HAWK CORP - 10-K Annual Report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 COMMISSION FILE NO. 001-13797
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HAWK CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 34-1608156
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(State of Incorporation) (I.R.S. Employer Identification No.)

200 PUBLIC SQUARE, SUITE 30-5000, CLEVELAND, OHIO 44114-2301
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(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (216) 861-3553

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s)), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [ ]

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

As of March 15, 2002, the registrant had 8,557,240 shares of Class A Common
Stock, net of treasury shares, and 0 shares of Class B non-voting Common Stock
outstanding. As of that date, the aggregate market value of the voting stock of
the registrant held by non-affiliates was $22,296,597 (based upon the closing
price of $4.25 per share of Class A Common Stock on the New York Stock Exchange
on March 15, 2002). For purposes of this calculation, the registrant deems the
3,310,982 shares of Class A Common Stock held by all of its Directors and
executive officers to be the shares of Class A Common Stock held by affiliates.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the 2002 Proxy Statement of Hawk Corporation are incorporated
by reference into Part III of this Form 10-K.

As used in this Form 10-K, the terms "Company," "Hawk" and "Registrant"
mean Hawk Corporation and its consolidated subsidiaries, taken as a whole,
unless the context indicates otherwise. Except as otherwise stated, the
information contained in this Form 10-K is as of December 31, 2001.

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PART I

ITEM 1. BUSINESS

Hawk Corporation, founded in 1989, is a holding company, the principal
assets of which consist of the capital stock of its manufacturing subsidiaries,
Friction Products Co., S.K. Wellman Corp., S.K. Wellman SpA, S.K. Wellman of
Canada Limited, Hawk Composites (Suzhou) Company Limited, Helsel, Inc.,
Sinterloy Corporation, Allegheny Clearfield, Inc. (formerly Clearfield Powdered
Metals, Inc. and Allegheny Powder Metallurgy, Inc.), Net Shape Technologies LLC,
Hawk Motors, Inc., Hawk Motors de Mexico, Hawk Brake, Inc., Quarter Master
Industries, Inc., Tex Racing Enterprises, Inc. and Logan Metal Stampings, Inc.
Through its subsidiaries, Hawk operates primarily in four reportable segments:
friction products, precision powder metal components, performance automotive and
motor components.

The Company's friction products are made from proprietary formulations of
composite materials that primarily consist of cold-rolled steel, metal powders,
resins and synthetic and natural fibers. Friction products are the replacement
elements used in brakes, clutches and transmissions to absorb vehicular energy
and dissipate it through heat and normal mechanical wear. Friction products
manufactured by the Company include friction components for use in brakes,
transmissions and clutches in aerospace, construction, agriculture, truck and
specialty vehicle markets. The Company's precision components are made from
formulations of composite powder metal alloys. The precision components segment
manufactures a variety of components for use in fluid power, truck, lawn and
garden, construction, agriculture, home appliance, automotive and office
equipment markets. In its performance automotive segment, the Company
manufactures brakes, clutches and gearboxes for the performance automotive
markets. Through its motor segment, the Company designs and manufactures die-
cast aluminum rotors for fractional and subfractional horsepower electric motors
used in appliances, business equipment, pumps and HVAC equipment. The Company
also designs and produces integral horsepower custom motors and generators.

BUSINESS STRATEGY

The Company focuses on manufacturing products requiring sophisticated
engineering and production techniques for applications in markets in which it
has achieved a significant market share. The Company's business strategy
includes the following principal elements:

- Focus on High-Margin, Specialty Applications. The Company operates
primarily in markets that require sophisticated engineering and
production techniques. In developing new applications, as well as in
evaluating acquisitions, the Company seeks to compete in markets
requiring such engineering expertise and technical capability, rather
than in markets in which the primary competitive factor is product
pricing. The Company believes margins for its products in these markets
are higher than in other manufacturing markets that use standardized
products. The Company's gross margins in 2001 and 2000 were 21.7% and
27.1%, respectively.

- New Product Introduction. A key part of the Company's strategy is the
introduction of products for new applications, which incorporate improved
performance characteristics or reduced costs in response to customer
needs. Because friction products are the consumable, or wear, component
of brake, clutch and transmission systems, the introduction of new
friction products in conjunction with a new system provides the Company
with the opportunity to supply the aftermarket for the life of the
system. For example, the ability to service the aftermarket for a
particular aircraft braking system will likely provide the Company with a
stable market for its friction products for the life of the product,
which can be 30 years or more. The Company also seeks to grow by applying
its existing products and technologies to new specialized applications
where its products have a performance or technological advantage. To
enhance its growth strategy, the Company has expanded its product line
offerings through outsourcing opportunities, especially in the motor
segment where a majority of rotors are still made in-house by motor
manufacturers.

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- Expanding International Sales. Through its friction and motor segments,
which have foreign manufacturing facilities in Italy, Canada, China and
Mexico and the friction segment's worldwide distribution network, the
Company continues to expand its international operations in established
markets throughout Europe, Asia and North America. In 2000, the Company
opened a facility located in Suzhou, China. This facility, which began
production in 2001, will primarily serve friction customers on a
worldwide basis. The Company also believes that further opportunities to
expand sales exist in emerging economies. In 2000, the Company commenced
initial production at its rotor manufacturing facility in Monterrey,
Mexico. This facility will service motor customers located in Mexico and
Latin America. This facility is expected to reach full production in
2002. Sales from the Company's international facilities were $23.6
million in 2001.

- Expanding Customer Relationships. The Company's engineers work closely
with customers to develop and design new products and improve the
performance of existing products. The Company's commitment to quality,
service and just-in-time delivery enables it to build and maintain strong
and stable customer relationships. The Company believes that more than
80% of its sales are from products and materials for which it is the sole
source provider for specific customer applications. The Company and its
predecessors have relationships with a number of customers dating back to
the 1940's. The Company believes that strong relationships with its
customers provide it with significant competitive advantages in obtaining
and securing new business opportunities.

PRODUCTS AND MARKETS

The Company focuses on supplying components to the aerospace, industrial,
performance automotive and motor markets that require sophisticated engineering
and production techniques for applications in markets in which it has achieved a
significant market share. Through acquisitions and product line expansions, the
Company has diversified its end markets. The Company believes this
diversification has reduced its economic exposure to the cyclical effects of any
particular industry.

FRICTION PRODUCTS

The Company's friction segment manufactures products made from proprietary
formulations of composite materials that primarily consist of metal powders,
synthetic and natural fibers. Friction products are the replacement elements
used in brakes, clutches and transmissions to absorb vehicular energy and
dissipate it through heat and normal mechanical wear. For example, the friction
brake components in aircraft braking systems slow and stop airplanes when
landing or taxiing. Friction products manufactured by the Company also include
friction components for use in automatic and power shift transmissions, clutch
facings that serve as the main contact point between an engine and a
transmission, and brake components for use in many truck, construction,
agriculture and specialty vehicle braking systems.

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

The principal markets served by the Company's friction segment include
manufacturers of aircraft brakes, truck clutches, heavy-duty construction and
agricultural vehicle brakes, motorcycle and snowmobile brakes and transmissions.
Based upon net sales, the Company believes that it is among the top worldwide
manufacturers of friction products used in aerospace and industrial
applications. The Company estimates that aftermarket sales of friction products
have comprised approximately 50% of the Company's net friction product sales in
recent years. The Company believes that its stable aftermarket sales component
enables the Company to minimize its exposure to adverse economic cycles.

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Aerospace. The Company believes it is the only independent supplier of
friction materials to the manufacturers of braking systems for the Boeing 727,
737 and 757, the DC-9, DC-10, MD-80 and Bombardier's Canadair regional jet
series of aircraft. The Company believes it is also the largest supplier of
friction materials to the general aviation (non-commercial, non-military)
market, supplying friction materials for aircraft manufacturers, such as Cessna,
Lear, Gulfstream and Fokker. Each aircraft braking system, including the
friction materials(s) supplied by the Company, must meet stringent Federal
Aviation Administration criteria and certification requirements. New model
development and FAA testing for the Company's aircraft braking system customers
generally begins two to five years prior to full scale production of new braking
systems. If the Company and its aircraft brake system manufacturing partner are
successful in obtaining the rights to supply a particular model of aircraft, the
Company will typically supply its friction products to that model's aircraft
braking system for as long as the model continues to fly because it is generally
not economically feasible to redesign a braking system. Moreover, FAA
maintenance requirements mandate that brake components be changed after a
specified number of take-offs and landings, which the Company expects to result
in a continued and steady market for its aerospace friction products.

As a result of the terrorist attacks on September 11, 2001, the aerospace
markets served by the Company suffered an immediate downturn. Air travel
schedule curtailments by the airlines were significant as a result of the steep
declines in customer traffic. Based on recent trends however, the Company
expects air travel growth to gradually return as the year progresses. However,
any sustained decline in airline traffic, such as the decline that occurred
after the tragic events of September 11, 2001, will have a negative impact on
the Company's aerospace business.

