<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1997
Commission file number 333-18433
HAWK CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 34-1608156
- ------------------------ ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
200 Public Square, Suite 30-5000, Cleveland, Ohio 44114
-------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(216)861-3553
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of the date of this report,
the Registrant had the following number of shares of common stock outstanding:
Class A Common Stock, $0.01 par value: 1,443,978
Class B Non-Voting Common Stock, $0.01 par value: None (0)
1
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INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
2
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3
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS (Unaudited)
HAWK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
(UNAUDITED) (NOTE)
------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,586 $ 25,774
Accounts receivable, less allowance
of $180 and $182, respectively 23,043 16,783
Inventories 23,322 20,864
Deferred income taxes 2,483 2,432
Other current assets 425 935
-------- --------
Total current assets 62,859 66,788
Property, plant and equipment:
Land 1,195 1,080
Buildings and improvements 8,119 7,615
Machinery and equipment 50,738 45,766
Furniture and fixtures 1,647 1,611
Construction in progress 4,604 2,825
-------- --------
66,303 58,897
Less accumulated depreciation 17,886 14,755
-------- --------
Total property, plant
and equipment 48,417 44,142
Other assets:
Intangible assets 46,772 39,939
Net assets held for sale 3,604 3,604
Shareholder notes 1,775 1,838
Other 1,474 2,130
-------- --------
Total other assets 53,625 47,511
-------- --------
Total assets $164,901 $158,441
======== ========
</TABLE>
4
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HAWK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
LIABILITIES AND SHAREHOLDERS' EQUITY (UNAUDITED) (NOTE)
------------- -----------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 10,087 $ 8,194
Accrued compensation 6,189 6,775
Other accrued expenses 3,129 2,405
Current portion of long-term debt 791 714
-------- --------
Total current liabilities 20,196 18,088
Long-term liabilities:
Long-term debt 130,543 128,469
Deferred income taxes 4,711 4,090
Other 1,963 2,004
-------- --------
Total long-term liabilities 137,217 134,563
Detachable stock warrants, subject to put option 4,600 4,600
Shareholders' equity:
Series A preferred stock, $.01 par
value and an aggregate liquidation
value of $1,375,000, plus any accrued
or unpaid dividends, with 10% cumulative
dividend (2,625 shares authorized, 1,375
shares issued and outstanding); Series B
preferred stock, $.01 par value and an
aggregate liquidation value of $702,000,
plus any accrued or unpaid dividends, with
9% cumulative dividend (702 shares authorized,
issued and outstanding); Series C preferred
stock, $.01 par value and an aggregate
liquidation value of$1,190,000, plus any
accrued or unpaid dividends with 10%
cumulative dividend (1,190 shares authorized,
issued and outstanding) 1 1
Class A common stock, $.01 par value;
2,200,000 shares authorized,
1,443,978 issued and outstanding 14 14
Class B common stock, $.01 par value,
375,000 shares authorized,
none issued or outstanding
Additional paid-in capital 1,964 1,964
Retained earnings (deficit) 1,509 (974)
Other equity adjustments (600) 185
-------- --------
Total shareholders' equity 2,888 1,190
-------- --------
Total liabilities and shareholders' equity $164,901 $158,441
======== ========
</TABLE>
Note: the balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. See notes to condensed consolidated financial statements.
5
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HAWK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 76,981 $ 62,923 $ 40,097 $ 31,501
Cost of sales 54,045 46,349 27,677 23,293
--------- --------- --------- ---------
Gross profit 22,936 16,574 12,420 8,208
Selling, technical and
administrative expenses 9,447 7,655 4,893 3,986
Amortization of intangibles 1,626 1,583 797 932
Plant consolidation expense 2,139 1,539
--------- --------- --------- ---------
Total expenses 11,073 11,377 5,690 6,457
Income from operations 11,863 5,197 6,730 1,751
Interest expense 7,059 4,974 3,380 2,461
Other expense, net 30 10 280 5
--------- --------- --------- ---------
Income (loss) before income taxes 4,774 213 3,070 (715)
Income taxes 1,989 422 1,183 6
--------- --------- --------- ---------
Net income (loss) $ 2,785 $ (209) $ 1,887 $ (721)
========= ========= ========= =========
Preferred stock
dividend requirements $ (160) $ (163) $ (80) $ (82)
Net income (loss) applicable
to common shareholders $ 2,625 $ (372) $ 1,807 $ (803)
Net income (loss) per share
applicable to common
shareholders $ 1.49 $ (0.21) $ 1.03 $ (.46)
Number of shares
used to compute
per share data 1,760,946 1,760,946 1,760,946 1,760,946
</TABLE>
See notes to condensed consolidated financial statements.
6
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HAWK CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30.
---------------------
1997 1996
-------- -------
<S> <C> <C>
Net cash provided by (used in)
operating activities $ 2,398 $ (966)
Cash flows from investing activities
Purchase of Hutchinson (10,638)
Purchases of property,
plant and equipment (3,793) (6,856)
Payments received on shareholder notes 63 96
-------- -------
Net cash used in investing activities (14,368) (6,760)
Cash flows from financing activities
(Payments) proceeds from borrowings
on long-term debt (203) 7,931
Deferred financing costs 112
Payments of preferred
stock dividends (160) (163)
Other 33 224
-------- -------
Net cash (used in) provided
by financing activities (218) 7,992
-------- -------
Net (decrease) increase in cash
and cash equivalents (12,188) 266
Cash and cash equivalents at beginning of period 25,774 771
-------- -------
Cash and cash equivalents at end of period $ 13,586 $ 1,037
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
7
<PAGE> 8
HAWK CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six-month periods ended June
30, 1997 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1997. For further information, refer to the
condensed consolidated financial statements and footnotes thereto included in
the Form S-4 (Registration No. 333-18433) for Hawk Corporation (the "Company")
for the year ended December 31, 1996.
Net income per share is based on the weighted average number of common shares
and common share equivalents (warrants) outstanding during the respective
periods. Earnings available to common shareholders includes an adjustment for
preferred stock dividends paid during the respective periods.
The Company's principal business is the design, engineering, manufacturing and
marketing of friction products and precision-engineered components for
aerospace, industrial and other specialty applications.
The condensed consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries and also include, effective January 2,
1997, the accounts of Hutchinson Products Corporation. (See Note 3). All
significant inter-company accounts and transactions have been eliminated in the
accompanying financial statements.
NOTE 2 -- INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) method. The major components of inventories are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
-------- ------------
<S> <C> <C>
Raw materials and work-in-process $ 19,440 $ 17,239
Finished products 4,807 4,226
Inventory reserves (925) (601)
-------- --------
$ 23,322 $ 20,864
======== ========
</TABLE>
8
<PAGE> 9
NOTE 3 -- ACQUISITION
Effective January 2, 1997, the Company acquired all of the outstanding capital
stock of Houghton Acquisition Corporation and merged it into the newly formed
Hutchinson Products Corporation (Hutchinson) for (1) $10.6 million in cash; (2)
$1.5 million in 8.0% two-year convertible notes; and (3) contingent payments to
be made by the Company if Hutchinson meets certain earnings targets. The
acquisition has been accounted for as a purchase. The excess of the purchase
price over the estimated fair value of the capital stock acquired in the amount
of $7.7 million is being amortized over 30 years and is included in intangible
assets. The results of operations of Hutchinson are included in the Company's
consolidated statements of income since the date of acquisition. Hutchinson's
principal business is the production and sale of rotors for use in small
horsepower motors and, to a lesser extent, the machining and sale of aluminum
extrusions and castings, principally fan spacers used by engine manufacturers
and gas nozzles used in gasoline pumping units.
The pro forma unaudited consolidated results of operations for the period ended
June 30, 1996 give effect to the above acquisition as though it had occurred on
January 1, 1996 and include certain adjustments, such as additional amortization
expense as a result of goodwill and deferred financing costs, increased
depreciation expense as a result of the write-up of certain machinery and
equipment to its fair value and increased interest expense related to debt
incurred for the acquisition.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1996
------------------ ----------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C>
Net sales $2,155 $4,310
====== ======
Net income $ 137 $ 274
====== ======
</TABLE>
Pro forma net sales and net income are not necessarily indicative of the net
sales and net income that would have occurred had the acquisition been made at
the beginning of the year or the results which may occur in the future.
NOTE 4 -- LONG-TERM DEBT
In November 1996, the Company issued $100,000,000 in Senior Notes due on
December 1, 2003, unless previously redeemed, at the Company's option, in
accordance with the terms of the Notes. Interest is payable semi-annually on
June 1 and December 1 of each year commencing June 1, 1997, at a fixed rate of
10.25%. Substantially all of the Senior Notes were exchanged for the Exchange
Notes on April 21, 1997. The terms of the Exchange Notes are identical in all
material respects to the terms of the Senior Notes, except that the Exchange
Notes are freely transferable with certain limited exceptions by their holders.
The Exchange Notes are fully and unconditionally guaranteed on a joint and
several basis by each of the direct or indirect wholly-owned domestic
subsidiaries of the Company (Guarantor Subsidiaries). (See Note 7).
9
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NOTE 5 -- CONTINGENCIES
The Company has wage continuation agreements with two of its
officers/shareholders. In the event the officer/shareholder dies or becomes
permanently disabled while employed by the Company, each agreement provides for
payments to be made annually to the officer/shareholder's spouse based on a
compensation formula, until the spouse's death.
NOTE 6 -- RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. The overall
objective of SFAS is to simplify the calculation of earnings per share (EPS) and
achieve comparability with international accounting standards. SFAS No.128 is
effective in the fourth quarter ended December 31, 1997 for the Company.
