HAWK CORP, 424B3, 1998-05-12

HAWK CORP
424B3, 1998-05-12
AIRCRAFT PARTS & AUXILIARY EQUIPMENT, NEC

Previous: PLUM CREEK TIMBER CO L P, 10-Q, 1998-05-12

Next: ICON CASH FLOW PARTNERS LP SERIES B, 10-Q, 1998-05-12

<PAGE> 1

FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-40535

5,135,000 SHARES

LOGO
HAWK CORPORATION

CLASS A COMMON STOCK
($.01 PAR VALUE)

Of the 5,135,000 shares of Class A Common Stock offered hereby (the
"Offering"), 3,500,000 shares are being sold by Hawk Corporation ("Hawk" or the
"Company") and 1,635,000 shares are being sold by certain stockholders of the
Company (the "Selling Stockholders"). The Company will not receive any of the
proceeds from the sale of shares by the Selling Stockholders except that if the
Underwriters' over-allotment option is exercised certain of the Selling
Stockholders will use a portion of the proceeds to prepay in part certain notes
outstanding to the Company. See "Principal and Selling Stockholders" and
"Certain Transactions -- Transactions Concurrent with the Offering."

Upon completion of the Offering, certain directors and executive officers
of the Company will beneficially own all of the outstanding shares of Series D
Preferred Stock, par value $.01 per share, of the Company (the "Series D
Preferred Stock"). For as long as certain conditions are met, the holders of the
Series D Preferred Stock will be entitled to elect a majority of the members of
the Board of Directors of the Company and to vote as a separate class on
fundamental corporate transactions. Accordingly, the holders of the Series D
Preferred Stock may thereby control and direct the policies of the Board of
Directors and, in general, determine the outcome of various matters submitted to
the stockholders for approval, including fundamental corporate transactions. See
"Risk Factors -- Effective Voting Control by Existing Stockholders" and
"Description of Capital Stock."

Prior to the Offering, there has been no public market for the Company's
Class A Common Stock. See "Underwriting" for information relating to the method
of determining the public offering price.

The Class A Common Stock has been approved for listing on the New York
Stock Exchange under the symbol "HWK."

THE CLASS A COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 8.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
====================================================================================================================
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $17.00 $1.19 $15.81 $15.81
- --------------------------------------------------------------------------------------------------------------------
Total(3)................ $87,295,000 $6,110,650 $55,335,000 $25,849,350
====================================================================================================================
</TABLE>

(1) See "Underwriting" for indemnification arrangements.

(2) Before deducting estimated expenses of $1,150,000 paid or payable by the
Company.

(3) Certain of the Selling Stockholders have granted to the Underwriters a
30-day option to purchase up to an aggregate of 770,250 additional shares of
Class A Common Stock on the same terms and conditions as set forth above,
solely to cover over-allotments, if any. If this option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions,
Proceeds to Company and Proceeds to Selling Stockholders will be
$100,389,250, $7,027,248, $55,335,000 and $38,027,002, respectively. See
"Underwriting."

The shares of Class A Common Stock are being offered by the several
Underwriters named herein, subject to prior sale and acceptance by the
Underwriters and subject to their right to reject any order in whole or in part.
It is expected that Class A Common Stock will be available for delivery on or
about May 15, 1998 at the offices of Schroder & Co. Inc., New York, New York.

SCHRODER & CO. INC.

LEHMAN BROTHERS
MCDONALD & COMPANY
SECURITIES, INC.

May 12, 1998
<PAGE> 2

[HAWK LOGO]

THE COMPANY DESIGNS, ENGINEERS, MANUFACTURES
AND MARKETS SPECIALIZED COMPONENTS, PRINCIPALLY
MADE FROM POWDER METALS, USED IN A WIDE VARIETY
OF AEROSPACE, INDUSTRIAL AND COMMERCIAL
APPLICATIONS.

[PHOTOGRAPH OF FRICTION PRODUCTS]

Friction products for
brakes, clutches and
transmissions.

[PHOTOGRAPH OF POWDER METAL COMPONENTS]

Powder metal
components for
a variety of industrial
applications.

[PHOTOGRAPH OF DIE-CAST ALUMINUM ROTORS]

Die-cast aluminum rotors
for small electric motors.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK INCLUDING OVER-ALLOTMENTS, STABILIZING BIDS, SYNDICATE COVERING
TRANSACTIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 3

SUMMARY

The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Hawk is a holding company, the principal
assets of which consist of the capital stock of its manufacturing subsidiaries,
Friction Products Co. ("FPC"), S.K. Wellman Corp. ("SKW"), Helsel, Inc.
("Helsel"), Logan Metal Stampings, Inc. ("Logan"), Hutchinson Products
Corporation ("Hutchinson") and Sinterloy Corporation ("Sinterloy"). Unless
otherwise indicated, the information in this Prospectus (1) reflects a
3.2299-for-one split of each share of Class A Common Stock, par value $.01 per
share (the "Class A Common Stock"), and Class B Non-Voting Common Stock, par
value $.01 per share (the "Class B Common Stock," and together with the Class A
Common Stock, the "Common Stock") that occurred in January 1998, (2) assumes the
Company's replacement of its existing senior revolving credit facility with a
new $50.0 million unsecured revolving credit facility (the "New Revolving Credit
Facility"), the Company's entry into a new $35.0 million five year unsecured
term loan facility (the "New Term Loan Facility") and the payment in full,
together with accrued interest thereon, of the Company's $30.0 million aggregate
principal amount of 12% senior subordinated notes (the "Senior Subordinated
Notes") concurrently with the closing of the Offering (the "Senior Subordinated
Note Redemption"), (3) assumes completion of the Preferred Stock Redemption, as
described in this Prospectus, concurrently with the closing of the Offering, (4)
assumes the Company's redemption of $35.0 million of its 10 1/4% Senior Notes
due 2003 (the "Senior Note Redemption") as soon as practicable after the closing
of the Offering, and (5) assumes no exercise of the Underwriters' over-allotment
option.

THE COMPANY

GENERAL

Hawk designs, engineers, manufactures and markets specialized components,
principally made from powder metals, used in a wide variety of aerospace,
industrial and commercial applications. The Company believes it is a leading
worldwide supplier of friction products for brakes, clutches and transmissions
used in aerospace, industrial and specialty applications. Friction products
represented 67.5% of Company sales in 1997 (62.4% in the first quarter of 1998).
Hawk is also a leading supplier of powder metal components for industrial
applications, including pump, motor and transmission elements, gears, pistons
and anti-lock brake sensor rings. In addition, the Company designs and
manufactures die-cast aluminum rotors for small electric motors used in
appliances, business equipment and exhaust fans. 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.