The Company's friction products for commercial aerospace applications are
primarily used on "single-aisle" aircraft that are flown on shorter routes,
resulting in more takeoffs and landings than larger aircraft. The Company
believes its friction products provide an attractive combination of performance
and cost effectiveness in these applications. According to Boeing's 2001 Current
Market Outlook, which was published prior to September 11, approximately 74
percent of the 14,548 airplanes in the world fleet are single-aisle commercial
aircraft. The report also forecasts single-aisle aircraft to increase by
approximately 9,497 to 24,045 by the end of 2020. The Boeing report also states
that world airline passenger traffic is projected to increase 4.7 percent per
year over the next nineteen years through 2020. The Company expects that
continued growth in world airline traffic, combined with the increasing number
of single-aisle aircraft, will cause long-term demand for the Company's
aerospace friction products to remain strong, although the market is expected to
remain soft throughout the remainder of 2002.

Construction/Agriculture/Trucks/Specialty. The Company supplies a variety
of friction products for use in brakes, clutches and transmissions on
construction and agriculture equipment, trucks and specialty vehicles. These
components are designed to precise tolerances and permit brakes to stop or slow
a moving vehicle and the clutch or transmission systems to engage or disengage.
The Company believes it is a leading supplier to original equipment
manufacturers and to the aftermarket. A portion of the Company's sales to
original equipment manufacturers find their way into the aftermarket. The
Company believes that its trademarks, including Velvetouch(R) and
Sheepbridge(R), are well known in the aftermarket for these components. As with
the Company's aerospace friction products, new friction product introduction in
conjunction with a new brake, clutch or transmission system provides the Company
with the opportunity to supply the aftermarket with the friction product for the
life of the system.

- Construction Equipment. The Company supplies friction products such as
transmission discs, clutch facings and brake components to manufacturers
of construction equipment, including Caterpillar. The Company believes it
is the second largest domestic supplier of these types of friction
products. Replacement components for construction equipment are sold
through original equipment manufacturers as well as various aftermarket
distributors.

- Agriculture Equipment. The Company supplies friction products such as
clutch facings, transmission discs and brake components to manufacturers
of agriculture equipment, including John Deere and Case New Holland
(CNH). The Company believes it is the second largest domestic supplier of
such friction products.

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Replacement components for agricultural equipment are sold through
original equipment manufacturers, as well as various aftermarket
distributors.

- Medium and Heavy Trucks. The Company supplies friction products for
clutch facings used in medium and heavy trucks to original equipment
manufacturers, such as Eaton. The Company believes it is the leading
domestic supplier of replacement friction products used in these
applications. Replacement components are sold through original equipment
manufacturers and various aftermarket distributors.

- Specialty Friction. The Company supplies friction products for use in
specialty applications, such as brake pads for Harley-Davidson
motorcycles, General Motors' Hummer and Bombardier, Polaris Industries
and Arctic Cat snowmobiles. The Company believes that these markets are
experiencing significant growth, and the Company will continue to
increase its market share with its combination of superior quality and
product performance.

PRECISION COMPONENTS

The Company's precision components segment is a leading supplier of powder
metal components consisting primarily of pump, motor and transmission elements,
gears, pistons and other component parts for applications ranging from lawn and
garden tractors to industrial equipment. Since Hawk's founding in 1989, it has
participated in the growing powder metal products industry with a focus on the
North American industrial market. The Metal Powder Industries Federation, an
industry trade group, estimates that this market had sales of over $5.0 billion.

Applications. The Company manufactures a variety of components made from
powder metals for use in (1) fluid power applications, such as pumps and other
hydraulic mechanisms, (2) transmissions, other drive mechanisms and anti-lock
braking systems used in trucks and off-road and lawn and garden equipment, (3)
gears and other components for use in home appliances and office equipment and
(4) components used in automotive applications. The Company believes that the
market for powder metal components will continue to grow as the Company's core
powder metal technology benefits from advances that permit production of powder
metal components with increased design flexibility, greater densities and closer
tolerances that provide improved strength, hardness and durability for demanding
applications, and enable the Company's powder metal components to be substituted
for wrought steel or iron components produced with forging, casting or stamping
technologies. Powder metal components can often be produced at a lower cost per
unit than products manufactured with forging, casting or stamping technologies
due to the elimination of, or substantial reduction in, secondary machining,
lower material costs and the virtual elimination of raw material waste. The
Company believes that the current trend of substituting powder metal components
for forged, cast or stamped components in industrial applications will continue
for the foreseeable future, providing the Company with increased product and
market opportunities.

The Company's precision component segment operates in six facilities, each
targeting a specific aspect of the market place:

- High Precision. Helsel's pressing and finishing capabilities enable it to
specialize in tight tolerance fluid power components such as pump
elements and gears. In addition, the Company believes that Helsel's
machining capabilities provide it with a competitive advantage by giving
it the ability to supply a completed part to its customers, typically
without any subcontracted precision machining. The Company expects that
Helsel's growth will be driven by existing customers' new design
requirements and new product applications primarily for pumps, motors and
transmissions.

- Large Size Capability. The Company has the capability to make structural
powder metal components that are among the largest used in North America.
The Company expects its sales of larger powder metal components to
continue to grow as the Company creates new designs for existing
customers and benefits from market growth, primarily in current
construction, agricultural and truck applications.

- High Volume. Sinterloy and Allegheny Clearfield target smaller, high
volume parts where they can utilize efficient pressing and sintering
capabilities to their best advantage. Sinterloy's primary market has been
powder metal components for the automotive and business equipment market.
Allegheny Clearfield's
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market focus has been primarily to the lawn and garden, home appliance,
power hand tool, and truck markets. The Company believes that the high
volume capabilities of these operations will provide the Company with
cross-selling opportunities from the Company's other precision component
facilities.

- Metal Injection Molding. Net Shape manufactures small complex metal
injection molded parts for a variety of industries, such as
telecommunications and small hand tools. The Company believes that
through its relationship with traditional powder metal end-users, that
significant cross-selling opportunities exist for metal injected molded
parts.

PERFORMANCE AUTOMOTIVE

Under the Hawk Performance(R) and Hawk Brake(R) trade names, the Company
supplies high performance friction material for use in racing car brakes. The
Company believes that this performance racing material may have additional
applications such as braking systems for passenger and school buses, police cars
and commercial delivery vehicles and has targeted these markets as future growth
opportunities. Additionally, the Company supplies premium branded clutch and
drive train components through its Quarter Master and Tex Racing subsidiaries.
The products are used by leading teams in the NASCAR and CART racing series as
well as drivers in the SCCA and ASA racing circuits, high-performance street
vehicles, and other road race and oval track competition cars.

MOTOR COMPONENTS

The Company believes that its motor segment, which operates through its
Hawk Motors and Hawk Motors de Mexico subsidiaries, is the largest independent
U.S. manufacturer of die-cast aluminum rotors for use in fractional and
subfractional horsepower electric motors. These motors are used in a wide
variety of applications such as office equipment, small household appliances,
business equipment, pumps and HVAC equipment. The Company estimates that
approximately 70% of all rotors in the subfractional horsepower motor market are
made internally by large motor manufacturers. However, the Company believes its
motor division has growth opportunities arising from the trend by original
equipment motor manufacturers to outsource their production of rotors. The
Company now produces rotors for two of the three largest motor manufacturers in
North America. In 2000, the Company commenced production at its rotor
manufacturing factory in Monterrey, Mexico, where a large portion of fractional
and subfractional motors are manufactured. Output at this facility is expected
to reach full production levels during 2002. The Company also designs and
produces integral horsepower custom motors and generators through a business
relationship with Potencia Industrial, S.A. de C.V., located in Mexico City,
Mexico.

BUSINESS SEGMENT INFORMATION
(in millions)

The following table sets forth comparative operating results and assets by
each of the Company's operating segments.

MANUFACTURING

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

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

- Molding/compacting: At room temperature, a specific amount of a powder
alloy is compacted under pressure into a desired shape. The Company's
molding presses are capable of producing pressures of up to 3,000 tons.
The Company believes that it has some of the largest presses in the
powder metal industry, enabling it to produce large, complex components.
With its metal injection molding equipment, the Company can create
complex shapes not obtainable with conventional powder metal presses.

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

- Secondary machining/treatment: If required by customer specifications, a
sintered part undergoes additional processing. These processing
operations are generally necessary to attain increased hardness or
strength, tighter dimensional tolerances or corrosion resistance. To
achieve these specifications, parts are

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heat or steam treated, precision coined or flattened, ground, machined or
treated with a corrosion resistant coating.

Certain of the Company's friction products, which are primarily used in
oil-cooled brakes and power shift transmissions, do not require all of the
foregoing steps. For example, composite friction materials are molded under high
temperatures and cured in electronically-controlled ovens and then bonded to a
steel plate or core with a resin-based polymer. Cellulose composite friction
materials are blended and formed into continuous sheets and then stamped into
precise shapes by computer-controlled die cutting machines. Like molded
composite friction materials, cellulose composite friction materials are then
bonded to a steel plate or core with a resin-based polymer.

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

QUALITY CONTROL

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

FOREIGN OPERATIONS

The Company's foreign operations are subject to the usual risks of
operating in foreign jurisdictions. They include, but are not limited to,
exchange controls, currency restrictions and fluctuations, changes in local
economics and changes in political conditions. The assets associated with the
Company's foreign operations are located in countries where the Company believes
such risk to be minimal. For certain financial information regarding the
Company's international operations, see "Note M -- Business Segments" and "Note
N -- Supplemental Guarantor Information," to the accompanying consolidated
financial statements beginning on page 40 of this Form 10-K.

