us to reduce our exposure to adverse economic cycles. Because friction products are the consumable, or wear-related, 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. We estimate that aftermarket sales of friction products have comprised approximately 40% of our friction product sales in recent years. Additionally, in 2003 we instituted new marketing programs to expand our aftermarket sales into new markets and applications that are not served by our original equipment customers.

	•	Selectively Expand Internationally. Through our friction and precision component segments, we have foreign manufacturing facilities in Italy, Canada and China, and through our friction segment’s worldwide distribution network, we continue to selectively expand our international operations in established markets throughout Europe, Asia, North America, South America and Australia. Our international net sales represented $47.8 million, or 23.6%, of our consolidated net sales for the year ended December 31, 2003, and $34.1 million, or 18.3%, of our consolidated net sales in 2002.

	•	Lower Our Costs of Production. Through various cost reduction programs, lean manufacturing initiatives and Six Sigma projects, we continue to look for ways to lower the total cost of producing our product. In the fourth quarter of 2003, we committed to a plan to close our Brook Park, Ohio friction manufacturing facility and move all production to a new lower cost domestic facility. We expect that the annual pre-tax savings to us as a result of this relocation will be approximately $2.5 million at full production levels, primarily from reduced operating expenses in addition to various state and local incentive packages. The new leased facility is expected to begin construction in 2004 and be fully operational in 2005.

We focus on supplying the industrial, agricultural, aerospace, and performance racing 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. For the year ended December 31, 2003, our sales by principal markets were:

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 function 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 and 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-related, 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, transmissions, heavy-duty construction and agricultural vehicle brakes, aircraft brakes, motorcycle, snowmobile and racing and performance automotive brakes. 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 40% of our net friction product sales in recent years. We believe that our aftermarket sales component enables us to reduce our exposure to adverse economic cycles.

Construction/ Agriculture/ Trucks/ Powersport and 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®, Fibertuff® and Hawk Performance®, 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 one of the 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. We believe we are the one of the largest domestic suppliers 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 buttons and facings used in medium and heavy trucks to original equipment manufacturers, such as Eaton and Sachs. 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.

	•	Powersport and 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, race cars and performance automotive vehicles. 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. Our replacement components are sold through original equipment manufacturers and various aftermarket distributors.

Aerospace. We believe we are a leading North American 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 2003 Current Market Outlook, approximately 75% of the 15,612 airplanes in the world fleet are single-aisle or regional commercial aircraft. The report also forecasts single-aisle and regional aircraft to grow by approximately 9,550 to 25,162 by the end of 2022. The Boeing report also states that world airline passenger traffic is projected to increase 5.1% over the next twenty years. We expect that long-term growth in world airline traffic, combined with the increasing number of single-aisle and regional aircraft, will cause long-term demand for our aerospace friction products to be stable. However, this market remained soft in 2003 with our net aircraft sales increasing only 2.5% when compared to 2002. As a result of the continued retirement of certain older aircraft, which utilize our braking material and the continued softness in air travel since September 2001, we expect sales in this market to decline in 2004 by approximately 6% to 8% compared to 2003.

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 billion in 2002.


	•	fluid power applications, such as pumps and other hydraulic mechanisms,

	•	transmissions, other drive mechanisms and anti-lock braking systems used in trucks, off-road and lawn and garden equipment,

	•	gears and other components for use in home appliances, small hand tools, office equipment, medical, and telecommunication equipment, and

	•	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 and dimensional precision. 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, which serve as an opposing surface to friction disks made by us, 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 provide us with opportunities to cross-sell numerous of our other precision components to customers of high precision and large size parts. 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, medical and telecommunications. We believe that many of our traditional powder metal customers may also be attractive prospects for metal injected molded parts.

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, IRL and ASA racing series and by weekend enthusiasts in the SCCA 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 and several other racing series.

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


(1)	As of January 1, 2002, we reclassified an operating unit formerly associated with our performance racing 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.

(2)	A line of business formerly associated with our motor segment, which was discontinued as of December 31, 2003, will be retained by us and has been reclassified to our precision components segment. Net sales from this line of business were $1.2 million, $1.3 million and $1.5 million for the years ended December 31, 2003, 2002, and 2001, respectively. All prior periods have been reclassified to reflect this change.


(3)	In accordance with the non-amortization provisions of SFAS No. 142 (see “Note 2-Significant Accounting Policies” to the accompanying consolidated financial statements beginning on page 32 of this Form 10-K), we discontinued 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 year ended December 31, 2001 by segment:

The manufacturing processes for most of our friction products, performance racing 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 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.

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, 2003 we have trained approximately 260 employees under the Six Sigma initiative.

We operate friction manufacturing facilities in Orzinuovi, Italy, Ontario, Canada and Suzhou, China. We operate a powder metal manufacturing facility in Suzhou, China. Our international operations are subject to the usual risks of operating in foreign jurisdictions. Risks inherent in international operations include the following:


	•	Foreign countries may impose additional withholding taxes or otherwise tax our foreign income, impose tariffs or adopt other restrictions on foreign trade or investment, including exchange controls,

	•	Fluctuations in exchange rates may affect product demand and may adversely affect the profitability in U. S. dollars of products and services provided by us in foreign markets where payment for our products is made in local currency,

	•	Unexpected adverse changes in foreign laws or regulatory requirements may occur,

	•	Compliance with a variety of foreign laws and regulations may be difficult, and

	•	Overlap of different tax laws may subject us to additional taxes.

Our international net sales represented $47.8 million, or 23.6% of our consolidated net sales in 2003 compared $34.1 million, or 18.3% of our consolidated net sales in 2002.

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.

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 developed, 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 enhanced 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-Danfoss, Parker Hannifin, Electrolux and Haldex.

Our top five customers accounted for 26.6% of our consolidated net sales in 2003 and 25.1% of our consolidated net sales in 2002.

The following table describes some of our key customers in each of our business segments, the approximate number of years they have been our customers, the principal products we sell to them and selected applications for those products:

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 sales offices in Germany and Argentina. 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 to original equipment manufacturers through independent sales representatives. Sales to customers in our performance racing 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 million. Our success will depend on our ability to continue to meet our customers’ changing specifications with respect to reliability and timeliness of delivery, technical expertise, product design capability, manufacturing expertise, operational flexibility and customer service.

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 777, 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.

We require substantial amounts of raw materials, including copper and iron powders, steel and custom-fabricated cellulose sheet and substantially all of the raw materials we require are purchased from third party suppliers and are generally in adequate supply. However, the availability and costs of raw materials may be subject to change due to, among other things, new laws or regulations, suppliers’ allocations to other purchasers, interruptions in production by suppliers and changes in exchange rates and worldwide price and demand levels. We are not currently party to any long-term supply agreements. Our inability to obtain adequate supplies of raw materials for our products at favorable prices could have a material adverse effect on our business, financial

condition or results of operations by decreasing our profit margins and by hindering our ability to deliver products to our customers on a timely basis. Recently, we have experienced an increase in the costs of our copper and iron powders and steel. If we are not able to reduce or eliminate the effect of these cost increases through lowering other costs of production or successfully implementing price increases to our customers, such cost increases from our vendors could have a negative effect on our financial results.

Our sales to manufacturers of aircraft braking systems represented 11.1% of our consolidated net sales in 2003 and 11.8% of our consolidated net sales in 2002. 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 Performance®, Hawk Precision Components®, Quarter Master® and Tex Racing®. Velvetouch®, Fibertuff® and Hawk Performance® are our principal trademarks for use in the friction products aftermarket segment. We have applied for the registration of the Hawk Precision Components Group, Hawk Racing International, Pro V 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, 2003, we had approximately 1,170 domestic employees and 390 international employees at our continuing operations. Approximately 185 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 2005; approximately 25 employees at our Akron, Ohio facility are covered under a collective bargaining agreement with the United Automobile Workers expiring in July 2005; and approximately 225 employees at our Orzinuovi, Italy plant are represented by a national mechanics union agreement that expires in December 2005. The Italian employees are also covered by a local union agreement that expires in December 2004. We have experienced no material work stoppages and believe we have good relations with our employees and their unions. We have previously announced our intention to close our Brook Park, Ohio facility. We expect this closure to be completed in 2005.

Hawk’s world headquarters is located in Cleveland, Ohio. We maintain manufacturing and research and development facilities at our continuing operations in 15 locations in 4 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 or results of operations.

No matters were submitted to a vote of security holders during the fourth quarter of 2003.

Our Class A Common Stock has traded on the American Stock Exchange under the symbol “HWK” since January 7, 2004. From the period May 12, 1998 through January 6, 2004, the stock traded on the New York Stock Exchange. 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 27, 2004 numbered 86. 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.


(1)	Reflects a one-time, non-cash charge related to the pension curtailment and contractual termination benefit costs associated with the announced closure of the Brook Park, Ohio friction segment facility.
(2)	Reflects primarily a work force reduction at our domestic facilities of approximately 160 salaried and production personnel.
(3)	In accordance with the non-amortization provisions of SFAS 142 (see “Note 2 — Significant Accounting Policies” to the accompanying consolidated financial statements beginning on page 32 of this Form 10-K), we discontinued the amortization of goodwill in 2002.
(4)	Amortization outlined in this table does not include deferred financing amortization of $0.8 million in 2003; $0.6 million in 2002; $0.6 million in 2001; $0.6 in 2000 and $0.6 in 1999, which is included in interest expense on the Statement of Operations.
(5)	Working capital is defined as current assets less current liabilities. Beginning in 2002, as required by EITF 95-22, the Bank Facility is included in working capital. As of December 31, 2003 and 2002, there was $24.1 million and $36.3 million outstanding under the Bank Facility, respectively. See “Note 6 — Financing Arrangements” in the accompanying audited consolidated financials statements beginning on page 32 of this Form 10-K.

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 three reportable segments: friction products, precision components and performance racing. 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 the fourth quarter of 2003, we committed to a plan to sell our motor segment, which has operations in Alton, Illinois and Monterrey, Mexico. This segment, which manufactures die-cast aluminum rotors for fractional and sub-fractional horsepower electric motors, failed to achieve a certain level of profitability, and, after completing an extensive analysis, we determined that a divestiture of this segment would allow us to concentrate on our core segments of friction products and precision components. We initiated an active marketing plan and anticipate selling the segment prior to the end of 2004. Results of operations for this segment have been restated to reclassify its net operations, assets and liabilities as discontinued for all periods presented in this report and are not included in this discussion of our results of operations.

Also in the fourth quarter of 2003, we committed to a restructuring program to achieve cost savings in our friction products segment by moving operations at its Brook Park, Ohio location to a new U.S. production facility. We have signed a formal, non-binding letter of intent agreeing to the terms on the construction of a new approximately 240,000 square foot leased facility. The letter of intent is subject to due diligence and other customary terms and conditions. In connection with the planned closure of the Brook Park, Ohio facility, we recorded a $1.9 million charge in the fourth quarter of 2003 related to the curtailment and contractual termination benefit costs of a defined benefit pension plan covering certain union employees of the facility. In addition, we anticipate future pre-tax charges of approximately $2.0 million in 2004 and $3.0 million to $3.5 million in 2005 related to the relocation of the Brook Park, Ohio facility and employee severance expense.

In 2003, our income from operations decreased $2.1 million to $10.9 million, or 16.2%, from the prior year. This decrease was attributable primarily to the $1.9 million pension curtailment and contractual termination benefit costs we recorded in the fourth quarter of 2003, increased defined benefit pension costs of approximately $1.3 million in 2003, increased incentive compensation expense of $1.7 million and $1.0 million in discretionary profit sharing contributions compared to no contributions in 2002. Partially offsetting this decrease were sales volume increases and improved absorption of fixed costs, primarily in our friction segment, as well as cost reduction initiatives.

Based on a gradually improving economy and the strength of our new product introductions, market share gains and foreign operations, we expect full year 2004 revenues from continuing operations to increase approximately 6% from 2003 revenues from continuing operations. We expect this increase, despite our anticipation that 2004 sales to the aerospace market will be 6% to 8% lower than 2003.

Hawk’s critical accounting policies, including the assumptions and judgments underlying them are more fully described in “Note 2 — Significant Accounting Policies” of the notes to the accompanying audited consolidated financial statements beginning on page 32 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. On an ongoing basis, the Company evaluates its estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Hawk reviews its financial reporting and disclosure practices and accounting policies quarterly to ensure that they provide accurate and transparent information relative to the current economic and business environment. 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. However, historically our estimates have not been materially different from actual results. 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 receivable 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 evaluate the carrying value of our goodwill and indefinite-lived intangible assets at least annually, or more frequently if there is a significant adverse event or change in the environment in which one of our business unit operates. An impairment loss would be recorded in the period such determination is made. In assessing the recoverability of our goodwill, we consider changes in economic conditions and make assumptions regarding estimated future discounted cash flows and other factors. Estimates of future cash flows are highly subjective based on our experience and knowledge of operations. These estimates could be significantly impacted by many factors including changes in global and local business and economic conditions, operating costs, inflation and economic trends. If actual results are materially different than the assumptions used, impairment could result. See “Note 2 — Significant Accounting Policies” of the notes to the accompanying audited consolidated financial statements beginning on page 32 of this Form 10-K.

	•	Long-Lived Assets. Long-lived assets (excluding goodwill) are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In assessing the recoverability of our long-lived assets, we consider changes in economic conditions and make assumptions regarding estimated future undiscounted cash flows and other factors. Estimates of future cash flows are highly subjective judgments based on our experience and knowledge of operations. These estimates can be significantly impacted by many factors including changes in global and local business and economic conditions, operating costs, inflation and competitive trends. If our estimates or underlying assumptions change in the future, we may be required to record impairment charges. Based on our review, we recorded a pre-tax, non-cash impairment charge of $4.5 million in the fourth quarter of 2003 to our motor segment, which was reported as a discontinued operation for the year ended December 31, 2003. There were no impairment charges recorded in 2002 or 2001. (See “Note 3 —


		Discontinued Operations” to the accompanying audited consolidated financial statements beginning on page 32 of this Form 10-K).

	•	Pension 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 assumed that the expected weighted average long-term rate of return on plan assets will be 8.6% for 2004 compared to 8.6% for 2003 and 9.3% for 2002. 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. However, should the rate of return differ materially from our assumed rate we could experience a material adverse effect on the funded status of our plans and our future pension expense. 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). Our cumulative unrecognized net actuarial loss on pension assets as of December 31, 2003 and 2002 was $8.0 million and $8.9 million, respectively.

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, 2003, we determined this rate to be 6.25%. 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, has been deferred as permitted by SFAS 87.

We expect pension expense to be approximately $1.2 million in 2004. This compares to $3.6 million (including pension curtailment and contractual termination benefit costs of $1.9 million) in 2003 and $0.4 million in 2002.

We expect cash contributions to our pension plans to be $1.9 million in 2004. This compares to contributions of $1.1 million in 2003 and $1.3 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 self-insured liabilities were $1.1 million in 2003 and $0.6 million in 2002. These accruals could be significantly affected if future occurrences and claims differ from these assumptions and historical trends.

	•	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. Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for reporting and income tax purposes. As of December 31, 2003 and 2002, we had net federal operating loss carryforwards of $7.9 million and $0, respectively, and alternative minimum tax (AMT) credit carryforwards of $1.1 million and $1.0 million, respectively.

	•	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. As of December 31, 2003 we recorded a translation gain through shareholders’ equity of $2.3 million. This gain was attributable to the strength of the Euro throughout 2003. In 2002, we reported a translation gain of $0.7 million. 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 date of the transaction. The effect of the transaction’s gain or loss is included in other income (expense), net in our Statement of Operations. Foreign currency transaction losses were $0.1 million in 2003 compared to $0.2 million in 2002.

Our manufacturing operations are organized into three product focused strategic business units. These units include friction products, precision components and performance racing. In the fourth quarter of 2003 we committed to selling our motor segment. As a result, we have classified this business as discontinued. An operating component of the motor segment will be retained by the Company as part of its continuing operations. This line of business had net sales of $1.2 million in 2003 and $1.3 million in 2002 and has been reclassified into the results of the precision components segment for all of the years presented.

Net Sales. Our consolidated net sales from continuing operations for 2003 were $202.6 million, an increase of $16.7 million or 9.0% from the same period in 2002. We experienced sales increases in all of our segments, primarily a result of a gradual economic recovery in 2003 in the industrial markets we serve, new product introductions and market share gains in our friction segment during the year. Foreign currency exchange rates caused net sales from continuing operations for the full year 2003 to increase by 3.2%.


	•	Friction Products. Net sales in the friction segment, our largest, were $121.6 million in 2003, an increase of $15.5 million, or 14.6%, compared to $106.1 million 2002. As a result of new product introductions and market share gains, we experienced increases in most of our major markets, including construction, agriculture, heavy truck, aftermarket and fleet markets. This segment also experienced strong sales growth from our international operations in 2003. Net sales, exclusive of any translation gains, at our Italian facility increased 24.2% in 2003 compared to 2002, as a result of new product introductions and market share gains. Net sales at our Chinese facility were up 111.0% in 2003 compared to 2002. Foreign currency exchange rates caused the friction segment’s sales for the full year 2003 to increase by 5.6%. Our sales to the aerospace market increased approximately 2.5% in 2003 compared to 2002. However, sales to the aerospace market were down 7.9% during the last six months of 2003 when compared to the same period of 2002. When compared to the full year 2003, we expect sales to the aerospace market will be down approximately 6% to 8% in 2004 compared to 2003. Additionally, net sales in this segment decreased approximately $2.1 million from full year 2002 results, as a result of our decision to exit the automotive stamping market in June 2003.

	•	Precision Components. Net sales in our precision components segment were $68.1 million in 2003, an increase of 1.3% compared to 2002. 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 the lawn and garden, fluid power and power tool markets served by this segment. These increases were partially offset by declines in the automotive market as a result of vehicle production declines during the year as well as a decline in sales to the appliance market that we serve. Our precision


		component segment began production and sale of product from its new powder metal production facility in China during the fourth quarter of 2003.

	•	Performance Racing. Net sales in our performance racing segment were $12.9 million, an increase of 2.4% compared to net sales of $12.6 million in 2002. The increase in revenues was primarily attributable to the introduction of new clutch products.

Gross Profit. Gross profit from continuing operations increased $3.2 million to $47.4 million during 2003, a 7.2% increase compared to gross profit of $44.2 million in 2002. The gross profit margin decreased to 23.4% of net sales in 2003 from 23.8% of net sales in the prior year period.


	•	Friction Products. Our friction products segment reported gross profit of $29.5 million or 24.3% of its net sales in 2003 compared to $25.4 million or 23.9% of its net sales in 2002. The increase in our gross profit margin was primarily the result of sales volume increases, product mix, our exit from the automotive stamping market and continued emphasis on cost reduction programs, as well as utilization of Six Sigma tools to lower our manufacturing costs. We achieved an increase in gross margin in 2003 despite increased defined benefit pension costs of $0.6 million as well as increased incentive compensation expense of $0.3 million and discretionary profit sharing contributions of $0.3 million in 2003 that were not made in 2002.

	•	Precision Components. Gross profit in our precision components segment was $14.5 million or 21.3% of its net sales in 2003 compared to $15.1 million or 22.5% of its net sales in 2002. The decrease in this segment’s margins was primarily the result of profit sharing contributions of $0.3 million that were made in 2003 compared to no contributions in 2002. Other factors that impacted gross profit were product mix, start-up and training costs associated with the installation of new equipment as well as start-up costs associated with this segment’s new operations in China. We will continue to provide start-up support to the China operation in 2004 and expect this operation to achieve profitability during 2005.

	•	Performance Racing. Our performance racing segment reported gross profit of $3.4 million or 26.4% of net sales in 2003 compared to $3.7 million or 29.4% of net sales in 2002. The decline in gross profit was primarily the result of product mix.

Selling, Technical and Administrative Expenses. Selling, technical and administrative (ST&A) expenses increased $3.2 million, or 10.5%, to $33.7 million in 2003 from $30.5 million during 2002. As a percentage of net sales, ST&A increased to 16.6% in 2003 compared to 16.4% in 2002. The increase in ST&A expenses resulted primarily from increased defined benefit pension costs of $0.2 million, increased incentive compensation expense of $1.5 million and discretionary profit sharing contributions of $1.0 million in 2003 that were not made in 2002. We spent $4.1 million, or 2.0% of our net sales on product research and development compared to $3.5 million, or 1.9%, in 2002.

Pension Curtailment and Contractual Termination Benefit Costs. In 2003, we recorded a charge of $1.9 million to reflect the curtailment and contractual termination benefit costs relating to a defined benefit pension plan resulting from our decision to close our Brook Park, Ohio friction manufacturing facility. There were no charges recorded in 2002.

Income from Operations. Income from operations decreased $2.1 million or 16.2% to $10.9 million in 2003 from $13.0 million in 2002. Income from operations as a percentage of net sales decreased to 5.4% in 2003 from 7.0% in 2002. The decrease was primarily the result of increased defined benefit pension costs of $1.3 million, a $1.9 pension curtailment and contractual termination benefit cost recorded by the friction segment during 2003, increased incentive compensation expense of $1.7 million and discretionary profit sharing

contributions of $1.0 million in 2003 compared to no contributions in 2002. This reduction was partially offset by increased sales volume, primarily in the friction segment, improved absorption of fixed costs as a result of the volume increases in the friction segment and continuing cost reduction initiatives.

As a result of the items discussed above, income from operations at each of our segments was as follows:

Other Income (Expense), net. Other income was $0.2 million in 2003 compared to expense of $0.7 million in 2002. The primary source of income in 2003 was foreign exchange transaction gains generated primarily from our Italian facility. 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.

Interest Expense. Interest expense increased $0.4 million, or 3.8%, to $10.8 million in 2003 from $10.4 million in 2002. The increase is primarily attributable 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 reduced borrowings during the year as well as lower interest rates paid under our Bank Facility, which we also entered into in October 2002. Additionally, we recorded $0.1 million in interest expense in December 2003 and 2002 respectively, to reflect the issuance of payment in kind (PIK) interest in both periods under the terms of the Senior Notes leverage ratio test for the periods ended December 31.

Income Taxes. We recorded a tax provision for continuing operations of $0.9 million in 2003 compared to a benefit of $0.7 million in 2002. An analysis of changes in our income taxes and our effective tax rate is contained in “Note 11 — Income Taxes” in the accompanying audited consolidated financial statements beginning on page 32 of this Form 10-K.

Discontinued Operations, net of tax. In the fourth quarter of 2003, we committed to a plan to divest of our motor segment operations. In accordance with accounting principles generally accepted in the United States

(GAAP), we have accounted for the motor segment in our financial statements on the line item “Discontinued operations, net of tax.” In addition to the segment’s pre-tax net operating loss of $3.2 million for 2003, we also recorded a pre-tax, non-cash long-lived asset impairment charge of $4.5 million. In 2002, we reported a pre-tax net operating loss of $2.7 million. An analysis of Discontinued Operations is contained in “Note 3 – Discontinued Operations” in the accompanying audited consolidated statements beginning on page 32 of this Form 10-K.

Net Loss. As a result of the factors noted above, we reported a net loss of $5.4 million in 2003, compared to a net loss of $18.3 million in 2002.

Net Sales. Our consolidated net sales from continuing operations for 2002 were $185.9 million, an increase of $9.0 million or 5.1% 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, positively impacted the friction and precision components segments.


	•	Friction Products. Net sales in the friction products segment, our largest, were $106.1 million in 2002, an increase of 1.9% 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 16.0% 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 14.1% compared to 2001, as a result of new product introductions and market share gains. Net sales at our Chinese facility were up 292.1% compared to 2001.

	•	Precision Components. Net sales in the precision components segment were $67.2 million, an increase of 12.4% 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 Racing. Net sales in our performance racing segment were $12.6 million, a decrease of 3.1% 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.

Gross Profit. Gross profit increased $3.5 million to $44.2 million during 2002, an 8.6% increase compared to gross profit of $40.7 million in 2001. The gross profit margin increased to 23.8% of net sales in 2002 from 23.0% of net sales in the comparable period of 2001.


	•	Friction Products. Our friction products segment reported gross profit of $25.4 million or 23.9% of net sales in 2002 compared to $24.9 million or 23.9% 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. Gross margin benefited by reductions in incentive compensation costs during the period compared to 2001.

	•	Precision Components. Gross profit in our precision components segment was $15.1 million or 22.5% of net sales in 2002 compared to $12.0 million or 20.1% 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 Racing. Our performance racing segment reported gross profit of $3.7 million or 29.4% of net sales in 2002 compared to $3.8 million or 29.2% of net sales in 2001. The decline in gross profit was primarily the result of volume declines at our performance clutch manufacturing facility.

Selling, Technical and Administrative Expenses. ST&A expenses increased $1.7 million, or 5.6%, to $30.5 million in 2002 from $28.8 million during 2001. As a percentage of net sales, ST&A increased slightly to 16.4% of net sales in 2002 compared to 16.3% in 2001. The increase in ST&A expenses resulted primarily from continuing start-up expenditures incurred at our Chinese friction material facility, increased insurance and personnel costs associated with our long-term sales and growth initiatives. Additionally, we incurred legal expenses in our performance racing 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. In 2002, we spent $3.5 million, or 1.9% of our net sales on product research and development compared to $3.9 million in 2001.

Amortization of Finite-Lived Intangible Assets. Results for the year ended December 31, 2002 were favorably impacted by the adoption of SFAS 142 on January 1, 2002, which permitted us to discontinue the amortization of goodwill and definite-lived intangible assets. This accounting change reduced our amortization expense for the year by $2.9 million compared to 2001.