Hawk believes it is the only independent supplier of original equipment and
replacement friction materials to the manufacturers of braking systems for the
Boeing 727, 737 and 757, the McDonnell Douglas DC-9, DC-10 and MD-80 and the
Canadair CRJ 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. The Company believes that it is a leading supplier
of friction materials to manufacturers of construction and agricultural
equipment and truck clutches, including Caterpillar, John Deere, New Holland and
Eaton. In addition, the Company is a major supplier of friction products for use
in specialty applications, such as brakes for Harley-Davidson motorcycles, AM
General Humvees and Bombardier, Polaris and Arctco ("Arctic Cat") snowmobiles.

The Company's powder metal components are used primarily in industrial
applications, often as lower cost replacements for parts manufactured by
traditional forging, casting or stamping technologies. The Company targets three
areas of the powder metal component marketplace: high precision components that
are used in fluid power applications requiring tight tolerances; large
structural powder metal parts used in construction, agricultural and truck
applications; and smaller, high volume parts for which the Company can utilize
its efficient pressing and sintering capabilities. The Company believes it is
also the largest independent U.S. manufacturer of die-cast aluminum rotors for
use in subfractional (less than 1/20 horsepower) electric motors.

3
<PAGE> 4

The Company believes that its diverse customer base and extensive sales to
the aerospace and industrial aftermarkets reduce its exposure to economic
fluctuations. 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 also believes that its principal tradenames are
well-known in the domestic and international marketplace and are associated with
quality and extensive customer support, including specialized product
engineering and strong aftermarket service.

Since its formation in 1989, Hawk has pursued a strategic growth plan by
making complementary acquisitions and broadening its customer base. From 1994
through the 12 month period ended March 31, 1998, the Company's net sales and
income from operations increased at a compound annual rate of 55.1% and 48.3%,
respectively. The Company reported a loss before extraordinary item of $2.0
million in 1996, and may incur a net loss, after extraordinary charges, in the
second quarter of 1998 as a result of the incurrence of non-recurring
extraordinary charges of $3.6 million ($2.1 million after tax) in prepayment
penalties and $1.7 million ($1.0 million after tax) as a result of the write-off
of previously capitalized deferred financing costs, each arising from the Senior
Note Redemption. For the first three months of 1998, the Company's net sales and
income from operations increased 35.5% and 86.8%, respectively, compared to the
corresponding period in 1997. Since 1994, sales growth has been primarily driven
by the acquisitions of Helsel, SKW, Hutchinson and Sinterloy. These acquisitions
more than tripled the net sales of the Company and, because the acquisitions
were financed primarily with indebtedness, have caused the Company to become
highly leveraged. As a result, the Company's interest expense grew at a compound
annual rate of 68.8% from $3.3 million in 1994 to $15.7 million in 1997 pro
forma for the Sinterloy acquisition. The Company's net sales, pro forma for all
acquisitions, during the period from 1994 through the 12 month period ended
March 31, 1998 grew internally at a compound annual rate of 11.7%.

BUSINESS STRATEGY

The Company's business strategy includes the following principal elements:

- Focus on High-Margin, Specialty Applications. The Company operates
primarily in aerospace, industrial and commercial 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 price. 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 1996, 1997 and the first three
months of 1998 were 25.9%, 28.6% and 32.4%, respectively.

- New Product Introduction. A key part of the Company's strategy is
the introduction of new products 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 an aircraft, 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. For example, the Company recently developed a
powder metal pump element for a customer's power steering unit that
improved pumping efficiency and dependability while reducing noise and
cost.

4
<PAGE> 5

Company has been able to achieve significant cost reductions through the
integration of its acquisitions. For example, since the acquisition of SKW
in 1995, the Company has consolidated SKW's headquarters facility and one
of SKW's two U.S. manufacturing facilities into its existing facilities,
resulting in $5.4 million of annualized cost savings.

- Expanding International Sales. To take advantage of worldwide
growth in its end user markets, the Company expanded its international
presence through the acquisition of SKW in 1995, which resulted in the
addition of manufacturing facilities in Italy and Canada and a worldwide
distribution network. The Company continues to expand its European
operations to meet strong demand in established markets throughout Europe.
The Company also believes that further opportunities to expand sales exist
in emerging economies. Sales from the Company's international facilities
have grown from $8.1 million in the second half of 1995 following the
acquisition of SKW to $21.0 million in 1997.

- Leveraging 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 believes that its 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. Each of
the Company's ten largest customers have been customers of the Company or
its predecessors for more than ten years. The Company believes that strong
relationships with its customers provide it with significant competitive
advantages in obtaining and securing new business opportunities.

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

Unless the context otherwise requires, the terms "Company" and "Hawk" as
used in this Prospectus refer to Hawk Corporation, a Delaware corporation, its
consolidated subsidiaries and its predecessors by merger. The Company's
principal executive offices are located at 200 Public Square, Suite 30-5000,
Cleveland, Ohio 44114, and its telephone number is (216) 861-3553.

Hawk has applied for the registration of the Wellman Friction Products
trademark. Velvetouch(R), Fibertuff(R), Feramic(R), Velvetouch Feramic(R),
Velvetouch Ceramic(R), Velvetouch Organik(R) and Velvetouch Metalik(R) are
registered trademarks of the Company, and Hawk Brake is a tradename of the
Company. Trademarks and tradenames of corporations other than the Company are
also referred to in this Prospectus.

5
<PAGE> 6

THE OFFERING

<TABLE>
<S> <C>
Class A Common Stock offered:
By the Company...................................... 3,500,000 shares(1)
By the Selling Stockholders......................... 1,635,000 shares(1)(2)
Total....................................... 5,135,000 shares(1)
Class A Common Stock outstanding after the Offering... 9,187,750 shares(1)(2)(3)
Class B Common Stock outstanding after the Offering... 0 shares
Total Common Stock outstanding after the Offering..... 9,187,750 shares(1)(2)(3)
Use of proceeds....................................... To effect the Senior Subordinated Note Redemption, to
effect the Senior Note Redemption, to effect the
Preferred Stock Redemption and for working capital and
general corporate purposes.(4)
Proposed NYSE symbol.................................. HWK
</TABLE>

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

(1) Does not include 770,250 shares that may be sold by certain of the Selling
Stockholders pursuant to the Underwriters' over-allotment option. See
"Principal and Selling Stockholders" and "Underwriting."