TECHNOLOGY

The Company believes that it is an industry leader in the development of
systems, processes and technologies which enable it to manufacture friction
products with numerous performance advantages, such as greater wear resistance,
increased stopping power, lower noise and smoother engagement. The Company's
expertise is evidenced by its aircraft brake components, which are currently
being installed on many of the braking systems of the Boeing 737-600, -700, -800
and -900 and Bombardier's Canadair regional jet series of aircraft as well as
new series of industrial equipment from various original equipment manufactures.

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

The Company also believes that its precision components business is able to
produce a wide range of products from small precise components to large
structural parts. The Company has presses that produce some of the largest
powder metal parts in the world, and its powder metal technology permits the
manufacture of complex

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components with specific performance characteristics and close dimensional
tolerances that would be impractical to produce using conventional metalworking
processes. With its metal injection molding technology used at the Company's Net
Shape facility, the Company is able to create complex shapes previously not
available using conventional powder metal technology.

The Company's motor business is able to produce a wide range of rotors for
the fractional and subfractional motor industries. The Company has developed
customized manufacturing processes for rotors and created specialty rotor die
construction techniques. In addition, the Company has also designed the highly
automated machines necessary for the production of its rotors.

CUSTOMERS

The Company's engineers work closely with customers to develop and design
new products and improve the performance of existing products. The Company's
working relationship with its customers on development and design, and the
Company's commitment to quality, service and just-in-time delivery have enabled
it to build and maintain strong and stable customer relationships. The Company
or its predecessors has had relationships with many of its customers which date
back to the 1940's, and the Company believes that more than 80% of its sales are
from products and materials for which it is the sole source provider for
specific customer applications. Management believes the Company's relationships
with its customers are good.

The Company's recent acquisitions have broadened product lines, increased
its technological capabilities and will further enhance its customer
relationships and expand its preferred supplier status. As a result of the
Company's commitment to customer service and satisfaction, the Company is a
preferred supplier to many of the world's leading original equipment
manufacturers, including Aircraft Braking Systems, Goodrich, Caterpillar, Eaton,
Deere, CNH, Hydro-Gear, Sauer-Danfos, Parker Hannifin, Electrolux, Haldex, AO
Smith, Emerson and Fasco Motors.

The Company's top five customers accounted for 24.4% of the Company's
consolidated net sales in 2001 and 24.8% of the Company's consolidated net sales
in 2000.

MARKETING AND SALES

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

COMPETITION

The principal segments in which the Company operates are competitive and
fragmented, with many small manufacturers and only a few manufacturers that
generate sales in excess of $50 million. The larger competitors may have
financial and other resources substantially greater than those of the Company.
The Company competes for new business principally at the beginning of the
development of new applications and at the redesign of existing applications by
its customers. For example, new model development for the Company's aircraft
braking system customers generally begins two to five years prior to full-scale
production of new braking systems. Product redesign initiatives by customers
typically involve long lead times as well. Although the Company has been
successful in the past in obtaining this new business, there is no assurance
that the Company will continue to obtain such business in the future. The
Company also competes with manufacturers using different technologies, such as
carbon composite ("carbon-carbon") friction materials for aircraft braking
systems. Carbon-carbon braking systems are significantly lighter than the
metallic aircraft braking systems for which the Company supplies friction
materials, but are more expensive. The carbon-carbon brakes are typically used
on wide-body
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aircraft, such as the Boeing'747 and military aircraft, where the advantages in
reduced weight justify the additional expense.

In addition, as the Company's core powder metal technology improves,
enabling its components to be substituted for wrought steel or iron components,
the Company increasingly competes with companies using forging, casting or
stamping technologies. Powder metal components can often be produced at a lower
cost per unit than products manufactured with forging, casting or stamping
technologies due to the elimination of, or substantial reduction in, secondary
machining, lower material costs and the virtual elimination of raw material
waste. As a result, powder metal components are increasingly being substituted
for metal parts manufactured using more traditional technologies.

SUPPLY AND PRICE OF RAW MATERIALS

The principal raw materials used by the Company are copper, steel and iron
powders, aluminum ingot and custom-fabricated cellulose sheet. The Company has
no long-term supply agreements with any of its major suppliers. However, the
Company has generally been able to obtain sufficient supplies of raw materials
for its operations, and changes in prices of such supplies over the past few
years have not had a significant effect on its operations.

GOVERNMENT REGULATION

The Company's sales to manufacturers of aircraft braking systems
represented 14.1 percent and 13.7 percent of the Company's consolidated net
sales in 2001 and 2000, respectively. Each aircraft braking system, including
the friction products supplied by the Company, must meet stringent FAA criteria
and testing requirements. The Company has been able to meet these requirements
in the past and continuously reviews FAA compliance procedures to help ensure
continued and future compliance.

ENVIRONMENTAL, HEALTH AND SAFETY MATTERS

Manufacturers like the Company are subject to stringent environmental
standards imposed by federal, state, local and foreign environmental laws and
regulations, including those related to air emissions, wastewater discharges,
chemical and hazardous waste management and disposal. Certain of these
environmental laws hold owners or operators of land or businesses liable for
their own and for previous owners' or operators' releases of hazardous or toxic
substances, materials or wastes, pollutants or contaminants. Compliance with
environmental laws also may require the acquisition of permits or other
authorizations for certain activities and compliance with various standards or
procedural requirements. The Company is also subject to the federal Occupational
Safety and Health Act and similar foreign and state laws. The nature of the
Company's operations, the long history of industrial uses at some of its current
or former facilities, and the operations of predecessor owners or operators of
certain of the businesses expose the Company to risk of liabilities or claims
with respect to environmental and worker health and safety matters. The Company
reviews its procedures and policies for compliance with environmental and health
and safety laws and regulations and believes that it is in substantial
compliance with all such material laws and regulations applicable to its
operations. The costs of compliance with environmental, health and safety
requirements have not been material to the Company.

INTELLECTUAL PROPERTY MATTERS

Hawk(R), Wellman Friction Products(R), Velvetouch(R), Fibertuff(R),
Feramic(R), Velvetouch Feramic(R), Velvetouch Organik(R) and Velvetouch
Metalik(R), Hawk Brake(R) and Hawk Performance(R), Hawk Motors(R) and Hawk
Rotors(R) are among the federally registered trademarks of the Company.
Velvetouch(R) is the Company's principal trademark for use in the friction
products aftermarket segment and is registered in 26 countries.

Although the Company maintains patents related to its business, the Company
does not believe that its competitive position is dependent on patent protection
or that its operations are dependent on any individual patent.

10

To protect its intellectual property, the Company relies on a combination
of internal procedures, confidentiality agreements, patents, trademarks, trade
secrets law and common law, including the law of unfair competition.

PERSONNEL

At December 31, 2001, the Company had approximately 1,190 domestic
employees and 360 international employees. Approximately 180 employees at the
Company's Brook Park, Ohio plant are covered under a collective bargaining
agreement with the Paper, Allied Industrial, Chemical and Energy Workers
International Union (PACE) expiring in October 2004; approximately 55 employees
at the Company's Akron, Ohio facility are covered under a collective bargaining
agreement with the United Automobile Workers expiring in July 2003;
approximately 190 employees at the Company's Orzinuovi, Italy plant are
represented by a national mechanics union under an agreement that expires in
December 2002 and by a local union under an agreement that expires in December
2004; and approximately 60 hourly employees at the Company's Alton, Illinois
facility are covered under a collective bargaining agreement with the
International Association of Machinists and Aerospace Workers expiring in June
2004. The Company has experienced no strikes and believes its relations with its
employees and their unions to be good.

ITEM 2. PROPERTIES

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

The Company is party to an expense sharing arrangement under which the
Company shares the expenses of its corporate headquarters located in Cleveland
with a company owned by Ronald E. Weinberg, the Chairman and CEO of the Company.

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company is involved in litigation arising from the
ordinary course of business. In the Company's opinion the outcome of existing
litigation will not 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

No matters were submitted to a vote of security holders during the fourth
quarter of 2001.

11

PART II

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

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

QUARTERLY STOCK PRICES

The closing sale price for the common stock on December 31, 2001 was $3.60

Shareholders of record as of March 15, 2002 numbered 84. The Company
estimates that an additional 1,000 shareholders own stock held for their
accounts at brokerage firms and financial institutions.

The Company has never declared or paid, and does not intend to declare or
pay, any cash dividends for the foreseeable future and intends to retain
earnings for the future operation and expansion of the Company's business.
Currently, the Company's senior note indenture prohibits the payment of cash
dividends on the Class A Common Stock.

The Company did not sell any unregistered Class A Common Stock in the
fourth quarter of 2001.

12

ITEM 6. SELECTED FINANCIAL DATA

- ---------------

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

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

This discussion should be read in conjunction with the consolidated
financial statements, notes and tables included elsewhere in this report.
Management's discussion and analysis may contain forward-looking statements that
are provided to assist in the understanding of anticipated future financial
performance. However, such performance involves risks and uncertainties, which
may cause actual results to differ materially from those expressed in the
forward-looking statements.