Income from Operations. Income from operations increased $5.8 million or 80.6% to $13.0 million in 2002 from $7.2 million in 2001. Income from operations as a percentage of net sales increased to 7.0% in 2002 from 4.1% 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 $2.9 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 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, income from operations at our segments was as follows:

Interest Expense. Interest expense increased $0.3 million, or 3.0%, to $10.4 million in 2002 from $10.1 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 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.

Other Income (Expense), net. 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.

Income Taxes. We recorded a tax benefit of $0.7 million in 2002 compared to a benefit of $0.9 million. An analysis of changes in our income taxes and our effective tax rate is contained in “Note 11 — Income Taxes” in the accompanying audited consolidated financial statements beginning on page 32 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 2 — Significant Accounting Policies” in the accompanying audited consolidated financial statements beginning on page 32 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).

Discontinued Operations, net of tax. In the fourth quarter of 2003, we committed to a plan to sell our motor segment. In accordance with GAAP, we have accounted for the discontinued operations in our financial statements on the line item “Discontinued operations, net of tax for all periods. In 2002, we reported a pre-tax net loss of $2.7 million from discontinued operations compared to $3.0 million in 2001. An analysis of Discontinued Operations is contained in “Note 3 – Discontinued Operations” in the accompanying audited consolidated statements beginning on page 32 of this Form 10-K.

Net Loss. As a result of the factors noted above, we reported a net loss of $18.3 million in 2002, compared to a net loss of $4.3 million in 2001.


	•	for capital expenditures for maintenance, replacement and acquisition of equipment, expansion of capacity, productivity improvements and product development,

	•	for funding our day-to-day working capital requirements and

	•	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 Facility. The following selected measures of liquidity and capital resources outline various metrics that are reviewed by our management and are provided to enhance the understanding of our business.

Selected Measures of Liquidity and Capital Resources from Continuing Operations


⁽¹⁾	Working capital is defined as current assets less current liabilities. Beginning in 2002, as required by EITF 95-22, the Bank Facility is included in working capital. As of December 31, 2003 and 2002, there was $24.1 million and $36.3 million outstanding under the Bank Facility, respectively. See “Note 6 — Financing Arrangements” to the accompanying audited consolidated financials statements beginning on page 32 of this Form 10-K.

⁽²⁾	Current ratio is defined as current assets divided by current liabilities. Beginning in 2002, as required by EITF 95-22, the Bank Facility is included in working capital. As of December 31, 2003 and 2002, there was $24.1 million and $36.3 million outstanding under the Bank Facility, respectively. See “Note 6 — Financing Arrangements” to the accompanying audited consolidated financials statements beginning on page 32 of this Form 10-K.

⁽³⁾	Debt is defined as long-term debt, including current portion, short-term borrowings and Bank Facility. Capitalization is defined as debt plus shareholders’ equity.

The following table summarizes the components of our indebtedness as of December 31:

In October 2002, we entered into a new senior secured credit facility (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 can 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. As of December 31, 2003, we had $22.1 million outstanding under the revolving credit component of the facility and $2.0 million outstanding under the capital expenditure component of the facility. As of December 31, 2003, subject to our borrowing base, we had approximately $15.9 million available for future borrowings under the revolving credit component of the Bank Facility and $1.0 million under the capital expenditure loan component of the Bank Facility.

Our Bank Facility contains various debt covenants. At December 31, 2003 we were in compliance with all of those covenants.

On February 27, 2004, we entered into an amendment to our Bank Facility, which modified certain financial covenant tests for 2004. This amendment will allow us to proceed with our previously announced repositioning plan to sell our motor segment and move our Brook Park, Ohio friction products facility. We expect to incur pre-tax expenses of approximately $2.0 million in 2004 and $3.0 million to $3.5 million in 2005 related to the relocation of the Brook Park, Ohio facility and employee severance expense.

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 (described below) in 2006. The Bank Facility replaced the Term Loan and Revolving Credit Facility.

Under EITF 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. Under the subjective acceleration clause of the Bank Facility, the lending banks may declare a default if they reasonably believe that any of the following events have occurred or could reasonably be expected to occur:


	•	a material adverse effect on our business, operations or condition (financial or otherwise),

	•	a material adverse effect on our ability, or any subsidiary borrower or guarantor, to comply with the terms and conditions of the Bank Facility,

	•	a material adverse effect on the enforceability of any Bank Facility document or the ability of the lending banks to enforce any rights or remedies under any Bank Facility document, or

	•	a material adverse effect on the validity, perfection or priority of any lien arising under the Bank Facility.

We do not believe that any of these material adverse effects have occurred or can reasonably be expected to occur. Therefore, we do not believe that the lending banks have any rights to declare a default under the subjective acceleration clause of our Bank Facility. Hawk intends to manage the Bank 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. However, if in the future, the lending banks do believe that a material adverse effect has occurred or could reasonably be expected to occur, they may declare a default and declare that all outstanding principal and interest under the Bank Facility is due and payable. We do not have sufficient cash or other credit facilities that would permit immediate repayment of the Bank Facility. If we were not able to

negotiate new terms with the lending banks or other banks or lending sources, our financial condition and liquidity would be materially and adversely affected.

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 matured and were paid on December 1, 2003. The holders of the Old Senior Notes that participated in the exchange for Senior Notes received a consent payment of $25.63, in the form of Senior Notes, for each $1,000 of Old Senior Notes held as of October 23, 2002. The entire debt refinancing transaction was accounted for as a debt exchange in accordance with EITF 96-19, Debtor’s Accounting for a Modification or Exchange of Debt Instruments. Accordingly, we recorded the aggregate consent payments of $1.6 million as additional Senior Notes, and we are amortizing the consent payments to interest expense over the remaining life of the Senior Notes. We also 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 semi-annually. In addition, in the event that our leverage ratio (as defined) 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, 2003, the leverage ratio test will require us to issue $0.1 million of PIK interest, calculated at a rate of 0.25%, 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, 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 and an adjusted consolidated leverage ratio. As of December 31, 2003, we did not meet the prescribed ratios. The failure to meet the ratios 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.

At December 31, 2003, we had cash and cash equivalents of $3.4 million compared to $1.7 million at December 31, 2002. The cash on the balance sheet at December 31, 2003 and 2002 is primarily at our foreign operations. All domestic cash is used to pay down the outstanding loans of the revolving credit component of our Bank Facility.

Net cash provided by operating activities was $23.7 million in 2003 compared to cash used in operating activities of $7.7 million in 2002. Cash provided by our operations in 2003 was primarily attributable to significant decreases in our working capital assets, exclusive of our Bank Facility, during the period. Our net working capital, exclusive of the outstanding debt under the Bank Facility, which is classified as a current liability for accounting purposes, was $37.6 million at year-end 2003 compared to $45.4 million at year-end 2002. As part of our capital management, we review certain working capital metrics on a continuing basis. Our accounts receivable and inventory levels are reviewed through the computation of days sales outstanding and inventory turnover ratio, respectively. The number of days sales outstanding as of December 31, 2003, was approximately 59 days compared to the 60 days as of December 31, 2002. Average inventory turns during 2003 decreased by approximately 2.7 days compared to 2002 levels. Our accounts payable and accrued interest increased by approximately $12.2 million at December 31, 2003 compared to December 31, 2002 primarily as a result of timing of payments. We have not changed our payment terms to vendors. Additionally, we made a $4.0 million interest payment on the Senior Notes on January 2, 2004.

We used cash in our investing activities of $10.1 million in 2003 and $9.7 million in 2002 for the purchase of property, plant and equipment.

Cash used in financing activities was $14.0 million in 2003. As a result of our working capital asset management programs, we were able to significantly reduce the amounts outstanding under our Bank Facility by $12.2 million in 2003. The increase in 2002 was primarily the result of additional borrowings to support the increase in our working capital assets, our production facility in China and our purchases of property, plant and equipment during the year.

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 and restructuring initiatives for the next twelve months.

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

guarantees of performance or a representation by us or any other person that our objectives or plans will be achieved.

Our forward-looking statements are based on our management’s beliefs and assumptions, which in turn are based on currently available information. Important assumptions relating to the forward looking statements include, among others, assumptions regarding demand for our products, the expansion of product offerings geographically or through new applications, the timing and cost of planned capital expenditures, competitive conditions and general economic conditions. These assumptions could prove inaccurate. Forward-looking statements also involve risks and uncertainties, which could cause actual results that differ materially and adversely from those contained in any forward looking statement. Many of these factors are beyond our ability to control or predict and such incurrence could be material. Such factors include, but are not limited to, the following:


	•	our ability to meet the terms of our Bank Facility and Senior Notes, each of 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 impact of the reduction in air travel on our aerospace business;

	•	the impact on our gross profit margins as a result of changes in our product mix;

	•	our ability to effectively utilize all of our manufacturing capacity as the industrial and commercial end-markets we serve gradually improve or if improvement is not achieved as we anticipate;

	•	the timely completion of the construction of the new facility in our friction products segment;

	•	the ability to hire and train qualified people at the new facility;

	•	the ability to transfer production to the new facility and commence production at the new facility without causing customer delays or dissatisfaction;

	•	the ability to achieve the projected cost savings at the new facility, including whether the cost savings can be achieved in a timely manner;

	•	whether or not our motor segment can be sold and if sold whether the sale can take place in the time or at the price projected by us;

	•	whether or not the motor segment will be able to improve its operating performance during the selling process;

	•	higher than anticipated costs related to the relocation of the friction products segment facility and the sale of our motor segment;

	•	our ability to generate profits at our facilities in China and to earn a profit at our start-up metal injection molding operation;

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

	•	the effect on our international operations of unexpected changes in legal and regulatory requirements, export restrictions, currency controls, tariffs and other trade barriers, difficulties in staffing and managing foreign operations, political and economic instability, difficulty in accounts receivable collection and potentially adverse tax consequences;

	•	the effect of fluctuations in foreign currency exchange rates as our non-U.S. sales continue to increase;

	•	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.

Forward-looking statements speak only as of the date they are made, and we undertake no obligation to updated publicly any of them in light of new information or future events.

You must consider these risks and others that are detailed in this Form 10-K in deciding whether to invest or continue to own our common stock or Senior Notes.

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. In seeking to minimize the risks and/or costs associated with market risk, we manage our exposures to interest rates and foreign currency exchange rates through our regular operating and financial activities, which could include the use of derivative instruments in the future. We do not use derivative financial instruments for speculative or trading purposes.

Interest Rate Sensitivity. At December 31, 2003, approximately 26.7%, or $25.4 million, of our total indebtedness bears 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%) from December 31, 2003 rates, and assuming no changes in debt from December 31, 2003 levels, our additional annual interest expense would be approximately $0.3 million. In October 2002, we terminated a $10 million notional amount interest rate swap. The cancellation did not have a material impact on earnings.

The interest rates on our long-term debt reflect market rates and therefore, the carrying value of long-term debt approximates fair value. An analysis of our obligations is further discussed in “Note 6 — Financing Arrangements” and “Note 10 — Lease Obligations” in the accompanying audited consolidated financial statements beginning on page 32 of this Form 10-K.

The following table presents our total contractual obligations and other commercial commitments as of December 31, 2003:

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 Euros, 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, 2003 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, 2003 and 2002, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2003. 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, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States.

As discussed in Note 2 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 2003 presentation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) 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.

The Company has the intent and the ability to hold all trade receivables until payments are received from customers. Trade receivables are stated at outstanding amounts as adjusted for an allowance for credits and doubtful accounts. Trade receivables are evaluated on an ongoing basis and written off to current operations when collection is no longer reasonable assured.

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 $10,073 in 2003, $10,247 in 2002 and $10,720 in 2001.

Long-lived assets, except goodwill, are reviewed for impairment whenever events or circumstances indicate the carrying amount may not be recoverable. Events or circumstances that would result in an impairment review primarily include operations reporting losses, a significant change in the use of an asset, or the planned disposal or sale of the asset. The asset would be considered impaired when the future net undiscounted cash flows

generated by the asset are less then its carrying value. An impairment loss would be recognized based on the amount by which the carrying value of the asset exceeds its fair value.

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 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 effect of applying the non-amortization provisions of SFAS 142 for the year ended December 31, 2001 would have been to decrease amortization expense by approximately $2,928 ($2,354 after tax).

The following table illustrates the effect of applying the non-amortization provisions of SFAS 142 on net income and earnings per share before discontinued operations and cumulative effect of change in accounting principle as of December 31, 2001:

Upon adoption of SFAS 142, the Company changed its 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 as of January 1, 2002. The Company, with the assistance of independent valuation experts, concluded that as of January 1, 2002 certain of its goodwill was impaired by $21,452 ($17,200 after tax) or a loss of $2.01 per basic share and $2.00 per diluted share, and such amount was reflected as a cumulative effect of change in accounting principle. The following is a summary of the pre-tax impairment charge by affected business segment:

The fair value of goodwill was estimated using a combination of a discounted cash flow valuation model and a market approach comparing the Company’s reporting units to similar peer group companies, as well as acquisitions having similar characteristics. The discounted cash flow valuation model was based on future estimated operating cash flows, incorporating a discount rate commensurate with the risks for each reporting unit and assumptions that were consistent with the Company’s operating plans and estimates used to manage each of the underlying reporting units. The impairment resulted from the carrying value exceeding the fair value of certain reporting units, and was primarily due to a shortfall in current and projected sales from levels anticipated at the time of the respective acquisitions and other costs associated with the Company’s global expansion initiatives, as well as market conditions as of January 1, 2002.

In accordance with SFAS No. 121 Accounting for the Impairment of Long-Lived Assets to be Disposed Of (SFAS 121), management concluded that no asset impairment charges were deemed necessary in 2001. The Company determined that the estimated future undiscounted cash flows associated with each unit tested exceeded the carrying values of their respective long-lived assets. Consequently, no impairment existed under SFAS 121.

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, 2003 and 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 self-insured liabilities at December 31, 2003 and 2002 of $1,127 and $581, respectively, 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 Statement 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. Shipping and handling are included in cost of products sold and are included in the sales price when billed to customers. The Company establishes bad debt reserves based on historical experience and believes that the collection of receivables, 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 $4,102 in 2003, $3,470 in 2002, and $3,893 in 2001.

All advertising costs are expensed as incurred. The Company’s expenditures for advertising were approximately $400 in 2003, $610 in 2002, and $670 in 2001.

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 No. 123, Accounting for Stock-Based Compensation, (SFAS 123) the Company has elected to continue applying the provisions of Accounting Principles Board Opinion No. 25 (APB 25) and related interpretations in accounting for its stock-based compensation plans. Under the provisions of APB 25, because the exercise price of the stock option equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. 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 for the years ended 2003, 2002, and 2001:

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

The Company’s financial instruments include cash and cash equivalents, short-term trade receivables, long-term notes receivable, notes payable and debt instruments. 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, 2003.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) No. 94-3, Liability Recognition for Certain Employee termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) (EITF 94-3). SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at the fair value only when the liability is incurred. Under EITF 94-3, a liability for an exit cost was recognized at the date of an entity’s commitment to an exit plan. SFAS 146 is effective for exit and disposal activities that are initiated after December 31, 2002, with no effect on charges recorded for exit activities begun prior to 2003. The adoption of this statement did not have a material effect on the Company’s financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51 (the Interpretation). The Interpretation requires the consolidation of variable interest entities in which an enterprise is the primary beneficiary. The primary beneficiary absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interest in the entity. Currently, entities are generally consolidated by an enterprise that has a controlling financial interest through ownership of a majority voting interest in the entity. In December 2003, the FASB issued a revised Interpretation that, among other things, deferred the implementation date of the Interpretation until periods ending after March 15, 2004 for variable interest entities, other than those entities commonly referred to as special purpose entities. The Company does not currently maintain any relationships with variable interest entities and, therefore, does not expect the adoption of FIN 46 to have a material effect on the Company’s financial position or results of operations.

During the fourth quarter of 2003, the Company committed to a plan to sell its motor segment, which has operations in Monterrey, Mexico and Alton, Illinois. This segment, which manufactures die-cast aluminum rotors for fractional and subfractional horsepower electric motors, failed to achieve a certain level of profitability and, after completing an extensive analysis, the Company determined that a divestiture of this segment would allow

the Company to concentrate on its major business segments. The Company has initiated an active marketing plan and anticipates selling the segment within the next twelve months.

Results of operations of the Company have been restated to reclassify the net earnings, assets, and liabilities of the motors segment as discontinued operations for all periods presented. Corporate expenses previously allocated to this segment have been reallocated to the remaining continuing operations, resulting in a restatement of operating profit by segment (see Note 14). The loss from discontinued operations in 2003 includes a pre-tax, non-cash charge of $4,530 to reduce the net assets of this business to its estimated fair value, less costs to sell.

The assets and liabilities of this segment, which have been classified as assets and liabilities of discontinued operations in the Consolidated Balance Sheets, consist of the following at December 31, 2003 and 2002:

In the fourth quarter of 2003, the Company committed to a restructuring program to achieve cost savings in its friction products segment by moving operations at its Brook Park, Ohio location to a new U.S. production facility. The Company has signed a formal, non-binding letter of intent agreeing to the terms on the construction of a new approximately 240,000 square foot leased facility. The letter of intent is subject to due diligence and other customary terms and conditions. In connection with the planned closure of the Brook Park, Ohio facility, the Company recorded a $1,920 charge in the fourth quarter of 2003 related to the curtailment and contractual termination benefit costs of a defined benefit pension plan covering certain union employees of the facility. In addition, the Company anticipates future pre-tax charges of approximately $2,000 in 2004 and $3,000 to $3,500 in 2005 related to the relocation of the Brook Park, Ohio facility and employee severance expense.

In June 2001, the Company announced a restructuring program to reduce its production capacity to meet expected near-term product demand levels in each of its segments. The involuntary severance plan that was part of the restructuring program resulted in employee reductions in almost all areas of the Company, including operations, marketing, sales and administrative areas. As a result of this plan, the Company reduced its work force in the friction products and precision components segments by approximately 160 positions. During 2001, the Company recorded a charge of $1,055 consisting of employee severance and related benefit costs as a result of this restructuring program. The majority of the costs associated with this program were paid in cash and charged against the liability. Employee reductions and related benefit payments under this plan were completed during 2002.

The following table sets forth the restructuring accrual activity from June 30, 2001 to December 31, 2002:

A summary of the Company’s goodwill at December 31, 2003 and 2002 by reportable operating segment is as follows:

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.

The Company estimates that amortization expense for finite-lived intangible assets for each of the next five years will be approximately $800.

The weighted average amortization period for product certifications and other intangible assets is 29 years and 14 years, respectively.

In October 2002, the Company entered into a new senior secured credit facility (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, is being 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. As of December 31, 2003 and 2002, $24,059 and $36,327 were outstanding under the Bank Facility, respectively, including $2,000 and $0 outstanding under the capital expenditure loan component, respectively.

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, 2003 and 2002, the average interest rate on the borrowings outstanding under the Bank Facility was 4.0% and 4.4%, respectively. 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, 2003 and 2002, the Company had approximately $15,900 and $5,500, respectively, available for future borrowings, as determined under the borrowing base formula. Additionally, as of December 31, 2003, 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 reduces 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. The amortized availability under the borrowing base was $11,607 and $13,000 at December 31, 2003 and 2002.

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 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 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 matured and were paid on December 1, 2003. The holders of the Old Senior Notes that participated in the exchange for Senior Notes received a consent payment of $25.63, in the form of Senior Notes, for each $1,000 of Old Senior Notes held as of October 23, 2002. The entire debt refinancing transaction was accounted for as a debt exchange in accordance with EITF 96-19, Debtor’s Accounting for a Modification or Exchange of Debt Instruments. Accordingly, the Company recorded the aggregate consent payments of $1,642 as additional Senior Notes, and is amortizing the consent payments to interest expense over the remaining life of the Senior Notes. In connection with the debt exchange, the Company also expensed $1,851 in third party transaction costs in 2002. 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 semi-annually. In addition, in the event that the Company’s leverage ratio (as defined) 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, 2003 and 2002, the leverage ratio test required the Company to issue $82 and $124 of PIK interest as debt in 2004 and 2003, respectively, calculated at a rate of ..25% and 1.00%, respectively, 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 meets a cash flow coverage ratio and adjusted consolidated leverage ratio. As of December 31, 2003 and 2002, the Company did not meet these prescribed ratios. The failure to meet these ratios 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.

At December 31, 2003 and 2002, the Company had issued stand-by Letters of Credit totaling $3,468 and $1,284, respectively.

Aggregate principal payments due on long-term debt exclusive of the Bank Facility, which matures in 2006, as of December 31, 2003 are as follows: 2004 — $1,148; 2005 — $1,374; 2006 — $66,434; 2007 — $168; 2008 — $50; 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 $1,000 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 key employees and non-employee directors under various plans, to purchase shares of Class A common stock. During 2003, there were no stock option grants issued under the Company’s plans. During 2002 and 2001, the Company granted stock options to purchase an aggregate of 53,418, and 701,594 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, 2003, 2002 and 2001:

On July 29, 2003, the Company offered its employees who are not members of the Board of Directors the opportunity to cancel all options outstanding with an exercise price greater than $6.00 per share, in exchange for new options to be granted at the closing price of the Company’s common stock as reported by the American Stock Exchange as of January 30, 2004. As of December 31, 2003, 268,850 options had been forfeited and as a result, are included in the caption forfeited or expired and in shares available for future grant in the above table. On January 30, 2004, 254,630 options were granted at an exercise price of $5.05 per share.

Exercise prices for options outstanding as of December 31, 2003 ranged from $3.40 to $17.94. 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 under-funded pension plans at December 31, 2003 and 2002 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, 2003, 60,000 shares of the Company’s Class A common stock were held by a defined benefit plan at a cost of $717. The market value of such investment as of December 31, 2003, was $219. The Company does not pay dividends on its Class A common stock.

The weighted-average plan asset allocation at December 31, 2003 and 2002, by asset category are as follows:

The objectives of the Company’s investment strategies are as follows: (a) to provide a total return that, over the long term, maximizes investment return on assets, at a level of risk deemed appropriate, (b) to maximize return on assets by investing primarily in equity securities, and (c) to diversify investments within asset classes to reduce the impact of losses in any single investment. The range of target asset allocations have been determined after giving consideration to the expected returns of each asset class, the expected variability or volatility of the asset class returns over time, and the complementary nature or correlation of the asset classes within the portfolio. The Company also employs an active management approach for the portfolio. Each asset class is managed by one

or more external money managers with the objective of generating returns, net of management fees that exceed market-based benchmarks.

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

The measurement date used to determine the pension benefit measurements for all plans in all periods presented is December 31. The Company has reviewed historical rates of return specific to its respective plans to determine the expected long-term rate of return on assets.

The Company expects to contribute a total of $1,927 to the defined benefit plans in 2004.

Estimated benefit payments for the next five years and in the aggregate for the five years thereafter are:

The Company also sponsors several defined contribution plans which provide voluntary employee contributions and, in certain plans, matching and discretionary employer contributions. Aggregate defined contribution plan expenses were approximately $1,272 in 2003, which included $992 in discretionary employer contributions, $241 in 2002 and $581 in 2001. In 2002 and 2001, the Company made no discretionary employer contributions.

The Company has capital lease commitments for buildings, machinery and equipment. Assets recorded under capital lease agreements included in property, plant and equipment consist of the following:

Amortization of assets recorded under capital leases is included with depreciation expense. Future minimum annual rentals are: 2004 — $391; 2005 — $320; 2006 — $168; 2007 — $116; 2008 — $50 and thereafter — $0. Amount representing interest is $67. Total capital lease obligations are included in other long-term debt.

The Company leases certain office and warehouse facilities and equipment under operating leases. Certain of these operating leases provide the Company with a renewal option after the initial lease term. Rental expense was approximately $2,212 in 2003, $2,117 in 2002, and $2,045 in 2001. Future non-cancelable minimum lease commitments under these agreements that have an original or existing term in excess of one year as of December 31, 2003 are as follows: 2004 — $2,577; 2005 — $2,064; 2006 — $1,484; 2007 — $1,048; 2008 — $986; and thereafter — $1,952.

The provision (benefit) for income taxes from continuing operations consists of the following:

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:

As of December 31, 2003 and 2002 the Company had net federal operating loss (NOL) carryforwards of $7,883 and $0, respectively. The NOL expires in 2023. At December 31, 2003 and 2002, the Company had alternative minimum tax carryforwards (AMT) of $1,075 and $988, respectively. The AMT has no date of expiration.

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

The following table illustrates the domestic and foreign components of the Company’s continuing income (loss) before income taxes:

In accordance with accounting principles generally accepted in the United States, the Company established an accrual prior to 2001, in the amount of $1,041 for tax exposures related to certain deductions taken on its income tax returns. The Company believed that the deductions were valid under applicable tax laws and regulations. During 2002, the applicable statute of limitations expired and the Company reversed the tax accrual, which resulted in substantially all of the $979 adjustment in the Company’s reconciliation of its effective 2002 tax rate.

Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $8,885 and $7,053 at December 31, 2003 and 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.

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 July 1, 2005, with the exception of $10, which is due and payable on July 1, 2004. The notes bear interest at the prime rate. The balance of current and long-term shareholder notes outstanding at December 31, 2003 and 2002 was $1,010.

The Company operates in three primary business segments: friction products, precision components and performance racing. 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 racing 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.