(2) The Company will not receive any proceeds from the sale of Class A Common
Stock by the Selling Stockholders except that if the Underwriters'
over-allotment option is exercised certain of the Selling Stockholders will
use a portion of the proceeds to prepay in part certain notes outstanding to
the Company. See "Principal and Selling Stockholders" and "Certain
Transactions -- Transactions Concurrent with the Offering."

(3) Does not include 700,000 shares of Class A Common Stock reserved for
issuance under the Company's 1997 Stock Option Plan (of which 310,000 shares
will be reserved for options to be outstanding as of the closing of the
Offering), or 29,412 shares of Class A Common Stock issuable upon conversion
of 8.0% two-year notes that were issued by the Company in connection with
the acquisition of Hutchinson. Up to $500,000 of the then-outstanding
principal balance of the notes is convertible at the option of the holders
thereof into shares of Class A Common Stock at the public offering price.

(4) Certain of the shares to be redeemed in the Preferred Stock Redemption are
owned by directors and executive officers of the Company. See "Use of
Proceeds" and "Certain Transactions -- Transactions Concurrent with the
Offering."

6
<PAGE> 7

SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL
AND OPERATING DATA
(in thousands, except per share data)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------- ------------------
1995 1996 1997 1997 1998
------- -------- ----------------------- ------- -------
ACTUAL PRO FORMA(1)
-------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................. $84,643 $123,997 $159,086 $167,709 $36,884 $49,978
Gross profit.......................... 23,479 32,113 45,436 49,388 10,516 16,191
Plant consolidation expense (2)....... -- 4,028 50 50 -- --
Income from operations................ 9,980 9,811 22,073 25,134 5,133 9,589
Interest expense...................... 7,323 11,270 15,307 15,707 3,679 3,824
Extraordinary item (3)................ -- (1,196) -- -- -- --
Net income (loss)..................... 762 (3,078) 2,874 4,507 898 3,313
Preferred stock dividend
requirements........................ (326) (226) (320) (320) (80) (80)
Net income (loss) attributable to
common stockholders................. 436 (3,304) 2,554 4,187 818 3,233
Earnings (loss) per share:
Basic earnings (loss) per share..... .11 (.71) .55 .90 .18 .69
Diluted earnings (loss) per share... .09 (.71) .45 .74 .14 .57
Basic Weighted Average Shares......... 4,133 4,664 4,664 4,664 4,664 4,664
Diluted Weighted Average Shares....... 4,968 4,664 5,688 5,688 5,688 5,688
OTHER DATA:
Depreciation and amortization......... $ 5,527 $ 8,418 $ 10,497 $ 10,750 $ 2,427 $ 2,638
Capital expenditures (including
capital leases)..................... 3,781 10,294 9,643 9,940 1,194 3,658
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------------
ACTUAL AS ADJUSTED(4)
-------------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 6,592 $ 25,127
Working capital........................................... 30,500 49,035
Total assets.............................................. 180,846 197,681
Total long-term debt...................................... 131,175 103,987
Detachable stock warrants, subject to put option (5)...... 9,300 --
Stockholders' equity...................................... 804 56,883
</TABLE>

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

(1) The pro forma income statement data and pro forma other data for the year
ended December 31, 1997 include the historical operations of the Company and
give effect to the Sinterloy acquisition as if it occurred as of January 1,
1997. This data should be read in conjunction with the more detailed
information contained in the "Unaudited Pro Forma Consolidated Statements of
Operations" and notes thereto included elsewhere in this Prospectus.

(2) Reflects charges in 1996 and 1997 relating primarily to the relocation of
machinery and equipment.

(3) Reflects write-off of deferred financing costs, net of $798,000 in income
taxes.

(4) As adjusted balance sheet data assume the sale by the Company of 3,500,000
shares of Class A Common Stock in the Offering as of March 31, 1998 and the
application of net proceeds thereof as set forth under "Use of Proceeds,"
the exchange of the detachable warrants for 1,023,793 shares of Class B
Common Stock, the Preferred Stock Redemption, the Senior Note Redemption and
the Company's entry into the New Term Loan Facility.

(5) Effective June 30, 1995, the Company issued $30.0 million aggregate
principal amount of 12% senior subordinated notes with detachable warrants
that provide the holders the option to purchase 1,023,793 shares of the
Company's Class B Common Stock at a nominal price. Beginning in the year
2001, the warrant holders have the right to put the warrants to the Company
for cash, at prices based on the fair market value of the Company at the
date of put, as determined by an independent third party. The warrant
holders' put option is terminated upon the closing of an initial public
offering. For financial reporting purposes, the carrying value of the
warrants, including the put option (classified as detachable stock warrants,
subject to put option, on the Company's balance sheet), was $9.3 million as
of March 31, 1998, based on the estimated present value of the future fair
market value of the Company.

7
<PAGE> 8

RISK FACTORS

This Prospectus contains forward-looking statements that involve certain
risks and uncertainties. Statements in this Prospectus regarding future
financial performance and other statements containing the words "expect,"
"believe," "anticipate," "project," "estimate," "predict," "intend" and similar
expressions are forward-looking statements. Actual results and events could
differ materially from those anticipated in such forward-looking statements as a
result of a variety of factors, including those set forth in the following risk
factors and elsewhere in this Prospectus. Prospective investors should consider
carefully the following factors, in addition to the other information contained
in this Prospectus, prior to making an investment in the Class A Common Stock.

POTENTIAL LOSS IN SECOND QUARTER OF 1998; LOSS IN 1996

The Company expects to incur non-recurring extraordinary charges of $3.6
million ($2.1 million after tax) in prepayment penalties and $1.7 million ($1.0
million after tax) as a result of the write-off of previously capitalized
deferred financing costs, each arising from the Senior Note Redemption. The
Company anticipates that the penalties and charges arising from the Senior Note
Redemption may cause the Company to incur a net loss in the second quarter of
1998.

In 1996, the Company incurred $4.0 million of non-recurring charges related
to plant consolidation expenses and $2.0 million ($1.2 million after tax) of
non-recurring extraordinary charges as a result of the write-off of previously
capitalized deferred financing costs arising from the termination of a then-
existing credit facility. In 1996, the Company reported a loss before
extraordinary item of $2.0 million and a loss applicable to holders of the
Company's common stock of $3.3 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Overview."