Subsequent to the effective date, all prior period EPS amounts are required to
be restated to conform to the provisions of Statement 128. The adoption of SFAS
No.128 is not anticipated to have a material effect on the Company's financial
statements or results of operations.
NOTE 7 -- SUPPLEMENTAL GUARANTOR INFORMATION
As discussed in Note 4, each of the Guarantor Subsidiaries has fully and
unconditionally guaranteed, on a joint and several basis the obligation to pay
principal, premium, if any, and interest with respect to the Notes. The
Guarantor Subsidiaries are direct, wholly-owned subsidiaries of the Company.
The following supplemental unaudited consolidating condensed financial
statements present (in thousands):
1. Consolidating condensed balance sheets as of June 30, 1997 and December
31, 1996, consolidating condensed statements of income for the three and
six-month periods ended June 30, 1997 and 1996 and consolidating
condensed statements of cash flows for the six months ended June 30,
1997 and 1996.
2. Hawk Corporation (Parent), combined Guarantor Subsidiaries and combined
Non-Guarantor Subsidiaries (consisting of the Company's subsidiaries in
Canada and Italy) with their investments in subsidiaries accounted for
using the equity method.
3. Elimination entries necessary to consolidate the Parent and all of its
subsidiaries.
Management does not believe that separate financial statements of the Guarantor
Subsidiaries of the Notes are material to investors. Therefore, separate
financial statements and other disclosures concerning the Guarantor Subsidiaries
are not presented. The Revolving Credit Facility contains covenants that, among
other things, would prohibit the payment of any dividends to the Company by the
subsidiaries of the Company (including Guarantor Subsidiaries) in the event of a
default under the terms of the Revolving Credit Facility.
10
<PAGE> 11
SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents $ 13,426 $ 36 $ 124 $ 13,586
Accounts receivable, net 130 16,861 6,517 $ (465) 23,043
Inventories, net 18,710 4,612 23,322
Deferred income taxes 1,390 1,093 2,483
Other current assets 67 (542) 900 425
--------- --------- --------- --------- ---------
Total current assets 15,013 36,158 12,153 (465) 62,859
Other assets:
Investment in
subsidiaries 780 5,640 (6,420)
Inter-company
advances, net 120,630 4,437 21 (125,088)
Property, plant
and equipment 42,755 5,662 48,417
Intangible assets 242 46,530 46,772
Other 1,675 4,764 414 6,853
--------- --------- --------- --------- --------
Total other assets 123,327 104,126 6,097 (131,508) 102,042
--------- --------- --------- --------- --------
Total assets $ 138,340 $ 140,284 $ 18,250 $(131,973) $164,901
========= ========= ========= ========= ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,607 $ 3,480 $ 10,087
Accrued compensation 5,146 1,043 6,189
Other accrued expenses $ (2,313) 5,227 215 3,129
Current portion of
long-term debt 377 414 791
--------- --------- --------- --------- --------
Total current liabilities (2,313) 17,357 5,152 20,196
Long-term liabilities:
Long-term debt 129,686 215 642 130,543
Deferred income taxes 4,090 350 271 4,711
Other 953 1,010 1,963
Inter-company
advances, net 121,100 5,233 $(126,333)
--------- --------- --------- --------- --------
Total long-term liabilities 133,776 122,618 7,156 (126,333) 137,217
--------- --------- --------- --------- --------
Total liabilities 131,463 139,975 12,308 (126,333) 157,413
Detachable stock warrants,
subject to put option 4,600 4,600
Shareholders' equity 2,277 309 5,942 (5,640) 2,888
--------- --------- --------- --------- --------
Total liabilities and
shareholders' equity $ 138,340 $ 140,284 $ 18,250 $(131,973) $164,901
========= ========= ========= ========= ========
</TABLE>
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SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and
cash equivalents $ 25,187 $ 5 $ 582 $ 25,774
Accounts receivable, net 189 10,884 5,710 16,783
Inventories, net 16,120 4,744 20,864
Deferred income taxes 1,390 1,042 2,432
Other current assets 67 373 495 935
--------- --------- --------- --------- ---------
Total current assets 26,833 28,424 11,531 66,788
Other assets:
Investment in
subsidiaries 775 6,457 $ (7,232)
Inter-company
advances, net 108,607 19,543 (128,150)
Property, plant
and equipment 38,394 5,748 44,142
Intangible assets 504 39,435 39,939
Other 1,838 5,318 416 7,572
--------- --------- --------- --------- --------
Total other assets 111,724 109,147 6,164 (135,382) 91,653
--------- --------- --------- --------- --------
Total assets $ 138,557 $ 137,571 $ 17,695 $(135,382) $158,441
========= ========= ========= ========= ========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ (157) $ 5,167 $ 3,184 $ 8,194
Accrued compensation 100 5,856 819 6,775
Other accrued expenses (719) 2,728 396 2,405
Current portion of
long-term debt 289 425 714
--------- --------- --------- --------- --------
Total current liabilities (776) 14,040 4,824 18,088
Long-term liabilities:
Long-term debt 126,375 1,290 804 128,469
Deferred income taxes 2,729 1,057 304 4,090
Other 1,272 732 2,004
Inter-company advances, net 3,532 120,819 4,574 $(128,925)
--------- --------- --------- --------- --------
Total long-term liabilities 132,636 124,438 6,414 (128,925) 134,563
--------- --------- --------- --------- --------
Total liabilities 131,860 138,478 11,238 (128,925) 152,651
Detachable stock warrants,
subject to put option 4,600 4,600
Shareholders' equity (deficit) 2,097 (907) 6,457 (6,457) 1,190
--------- --------- --------- --------- --------
Total liabilities and
shareholders' equity $ 138,557 $ 137,571 $ 17,695 $(135,382) $158,441
========= ========= ========= ========= ========
</TABLE>
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SUPPLEMENTAL CONSOLIDATING CONDENSED INCOME STATEMENT (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
--------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 68,065 $10,478 $ (1,562) $ 76,981
Cost of sales 47,199 8,408 (1,562) 54,045
-------- ------- -------- -------- -------
Gross profit 20,866 2,070 22,936
Selling, technical
and administrative
expenses 8,066 1,381 9,447
Amortization of
intangibles $ 5 1,591 30 1,626
-------- ------- -------- -------- -------
Total expenses 5 9,657 1,411 11,073
-------- ------- -------- -------- -------
Income (loss)
from operations (5) 11,209 659 11,863
Interest expense 326 6,528 205 7,059
Income from
equity investees 2,704 343 (3,047)
Other (income)
expense, net (466) 437 59 30
-------- ------- -------- -------- -------
Income before
income taxes 2,839 4,587 395 (3,047) 4,774
Income taxes 54 1,883 52 1,989
-------- ------- -------- -------- -------
Net Income $ 2,785 $ 2,704 $ 343 $ (3,047) $ 2,785
======== ======= ======== ======== =======
</TABLE>
13
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SUPPLEMENTAL CONSOLIDATING CONDENSED INCOME STATEMENT (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 72 $ 53,517 $ 10,369 $ (1,035) $ 62,923
Cost of sales 39,470 7,842 (963) 46,349
-------- -------- -------- --------- --------
Gross profit 72 14,047 2,527 (72) 16,574
Selling, technical
and administrative
expenses 89 6,683 955 (72) 7,655
Amortization of
intangibles 1,582 1 1,583
Plant consolidation
expense 2,139 2,139
-------- -------- -------- --------- --------
Total expenses 89 10,404 956 (72) 11,377
Income (loss)
from operations (17) 3,643 1,571 5,197
Interest (income)
expense (222) 5,057 139 4,974
Income (loss) from
equity investees (408) 859 (451)
Other expense, net 6 4 10
-------- -------- -------- --------- --------
Income (loss) before
income taxes (209) (559) 1,432 (451) 213
Income taxes (151) 573 422
-------- -------- -------- --------- --------
Net income (loss) $ (209) $ (408) $ 859 $ (451) S(209)
======== ======== ======== ========= ========
</TABLE>
14
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SUPPLEMENTAL CONSOLIDATING CONDENSED INCOME STATEMENT (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1997
----------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 35,244 $ 5,466 $ (613) $ 40,097
Cost of sales 23,998 4,292 (613) 27,677
-------- -------- -------- -------- --------
Gross profit 11,246 1,174 12,420
Selling, technical
and administrative
expenses 4,269 624 4,893
Amortization of
intangibles $ 3 794 797
-------- -------- -------- -------- --------
Total expenses 3 5,063 624 5,690
Income (loss)
from operations (3) 6,183 550 6,730
Interest expense 164 3,107 109 3,380
Income from
equity investees 1,872 234 (2,106)
Other (income)
expense, net (192) 299 173 280
-------- -------- -------- -------- --------
Income before
income taxes 1,897 3,011 268 (2,106) 3,070
Income taxes 10 1,139 34 1,183
-------- -------- -------- -------- --------
Net income $ 1,887 $ 1,872 $ 234 $ (2,106) $ 1,887
======== ======== ======== ======== ========
</TABLE>
15
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SUPPLEMENTAL CONSOLIDATING CONDENSED INCOME STATEMENT (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1996
----------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 36 $ 26,713 $ 5,200 $ (448) $ 31,501
Cost of sales 19,809 3,896 (412) 23,293
-------- -------- -------- -------- --------
Gross profit 36 6,904 1,304 (36) 8,208
Selling, technical
and administrative
expenses 129 3,402 491 (36) 3,986
Amortization of
intangibles 932 932
Plant consolidation
expense 1,539 1,539
-------- -------- -------- -------- --------
Total expenses 129 5,873 491 (36) 6,457
Income (loss)
from operations (93) 1,031 813 1,751
Interest (income)
expense (156) 2,534 83 2,461
Income (loss)
from equity investees (781) 438 343
Other expense, net 3 2 5
-------- -------- -------- -------- --------
Income (loss)
before income taxes (721) (1,067) 730 343 (715)
Income taxes (286) 292 6
-------- -------- -------- -------- --------
Net income (loss) $ (721) $ (781) $ 438 $ 343 $ (721)
======== ======== ======== ======== ========
</TABLE>
16
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SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
----------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided
by operating
activities $ 264 $ 1,195 $ 939 $ 2,398
Cash flows from
investing
activities:
Purchase of Hutchinson (10,638) (10,638)
Purchase of property,
plant and equipment (3,208) (585) (3,793)
Payments received on
shareholder loans 63 63
-------- -------- ------- -------- -------
Net cash used in
investing activities (10,575) (3,208) (585) (14,368)
Cash flows from
financing activities:
(Payments) proceeds on
long-term debt (1,283) 1,892 (812) (203)
Deferred financing
costs (7) 119 112
Payment of preferred
stock dividend (160) (160)
Other 33 33
-------- -------- ------- -------- -------
Net cash (used in) provided
by financing activities (1,450) 2,044 (812) (218)
-------- -------- ------- -------- -------
Net (decrease) increase
in cash and
cash equivalents (11,761) 31 (458) (12,188)
Cash and cash equivalents
at beginning of period 25,187 5 582 25,774
-------- -------- ------- -------- -------
Cash and cash equivalents
at end of period $ 13,426 $ 36 $ 124 $ 13,586
======== ======== ======= ======== =======
</TABLE>
17
<PAGE> 18
SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
----------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash (used in)
provided by
operating activities $ 2,336 $(3,484) $ 182 $ (966)
Cash flows from
investing activities:
Purchase of
property,
plant and
equipment (5,811) (1,045) (6,856)
Other 96 96
------- ------- ------- ------- -------
Net cash provided by (used in)
investing activities 96 (5,811) (1,045) (6,760)
Cash flows from
financing activities:
Proceeds (payments) from
borrowings of
long-term debt (2,239) 8,993 1,177 7,931
Payment of preferred
stock dividend (163) (163)
Other 224 224
------- ------- ------- ------- -------
Net cash provided
by (used in) financing
activities (2,402) 9,217 1,177 7,992
------- ------- ------- ------- -------
Net increase (decrease)
in cash and cash
equivalents 30 (78) 314 266
Cash and cash equivalents
at beginning of period 408 78 285 771
------- ------- ------- ------- -------
Cash and cash equivalents
at end of period $ 438 $ 0 $ 599 $ 1,037
======= ======= ======= ======= =======
</TABLE>
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's condensed consolidated financial statements and notes thereto
appearing elsewhere in this report.