(1)	An operating unit formerly associated with the Company’s performance racing 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 2), the Company discontinued the amortization of goodwill in 2002.

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


(3)	Depreciation and amortization outlined in this table does not include deferred financing amortization of $801 in 2003, $643 in 2002, and $618 in 2001, which is included in Interest expense on the Statement of Operations.

(4)	A line of business formerly associated with the Company’s motors segment, which was discontinued as of December 31, 2003, will be retained by the Company and has been reclassified to the Company’s precision components segment. Net sales from this line of business were $1,235, $1,341, and $1,522 for the years ended December 31, 2003, 2002, and 2001, respectively. All prior periods have been reclassified to reflect this change.

Geographic information for the years ended December 31, 2003, 2002 and 2001 is as follows:

The Company has continuing foreign operations in Canada, Italy, and China. Included in discontinued operations is the Company’s operation in Mexico.

As discussed in Note 6, 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, 2003 and December 31, 2002, consolidating condensed statements of operations for the years ended December 31, 2003, 2002 and 2001 and consolidating condensed statements of cash flows for the years ended December 31, 2003, 2002 and 2001.

	Hawk Corporation (Parent), combined Guarantor Subsidiaries and combined Non-Guarantor Subsidiaries consisting of the Company’s subsidiaries in Canada, Italy, 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)	Results of operations of the Company have been restated to reclassify the net earnings of the motors segment as discontinued operations for all periods presented. See Note 3.

As of December 31, 2003, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)). The evaluation was carried out under the supervision of and with the participation of our management, including our Chief Executive Officer, Chief Financial Officer and Vice President — Finance. Based on this evaluation, the Chief Executive Officer, Chief Financial Officer and Vice President — Finance 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 Exchange Act of 1934.

We continue to evaluate the need for improvements in our disclosure controls and procedures, including further formalizing our processes, procedures and policies.

There were no significant changes in our internal controls over financial reporting (as defined in the Securities and Exchange Act of 1934 Rules 13a-15(f) and 15-d-15(f)) during the most recent fiscal quarter that we judged to have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The information required by Item 10, including the adoption of a Code of Business Conduct and Ethics, is incorporated herein by reference to the Registrant’s definitive Proxy Statement relating to its 2004 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, 2004.

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 8 — Employee Stock Option Plan” in the accompanying consolidated financial statements beginning on page 32 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.

The information required by Item 14 is contained under the caption “Audit Committee Report—Principal Accountant Fees and Services” in the Proxy Statement and is incorporated herein by reference.


	(i)	Consolidated Balance Sheets at December 31, 2003 and 2002

	(ii)	Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001

	(iii)	Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2003, 2002 and 2001

	(iv)	Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001

	(v)	Notes to Consolidated Financial Statements for the years ended December 31, 2003, 2002 and 2001

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 29, 2003 reporting a temporary limitation in distribution and diversification in employees’ individual accounts of various 401(k) plans during the period beginning December 5, 2003, through December 22, 2003, as a result of the consolidation of the plans into a new Hawk Corporation 401(k) Savings and Retirement Plan on January 1, 2004.

A report dated November 3, 2003 reporting our financial results for the 3rd quarter of 2003 and for the nine months ended September 30, 2003.

A report dated January 5, 2004, reporting that we had been informed by the American Stock Exchange (AMEX) that our application to list our shares of Class A common stock on the AMEX was approved and that it was expected that shares of our Common Stock would commence trading on Wednesday January 7, 2004.

A report dated January 7, 2004, announcing a strategic repositioning plan to focus on our two primary business segments, Friction Products and Precision Components.

A report dated February 17, 2004, reporting our financial results for the 4th quarter of 2003 and for the full year of 2003.

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.

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.

78 EX-10.36 3 l05225aexv10w36.txt AMENDMENT NO.1 TO CREDIT AGREEMENT Exhibit 10.36 AMENDMENT NO. 1 TO CREDIT AGREEMENT THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT, is dated as of February 27, 2004 (this "AMENDMENT"), among the following: (i) Hawk Corporation, a Delaware corporation ("HAWK"); (ii) each of the other Borrowers and Guarantors party to the Credit Agreement referred to below; (iii) the Lenders party to the Credit Agreement referred to below; and (iv) JPMorgan Chase Bank, as arranger, Agent and collateral agent for the Lenders (in such capacities, together with its successors in such capacities, the "AGENT") and as Issuing Bank (defined herein). PRELIMINARY STATEMENTS: WHEREAS, Hawk, the other Borrowers, the Guarantors, the Lenders and the Agent are parties to the Credit Agreement, dated as of October 18, 2002 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"; capitalized terms used herein and not otherwise defined herein having the meanings provided in the Credit Agreement); and WHEREAS, the parties hereto desire to modify certain terms and provisions of the Credit Agreement, all as more fully set forth below. NOW, THEREFORE, the parties hereby agree as follows: Section 1. Amendments. 1.1. Amendment to Section 1.01 - Definitions. Section 1.1 of the Credit Agreement is hereby amended by adding the following definition in appropriate alphabetical order: "AMENDMENT NO. 1" means Amendment No. 1 dated as of February 27, 2004 to this Agreement by and among Hawk, the Borrowers, the Guarantors, the Lenders and the Agent. 1.2. Amendment to Section 1.01 - Definitions - EBITDA. The definition of "EBITDA" contained in Section 1.1 of the Credit Agreement is hereby amended by inserting the following at the end thereof: plus (viii) discontinued operations charges properly accounted for under GAAP related to Hawk's Motor division not to exceed the amounts reported on Hawk's 2004 Quarterly Model previously provided by Hawk to the Agent. 1.3. Amendment to Section 1.01 - Definitions - Indebtedness. The definition of "Indebtedness" contained in Section 1.1 of the Credit Agreement is hereby amended by inserting the following proviso at the end thereof: PROVIDED that the Indebtedness of S.K. Wellman Holdings, Inc. and its Subsidiaries shall not include Chinese acceptances of such Subsidiaries to the extent such acceptances are cash collateralized. 1.4. Amendment to Financial Covenants. Sections 8.01, 8.02 and 8.03 of the Credit Agreement are hereby amended and restated in their entirety to read as follows: SECTION 8.01 MINIMUM FIXED CHARGE COVERAGE RATIO. Hawk shall not permit the Fixed Charge Coverage Ratio to be less than (a) 1.05 to 1.00 as of the end of any Fiscal Quarter for the Fiscal Quarters ending March 31, 2003 through and including December 31, 2003; (b) 1.00 to 1.00 as of the end of any Fiscal Quarter for the Fiscal Quarters ending March 31, 2004 through and including December 31, 2004; and (c) 1.10 to 1.00 as of the end of the Fiscal Quarter ending March 31, 2005 and each Fiscal Quarter thereafter. SECTION 8.02 MINIMUM EBITDA. (a) Hawk shall not permit EBITDA for Fiscal Year ended December 31, 2002 to be less than 95% of the projected EBITDA as set forth in Hawk's August 31, 2002 projections; and (b) Hawk shall not permit EBITDA for Fiscal Year ended December 31, 2004 to be less than 90% of projected EBITDA as set forth in Hawk's February 2004 projections previously provided by Hawk to the Agent. SECTION 8.03 MAXIMUM LEVERAGE RATIO. Hawk shall not permit the Leverage Ratio at any time to exceed the ratio set forth below for the periods set forth below:

Section 2. Consents. Notwithstanding Sections 6.01, 6.02, 7.01, 7.02 and 7.03 of the Credit Agreement to the contrary, the Required Lenders hereby consent to the dispositions of the stock or all or substantially all of the assets of Hawk Motors, Inc. and its Subsidiaries and of the real estate located at the Brookpark, Ohio facility of S.K. Wellman Corp., provided that (i) such dispositions are made pursuant to agreements, terms and conditions acceptable to the Agent and the Required Lenders in their sole discretion, and (ii) the proceeds of such dispositions are 2 applied to the outstanding Loans in the manner provided in the Credit Agreement or such other manner as may be agreed by the parties hereto. The consents set forth in this paragraph are limited consents and shall not be construed to effect a consent with respect to or waiver of any other provision of the Credit Agreement, whether similar or dissimilar to the foregoing, or under any other circumstances. Section 3. Representations and Warranties. Hawk, each other Borrower and each Guarantor hereby represents and warrants as follows: 3.1. Authorization and Validity of Amendment. This Amendment has been duly authorized by all necessary corporate action on the part of Hawk, each other Borrower and each Guarantor, has been duly executed and delivered by a duly authorized officer of Hawk, each other Borrower and each Guarantor, and constitutes the valid and binding agreement of Hawk, each other Borrower and each Guarantor, and is enforceable against Hawk, each other Borrower and each Guarantor in accordance with its terms. 3.2. Representations and Warranties. The representations and warranties of Hawk, each other Borrower and each Guarantor contained in the Credit Agreement and in the other Facility Documents are true and correct in all material respects on and as of the Amendment Effective Date, as though made on and as of the Amendment Effective Date, except to the extent that such representations and warranties expressly relate to an earlier specified date, in which case such representations and warranties are hereby reaffirmed as true and correct in all material respects as of the date when made. 3.3. No Event of Default. Both before and after giving effect to this Amendment, no Default or Event of Default exists or hereafter will begin to exist. 3.4. Compliance. Hawk, each other Borrower and each Guarantor is in full compliance with all covenants and agreements contained in the Credit Agreement, as amended hereby, and the other Facility Documents to which it is a party. 3.5. No Claims. Hawk, the other Borrowers and the Guarantors are not aware of any claim or offset against, or defense or counterclaim to, any of their respective obligations or liabilities under the Credit Agreement or any other Facility Document. Section 4. Ratifications. Except as expressly modified and superseded by this Amendment, the terms and provisions of the Credit Agreement are ratified and confirmed and shall continue in full force and effect. Section 5. Binding Effect. This Amendment (including without limitation the consents set forth in section 2 above) shall become effective on the date first set forth above (the "AMENDMENT EFFECTIVE DATE") subject to the satisfaction of each of the following conditions: 3 (a) Hawk, each other Borrower, each Guarantor, the Agent and the Required Lenders shall have delivered an executed counterpart of this Amendment to the Agent; (b) the representations and warranties contained herein shall be true and correct as of such date; (c) Hawk shall have paid all reasonable legal fees and expenses of the Agent in connection with this Amendment and the documents executed in connection therewith; (d) All corporate and other proceedings and all documents incidental to the transactions contemplated hereby shall be satisfactory in substance and form to the Agent and the Lenders and the Agent and its special counsel and the Lenders shall have received all such counterpart originals or certified or other copies of such documents as the Agent or its special counsel or any Lender may reasonably request; and (e) Hawk shall have provided such other items and shall have satisfied such other conditions as may be reasonably required by the Agent and the Lenders. Section 6. Miscellaneous. 6.1. Survival of Representations and Warranties. All representations and warranties made in this Amendment shall survive the execution and delivery of this Amendment, and no investigation by the Agent or any Lender or any subsequent Loan or other financial accommodation shall affect the representations and warranties or the right of the Agent or any Lender to rely upon them. 6.2. Reference to Credit Agreement. The Credit Agreement and any and all other agreements, instruments or documentation now or hereafter executed and delivered pursuant to the terms of the Credit Agreement as amended hereby, are hereby amended so that any reference therein to the Credit Agreement shall mean a reference to the Credit Agreement as amended hereby. 6.3. Severability. Any term or provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the term or provision so held to be invalid or unenforceable. 6.4. Applicable Law. This Amendment shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws provisions. 6.5. Headings. The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. 4 6.6. Entire Agreement. This Amendment is specifically limited to the matters expressly set forth herein. This Amendment and all other instruments, agreements and documentation executed and delivered in connection with this Amendment embody the final, entire agreement among the parties hereto with respect to the subject matter hereof and supersede any and all prior commitments, agreements, representations and understandings, whether written or oral, relating to the matters covered by this Amendment, and may not be contradicted or varied by evidence of prior, contemporaneous or subsequent oral agreements or discussions of the parties hereto. There are no oral agreements among the parties hereto relating to the subject matter hereof or any other subject matter relating to the Credit Agreement. Except as set forth herein, the Credit Agreement shall remain in full force and effect and be unaffected hereby. 6.7. Waiver of Claims. Hawk, each other Borrower and each Guarantor, by signing below, hereby waives and releases Agent and each of the Lenders and their respective directors, officers, employees, attorneys, affiliates and subsidiaries from any and all claims, offsets, defenses and counterclaims of which Hawk, each other Borrower and each Guarantor is aware, such waiver and release being with full knowledge and understanding of the circumstances and effect thereof and after having consulted legal counsel with respect thereto. 6.8. Counterparts. This Amendment may be executed by the parties hereto separately in one or more counterparts and by facsimile signature, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same agreement. [Remainder of page intentionally left blank.] 5 6.9. JURY TRIAL WAIVER. EACH OF THE PARTIES TO THIS AMENDMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AMENDMENT, THE OTHER FACILITY DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY HERETO HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AMENDMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date first above written. BORROWERS: HAWK CORPORATION ALLEGHENY CLEARFIELD, INC. FRICTION PRODUCTS CO. HAWK MOTORS, INC. HELSEL, INC. LOGAN METAL STAMPINGS, INC. NET SHAPE TECHNOLOGIES LLC QUARTER MASTER INDUSTRIES, INC. S.K. WELLMAN CORP. SINTERLOY CORPORATION TEX RACING ENTERPRISES, INC. By: /s/ Joseph J. Levanduski ------------------------------------------- Joseph J. Levanduski Vice President - Chief Financial Officer GUARANTORS: S.K. WELLMAN HOLDINGS, INC. HAWK PRECISION COMPONENTS GROUP, INC. HAWK MIM, INC. WELLMAN PRODUCTS GROUP, INC. By: /s/ Joseph J. Levanduski ------------------------------------------- Joseph J. Levanduski Vice President - Chief Financial Officer AGENT: JPMORGAN CHASE BANK, as Administrative and Collateral Agent, Issuing Bank and Arranger By: /s/ Dale A. Pensgen ------------------------------------------- Dale A. Pensgen Vice President LENDERS: JPMORGAN CHASE BANK By: /s/ Dale A. Pensgen ------------------------------------------- Dale A. Pensgen Vice President PNC BANK, NATIONAL ASSOCIATION By: /s/ Stephen W. Boyd ------------------------------------------- Name: Stephen W. Boyd Title: Vice President FLEET CAPITAL CORP. By: /s/ Sandra J. Evans ------------------------------------------- Name: Sandra J. Evans Title: Sr. Vice President EX-10.37 4 l05225aexv10w37.txt SETTLEMENT AGREEMENT Exhibit 10.37 SETTLEMENT AGREEMENT, RELEASE AND WAIVER THIS SETTLEMENT AGREEMENT, RELEASE AND WAIVER ("Agreement") is executed this 27th day of October, 2003. It is intended to resolve any and all differences and disputes between JEFFREY H. BERLIN, an individual residing at 20 Timber Ridge Drive, Chagrin Falls, Ohio 44022, referred to in this Agreement as "Berlin", and HAWK CORPORATION, a Delaware corporation whose principal address is 200 Public Square, Suite 30-5000, Cleveland, Ohio 44114, referred to in this Agreement as "Hawk", arising out of the employment relationship between Berlin and Hawk and out of events which have occurred on or before the date of this Agreement. R E C I T A L S : Berlin was employed by Hawk since 1991. He served as the President and Chief Operating Officer of Hawk until May 20, 2003, and has been an employee of Hawk, with no title, since that date. Berlin and Hawk now desire to resolve all matters arising out of his employment at Hawk, and the amount of compensation, if any, due to Berlin from Hawk. In order to do so, Berlin and Hawk agree as follows: 1. CONTINUING EMPLOYMENT, TERMINATION OF EMPLOYMENT RELATIONSHIP; CONSULTING. (a) Effective as of the date of this Agreement (the "Effective Date") and through the later of January 30, 2004 or the date immediately following the date of grant of new options issued in respect of the Offer to Exchange as defined in Section 3(a) (as may be adjusted pursuant to Section 1(d), the "Employment Period"), Berlin shall continue as an employee of Hawk. He will no longer serve as an officer of the company, nor shall Berlin have the authority to bind Hawk, its subsidiaries or affiliates in any manner. During the Employment Period, he will directly report to Ronald E. Weinberg, Hawk's Chairman of the Board, Chief Executive Officer and President ("Weinberg"). (b) During the Employment Period, Berlin shall be available on a reasonable basis during normal business hours to perform work on such special projects as may be agreed upon by Berlin and Weinberg or his designee. During the Employment Period, Berlin shall work on all ongoing projects set forth on Exhibit A and such other special projects, shall provide reasonable work summaries upon request to Hawk and shall provide continuing services on related matters. (c) Subject to Section 1(d), the employment relationship between Berlin and Hawk shall be automatically terminated on the later of January 30, 2004 or the date immediately following the date of grant of new options issued in respect of the Offer to Exchange as defined in Section 3(a) at which time Berlin shall be deemed to have resigned voluntarily. No additional action on the part of Berlin is necessary to effect this resignation. As of January 31, 2004 and through July 1, 2004 (as may be adjusted pursuant to Section 1(d), the "Consulting Period"), Berlin shall continue to serve Hawk as a consultant, upon the terms and conditions hereinafter set forth. (d) If Berlin accepts other employment during the Employment Period, (i) he shall promptly notify Hawk, (ii) the Employment Period shall immediately terminate effective the date Berlin's other employment commences and (iii) the Consulting Period shall automatically commence as of such date with the termination date remaining at July 1, 2004. Failure of Berlin to notify Hawk of such new employment shall not change the termination date of the Employment Period pursuant to the immediately preceding sentence and shall be a breach of this Agreement by Berlin. (e) During the Consulting Period, Berlin shall not be required to work any minimum hours of service. During the Consulting Period, Berlin shall work on all special projects agreed upon by Berlin and Weinberg, and shall provide reasonable work summaries upon request to Hawk. 2. COMPENSATION AND BENEFITS. (a) During the Employment Period, Berlin shall be paid at the annual rate of $275,000, inclusive of all previously-accrued vacation time, in accordance with Hawk's standard payroll practices for salaried employees. Berlin shall not accrue additional vacation time during the Employment Period. During the Consulting Period and regardless of the amount of hours of service performed by Berlin during the Consulting Period, if any, Berlin shall be paid at the annual rate of $275,000, in accordance with Hawk's standard payroll practices for salaried employees. (b) During the Employment Period, Berlin shall be entitled to participate in the Friction Products Co. Profit Sharing Plan (the "401(k) plan") in the same manner as other Hawk corporate-level employees. Hawk's 401(k) plan company contributions continue to be discretionary and based on company performance. In the event that Hawk makes a discretionary 401(k) plan contribution for the year 2003, Berlin shall be entitled to receive a contribution on the same basis as other corporate-level employees, subject to Internal Revenue Service and the 401(k) plan limitations, including but not limited to limitations requiring that the recipient be an employee as of December 31, 2003. Berlin shall be deemed to be an employee during the Employment Period, but he shall not be an employee during the Consulting Period. (c) Berlin has continued through the Effective Date, and thereafter will continue to accrue time of service for purposes of the Friction Products Co. Employee Pension Plan during the Employment Period, but not during the Consulting Period. (d) Hawk shall pay for Berlin's medical, dental, vision, standard and executive disability insurance premiums through July 1, 2004 (the "Coverage Period"), on the same basis as such coverage is provided to Hawk employees in general, but in no event shall Hawk be required to provide greater coverage than that which was in effect immediately prior to May 20, 2003. At the end of the Coverage Period, Berlin shall have such rights of conversion or 2 continuation as may be provided by the terms of the applicable health insurance contract and as may be required by applicable law. Should Berlin become eligible for any medical, vision or disability insurance benefits pursuant to other employment of Berlin, then Berlin must notify Hawk immediately of his eligibility for any such benefits and Hawk shall be entitled to discontinue providing such benefits to Berlin, except to the extent that he elects to receive company coverage under COBRA. Failure by Berlin to so notify Hawk shall be a breach of this Agreement by Berlin. (e) Berlin may acquire his existing executive life insurance policies, issued in his name, upon payment to Hawk of the current cash value of those policies. If Berlin does not exercise this option by September 30, 2003, Hawk shall be entitled to cancel the policies. (f) Based on Berlin's service to Hawk in 2003 and its potential effect on the second half of the year, Berlin shall receive incentive compensation based on earnings before interest taxes, depreciation and amortization ("EBITDA") results for 2003. EBITDA shall be derived from Hawk's audited financial statements for 2003 and shall be determined by Hawk in the same manner it determines EBITDA for the incentive compensation program for Hawk's executive officers. The determination of EBITDA by Hawk shall be final and binding on Berlin. If EBITDA is greater than $26.0 million but less than $28.0 million for 2003, Berlin shall receive $25,000 in incentive compensation. If EBITDA exceeds $28.0 million for 2003, Berlin shall receive $50,000 in incentive compensation. Payment to Berlin of the incentive compensation shall be made at such time as Hawk determines to pay incentive compensation for 2003 to other Hawk employees, but shall in no event be paid later than April 15, 2004. (g) Berlin agrees that for the period prior to the Effective Date Hawk has reimbursed Berlin in full for all business expenses incurred by Berlin. Hawk shall make an advance payment to Berlin for all business expenses that previously would have been reimbursed by Hawk to Berlin and which Hawk anticipates Berlin will incur during the Employment and Consulting Periods, including country club dues and automobile gas reimbursement. A lump sum payment of $14,100, which Berlin agrees is payment in full for these expenses, shall be payable by Hawk to Berlin upon execution of this Agreement. During the Employment and Consulting Periods, all other business expenses incurred by Berlin on behalf of Hawk, such as travel, shall be reimbursed by Hawk to Berlin only if Berlin has obtained prior approval from Weinberg or his designee, which approval shall not be unreasonably withheld. (h) Upon the termination of the Consulting Period on July 1, 2004, Hawk shall pay Berlin in addition to any other obligations owed hereunder a bonus equal to $10,000.00. 3. STOCK OPTIONS. (a) As an employee before and during the Employment Period, Berlin is entitled to participate in Hawk's Offer to Exchange Outstanding Options Having an Exercise Price of $6.00 or more under Hawk's 1997 Stock Option Plan and 2000 Long Term Incentive Plan for New Options under Hawk's 1997 Stock Option Plan and 2000 Long Term Incentive Plan (the "Offer to Exchange") on the same terms and conditions as all other eligible employees as described in the Offer to Exchange. 3 (b) Pursuant to the terms of the Offer to Exchange, Berlin understands that he must be a Hawk employee on the date new options are granted under the Offer to Exchange to receive new options for all the options that Berlin has determined, in his sole discretion, to tender. Berlin shall be deemed to be a Hawk employee during the Employment Period. (c) Attached as Exhibit B hereto is an amendment to Berlin's option agreements for all Hawk stock options held by Berlin and not tendered by Berlin in the Offer to Exchange. The amendment shall be executed by Berlin and Hawk concurrently with the commencement of the Consulting Period, if and when the Consulting Period actually commences. (d) Attached as Exhibit C hereto is an amendment to Berlin's option agreements for all Hawk stock options to be issued, if any, by Hawk to Berlin under the terms of the Offer to Exchange. If such options are issued, Berlin and Hawk agree that (i) such options, if any, shall be issued as non-qualified stock options under the terms of Hawk's option plan as set forth in the amendment, and (ii) the amendment shall be executed by Berlin and Hawk concurrently with the commencement of the Consulting Period, if and when the Consulting Period actually commences. 4. MISCELLANEOUS ITEMS. (a) Berlin shall transfer existing cellular phone, pager and any other communication devices to his own personal account, so that Berlin may maintain existing telephone and pager numbers without further cost to Hawk. These arrangements must be completed by September 30, 2003. (b) Hawk hereby transfers ownership of Berlin's laptop computer to Berlin upon execution of this Agreement at no cost to Berlin. Berlin's e-mail access to the company's system will be discontinued upon the termination of the Employment Period. (c) Berlin shall have the benefit of the indemnification provisions set forth in Hawk's Second Amended and Restated Certification of Incorporation and Hawk shall not amend such provisions to Berlin's detriment, except to the extent such amendment is applicable generally to Hawk's directors or executive officers. During the Employment Period, Hawk will add Berlin's name as an insured in its directors and officers' liability insurance policy and Berlin will have the coverage provided under such policy to any former director or executive officer for as long as such policy continues to provide coverage to former Hawk directors or executive officers. (d) Upon the termination of the Consulting Period, Berlin shall pay in full all amounts due and owing on the note from Berlin to Hawk dated December 31, 2001. For all purposes, the termination date of the Consulting Period shall be deemed to be the maturity date of the note. No further action other than the delivery of the original note by Hawk to Berlin marked "paid in full" shall be necessary to evidence the maturity of the note or the payment by Berlin. Hawk may at its option deduct such amounts owed under the note from any payment owed by Hawk to Berlin. 4 5. RELEASE AND WAIVER. (i) By Berlin: Solely with respect to any and all events arising out of or related to the employment relationship between Berlin and Hawk occurring on or before the date of this Agreement: (a) Berlin hereby releases and forever discharges Hawk and all of its subsidiaries and affiliated companies, and all of the shareholders directors, officers and employees of Hawk and such subsidiaries and affiliates (collectively, the "Released Parties") from any and all claims, demands and causes of action; this includes, among other things, claims based on the legal theories of wrongful or unjust termination, breach of contract (express or implied), promissory estoppel, negligent or intentional (tortious) conduct, negligent or intentional infliction of emotional distress, defamation, breach of any implied covenant of good faith and fair dealing, public policy torts, and any and all forms of employment discrimination, and including claims for attorneys' fees, expenses and costs related to any of the foregoing; (b) Berlin hereby releases and forever discharges the Released Parties from any and all claims, demands and causes of action, and waives any rights he may have, under Title VII of the Civil Rights Act of 1964, under the Age Discrimination in Employment Act ("ADEA"), under the Older Workers Benefit Protection Act, under the Americans With Disabilities Act, under the Family and Medical Leave Act of 1993, under the Civil Rights Attorney's Fees Awards Act of 1976, under Chapter 4112 of the Ohio Revised Code, or under any other federal, state or local statute prohibiting discrimination in employment, or to request that a lawsuit be instituted pursuant to 29 U.S.C. Section 206(d); and (c) Berlin agrees not to institute a lawsuit with respect to any matters released or any rights waived in this Agreement. (ii) By Hawk: Solely with respect to any and all events arising out of or related to the employment relationship between Berlin and Hawk occurring on or before the date of this Agreement about which Weinberg has actual knowledge on or prior to the date of this Agreement: (a) Hawk, on behalf of itself and all of its affiliates, hereby releases and forever discharges Berlin and all of its affiliates and family dependents (collectively, the "Released Parties") from any and all claims, demands and causes of action and waives any right; this includes, among other things, claims based on any legal theories including breach of contract (express or implied), promissory estoppel, negligent or intentional (tortious) conduct, negligent or intentional infliction of emotional distress, defamation, breach of any implied covenant of good faith and fair dealing, public policy torts, and any and all forms of employment 5 discrimination, and including claims for attorneys' fees, expenses and costs related to any of the foregoing; (b) Hawk agrees not to institute a lawsuit with respect to any matters released or any rights waived in this Agreement. 6. NO FUTURE EMPLOYMENT. Berlin covenants and agrees that (i) he will not, at any time subsequent to the termination of the Employment Period, apply for employment with Hawk or any subsidiary or affiliate of Hawk, and (ii) in the event that he does in fact apply for any such employment, in violation of the terms of (i) above, Hawk (or its subsidiary or affiliate, if applicable) shall have no obligation to consider him for such employment. 7. CONFIDENTIALITY OF AGREEMENT. Each party agrees that the existence of this Agreement and its terms and conditions are confidential and are to be held in strict confidence by the parties and their counsel; provided, however, that (i) the parties shall be entitled to disclose such terms to their respective attorneys and accountants, (ii) Berlin may disclose such terms to his spouse, so long as she also agrees to hold such information confidential, and (iii) disclosure shall be permitted if required by legal process, but not before the third business day after such party has both received notice of such process and has delivered a copy thereof to the other party hereto. No party will voluntarily reveal or engage in any action which it knows or should know will result in the revelation of any information to any third party concerning the existence of this Agreement, the contents of this Agreement, or the basis upon which the claims of the parties have been settled and compromised; the party may indicate only that the matter has been settled and that any and all proceedings have been dismissed. Notwithstanding the foregoing, Hawk shall be entitled to make any disclosure concerning this Agreement and its terms and conditions that it believes to be required under laws or regulations applicable to reporting by publicly-held companies. Hawk agrees to use reasonable efforts to provide Berlin with an opportunity to review and comment upon the disclosures described in the preceding sentence, but Hawk shall not be required to delay or modify such disclosure on the basis of any comment by Berlin, and any failure by Hawk to provide such opportunity to Berlin shall not be deemed to be a breach of this Agreement. 8. CONFIDENTIAL INFORMATION. Berlin agrees to keep in confidence at all times that information regarding Hawk that is proprietary and that is identified as secret or confidential, or which from the circumstances ought in good faith and in good conscience to be treated as confidential, related to the products, methods, trade secrets, secret processes, price lists, franchise and other contracts, customer lists, financial information or other material information of or about the business or affairs of Hawk and its subsidiaries and affiliates, which Berlin has acquired in connection with or as a result of his association with Hawk or its subsidiaries and affiliates; provided, that this provision shall not apply to information that is otherwise publicly available or which has been disclosed by a source other than Berlin. Berlin further agrees to return all such information that is in his possession or 6 under his control to Hawk within five (5) business days after the termination of the Employment Period. 9. RESTRICTED COVENANTS OF NON-COMPETITION AND NON-SOLICITATION. (a) Berlin agrees that, from July 1, 2003 and for two full years thereafter (the "Restricted Period"), Berlin shall not, directly or indirectly, either within any state of the United States of America in which Hawk has done business or with respect to any customer serviced or solicited by Hawk during Berlin's employment, compete with Hawk in any aspect of "the Company's Business" as hereinafter defined, on behalf of himself or any other person, firm, business, corporation or other entity (each such person, firm, business or other entity being referred to hereinafter as a "Person"), including, without limitation, that Berlin shall not (i) engage in the Company's Business for his own account; (ii) enter the employ of, or render any services to, any Person engaged in the Company's Business; (iii) become interested in any Person engaged in the Company's Business as an owner, partner, shareholder, officer, director, licensor, licensee, employee, agent, employee, trustee, or in any other relationship or capacity; provided, however, that Berlin may own, directly or indirectly, solely as an investment, securities of any corporation which are traded on any national securities exchange if he (A) is not a controlling person of, or a member of a group which controls, such corporation, or (B) does not, directly or indirectly, own 1% more of any class of securities of such corporation; or (iv) request or instigate any account or customer of the Company to withdraw, diminish, curtail or cancel any of its business with the Company. In the event of Berlin's breach of any provision of this paragraph, the running of the Restricted Period shall be automatically tolled (i.e., no part of the Restricted Period shall expire) from and after the date of the first such breach. The Company Business shall mean the business of manufacturing, distributing or selling any of the product lines of the Company or any of its direct or indirect subsidiaries as of the date hereof, or the conducting of research and development directed toward any of such product lines. (b) Berlin agrees that, from July 1, 2003 and for three full years thereafter (the "Employment Restricted Period"), Berlin shall not, directly or indirectly, hire, solicit for employment or encourage to leave the employment of Hawk or its direct or indirect subsidiaries any person who (i) is then an employee of Hawk or its direct or indirect subsidiaries, (ii) had been an employee of Hawk or its direct or indirect subsidiaries at any time during the preceding six (6) months, and in either case (iii) was an employee of Hawk or its direct or indirect subsidiaries on the date of this Agreement; provided, however, that it shall not be a breach of this provision for Berlin to receive a response from such a person to a general solicitation for employment contained in an advertisement in a newspaper, on the radio or carried in another media. Notwithstanding subsection (ii) hereof, it shall not be a violation of this Agreement for Berlin to hire or solicit for employment a person who was formerly employed by Hawk or its direct or indirect subsidiaries, and is no longer so employed, prior to the time such person became a former employee of Hawk or its direct or indirect subsidiaries for six (6) full months, so long as there had been no direct or indirect communication whatsoever, oral or written, between such person and Berlin or any agent of Berlin for a period of one hundred eighty (180) days prior to the first communication between Berlin or his agent and such person concerning possible employment with Berlin or any affiliated entity, and Berlin so certifies to Hawk in a written statement satisfactory in form and substance to Hawk. In the event of Berlin's breach of 7 any provision of this paragraph, the running of the Employment Restricted Period shall be automatically tolled (i.e., no part of the Employment Restricted Period shall expire) from and after the date of the first such breach. (c) Both parties recognize that, if Berlin breaches, or threatens to commit a breach of, any of the provisions of paragraphs 7, 8 and 9 (the "Restrictive Covenants"), then Hawk shall have, in addition to, and not in lieu of, any other rights and remedies available to Hawk under law or in equity, the right to specific performance and/or injunctive relief, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to Hawk and that money damages will not provide an adequate remedy to Hawk. 10. BERLIN COOPERATION. At no cost to Hawk or Berlin, Berlin agrees to provide reasonable cooperation to Hawk regarding any pending or subsequently filed litigation, claims or other disputed items involving Hawk that relate to matters within the knowledge or responsibility of Berlin during his employment, other than claims brought by or on behalf of Berlin that have not been released hereunder. Without limiting the foregoing, Berlin agrees (i) to meet with Hawk's representatives, its counsel or other designees at mutually convenient times and places in the Greater Cleveland area with respect to any items within the scope of this provision, (ii) to provide truthful testimony regarding same to any court, agency or other adjudicatory body, and (iii) to provide Hawk with notice of contact by any adverse party. Berlin further agrees that he will not assist any such adverse party or such adverse party's representatives except as may be required by law. 11. DISPARAGING COMMUNICATIONS. Berlin and Hawk each agree not to make false representations of fact, or defame, disparage, discredit or deprecate the other, and as to Hawk, any of its current shareholders, directors, officers or employees, and, as to Berlin, any of Berlin's immediate family, or otherwise communicate with any person in a manner tending to damage such other party, shareholders, directors, officers or employees, in its/their reputation, office, trade, business or means of earning a livelihood. 12. TERMS OF OFFER; REVOCATION. (a) This Agreement has been hand-delivered to Berlin on the 1st day of August, 2003. The offer contained herein shall remain open until the end of the twenty-first full day after delivery. In the event that Berlin executes this Agreement before the end of the 21-day period, such execution was completely voluntary. (b) After execution of this Agreement, Berlin may revoke his agreement hereto by delivering written notice of revocation to Hawk at any time during the period from the date of Berlin's execution through the end of the seventh full day after such execution (the "Revocation Period"). 8 13. DELAY OF PAYMENTS. All or any part of the payments described in this Agreement may be delayed, at Hawk's discretion, until the first regular pay date of Hawk which occurs after the end of the Revocation Period, on which date Hawk will pay the entire amount of the delayed payment, if any, as well as any amount which may be payable to Berlin on that date. 14. COUNSEL. Hawk advises and encourages Berlin to consult with an attorney prior to signing this Agreement. 15. NO LIABILITY. Nothing contained in this Agreement is intended to constitute an admission by any party of liability of any nature whatsoever to the other party, and each party expressly denies any such liability. 16. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and shall be interpreted in accordance with the laws of the State of Ohio, and the parties hereby confer jurisdiction upon the courts of any jurisdiction within the State of Ohio to determine any dispute arising out of or related to this Agreement, or the breach hereof. 17. REMEDIES AFTER BREACH. In the event that Berlin breaches any material term of this Agreement, and such breach remains uncured twenty (20) business days after notice of the breach has been delivered to Berlin by Hawk, Hawk shall be entitled, in addition to any other remedy available to Hawk at law or in equity, to terminate Hawk's obligations under this Agreement, including without limitation the right to discontinue all payments and benefits. 18. COSTS OF ACTION. In the event that any party to this Agreement brings any action or proceeding in connection with this Agreement, the prevailing party in such action shall be entitled to recover, as part of such action or proceeding, its costs therein including reasonable attorneys' fees. 19. COUNTERPARTS. This Agreement may be executed by the parties in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The execution of counterparts shall not be deemed to constitute delivery of this Agreement by a party until both of the parties have executed and delivered their respective counterparts. 9 20. HEADINGS. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 21. SEVERABILITY. It is the intention of the parties that the terms and provisions of this Agreement be construed to be separable and severable. If any term or provision of this Agreement shall be held void, invalid, unenforceable or in conflict with any applicable law, all of the other terms and provisions of this Agreement shall remain valid and fully enforceable. 22. ENTIRE AGREEMENT; AMENDMENTS. This Agreement embodies the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect thereof. This Agreement may not be changed orally, but may be amended, superseded, cancelled, renewed or extended, and the terms hereof may be waived, only by an instrument in writing signed by each of the parties, or, in the case of a waiver, signed by the party against whom enforcement of such waiver is being sought. 23. ACKNOWLEDGEMENT. Each party acknowledges that he or it has carefully read all of the terms of this Agreement, that such terms have been fully explained to him or it and that he or it understands the consequences of each and every term, that he or it has had sufficient time and an opportunity to consult with his or its own legal advisor prior to signing this Agreement, and that he or it specifically understands that by signing this Agreement he or it is giving up any and all rights he or it may have against the other party hereto under the laws and legal theories referred to above with respect to events occurring on or before this date. [The next page is the signature page.] 10 THIS SETTLEMENT AGREEMENT, RELEASE AND WAIVER signed at Cleveland, Ohio on the date set forth in the first paragraph above. /s/ Jeffrey H. Berlin ------------------------------------------ JEFFREY H. BERLIN HAWK CORPORATION By: /s/ Ronald E. Weinberg ------------------------------------- Its: Chairman 11 EXHIBIT A PROJECT LIST 1. Communication Ideas with Investment Community 2. Debt Reduction strategy 3. Divestiture strategy 4. Such other projects as are consistent with Paragraph 1 of this Agreement. 12 EXHIBIT B 13 FIRST AMENDMENT TO STOCK OPTION AGREEMENT THIS FIRST AMENDMENT TO STOCK OPTION AGREEMENT (this "Amendment") is made as of October 27, 2003 (the "Effective Date"), by and between HAWK CORPORATION, a Delaware corporation ("Hawk"), and JEFFREY H. BERLIN (the "Optionee"). RECITALS: The parties hereto are parties to a certain Settlement Agreement, Release and Waiver dated as of the Effective Date (the "Settlement Agreement"). The parties hereto are also parties to a certain Incentive Stock Option Agreement entered into as of October 5, 2001 (the "Option Agreement"). The Settlement Agreement requires that this Amendment be executed concurrently with the commencement of the Consulting Period (as such term is defined in the Settlement Agreement). In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. TYPE OF OPTIONS. Pursuant to Section 1 of the Option Agreement, Optionee was granted incentive stock options to purchase shares of Class A common stock of Hawk. The parties hereby agree to change the type of option granted under the Option Agreement from incentive stock options to non-statutory stock options. Accordingly, all references to Incentive Stock Options in the Option Agreement are deleted and replaced with references to Non-Statutory Stock Options. In addition, the following sentence is deleted in its entirety from Section 1 of the Option Agreement: "The Incentive Stock Options are 'incentive stock options' within the meaning of Section 422 of the Code" and the following sentence is added to the end of Section 1: "The Non-Statutory Stock Options are not 'incentive stock options' within the meaning of Section 422 of the Code." 2. TIMING OF EXERCISE. Notwithstanding Section 2 of the Option Agreement, the parties agree that the non-statutory stock options granted pursuant to the Option Agreement shall vest as of the Effective Date. Therefore, Section 2 of the Option Agreement is deleted in its entirety and replaced as follows: "The Non-Statutory Stock Options shall vest on the earlier of October 5, 2003 or [the Effective Date]." 4. EXPIRATION OF OPTIONS. Section 5 of the Option Agreement is deleted in its entirety and replaced as follows: 14 "The unexercised portion, if any, of the Non-Statutory Stock Options shall automatically and without notice terminate and become null and void on October 5, 2011." 4. CAPITALIZED TERMS. Capitalized terms not otherwise defined in this Amendment shall have the same meaning ascribed to them in the Option Agreement or Hawk's 1997 Stock Option Plan, as amended from time to time prior to the Effective Date. 5. FULL FORCE AND EFFECT. Except as specifically modified by the Amendment, all other terms and conditions of the Option Agreement shall remain in full force and effect. After the date hereof, the term "Option Agreement" shall refer to the Option Agreement, as amended by this Amendment. 6. COUNTERPARTS. This Amendment may be executed by the parties in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The execution of counterparts shall not be deemed to constitute delivery of this Amendment by a party until both of the parties have executed and delivered their respective counterparts. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment to Stock Option Agreement as of the date first written above. HAWK CORPORATION /s/ Ronald E. Weinberg ----------------------------------------- By: Ronald E. Weinberg Its: Chairman /s/ Jeffrey H. Berlin ----------------------------------------- JEFFREY H. BERLIN 15 EXHIBIT C 16 FIRST AMENDMENT TO STOCK OPTION AGREEMENTS THIS FIRST AMENDMENT TO STOCK OPTION AGREEMENTS (this "Amendment") is made as of January 31, 2004 (the "Effective Date"), by and between HAWK CORPORATION, a Delaware corporation ("Hawk"), and JEFFREY H. BERLIN (the "Optionee"). RECITALS: The parties hereto are parties to a certain Settlement Agreement, Release and Waiver dated as of October 27, 2003 (the "Settlement Agreement"). The parties hereto are also parties to certain Non-Statutory Stock Option Agreements entered into as of January 30, 2004, (the "Option Agreements"). The Settlement Agreement requires that this Amendment be executed concurrently with the commencement of the Consulting Period (as such term is defined in the Settlement Agreement). In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. TYPE OF OPTIONS. Hawk and Optionee confirm that the Non-Statutory Stock Options are not 'incentive stock options' within the meaning of Section 422 of the Code. 2. TIMING OF EXERCISE. Notwithstanding Section 2 of each of the Option Agreements, the parties agree that the non-statutory stock options granted pursuant to each of the Option Agreements shall vest as of the Effective Date. Therefore, Section 2 of each of the Option Agreement is deleted in its entirety and replaced as follows: "The Non-Statutory Stock Options shall vest as of [Effective Date]." 4. EXPIRATION OF OPTIONS. Section 5 of each the Option Agreements is deleted in its entirety and replaced as follows: (a) For the Option Agreement pertaining to the grant of 18,000 options, Section 5 is deleted in its entirety and replaced as follows: "The unexercised portion, if any, of the Non-Statutory Stock Options shall automatically and without notice terminate and become null and void on May 15, 2008." (b) For the Option Agreement pertaining to the grant of 15,000 options, Section 5 is deleted in its entirety and replaced as follows: 17 "The unexercised portion, if any, of the Non-Statutory Stock Options shall automatically and without notice terminate and become null and void on May 10, 2009." (c) For the Option Agreement pertaining to the grant of 15,966 options, Section 5 is deleted in its entirety and replaced as follows: "The unexercised portion, if any, of the Non-Statutory Stock Options shall automatically and without notice terminate and become null and void on September 27, 2010." (d) For the Option Agreement pertaining to the grant of 14,034 options, Section 5 is deleted in its entirety and replaced as follows: "The unexercised portion, if any, of the Non-Statutory Stock Options shall automatically and without notice terminate and become null and void on September 27, 2010." 4. CAPITALIZED TERMS. Capitalized terms not otherwise defined in this Amendment shall have the same meaning ascribed to them in the Option Agreement or Hawk's 1997 Stock Option Plan, as amended from time to time prior to the Effective Date, or Hawk's 2000 Long Term Incentive Plan, as amended from time to time prior to the Effective Date, as the case may be. 5. FULL FORCE AND EFFECT. Except as specifically modified by the Amendment, all other terms and conditions of each of the Option Agreements shall remain in full force and effect. After the date hereof, the term "Option Agreement" shall refer to each of the Option Agreements, as amended by this Amendment. 18 6. COUNTERPARTS. This Amendment may be executed by the parties in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The execution of counterparts shall not be deemed to constitute delivery of this Amendment by a party until both of the parties have executed and delivered their respective counterparts. IN WITNESS WHEREOF, the parties hereto have executed this First Amendment to Stock Option Agreement as of the date first written above. HAWK CORPORATION /s/ Thomas A. Gilbride ---------------------------- By: Thomas A. Gilbride Its: Vice President-Finance /s/ Jeffrey H. Berlin ---------------------------- JEFFREY H. BERLIN 19 EX-10.38 5 l05225aexv10w38.txt TRANSITION AGREEMENT Exhibit 10.38 TRANSITION AGREEMENT, RELEASE AND WAIVER THIS TRANSITION AGREEMENT, RELEASE AND WAIVER ("Agreement") is executed this 7th day of January, 2004, by and between MICHAEL CORKRAN, an individual residing at 12805 Keystone Lane Lane, Chardon, Ohio 44024, referred to in this Agreement as "Corkran", and HAWK CORPORATION, a Delaware corporation whose principal address is 200 Public Square, Suite 30-5000, Cleveland, Ohio 44114, referred to in this Agreement as "Hawk." R E C I T A L S : Corkran was originally employed by Hawk as President of its Powder Metal Group in August of 2001. He is currently employed as President of Hawk Precision Components Group, Inc. ("HPCG"). Corkran now desires to phase out of his employment with Hawk and its affiliated companies, and Hawk is willing to accommodate that desire, upon the terms and conditions hereinafter set forth. Accordingly, Corkran and Hawk agree as follows: 1. CONTINUING EMPLOYMENT, TERMINATION OF EMPLOYMENT RELATIONSHIP; CONSULTING. (a) Corkran shall remain in his current position until the effective date of the installation of a new President of HPCG, which the parties now contemplate to take place on or about January 1, 2004. (b) During the period from January 1, 2004 through March 31, 2004, Corkran will serve as an advisor to the President of HPCG on a full time basis, at his present rate of pay and fringe benefits. Line authority will be vested in the new President, and Corkran's time will be devoted to assisting in and supporting the transition of the group to new leadership. Corkran's time will also be spent working on such other projects as may be assigned by the chairman of Hawk, so long as such assignments are consistent with Corkran's position as a former group president. Specific areas of focus will include, but will not necessarily be limited to; sales support and the smooth transition of third party relationships such as with Hoganas, Hoeganaes, Hydropulsor, and SMS Meer to the new President. (c) Corkran agrees that (i) he will not accept any full time employment (other than the employment described in this Agreement) until March 31, 2004, and (ii) after that date, if he does accept other employment Corkran will provide Hawk with at least thirty (30) days prior notice before he leaves Hawk and begins other full time employment. In the event Corkran does accept other full time employment, his compensation from Hawk will cease immediately. (d) If Corkran has not accepted other fulltime employment, during the period from April 1, 2004 through June 30, 2004, Corkran will continue to serve as an employee of Hawk, as an advisor to the president of HPCG, and reporting to that president. Corkran will be compensated by a salary equal to seventy five percent (75%) of his current rate of base compensation. (e) Through June 30, 2004, Corkran will continue to receive fringe benefits such as health insurance, car allowance, etc., but he will not be entitled to receive any additional stock options or incentive compensation. On June 30, 2004, Corkran's tenure as an employee of Hawk and its affiliates shall formerly end, and June 30, 2004 is sometimes referred to in this Agreement as the "Termination Date." (f) Beginning on July 1, 2004, Corkran will become a consultant of Hawk, on an as needed basis. He will be compensated for consulting services at the rate of $2,000 per day. 2. HEALTH INSURANCE. Hawk will continue to provide health insurance coverage to Corkran, through the end of June, 2004 (the "Coverage Period"), on the same basis as such coverage is provided to employees of Hawk in general, but in no event shall Hawk be required to provide greater coverage than that which was in effect immediately prior to the date hereof. Corkran must make any required employee contributions or co-payments in a timely fashion in order to maintain this coverage. At the end of the Coverage Period, Corkran shall have such rights of conversion and/or continuation as may be provided by the terms of the applicable health insurance contract and as may be required under applicable law. 3. RELEASE AND WAIVER. With respect to any and all events arising out of or related to the employment relationship between Corkran and Hawk, HPCG and any entity affiliated with Hawk or HPCG (such entities being referred to collectively hereinafter as "Employer"), occurring on or before the date of this Agreement: (a) Corkran hereby releases and forever discharges Employer from any and all claims, demands and causes of action; this includes, among other things, claims based on the legal theories of wrongful or unjust termination, breach of contract (express or implied, including without limitation a certain letter agreement dated on or about August 7, 2001), promissory estoppel, negligent or intentional (tortious) conduct, negligent or intentional infliction of emotional distress, defamation, breach of any implied covenant of good faith and fair dealing, and any and all forms of employment discrimination, and including claims for attorneys' fees, expenses and costs related to any of the foregoing; (b) Corkran hereby releases and forever discharges Employer from any and all claims, demands and causes of action, and waives any rights he may have, under Title VII of the Civil Rights Act of 1964, under 42 U.S.C. Section 1981, under the Age Discrimination in Employment Act ("ADEA"), under the Americans With Disabilities Act, under the Family and Medical Leave Act of 1993, under the Civil Rights Attorney's Fees Awards Act of 1976, under Chapter 4112 of the Ohio Revised Code, or under any other federal, state or local statute prohibiting discrimination in employment, or to request that a lawsuit be instituted pursuant to 29 U.S.C. Section 206(d); and 2 (c) Corkran agrees not to institute a lawsuit with respect to any matters released or any rights waived in this Agreement. (d) Nothing contained in this Agreement is intended to constitute a release or waiver of any claim arising out of or related to a party's breach of any of his/its obligations pursuant to the terms of this Agreement. 4. CONFIDENTIALITY OF AGREEMENT. Each party agrees that the existence of this Agreement and its terms and conditions are confidential and are to be held in strict confidence by the parties and their counsel; provided, however, that (i) the parties shall be entitled to disclose such terms to their respective attorneys and accountants, (ii) Corkran may disclose such terms to his spouse, so long as she also agrees to hold such information confidential, (iii) Hawk may disclose such terms to those executive level employees who have a reasonable need to know, in connection with the performance of their job duties, so long as each such employee also agrees to hold such information confidential and (iv) disclosure shall be permitted if required by legal process, but not before the third business day after such party has both received notice of such process and has delivered a copy thereof to the other party hereto. No party will voluntarily reveal or engage in any action which it knows or should know will result in the revelation of any information to any third party concerning the existence of this Agreement, the contents of this Agreement, or the basis upon which the claims of the parties have been settled and compromised; the party may indicate only that all matters have been settled. Notwithstanding the foregoing, Hawk shall be entitled to make any disclosure concerning this Agreement and its terms and conditions that it believes to be required under laws or regulations applicable to reporting by publicly-held companies. 