SUBSTANTIAL LEVERAGE; NEW TERM LOAN FACILITY; SENIOR NOTE REDEMPTION

The Company has, and following the Offering will continue to have,
substantial indebtedness under the indenture ("Senior Note Indenture") relating
to the Company's 10 1/4% Senior Notes due 2003 (the "Senior Notes"). In
addition, the Company anticipates entering into the New Term Loan Facility and
the New Revolving Credit Facility concurrently with the closing of the Offering.
Although the Company has entered into a commitment letter with KeyBank National
Association with respect to the New Term Loan Facility and the New Revolving
Credit Facility, there is no assurance that the Company and the bank will enter
into the New Term Loan Facility and the New Revolving Credit Facility. The
commitment letter is subject to customary terms and conditions, including the
closing of the Offering and the use of the proceeds of the Offering to effect
the Senior Note Redemption. Failure to enter into the New Term Loan Facility and
to effect the Senior Subordinated Note Redemption will prohibit the Company from
benefiting from the lower interest rate that the Company expects to be available
initially on the New Term Loan Facility compared to the Senior Subordinated
Notes. In the future, the Company may incur additional indebtedness under the
New Revolving Credit Facility or under additional facilities for working capital
and to finance the acquisition of additional businesses. None of the Senior
Notes, New Term Loan Facility or New Revolving Credit Facility is or will be
secured by any assets, stock or other collateral of the Company, except that all
such indebtedness is or will be guaranteed by the Company's domestic
subsidiaries. The Company's debt service requirements may reduce funds available
for operations and future business opportunities and increase the Company's
vulnerability to adverse general economic and industry conditions and
competition.

As of March 31, 1998, the Company had total long-term indebtedness,
including current maturities, of $131.2 million. On an as adjusted basis, after
giving effect to the Offering, the Company's total long-term indebtedness,
including current maturities, as of March 31, 1998 would have been $104.0
million, and the Company's ratio of total long-term debt to total capitalization
would have been 64.6%. The Company's ability to make scheduled payments of the
principal of or interest on, or to refinance, its indebtedness and to make
scheduled payments under its lease agreements depends on its future performance,
which is subject to economic, financial, competitive and other factors beyond
its control. Any default under the documents governing indebtedness of the
Company could have a significant
8
<PAGE> 9

adverse effect on the market value of the Class A Common Stock. Certain of the
Company's competitors currently operate on a less leveraged basis and may have
greater operating and financing flexibility than the Company. See
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."

ACQUISITION STRATEGY

The Company expects to continue a strategy of identifying and acquiring
complementary businesses. There is no assurance that the Company will continue
to identify suitable new acquisition candidates, obtain financing necessary to
complete such acquisitions, acquire businesses on satisfactory terms, enter into
any definitive acquisition agreements or, if entered into, that future
acquisitions will be successful or will achieve results comparable to the
Company's existing business. The Company could incur substantial additional
indebtedness in connection with its acquisition strategy. Any such additional
indebtedness may reduce funds available for operations and future business
opportunities and increase the Company's vulnerability to adverse general
economic and industry conditions and competition. See "Business -- Business
Strategy" and "Business -- Acquisitions."

FLUCTUATIONS IN QUARTERLY RESULTS

The Company's results of operations are subject to fluctuations from
quarter to quarter due to changes in demand for its products, changes in product
mix and other factors. Demand for the Company's products in each of the
geographic end markets it serves can vary significantly from quarter to quarter
due to changes in demand for products that incorporate or utilize the Company's
products and other factors beyond the Company's control, such as the high
customer demand at Sinterloy in the first three months of 1997 and the first
three months of 1998 compared to each of the last two quarters of 1997. In the
third quarter, net sales of the Company's products are typically lower than the
first two quarters because of planned production shut downs at the Company's
Italian facility, and in the fourth quarter, net sales of the Company's products
are typically lower than the first two quarters because of holiday-related
manufacturing facility shut downs by the Company and certain of its customers.
In addition, changes in product mix may cause margins to vary from quarter to
quarter. Therefore, year-to-year comparisons of quarterly results may not be
meaningful, and quarterly results during the year are not necessarily indicative
of the results that may be expected for any future period or for the entire
year. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Quarterly Results of Operations."

COMPETITION

The principal industries in which the Company competes 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. There is no assurance that competition from these technologies or
others will not adversely affect the Company's business, financial condition and
results of operations. See "Business -- Competition."

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS

The Company has manufacturing facilities in Italy and Canada. As a
percentage of total Company net sales, net sales from the Company's
international facilities were 15.9% in 1996, 13.2% in 1997 and
9
<PAGE> 10

11.5% in the three month period ended March 31, 1998. One of the elements of the
Company's business strategy is its continued expansion into international
markets. As a result, the Company is subject to certain risks inherent in
conducting business internationally, including 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
Company is also subject to risks associated with the imposition of protective
legislation and regulations, including those relating to import or export or
otherwise resulting from trade or foreign policy. In addition, because of the
Company's foreign operations, revenues and expenses are denominated in
currencies other than U.S. dollars, including Italian lira and, to a lesser
extent, Canadian dollars. Changes in exchange rates may have a significant
effect on the Company's business, financial condition and results of operations.
The Company does not currently participate in currency hedging transactions.
However, as the Company's international operations expand, the Company may
participate in such hedging transactions in the future. There is no assurance
that one or more of the foregoing international operation risks will not have a
material adverse effect on the Company's international operations, and,
consequently, on the Company's business, financial condition and results of
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview," "Business -- Business Strategy" and Note N
to the Company's Consolidated Financial Statements.

RELIANCE ON SIGNIFICANT CUSTOMERS

The Company's sales to Aircraft Braking Systems represented approximately
10.4% of the Company's consolidated net sales in 1996 and approximately 8.6% of
the Company's consolidated net sales in 1997. The Company's top five customers,
including Aircraft Braking Systems, accounted for 40.1% of the Company's
consolidated net sales in 1996 and 33.8% of the Company's consolidated net sales
in 1997. Thus, a significant decrease or interruption in business from any of
the Company's larger customers could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Customers."