RESULTS OF OPERATIONS

Through its subsidiaries, the Company operates primarily in four reportable
segments: friction products, precision powder metal components, performance
automotive and motor components. The Company's results of operations are
affected by a variety of factors, including but not limited to, general economic
conditions, customer demand for the Company's products, competition, raw
material pricing and availability, labor relations

13

with the Company's personnel and political conditions in the country in which
the Company operates. The Company sells a wide range of products, which have a
corresponding range of gross margins. The Company's consolidated gross margin is
affected by product mix, selling prices, material and labor costs as well as the
ability of the Company to absorb its overhead costs as a result of fluctuations
in demand.

In 2001, the Company experienced a 174 percent decrease in net income over
the prior year. This decrease was attributable primarily to sales volume
declines in most of the end-markets served by the Company's friction and
precision component divisions, the Company's inability to fully absorb all of
its fixed costs, increased depreciation and amortization costs, restructuring
charges taken by the Company in the second quarter to realign its business
operations to current economic conditions, the continuing start-up expenditures
at the Company's Mexico and China facilities, increased interest expense and
charges to settle litigation in the Company's performance automotive segment. In
addition, the Company's effective tax rate decreased in 2001 to a benefit of 30
percent from tax expense of 43 percent in 2000, primarily due to the losses the
Company experienced in 2001.

The Company expects 2002 to be a challenging year in most of the markets it
serves. It expects to see continuing softness in the first half of the year with
more favorable market conditions developing during the second half of 2002. As
the effects of September 11 continue to be felt, the Company expects that the
aerospace market, which is served by its friction products segment will
experience a soft operating environment for the full year of 2002. The Company
expects sales to improve as the airline traffic increases throughout the year,
but for the entire year 2002 to remain approximately 10 to 20 percent below 2001
levels. In response to the weak global business environment, and the anticipated
delay in recovery of the Company's end markets until later in 2002, the Company
is continuing to search for additional opportunities to reduce costs across its
various operating segments. Additionally, the Company expects to benefit from
new product introductions throughout its operating segments and the achievement
of operating production levels at its facilities in Mexico and China during
2002. As a result of the expected improvement in the economic conditions as well
as the continued impact of the Company's cost cutting efforts, the Company
continues to expect its earnings before interest, taxes, depreciation and
amortization (EBITDA) margin in 2002 to be approximately 20% higher than the
EBITDA margin reported in 2001.

SIGNIFICANT ACCOUNTING POLICIES

The Company's significant accounting policies, including the assumptions
and judgments underlying them are more fully described in "Note B -- Significant
Accounting Policies" to the accompanying consolidated financial statements
beginning on page 28 of this Form 10-K. Some of the Company's accounting
policies require the application of significant judgment by management in the
preparation of the Company's financial statements. In applying these policies,
the Company's management uses its best judgment to determine the underlying
assumptions that are used in calculating the estimates that affect the reported
values on its financial statements. Management bases its estimates and
assumptions on historical experience and other factors that the Company
considers relevant. Hawk's significant accounting policies include the
following:

- Revenue Recognition. The Company's revenue recognition policy is to
recognize revenues when products are shipped and title has transferred.
The Company maintains an allowance for trade accounts receivable for
which collection on specific customer accounts is doubtful. In
determining collectibility, management reviews available customer
financial statement information, credit rating reports as well as other
external documents and public filings. When it is deemed probable that a
specific customer account is uncollectible, that balance is included in
the reserve calculation set by the Company. Actual results could differ
from these estimates.

- Foreign Currency Translation and Transactions. Assets and liabilities of
the Company's foreign operations are translated using year-end exchange
rates and revenues and expenses are translated using exchange rates as
determined throughout the year. Gains or losses resulting from
translation are included in a separate component of shareholder's equity.
Gains or losses resulting from foreign currency transactions are
translated to local currency at the rates of exchange prevailing at the
dates of the transactions. Accounts receivable or payable in foreign
currencies, other than the subsidiary's local currency, are translated at
the rates of exchange prevailing at the balance sheet date. The effect of
the transaction's gain or loss in included in other income (expense) in
the Company's statement of operations.

14

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

Net Sales. Consolidated net sales for 2001 were $184.4 million, a decrease
of $17.9 million or 9 percent from the same period in 2000. The decline in net
sales, primarily a result of the prolonged weakness in the industrial markets
served by the Company, has resulted in a difficult operating environment in most
of the Company's reporting segments. The terrorist attacks on September 11,
2001, in particular, had a significant negative impact on the Company's aircraft
friction business.

- Friction Segment. Net sales in the friction segment, the Company's
largest, were $100.4 million in 2001, a decrease of 11 percent compared
to 2000. The major markets served by this segment all experienced weak
operating conditions in 2001. The Company experienced declines in heavy
truck, agriculture, construction and specialty friction for the full year
2001 as a result of the soft operating conditions in the United States
and Europe. Net sales in the aerospace market showed a decline for the
year, most notably in the fourth quarter, of 2001, as a result of the
events of September 11. Although the Company expects most of the markets
served by this division to remain soft in 2002, the Company expects the
aerospace market will experience volume declines of approximately 10 to
20 percent compared to 2001, as a result of the decline in air travel.

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

- Performance Automotive. Net sales in the Company's performance
automotive segment were $16.7 million an increase of 78 percent compared
to net sales of $9.4 million in 2000. The increase in revenues was
primarily attributable to the acquisition of Tex Racing in November 2000.
Additionally, net sales in this segment benefited from the continued
popularity of racing, particularly in the NASCAR and CART RACING SERIES,
both served by the Company.

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

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

- Friction Segment. The Company's friction segment reported gross profit
of $24.5 million or 24 percent of net sales in 2001 compared to $29.7
million or 26 percent of net sales in 2000. The decline in the Company's
gross profit margin was the result of lower sales volumes, product mix
and the inability of the Company to absorb all of the fixed costs of its
manufacturing facilities as a result of the deteriorated economic
conditions experienced in 2001; especially the impact of the reduction in
sales to the aircraft market in the fourth quarter as a result of the
events of September 11. The Company also continued to support its
start-up facility in China during 2001. Although the facility began
shipments in 2001, it operated at negative margins for the full year.

- Precision Components Segment. Gross profit in the precision components
segment was $11.5 million or 20 percent of net sales in 2001 compared to
$19.4 million or 27 percent of net sales in 2000. The sharp
15

decline in this segment's margins was primarily the result of the severe
economic downturn experienced by this segment and the resulting volume
declines and the inability of the Company to cover all of the unabsorbed
fixed charges generated by the segment. The Company also provided
operating support to its start-up metal injection molding company, Net
Shape, which was acquired in December 2000. The Company anticipates that
the start-up costs will continue into 2002, although at reduced levels
from 2001.

- Performance Automotive Segment. The Company's performance automotive
segment reported gross profit of $4.3 million or 26 percent of net sales
in 2001 compared to $4.0 million or 43 percent of net sales in 2000. The
decline in gross profit was primarily the result of manufacturing
inefficiencies and inventory realignments at the Company's performance
clutch manufacturing facility.

- Motor Segment. The Company reported a gross margin loss in the motor
segment for 2001. The loss was $0.3 million compared to a gross profit of
$1.8 million in 2000. The negative gross margin was primarily the result
of the Company's continued support of its start-up rotor manufacturing
facility in Mexico during 2001. The Company expects to continue to
support this facility in 2002. However, as the facility moves to full
production, this support is expected to decline in the latter half of
2002. Additionally, as a result of softness in the domestic motor
business in 2001, the Company's domestic margin declined in 2001 as it
was unable to absorb all of the fixed costs.

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

Restructuring costs. In June 2001, the Company announced a restructuring
program to adjust its near-term business plan to reflect the current economic
slowdown. This restructuring initiative included a workforce reduction at its
domestic facilities and other charges. As a result of this restructuring
initiative, the Company recorded an expense of $1.1 million in 2001. The
restructuring program included a reduction of approximately 160 employees,
including salary and production personnel, primarily at the Company's domestic
locations.

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

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

- The friction segment's income from operations decreased $3.4 million or
28 percent to $8.6 million in 2001 from $12.0 million in 2000.

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

- The performance automotive segment reported a loss from operations of
$1.9 million, a decrease of $2.3 million in 2001 compared to 2000.

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

Other (Expense) Income. Other expense was $0.5 million in 2001, the same
as reported in 2000. The expense in 2001 consisted primarily of an expense to
reflect the fair value of the Company's interest rate swap

16

agreement and foreign currency transaction losses incurred by the Company
primarily through its Italian facility. Additional information regarding the
Company's interest rate swap agreement is contained in "Note B -- Significant
Accounting Policies," in the accompanying consolidated financial statements on
page 28 of this Form 10-K.

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

Income Taxes. The provision for income taxes decreased $6.2 million to a
benefit of $1.8 million in 2001 from a tax expense of $4.4 million in 2000
primarily because of the losses the Company incurred in 2001. The Company's
effective tax benefit for the year ended is 30 percent compared to a tax
provision of 43 percent in 2000. The primary factors affecting the Company's
effective tax rate in 2001 are nondeductible goodwill amortization and required
state and local tax provisions. An analysis of changes in income taxes and the
effective tax rate of the Company is contained in "Note J -- Income Taxes", in
the accompanying consolidated financial statements on page 38 of this Form 10-K.