5. COVENANTS OF NON-COMPETITION AND NON-SOLICITATION. (a) Corkran agrees that, during the two (2) year period beginning on the date of this Agreement (the "Restricted Period"), Corkran shall not, directly or indirectly, either within any state of the United States of America in which Employer has done business or with respect to any customer serviced or solicited by Employer during Corkran's employment, compete with Employer in any aspect of "the Company's Business" as hereinafter defined, on behalf of himself or any other person, firm, business, corporation or other entity (each such person, firm, business or other entity being referred to hereinafter as a "Person"), including, without limitation, that Corkran shall not (i) engage in the Company's Business for his own account; (ii) enter the employ of, or render any services to, any Person engaged in the Company's Business; (iii) become interested in any Person engaged in the Company's Business as an owner, partner, shareholder, officer, director, licensor, licensee, employee, agent, employee, trustee, or in any other relationship or capacity; provided, however, that Corkran may own, directly or indirectly, solely as an investment, securities of any corporation which are traded on any national securities exchange if he (A) is not a controlling person of, or a member of a group which controls, such corporation, or (B) does not, directly or indirectly, own 1% more of any class of securities of such corporation; or (iv) request or instigate any account or customer of Employer to withdraw, diminish, curtail or cancel any of its business with Employer. In the event of Corkran's breach of any provision of this paragraph, the running of the Restricted Period shall be automatically tolled (i.e., no part of the Restricted Period shall expire) from and after the date of the first such breach. The Company Business shall 3 mean the business of manufacturing, distributing or selling (i) any products made of powder metal or using a metal injection molding process, or (ii) friction products, in each case in which Employer was engaged at any time during Corkran's employment with Employer, or the conducting of research and development directed toward any aspect of such businesses. (b) Corkran agrees that, prior to the later of December 31, 2004 or one year from the date of this Agreement (the "No Hire Period"), Corkran shall not, directly or indirectly, hire, solicit for employment or encourage to leave the employment of Employer any person who (i) is then an employee of Employer, (ii) had been an employee of Employer at any time during the preceding six (6) months, and in either case (iii) was an employee of Employer on the date of this Agreement. In the event of Corkran's breach of any provision of this paragraph, the running of the No Hire Period shall be automatically tolled (i.e., no part of the No Hire Period shall expire) from and after the date of the first such breach. (c) Both parties recognize that, if Corkran breaches, or threatens to commit a breach of, any of the provisions of paragraphs 4, 5 and 6 (the "Restrictive Covenants"), then Hawk shall have, in addition to, and not in lieu of, any other rights and remedies available to Hawk under law or in equity, the right to specific performance and/or injunctive relief, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to Hawk and that money damages will not provide an adequate remedy to Hawk. 6. CONFIDENTIAL INFORMATION. Corkran recognizes and acknowledges that confidential information, including, without limitation, information, knowledge or data (i) of a technical nature such as but not limited to methods, know-how, formulae, compositions, processes, machinery (including computer hardware), discoveries, inventions, products, product specifications, computer programs and similar items or research projects; (ii) of a business nature such as but not limited to information about products, cost, purchasing or suppliers, profits, market, sales or customers, including lists of customers, and the financial condition of Employer; (iii) pertaining to future developments such as but not limited to strategic planning, research and development or future marketing or merchandising, and trade secrets of Employer; and (iv) all other matters which Employer treats as confidential (the items described above being referred to collectively hereinafter as "Confidential Information"), are valuable, special and unique assets of Employer. During and after the Restricted Period, Corkran shall keep secret and retain in strictest confidence, and shall not use for the benefit of himself or others except in connection with the business and affairs of Employer, any and all Confidential Information learned by Corkran before or after the date of this Agreement, and shall not disclose such Confidential Information to anyone outside of Employer either during or after employment by Employer, except as required in the course of performing duties of his employment with Employer, without the express written consent of Employer or as required by law. Corkran further agrees to return all such information which is in his possession or under his control to Hawk within five (5) business days after the Termination Date, and all copies thereof (including any Confidential Information contained on the computer described in paragraph 13 below). Information shall not be considered to be "Confidential Information" if Corkran can show that such information was, at the time of disclosure, or subsequently became through no act or omission of Corkran, known to the general public, through publication or otherwise. 4 7. CORKRAN COOPERATION. At no cost to Hawk or Corkran, Corkran agrees to provide reasonable cooperation to Hawk regarding any pending or subsequently filed litigation, claims or other disputed items involving Employer that relate to matters within the knowledge or responsibility of Corkran during his employment, other than claims brought by or on behalf of Corkran that have not been released hereunder. Without limiting the foregoing, Corkran agrees (i) to meet with Hawk's representatives, its counsel or other designees at mutually convenient times and places in the Greater Cleveland area with respect to any items within the scope of this provision, (ii) to provide truthful testimony regarding same to any court, agency or other adjudicatory body, and (iii) to provide Hawk with notice of contact by any adverse party. Corkran further agrees that he will not assist any such adverse party or such adverse party's representatives except as may be required by law. 8. DISPARAGING COMMUNICATIONS. (a) Corkran agrees not to make false representations of fact, or defame, disparage, discredit or deprecate Employer, or any of its owners or employees, or otherwise communicate with any person in a manner tending to damage Employer or any of its owners or employees, in its/their reputation, office, trade, business or means of earning a livelihood. (b) Hawk agrees not to make false representations of fact, or defame, disparage, discredit or deprecate Corkran, or otherwise communicate with any person in a manner tending to damage Corkran, in his reputation, office, trade, business or means of earning a livelihood. 9. CORKRAN'S CONSULTING BUSINESS. The parties understand that Corkran intends to begin a consulting business, in which he will offer his services as a business consultant, to assist companies in the development and implementation of strategies to do business in China (the "Corkran Consulting Business"). In connection therewith: (a) Corkran covenants that, during the period from April 1, 2004 through June 30, 2004, he will not spend more than twenty-five percent (25%) of his business time and effort engaging in the Corkran Consulting Business, and that the time he spends engaging in the Corkran Consulting Business during that period of time shall not interfere with his performance of his obligations pursuant to paragraph 1(d) of this Agreement. Corkran further covenants that, after June 30, 2004, his engaging in the Corkran Consulting Business shall not interfere with his performance of his obligations pursuant to this Agreement. (b) Hawk acknowledges that, in general, Corkran's engaging in the Corkran Consulting Business does not constitute a violation of the terms of paragraph 5(a) of this Agreement; provided, however, that if a customer or client of the Corkran Consulting Business is also engaged in an aspect of the Company Business (as defined in paragraph 5(a) of this Agreement), a violation would be deemed to occur. (c) In the event that a customer or client of the Corkran Consulting Business is also either using or prospectively using powder metal parts, metal injection molded parts or friction materials, (i) if the customer of the Corkran Consulting Business is also a customer of Hawk or its affiliates, Corkran shall not in any way supply or advise the customer with respect to 5 the acquisition or use of powdered metals, except to encourage the customer to remain a customer of Hawk or its affiliates; and (ii) ) if the customer of the Corkran Consulting Business is not already a customer of Hawk or its affiliates, Corkran shall use his best efforts to cause that customer to become a customer of Hawk or its affiliates, including, without limitation, that Corkran will arrange an opportunity for Hawk or its affiliates to bid on that customer's business, and to have a "last look" if possible. 10. STOCK OPTIONS. (a) The parties hereto are also parties to a certain Incentive Stock Option Agreement entered into as of August 7, 2001 (the "August 2001 Option Agreement"). Corkran acknowledges that 12,000 of the options under the August 2001 Option Agreement have vested in accordance with the terms of the August 2001 Option Agreement and may be exercised at any time by Corkran in accordance with the August 2001 Option Agreement. Nevertheless, Corkran hereby agrees to forgo any and all rights he may have under the August 2001 Option Agreement, including the rights to exercise the vested options. Therefore, effective as of the date of this Agreement, the August 2001 Option Agreement is hereby terminated in its entirety. (b) Hawk acknowledges that Corkran has recommended that the total amount of options, vested and unvested, that he was originally granted under the August 2001 Option Agreement and which he has now agreed to surrender in accordance with paragraph 9(a) be granted to key HPCG personnel. Without any legal or other obligation on its part, Hawk will take Corkran's recommendation under advisement. (c) Hawk confirms to Corkran that the certain Incentive Stock Option Agreement entered into as of October 5, 2001 (the "October 2001 Option Agreement") remains in full force and effect. Corkran at his discretion may determine whether or not to exercise the options granted thereunder. Any such exercise by Corkran shall be made in accordance with the terms of the October 2001 Option Agreement. 11. TERMS OF OFFER; REVOCATION. (a) This Agreement has been delivered to Corkran on the 29th day of December, 2003. The offer contained herein shall remain open until the end of the twenty-first full day after delivery. (b) After execution of this Agreement, Corkran may revoke his agreement hereto by delivering written notice of revocation to Hawk at any time during the period from the date of Corkran's execution through the end of the seventh full day after such execution (the "Revocation Period"). 12. COUNSEL. Hawk advises and encourages Corkran to consult with an attorney prior to signing this Agreement. 13. COMPUTER. At the Termination Date, so long as Corkran has not breached this Agreement, the computer which Hawk has supplied to Corkran for his use during his employment 6 shall be transferred to Corkran, in consideration of the promises of Corkran contained in this Agreement. No further action by any party shall be required to effect the transfer of that computer to Corkran; provided, however, that as a condition precedent to such transfer, all Confidential Information of Hawk and its affiliates which may be contained on that computer shall be permanently deleted from its memory, shall not be retained by Corkran in any form or format, and Corkran shall provide Hawk with such access to that computer as Hawk may reasonably deem necessary or appropriate to verify compliance with this provision. 14. NO LIABILITY. Nothing contained in this Agreement is intended to constitute an admission by Employer of liability of any nature whatsoever to Corkran, and Employer expressly denies any such liability. 15. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and shall be interpreted in accordance with the laws of the State of Ohio, and the parties hereby confer jurisdiction upon the courts of any jurisdiction within the State of Ohio to determine any dispute arising out of or related to this Agreement, or the breach hereof. 16. COSTS OF ACTION. In the event that any party to this Agreement brings any action or proceeding in connection with this Agreement, the prevailing party in such action shall be entitled to recover, as part of such action or proceeding, its costs therein including reasonable attorneys' fees. 17. COUNTERPARTS. This Agreement may be executed by the parties in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. The execution of counterparts shall not be deemed to constitute delivery of this Agreement by a party until both of the parties have executed and delivered their respective counterparts. 18. HEADINGS. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 19. SEVERABILITY. It is the intention of the parties that the terms and provisions of this Agreement be construed to be separable and severable. If any term or provision of this Agreement shall be held void, invalid, unenforceable or in conflict with any applicable law, all of the other terms and provisions of this Agreement shall remain valid and fully enforceable. 20. ENTIRE AGREEMENT; AMENDMENTS. This Agreement embodies the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect thereof. This Agreement may not be changed orally, but may be amended, superseded, cancelled, renewed or extended, and the terms hereof may be waived, only by an instrument in writing signed by each of the parties, or, in the case of a waiver, signed by the party against whom enforcement of such waiver is being sought. 21. ACKNOWLEDGEMENT. Corkran acknowledges that he has carefully read all of the terms of this Agreement, that such terms have been fully explained to him and that he understands 7 the consequences of each and every term, that he has had sufficient time and an opportunity to consult with his own legal advisor prior to signing this Agreement, and that he specifically understands that by signing this Agreement he is giving up any and all rights he may have against Hawk under the laws and legal theories referred to above with respect to events occurring on or before this date. THIS TRANSITION AGREEMENT, RELEASE AND WAIVER signed at Cleveland, Ohio on the date set forth in the first paragraph above. /s/ Michael Corkran --------------------------------------- MICHAEL CORKRAN HAWK CORPORATION By: /s/ Ronald E. Weinberg ----------------------------------- Its: Chairman 8 EX-10.39 6 l05225aexv10w39.txt COMMON STOCK SELLING PLAN Exhibit 10.39 SALES PLAN ---------- Sales Plan, dated January 9, 2004 (the "Sales Plan"), between the Harbert Foundation, an Ohio limited partnership ("Seller") and Northern Trust Securities, Inc. ("Northern"). RECITALS WHEREAS, Seller desires to establish this Sales Plan to sell unregistered shares of Class A common stock, par value $0.01 of Hawk Corporation, a Delaware corporation (the "Issuer"), acquired prior to the initial public offering of the Issuer (the "Stock"); and WHEREAS, Seller desires to sell a total of 70,000 shares of Stock (the "Total Plan Shares"); and WHEREAS, Seller desires to engage Northern to effect sales of shares of Stock in accordance with the Sales Plan; NOW, THEREFORE, Seller and Northern hereby agree as follows: A. IMPLEMENTATION OF THE SALES PLAN 1. Subject to Paragraph A.7., Northern shall effect sales (each a "sale") as provided herein. Beginning on January 1, 2004 and thereafter on the first Friday of each subsequent quarter on which the American Stock Exchange (Amex) is open and effectuating trades ("Trade Date"), a limit order for 5,000 shares of Stock (or, if less than 5,000 of the Total Plan Shares remain, such remaining amount) at the market price per share on the Trade Date. If, consistent with ordinary principles of best execution or for any other reason, Northern cannot sell any or all of the 5,000 shares of Stock on the Trade Date, then the amount of such shortfall shall be sold as soon as practicable on the immediately succeeding days in which the Amex is open and trades regular way following the Trade Date ("Business Day"); provided that in no event may the amount of any shortfall be sold any later than the fourth Business Day following the Trade Date. In the event that any shares of Stock are not sold within four Business Days of the Trade Date, Northern will have no authority to sell any such shortfall on the succeeding month's Trade Date. 2. Seller acknowledges and agrees that Northern will handle the above order on a best efforts basis. In the event any limit prices of orders are away from the prevailing market prices at any time, there can be no assurance that such orders will be executed in whole or in part. Seller agrees that all orders may be partially executed and will not be treated as an all or none order. 3. Seller agrees to deposit 70,000 shares of Stock into a Northern brokerage account (the "Account"). Northern shall withdraw Stock from Seller's Account in order to effect sales of Stock under this Sales Plan. If on any day that sales are to be made under this Sales Plan the number of shares of Stock in Seller's Account is less than the number of shares to be sold on such day, then Northern shall notify Seller promptly of such deficiency, and Seller agrees to promptly deposit into the Account the number of shares of Stock necessary to eliminate such deficiency. 4. Subject to Paragraph A.10., Seller agrees not to remove or transfer shares of Stock out of the Account. Upon notification pursuant to Paragraph A.10., Seller shall have the right to remove the portion of the Total Plan Shares subject to such Private Sale or Gift from Seller's Account. 5. To the extent that any Stock remains in Seller's Account upon termination of this Sales Plan, Northern agrees to return such Stock promptly to the Issuer's transfer agent for relegending to the extent that such Stock would then be subject to transfer restrictions in the hands of Seller. 6. Northern will deduct its reasonable and customary commissions from the proceeds of sales of Stock under this Sales Plan, together with any other reasonable expenses incurred by Northern in connection with such sales. 7. Subject to Paragraph E.6., this Sales Plan shall become effective on January 9, 2004 ("Effective Date") and shall terminate on the earliest of the date on which the Total Plan Shares have been sold, the date this Sales Plan is terminated pursuant to Paragraph E.3., or upon notification of death of Norman C. Harbert. 8. Seller acknowledges and agrees that he does not have authority, influence or control over any sales of Stock effected by Northern pursuant to this Sales Plan, and will not attempt to exercise any authority, influence or control over such sales. Northern agrees not to seek advice from Seller with respect to the manner in which it effects sales under this Sales Plan. Seller understands that Northern shall have no discretion as to the timing of the sales of Stock. 9. Northern will notify Seller and Issuer of all transactions pursuant to customary trade confirmations that are provided in the normal course of business. 10. Seller agrees that he will notify Northern as soon as possible in the event he consummates a private sale of any portion of the Total Plan Shares to the Issuer (a "Private Sale") or makes a bona fide gift of any portion of the Total Plan Shares (a "Gift"). Seller agrees that in the event that any sale of a portion of the Total Plan Shares by Northern pursuant to this Sales Plan, when combined with a Private Sale or a Gift, results in the sale of Stock in excess of the Total Plan Shares, Seller shall be responsible for delivering additional Stock to Northern to cover the excess number of shares sold. 11. Seller understands that Northern may not be able to effect a sale due to a market disruption or a legal, regulatory or contractual restriction applicable to Northern, an insufficient number of shares of Stock being in the Account or a pending sale under this Sales Plan causing Seller to exceed any applicable volume limitations of Rule 144 or 145 under the Securities Act of 1933 (the "Securities Act"). If any sale cannot be executed as required by Paragraph A.1. due to a market disruption, a legal, regulatory or contractual restriction applicable to Northern or any other such event, Northern shall effect such sale as promptly as practical after the cessation or 2 termination of such market disruption, applicable restriction or other event, or, at the discretion of Northern, the Sales Plan may be terminated. 12. It is the intent of the parties that this Sales Plan comply with the requirements of Rule 10b5-1(c)(1)(i)(B) under the Securities Exchange Act of 1934 (the "Exchange Act") and this Sales Plan shall be interpreted to comply with the requirements of Rule 10b5-1(c). B. RULES 144 AND 145 The following three paragraphs shall only apply to the extent Seller is subject to Rules 144 and 145. 1. Northern agrees to conduct all sales in accordance with the manner of sale requirement of Rule 144 or 145 under the Securities Act, and in no event shall Northern effect any such sale if such sale would exceed the then applicable volume limitation under Rule 144, assuming Northern's sales under this Sales Plan and those notified to Northern pursuant to Paragraph B.3. are the only sales subject to that limitation. Seller will be responsible for completing and filing all required Form 144s prior to the sale of any Stock covered under Rule 144. Seller agrees to promptly provide Northern with a copy of any Form 144 filing made by Seller. In the event Seller requests, and Northern agrees, in writing, to make certain Form 144 filings, Seller hereby appoints Northern as agent and attorney-in-fact to execute, file and submit, on behalf of Seller, any such required Form 144s. 2. Each such Form 144 shall state in the "Remarks" section that the sales thereunder are being made pursuant to a previously adopted plan intended to comply with Rule 10b5-1(c), shall include the date Seller adopted this Sales Plan and shall indicate that the representation regarding Seller's knowledge of material information speaks as of the adoption date of this Sales Plan. 3. Seller agrees not to take any action that would cause the sales not to comply with Rule 144 or 145, and Seller agrees not to cause any person or entity with which Seller would be required to aggregate sales of Stock pursuant to paragraph (a)(2) or (e) of Rule 144 to take any action that would cause the sales not to comply with Rules 144 or 145. Seller will provide notice of any such transactions during the three months preceding the date hereof and may not enter into any other selling program or transaction without the prior consent of Northern. C. REPRESENTATIONS AND AGREEMENTS OF SELLER 1. Seller represents and warrants that as of the time of execution of this Sales Plan, Seller: (a) is not aware of material, nonpublic information with respect to the Issuer or any securities of the Issuer (including the Stock) and, (b) is entering into this Sales Plan in good faith and not as part of a plan or scheme to evade the prohibitions of Rule 10b5-1 under the Exchange Act or other applicable securities laws. 3 2. At the time of Seller's execution of this Sales Plan, Seller has not entered into or altered a corresponding or hedging transaction with respect to the Stock. Seller agrees not to enter into any such transaction while this Sales Plan remains in effect. 3. Seller agrees to make all filings, if any, required under and monitor his compliance with Sections 13(d), 13(g) and 16 of the Exchange Act. 4. Except as provided in Paragraph B.1., Seller acknowledges and agrees that Northern has no duty to determine whether Sellers have violated Rules 144 or 145 under the Securities Act, or Sections 13(d), 13(g) or 16 of the Exchange Act or the rules adopted by the SEC thereunder. Seller understands that this Plan in no way alters his obligations and responsibilities under Section 16, including those prohibitions against short swing profits. 5. Seller understands that there may be specific state law restrictions or limitations applicable to this Sales Plan. Seller acknowledges and agrees that Northern has not provided Seller with any tax, accounting or legal advice. Seller understands that he should seek the advice of counsel regarding this Sales Plan and the various securities and tax law issues related thereto. 6. Seller agrees to notify Northern immediately in the event of trading restrictions being imposed as the result of any lock up event restricting sales by affiliates, such as a stock offering, tender offer or acquisition transaction or any similar event. 7. Seller represents and warrants that he is able to sell shares of Stock, as contemplated by this Sales Plan, in accordance with the Issuer's statement regarding insider trading and confidentiality, as supplemented and amended from time to time and Seller has obtained the acknowledgement of the Issuer to enter into this Sales Plan. Seller further represents and warrants that the Stock is not subject to any liens, security interests or other impediments to transfer (except for limitations imposed by Rules 144 or 145, if applicable). D. INDEMNIFICATION AND LIMITATION ON LIABILITY 1. Seller agrees to indemnify and hold harmless Northern and its directors, officers, employees and affiliates from and against all claims, losses, damages and liabilities (including without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) arising out of or attributable to Northern's actions taken or not taken in compliance with this Sales Plan or arising out of or attributable to any breach by Seller of this Sales Plan (including Seller's representations and warranties hereunder) or any violation by Seller of applicable laws or regulations. Seller will not be liable under the foregoing sentence to the extent that any claim, loss, damage or liability is found in a final judgement by a court to have resulted from the bad faith, gross negligence or willful misconduct of Northern or its directors, officers, employees or affiliates. This indemnification shall survive termination of this Sales Plan. 2. Notwithstanding any other provision hereof, Northern shall not be liable to Seller for: (a) special, indirect, punitive, exemplary or consequential damages, or incidental losses or damages of any kind, even if advised of the possibility of such losses or damages or if such 4 losses or damages could have been reasonably foreseen; or (b) any failure to perform or to cease performance or any delay in performance that results from a cause or circumstance that is beyond its reasonable control, including but not limited to failure of electronic or mechanical equipment, strikes, failure of common carrier or utility systems, severe weather, market disruptions or other causes commonly known as "acts of God". E. GENERAL 1. This Sales Plan shall be governed by and construed in accordance with the laws of the State of Delaware without reference to choice of law principles and may be modified or amended only by a writing signed by the parties hereto and acknowledged by the Issuer. 2. This Sales Plan shall be subject to all terms and conditions governing Seller's Account, including the Northern Account Agreement. 3. Notwithstanding anything to the contrary herein, Seller and/or Issuer may notify Northern to terminate this Sales Plan at any time. Seller may also notify Northern to modify sales under this Sales Plan; provided, however, that such modification shall not be effective until 30 days after the notification thereof and the acknowledgement of Issuer. Any such modification or termination shall be made in good faith and not as a part of a plan or scheme to evade the prohibitions of Rule l0b5-1 or other applicable securities laws. Seller agrees that he will not modify this Sales Plan at any time that he is aware of any material non-public information about the Issuer and/or the Stock. 4. All notices to Northern under this Sales Plan shall be given to Northern's office by facsimile at (312) 444-4410 or by certified mail at Northern Trust Securities, Inc., 50 S. LaSalle Street, B-12, Chicago, Illinois 60675. Attention: Sheila Dorman. Upon termination or suspension of this Sales Plan, Northern will send notice to Seller and Issuer to the address provided below. 5. Seller's rights and obligations under this Sales Plan may not be assigned or delegated without the written permission of Northern. 6. This Sales Plan shall not be effective until executed by Seller and Northern, and acknowledged by Issuer. This Sales Plan may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto were upon the same instrument. 5 The Harbert Foundation By:/s/ Norman C. Harbert --------------------------------- Name: Norman C. Harbert Title: Trustee Northern Trust Securities, Inc. By:/s/ Northern Trust Securities, Inc. ----------------------------------------- Solely for purposes of acknowledging notification of the foregoing Sales Plan and not as a party thereto, except to the extent of its rights thereunder, Hawk Corporation, through its representative, has duly signed below: Hawk Corporation By: /s/ Thomas A. Gilbride --------------------------------------- Name: Thomas A. Gilbride Title: Vice President - Finance Address: 200 Public Square Suite 1500 Cleveland, OH 44114 6 EX-10.40 7 l05225aexv10w40.txt AMENDMENT NO 1 TO AMENDED AND RESTATED EMP Exhibit 10.40 AMENDMENT NO. 1 TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT This Amendment No. 1 to Amended and Restated Employment Agreement (this "Amendment") is dated as of March 3, 2004, by and between HAWK CORPORATION, a Delaware corporation ("Hawk"), FRICTION PRODUCTS CO., an Ohio corporation (together with Hawk, "Employer") and RONALD E. WEINBERG ("Employee"). RECITALS: A. Employer and Employee are parties to (i) an employment agreement dated June 30, 1995 (the "Original Agreement"), (ii) Amendment No. 1 to the Original Agreement dated October 24, 2000, (iii) Amendment No. 2 to the Original Agreement dated May 31, 2001 and (iv) Amended and Restated Employment Agreement dated December 31, 2001 (the "Amended and Restated Agreement"). B. Employer and Employee desire to amend the Amended and Restated Agreement. C. Capitalized terms used but not otherwise defined herein have the meanings assigned to them in the Amended and Restated Agreement. Accordingly, in consideration of the mutual covenants, promises and representations contained herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Employer and Employer hereby agree as follows: 1. The termination date for Employee's employment in the first sentence of Section 1 of the Amended and Restated Agreement is hereby changed from June 30, 2007 to June 30, 2012. 2. Employer and Employee, by their execution hereof, agree that, except as herein modified and amended, all terms, conditions and covenants contained in the Amended and Restated Agreement are hereby ratified and confirmed in their entirety and shall remain in full force and effect. On and after the date hereof, each reference to the Amended and Restated Agreement shall refer to such agreement as modified by this Amendment. 3. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original and the same agreement and shall become effective when an original or facsimile counterpart has been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. [Intentionally Left Blank] B-1 IN WITNESS WHEREOF, the undersigned have hereunto set their hand as of the date first written above. "EMPLOYER" "EMPLOYEE" HAWK CORPORATION and FRICTION PRODUCTS CO. By: /s/ Norman C. Harbert /s/ Ronald E. Weinberg ------------------------------- -------------------------------- Norman C. Harbert Ronald E. Weinberg Its: Senior Chairman of the Board and Founder Attested to: By: /s/ Byron S. Krantz ------------------------------ Byron S. Krantz Its: Secretary EX-10.41 8 l05225aexv10w41.txt FIRST AMENDMENT TO AMENDED AND RESTATED EM Exhibit 10.41 FIRST AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS FIRST AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "First Amendment") is made and entered into as of this 31st day of December, 2003, by and among HAWK CORPORATION, a Delaware corporation ("Hawk"), Friction Products Co., an Ohio corporation (together with Hawk, "Employer") and NORMAN C. HARBERT ("Employee"). RECITALS A. The parties are parties to the Amended and Restated Employment Agreement dated as of December 31, 2001 (the "Restated Agreement"); and B. The parties desire to further amend the Restated Agreement in accordance with the terms set forth in this First Amendment; NOW THEREFORE, in consideration of the premises and the promises and agreements contained herein and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, and intending to be legally bound, Employer and Employee amend the Restated Agreement, as follows: 1. DUTIES. The second sentence of Section 4 of the Restated Agreement beginning with the four words "During the Employment Period" is hereby deleted and replaced in its entirety with the following: During the Employment Period, Employee shall perform such duties and responsibilities as are set forth in Section 5(b) of this Agreement and shall chair Employer's annual stockholder meeting. 2. LIMITATIONS ON AUTHORITY. Section 5(b) of the Restated Agreement is hereby deleted and replaced in its entirety with the following: (b) Notwithstanding anything else herein contained, Employer shall cause Weinberg, as long as he remains Chief Executive Officer of Hawk and any successor to Weinberg as Chief Executive Officer of Hawk, to consult in advance with Employee on each of the matters set forth below; provided that each of Employer and Employee understand and agree that Employee's consent or approval with respect to any of the following matters shall not be required and in no way shall Employee be vested with any authority to set policy on behalf of Employer with respect to any such matter: (i) The (A) evaluation of key management employees of Hawk together with salary reviews, and (B) increases in compensation of key management employees of Hawk; (ii) The entering into and/or execution of contracts, agreements, joint ventures and other commitments which would have a material effect on the business, financial condition and affairs, properties, assets, obligations, and operation of Hawk; (iii) The formulation of the annual budget and business plan of Hawk; (iv) The formulation of the business goals of Hawk; (v) The merger, consolidation, combination, liquidation, or sale of all or substantially all the assets or stock of Hawk or any of its affiliates that are material to Hawk as a whole and the acquisition or purchase of all or substantially all the assets or stock of another company or entity that is material to Hawk as a whole; and (vi) Any other matter which would have a material effect on the business, operations, financial condition or affairs, assets or properties of Hawk. Notwithstanding anything else herein contained, the parties agree that the purchase or sale by Hawk or any of its affiliates of any asset from or to any person, firm, corporation or other entity related to or controlled by either Employee or Weinberg shall be determined by Employee and Weinberg jointly. 3. EXPRESS CHANGES ONLY. Except as set forth in this First Amendment, all of the terms and provisions of the Restated Agreement shall remain unmodified and in full force and effect. 4. CAPTIONS. The captions in this First Amendment are included for convenience only and shall not in any way affect the interpretation or construction of any provision hereof. 5. GOVERNING LAW. This First Amendment shall be governed by, and construed and enforced in accordance with, the laws of the State of Ohio. 6. SUBMISSION TO JURISDICTION. Employer may enforce any claim arising out of or relating to this First Amendment, or arising from or related to the employment relationship existing in connection with this First Amendment in any state or federal court having subject matter jurisdiction and located in Cleveland, Ohio. For the purpose of any action or proceeding instituted with respect to any such claim, Employee hereby irrevocably submits to the jurisdiction of such courts and irrevocably consents to the service of process out of said courts by 2 mailing a copy thereof, by registered mail, postage prepaid, to Employee and agrees that such service, to the fullest extent permitted by law, (i) shall be deemed in every respect effective service of process upon him in any such suit, action or proceeding, and (ii) shall be taken and held to be valid personal service upon and personal delivery to him. Nothing herein contained shall affect the right of Employer to serve process in any other manner permitted by law or preclude Employer from bringing an action or proceeding in respect hereof in any other country, state or place having jurisdiction over such action. Employee irrevocably waives, to the fullest extent permitted by law, any objection which he has or may have to the laying of the venue of any such suit, action or proceeding brought in any such court located in Cleveland, Ohio, and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. 7. COUNTERPARTS. This First Amendment may be executed in any number of counterparts, each of which when executed and delivered shall be deemed to be an original and all such counterparts together, shall constitute one and the same instrument. The execution and delivery of facsimiles of this First Amendment shall be binding on the parties hereto. 8. ENTIRE AGREEMENT, AMENDMENTS AND WAIVERS . There are and were no oral or written representations, warranties, understandings, stipulations, agreements, or promises made by any party, or by any agent, employee, or other representative of any party, pertaining to the subject matter of this First Amendment which have not been incorporated into this First Amendment. This First Amendment shall not be modified, changed, terminated, amended, superseded, waived, or extended except by a written instrument executed by the party or parties against whom enforcement is sought. [signature page follows] 3 "EMPLOYER" "EMPLOYEE" HAWK CORPORATION By: /s/ Ronald E. Weinberg By: /s/ Norman C. Harbert ------------------------------- ---------------------------------- Ronald E. Weinberg Norman C. Harbert Its: Chief Executive Officer Attested to: By: /s/ Byron S. Krantz ------------------------------- Byron S. Krantz Its: Secretary FRICTION PRODUCTS CO. By: /s/ Ronald E. Weinberg ------------------------------- Ronald E. Weinberg Its: Chief Executive Officer Attested to: By: /s/ Byron S. Krantz ------------------------------- Byron S. Krantz Its: Secretary 4 EX-14 9 l05225aexv14.txt CODE OF BUSINESS CONDUCT AND ETHICS Exhibit 14 HAWK CORPORATION CODE OF BUSINESS CONDUCT AND ETHICS INTRODUCTION Hawk Corporation is committed to the principles of honest and ethical conduct in all aspects of its business. Hawk believes that our tradition of adhering to honest and ethical conduct enables Hawk to enjoy a reputation of which all our employees, officers and directors can be proud. This code covers a wide range of business practices and procedures. It is intended only as a guide. It does not, and can not, cover every issue that may arise, but it sets out basic principles and key policies and procedures to guide all employees, officers and directors of Hawk. Employees, officers and directors must conduct themselves accordingly and seek to avoid even the appearance of improper behavior. In appropriate circumstances, this code should also be provided to and followed by Hawk's agents and representatives, including consultants. If you are in a situation that you believe may violate or lead to a violation of this code, you should follow the guidelines described in the section entitled "Adherence to the Code" below. Ultimately, the determination of whether or not there has been a violation will be in the discretion of our designated ethics officer, who may consult with our chief executive officer and our legal counsel. For simplicity, Hawk as used throughout this code refers to Hawk and all our subsidiaries. This Code of Business Conduct and Ethics is intended to supplement the Code of Business Conduct in our employee handbook and is available on our corporate website at www.hawkcorp.com. RESPONSIBILITIES OF EMPLOYEES, OFFICERS AND DIRECTORS Compliance with laws, rules, regulations and agreements All employees, officers and directors must strictly comply with all laws and governmental regulations that apply to our business, including state and local laws in the areas in which we operate. Any questions as to the applicability of any law should be directed to our counsel. If a law conflicts with a policy in this code, employees, officers and directors must comply with the law. If a local custom or policy conflicts with a policy in this code, employees, officers and directors must comply with the code. If you have any questions about these conflicts, you should ask your supervisor how to handle the situation. This code is intended to supplement and not override any similar provisions in agreements with employees, officers and directors. Insider trading We have an insider trading policy and all employees, officers and directors must abide by its terms. A copy of this policy is available on our corporate website at www.hawkcorp.com. This policy, among other things, provides that employees, officers and directors may not buy or sell shares of Hawk when they are in possession of material, non-public information. They also are prohibited from passing on such information to others who might make an investment decision based on it. Employees, officers and directors also may not trade in stocks of other companies about which they learn material, non-public information through the course of their employment or service. Any questions as to whether information is material or has been adequately disclosed should be directed to our counsel. Conflicts of interests A conflict of interest occurs when the private interest of an employee, officer or director interferes, or appears to interfere, in any way with the interests of the company. Conflicts of interest can occur when an employee, officer or director takes action or has interests that could reasonably be expected to make it difficult to make objective decisions on behalf of Hawk or for an employee, officer or director to perform his or her duties effectively. Conflicts of interest also arise when an employee, officer or director, or a member of his or her family, receives improper personal benefits as a result of his or her position with the company. An employee, officer or director will not be deemed to have a conflict of interest solely on the basis of his or her service on the board of directors of a company that is under common ownership, or has a business relationship with, Hawk. Conflicts of interests are prohibited as a matter of corporate policy. If you become aware of a conflict or potential conflict, or have a question about whether a conflict exists, you should promptly bring it to the attention of your supervisor or our ethics officer. Corporate opportunities Employees, officers and directors are prohibited from taking for themselves personally any opportunities that arise through the use of corporate property, information or position and from using corporate property, information or position for personal gain. Employees, officers and directors are further prohibited from competing with Hawk directly or indirectly. Employees, officers and directors owe a duty to Hawk to advance the company's interests when the opportunity to do so arises. Confidentiality Our insider trading policy also governs the maintenance of confidential information. . Employees, officers and directors may learn information about Hawk that is not known to the general public or to competitors. Confidential information includes all non-public information that might be of use to competitors, or harmful to Hawk or our customers if disclosed. Employees, officers and directors must maintain the confidentiality of information entrusted to them by Hawk or its associates, except when disclosure is authorized or legally mandated. This obligation to protect confidential information does not end when an employee, officer or director leaves the company. Any questions about whether information is confidential should be directed to our counsel. Fair dealing Each employee, officer and director must endeavor to deal fairly with Hawk's stockholders, 2 competitors, suppliers and employees. No employee, officer or director may take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts, or any other unfair practice. Protection and proper use of corporate assets Theft, carelessness and waste have a direct impact on our profitability. Employees, officers and directors have a duty to protect corporate assets and ensure their efficient use. Company assets should be used only for legitimate business purposes and employees, officers and directors should take measures to ensure against theft, damage, or misuse. Company assets include intellectual property such as trademarks, business and marketing plans, salary information and any unpublished financial data and reports. Unauthorized use or distribution of this information is a violation of our company policy. Reports filed with the Securities and Exchange Commission ("SEC") We are committed to ensuring that all disclosure in reports filed with the SEC is full, fair, timely and understandable. Therefore, honest and accurate recording and reporting of financial information is of critical importance to Hawk. This is essential in order for senior management to make informed responsible business decisions, to enable Hawk to comply with various laws relating to the maintenance of books and records and financial reporting, to enable our Chief Executive Officer and our Chief Financial Officer to make certifications in connection with periodic filings made by the company with the SEC and to inform Hawk's stockholders and the investing public of accurate information about the company. Employees, officers and directors are strictly prohibited from falsifying the books and records of the company or otherwise knowingly circumventing or failing to implement the internal accounting controls of the company as they now exist or as they may be modified, revised, amended or supplemented. External and internal auditors Our external and internal auditors play an integral role in the financial reporting process through their annual examination and report on Hawk's financial statements and their review of periodic reports of the company. Therefore, open and honest fair dealing with our external and internal auditors is essential. No employee, officer or director may make any false or misleading statement to any external or internal auditors in connection with an audit or examination of our financial statements or the preparation or filing of any document or report. Similarly, no employee, officer or director may engage in any conduct to fraudulently influence, coerce, manipulate or mislead any accountant engaged in the audit or review of any of Hawk's financial statements. Record-keeping All of Hawk's books, records, accounts, and financial statements must be maintained in reasonable detail, must appropriately reflect the company's transactions, and must conform both to applicable legal requirements and to our system of internal controls. Unrecorded or "off the books" funds or assets should not be maintained unless permitted by applicable law or regulation. Business records and communications may not be destroyed unless in accordance with our record retention policies. In accordance with those policies, in the event of litigation or 3 governmental investigation, employees, officers and directors must consult with our counsel before taking any action because it is critical that any impropriety or possible appearance of impropriety be avoided. Interaction with public officials When dealing with public officials, employees, officers and directors must avoid any activity that is or appears illegal or unethical. The giving of gifts, including meals, entertainment, transportation, and lodging, to government officials in the various branches of U.S. government, as well as state and local governments, is restricted by law. Employees, officers and directors must obtain pre-approval from Hawk's counsel before providing anything of value to a government official or employee. The foregoing does not apply to personal lawful political contributions. In addition, the U.S. Foreign Corrupt Practices Act prohibits giving anything of value, directly or indirectly, to officials of foreign governments or foreign political candidates in order to obtain or retain business. Illegal payments to government officials of any country are strictly prohibited. Discrimination and harassment We are firmly committed to providing equal opportunity in all aspects of employment and will not tolerate any illegal discrimination or harassment of any kind. All employees, officers and directors should respect the rights and cultural differences of other individuals. It is our policy not to discriminate against any person because of age, race, color, sex, religion, disability, national origin, or other classes protected by applicable federal, state or local law. Harassment of any type will not be tolerated. Health and safety The safety and health of our employees is very important to us. Each employee has responsibility for maintaining a safe and healthy workplace by following safety and health rules and practices and reporting accidents, injuries, and unsafe equipment, practices, or conditions. Violence and threatening behavior are not permitted. Employees should report to work in condition to perform their duties, free from the influence of illegal drugs or alcohol. The use of illegal drugs or alcohol in the workplace will not be tolerated. ADHERENCE TO THE CODE No code of conduct and ethics can replace the thoughtful behavior of an ethical person or provide definitive answers to all questions. Since we cannot anticipate every potential situation, certain policies and procedures have been put in place to help employees, officers and directors approach questions or problems as they arise. Designated Ethics Officer We have designated our Director of Human Resources to also serve as our ethics officer with responsibility for overseeing and monitoring compliance with this code. The ethics officer reports directly to our chief executive officer and also will make periodic reports to the audit committee of our board of directors regarding the implementation and effectiveness of this code as well as the policies and procedures put in place to ensure compliance with the code. 4 Reporting Violations Employees, officers and directors are strongly encouraged to seek guidance from supervisors, managers or other appropriate persons when in doubt about the best course of action to take in a particular situation. If an employee, officer or director knows of or suspects a violation of this code, or of applicable laws and regulations, he or she must report it immediately to our ethics officer or CEO. If the situation requires it, the reporting person's identity will be kept anonymous. We do not permit retaliation of any kind for good faith reports of violations or possible violations. Contact Information Our CEO and our Director of Human Resources may be reached at 216-861-3553. Our legal counsel, the law firm of Kohrman Jackson & Krantz P.L.L., may be reached at 216-696-8700. You may ask to speak with any partner of the firm familiar with our matters. Investigations We will promptly investigate reported violations. Employees, officers and directors are expected to cooperate fully with any investigation made by the company into reported violations. Discipline and Penalties Employees, officers and directors who violate this code may be subject to disciplinary action, up to and including discharge. Employees, officers and directors who have knowledge of a violation and fail to move promptly to report or correct it and employees, officers and directors who direct or approve violations may also be subject to disciplinary action, up to and including discharge or removal. Furthermore, violation of some provisions of this code are illegal and may subject you to civil and criminal liability. The determination of whether or not there has been a violation of this code will be in the discretion of our designated ethics officer, who may consult with our chief executive officer and our legal counsel. The ethics officer, chief executive officer, legal counsel, and for purposes of determining waivers as set forth in the next paragraph, our board of directors or a duly appointed committee thereof, are the only parties who may interpret and enforce this code. AMENDMENTS AND WAIVERS TO THE CODE Hawk reserves the right to alter, amend, modify, revoke, suspend, terminate or waive any or all of the code at any time, in our discretion. Any such alteration, amendment, modification, revocation, suspension, termination or waiver to the code that applies to our principal financial and accounting officers, or persons performing similar functions, may be made only by our board of directors, or an authorized committee of the board of directors, and will be promptly disclosed to our stockholders. 5 LIMITATION This code is intended to be a description of certain policies that Hawk has adopted as of this time, and is to be used solely as a source of information about our code of ethics as presently in effect. .Nothing in this code shall be deemed to alter any employment at will or other status of an employee or to otherwise create for an employee or any other third party an enforceable right against Hawk, its directors, officers or any other employee or third party. Except by Hawk at the direction of our board of directors or executive officers, this code may not be used as evidence or referred to in any other way in any action, claim, suit or other proceeding. ADOPTION This code was approved and adopted by the Board of Directors of Hawk on February 26, 2004. 6 EX-21.1 10 l05225aexv21w1.txt SUBSIDIARIES OF THE REGISTRANT . . . EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT

- ---------------------------------------------------------------------- (1) These subsidiaries also conduct business under the trade name "The Wellman Products Group." (2) These subsidiaries also conduct business under the trade name "Hawk Performance." (3) These subsidiaries also conduct business under the trade name "Hawk Precision Components Group." (4) This subsidiary also conducts business under the trade name "Hawk Composites." (5) This subsidiary is part of our motor segment which is being accounted for as a discontinued operation. 80 EX-23.1 11 l05225aexv23w1.txt CONSENT OF ERNST & YOUNG LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-60865) pertaining to the Hawk Corporation 1997 Stock Option Plan, in the Registration Statement (Form S-8 No. 333-68583) pertaining to the Friction Products Co. Profit Sharing Plan; S.K. Wellman Retirement Savings and Profit Sharing Plan; Helsel, Inc. Employee's Retirement Plan; Helsel, Inc. Employee's Savings and Investment Plan; Sinterloy Corporation 401(k) Plan; Hawk Motors, Inc. Employees' 401(k) Plan; Hawk Corporation 401(k) Savings and Retirement Plan; and Quarter Master Industries, Inc. Profit Sharing Plan and Trust and in the Registration Statement (Form S-8 No. 333-47220) pertaining to the Hawk Corporation 2000 Long Term Incentive Plan of our report dated February 27, 2004, with respect to the consolidated financial statements of Hawk Corporation and subsidiaries included in this Annual Report (Form 10-K) for the year ended December 31, 2003. /s/ ERNST & YOUNG LLP Cleveland, Ohio March 23, 2004 EX-31.1 12 l05225aexv31w1.txt 302 CERT OF CEO EXHIBIT 31.1 CERTIFICATION OF CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER AND PRESIDENT (PRINCIPAL EXECUTIVE OFFICER) I, Ronald E. Weinberg, Chairman of the Board, Chief Executive Officer and President of Hawk Corporation, certify that: 1. I have reviewed this annual report on Form 10-K of Hawk Corporation; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 26, 2004 /s/ RONALD E. WEINBERG - ---------------------- Ronald E. Weinberg Chairman of the Board, Chief Executive Officer and President 81 EX-31.2 13 l05225aexv31w2.txt 302 CERT OF CFO EXHIBIT 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL OFFICER) I, Joseph J. Levanduski, Chief Financial Officer of Hawk Corporation, certify that: 1. I have reviewed this Annual report on Form 10-K of Hawk Corporation; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 26, 2004 /s/ JOSEPH J. LEVANDUSKI - ------------------------ Joseph J. Levanduski Chief Financial Officer 82 EX-32.1 14 l05225aexv32w1.txt 906 CERT OF CEO EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Hawk Corporation (the "Company") on Form 10-K for the period ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ronald E. Weinberg, Chairman of the Board, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ RONALD E. WEINBERG - ---------------------- Ronald E. Weinberg Chairman of the Board, Chief Executive Officer and President March 26, 2004 This certification is made solely for the purpose of 18 U.S.C. ss. 1350, subject to the knowledge standard contained in that statute, and not for any other purpose. 83 EX-32.2 15 l05225aexv32w2.txt 906 CERT OF CFO EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Hawk Corporation (the "Company") on Form 10-K for the period ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Joseph J. Levanduski, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/ JOSEPH J. LEVANDUSKI - ------------------------ Joseph J. Levanduski Chief Financial Officer March 26, 2004 This certification is made solely for the purpose of 18 U.S.C. ss. 1350, subject to the knowledge standard contained in that statute, and not for any other purpose. 84 GRAPHIC 16 l05225al0522501.gif GRAPHIC begin 644 l05225al0522501.gif M1TE&.#EAQP%*`?<``#\_/_[^_J>GIT5%11`0$$='1Z"@H$1$1/#P\):6EN_O M[V=G9^+BXJ&AH6-C8V5E9>/CXZ6EI>[N[J.CH^3DY#$Q,:2DI"HJ*EY>7H*" M@E5556%A85]?7U%1428F)J:FIEQ<7%I:6EU=72DI*5A86**BHDM+2U-34TU- M34)"0O'Q\3,S,Y^?G^;FYI24E.7EY6]O;UE962(B(FMK:UM;6YV=G8V-C49& M1D]/3R0D)&!@8-75U34U-7=W=W1T="@H*%=75YJ:FMO;VRPL+&EI:6YN;A04 M%(6%A5965F)B8E)24DA(2)&1D1$1$8:&AB`@((^/CZFIJ2XN+L'!P7!P<'EY M>;&QL;V]O>KJZK.SLZRLK.?GYR,C(S@X.')RA45%QX>'O?W]ST]/30T-.'AX?;V]M/3T_CX M^$%!0;JZNKFYN;:VMM_?WTE)2<_/SX2$A(F)B'A\K*RH.#@SDY.<7%Q:ZNKBLK*_O[ M^SWM#0T-G9V0```)F9F?___P`````````````````````````` M```````````````````````````````````````````````````````````` M```````````````````````````````````````````````````````````` M```````````````````````````````````````````````````````````` M`````````````````````"'Y!```````+`````#'`4H!``C_`(T)'$BPH,&# M"!,J7,BPH<.'$"-*G$BQHL6+&#-JW,BQ8T5B($.*'$FRI,F3*%.J7,FRIO8"%F#4NVK-FS:--&'*NVK=NW<.-B!2JWKMV[>/,69*NWK]^_ M@*OR#4RXL.'#%PZ MIE.K7MU0-.O7L#^[C@T5@T@6"1>`3!#1!\@P$3.$Q$0;].SB2FV/K(%0-S'> M$'T3`^Y0^,@J3QN`!(&2+@Y0%)_+ATH4((E+=C@@R,1YP1) M&&K(H4L]F)%2BBU"Q6*2'+V($HTMV6@,CB3I2(R#`JW74A@"@+3A2T6"Y(4H M(,%PXGM,2K5DFAHY28Q^_/D7)8*_&5.%25@2I*5*7'HY9`9:@%2(%2>%Z8`Q M%A)CYG9L*HE:HT@I)XH73\I9DA9[2HF>G3"6(5*>QEAW"8DK]4G,EU<&2LR@ MA1IY:**+HO\)Z5)KSDJ1FR9!R9*F);'@:4B@[OD2JH`*2JA)AB):YIFRVGI4 MKW_X9[K%T9!'BB,2\NFQ(Z++KT;H2>W4G MOQ,1/!(5%:=%<<=;77RE11J+Q#'(9GV,LE47HY*1#6*N?);*,M>,,LTVY\PN MSCKW/"O//@?-)-!"%QT?T48G31O22C>]&M-.1TT:U%)7W1G55F=-&=9:=]T8 MUUZ';1C88I?]%]EFIXT7VFJW'1?;;L>M%MQRUUT6W7;G[17>>O?_+=^C?@<^ M-N""%WXVX88GOC;BBC?^-N..1SXWY))7?C?EEF>^-^::=_ZWYZ"#Q7?HI"LT M>NFH[\5YZJP3=7KKJ+_>.,#$]*`0%,04D10;(G6PD"W$F'#SZK!#1#LQ`A^$ M>^Z[C^1[0L`+#[+LBA^O4K&K\H)2F&*2&1(,BH2$QA0AD2`0[R>)<$I(0,Q! MT@W&C!)2"I!2G[CU/)D$_DD:&(-^3O1KE/T,A[^38"]_(NG?_T#"`5S0)(!L M&F#A:&<#;Q4,)70@E!@4U@-2Z(]9_//?3#2P`Y)`,$T2%-R/;&>,DHGD2P<4 M20:)L<':>;`DL4*)`D&2A%:\A(0FK!_Q_XKGD!4.Q(5^2E5)9EC##GY04>$# MR?C*=SX>^A`E[4M@"9500I"<<&A#)*)DY#<_(8K1-&3THAG/R,:@I+"-C7LC M'(T1!)'H8"#N6444IVB^KLD1CG4,R1T%XIZ2]%%K?VQC($$RR$+J420A"%LB MV;A(8MPQ48R:P$@.:;5)GK&2EQP)=R*P242&$77[6@EVAE))DXRRE%GS9-!Z M<)(S"*`8N!1``0@P````8`!J0$GR,$(JD6#`&-KACB8C24I.5DV6,J/42)3P M`5Q:\YK6U"4O?N@63$J)+":V$QG.K792V^ZTYL'X()(=$8!' M@&0!*#UEV9P3@I:^]*]KTZ3_V>:T MJ4UM85E+4YLF%K:Q345HW49:S"@'M[FU[&YYZ\L#&.&UP`6N'H3;K+(5ES*V MV<`$DIO;Y?*VIL3X;72CJP>"1T9"$"B7>YV%[/,;:X13L#9\0)W"QJ+ MI-BNZYCU)F&[[GWO:N/;7)O&H+[VO2_,].LU_C(F!,3X;X"3Z]W,.I>^"<[P M%A8LR?3*#,(1!O"$=0M?YEX8P1E6,$B<*34'&P;"#A#QB$D\X/B"]\`I3O$6 M<,=BI[F8,"1HF(QGK-P2L_;$.WN06>"K32!GV7$Q!C#9?&-)4U+=4K;]71GNZSIYYG-%+7Q=2H5G6F:VQA M3L,ZUK(F!JV%9NNXF'H!J=8UA5D]4U?3X-?`CFX+7"#L6E.:21T@!K*5O>N0 M6K@-G8XVGU]`[6'WK-ANR?:VN;UJ7EMYHL\6]Z/)30P<$/O:*LJV')+-;@%[ M>]%M``*TY3W>%SCA%_?VF2!"P.]^T_C?5@[XP`D.7'K;VV?H3HN^&^[P1+N[ MU1,5P<0I#ML7)*#>&/_'-WAP0(Q]=[S=$&^UQ$GN:9,3`P7G5CER6.[RER_[ MX\T.^<[$V`>QR MGSN(I+>RNW_!D9OBM(#[SFG\ZLP$Z4`X,'?2PI4`="=^QTE_%!,1(?.K=GF;/*P#VP*:` M#28_/)#!`?.[YWVK?0]\L<^^^!7#O>Z3O_F^MU:>'/A]\^=>QR5,K_*F@0/_ M!U!/?:]"'9[,W[[8;6"([T>?&'$@?_F?>OYO8E_[Z@]]]VL/_M'@/O[S5WW+ M1P/XEW^A!P7M5S&V-Q7B)W\!"%6<]TX#M0$%:(!M1@%_0`S>)S$+&!5+`'\. M^(`N57]4U00$:('!EX'PLS/]]QE=,'XBZ''6)X$F6($H>(%0(`4(-BIX(LF"Y=L`$A"(0=57\'4(-&&'Q,H(/ITH%,\8%%T(1. MR%#G!T[$4(13.'/-H=6>(9V>!D\L`%ZN(?TMWI410`B_V"#@)AD$%"&T8*&2(&' M19"(BOA2?>B(D!B).2:(E5B(D\$##J")FSB"JP>&#O")H)AADT@,!T"(MF** MJ)B*3[B*GOB*.*V)A@$*"-MF*)12&,Q/B-#L5J`Y`& MCUB.S&@ASBA`T-@8WNB.N1B.\DB.]&A?Y[B-^-@H!Z`H[AH)NJ`,NDY@)9\0RIV323X5 M*A`7FJ$;VJ$?.A(_$`@D(:(D:J(L@:(JRJ(%:J`8(9T;H:#O"9\UR@C9>:,X M*ILZ:J'$``?&L`LA49NWF9N[V9N_R:$>.A`@6ICF"1+'2:(C6J(D<0C&T`(@ M<0@I2@Q*VIP@L0B^0`PK2@PM.A(O"J-)(J4S^HZK9:-8_UJ?DWD6$``2B/`5 M4*H1B)JH"]E.`\`(#C"?C9I@]HD6D4H,D[HY2=*>9(FIF>I+F]JIG^JHLMDB ME8H1%;``4TJEVP241."IKQI=#*`=@J`4)12D_RD0YBD#`$H)`M$)Q(`'*;.> M@%&KMZJ0_]2JO-JKOIH`(X`47502_QF@13JBF3`ST/H7TJJJF3H`3T`,NXJM M&2:9VWH4W4H2WXH2X_JLAVJKZ'I-[#0`E."J[@JJVBJL(!&+M"+KL##%"FV`LCY; ML0/[D4G;%TN+K@*0=KD7M5)[MK*:MGJQMJK:MF];MF8;KW/[M6"+MU"KM^,U MM?1QLQ9AMY@J`%T``G!;MH1[-'2;%XB;J(K+N(([N'*K(H9;$9,[HX#;N"K[ MN."QN131N9Y[!GE[N2N;N84;N7AANJ>;NJH[#*+;':0[$;#KN7!@N;-+NZP+ MN7X+MKF$NA.KNK6+'+[\)T07$``P0D;_Z MR[_^>Z,`#!L"3`P%/`8C`0J([S"?3P0@"S(+6'#*E'("'&IPFN=FX`$BTR7C:RYY`O" MD4S'64S"(6')(7'")(')?.S'Q@#(.V`,0P##(K$%NA`2H`P2#"`()"'*HRRC MI;Q.V9:6[KK*K1NCB*R_2J#(`2O-P'NHS-S,Z?0!U^R0O:K-V4O-WLQ0'P`` MA)#*-OFKQ."1VWP6ZSH)`C%112P0>NS';2`,`O'+Q,CQ`@H2BDO0RAT"*A M`GI,#"]-##$=R&$L$A-M%`>9JC=MTJ8VE]OYE;&*MBWMT2"=U+T,R$Q=T]T< MU<60TV&XT\MHU6%)%D+-$ET]$DU=%#8MUF.=`DI@UKR(UFV9U<3`T"@QOX`L MTOX\TF$MUA\@9E2MEA!0E'G-)#M9S:I:V&5=U2YPU5@]D14IUR8M9ER)V).= MDTD"DYAMTBF``W8]AHG]SI[=(HT=VM<$V9L]E!&9VBVRCZP]UDA`#*['V02Y MV&E"V[7]`0>``Z\'B*=]C[S-).Q8VSA]VX]GD[$MV[-]V[G=W:[=@.&P'>;=WE MZ-[`&(QY>-[H[=WQQM,D8MSPW=N(R-_]_6H\38?YK=^9:.#%$`$%8`+LW7RQ M:(82:2MJZ.`1$`,(?M8*ON"0HH5<*-8;3@R?%XD40(FCJ(1,Z.`/7@"F,.&0 M1P$?#N(A#H(:SN$G/H882`P6/M[L\H(C3N(0MN-&2`$YN(/LXH-#'M414.0R M3G,]_N-`SBX-Z.(/;@HQ'H=(GH!)R"[_U^0W_>3A%>4$U^,;^.56#H,N3N;B MA8)=SG_O]X,:3@-E#N?[IX#D;1C2)^9C;@(%8.;.IX'NUS''Y^KXRIN[B%I#JE0YZHN?JKP[K:L?I`CWKQ$`(JQY=MTYY-=,'6X?E MQ6`!*%`)P0Y<8U=VQ"XS>5F M;4:#:SH?U1:@!`#0\PD&:M4&]$%_:D-?TA:P`<00\TFF]#6?, M]N<5_=+/0-0/MFC_7UW6-?FL@1_(!;8F/UO$!?[A'UK;/Z,F+UIQ<_AG(5F4 MA:GE/TBTE3>!59WN[EB/!1`!C`TD6-#@080)%2YDV-#A0X@1)4Y4^(`8,1$1 MBFWDV-'C1Y`A18XD6;*C!1$7'5!DV=+E2Y@Q91HC)G#F39PY=>XL:)$8#8TF MA0XE6G0C2I4\E2YEVC1A3:=1I4Z5N>`BL1!!C6[E:C("C:L/J(XE6Y8A5+-I MU98EFO9C*_U5B M&E*K-OD!">XBM84WGCW<>%XON(F=V,V[V(<3RJD'7L:7THO]A!@%$! M';@3\Y+=?-[KY]67K3+>_?@>Z^7C33_?_GW\^1_6U]_?_W_U^`-P0`(+!$U` M`Q-4<,&T$&3P00@CS,E!"2NT\$*'*,1P0PXOU+!#$$-,\$,12S0Q/Q)/5''% M[%)D\4488W,Q1AIK),XF&W/4$;89=_3QQZAZ!')((G$2LD@DDZ3H2"6;=%(A M)I^44LHHI[0RR2JOU!+(++?T,LT$\PZ[]23S#SW]!/-/O\4E,U`!S44SD,3[6BP344;I8Y11R.M#5))*QV- M4DLSC0Q333O]BU-/0Z6O4%%+?9144U.=%%556[V455=CW11666O]E%9; GRAPHIC 17 l05225al0522502.gif GRAPHIC begin 644 l05225al0522502.gif M1TE&.#EAQP%*`?<``!\?']G9V9^?GW]_?U]?7[^_O]_?W_[^_D5%13HZ.HN+ MBT1$1*ZNKDM+2R(B(A,3$Q`0$"$A(4-#0V=G9Z"@H*JJJF-C8S@X.$U-32\O M+TA(2,C(R&EI:3P\/*FIJ5I:6DI*2E5558F)B?#P\/'Q\:RLK$)"0B8F)E%1 M43DY.:BHJ(V-C20D)(J*BB@H**&AH2PL+)&1D65E94]/3\'!P3X^/N_O[^[N M[HB(B#8V-E-34S$Q,49&1BTM+=/3TY24E):6EO?W]RXN+FYN;IV=G>3DY)J: MFEY>7G!P<&IJ:C`P,*VMK5Q<7%=75UA86-'1T7)R=[>WEM;6X&!@30T-.7EY:.CHY*2DH6%A4Y.3C(R,GM[>Z6EI5E9 M66AH:,/#P]75U2LK*YB8F./CXS,S,Y"0D.WM[5145+BXN,_/S^?GYT='1S4U M-2`@("4E):*BHLO+R_/S\\K*RG1T=)65E1(2$N#@X)>7E[V]O6%A8104%'5U M=7U]?;>WM]SGI_+R\KJZNH^/CP@(".KJZA$1$145%8>'AQX>'A<7%PX. M#F]O;[*RLH"`@+FYN;FYA86%H2$A+2TM(*" M@N+BXCOKZQP<'"HJ*AD9&<3$Q`H*"LS,S&UM M;7IZ>@4%!;"PL+&QL4Q,3-O;V[:VMA@8&&1D9`<'!\W-S69F9@8&!J2DI!L; M&YN;FVQL;#T]/8:&ANSL[.GIZ4%!07-S-#0T`P,#`("`@\/#_KZ^C\_/YF9F0```/___P`` M```````````````````````````````````````````````````````````` M`````````````````````"'Y!```````+`````#'`4H!``C_`-4)'$BPH,&# M"!,J7,BPH<.'$"-*G$BQHL6+&#-JW,BQ8\5T($.*'$FRI,F3*%.J7,FRIO8"%F#4NVK-FS:--&'*NVK=NW<.-B!2JWKMV[>/,69*NWK]^_ M@*OR#4RXL.'#%PZ MIE.K7MU0-.O7L#^[CBUQ1D@&"9V`E"-1!D@\#Y&(5'#0#,A6#UN!-/,P!L@A M`X&$G*`.3T@9#-F`_$!;Z^SN#C&0_\1M4'$5]QZ!"XHUWD'GH0:0>>PVY]UY\ MQR6W7'//13=====EM]U""::SX(-".!,4($GDZG,3C2D0,5&1) M#(RB)),@.0GE25*2U$@C)W%)4@N5B$FFB":QZ2:<.^'))T5[CBJ0GR`A);DK[\_N>O2``O&,S`!8M%;>"E.['O)KT;DK#[L=+5)66M M-4)"%()%6=CM\EZ:!.B@'W(I+@@Q]4>.]$G0W2D4M%DPX6P/?U M>_)!"9\.\4H9CSSS>"U//4?"0W\]>-9O[_WW!G4/_OC>BT_^^H)QT2\8A@$2(2EV@P(S+QB8)Q M(A2G"!4E4O&*`K$B\RA6.74,85%?^0%(.$!$+0*/8B8AVE;$F`XR#M&,@T,C M2CS@AI!4@EQ(BPH;VT@BE)1!'2\P">W2(8-NA.1J*WH?'+76K;(YSR7F@LH> MTR$)8?#D)#.`WR)QUDC+O00^DA1))2]IDDPJ4HH<[%;08`+*4*8$=CDQ)?LV M63,Y?E(J^GFERG0BR_71LI:40U)*[IB.5C)%/U6P5^M&@IVYI0,*ESC)(/]E M)P7-[Y=8K(AVF'!!;&9S(MOL)BJ_24Z/>+-F;WB%0E*!/"@4LYQ*.:>TT$B\ M+X*$CB"I!`[>&?\6D:7#`NJ8VQ\'$DANRJ%ORG("`N6)%A.`!`P,:8!(%)84 M>@K$GB8Q)E?\F8Y(J&R@@`2)+PI`$H4>D*%G<2A(LB`&D?@@!"%Y0A-$THLN MF*0"ZH!I.E2@CL:=1QU,`,F/'&+1)(4$GR%Q4C]#XM&0@#20Z1CI2$QZTG&N M1J7I8"DI3S)4AA1U)$@-B4:WXD^`"I0@!57'04<2@JKF":M9;>E62]+5A7Q5 M))A0ASN'`Y:R!A0D(`TI-P6RUI"T=8`H+0M<3R)3EMC()755B"U)@D]]BK6O M(#$K2*"9#GVE5:TD.2P`$QL6+?#DL2V);$(H)@Q%,2!TZ"&`LXR9GE\8VCK*)"3'&':/W0>T-"9#5 MH3.1(+DCPFL`DYU,9BA+^<7[1 MS.?]+N`$`KIAF]_BXRV+1\Y#'@F=+>*;88PYSW@V?"IE&Z4#MHAU"ZS?<.M>YEC2O)[T`7Z,(<'6F!WNTO];GB/ MVP6=Y2"Z)Q.D%=@@"/C6][[SW&]_]UD"``&1[$X08&R#C":Z#PA3NY MX0Y_.,`'.T&*,R:H*__`>,8-L/&.>US&(`\YGR%^(@B:'#$2L(;*5ZYQ#7#\ MY::.L,Q#+H$P&,CF]$8?-73.@>B+G;M4KWL5D]'VHU+P'.X'>YQ MU\#A`F3_>Z7Q[S-CX[2!2//\87!`8D^4-!U`"24@CD`NFX@D`2(!(:*$6GGP\] MX$=/^BH%_?907"`/8#$=OQS/4%@/Q+9$X3VZ;"].G"O>W7POO=(T2G_ M2((O?-%/GM2$/WWR);Q\$@0@`*MP/O0I0HJ1F(`AIP#)!5@C_8'`_@D"H03I M0`8ID`Z`L`4GT7W?9Q/O]1#B-S2@5WX:=W[&=WPCMGX/9W0@X'[O!W]3,G\2 M47\B<7\+D7_IL'_]PWEM07TB08`&B(`FH8`XT8`-H3@5$X$2.'I;@'YBIWX8 M"%X2T`P(P($=Z($J8A%@4&L!,!(:0`GIH`%G(`)N'LW M08,,88/>@H/"IX,\*'4^B(%G-PQ$6(2K,"6))!%)B`%+*!)-F!)32(4JJ!;_ M%X`#6(`I(8-U(!`U$!.3\!!@F$9>5WY!@`$[6('X_X5\/RAE:;B&10A_8O2& M$!&'9@6>Z@.`NB"?\B%@2B(**%5(U&(#?%I*H$)B3B& MC%B&'G>&J$=S:EB)OK@&ES@1F@@2G,@2H=A!HX@6I7B*?H@2@#@0@P@2!:`. M#A4`X@%1/``2=@!3L+@0LK@2M"B!&G>+%:B+A\>+E.B+[P>,Z=!+#C&,Z5", MQI@:57@6W\@2X2B.BY@"N+AOYEAV-/<&Z:B.ZRA&[L@0\*@%ZD!2(`&%("$! MC#`2QR@;R<@G]XB/M1AY^]B/[?:/52>1,A>0(TF2:R`=!_\)/O4($3F0>P7!>ZOX!84XB-.($8<3$RRICR_) MD=%&=I'(?@`GD"0YE3=9:[Y4D7G1DR`A@R%Q!@@`$I307D5I$4D`D>F0`(.) ME7>!?8>)F">AF!/193.A`#:0@VD9F9#(EN=`;NGPEI:YFT70`H+0$)MYEP+A MF25!FOQGFG:!FH>Y@.G@E23!FA#AFJ\9FVAY`4P):3*I?,8P"Y6YF^]7!)B) MD"/_.!!ZZ9`A89S'Z1F&Z9/,N8K1&!++)1'221.P69W7R7"2^8.XJ9O>:9G@ MF0X-L!#!B9=ZR9=U()'IV1GK61*!^)[2V)JD5)^*B`+6:8;YN7ZXZ07=V9_? M:1T!FA#!&1(@\(E\J0X'*A(3"1J$V1"&"0NFQ0@2$!(-F@YAZ2H4,9\U(:'" M%P44>I\?=Z&H5VWIH*$@Z,V(0+4&7H\ M6J$OEYU])J1$6J3>600B\Z%U"1)RR*0@8:"CJ0[YEZ(JBIRL,6QS9:7EQZ,Y MX*-C5YOKYZ4;"J8=**8`6CYPNAIR.J=7"GAVBJI MGNJ/H#ITE=8'I6JJ''JD2J"J@VH:K>JJF8JEG:JH4U>K(7>KN:JK1BHRJ4H] MJRH5P>JJF#H"Q#JKX(:L_E9IJ;"LS&JDSO"$T/JKI#&MPFJMD2>KQAIBVBIN MW.JMWVJDF-"KS!.M4/%JU"HFZ(JH.B`(ZVJ!R?>N\>JG11"N/%"OY`H:^)JO M(N$&^[JI(>"OV:JG5;<`G#`#\#JP\BH$"`L\"\NP#?NP31<%$?NOND:Q,B>P M&@NF!9L.!PL\]LH4'PNR(6$%(O_++&1V0`L=``*"; MN(M+$FE0MYMZMV3[HY&;:GQKN9<;EVU;M%I#N$;1N9\+NJ$K"Z,K$J5[NH]; MMA>XK2C6MZ]KJH&;#@N@N5ICN[C;O$F@N[N;#KT;JZB+G7I;8SA&O,5KO#$` M`\I;,YW_:P'-.[ZYN[L#8+HCVP1PD+J+>KTDAF-HX+K;"[M:DKSML[F4$;[D MN[])X`FC>[[4N[[`ZW#P*[_S"[L_X+WW"[XI(+[[^\#]N[@`/+)S(,!EYKXW MM@@A8,`'/)5YD,"SB[^2H;\/7,))``!R.\$K%P45S+X?)I,%W,&ZF@==8K\% M$VR`E@X!8!"Y`!(^,!&X!PLQ>@H20<(E;,(HK+22@+X9-P4M?,&K&V4XU@4< M+,,D^<$*?,,B;!0YG%4%T`4("&(!`]:7M!/,0&090(D0`- M?,1T'+J#0+-+W'1.;,%-]H]37,563)!8O,!Q@6(A<0,]D`XW_Y`!E^2<(P&= MWC?'=3S)23!>^9K'/+?'+LRN45QB%98.5!S(S$K#PJG%CP'2K#)`)MJ%A;*HFR\OH*7TM)JJ"P2BZP260B# MZ5`$#NK*B6D0"9``LCS+L\P!M3Q7<8#+*^?$N]S'&+P`FZ"]P5RDQPL22E`+ M.U`SF';,,+',*@&C('$&F@:=TUS-UGS-V4Q*VYS):/#-[=O)-V9A!`#(HMRR M(9$+%8`.%"`R?''4'"_^-#C9MTQ0P`>M<+3>W":9P$&-AUMV,!FU=>.T*UW(]U^QHUWB=UY!-`:I0RO$CUHCAUW\-V()=$X3= MQ%UPV,/^5#G%=SO$7$CNPVJW]W'L=UH9QA=97VR/AS#X) MQ$GMV[[-`5W_;!-F<`B>#=JC1-8(-XG_=G85=Y2#&`68-K;"PB8$!)ZX-[O_>#Q#=&Q'174 M;8JIF-_[G>%G_=TS\=\!G@$#_F"@B@`&CN!_"PBI`Q*"X.`/WN*23=E\4H45 M;M_ID,;*N=L0<0';K>'[S0'6UN'B/=Q"$.)V!Z0D_D\F+K1DH``AD0,LWN)0 MCM.O+=^%<84F8>,C@>,.H>/ZS>/=_>,Q$0F'(.1$OM(E=N0'_KID(`(A$0M/ M'N5P'N%Y(N,D00:&B>78G=T1P>5>WN<<$'%A/N8$,.0B;K8(4`XO__VW9-`) M(7$!;P[GD"[G+[*3G)#&!`$'Z9`,`D%[MM<,D,P0%]`!7=[G/0[H+B'F)SWH M1-YO1RX#26ZJTU!'()$`CP[IMB[I]3/A@1'JHT[J/6YT+R'F4Z#JO=Q?XD5( MKUZDTV`%(D'KMO[L4?[B"BGAH\+KOG[M9PWL+2'L!``#(1YNQ^[JWSH-:1`2 M'5#KT)[NKIT!5)XGUH[MV,X!8+P2U:`.W?[M3GGL$Y#LEJD)B@(2'>`!ZC[P MT3X![$[M?/+N\![O%$WOZO`(WF[F^Z7O-Q"I_AX2-2#P!+_Q+F[P[?XB"K_P M#+\2(E`+$?^(%X@`H/`(%<^AMY`-(G$.&O_/\30/WQZ/\.XNZB*_\QS0\"C1 M"2:/769&\=[Y\B&A!3-?\TH/W3\RD!]-X.940?E[?P"R%A M`DF_]&#/VCE]\$Y?[3HO]5)/!U8N$E:O`#1V[!S0\@1Y"^$0$A+P]6&?]WK= M]'/^]'\1]6@O\G20R"0!]'?0"/F%`'<<]P0I#;4@7WBO]Y)_TV/_\2P"^($O M^(0_$EJ`^`_0`(LO]^\G#8\"$CP0^9.?^NMN^0^"^9DO^&,\$@W``Y\_#C(@ M]](07X&@`JK?^ZU=^3@/\F?_^J]/!ZPL$H0`:%5P`WR@(1K`^[X?_9'-]Y/N M]WZQ6)=4`S)`_'3_;/PD,0#,WI#0+_WD[]63/>U]/RH]8`4;4`#N__[P'__R M/__QSP4Q&KTA`0=T,+YT`!!*T@TD"$(%.H0)%2YDV-#A0X@1)4Y$2(%.!G49 M-6[DV-'C1Y`A18XD6=(DQW0'3JYDV=+ERY(]K&PH4-/F39PY=>[DV=/G3YVF M/A`D6K3!08I)E2YEFM0B1IA1I4ZENC%E5:Q9M8J421/H5[!AQ8)]I7N7;PMNX[EV]>OSR=,TD%PX&`;$[/IUKYEW-AMW+R1 M)8>T.]GRY;U_-6\.*W0@80``##.9P^J$8J2.5:^&2$%5.BV794^N/-OV_]S, MG'7OOND9=&C1Z3`X`@&AP:!T!EDO9UYQ`M3;T;?6EEY=:F[>V?^:FC/8`?#0 M#M*]8<"@.`($R)4W9]^8PG/K\:=2EU_?)';M^;^::C)PTW?PPANOO//.0>"! M!5)K;\&FWH/./@A+HB]""CO"3S\,@^KOOP#!$X\\`13`QQ'/T1(!$X4L\DLCX6,RQB7'C,_))SGSH0\P0SCCGW/\2$A.&O#/%//N$D,^60"F* MCX\^&8@,R80HZH^0+DCGBI7^!#0L'\0X*T=#JTQGAAZO3%11+H-T]-'V(I6T M/DI9LI0H3#W2-!U.(_.4*%!!$I74DTP]]:=4TUF$U58/?376*T64DU83`[D5 M5^9TW36^7E?ZM2ATTU6WJ$-8(,@2%X@:X0YU?78_:)BP8#11/XZ&;>V^'HY$&&:M?;<@HK:(T46?8=(M0!Q>IJ1Y9ZW2>4$>@E=-A M1()TQ=Z(;)C-Q@GM=!ZP>6V>O'*/,-?\)BY`&,AST&\6;W2WW]XV;@3$4YUUUEQ_ MG=R]JY)]]G3,T;1V8M5Q.IT@9$DG]\33">#J=*S.92"44V[\\73]3<=KL"6G M'%W+:<1XQ^."!CKWN>:Q372D*]W%3E>]U*T.>TK1WO:JDS0+OJ0#!BM>V6)6 M_\#E(3"!"H1>]&9U.BTM@!/GD.`$X3(!O&50.AB484LV&$".9,"#@.("#PXX MPN8]CX$-A!L*S[$`ZWG`A6\IF@EJ&!T:/C$K.LP`!A2QD`OXPAC+F$BG+)*1:NR>BR#IQHRX2UV;S.,.=<,%$_11 ME%PDI2E+ETHP&G$!K*C!*V$ID2;.DI9,NN4;=3F02O\6A9>6Z>1FN"`P80X3 MB,44Y#%5N-&:#`R+12!*%M8 M0^32D8$;J,L%)"#("0Y!%$\P::27*6DZB#%).<8+D_S,XP#\^1,N0".@`XTI MZ,33!V.:$)7GO&E.'[I3/"$A'4[TR$\[H(Y3E(RH1AW94M<5U21-E:H#L<1I MKJJ.T[PO7E9;A#ALDP&OAB7_K&,MJSC/FM93VO2F./T$--ZZ4PK(0*(=L:M& M\LK7'&@BR<&!I M!*97O35E:WL7X"[XPC6T>A`)1046Y;Y%R0$9B"($=?A@97X=B%-!JEWN MN@BV`#:)@#]T)8N"ZD@%P7P&+:_!?(,;I_T!KC=?;8!POP!A;V/$$>SS&(4=FQ5D627AMH:\D*WG)(V,4-O:UXY8MK5]YF[OVEV^7N*XM<+I)J&;X;WNI` M0+7I_4?QA`#2VMYVG[N]`$+T.MPJ"C8/_MWI3PM\U*7.B,&;FO!H+QPF#9_W MPUW5A(E3'-_YWG7&^=UF"Y#[XP$?R'-!3/"2%P7A%E3XPEGN\B"F`^84SS7- MXX;Q=#2S;AW?"J<]#>J>J_;G)#A(+ZC28R[S&SL=I[J(Q<9S ME?.P3R?E<7<)`E#1\H>+9^E,9[#%:0YUJ8.+`D-('=WK,G?#K\3N>*>WWL^. M=FZK?0&G"?RC*/`(G2>>*D57>2#N3O;0.>'QD/>[TR>?C@ZX?36#+[SF-X]X MUY?$\XR_LWA$SW>$1E[M1SQ-ZNW_]`+":R#VKQ_^5&8/>BK9?O2DW_TJFY$# MU3?F!8^X0/'G`WOKA^3XR'?5[7'?].8_O??1=\L+GA&D[$>%\V'?/O<%Y/WO M5SS\RNQ]!8KT`@)4/_TP67_G/^_^X("_^)NY^=NUT]@"^TL1\T.__7N)_NN\ M3*"]W%*^^`._`NR9TT-`!EG`!FA`_L,^#_2(68A`[A./#U@^OB/`"WPZ7%"# M!&P/_+.H$&R)!U2Y$91`]$J'$ZS`W"N]^5L`*4@'#60/#IQ!EZA!&R1!LC-! M%$S!M%M!G`K"!'A!UGB!*E`,(SQ"$,S"C;A!I&-"'NQ!*%0F*:1"U7B!(Y!! M+CP))$Q"_QR$.!UL0B?4/2@$0G@R0\:P0BQT-4O$1#'41"/BQ'2X`$5\QH$QX$LB6]TQC=)!WO$1VG41RWAQUCP1X8`2($L2))01O_#>X-E0$@/ M41W$=/4(*21(>37,F+ MC$=D;$F.#`Z8C,E\G,E@C)>(C(A"F`#1TL5$2NU`&O'`FPC!`U&`BO`8D- M2@<W?,NOY,DGFLN! M8!99$:-N$N\O*=K\(B]'(B^]`@ED`-UT(-""(F_E$#!-,NSI,.9E```R``J M9$S'A$RXE,P:HLQT@`5P,JH`H)DL4!7_E.J/)^@/=&$`D$C-!"M+PBQ,PQQ) MQ%1,G&S,$+#-VXPUW=S-WHR MYE1/F7S.N&E/HJC.^8Q,[#09_"R9_U27XBS0`QV(!`4))PBG>B,`UHQ)JX10 MK$1,)ZC0IBPTRO2:(TN7#"69#4V7#C50H@C1D$@%;;`S\3!1!UU/")6`;T!) M%Z5/E>N?@3@%CV"!SE2'8'($CO"A*$D'5_"(A@F&D_!1L@K2"AA2(C5,"=`% M)$U2"PT[)G52__D8BE"R%@((4S$=2A5]2,3\`#1]T3P5B3D`!Q$"TSE]T#HM MT\?0TT!-T:OD1SQ%U$/5O`VJ`W5PJ7383XT(IG0``W7P M(3L8E$F@"S0@AX=A5$>=4TA]36.@4$JM5+I+`((X`P,B"$Z5TGSZSH$H5;HP M"TUIU$`=TVGD1R:(53TU/%H="%M-!THP($[U5'7QU;LH@W2P@%5E5;341PE@ MA29`5I6,O0UJUF?=5/ZL&E[MU;RP5FP=5CH525<\`G`-5]<;5P,JU_V4UH$` M53HCB"Q=UW08@VQ5SU;51%&O56BH%)=?=A15=?+D`&*M5A?+-@"M$,+X-A;S#Y-S=6.\*&^ MA($*N`V4%5+"9-GF.[V7A=F8%=J34$J>K"J`*Y=<"G[5NY&@@!7-NDW;56&H@AZ%NIB$M#A0*"2(4R M4ZO"3:'#'0@D4-RJ8-Q8301T:;*#LDH(*@HHP%RY(]V[,`/]*@HL,%V\T%S6 M?=W9<%W8G5W)D%W:O5U#^UO]8C_%2"*Q"T)([A6CA``HCC6CE"! MHGA,!NA*C1`%'52V#M1)W_W=C0A>X36)X@U:C4!>@E!>CF!>HG!>Z,T(Z?T` MZF7*Z\7>C-!>-_"`U(T$/R`(*+@$=/&%X$3YJ70"B@*`D"$E?$"DQ,V1VQ? M]]7>U-6O227?!1Z9'R-%!$Y@OAI;=2A>^EV9!DZ7,1!@@G!'=4A?=4L7+V"U M"`[%"?Y=!7[@D?&%`B"(#?;?@>C@=5'?=2EA`^;#%.;=%69A=7'A@9A4=>C? MC/C?@/5@HO@`C%(7`DX''#[A`];=E1P*-I`*M(T!CG!<@E``D8B#@7B%J8#? M$B`*O@6"@7A;/!@(_RPHAG3(X*((!4Y45.AUOV844HWE66#.1%V!<(7XV0`\$= MXCRKX]HT5$T.NP\UF6`>YF(^YF2N99,1@#THF6=.AVC&"R*P7_RU9G7`YG4I MU#W]9I4+YY(99V(VYEDF"G0N&75F9VB.C'@>B/LMBF.U9W7!YSS5YX7C9_^2 M\>=RUH@K+(%74&:-T&*B*`0%C@9U@.2!,`)%&(A&*-YV?N>\0-Z%AN.!4%Z' M+@H9((580%2)UN63<&G\A6FNS0B';E%N)@B(=M&H*/>HLW-IT^`&-H-MT\`!47@%UX%Q'1I)I5H=J3H=0>.%T M2(+C:E$B_E^LSFJH1E:N'@BO!NNBJ(062(>SCNK;T.H9S.NN5@>^1I?`%NQ& MNNM8S6NO1FR266S&O@S"#D'#WNNB(&N/!NS*;FS>-6QUX>RBP('/GJ;=%6UT MP01U<%R_'@C*/FTX<^S'!M%12`>-'@C6;NUT(&ML-(@$V4;MX![NV*5MXCYN M645NY9Z+RUYNQ6UNYY9;Z(YNLYUNZLY:Z[[NILUN[19:[NYNCOUN\)Y7\1YO M9"UO\Z94]$[OIV9O]U;2]XYOE#!N^19L7+YO_,YO_=YO_NYO__YO``]P`1]P %DPD(`#L_ ` end -----END PRIVACY-ENHANCED MESSAGE-----