GENERAL
Hawk designs, engineers, manufactures and markets friction products (77.4% of
sales in the first six months of 1997) and precision-engineered components
(22.6%). The Company is a leading worldwide supplier of friction products for
brakes, clutches and transmissions used in aerospace, industrial and specialty
applications. The Company is also a leading supplier of precision engineered
components primarily made from powder metals, including pump elements, gears,
transmission plates, pistons and anti-lock brake sensor rings, used in
industrial applications. The Company focuses on manufacturing products requiring
sophisticated engineering and production techniques for applications in
aerospace and specialty industrial markets where it has achieved a major market
position.
Since 1989, Hawk has pursued a strategic plan of fostering growth by making
complementary acquisitions and broadening its customer base. All of Hawk's
acquisitions were accounted for under the purchase method of accounting, with
the purchase price allocated to the estimated fair market value of the assets
acquired and liabilities assumed. In the acquisitions, any excess of the
purchase price paid over the estimated fair value of the net assets acquired was
allocated to goodwill, which resulted in approximately $29.7 million of goodwill
reflected on the June 30, 1997 balance sheet. The annual amortization of
goodwill will result in non-cash charges to future operations of approximately
$1.5 million per year (of which the majority of such amortization is deductible
for tax purposes) based on amortization periods ranging from 15 to 40 years.
RECENT EVENTS
On August 1, 1997, Sinterloy Corporation ("Sinterloy"), a recently incorporated
subsidiary of the Company, acquired substantially all the assets of Sinterloy,
Inc. ("Old Sinterloy"), a privately-held Illinois corporation, and assumed
certain of Old Sinterloy's liabilities. The Company paid Old Sinterloy $15.0
million, subject to adjustment based on Old Sinterloy's net equity at closing.
Sinterloy, located in Solon Mills, Illinois, is a powder metal component
manufacturer primarily serving the business equipment and automotive replacement
markets. Sinterloy has annual revenues of approximately $15.0 million. Old
Sinterloy was founded in 1969 and purchased by Robert G. Sierks in 1988. Mr.
Sierks will serve as President of Sinterloy.
SECOND QUARTER 1997 COMPARED TO SECOND QUARTER 1996
Net Sales
- ---------
Net sales increased $8.6 million or 27.3% to $40.1 million in the second quarter
of 1997 from $31.5 million in the comparable quarter of 1996.
19
<PAGE> 20
The increase in net sales reflects the impact of the Hutchinson acquisition, as
well as increased sales in friction products and precision-engineered
components. Sales of friction products increased $4.0 million or 16.7% to $28.0
million in the second quarter of 1997 from $24.0 million in the comparable
quarter of 1996. The growth was driven by strong demand in the aerospace,
construction and agricultural markets. Sales of precision engineered components,
exclusive of Hutchinson, increased $1.9 million or 37.3% to $7.0 million in the
second quarter of 1997 from $5.1 million in the comparable quarter of 1996. The
increase was attributable to the addition of a new customer in the truck market,
as well as increased demand in the fluid power markets served by the Company.
Gross Profit
- ------------
Gross profit increased $4.2 million or 51.3% to $12.4 million in the second
quarter of 1997 from $8.2 million in the comparable quarter of 1996. The gross
profit margin increased to 31.0% in the second quarter of 1997 from 26.1% in the
comparable period in 1996. The increase is attributable to cost savings, a
result of the closing of one of the Company's manufacturing facilities during
1996 and the consolidation of its operations into an existing Company facility
and increased sales from the Company's higher margin aerospace friction
products.
Selling, Technical and Administrative Expenses
- ----------------------------------------------
Selling, technical and administrative ("ST&A") expenses increased $0.9 million
or 22.8% to $4.9 million in the second quarter of 1997 compared to the
comparable quarter of 1996. As a percentage of sales, ST&A expenses decreased to
12.2% of sales in the second quarter of 1997 compared to 12.7% in the comparable
quarter of 1996, primarily as a result of increased sales volumes covering the
additional administrative overhead and personnel costs.
Plant Consolidation Expense
- ---------------------------
All costs associated with the closure and consolidation of a manufacturing
facility were incurred in 1996.
Income from Operations
- ----------------------
Income from operations increased by $5.0 million or 284.4% to $6.7 million in
the second quarter of 1997, as compared to the comparable quarter of 1996.
Income from operations as a percent of net sales increased to 16.8% in the
second quarter of 1997 from 5.6% in the comparable quarter of 1996, reflecting
cost savings from the closed facility, product mix and margin improvement.
Interest Expense
- ----------------
Interest expense increased $0.9 million or 37.3% to $3.4 million in the second
quarter of 1997 from the comparable quarter of 1996. The increase is
attributable to higher debt levels, a result of the issuance of the Senior Notes
in the fourth quarter of 1996.
Income Taxes
- ------------
The provision for income taxes increased to $1.2 million in the second quarter
of 1997, reflecting the increase in pre-tax income.
20
<PAGE> 21
Net Income
- ----------
As a result of the factors noted above, net income increased $2.6 million to
$1.9 million in the second quarter of 1997 as compared to a loss of $0.7 million
in the second quarter of 1996.
FIRST SIX MONTHS OF 1997 COMPARED TO FIRST SIX MONTHS OF 1996
Net Sales
- ---------
Net sales increased by $14.1 million or 22.3% to $77.0 million during the first
six months of 1997 from $62.9 million during the first six months of 1996. The
net sales increase in the first six months of 1997 was attributable to the
acquisition of Hutchinson and strong customer demand in all product lines served
by the Company.
Gross Profit
- ------------
Gross profit increased $6.3 million to $22.9 million during the first six months
of 1997, a 38.0% increase over gross profit of $16.6 million during the first
six months of 1996. The gross profit margin increased to 29.8% during the first
six months of 1997 from 26.3% during the comparable period in 1996. The increase
is attributable to cost savings, a result of the closing of one of the Company's
manufacturing facilities during 1996 and the consolidation of its operations
into an existing Company facility and increased sales from the Company's higher
margin aerospace friction products.
Selling, Technical and Administrative Expenses
- ----------------------------------------------
Selling, technical and administrative ("ST&A") expenses increased $1.8 million
or 23.4% to $9.4 million during the first six months of 1997 compared to the
comparable period in 1996. ST&A increased to 12.3% of sales during the first six
months of 1997 from 12.2% during the comparable period of 1996.
Plant Consolidation Expense
- ---------------------------
For the first six months of 1997 there were no plant consolidation expenses,
compared to $2.1 million during the first six months of 1996. The closure and
consolidation of the facility took place in 1996.
Income from Operations
- ----------------------
Income from operations increased by $6.7 million or 128.3% to $11.9 million,
compared to the comparable period of 1996. Income from operations as a percent
of net sales increased to 15.4% in the first six months of 1997 from 8.3% in the
comparable six month period of 1996, reflecting cost savings from the closed
facility, increased sales activity, product mix and margin improvement.