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

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

Net Sales. Consolidated net sales for 2000 were $202.3 million, an
increase of $14.7 million or 8 percent over 1999. The increase in net sales came
primarily from the Company's precision components and performance automotive
segments. The net sales increase was attributable to the acquisition of
Allegheny in March 1999, Quarter Master in November 1999 and Tex Racing in
November 2000. Net sales in 2000 from these acquisitions represented $9.4
million, or 64 percent, of the total net sales increase reported during 2000.
Net sales in the friction segment were $112.5 million in 2000, a decrease of 2
percent compared to 1999. Net sales increases in the construction and specialty
markets served by the friction segment were offset by declines in the truck,
non-performance automotive and agriculture markets, and to a lesser extent, the
aerospace market. In the Company's precision components segment, net sales
increased to $72.0 million, or 18 percent, from 1999. The increase was the
result of the acquisition of Allegheny and strength in the fluid power,
appliance and lawn and garden markets served by the Company. This increase was
offset by the continued reduction in volumes from a customer that moved its
production offshore.

Gross Profit. Gross profit increased $6.2 million to $54.9 million during
2000, a 13 percent increase compared to gross profit of $48.8 million in 1999.
The gross profit margin increased to 27 percent in 2000 from 26 percent in the
comparable period in 1999. The increase in margins was led by the friction
segment, primarily as a result of product mix benefits and cost reduction
programs initiated in 1999. In the precision components segment, while the
Company benefited from volume increases from the acquisition of Allegheny, the
softness in the agriculture and heavy truck markets served by this segment, the
loss of a customer and changes in the product-mix caused a reduction in margins
achieved by the Company during 1999. Gross profit margins in the Company's
performance automotive segment remained flat in 2000 when compared to 1999 while
the gross profit margin in the Company's motor segment declined in 2000
primarily as a result of the startup costs associated with the Company's new
Mexican facility.

Selling, Technical and Administrative Expenses. ST&A expenses increased
$4.9 million, or 19 percent, from $26.4 million during 1999 to $31.3 million in
2000. As a percentage of net sales, ST&A increased to 16 percent in 2000 from 14
percent in 1999. The increase in ST&A expenses as a percent of net sales,
resulted primarily from expenditures incurred by the Company's entry into Mexico
and China, personnel costs associated the Company's growth initiatives and
increased depreciation expense. The Company spent $3.5 million, or 2 percent of
its net sales on product research and development compared to $3.2 million in
1999.

Income from Operations. Income from operations increased $0.9 million, or
5 percent, from $18.6 million in 1999 to $19.5 million in 2000. Income from
operations as a percentage of net sales decreased to 10 percent in 2000 from 10
percent in 1999.

17

Other (Expense) Income. Other expense was $0.5 million in 2000, an
increase of $0.9 million, from income of $0.4 million reported in 1999. The
expense reported in 2000 was primarily the result of foreign currency
transaction losses incurred by the Company at its Italian facility. In addition,
the Company reported income in 1999 as the result of the receipt of a contingent
receivable.

Interest Expense. Interest expense decreased $0.4 million, or 4 percent,
to $9.0 million in 2000 from $9.4 million in 1999. The decrease is attributable
to lower debt levels during 2000 compared with 1999.

Income Taxes. The provision for income taxes increased $0.7 million to
$4.4 million in 2000 from $3.7 million in 1999 primarily because of the increase
in the Company's effective tax rate during 2000 as a result of higher tax rates
at the Company's foreign operations. In 1999, the Company benefited from state
investment and job creation tax credits. The increase in the state and local
effective tax rate and the impact of foreign taxes is outlined in "Note
J -- Income Taxes", in the accompanying consolidated financial statements
starting on page 38 of this Form 10-K, on the lines captioned "State and local
tax, net of federal tax benefit," and "Adjustment to worldwide tax accrual and
other, net," respectively.

Net Income. As a result of the factors noted above, net income was $5.8
million in 2000, a decrease of 8 percent, compared to net income of $6.3 million
reported in 1999.

LIQUIDITY AND CAPITAL RESOURCES

The primary financing requirements of the Company are (1) for capital
expenditures for maintenance, replacement and acquisitions of equipment,
expansion of capacity, productivity improvements and product development, (2)
for funding the Company's day-to-day working capital requirements and (3) to pay
interest on, and to repay principal of, indebtedness. The Company's primary
source of funds for conducting its business activities and servicing its
indebtedness has been cash generated from operations.

The Company's senior notes, with an outstanding balance of $65.0 million at
December 31, 2001, bear interest at 10.25% per annum and mature December 1,
2003. The senior notes are general unsecured senior obligations of the Company
and are fully and unconditionally guaranteed, on a joint and several basis, by
all domestic wholly-owned subsidiaries of the Company. The Company has the
option to redeem the senior notes in whole or in part during the twelve months
beginning December 1, 2001 at 102.563%, and beginning December 1, 2002 at 100.0%
together with any interest accrued and unpaid to the redemption date. Upon a
change of control as defined in the senior note indenture, each holder of the
senior notes will have the right to require the Company to repurchase all or any
part of such holder's senior notes at a purchase price equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest to the date
of purchase.

The senior note indenture permits the Company and its subsidiaries to incur
additional indebtedness without limitation, provided that it continues to meet a
cash flow coverage ratio. Because of the Company's performance in 2001, the
Company does not currently meet the prescribed ratio. The failure to meet the
ratio does not constitute a default under the senior note indenture. Rather, the
senior note indenture continues to permit certain other types of indebtedness
which are now subject to certain limitations. The Company's senior indebtedness,
which is secured by liens on all of the assets and the assets of the
subsidiaries, is permitted. The Company does not believe that its operations
will be materially impacted by the limitation(s) on indebtedness.

As of December 31, 2001, the senior note indenture prohibits the payment of
cash dividends on the Company's Class A Common Stock. The senior note indenture
also contains other covenants limiting the Company's ability and its
subsidiaries to, among other things, make certain other restricted payments,
make certain investments, permit liens, incur dividend and other payment
restrictions affecting subsidiaries, enter into consolidation, merger,
conveyance, lease or transfer transactions, make asset sales, enter into
transactions with affiliates or engage in unrelated lines of business. These
covenants are subject to certain exceptions and qualifications. The senior note
indenture considers non-compliance with the limitations events of default. In
addition to non-payment of interest and principal amounts, the senior note
indenture also considers default with respect to other indebtedness in excess of
$5.0 million an event of default. In the event of a default, the principal and
interest could be accelerated upon written notice by 25% or more of the holders
of the senior notes. As of December 31, 2001, the Company was in compliance with
these covenants.

In addition, the Company has available a bank credit facility which may be
used for general corporate purposes. At December 31, 2001, the facility was
comprised of a $30.0 million revolving credit component and a

18

$17.5 million amortizing term loan subject to a borrowing base formula. The term
loan has quarterly maturities of $1.25 million and the facility has a maturity
date of March 31, 2003. As of December 31, 2001, the Company had $8.3 million
outstanding under the revolving credit component of the facility. On March 25,
2002, the Company amended the credit facility reducing the revolving credit
component of the facility to $25.0 million, modifying the terms of financial
covenants as of December 31, 2001 and for future reporting periods and
increasing the margin over the base interest rates. The interest rates on the
credit facility range from 250 to 450 basis points over the Eurodollar rate, or
alternatively, 125 to 325 basis points over the prime rate based on certain
quarterly performance criteria. The credit facility is collateralized by a
security interest in the accounts receivable, inventory, equipment and real
estate and other assets of the Company and its subsidiaries, and the Company has
pledged the stock of all of its U.S. subsidiaries and certain stock of its
foreign subsidiaries as collateral. Restrictive terms of the credit facility
require that the Company maintain specified financial ratios, including
leverage, interest coverage and fixed charge ratios, and comply with other loan
covenants. Based on the amended credit facility, the Company was in compliance
with the financial covenants as of December 31, 2001. As of December 31, 2001,
the Company had approximately $6.2 million available for future borrowings under
its credit facility, as amended.

Net cash provided by operating activities was $14.5 million in 2001
compared to $21.6 million in 2000. Cash provided by operations in 2001 was
primarily attributable to non-cash charges of depreciation and amortization
partially offset by the loss experienced in 2001. Cash provided by operations in
2000 was the result of net income and the non-cash charges of depreciation and
amortization. Net working capital was $31.5 million at year-end 2001 compared to
$36.5 million at year-end 2000.

Net cash used in investing activities was $9.1 million in 2001 and $16.9
million in 2000. The cash used in investing activities in 2001 consisted of
purchases of property, plant and equipment. The cash used in investing
activities in 2000 consisted primarily of $6.5 million for the acquisitions of
Tex Racing and Net Shape and $10.5 million for the purchase of property, plant
and equipment. In order to achieve long-term growth prospects and enhance
product quality, the Company has planned for its capital spending program in
2002 to be approximately $12.0 million.

Net cash used in financing activities was $6.2 million in 2001 and $4.6
million in 2000, both primarily for the payment of long-term debt.