DEPENDENCE ON KEY PERSONNEL

The Company's success depends to a significant extent upon the performance
of its senior management team, including Norman C. Harbert, the Company's
Chairman of the Board, Chief Executive Officer and President, and Ronald E.
Weinberg, Vice-Chairman of the Board and Treasurer. Although the Company
believes that its senior management team has significant depth, the loss of
services of any of the Company's executive officers could have an adverse impact
on the Company. The future success of the Company will depend in large part on
its continued ability to attract and retain qualified engineers and other
professionals, either through direct hiring or acquisition of other businesses
employing such professionals. There is no assurance that the Company will be
able to attract and retain such personnel. See "Management."

COLLECTIVE BARGAINING AGREEMENTS

As of December 31, 1997, 49% of the Company's employees were represented by
unions, including approximately 70 employees at Hutchinson who are covered under
a collective bargaining agreement with the International Association of
Machinists and Aerospace Workers that expires in June 1998, and approximately
185 employees at SKW's Orzinuovi, Italy plant who are represented by a national
mechanics union under an agreement that expires in December 1999. Although the
Company believes its relations with its union employees are good, there is no
assurance that Hutchinson and SKW will be successful in negotiating new
agreements with the unions representing their employees on terms favorable to
the Company or can do so without experiencing work stoppages by some of their
employees. Because of the importance of Hutchinson and SKW's Orzinuovi, Italy
plant to the profitability of the

10
<PAGE> 11

Company, any work stoppage could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Employees."

SUPPLY AND PRICE OF RAW MATERIALS

The principal raw materials used by the Company are copper, steel and iron
powder 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. Although the Company believes
that such raw materials are readily available from alternate sources, an
interruption in the Company's supply of powder metal or cellulose sheet or a
substantial increase in the price of any of these raw materials could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Suppliers and Raw Materials."

EFFECTIVE VOTING CONTROL BY EXISTING STOCKHOLDERS

Upon the closing of the Offering, the Company's directors and executive
officers will beneficially own an aggregate of approximately 40.2% of the
outstanding shares of Class A Common Stock (approximately 35.3% if the
Underwriters' over-allotment option is exercised in full) and 100% of the
outstanding shares of the Company's Series D Preferred Stock, par value $.01 per
share (the "Series D Preferred Stock"). Norman C. Harbert, Chairman of the
Board, Chief Executive Officer, President and a Director of the Company, Ronald
E. Weinberg, Vice-Chairman of the Board, Treasurer and a Director of the
Company, and Byron S. Krantz, Secretary and Director of the Company will
beneficially own approximately 13.4%, 13.0% and 3.0%, respectively, of the
outstanding shares of Class A Common Stock (approximately 12.7%, 12.4% and 3.0%,
respectively, if the Underwriters' over-allotment option is exercised in full),
and will beneficially own 45%, 45% and 10%, respectively, of the outstanding
shares of Series D Preferred Stock, after the Offering. The Series D Preferred
Stock is entitled to elect a majority of the members of the Board of Directors
of the Company and to vote as a separate class on fundamental corporate
transactions. Accordingly, if any two of these stockholders vote their shares of
Series D Preferred Stock in the same manner, they will have sufficient voting
power (without the consent of the Company's other holders of Class A Common
Stock) to elect a majority of the members of the Board of Directors, to thereby
control and direct the policies of the Board of Directors and, in general, to
determine the outcome of various matters submitted to the stockholders for
approval, including fundamental corporate transactions. In addition, Messrs.
Harbert, Weinberg and Krantz have entered into an agreement regarding the
election of the Company's Board of Directors. This agreement and the voting
rights of the Series D Preferred Stock may render more difficult or tend to
discourage mergers, acquisitions, tender offers or proxy contests, even when
stockholders other than Messrs. Harbert, Weinberg and Krantz consider such a
transaction to be in their best interests. See "Principal and Selling
Stockholders," "Certain Transactions -- Transactions Concurrent with the
Offering" and "Description of Capital Stock."

GOVERNMENT REGULATION

The Company's sales to manufacturers of aircraft braking systems
represented 20.8% of the Company's consolidated net sales in 1996, and 18.0% of
the Company's consolidated net sales in 1997. Each aircraft braking system,
including the friction products supplied by the Company, must meet stringent
Federal Aviation Administration ("FAA") criteria and testing requirements. The
Company has been able to meet these requirements in the past. However, there is
no assurance that a review by the FAA of a braking system including the
Company's materials will not result in determinations that could have a material
adverse effect on the Company's business, financial condition and results of
operations, nor can there be any assurance that the Company or its customers
will be able to continue to meet FAA requirements in the future. See
"Business -- Government Regulation."

11
<PAGE> 12

ENVIRONMENTAL, HEALTH AND SAFETY MATTERS

Manufacturers such as the Company are subject to stringent environmental
standards imposed by federal, state, local and foreign environmental and worker
health and safety laws, regulations and ordinances, including those related to
air emissions, wastewater discharges and 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 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
believes that it is in substantial compliance with all material environmental
and worker health and safety laws applicable to its operations. There can be no
assurance, however, that a review of the Company's past, present or future
environmental or worker health and safety compliance by courts or regulatory
authorities will not result in determinations that could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Environmental, Health and Safety Matters."

PRODUCT LIABILITY

Manufacturers such as the Company are from time to time the subject of
product liability claims. Although the Company maintains liability insurance
coverage that it believes to be adequate, there can be no assurance that the
Company will be able to maintain such coverage or obtain alternate coverage in
the future at a reasonable cost, or that such coverage will be sufficient to
satisfy future product liability claims. If the Company's insurance coverage is
insufficient, such product liability claims, if successful, could have a
material adverse effect on the Company's business, financial condition and
results of operations.

INTELLECTUAL PROPERTY MATTERS

The Company relies on a combination of internal procedures, confidentiality
agreements, patents, trademarks and trade secrets law and common law, including
the law of unfair competition, to protect its intellectual property. There is no
assurance that the Company's intellectual property rights can be successfully
asserted in the future or will not be invalidated, circumvented or challenged.
In addition, the laws of certain foreign countries in which the Company's
products may be sold do not protect the Company's intellectual property rights
to the same extent as the laws of the United States. The failure or inability of
the Company to protect its proprietary information could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Intellectual Property Matters."