Part I
	Our Company
	Discontinued Operations
	Business Strategy
	Our Principal Markets and Products
	Our Business Segments
	Our Manufacturing Processes
	Our Quality Control Procedures
	Our International Operations
	Our Technology
	Our Customers
	How We Market and Sell Our Products
	Our Competition
	The Suppliers and Prices of Raw Materials We Use
	Government Regulation of Our Businesses
	Environmental, Health and Safety Matters
	Our Intellectual Property
	Personnel
Part II
	Quarterly Stock Prices
	Results of Operations
	Outlook for 2004
	Critical Accounting Policies
	Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
	Segment Sales Analysis
	Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
	Liquidity and Capital Resources
	Primary Financing Requirements
	Selected Measures of Liquidity and Capital Resources from Continuing Operations
	Forward-Looking Statements
	ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	Audited Consolidated Financial Statements
REPORT OF INDEPENDENT AUDITORS
	11. Income Taxes
Part III
Part IV
SIGNATURES
AMENDMENT NO.1 TO CREDIT AGREEMENT
SETTLEMENT AGREEMENT
TRANSITION AGREEMENT
COMMON STOCK SELLING PLAN
AMENDMENT NO 1 TO AMENDED AND RESTATED EMP
FIRST AMENDMENT TO AMENDED AND RESTATED EM
CODE OF BUSINESS CONDUCT AND ETHICS
SUBSIDIARIES OF THE REGISTRANT
CONSENT OF ERNST & YOUNG LLP
302 CERT OF CEO
302 CERT OF CFO
906 CERT OF CEO
906 CERT OF CFO