Interest Expense
- ----------------
Interest expense increased $2.1 million or 42.0% to $7.1 million in the first
six months of 1997 from the comparable six month period in 1996. The increase is
attributable to higher debt levels, a result of the issuance of the Senior Notes
in the fourth quarter of 1996.
21
<PAGE> 22
Income Taxes
- ------------
The provision for income taxes increased to $2.0 million in the first six months
of 1997 from $0.4 million in the comparable period in 1996, reflecting the
increase in pre-tax income.
Net Income
- ----------
As a result of the factors noted above, net income increased $3.0 million to
$2.8 million in the first six months of 1997 from a loss of $0.2 million in the
comparable period of 1996.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the recent acquisitions by the Company and the issuance of the
Senior Notes, the Company has, and will continue to have, substantial
indebtedness. The Company will therefore be required to use a substantial
portion of its cash flow from operations for the payment of interest expense on
indebtedness.
The Company's primary source of funds for conducting its business activities
and servicing its indebtedness has been cash generated from operations and
borrowings under its $25.0 million Revolving Credit Facility (subject to a
borrowing base of a portion of the eligible accounts receivable and inventory).
As of June 30, 1997, there are no amounts outstanding under the Revolving
Credit Facility.
As of June 30, 1997 the Company was in compliance with the terms of its
indebtedness.
Net cash from operating activities was $2.4 million for the six month period
ended June 30, 1997 as compared to net cash used of $1.0 million in the
comparable period of 1996. The $3.0 million increase in net income, non-cash
charges and an improved working capital position at June 30, 1997 accounted for
the increased operating cash flow.
Net cash used in investing activities was $14.4 million and $6.8 million for the
six month periods ending June 30, 1997 and 1996, respectively. The cash used in
investing activities consisted of $10.6 million attributable to the acquisition
of Hutchinson and $3.8 million for the purchases of property, plant and
equipment. In the comparable period of 1996, cash used in investing activities
consisted primarily of capital expenditures.
Net cash used in financing activities was $0.2 million for the six month period
of 1997 used primarily for payment of capital lease obligations of the Company.
In the comparable six month period of 1996 net cash provided by financing
activities of $8.0 was primarily attributable to an increase in borrowing under
the Company's previous credit facilities.
The primary uses of capital by the Company are (1) to pay interest on, and to
repay principal of; indebtedness, (2) for capital expenditures for maintenance,
replacement and acquisitions of equipment, expansion of capacity, productivity
improvements and product development, and (3) making additional strategic
acquisitions of complementary businesses.
The Company believes that cash flow from operating activities and additional
funds available under the Revolving Credit Facility will be sufficient to meet
its currently anticipated operating and capital expenditure requirements and
service its indebtedness for the next 12 months.
22
<PAGE> 23
FORWARD LOOKING STATEMENTS
Statements that are not historical facts, including statements about the
Company's confidence in its prospects and strategies and its expectations about
expansion into new markets and growth in existing markets, are forward looking
statements that involve risks and uncertainties. These risks and uncertainties
include, but are not limited to (1) the Company's substantial leverage, which
requires significant cash flows to service debt, reducing funds for operations
and other business opportunities and increasing the Company's vulnerability to
competition and to adverse general economic and industry conditions; (2) the
ability of the Company to continue to meet the terms of the Company's credit
facilities which contain a number of significant financial covenants and other
restrictions; (3) the Company's reliance on significant customers; (4) supplies
and prices of raw materials used by the Company; (5) whether the Company's
aerospace friction products will be able to continue to meet stringent Federal
Aviation Administration criteria and testing requirements; (6) whether the
Company will be able to successfully integrate Hutchinson and Sinterloy into its
operations; and (7) the Company's continued expansion into international
markets, with all the risks inherent in doing business internationally,
including unexpected changes in regulatory requirements, export restrictions,
currency controls, tariffs and other trade barriers, potential instability,
fluctuation in currency exchange rates and potential adverse tax consequences.
Any investor or potential investor in the Company must consider these risks and
others that are detailed in the Company's Form S-4 (333-18433).
23
<PAGE> 24
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various lawsuits arising in the ordinary course of
business. In the Company's opinion, the outcome of these matters is not
anticipated to have a material adverse effect on the Company's financial
condition, liquidity or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of the stockholders of the Registrant held on May 29,
1997, the board of directors of the Registrant, as previously reported to the
Commission, was re-elected in its entirety.
ITEM 5. OTHER INFORMATION
On August 1, 1997, Sinterloy Corporation ("Sinterloy"), a recently incorporated
subsidiary of the Company, acquired substantially all the assets of Sinterloy,
Inc. ("Old Sinterloy"), a privately-held Illinois corporation, and assumed
certain of Old Sinterloy's liabilities. The Company paid Old Sinterloy $15.0
million, subject to adjustment based on Old Sinterloy's net equity at closing.
Sinterloy, located in Solon Mills, Illinois, is a powder metal component
manufacturer primarily serving the business equipment and automotive replacement
markets. Sinterloy has annual revenues of approximately $15.0 million. Old
Sinterloy was founded in 1969 and purchased by Robert G. Sierks in 1988. Mr.
Sierks will serve as President of Sinterloy.
Sinterloy is a guarantor of the Senior Notes, and is a party to the Revolving
Credit Facility and will become a guarantor to the Senior Subordinated Notes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
--------
10.29 Lease dated August 1, 1997 between Robert Sierks, Trustee
and Sinterloy Corporation
10.30 Assumption and Joinder Agreement dated August 1, 1997
between Sinterloy Corporation and BT Commercial Corporation
10.31 $25 million Substituted and Restated Revolving Note payable
to BT Commercial Corporation, as agent
27 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K for the three months ended
June 30, 1997.
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 14, 1997 HAWK CORPORATION
By: /s/ Ronald E. Weinberg
------------------------------------
Ronald E. Weinberg, Vice-Chairman
of the Board and Treasurer
By: /s/ Thomas A. Gilbride
------------------------------------
Thomas A. Glibride, Vice President-
Finance (Chief Accounting Officer)
25
<PAGE> 1
Exhibit 10.29
LEASE AGREEMENT WITH OPTION TO PURCHASE
THIS LEASE AGREEMENT ("Lease") is made and entered into as of the 1st
day of August, 1997, by and between ROBERT SIERKS, TRUSTEE U/T/D June 21, 1995
("Lessor") and SINTERLOY CORPORATION, a Delaware corporation ("Lessee").
WITNESSETH:
1 PREMISES. Lessor, for and in consideration of the covenants hereinafter
contained and made on the part of the Lessee, does lease to the Lessee certain
premises located at 8104 North Solon Road, Solon Mills, Illinois 60080, as more
particularly described in Exhibit "A" attached hereto (the "Premises"),
consisting of an approximate 3.7 acre lot improved with a one-story masonry
building containing approximately 41,586 square feet (as may be further expanded
or improved, the "Building").
2 INITIAL TERM. The initial term of this Lease shall be for a period of five (5)
years, commencing as of August 1, 1997 (the "Commencement Date"), and ending
July 31, 2002 (the "Initial Term").
3 OPTIONS FOR RENEWAL TERMS. Lessee shall have the option to renew this Lease
for two (2) consecutive renewal terms of five (5) years each, on the same terms
and conditions as herein provided, except that (a) the Base Rent shall be
adjusted as provided below, and (b) there shall be no purchase option available
during the renewal terms. If Lessee desires to exercise a renewal option granted
herein it must deliver written notice to Lessor not less than one hundred and
twenty (120) days prior to the expiration of the Initial Term or the then
current renewal term of Lessee's intent to renew. The Initial Term and any
renewal terms are hereinafter referred to herein as the "Term." The Base Rent
for the first renewal term shall be increased by the lesser of (a) the
percentage change in the Consumer Price Index during the Initial Term, or (b)
17.5%. The Base Rent for the second renewal term shall be increased by the
percentage change in the Consumer Price Index from the Commencement Date through
the end of the first renewal term. As used in this Lease, the "Consumer Price
Index" shall mean the Consumer Price Index Detailed Report, All Items, Chicago,
Illinois-Northwestern Indiana, published by the Bureau of Labor Statistics of
the United States Department of Labor.
4 BASE RENT. For the Initial Term, Lessee shall pay to Lessor as and for Base
Rent the sum of $114,361.50 per annum ($2.75 per square foot) payable in equal
monthly installments of $9,530.13 payable in advance on the Commencement Date
and on the same day of each month thereafter. Lessee shall cause payment of the
Base Rent and all other charges due hereunder to be made without offset or
deduction to Lessor at its address stated herein or to such
1
<PAGE> 2
other person or at such other address as Lessor may from time to time designate
in writing to Lessee. Any amounts not paid within five (5) days of the date the
same is due hereunder shall bear interest from the date due until the date
received by Lessor at the rate of twelve percent (12%) per annum. The parties
agree that such late charges represent a fair and reasonable estimate of the
cost Lessor will incur by reason of late payment by Lessee.
5 CONDITION OF PREMISES. Lessor shall deliver the Premises to Lessee in good
condition with all mechanical components in good operating condition and all
structural components sound. If the Premises do not comply with the foregoing
described condition on the Commencement Date, Lessee shall so notify Lessor in
writing setting forth with specificity the nature and extent of such
non-compliance. Lessor, at its expense, shall promptly rectify any such
non-compliance. If Lessee does not give Lessor written notice of non-compliance
within thirty (30) days after the Commencement Date, Lessee shall be
conclusively deemed to have accepted the Premises as satisfying the above
described condition, and any correction of any non-compliance shall be the
obligation of Lessee at Lessee's cost and expense. Notwithstanding any provision
herein to the contrary, Lessor shall be responsible to promptly repair, at
Lessor's sole expense, any damage to or defect in the structural portions of the
Building including the roof, the foundation, and interior and exterior walls,
which damage or defect existed at the time this Lease was entered into, and was
not caused by the acts or omissions of Lessee.