ANTI-TAKEOVER EFFECT OF THE COMPANY'S GOVERNING DOCUMENTS

Certain provisions of the Company's Second Amended and Restated Certificate
of Incorporation and Amended and Restated By-laws may be deemed to have
anti-takeover effects and may discourage, defer or prevent a change of control
of the Company. These provisions (1) enable the holders of the Series D
Preferred Stock to elect a majority of the Board of Directors, (2) provide that
only the Board of Directors, the Chairman or Vice-Chairman of the Board or
holders of at least 25% of the outstanding voting stock of the Company may call
special meetings of the stockholders, (3) establish certain advance notice
procedures for nomination of candidates for election as directors and for
stockholder proposals to be considered at stockholders' meetings, (4) authorize
preferred stock, the terms of which (including voting rights, if any) may be
determined by the Board of Directors and which may be issued without stockholder
approval and (5) prohibit action by stockholders other than at a meeting. See
"Description of Capital Stock -- Anti-Takeover Effects of the Company's
Governing Documents" and "Description of Capital Stock -- Preferred Stock."
12
<PAGE> 13

In addition, on November 13, 1997, the Board of Directors of the Company
declared a dividend of one preferred share purchase right (a "Right") for each
share of Common Stock outstanding at the close of business on January 16, 1998.
A Right will also be attached, until it is redeemed or exchanged or expires, to
each share of Common Stock subsequently issued (including the shares of Class A
Common Stock offered hereby). The Rights will have certain anti-takeover
effects. If triggered, the Rights would cause substantial dilution to a person
or group of persons (other than certain exempt persons, which include Norman C.
Harbert, Ronald E. Weinberg and any of their respective affiliates) that
acquires more than 15% of the Class A Common Stock on terms not approved by the
Board of Directors. The Rights could discourage or make more difficult a merger,
tender offer or similar transaction. See "Description of Capital Stock -- Rights
Agreement."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of a substantial number of shares of Class A Common Stock in the
public market following the Offering could adversely affect the market price for
the Class A Common Stock. Upon the closing of the Offering, the Company will
have 9,187,750 shares of Class A Common Stock outstanding. All of the Company's
directors, executive officers and significant employees who held Class A Common
Stock prior to the Offering and certain of the Selling Stockholders have agreed
not to offer, sell or otherwise dispose of any shares of Class A Common Stock
held by them until 180 days after the date of this Prospectus without the prior
written consent of Schroder & Co. Inc. After such date, all 4,004,196 of such
shares may be sold subject to the limitations of Rule 144 of the Securities Act
of 1933, as amended (the "Securities Act"). See "Shares Eligible for Future
Sale."

LACK OF PRIOR PUBLIC MARKET

Prior to the Offering, there has been no public market for the Company's
Common Stock. The Class A Common Stock has been approved for listing on the New
York Stock Exchange. However, there is no assurance as to the development or
liquidity of any trading market for the Class A Common Stock or that the
purchasers of the Class A Common Stock will be able to resell their shares at
prices equal to or greater than the public offering price. The public offering
price for the Class A Common Stock will be determined by negotiations between
the Company and Schroder & Co. Inc., Lehman Brothers Inc. and McDonald & Company
Securities, Inc., as representatives (the "Representatives") of the
Underwriters. See "Underwriting" for a discussion of the factors to be
considered in determining the public offering price of the shares of Class A
Common Stock.

POSSIBLE VOLATILITY OF STOCK PRICE

After completion of the Offering, the market price of the Class A Common
Stock could be subject to significant fluctuations due to variations in the
quarterly financial results of the Company and other factors, such as changes in
earnings estimates by analysts, conditions in the overall economy and the
financial markets, natural disasters and other developments affecting the
Company and its competitors. In addition, the securities markets have recently
experienced significant price and volume fluctuations. This volatility has had a
significant effect on the market price of securities issued by many companies
for reasons unrelated to their operating performance, and these fluctuations may
adversely affect the market price of the Class A Common Stock.

DILUTION

Based on the March 31, 1998 financial statements of the Company, purchasers
of the Class A Common Stock will experience immediate dilution of $16.69 in the
net tangible book value per share of the Class A Common Stock. See "Dilution."

13
<PAGE> 14

USE OF PROCEEDS

The net proceeds to the Company from the sale of 3,500,000 shares of Class
A Common Stock offered hereby are estimated to be $55.1 million after deduction
of the estimated underwriting discounts and commissions and expenses of the
Offering (but excluding $889,000 in expenses paid for professional services and
other costs rendered in connection with the canceled public offering by the
Company). The Company will not receive any proceeds from the sale of Class A
Common Stock by the Selling Stockholders except that if the Underwriters'
over-allotment option is exercised certain of the Selling Stockholders will use
a portion of the proceeds to prepay in part certain notes outstanding to the
Company. See "Certain Transactions -- Transactions Concurrent With the
Offering."

As part of its strategy of identifying and acquiring complementary
businesses, the Company has from time to time engaged, and expects to engage in
the future, in discussions relating to such potential acquisitions. There is no
assurance that the Company will continue to identify suitable new acquisition
candidates, obtain financing necessary to complete such acquisitions, acquire
businesses on satisfactory terms or enter into any definitive acquisition
agreements or, if entered into, that future acquisitions will be successful or
will achieve results comparable to the Company's existing business. At this
time, the Company has one outstanding non-binding letter of intent to acquire a
manufacturer of small to medium sized powder metal components used primarily in
the lawn and garden, home appliance and power hand tool markets. The Company
believes that this acquisition will further diversify the Company's end markets
and anticipates that it will close late in the second quarter of 1998. However,
completion of the transaction is subject to due diligence and other customary
conditions. There is no assurance that the transaction will be closed. The
Company expects to finance the transaction from available cash and, if
necessary, its revolving credit facilities.

The following table sets forth the estimated sources and uses of the net
proceeds to the Company from the sale of shares of Class A Common Stock in the
Offering and the New Term Loan Facility, and the completion of the Senior Note
Redemption, the Senior Subordinated Note Redemption and the Preferred Stock
Redemption.

<TABLE>
<CAPTION>
AMOUNT
------
(in thousands)
<S> <C>
SOURCES
The Offering................................................ $55,074
New Term Loan Facility(1)................................... 35,000
-------
Total Sources..................................... $90,074
=======
USES
Senior Note Redemption(2)................................... $36,794
Prepayment Premium for Senior Note Redemption(2)............ 3,588
Senior Subordinated Note Redemption(3)...................... 30,600
Preferred Stock Redemption(4):
Series A Preferred Stock.................................. 1,387
Series B Preferred Stock.................................. 356
Series C Preferred Stock.................................. 7
Working Capital and General Corporate Purposes(5)........... 17,342
-------
Total Uses........................................ $90,074
=======
</TABLE>

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

(1) See "Capitalization" for a description of the New Term Loan Facility.