The Company believes that if it is able to improve its working capital,
through the active management of its working capital assets, along with its
available cash, anticipated cash flow from operations, and availability under
its credit facility, the Company will be able to fund its operations for at
least the next twelve'months. However, should the Company not achieve its
working capital initiatives, its operations and its capital expenditures program
may be adversely impacted, including the ability to borrow under its credit
facility. The Company is in the process of outlining the appropriate steps to
ensure that the Company has adequate sources of cash to meet its working capital
needs for at least the next twelve months. While looking to further reduce
operating expenses which are not critical to meeting the Company's business
objectives, the Company is pursuing strategic financing alternatives, including
the restructuring or refinancing of its current debt and bank facilities both of
which are due during 2003. There can be no assurance that the Company will be
able to restructure or refinance its current facilities. Nor can there be any
assurance that if the Company is able to restructure or refinance its current
facilities that the new terms will be as favorable to the Company as its
existing facilities. If the Company is unable to restructure or refinance its
debt and bank facilities, the Company's financial position will be materially
and adversely effected.

NET OPERATING LOSS CARRYBACKS

As of December 31, 2001, the Company had U.S. net operating loss carrybacks
of approximately $2.4 million available for refund.

FORWARD-LOOKING STATEMENTS

Statements that are not historical facts, including statements about the
Company's confidence in its prospects and strategies and its expectations about
growth of existing markets and its ability to expand into new

19

markets, to identify and acquire complementary businesses and to attract new
sources of financing, are forward-looking statements that involve risks and
uncertainties. In addition to statements which are forward-looking by reason of
context, the words "believe," "expect," "anticipate," "intend," "designed,"
"goal," "objective," "optimistic," "will" and other similar expressions identify
forward-looking statements. In light of the risks and uncertainties inherent in
all future projections, the inclusion of the forward-looking statements should
not be regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved. Many factors could cause
the Company's actual results to differ materially and adversely from those in
the forward-looking statements, including the following:

- the ability of the Company to continue to meet the terms of its debt and
bank credit facilities which contain a number of significant financial
covenants and other restrictions, including its bank credit which the
Company had to amend two times in 2001 and once in 2002;

- the willingness of the Company's banks to further amend the bank credit
facility, if necessary;

- the ability of the Company to restructure or refinance its debt and bank
credit facilities, both of which mature in 2003;

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

- the continuing impact of the terrorist attacks that occurred on September
11, 2001 on the Company's aircraft brake business;

- the ability of the Company to utilize all of its manufacturing capacity
in light of softness in the end-markets served by the Company;

- continuing start-up costs at the Company's facilities in Mexico and
China, as well as the start-up operations at Net Shape;

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

- the effect on the Company's international operations of unexpected
changes in regulatory requirements, export restrictions, currency
controls, tariffs and other trade barriers, difficulties in staffing and
managing foreign operations, political and economic instability,
fluctuations in currency exchange rates, difficulty in accounts
receivable collection and potentially adverse tax consequences;

- the ability of the Company to negotiate new agreements, as they expire,
with its unions representing certain of its employees, on terms favorable
to the Company or without experiencing work stoppages;

- the effect of any interruption in the Company's supply of raw materials
or a substantial increase in the price of any of the raw materials;

- the continuity of business relationships with major customers; and

- the ability of the Company's products to meet stringent Federal Aviation
Administration criteria and testing requirements.

These risks and others that are detailed in this Form 10-K must be
considered by any investor or potential investor in the Company.

EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 141, "Business Combinations," (FAS 141) which was
required to be adopted July 1, 2001. FAS 141 requires the purchase method of
accounting for all business combinations initiated after June 30, 2001. The
application of FAS 141 has had no impact on the financial statements in 2001.

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
(FAS 142), which requires goodwill and intangible assets with indefinite useful
lives to no longer be amortized but to be tested for impairment at least
annually. Intangible assets that have finite lives will continue to be amortized
over their estimated useful lives. The amortization and non-amortization
provisions of FAS 142 will be applied to all goodwill and intangible assets

20

acquired after June 30, 2001. Effective January 1, 2002, the Company is required
to apply all other provisions of FAS 142. The Company currently expects a $3.1
million (without giving effect to taxes) reduction in amortization expense for
2002, as a result of the non-amortization of assets with indefinite taxes. The
Company is currently evaluating the potential impact with regard to the
impairment of goodwill and other intangible assets, if any, that the adoption of
FAS 142 will have on its results of operations and financial position.

In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (FAS 144), which is effective for fiscal periods
beginning after December 15, 2001 and interim periods within those fiscal years.
FAS 144 establishes an accounting model for impairment or disposal of long-lived
assets to be disposed. The Company is currently evaluating the potential impact,
if any, the adoption of FAS 144 will have on our financial position and results
of operation.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rate Sensitivity. At December 31, 2001, approximately 26 percent,
or $25.8 million, of the Company's debt obligations bear interest at a variable
rate. To mitigate the risk associated with interest rate fluctuations, in
January 2001, the Company entered into an interest rate swap essentially
converting $10.0 million notional amount of its variable rate debt to a fixed
base rate of 5.34 percent. The notional amount is used to calculate the
contractual cash flow to be exchanged and does not represent exposure to credit
loss. The Company's primary interest rate risk exposure results from floating
rate debt. If interest rates were to increase 100 basis points (1.0%) from
December 31, 2001 rates, and assuming no changes in debt from December 31, 2001
levels, the additional annual interest expense to the Company would be
approximately $0.2 million.

The following table presents total contractual obligations and other
commercial commitments of the Company as of December 31, 2001 (in millions):

Foreign Currency Exchange Risk. The majority of the Company's receipts and
expenditures are contracted in U.S. dollars, and the Company does not consider
the market risk exposure relating to currency exchange to be material at this
time. The Company currently does not hedge its foreign currency exposure and,
therefore, has not entered into any forward foreign exchange contracts to hedge
foreign currency transactions. The Company has operations outside the United
States with foreign-currency denominated assets and liabilities, primarily
denominated in Italian lira, Canadian dollars, Mexican pesos and Chinese
renminbi. Because the Company has foreign-currency denominated assets and
liabilities, financial exposure may result, primarily from the timing of
transactions and the movement of exchange rates. The unhedged foreign currency
balance sheet exposures as of December 31, 2001 are not expected to result in a
significant impact on earnings or cash flows.

21

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT AUDITORS

Shareholders and Board of Directors
Hawk Corporation

We have audited the accompanying consolidated balance sheets of Hawk
Corporation and subsidiaries as of December 31, 2001 and 2000 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Hawk Corporation and subsidiaries at December 31, 2001 and 2000 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.

/s/ Ernst & Young LLP

Cleveland, Ohio
March 25, 2002

22

HAWK CORPORATION

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)

See notes to consolidated financial statements.
23

HAWK CORPORATION

CONSOLIDATED BALANCE SHEETS -- (CONTINUED)

See notes to consolidated financial statements.
24

HAWK CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE DATA)

See notes to consolidated financial statements.
25

HAWK CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(IN THOUSANDS)

See notes to consolidated financial statements.
26

HAWK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

See notes to consolidated financial statements.
27

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

A. BASIS OF PRESENTATION

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

The consolidated financial statements of the Company include its wholly
owned subsidiaries. Beginning in December 2000, the financial statements also
include the Company's majority ownership interest in Net Shape Technologies, LLC
(NetShape). All significant intercompany accounts and transactions have been
eliminated in the accompanying financial statements. Certain amounts have been
reclassified in 2000 and 1999 to conform with the 2001 presentation.

In the fourth quarter of 2000, the Company adopted Emerging Issues Task
Force Issue 00-10 "Accounting for Shipping and Handling Fees and Costs," and
changed its accounting policy to reflect in its consolidated statement of
operations all shipping and handling costs as cost of sales and related shipping
revenue in net sales. All prior periods have been changed to conform to current
year presentation.

B. SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

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

INVENTORIES

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

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are recorded at cost and include expenditures
for additions and major improvements. Expenditures for repairs and maintenance
are charged to operations as incurred. The Company uses the straight-line method
of depreciation for financial reporting purposes. Buildings and improvements are
depreciated over periods ranging from 15 to 33 years. Machinery and equipment is
depreciated over periods ranging from 4 to 12 years. Furniture and fixtures are
depreciated over periods ranging from 3 to 10 years. Accelerated methods of
depreciation are used for federal income tax purposes. The Company's
depreciation expense was $11,381 in 2001, $10,815 in 2000 and $9,844 in 1999.

INTANGIBLE ASSETS

Intangible assets are amortized using the straight-line method over periods
ranging from 5 to 40 years (See Note D). The Company evaluates the
recoverability of long-lived assets (under Statement of Financial Accounting
Standards (SFAS) No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of") and the related estimated remaining
lives at each balance sheet date. The Company would record an impairment charge
or change in the useful life whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable, determined using
undiscounted cash flows and measured using discounted cash flows (generally, at
the subsidiary level), or the useful life has changed.

28

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FOREIGN CURRENCY TRANSLATION

The assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars at year-end exchange rates.

Revenues and expenses are translated at weighted average exchange rates.
Gains and losses from transactions are included in results of operations.

Gains and losses resulting from translation are included in accumulated
other comprehensive loss, a component of shareholders' equity.

REVENUE RECOGNITION

In accordance with Staff Accounting Bulletin (SAB) No. 101, "Revenue
Recognition in Financial Statements," which became effective in 2000, revenue
from the sale of the Company's products is recognized upon shipment to the
customer and when title has transferred. Substantially all of the Company's
revenues are derived from fixed price purchase orders. Costs and related
expenses to manufacture the products are recorded as costs of sales when the
related revenue is recognized. The Company establishes bad debt reserves based
on historical experience and believes that collections of revenues, net of the
bad debt reserves, is reasonably assured.