6 USE OF PREMISES. Lessee shall use and occupy the Premises only for the purpose
of engaging in the manufacture of friction and powdered metal products and
activities incidental thereto and any other activities to which Lessor may agree
in writing, which agreement will not be unreasonable withheld.
7 NET LEASE. It is the understanding and agreement of the parties that this is a
net lease. Lessee shall be responsible for and pay all charges for Real Property
Taxes, utilities used upon or furnished to the Premises and all costs of
operating, maintaining and repairing the Premises. Without limiting the
foregoing:
7.1 Lessee's Obligations. Subject to the provisions of Section 5,
Lessee shall at Lessee's sole cost and expense and at all times keep the
Premises and every part thereof in good order, condition and repair, structural
and non-structural (whether or not the need for such repairs occurs as a result
of Lessee's use or any prior use, the elements or the age of the Premises or any
other cause), including, without limiting the generality of the foregoing, all
equipment or facilities serving the Premises, such as plumbing, heating, air
conditioning, ventilating, electrical, lighting facilities, boilers, fired and
un-fired pressure vessels,
2
<PAGE> 3
fire sprinkler and/or standpipe and hose or other automatic fire extinguishing
system, including fire alarm and/or smoke detection systems and equipment, fire
hydrants, fixtures, walls (interior and exterior), foundations, ceilings, roofs,
floors, windows, doors, plate glass, skylights, signs, sidewalks and parkways
located in, on or about the Premises. Lessee shall not cause or permit any
Hazardous Substance (as hereinafter defined) to be spilled or released in, on,
under or about the Premises (including through the plumbing or sanitary sewer
system) and shall promptly, at Lessee's expense, take all investigatory and/or
remedial action reasonably recommended whether or not formally ordered or
required for the cleanup of any contamination of and for the maintenance,
security and/or monitoring of the Premises, the elements surrounding same, or
neighboring properties, that was caused or materially contributed to by Lessee
or pertaining to or involving any Hazardous Substance and/or storage tank
brought onto the Premises by or for Lessee or under its control. Lessee in
keeping the Premises in good order, condition and repair, shall exercise and
perform good maintenance practices. Lessee's obligations shall include
restorations, replacements or renewals when necessary to keep the Premises and
all improvements thereon or a part thereof in good order, condition and state of
repair. As used in this Lease, the term "Hazardous Substances" has the meanings
assigned to it in the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended and, in addition, will include fuel oil and
petroleum and any constituent thereof and any petroleum-based product.
7.2 Lessor's Obligations. Except for the undertakings of Lessor
contained in Section 5, it is intended by the parties hereto that Lessor shall
have no obligation in any manner whatsoever to repair and maintain the Premises,
the improvements located thereon, or the equipment therein, whether structural
or non-structural, all of which obligations are intended to be that of Lessee.
It is the intention of the parties that the terms of this Lease govern the
respective obligations of the parties as to maintenance and repair of the
Premises. Lessee and Lessor expressly waive the benefit of any statute now or
hereafter in effect to the extent it is inconsistent with the terms of this
Lease with respect to or which affords Lessee the right to make repairs at the
expense of Lessor or to terminate this Lease by reason of any needed repairs.
8. REAL PROPERTY TAXES. As used herein the term "Real Property Taxes" shall
include any form of real estate taxes or assessments, general, special, ordinary
or extraordinary, and any license fees, commercial rent taxes, improvement
bonds, levy or tax (other than inheritance, income or estate taxes) accruing
during the Term of this Lease and imposed upon the Premises for any reason by
any authority having the power to levy such assessments or taxes. Lessee shall
pay to Lessor an amount equal to all Real Property
3
<PAGE> 4
Taxes within ten (10) days of notice from Lessor of the amount of such Real
Property Taxes coming due.
9 INSURANCE. Lessee shall maintain, with responsible licensed companies
reasonably satisfactory to Lessor: (i) commercial general liability insurance
insuring Lessee and naming Lessor as an additional insured, against all claims,
demands, or actions for injury to or death of one or more than one person
arising from any one occurrence with limits during the Initial Term of not less
than $1,000,000 single occurrence and $2,000,000 aggregate; and (ii) fire and
extended coverage insurance on the Building, including vandalism and malicious
mischief, which fire and extended coverage insurance shall be in an amount not
less than $1,000,000, and shall name Lessor as a loss payee and additional
insured. For each renewal term the insurance coverage specified above shall be
increased or decreased by the percentage change in the Consumer Price Index from
the commencement date of the Initial Term or previous renewal term through the
last month of the fifth year of such Initial Term or renewal term. Lessee, at
Lessee's sole option and expense, may also obtain a replacement cost endorsement
insuring furniture, furnishings, contents, merchandise, and any other personal
property of Lessee located within the Premises.
10 CAPITAL REPAIRS AND IMPROVEMENTS - UTILITY INSTALLATIONS; TRADE FIXTURES;
ALTERATIONS. Subject to the provisions of this Section, Lessee may, at Lessee's
sole expense, install and construct such fixtures and improvements in and to the
Premises as Lessee deems necessary or desirable to facilitate the operation of
Lessee's business ("Lessee's Improvements").
10.1 Definitions:
10.1.0.1 "Utility Installations" is used in this
Lease to refer to all carpeting, window coverings, air lines, power panels,
electrical distribution, security, fire protection systems, wiring and cabling,
lighting fixtures, heating, ventilating, and air conditioning equipment,
plumbing, and fencing, in, on or about the Premises.
10.1.0.2 "Trade Fixtures" shall mean Lessee's
machinery and equipment that can be removed without doing material damage to the
Premises.
10.1.0.3 "Alterations" shall mean any modification of
the improvements on the Premises made by Lessee other than Utility Installations
or Trade Fixtures, whether by addition or deletion.
10.2 Lessee shall not make any Alterations or Utility Installations in,
on, under or about the Premises without Lessor's prior written consent, which
consent shall not be unreasonably withheld. Lessee may, however, make
non-structural Utility Installations and Alterations to the interior of the
Premises
4
<PAGE> 5
(excluding the roof), as long as they do not involve puncturing, relocating or
removing the roof or any existing walls, and the cumulative cost thereof during
the term of this Lease as extended does not exceed $25,000.
10.3 Any Alterations or Utility Installations that Lessee shall desire
to make and which require the consent of Lessor shall be presented to Lessor in
written form with proposed detailed plans. All consents given by Lessor, shall
be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alterations
or Utility Installations to Lessor prior to commencement of the work thereon;
and (iii) the compliance by Lessee with all conditions of said permits in a
prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Laws (as hereinafter defined). Lessee shall promptly upon completion
thereof furnish Lessor with as-built plans and specifications therefor.
10.4 Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use on
the Premises which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand then Lessee shall at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgement that may be rendered thereon before the enforcement thereof against
Lessor or the Premises. In addition, Lessor may require Lessee to pay Lessor's
attorney's fees and costs in participating in such action if Lessor shall decide
it is to its best interest to do so.
10.5 All Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessor.
11 COMPLIANCE WITH LAWS. During the term of this Lease, Lessee shall comply in
all material respects with all present and future laws, acts, rules,
requirements, orders, directions of proper public officers, ordinances and
regulations concerning Lessee's occupancy of the Premises or any part thereof,
or the use thereof (collectively, "Applicable Laws").
12 LESSEE'S COVENANTS. In addition to its other covenants
5
<PAGE> 6
contained herein, Lessee covenants and agrees as follows:
12.1 Lessee, upon the expiration or termination of this Lease, shall
remove its goods and effects and those of all persons claiming under it, shall
repair any damage caused by such removal, and shall yield up the same peaceably
to Lessor in good order and repair and otherwise in the same condition as at the
commencement of the Term, except for reasonable wear and tear. "Reasonable wear
and tear" shall not include any damage or deterioration that would have been
prevented by good maintenance practice or by Lessee performing all of its
obligations under this Lease. Except as otherwise agreed or specified in writing
by Lessor, the Premises, as surrendered, shall include the Utility
Installations. The obligations of Lessee shall include the repair of any damage
occasioned by the installation, maintenance or removal of any Alterations and/or
Utility Installations, as well as the removal of any storage tank installed by
or for Lessee or those claiming through it, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee or
those claiming through it, all as may then be required by applicable law and/or
good service practice.
12.2 Lessee shall permit Lessor and its agents on reasonable notice and
at reasonable times to examine the Premises.
12.3 Lessee shall use and occupy the Premises in a careful, safe and
proper manner and shall keep the Premises in a clean, safe and healthy condition
in accordance, in all material respects, with all Applicable Laws. Lessee shall
not permit the Premises to be used for any unlawful purpose, commit any waste
thereof or commit any nuisance.
12.4 Lessee shall not cause or permit the creation or filing of any
lien upon the Premises or any portion thereof which is not released, satisfied
or otherwise removed of record within ninety (90) days after its filing.
12.5 If Lessee shall fail to perform any of its obligations hereunder,
Lessor may thereafter, without thereby waiving any obligation of Lessee or any
default, make the payment or perform or comply with the agreement, the
nonpayment, nonperformance or noncompliance with which constituted such failure
by Lessee, and the amount of such payment and the amount of the reasonable
expenses of Lessor incurred in connection with such payment or the performance
of or compliance with such agreement, as the case may be, shall be payable by
Lessee upon demand.
13 SUBLETTING AND ASSIGNMENT. Lessee shall not sublet the Premises or any part
thereof, or assign this Lease, without in each case having first obtained the
written consent of Lessor, which consent shall not be unreasonably withheld.