(2) The Senior Notes bear interest at the rate of 10 1/4% per annum. The Company
anticipates that it will effect the Senior Note Redemption, in accordance
with the terms of the Senior Note Indenture, as

(footnotes continued on the following page)
14
<PAGE> 15

soon as practicable after the closing of the Offering. Under the Senior Note
Redemption, $35.0 million in principal amount of the Senior Notes, plus
accrued and unpaid interest (assuming a redemption date of May 29, 1998),
will be redeemed. At the time of the Senior Note Redemption, the Company
expects to incur non-recurring extraordinary charges of $3.6 million in
prepayment penalties and $1.7 million as a result of the write-off of
previously capitalized deferred financing costs. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Overview."

(3) Represents payment in full of the Senior Subordinated Notes, together with
accrued and unpaid interest thereon (assuming a payment date of May 29,
1998). Principal payments on the Senior Subordinated Notes are due in equal
installments of $10.0 million on January 31, 2004 and June 30, 2004 and
2005. Interest on the Senior Subordinated Notes is payable quarterly at
12.0% per annum.

(4) Represents the redemption (the "Preferred Stock Redemption") of all 1,375
outstanding shares of the Company's Series A Preferred Stock, par value $.01
per share (the "Series A Preferred Stock"), of 351 of the outstanding shares
of the Company's Series B Preferred Stock, par value $.01 per share (the
"Series B Preferred Stock"), and of seven of the outstanding shares of the
Company's Series C Preferred Stock, par value $.01 per share (the "Series C
Preferred Stock"), in each case at a redemption price equal to the price
paid per share together with accrued and unpaid dividends thereon (assuming
a redemption date of May 29, 1998). Certain of the shares of Series A,
Series B and Series C Preferred Stock to be redeemed in the Preferred Stock
Redemption are owned by directors and executive officers of the Company as
follows: (1) the Series A Preferred Stock owned by Clanco Partners I, of
which William J. O'Neill, Jr. is the managing partner, Clanco Family
Partners, L.P. ("Clanco FLP"), of which Mr. O'Neill is a director of its
general partner, and Dorothy K. O'Neill Revocable Trust, of which Mr.
O'Neill is a co-trustee, will be redeemed; (2) the Series B Preferred Stock
owned by Clanco FLP, Jeffrey H. Berlin, Douglas D. Wilson and Thomas A.
Gilbride will be redeemed; and (3) the Series C Preferred Stock owned by
Clanco Partners I, Mr. Wilson and Dan T. Moore, III, and certain fractional
shares of Series C Preferred Stock owned by Norman C. Harbert, Ronald E.
Weinberg, Byron S. Krantz and their respective affiliates, will be redeemed.
See "Certain Transactions -- Transactions Concurrent with the Offering."

(5) Pending use of these remaining proceeds, the Company will invest them in
money market funds or other short-term interest bearing securities.

DIVIDEND POLICY

The Company has never declared or paid cash dividends on the Class A Common
Stock. The Company currently intends to retain earnings, if any, to finance the
growth and development of its business and does not anticipate paying any cash
dividends in the foreseeable future. Any future dividends will depend on the
earnings, capital requirements and financial condition of the Company, and on
such other factors as the Company's Board of Directors may consider relevant. In
addition, the New Revolving Credit Facility, New Term Loan Facility and the
Senior Note Indenture prohibit or will prohibit the payment of cash dividends on
the Class A Common Stock except upon compliance with certain conditions. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

15
<PAGE> 16

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company at March 31, 1998, as adjusted to reflect (1) the sale of 3,500,000
shares of Class A Common Stock offered by the Company hereby and the application
of the net proceeds therefrom as described under "Use of Proceeds," (2) the
exercise of warrants to purchase 1,023,793 shares of Class B Common Stock (which
will be automatically converted on a one-for-one basis into shares of Class A
Common Stock upon the sale by certain of the Selling Stockholders in the
Offering), (3) the replacement of the Company's existing senior revolving credit
facility (the "Old Revolving Credit Facility") with the New Revolving Credit
Facility, and (4) the Company's entry into the New Term Loan Facility. This
table should be read in conjunction with the historical consolidated financial
statements of the Company and the notes thereto, included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1998
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(in thousands)
<S> <C> <C>
Long-term debt (including current portion)
Old Revolving Credit Facility(1).......................... -- --
New Revolving Credit Facility(2).......................... -- --
Senior Notes(3)........................................... $100,000 $ 65,000
New Term Loan Facility(2)................................. -- 35,000
Senior Subordinated Notes(4).............................. 27,188 --
Hutchinson acquisition notes.............................. 500 500
Other obligations......................................... 3,487 3,487
-------- --------
Total long-term debt................................... $131,175 $103,987
======== ========
Detachable stock warrants, subject to put option(4)......... $ 9,300 $ --
-------- --------
Stockholders' equity
Series A Preferred Stock, $.01 par value: authorized:
2,625 shares; issued and outstanding: 1,375 shares,
$1,375,000 aggregate liquidation value (actual); issued
and outstanding: none (as adjusted); Series B Preferred
Stock, $.01 par value: authorized: 702 shares; issued
and outstanding: 702 shares, $702,000 aggregate
liquidation value (actual); issued and outstanding:
none (as adjusted); and Series C Preferred Stock, $.01
par value: authorized: 1,189 shares; issued and
outstanding: 1,189 shares, $1,189,000 aggregate
liquidation value (actual); issued and outstanding:
none (as adjusted)..................................... $ 1 --
Series D Preferred Stock, $.01 par value: authorized:
1,530 shares; issued and outstanding: none (actual);
issued and outstanding: 1,530 shares, $1,530,000
aggregate liquidation value (as adjusted).............. -- $ 1
Series E Preferred Stock, $.01 par value: authorized:
100,000 shares; issued and outstanding: none (actual
and as adjusted)....................................... -- --
Class A Common Stock, $.01 par value: authorized:
75,000,000 shares; issued and outstanding: 4,663,957
shares (actual); issued and outstanding: 9,187,750
shares (as adjusted)(5)................................ 47 92
Class B Common Stock, $.01 par value: authorized:
10,000,000 shares; issued and outstanding: none (actual
and as adjusted)....................................... -- --
Additional paid-in capital................................ 1,931 55,205
Retained earnings......................................... 113 2,873
Accumulated other comprehensive income.................... (1,288) (1,288)
-------- --------
Total stockholders' equity............................. 804 56,883
-------- --------
Total capitalization.............................. $141,279 $160,870
======== ========
</TABLE>

(footnotes on the following page)
16
<PAGE> 17

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

(1) Borrowings of up to the lesser of (1) $25.0 million, or (2) the sum of 85.0%
of eligible accounts receivable and 60.0% of eligible inventory, under the
Old Revolving Credit Facility were available at LIBOR plus 2.25% per annum
or, at the Company's option, a variable rate based on the lending bank's
prime rate plus 1.0% per annum, for working capital and general corporate
purposes. Amounts outstanding under the Old Revolving Credit Facility are
due November 27, 1999. The Old Revolving Credit Facility was secured by
substantially all of the accounts receivable, inventory and intangibles of
the Company and its domestic subsidiaries. The Old Revolving Credit Facility
will be terminated at the closing of the Offering.