Delaware		34-1608156

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

200 Public Square, Suite 1500, Cleveland, Ohio		44114-2301
(Address of principal executive offices)		(Zip Code)


Title of Each Class		Name of Exchange on Which Registered

Class A Common Stock, par value $.01		American Stock Exchange


	2003			2002			2001


	(in millions)
Net sales	$	14.5		$	11.4		$	7.5

Net loss, net of tax	$	(5.0	)	$	(1.9	)	$	(2.1	)



			Year ended December 31,


			2003				2002				2001



			(dollars in millions)
Net sales to external customers:
	Friction products ⁽¹⁾		$	121.6	60.0	%	$	106.1	57.1	%	$	104.1	58.9	%
	Precision components⁽²⁾			68.1	33.6	%		67.2	36.1	%		59.8	33.8	%
	Performance racing⁽¹⁾			12.9	6.4	%		12.6	6.8	%		13.0	7.3	%

		Consolidated	$	202.6	100.0	%	$	185.9	100.0	%	$	176.9	100.0	%

Gross profit:
	Friction products⁽¹⁾		$	29.5	62.2	%	$	25.4	57.5	%	$	24.9	61.2	%
	Precision components⁽²⁾			14.5	30.6	%		15.1	34.1	%		12.0	29.5	%
	Performance racing⁽¹⁾			3.4	7.2	%		3.7	8.4	%		3.8	9.3	%

		Consolidated	$	47.4	100.0	%	$	44.2	100.0	%	$	40.7	100.0	%

Income from operations⁽³⁾
	Friction products⁽¹⁾		$	8.3	76.1	%	$	7.8	60.0	%	$	6.6	91.6	%
	Precision components ⁽²⁾			2.2	20.2	%		4.3	33.1	%		0.3	4.2	%
	Performance racing⁽¹⁾			0.4	3.7	%		0.9	6.9	%		0.3	4.2	%

		Consolidated	$	10.9	100.0	%	$	13.0	100.0	%	$	7.2	100.0	%


For the fiscal year ended December 31, 2003	Commission File No. 001-13797



			December 31,

			2003		2002


			(in millions)
Total assets:
	Friction products⁽¹⁾		$	101.2	$	95.7
	Precision components⁽²⁾			77.0		75.7
	Performance racing⁽¹⁾			11.0		11.1

		Continuing operations		189.2		182.5
	Discontinued operations			4.3		10.4

		Consolidated	$	193.5	$	192.9



			Year Ended
			December 31,
			2001



			(dollars in
			millions)
Pro forma income (loss) from operations:
	Friction products		$	7.8	77.2	%
	Precision components			1.5	14.9	%
	Performance racing			0.8	7.9	%

		Consolidated	$	10.1	100.0	%


		Selected Key Customers	Principal	Selected
Business Segment		(and Years as a Customer)	Products Sold	Applications


Friction Products Construction		Caterpillar (55 years) Allison Transmission (55 years) Dana Clark Hurth (35 years)	Brake Linings Transmission Discs	Tractors, Motor Graders and Wheel Loaders Lift Trucks and Mining Trucks

	Agriculture	John Deere (45 years) CNH (40 years) AGCO (35 years)	Brake Linings Transmission Discs	Tractors

	Truck	Eaton (30 years) ZF Meritor (2 years)	Clutch Buttons Transmission Discs	On-highway Trucks

	Aerospace	Aircraft Braking Systems (35 years) BFGoodrich (35 years) Parker Hannifin (20 years) Bombardier (10 years)	Brake Linings	Commercial Airliners Commuter Planes Military Helicopters

	Powersport and Specialty	Hayes Brake (20 years) Bombardier (15 years) TRW (10 years)	Brake Linings	Harley-Davidson Motorcycles Snowmobiles AM General Hummer

Precision Components		Eaton (29 years) Electrolux Home Products (20 years) Parker Hannifin (20 years) MTD (20 years) Haldex Barnes (18 years) Hydro-Gear (15 years) Sauer-Danfoss (15 years) Honda (8 years)	Powder Metal Gears Rotors Transmission Components Hubs, Bearings, Spacers and Structural Components	Hydrostatic Transmissions Fluid Power Controls Construction Equipment Industrial Pumps Gasoline Pumps Truck Transmissions Lawn and Garden Equipment


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


ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES


	Quarter Ended	High		Low

2003
	March 31, 2003	$	2.75	$	1.96
	June 30, 2003	$	4.53	$	2.35
	September 30, 2003	$	4.35	$	3.11
	December 31, 2003	$	4.10	$	3.40
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


Years ended December 31,		2003			2002			2001			2000			1999


		(in millions, except per share data)
Income Statement Data:
Net sales		$	202.6		$	185.9		$	176.9		$	195.9		$	180.9
Gross profit			47.4			44.2			40.7			53.9			47.3
Pension curtailment and contractual termination benefit costs⁽¹⁾			1.9
Restructuring costs⁽²⁾									1.1
Income from operations⁽³⁾			10.9			13.0			7.2			21.4			19.7
(Loss) income before discontinued operations and cumulative effect of change in accounting principle			(0.4	)		0.8			(2.2	)		6.7			6.9
Discontinued operations, net of tax			(5.0	)		(1.9	)		(2.1	)		(0.9	)		(0.6	)
Cumulative effect of change in accounting principle, net of tax						(17.2	)
Net (loss) income			(5.4	)		(18.3	)		(4.3	)		5.8			6.3
(Loss) Earnings Per Share:
	Basic (loss) earnings before discontinued operations and cumulative effect of change in accounting principle	$	(.07	)	$	.08		$	(.27	)	$	.77		$	.78
	Discontinued operations		(.58	)		(.22	)		(.25	)		(.11	)		(.07	)
	Cumulative effect of change in accounting principle					(2.01	)

	Basic (loss) earnings per share	$	(.65	)	$	(2.15	)	$	(.52	)	$	.66		$	.71

Diluted (loss) earnings before discontinued operations and cumulative effect of change in accounting principle		$	(.07	)	$	.08		$	(.27	)	$	.77		$	.78
	Discontinued operations		(.58	)		(.22	)		(.25	)		(.11	)		(.07	)
	Cumulative effect of change in accounting principle					(2.00	)

Diluted (loss) earnings per share		$	(.65	)	$	(2.14	)	$	(.52	)	$	.66		$	.71

Other Data:
Depreciation		$	10.1		$	10.2		$	10.7		$	10.4		$	9.5
Amortization⁽⁴⁾			0.8			0.8			3.8			3.4			3.0
Capital expenditures (including capital leases and financed capital expenditures)			11.2			9.7			8.5			8.5			8.6


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


Net Segment Sales:		2003		2002		$ Change		% Change


		(dollars in millions)
Friction Products		$	121.6	$	106.1	$	15.5		14.6	%
Precision Components			68.1		67.2		0.9		1.3	%
Performance Racing			12.9		12.6		0.3		2.4	%

	Consolidated	$	202.6	$	185.9	$	16.7		9.0	%


ITEM 1.	BUSINESS


	*Friction Products*


	*Precision Components*


ITEM 2.	PROPERTIES


Gross Profit Margin:		2003			2002			% Change

Friction Products			24.3	%		23.9	%		1.7	%
Precision Components			21.3	%		22.5	%		(5.3	%)
Performance Racing			26.4	%		29.4	%		(10.2	%)
	Consolidated		23.4	%		23.8	%		(1.7	%)


Income from Operations by Segment:		2003		2002		$ Change			% Change


		(dollars in millions)
Friction Products		$	8.3	$	7.8	$	0.5			6.4	%
Precision Components			2.2		4.3		(2.1	)		(48.8	%)
Performance Racing			0.4		0.9		(0.5	)		(55.6	%)

	Consolidated	$	10.9	$	13.0	$	2.1			(16.2	%)


ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


		Total		2004		2005 – 2008		Thereafter

Contractual obligations:
	Short-term debt ⁽¹⁾	$	1.3	$	1.3
	Bank Facility ⁽¹⁾		24.1			$	24.1
	Senior Notes ⁽²⁾		66.2				66.2
	Capital lease and other obligations ⁽²⁾		3.4		1.1		1.9	$	0.4
	Operating leases ⁽²⁾		10.1		2.6		5.5		2.0

Total contractual obligations		$	105.1	$	5.0	$	97.7	$	2.4

Other commercial commitments:
	Stand-by letters of credit	$	3.5	$	3.5


⁽¹⁾	Variable rate obligations

⁽²⁾	Fixed rate obligations


Report of Independent Auditors			34
Consolidated Balance Sheets			35
Consolidated Statements of Operations			37
Consolidated Statements of Shareholders’ Equity			38
Consolidated Statements of Cash Flows			39
Notes to Consolidated Financial Statements			40



			December 31

			2003		2002

Assets
Current assets:
	Cash and cash equivalents		$	3,365	$	1,702
	Accounts receivable, less allowance of $429 in 2003 and $502 in 2002			32,272		29,475
	Inventories:
		Raw materials and work-in-process		21,277		20,211
		Finished products		14,147		12,470

				35,424		32,681
	Deferred income taxes			3,551		745
	Taxes receivable			521		3,333
	Other current assets			4,032		3,909
	Current assets of discontinued operations			4,302		3,965

Total current assets				83,467		75,810
Property, plant and equipment:
	Land and improvements			1,944		1,676
	Buildings and improvements			19,937		19,415
	Machinery and equipment			104,370		93,180
	Furniture and fixtures			8,405		7,693
	Construction in progress			5,622		6,247

				140,278		128,211
	Less accumulated depreciation and amortization			77,142		66,391

Total property, plant and equipment				63,136		61,820
Other assets:
	Goodwill			32,495		32,495
	Other intangible assets			9,904		10,701
	Shareholder notes			1,000		1,010
	Other			3,547		4,636
	Long-term assets of discontinued operations					6,408

Total other assets				46,946		55,250

Total assets			$	193,549	$	192,880



			Year ended December 31

			2003			2002			2001

Net sales			$	202,551		$	185,912		$	176,888
Cost of sales				155,182			141,716			136,140

Gross profit				47,369			44,196			40,748
Operating expenses:
	Selling, technical and administrative expenses			33,731			30,474			28,782
	Restructuring costs									1,055
	Pension curtailment and contractual termination benefit costs			1,920
	Amortization of finite-lived intangible assets			800			767			3,733

Total operating expenses				36,451			31,241			33,570

Income from operations				10,918			12,955			7,178
Interest expense				(10,752	)		(10,366	)		(10,081	)
Interest income				57			116			229
Exchange offer costs							(1,851	)
Other income (expense), net				183			(718	)		(480	)

Income (loss) before income taxes, discontinued operations and cumulative effect of change in accounting principle				406			136			(3,154	)
Income tax provision (benefit)				855			(669	)		(937	)

(Loss) income before discontinued operations and cumulative effect of change in accounting principle				(449	)		805			(2,217	)
Discontinued operations, net of tax of $2,700 in 2003, $825 in 2002 and $921 in 2001				(4,973	)		(1,850	)		(2,119	)
Cumulative effect of change in accounting principle, net of tax of $4,252							(17,200	)

Net loss			$	(5,422	)	$	(18,245	)	$	(4,336	)

(Loss) earnings per share:
	Basic (loss) earnings per share:
		(Loss) earnings before discontinued operations and cumulative effect of change in accounting principle	$	(.07	)	$	.08		$	(.27	)
		Discontinued operations		(.58	)		(.22	)		(.25	)
		Cumulative effect of change in accounting principle					(2.01	)

	Net loss per basic share		$	(.65	)	$	(2.15	)	$	(.52	)

	Diluted (loss) earnings per share:
		(Loss) earnings before discontinued operations and cumulative effect of change in accounting principle	$	(.07	)	$	.08		$	(.27	)
		Discontinued operations		(.58	)		(.22	)		(.25	)
		Cumulative effect of change in accounting principle					(2.00	)

	Net loss per diluted share		$	(.65	)	$	(2.14	)	$	(.52	)



													Accumulated Other
													Comprehensive Income
													(Loss)

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

Balance at January 1, 2001			$	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 of $310															(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										(1,045	)											(1,045	)
	Other comprehensive income (loss):
		Minimum pension liability, net of tax of $2,435															(3,901	)					(3,901	)
		Foreign currency translation												666									666
	Cumulative change in accounting principle, net of tax										(17,200	)											(17,200	)
	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

	Net loss										(5,422	)											(5,422	)
	Other comprehensive income (loss):
		Minimum pension liability, net of tax of $14															23						23
		Foreign currency translation												2,330									2,330
	Total comprehensive loss																						(3,069	)
	Preferred stock dividends										(150	)											(150	)
	Issuance of common stock from treasury as compensation and exercise of stock options							(133	)											223			90

Balance at December 31, 2003			$	1	$	92	$	54,483		$	(4,344	)	$	373		$	(4,456	)	$	(4,444	)	$	41,705


Loss before discontinued operations, as reported	$	(2,217	)
Add back: Goodwill amortization, net of tax		2,354

Adjusted income before discontinued operations	$	137

Earnings per share (basic and diluted):
Loss per share before discontinued operations, as reported	$	(.27	)
Goodwill amortization, net of tax		.27

Adjusted earnings per share before discontinued operations	$	.00


Friction products	$	11,100
Performance racing		4,007
Motor		6,345

Total	$	21,452


	2003		2002

Accounts receivable	$	2,801	$	3,286
Inventory		739		580
Other current assets		40		99
Property, plant and equipment		320		6,072
Other long-term assets		402		336

Total assets of discontinued operations	$	4,302	$	10,373

Accounts payable	$	2,870	$	1,747
Other accrued expenses		465		379
Current portion of long-term debt		317
Long-term debt				633

Total liabilities of discontinued operations	$	3,652	$	2,759


Amounts recognized as restructuring charges in the consolidated statement of operations	$	1,055
Payments in 2001		605

Accrued restructuring charge as of December 31, 2001	$	450

Payments in 2002		378
Other		72

Accrued restructuring charge as of December 31, 2002	$	0


Precision components	$	28,109
Performance racing		4,386

Total	$	32,495



	December 31, 2003						December 31, 2002

			Accumulated						Accumulated
	Gross		Amortization		Net		Gross		Amortization		Net

Product certifications	$	20,820	$	10,984	$	9,836	$	20,820	$	10,264	$	10,556
Other intangible assets		2,719		2,651		68		2,719		2,574		145

	$	23,539	$	13,635	$	9,904	$	23,539	$	12,838	$	10,701



	December 31

	2003		2002

Short-term debt	$	1,326
Old Senior Notes			$	583
Senior Notes		66,183		66,059
Bank Facility		24,059		36,327
Other		3,408		5,351

		94,976		108,320
Less current portion and short-term debt		26,533		39,430

	$	68,443	$	68,890



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

$ 3.40 to $ 3.50		312,542	$	3.40		7.7		312,542	$	3.40
$ 3.51 to $ 5.00		285,177	$	3.85		7.7		263,966	$	3.81
$ 5.01 to $ 6.00		135,362	$	5.42		6.8		66,198	$	5.46
$ 6.01 to $16.99		66,700	$	6.86		5.6		53,600	$	6.87
$17.00 to $17.94		22,000	$	17.09		3.0		22,000	$	17.09


		2003			2002

Weighted average rates used to compute the projected benefit obligation as of December 31:
	Discount rate		6.25	%		6.75	%
	Rate of compensation increase		3.03	%		3.02	%
	Expected long-term return on plan assets		8.59	%		8.59	%
Weighted average rates used to determine the net periodic benefit cost for the years ended December 31:
	Discount rate		6.75	%		7.26	%
	Rate of compensation increase		3.02	%		3.06	%
	Expected long-term return on plan assets		8.59	%		9.34	%


Year		Pension Benefits

	2004	$	1,193
	2005	$	1,325
	2006	$	1,368
	2007	$	1,434
	2008	$	1,540
	2009-2013	$	8,876


		2003		2002

Deferred tax assets:
	NOL and AMT carryforward	$	3,755	$	988
	Accrued vacation		618		555
	Employee benefits		2,616		1,852
	Other accruals		3,484		1,498
	Foreign net operating loss carryforwards				352
	Book over tax goodwill amortization		1,109		2,161
	Inventory		557		527

Total deferred tax assets			12,139		7,933
Deferred tax liabilities:
	Tax over book depreciation		10,066		9,409
	Tax over book intangibles amortization		2,192		1,708
	Foreign leased property		353		340
	Debt financing costs		178		746
	Other		159		230

Total deferred tax liabilities			12,948		12,433

Net deferred tax liabilities		$	809	$	4,500