Any consent by
6
<PAGE> 7
Lessor to any assignment or subletting shall not constitute waiver of the
necessity of such consent to any subsequent assignment or subletting and shall
not relieve Lessee of any of its obligations or liability hereunder.
14 DAMAGE OR DESTRUCTION OF THE PREMISES. In the event of partial damage to or
destruction of the Premises, Lessor shall proceed with all reasonable speed to
repair such damage or
7
<PAGE> 8
destruction and to restore the Premises as nearly as practicable to their
condition immediately preceding such damage or destruction, provided that such
damage or destruction: (a) does not exceed fifty percent (50%) of the
replacement cost of the Premises; (b) does not, in Lessee's reasonable judgment,
interfere with the operation of Lessee's business; and (c) could, in Lessor's
reasonable judgment, reasonably be repaired within ninety (90) days from the
occurrence thereof from the proceeds of insurance required to be carried by
Lessee as required by this Lease. Absent any of the conditions set forth in (a),
(b) or (c) of this paragraph, this Lease may be terminated at the option of
either party. If this Lease is terminated as herein provided, both parties shall
be released from further liability hereunder, without prejudice, however, to any
rights accruing to either party prior to the date of such termination; provided,
however, that if Lessee fails to insure the Premises as herein required, Lessee
shall be obligated at its expense to restore the Premises to the condition
required by this Lease in the event of any whole or partial damage to or
destruction thereof.
15 APPROPRIATION. If the Premises or any part thereof shall be taken for any
public use or purpose through eminent domain or condemnation proceedings, and
such taking will materially interfere with Lessee's use and enjoyment of the
Premises, this Lease shall, at the election of Lessee, terminate effective as of
the date that possession of the Premises, or any portion thereof, shall be taken
by such public authority, and Lessee shall pay rent up to that date, with an
appropriate refund by Lessor of any rent paid in advance for a period subsequent
to such date. All compensation awarded for any taking under power of eminent
domain or condemnation, whether for the whole or part of the Premises, shall be
the sole property of Lessor, and Lessee hereby assigns to Lessor all of Lessee's
right, title and interest in and to all of such compensation, provided, however,
that Lessor shall not be entitled to any award made directly to Lessee for loss
of business or depreciation of and cost of removal of fixtures. In the event of
a partial taking of the Premises following which neither Lessor nor Lessee
elects to terminate this Lease, this Lease shall continue in full force and
effect with respect to the portion of the Premises not so taken and a
proportionate allowance shall be made in the rents due hereunder.
16 INDEMNIFICATION. Lessee shall indemnify, defend and hold harmless Lessor from
and against any and all costs, expenses, fines, suits, proceedings, claims,
demands and actions of any kind or nature of anyone whomsoever, including
without, limitation, any accident, injury or damage to any person or property,
arising out of, occasioned by or in any way connected with the occupation or use
of the Premises by Lessee, including without limitation actual or alleged
violations of any environmental laws by Lessee affecting the Premises. Lessor
shall indemnify, defend and hold harmless Lessee from and against any and all
costs, expenses, fines, suits, proceedings, claims, demands and actions of any
kind or nature of anyone whomsoever,
8
<PAGE> 9
including, without limitation, any accident, injury or damage to any person or
property, arising out of, occasioned by or in any way connected with actions
and/or conduct of Lessor prior to the date of this Lease, including without
limitation actual or alleged violations of any environmental laws regarding the
Premises.
17 DEFAULT BY LESSEE. If (a) Lessee shall fail to pay rent or any other charges
hereunder within ten (10) days after written notice that same is past due; (b)
Lessee shall at any time be in default of any other non-monetary terms,
obligation or provisions of this Lease and shall fail to remedy such default
within thirty (30) days after receipt of written notice thereof (but Lessee
shall not be deemed in default if such default in the performance of such terms
or provisions cannot be cured in thirty (30) days and Lessee commences to remedy
such default within said thirty (30) day period and proceeds therewith with due
diligence until completion); (c) Lessee shall file or have filed against it a
petition under the U.S. Bankruptcy Code or state insolvency laws or shall make
an assignment for the benefit of creditors, or if a receiver of any property of
Lessee be appointed in any action, suit or proceeding by or against Lessee and
not removed within thirty (30) days after appointment; (d) the interest of
Lessee in the Premises shall be sold under execution or other legal process, or
if the Premises are sublet or this Lease is assigned without Lessor's consent in
violation of this Lease; (e) Lessee shall commit waste; (f) Lessee shall vacate
or abandon the Premises; or (g) any governmental agency shall commence any
forfeiture proceedings against Lessee, then, in any such event, Lessor may, in
addition to all other legal and equitable remedies which it may be entitled to
enforce, terminate this Lease, re-enter the Premises by summary proceedings,
commence proceedings in forcible entry and detainer, eviction, or otherwise, and
dispossess Lessee, in which event all rents and additional charges due hereunder
for the remainder of the Term shall be accelerated and become immediately due.
18 OPTION TO PURCHASE. Lessor hereby grants to Lessee the exclusive option to
purchase the Premises during the Initial Term so long as no event of default by
Lessee has occurred and is continuing. Lessee may exercise the option at any
time during the Initial Term by giving Lessor ninety (90) days written notice of
intent to exercise the option to purchase granted herein. The Purchase Price for
the Premises shall be Nine hundred thousand dollars ($900,000), increased by the
percentage change in the Consumer Price Index from the date hereof through the
last day of the calendar month next preceding the month in which the closing of
the sale and purchase of the Premises takes place. Notwithstanding the
foregoing, however, in no event shall the Purchase Price of the Premises
increase by more than three and one half percent (3.5%) per annum. Closing shall
occur at the offices of Lessor's counsel within ninety days of Lessor's receipt
of Lessee's notice of exercise of the Purchase Option or at such other time and
place as the parties may mutually agree. At closing the Lessee shall be entitle
to a credit against the
9
<PAGE> 10
Purchase Price in an amount equal to thirty percent (30%) of the total Base Rent
paid by Lessee to Lessor under this Lease as of the date of closing. At closing
Lessor shall convey title to the Premises to Lessee or its designee free and
clear of all liens and encumbrances except those caused by the acts or omissions
of Lessee or those acting through or under Lessee, and Lessee shall pay Lessor
the Purchase Price in immediately available funds. Lessor and Lessee shall each
pay one-half (1/2) of all title, survey and escrow fees associated with Lessee's
purchase of the Premises.
19 NOTICES. If at any time it shall become necessary for one of the parties
hereto to serve any notice, demand or communication upon the other party it
shall be in writing, sent by certified mail, return receipt requested, and
addressed to such party as follows or at such other address as may be
subsequently designated in writing:
If to Lessor: Robert Sierks
448 West Hawthorne Court
Lake Bluff, Illinois 60044
If to Lessee: Sinterloy, Corporation.
200 Public Square, Suite 30-5000
Cleveland, Ohio 44114
20 MEMORANDUM OF LEASE. Lessor and Lessee shall execute a recordable Memorandum
of Lease, in the form attached hereto as Exhibit "B".
21 SUCCESSORS AND ASSIGNS. This Lease shall inure to the benefit of and be
binding upon the heirs, administrators, successors and permitted assigns of the
respective parties hereto.
22 LESSOR'S COVENANTS. Lessor covenants with Lessee that so long as Lessee shall
perform its obligations hereunder:
22.1 Lessee shall have and enjoy the exclusive, quiet and peaceful
enjoyment of the Premises, free of any claim by anyone claiming by, through, or
under Lessor; and
22.2 Lessor shall not cause or permit the creation or filing of any
lien upon the Premises or any portion thereof which interferes with Lessee's use
and enjoyment of the Premises in accordance with the terms hereof.
23 REPRESENTATIVE CAPACITY. Each person executing this instrument in a
representative capacity personally warrants that he and or she is duly
authorized to execute and deliver this instrument on behalf of such entity and
that the same constitutes a binding obligation of such entity, enforceable in
accordance with its terms against such entity.
24 HOLDING OVER. If Lessee retains possession of the Premises
10
<PAGE> 11
or any part thereof after the expiration or termination of the Term by lapse of
time or otherwise, then Lessor may, at Lessor's option at any time after the
expiration or termination of the Term, serve written notice upon Lessee that
such holding over constitutes either (a) renewal of this Lease for one year, and
from year to year thereafter, at double the Base Rent then applicable for such
period, or (b) creation of a month to month tenancy, upon the terms of this
Lease except at double the monthly Base Rent then in effect, or (c) creation of
a tenancy at sufferance, at a daily rental determined by dividing the then
current annual Base Rent by 365 and multiplying the result by two. If no such
written notice is served then a tenancy at sufferance with a daily rental rate
as stated at (c) above shall have been created. In addition to the foregoing,
Lessee shall also pay to Lessor all damages sustained by Lessor resulting from
retention of possession by Lessee. If a tenancy at suffrage is created pursuant
to the provisions of this Section, it shall be in addition to any other rights
or remedies that Lessor may have under this Lease or at law or in equity and
shall not act as a bar to Lessor immediately enforcing all such rights and
remedies.
25 NONWAIVER. Waiver by a party of any breach of any provision of this Lease
shall not be considered as a waiver of any other or subsequent breach.
26 GOVERNING LAW. This Lease shall be governed and construed under the laws of
the State of Illinois.
27 MISCELLANEOUS.
27.1 Entire Agreement and Amendments. This Lease is and shall be
considered to be the only agreement between the parties hereto and their
representatives and agents. All negotiations and oral and written agreements
acceptable to both parties have been merged herein and are included herein.