SIGNIFICANT CONCENTRATIONS

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

PRODUCT RESEARCH AND DEVELOPMENT

Product research and development costs are expensed as incurred. The
Company's expenditures for product research and development and engineering were
approximately $3,893 in 2001, $3,533 in 2000 and $3,229 in 1999.

INCOME TAXES

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:

Cash and Cash Equivalents -- The carrying amounts reported in the
consolidated balance sheets for cash and cash equivalents approximate fair
value.

Long-Term Debt (including Current Portion) -- The fair values of the
Company's publicly traded debentures, shown in the following table, are based on
quoted market prices. The fair values of the Company's non-traded debt, also
shown in the following table, are estimated using discounted cash flow analysis,
based on the Company's current incremental borrowing rates for similar types of
borrowing arrangements.

29

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Interest Rate Swap -- The Company enters into interest rate swaps primarily
to hedge against interest rate risks. These agreements generally involve the
exchange of fixed and floating rate interest payment obligations without the
exchange of the underlying principal amounts. Counterparties to this agreement
are major financial institutions. During the first quarter of 2001, the Company
entered into an interest rate swap agreement to moderate exposure to interest
rate changes. Under this agreement, the Company effectively converted a portion
of its floating rate debt to a fixed rate of 5.34% on $10,000 notional amount.
Although this financial instrument did not meet the hedge accounting criteria of
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities," it
continues to be effective in achieving the risk management objectives for which
it was intended. The carrying value and the fair value of the interest rate swap
at December 31, 2001 is $400 (liability). The change in the fair value is
reflected in the Consolidated Statement of Operations in other (expense) income,
net.

USE OF ESTIMATES

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

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2001, the Company adopted SFAS No. 133, as amended by
SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain Hedging
Activities." SFAS No. 133, as amended, requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value and recognize changes in the fair value of
derivatives in earnings in the period of change unless the derivative qualifies
as an effective hedge that offsets certain exposures. The adoption of SFAS No.
133 Statement did not have a material effect in 2001.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. SFAS No. 141 also
includes guidance on the initial recognition and measurement of goodwill and
other intangible assets arising from business combinations completed after June
30, 2001. SFAS No. 142 prohibits the amortization of goodwill and intangible
assets with indefinite useful lives. SFAS No. 142 requires that these assets be
reviewed for impairment at least annually. Intangible assets with finite lives
will continue to be amortized over their useful lives. Additionally, SFAS No.
142 requires that goodwill included in the carrying value of equity method
investments no longer be amortized.

The Company will test goodwill for impairment using the two-step process
prescribed in SFAS No. 142. The first step is a screen for potential impairment,
while the second step measures the amount of impairment, if any. The Company
expects to perform the first of the required impairment test of goodwill and
indefinite lived intangible assets as of January 1, 2002 in the first or second
quarter of 2002. Any impairment charge resulting from these transitional
impairment tests will be reflected as the cumulative effect of a change in
accounting principle in 2002. The Company has not yet determined what the effect
of these tests will be on the earnings and financial position of the Company.

30

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

C. BUSINESS ACQUISITIONS

In March 1999, the Company acquired all of the outstanding stock of
Allegheny Powder Metallurgy, Inc. (Allegheny) for $14,500 in cash and $2,000 in
notes payable to the selling shareholders. The acquisition was accounted for as
a purchase. The excess of the purchase price over the estimated fair value of
the net assets acquired of $8,110 is currently being amortized over 30 years and
is included in intangible assets. The results of operations of Allegheny are
included in the Company's consolidated statements of operations since the date
of acquisition.

In November 1999, the Company acquired substantially all of the assets
(except cash) and assumed certain liabilities of Quarter Master Industries, Inc.
(Quarter Master) for $4,850 in cash and a $1,000 note payable to the selling
shareholder. The purchase price also includes future contingent payments based
on earnings. The Company does not anticipate these contingent payments to be
material. The acquisition was accounted for as a purchase. The excess of the
purchase price over the estimated fair value of the net assets acquired of
$4,240 is currently being amortized over 15 years and is included in intangible
assets. The results of operations of Quarter Master are included in the
Company's consolidated statements of operations since the date of acquisition.

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

In December 2000, the Company acquired a majority of Net Shape membership
interests for $480 in cash. The acquisition was accounted for as a purchase. The
excess of the purchase price over the estimated fair value of net assets
acquired in the amount of $742 is currently being amortized over 10 years and is
included in intangible assets. The results of operations of Net Shape are
included in the Company's consolidated statements of operations since the date
of acquisition.

The following unaudited pro forma consolidated results of operations for
2000 give effect to the Allegheny, Quarter Master, Tex Racing and Net Shape
acquisitions as though they had occurred on January 1, 2000 and include certain
adjustments, such as additional goodwill amortization expense.

Pro forma net sales and net income are not necessarily indicative of the
net sales and net income that would have occurred had the acquisitions been made
at the beginning of 2000 or the results that may occur in the future.

31

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

D. INTANGIBLE ASSETS

The components of intangible assets and related amortization periods are as
follows:

Product certifications were acquired and valued based on the acquired
company's position as a certified supplier of friction materials to the major
manufacturers of commercial aircraft brakes.

E. FINANCING ARRANGEMENTS

In November 1996, the Company issued $100,000 in Senior Notes (Senior
Notes) due on December 1, 2003, of which $65,000 is outstanding at December 31,
2001. In accordance with the terms of the Senior Notes agreement, the Company
has the option to redeem the Senior Notes prior to the due date. 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%. In March 1997, the Senior Notes were exchanged
for notes registered with the Securities and Exchange Commission. The Senior
Notes are fully and unconditionally guaranteed on a joint and several basis by
each of the direct and indirect wholly owned domestic subsidiaries of the
Company (Guarantor Subsidiaries) (See Note N).

In May 1998, the Company entered into a $35,000 term loan facility and a
$50,000 revolving credit facility (the Credit Facility). The term loan has
quarterly maturities of $1,250 beginning September 30, 1998 with the remaining
principal of $12,500 due on March 31, 2003. The revolving credit facility
matures March 31, 2003. As of December 31, 2001, the Company was paying an
average rate of 6.4% on its Credit Facility outstanding compared to an average
rate of 8.7% at December 31, 2000.

On March 25, 2002, the Company amended the Credit Facility reducing the
revolving credit component of the facility to $25,000, modifying the terms of
financial covenants as of December 31, 2001 and future reporting periods and
increasing the margin over the base interest rates. The interest rates on the
credit facility range from 250 to 450 basis points over the Eurodollar rate, or
alternatively, 125 to 325 basis points over the prime rate based

32

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

on certain quarterly performance criteria. The Company is required to pay a
facility fee of 0.50% on the commitment amount of the Credit Facility. The
Credit Facility is collateralized by a security interest in the accounts
receivable, inventory, equipment and real estate and other assets of the Company
and its domestic subsidiaries, and the Company has pledged the stock of all of
its U.S. subsidiaries and certain stock of its foreign subsidiaries as
collateral. Restrictive terms of the credit facility require that the Company
maintain specified financial ratios and comply with the loan covenants. Based on
the amended Credit Facility, the Company was in compliance with the financial
covenants as of December 31, 2001.

As of December 31, 2001, the Company has approximately $6,200 available for
future borrowings under its Credit Facility, as amended.

The Company has stand-by Letters of Credit totaling $1,262. There are no
outstanding balances at December 31, 2001.

Aggregate principal payments due on long-term debt as of December 31, 2001
are as follows: 2002 -- $6,862; 2003 -- $88,215; 2004 -- $1,325; 2005 -- $826;
2006 -- $118; and thereafter -- $473.

F. SHAREHOLDERS' EQUITY

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

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

G. EMPLOYEE STOCK OPTION PLAN

The Company grants stock options to certain employees under various plans,
to purchase shares of Class A common stock. During 2001, 2000 and 1999, the
Company granted stock options to purchase an aggregate of 701,594, 328,878 and
147,400 shares, respectively, at exercise prices representing the closing market
price of the Company's stock at the date of grant. The options vest ratably over
specific defined periods. Canceled options are available for future issuance
under the provisions of the stock option plans.

33

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the stock option activity for the years
ended December 31, 2001, 2000 and 1999:

Exercise prices for options outstanding as of December 31, 2001 ranged from
$3.00 to $18.70. A summary of the options by range of exercise prices is as
follows:

The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its stock
option plans. Accordingly, no compensation expense has been reflected in the
accompanying consolidated financial statements related to the stock options
issued pursuant to these plans. If the Company had elected to recognize
compensation expense based on the fair value at the grant dates for awards
consistent with the method prescribed by SFAS No. 123, net income and net income
per share would have been changed to the pro forma amounts indicated below:

34

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

H. EMPLOYEE BENEFITS

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

35

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of the defined benefit pension plans are as follows:

Amounts applicable to the Company's underfunded pension plans at December
31, 2001 and 2000 are as follows:

36

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The plans' assets are primarily invested in fixed income and equity
securities. In addition, one of the Company's defined benefit plans also
contains investments in the Company's stock. As of December 31, 2001 60,000
shares of the Company's stock were held by the defined benefit plan at a cost of
$717. The market value of such investment as of December 31, 2001 was $216.