There are no other representations or warranties between the parties and all
reliance with respect to representations is solely upon the representations and
agreements contained in this document. No agreement shall be effective to
change, modify or terminate this Lease in whole or in part unless such agreement
is in writing and duly signed by both Lessor and Lessee.
27.2 Interpretation. The necessary grammatical changes required to make
the provisions of this Lease apply to the plural sense where there is more than
one Lessee and to either corporations, associations, partnerships, or
individuals, males or females, shall in all instances be assumed as though in
each case fully expressed.
27.3 Severability. No provision of this Lease shall be construed or
interpreted in any manner which would render such provision invalid. If any
provision of this Lease is held to be invalid, such invalid provision shall be
deemed to be severable from and shall not affect the validity of the remainder
of this
11
<PAGE> 12
Lease.
27.4 Terms Binding. All covenants, promises, conditions,
representations, and agreements herein contained shall be binding upon, apply
and inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns; provided, however, that this
provision shall not give Lessee any greater rights of assignment or transfer
than are contained in other provisions of this Lease.
27.5 Parties to Act in Commercially Reasonable Manner. Unless expressly
otherwise provided in this Lease, both the parties shall act in a commercially
reasonable manner and shall provide approvals or consents in a timely and prompt
manner.
27.6 Effect of Expiration and Termination. The expiration or
termination of this Lease and/or the termination of Lessee's right to possession
shall not relieve Lessee from liability under any indemnity provisions of this
Lease as to matters occurring or accruing during the term hereof or by reason of
Lessee's occupancy of the Premises and shall not effect any other rights or
obligations of the parties resulting from acts or omissions prior to such
expiration or termination, including without limitation, Lessee's obligation to
pay to Lessor any Real Property Taxes.
27.7 Other Agreements. Nothing contained in this Lease, and no action
taken under this Lease, shall affect the rights or obligations of the parties
under any other agreement between the parties.
27.8 Counterparts. For the convenience of the parties, any number of
counterparts of this Lease may be executed by any one or more of the parties
hereto and each such executed counterpart shall be, and shall be deemed to be,
an original, but all of the counterparts shall constitute, and shall be deemed
to constitute, in the aggregate but one and the same instrument.
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this Lease to
be signed in duplicate as of the date first above written.
Signed and Acknowledged "Lessor"
in the Presence of:
/s/ Robert Sierks
- ------------------------------- -------------------------------------
Robert Sierks, Trustee u/t/d
"Lessee"
Sinterloy, Corporation, a
Delaware corporation
By: /s/ Thomas A. Gilbride
- ------------------------------- --------------------------------
Title: Vice President - Finance
- ------------------------------- ------------------------------
12
<PAGE> 13
STATE OF __________________ )
) SS:
COUNTY OF _________________ )
The foregoing instrument was acknowledged before me by Robert Sierks,
Trustee u/t/d, who acknowledged that the foregoing was his true signature and
his free act and deed.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
this day of , 1997.
NOTARY PUBLIC
- ------------------------------
STATE OF __________________ )
) SS:
COUNTY OF _________________ )
The foregoing instrument was acknowledged before me by _______________
__________ the ____________________________________ of Sinterloy, Corporation.,
a Delaware corporation, who acknowledged that the foregoing was his true
signature and his free act and deed individually, and on behalf of said
corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal at
this __ day _______ of , 1997.
NOTARY PUBLIC
- ----------------------------
13
<PAGE> 14
EXHIBIT A TO LEASE AGREEMENT WITH OPTION
TO PURCHASE BETWEEN ROBERT SIERKS, TRUSTEE u/t/d/
AND SINTERLOY CORPORATION DATED AUGUST 1, 1997
PART OF THE SOUTHWEST QUARTER OF SECTION 23, TOWNSHIP 46 NORTH, RANGE 8 EAST OF
THE THIRD PRINCIPAL MERIDIAN, DESCRIBED AS FOLLOWS: BEGINNING AT THE SOUTHWEST
CORNER OF SAID SECTION; THENCE EAST ALONG THE SOUTH LINE OF SAID SECTION, 870.7
FEET; THENCE NORTH ON A LINE PARALLEL WITH THE WEST LINE OF SAID SECTION TO THE
SOUTHWESTERLY LINE OF THE RIGHT OF WAY OF THE CHICAGO, MILWAUKEE, AND ST. PAUL
RAILWAY; THENCE NORTHWESTERLY ALONG SAID LAST DESCRIBED LINE TO THE WEST LINE OF
SAID SECTION; THENCE ALONG SAID WEST LINE TO THE PLACE OF BEGINNING, IN MCHENRY
COUNTY, ILLINOIS.
COMMONLY KNOWN AS: 8104 North Solon Road, Solon Mills, Illinois
14
<PAGE> 15
B - Memorandum of Lease as agreed upon by counsel.
15
<PAGE> 1
Exhibit 10.30
ASSUMPTION AND JOINDER AGREEMENT
THIS ASSUMPTION AND JOINDER AGREEMENT ("AGREEMENT") is dated as of
August 1, 1997, by and among SINTERLOY CORPORATION, a Delaware corporation (the
"NEW BORROWER"), and BT COMMERCIAL CORPORATION, a Delaware corporation (in its
individual capacity, hereinafter referred to as "BTCC"), acting in its capacity
as agent (in such capacity as agent, hereinafter referred to as the "AGENT")
under the "CREDIT AGREEMENT" (as hereinafter defined). Capitalized terms used
herein but not otherwise defined herein shall have the respective meanings
assigned to such terms in the Credit Agreement.
WITNESSETH:
-----------
WHEREAS, pursuant to that certain Credit Agreement dated as of November
27, 1996 (as amended, restated, supplemented or otherwise modified and in effect
from time to time, the "CREDIT AGREEMENT"), among Friction Products Co., an Ohio
corporation ("FRICTION PRODUCTS"), Hawk Brake, Inc., an Ohio corporation ("HAWK
BRAKE"), Helsel, Inc., a Delaware corporation ("HELSEL"), Hutchinson Products
Corporation, a Delaware corporation ("HUTCHINSON"), Logan Metal Stampings, Inc.,
an Ohio corporation ("LOGAN"), S.K. Wellman Holdings, Inc., a Delaware
corporation ("WELLMAN HOLDINGS"), S.K. Wellman Corp., a Delaware corporation
("WELLMAN CORP.") and Wellman Friction Products U.K. Corp., a Delaware
corporation ("WELLMAN FRICTION") (Friction Products, Hawk Brake, Helsel,
Hutchinson, Logan, Wellman Holdings, Wellman Corp. and Wellman Friction each
sometimes hereinafter referred to individually as an "EXISTING BORROWER" and
collectively as the "EXISTING BORROWERS"); BTCC and certain other financial
institutions from time to time parties thereto (each hereinafter referred to
individually as a "LENDER" and collectively as the "LENDERS"); the Agent and
Hawk Corporation, a Delaware corporation, formerly known as The Hawk Group of
Companies, Inc. ("HAWK"), acting in its capacity as borrowing agent thereunder
for the Existing Borrowers (Hawk, in such capacity, the "HAWK FUNDS
ADMINISTRATOR"), the Agent and Lenders have agreed to make certain extensions of
credit for the joint and several account of the Existing Borrowers;
WHEREAS, the Hawk Funds Administrator and the Existing Borrowers have
requested that New Borrower be joined as a Borrower under the Credit Agreement
and as a party to each of the other Credit Documents;
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
respective parties hereto hereby agree as follows:
1. JOINDER TO CREDIT AGREEMENT AND CREDIT DOCUMENTS; ASSUMPTION OF
OBLIGATIONS. Effective as of the date hereof, upon satisfaction of the
conditions precedent set forth in SECTION 3 below, and in reliance upon the
representations and warranties of New Borrower set
<PAGE> 2
forth herein, New Borrower hereby:
(A) acknowledges and agrees that for all purposes New Borrower
shall be joined as a "Borrower" party to the Credit Agreement, as a
"Grantor" party to the Security Agreement and as a party in each of
such capacities, as the case may be, to all of the other Credit
Documents, including, without limitation, those expressly set forth on
SCHEDULE 1 attached hereto and by this reference made a part hereof;
and
(B) assumes and becomes liable with all of the Existing
Borrowers on a joint and several basis for the prompt payment,
observance and performance of all Obligations to the same extent and
with the same force and effect as if New Borrower had been one of the
Existing Borrowers under and an original signatory to the Credit
Agreement, the Security Agreement and each of the other Credit
Documents.
2. DISCLOSURE SCHEDULES. Schedule B to the Credit Agreement is hereby
supplemented by the information set forth on SCHEDULE 2 to this Agreement.
3. CONDITIONS PRECEDENT. This Agreement shall become effective as of
the date hereof, upon receipt by Agent of a copy of this Agreement and a copy of
each of the other agreements, documents and instruments set forth in the List of
Closing Documents attached as EXHIBIT A hereto, where applicable duly executed
by New Borrower and/or the Existing Borrowers.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS.
4.1 New Borrower hereby represents and warrants to the Agent
and each of the Lenders that, after giving effect to this Agreement:
(A) All representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all
material respects on and as of the date of this Agreement, in each case
as if then made, other than representations and warranties that
expressly relate solely to an earlier date (in which case such
representations and warranties remain true and accurate on and as of
such earlier date);
(B) No Default or Event of Default has occurred which has not
been waived pursuant to the terms of the Credit Agreement;
(C) this Agreement, and the Credit Agreement and the other
Credit Documents as modified hereby, constitute legal, valid and
binding obligations of New Borrower and are enforceable against New
Borrower in accordance with their respective terms; and
(D) the execution and delivery by New Borrower of this
Agreement does not require the consent or approval of any Person,
except such consents and
<PAGE> 3
approvals as have been obtained.