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

The Company also sponsors several defined contribution plans which provide
voluntary employee contributions and, in certain plans, matching and
discretionary employer contributions. Expenses associated with these plans were
approximately $581 in 2001, $1,444 in 2000 and $1,263 in 1999. In 2001, the
Company made no discretionary employer contributions.

I. LEASE OBLIGATIONS

The Company has capital lease commitments for buildings and equipment.
Future minimum annual rentals are: 2002 -- $300; 2003 -- $218; 2004 -- $206;
2005 -- $151; 2006 -- $35; and thereafter -- $0. Amount representing interest is
$130. Total capital lease obligations are included in other long-term debt.
Amortization of assets recorded under capital leases is included with
depreciation expense.

The Company leases certain office and warehouse facilities and equipment
under operating leases. Rental expense was approximately $2,131 in 2001, $1,828
in 2000 and $1,127 in 1999. Future noncancelable minimum lease commitments under
these agreements that have an original or existing term in excess of one year as
of December 31, 2001 are as follows: 2002 -- $1,864; 2003 -- $1,550;
2004 -- $1,437; 2005 -- $1,054; 2006 -- $502; and thereafter -- $474.

37

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

J. INCOME TAXES

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

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

38

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

The increase in the Company's effective tax rate from 1999 to 2000 was
primarily attributable to the increase in higher tax rate foreign earnings
relative to the domestic earnings taxed at the federal statutory rate. The
adjustment to worldwide tax accrual and other, net component of the income tax
rate reconciliation includes adjustments to tax accruals as a result of the
resolution of certain tax contingencies during the periods presented.

Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $6,500 at December 31, 2001. These earnings are considered to be
indefinitely reinvested and, accordingly, no provision for U.S. federal and
state income taxes has been provided. The Company cannot determine in any
practical manner the amount of income tax liability that would result had such
earnings actually been repatriated. Upon distribution of these earnings in the
form of dividends or otherwise, the Company would be subject to both U.S. income
taxes, which may be offset by foreign tax credits, and withholding taxes payable
to various foreign countries.

K. (LOSS) EARNINGS PER SHARE

Basic and diluted (loss) earnings per share are computed as follows:

Stock options outstanding were not included in the computation of diluted
earnings per share for 2001 and 1999, since it would have resulted in an
anti-dilutive effect.

39

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

L. RELATED PARTIES

In July 1995, certain shareholders of the Company issued interest-bearing
notes to the Company in the amount of $2,000, enabling them to repay certain
indebtedness incurred by them with respect to an acquisition. The notes are due
and payable on December 31, 2005 and bear interest at the prime rate. The
balance outstanding at December 31, 2001 and 2000 is $1,010.

M. BUSINESS SEGMENTS

During 2000, as a result of recent acquisitions, the Company changed its
segment reporting structure to match management's internal reporting of
businesses operations. Significant changes include the segregation of the
performance automotive and motor businesses.

The Company now operates in four primary business segments: friction
products, precision components (formerly powder metal), performance automotive
and motors. The Company's reportable segments are strategic business units that
offer different products and services. They are managed separately based on
fundamental differences in their operations.

The friction products segment engineers, manufactures and markets
specialized components, used in a variety of aerospace, industrial and
commercial applications. The Company, through this segment, is a worldwide
supplier of friction components for brakes, clutches and transmissions.

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

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

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

The information by segment is as follows:

40

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Geographic information for the years ended December 31, 2001, 2000 and 1999
is as follows:

The Company has foreign operations in Canada, Italy, Mexico and China.

N. SUPPLEMENTAL GUARANTOR INFORMATION

As discussed in Note E, 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 Senior Notes. The
Guarantor Subsidiaries are direct or indirect wholly owned subsidiaries of the
Company.

41

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following supplemental consolidating condensed financial statements
present:

Consolidating condensed balance sheets as of December 31, 2001 and
December 31, 2000, consolidating condensed statements of operations for
the years ended December 31, 2001, 2000 and 1999 and consolidating
condensed statements of cash flows for the years ended December 31,
2001, 2000 and 1999.

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

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

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

42

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

43

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

44

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

45

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

46

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

O. SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

47

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

None.

PART III

ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT

The information required by Item 10 is incorporated herein by reference to
the Registrant's definitive Proxy Statement relating to its 2002 Annual Meeting
of Stockholders (the "Proxy Statement"), under the captions "Board of
Directors," "Executive Officers" and "Section 16(a) Beneficial Ownership
Reporting Compliance." This Proxy Statement will be filed with the SEC prior to
April 30, 2002.

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) (1) Financial Statements

The following consolidated financial statements of the Company are included
in Item 8:

(i) Consolidated Balance Sheets at December 31, 2001 and 2000

(ii) Consolidated Statements of Operations for the years ended
December 31, 2001, 2000 and 1999

(iii) Consolidated Statements of Shareholders' Equity for the years
ended December 31, 2001, 2000 and 1999

(iv) Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999

(v) Notes to Consolidated Financial Statements for the years ended
December 31, 2001, 2000 and 1999

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

48

(b) Reports on Form 8-K:

None.

(c) Exhibits:

3.1 Form of the Company's Second Amended and Restated
Certificate of Incorporation (Incorporated by reference to
the Company's Registration Statement on Form S-1 as filed
with the Securities and Exchange Commission (Reg.
No.333-40535))
3.2 The Company's Amended and Restated By-laws (Incorporated by
reference to the Company's Current Report on Form 8-K as
filed with the Securities and Exchange Commission (Reg. No.
001-13797))
4.1 Form of Rights Agreement between the Company and Continental
Stock Transfer & Trust Company, as Rights Agent
(Incorporated by reference to the Company's Registration
Statement on Form S-1 as filed with the Securities and
Exchange Commission (Reg. No. 333-40535))
4.2 Indenture, dated as of November 27, 1996, by and among the
Company, Friction Products Co., Hawk Brake, Inc., Logan
Metal Stampings, Inc., Helsel, Inc., S.K. Wellman Holdings,
Inc., S.K. Wellman Corp., Wellman Friction Products U.K.
Corp., Hutchinson Products Corporation, and Bank One Trust
Company, NA, as Trustee (Incorporated by reference to the
Company's Registration Statement on Form S-4 as filed with
the Securities and Exchange Commission (Reg. No. 333-18433))
4.3 Form of 10 1/4% Senior Note due 2003 (Incorporated by
reference to the Company's Registration Statement on Form
S-4 as filed with the Securities and Exchange
Commission(Reg. No. 333-18433))
4.4 Form of Series B 10 1/4% Senior Note due 2003 (Incorporated
by reference to the Company's Registration Statement on Form
S-4 as filed with the Securities and Exchange
Commission(Reg. No. 333-18433))
4.5 Stockholders' Voting Agreement, effective as of November
27,1996, by and among the Company, Norman C. Harbert, the
Harbert Family Limited Partnership, Ronald E. Weinberg, the
Weinberg Family Limited Partnership, Byron S. Krantz and the
Krantz Family Limited Partnership (Incorporated by reference
to the Company's Registration Statement on Form S-4 as filed
with the Securities and Exchange Commission (Reg.
No.333-18433))
4.6 Letter agreement, dated January 5, 1998, amending the
Stockholders' Voting Agreement, effective as of November 27,
1996, by and among the Company, Norman C. Harbert, the
Harbert Family Limited Partnership, Ronald E. Weinberg, the
Weinberg Family Limited Partnership, Byron S. Krantz and the
Krantz Family Limited Partnership (Incorporated by reference
to the Company's Registration Statement on Form S-1 as filed
with the Securities and Exchange Commission (Reg. No.
333-40535))
10.1 Employment Agreement, dated as of November 1, 1996, between
the Company and Norman C. Harbert (Incorporated by reference
to the Company's Registration Statement on Form S-4 as filed
with the Securities and Exchange Commission (Reg. No.
333-18433))
10.2 Form of Amended and Restated Wage Continuation Agreement
between the Company and Norman C. Harbert (Incorporated by
reference to the Company's Registration Statement on Form
S-1 as filed with the Securities and Exchange Commission
(Reg. No. 333-40535))
10.3 Employment Agreement, dated as of November 1, 1996, between
the Company and Ronald E. Weinberg (Incorporated by
reference to the Company's Registration Statement on Form
S-4 as filed with the Securities and Exchange Commission
(Reg. No. 333-18433))
10.4 Amendment No. 1 to the Employment Agreement, dated as of
October 24, 2000, between the Company and Norman C. Harbert
(Incorporated by reference to the Company's Form 10-Q for
the quarterly period ended March 31, 2001 as filed with the
Securities and Exchange Commission)
10.5 Amendment No. 1 to the Employment Agreement, dated as of
October 24, 2000, between the Company and Ronald E. Weinberg
(Incorporated by reference to the Company's Form 10-Q for
the quarterly period ended March 31, 2001 as filed with the
Securities and Exchange Commission)
10.6* Amended and Restated Employment Agreement, dated as of
December 31, 2001, by and among the Company, Friction
Products Co. and Ronald E. Weinberg

49

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

50

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

51

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

- ---------------

* Filed herewith

52

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

HAWK CORPORATION

BY: /s/ THOMAS A. GILBRIDE
------------------------------------
Thomas A. Gilbride
Vice President -- Finance and
Treasurer

Date: April 1, 2002

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