4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT
DOCUMENTS.
5.1 Upon the effectiveness of this Agreement, each reference
in the Credit Agreement, the Security Agreement and each of the other Credit
Documents to "Borrower," "Grantor," "Credit Party" or words of like import shall
in each case mean and include a reference to New Borrower in addition to each of
the Existing Borrowers.
5.2 Except as expressly set forth herein, (I) the execution
and delivery of this Agreement shall in no way affect any of the respective
rights, powers or remedies of the Agent or any of the Lenders with respect to
any Event of Default nor constitute a waiver of any provision of the Credit
Agreement or any of the other Credit Documents and (II) all of the respective
terms and conditions of the Credit Agreement, the other Credit Documents and all
other documents, instruments, amendments and agreements executed and/or
delivered by the Hawk Funds Administrator and/or the Existing Borrowers pursuant
thereto or in connection therewith shall remain in full force and effect and are
hereby ratified and confirmed in all respects.
5. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS
AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL
LAWS AND DECISIONS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICT OF LAWS
PRINCIPLES.
7. HEADINGS. Section headings in this Agreement are included herein for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose.
8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument.
[SIGNATURE PAGES FOLLOW]
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
date first set forth above.
SINTERLOY CORPORATION, a
Delaware corporation
By: /s/ Thomas A. Gilbride
-----------------------------
Thomas A. Gilbride
Vice President-Finance
BT COMMERCIAL CORPORATION, in its
capacity as Agent
By: /s/ Wayne D. Hillock
-----------------------------
Wayne D. Hillock
Senior Vice President
<PAGE> 5
SCHEDULE 1
TO
ASSUMPTION AND JOINDER AGREEMENT
DATED AS OF AUGUST 1, 1997
CREDIT DOCUMENTS
----------------
1. Agency and Contribution Agreement, among the Existing Borrowers and the Hawk
Funds Administrator.
2. Appointment of Agent for Service of Process, among the Existing Borrowers,
the Hawk Funds Administrator and CIT Corporation System.
SCHEDULE 2
TO
ASSUMPTION AND JOINDER AGREEMENT
DATED AS OF AUGUST 1, 1997
SUPPLEMENT TO DISCLOSURE SCHEDULES
----------------------------------
Schedule B (Disclosure Schedules) to the Credit Agreement is hereby supplemented
by adding thereto the following information:
A. PART 6.10(A) (CHIEF EXECUTIVE OFFICES; PRINCIPAL PLACES OF
BUSINESS):
Sinterloy Corporation
8104 North Solon Road
Solon Mills, Illinois 60080
B. PART 6.11 (SUBSIDIARIES):
Sinterloy Corporation is a 100% owned Subsidiary of Hawk
Corporation.
EXHIBIT A
TO
ASSUMPTION AND JOINDER AGREEMENT
DATED AS OF AUGUST 1, 1997
LIST OF CLOSING DOCUMENTS
-------------------------
Attached.
<PAGE> 6
JOINDER OF
SINTERLOY CORPORATION
AS A BORROWER UNDER
SENIOR SECURED CREDIT FACILITY
with
BT COMMERCIAL CORPORATION,
as Agent
August 1, 1997
LIST OF CLOSING DOCUMENTS
A. ASSUMPTION AND JOINDER DOCUMENTS
--------------------------------
1. Assumption and Joinder Agreement between Sinterloy Corporation, a Delaware
corporation ("NEW BORROWER") and Agent:
SCHEDULE 1 Credit Documents
SCHEDULE 2 Supplement to Disclosure Schedules
EXHIBIT A List of Closing Documents
2. Substitute and Restated Revolving Note in the principal amount of up to
$25,000,000 executed by each of the Borrowers, including New Borrower, and
payable to the order of Agent.
3. Corporate Documents of New Borrower:
a. Secretary's Certificate (including incumbency)
EXHIBIT A Resolutions
EXHIBIT B Certificate of Incorporation
EXHIBIT C Bylaws
b. Good Standing Certificate(s):
(1) Delaware
(2) Illinois
4. Lien Search Reports of filings against "SINTERLOY, INC." in the respective
offices indicated on Annex 1 hereto.
5. UCC Financing Statements naming Agent as Secured Party and filed against New
Borrower in the respective offices indicated on Annex 2 hereto.
<PAGE> 7
6. Post-filing Lien Search Reports of filings against New Borrower in the
respective offices indicated on Annex 2 hereto.
7. Opinion of counsel to New Borrower: Kohrman Jackson & Krantz P.L.L.
B. SINTERLOY ACQUISITION DOCUMENTS
-------------------------------
[SEPARATELY BOUND]
<PAGE> 8
ANNEX 1
TO
LIST OF CLOSING DOCUMENTS
LIEN SEARCHES
DEBTOR: SINTERLOY, INC.
<TABLE>
<CAPTION>
================================================================================
Jurisdiction Search Type
- --------------------------------------------------------------------------------
<S> <C>
Illinois - Secretary of State UCC, FTL
- --------------------------------------------------------------------------------
Illinois - McHenry County UCC, FXT, FTL, STL,
PSJ
================================================================================
</TABLE>
A/1-1
<PAGE> 9
ANNEX 2
TO
LIST OF CLOSING DOCUMENTS
FINANCING STATEMENTS
DEBTOR: SINTERLOY CORPORATION
<TABLE>
<CAPTION>
================================================================================
Jurisdiction Date of Filing
Filing Number
- --------------------------------------------------------------------------------
<S> <C> <C>
Ohio - Secretary of State 08/__/97
- --------------------------------------------------------------------------------
Ohio - Cuyahoga County 08/__/97
- --------------------------------------------------------------------------------
Illinois - Secretary of State 08/__/97
================================================================================
</TABLE>
A/2-1
<PAGE> 1
Exhibit 10.31
SUBSTITUTED AND RESTATED
REVOLVING NOTE
$25,000,000.00 ORIGINALLY EXECUTED
NOVEMBER 27, 1996
SUBSTITUTED AND RESTATED
AUGUST 1, 1997
FOR VALUE RECEIVED, each of the undersigned, (collectively, the
"BORROWERS") jointly and severally promises to pay to the order of BT COMMERCIAL
CORPORATION, a Delaware corporation, in its capacity as "AGENT" for the
"LENDERS" (as each such term is defined in the Credit Agreement referred to
below), at c/o BT Commercial Corporation, as Agent, 233 South Wacker Drive, 84th
Floor, Chicago, Illinois 60606 (the "AGENT'S OFFICE") in lawful money of the
United States of America and in immediately available funds, the principal
amount of TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00), or such
lesser amount as may then constitute the unpaid aggregate principal amount of
the Revolving Loans made by the Lenders, on the Expiration Date or such earlier
date as this Revolving Note may become due in accordance with the terms of the
Credit Agreement referred to below. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings assigned thereto in
the Credit Agreement.
Each of the Borrowers further agrees to pay, on a joint and several
basis, interest at the Agent's Office, in like money, on the unpaid principal
amount owing hereunder from time to time from the date hereof on the dates and
at the rates specified in and calculated pursuant to ARTICLE 4 of the Credit
Agreement.
If any payment on this Revolving Note becomes due and payable on a day
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day, and with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.
It is expressly understood and agreed by each of the Borrowers that
this Revolving Note (A) is given in substitution for, and not in payment of that
certain Revolving Note dated November 27, 1996, in the original principal amount
of up to $25,000,000.00 (the "ORIGINAL NOTE"), executed by each of the Borrowers
and payable to BT Commercial Corporation, in its individual capacity, and (B) is
in no way intended to constitute a novation of the Original Note.
This Revolving Note is one of the Revolving Notes referred to in and
executed and delivered pursuant to that certain Credit Agreement dated as of
November 27, 1996 (as the same may be amended, restated, supplemented or
otherwise modified and in effect from time to time, the "CREDIT AGREEMENT"),
among the Borrowers, Hawk Corporation, a Delaware corporation, as borrowing
agent for the Borrowers, the Agent and the Lenders, to which reference is hereby
made for a statement of the terms and conditions under which the Revolving Loans
evidenced hereby are to be
<PAGE> 2
made and repaid.
This Revolving Note is secured by certain Collateral Documents.
Reference is made to such Collateral Documents and to the Credit Agreement for
the terms and conditions governing the Collateral which secures the Obligations.
Each Borrower (and each endorser, guarantor or surety hereof) hereby
waives presentment, demand, protest and notice of any kind. No failure to
exercise and no delay in exercising any rights hereunder on the part of the
holder hereof shall operate as a waiver of such rights.
THE VALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS REVOLVING NOTE
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS AND
DECISIONS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICT OF LAWS
PROVISIONS.
IN WITNESS WHEREOF, each Borrower has caused this Revolving
Note to be executed and delivered by such Borrower's duly authorized officer as
of the date first set forth above.
FRICTION PRODUCTS CO.,
an Ohio corporation
HAWK BRAKE, INC.,
an Ohio corporation
HELSEL, INC.,
a Delaware corporation
HUTCHINSON PRODUCTS CORPORATION,
a Delaware corporation
LOGAN METAL STAMPINGS, INC.,
an Ohio corporation
S.K. WELLMAN HOLDINGS, INC.,
a Delaware corporation
S.K. WELLMAN CORP.,
a Delaware corporation
SINTERLOY CORPORATION,
a Delaware corporation
WELLMAN FRICTION PRODUCTS U.K. CORP.,
a Delaware corporation
By: /s/ Thomas A. Gilbride
------------------------------------
Thomas A. Gilbride
Vice President - Finance
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