(2) Concurrently with the closing of the Offering, the Company expects to enter
into the New Revolving Credit Facility and the New Term Loan Facility.
Amounts outstanding under each facility will be due five years from the
closing date, and will bear interest at a variable rate based on a
Eurodollar rate, plus a margin that initially is expected to be 1.00% per
annum or, at the Company's option, a variable rate based on the lending
bank's prime rate. The interest rate based on a Eurodollar rate is subject
to increase or decrease depending on the Company's debt to earnings before
interest, taxes, depreciation and amortization ("EBITDA") ratio. The New
Revolving Credit Facility and the New Term Loan Facility will be unsecured,
will be guaranteed by the Company's domestic subsidiaries, will be used for
general corporate purposes and may be used to finance future acquisitions.
The New Revolving Credit Facility will not be subject to a borrowing base
formula. The commitment fee on the New Revolving Credit Facility and the New
Term Loan Facility initially is expected to be 0.25% per annum of the
commitment, which fee is subject to increase or decrease depending on the
Company's debt to EBITDA ratio.

(3) The Company anticipates that it will effect the Senior Note Redemption, in
accordance with the terms of the Senior Note Indenture, as soon as
practicable after the closing of the Offering. Under the Senior Note
Redemption, $35.0 million in principal amount of the Senior Notes will be
redeemed. At the time of the Senior Note Redemption, the Company expects to
incur non-recurring extraordinary charges of $3.6 million ($2.1 million
after tax) in prepayment penalties and $1.7 million ($1.0 million after tax)
as a result of the write-off of previously capitalized deferred financing
costs, which are reflected in adjusted retained earnings. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."

(4) Effective June 30, 1995, the Company issued $30.0 million aggregate
principal amount of Senior Subordinated Notes with detachable warrants that
provide the holders the option to purchase 1,023,793 shares of the Company's
Class B Common Stock at a nominal price. Beginning in the year 2001, the
warrant holders have the right to put the warrants back to the Company for
cash, at prices based on the fair market value of the Company at the date of
put, as determined by an independent third party. The warrant holders' put
option is terminated upon the closing of an initial public offering. For
financial reporting purposes, at June 30, 1995, the fair value of the
warrants, including the put option, was estimated to be $4.6 million and
classified as detachable stock warrants, subject to put option, on the
Company's balance sheet. The resulting discount is being amortized over the
life of the debt as non-cash, imputed interest. This discount is based on an
effective interest rate of 14.2%. The unamortized discount at March 31, 1998
was $2.8 million. Adjustments to the carrying value of the detachable stock
warrants are determined by management based on the estimated present value
of the future fair market value of the Company. The carrying value of the
warrants, including the put option, was $9.3 million as of March 31, 1998.

(5) Does not include 700,000 shares of Class A Common Stock reserved for
issuance under the Company's 1997 Stock Option Plan (of which 310,000 shares
will be reserved for options to be outstanding as of the closing of the
Offering), or 29,412 shares of Class A Common Stock, issuable upon
conversion of 8.0% two-year notes that were issued by the Company in
connection with the acquisition of Hutchinson. Up to $500,000 of the
then-outstanding principal balance is convertible at the option of the
holders thereof into shares of Class A Common Stock at the public offering
price.

17
<PAGE> 18

DILUTION

At March 31, 1998, the deficit in the Company's pro forma net tangible book
value as adjusted to give effect to the exchange of the detachable warrants, the
Preferred Stock Redemption, the Senior Note Redemption and the Senior
Subordinated Note Redemption would have been $53.0 million or $9.31 per share of
Class A Common Stock. Pro forma net tangible book value per share before the
Offering represents the Company's tangible assets less total liabilities divided
by the number of shares of Class A Common Stock, assuming the occurrence of the
foregoing transactions. After giving effect to the sale by the Company of the
3,500,000 shares of Class A Common Stock offered hereby and after deduction of
underwriting discounts and commissions and estimated Offering expenses, the pro
forma net tangible book value of the Company at March 31, 1998 would have been
$2.8 million, or $0.31 per share of Class A Common Stock. This represents an
immediate increase in net tangible book value of $9.62 per share of Class A
Common Stock to existing stockholders and an immediate dilution of $16.69 per
share of Class A Common Stock to new purchasers. The following table illustrates
this dilution per share of Class A Common Stock:

<TABLE>
<S> <C> <C>
Public offering price per share of Class A Common Stock..... $17.00
Pro forma net tangible book value (deficit) per share of
Class A Common Stock as of March 31, 1998 before the
Offering(1)............................................ $ (9.31)
Increase per share of Class A Common Stock attributable to
the sale of Class A Common Stock in the Offering....... 9.62
-------
Pro forma net tangible book value per share of Class A
Common Stock after giving effect to the Offering(1)....... 0.31
------
Dilution per share of Class A Common Stock to new
purchasers(1)............................................. $16.69
======
</TABLE>

The following table summarizes, on a pro forma basis as of March 31, 1998,
the difference between the number of shares of Class A Common Stock purchased
from the Company, the aggregate consideration paid and the average price per
share of Class A Common Stock paid by existing stockholders and by new
purchasers who purchase Class A Common Stock in the Offering, without giving
effect to estimated underwriting, discounts and commissions and expenses of the
Offering:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1)......... 5,687,750 61.9% $ 1,442,000 2.4% $ 0.25
New purchasers............ 3,500,000 38.1% $59,500,000 97.6% $ 17.00
Total(1)........ 9,187,750 100.0% $60,942,000 100.0%
</TABLE>

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

(1) Does not include 700,000 shares of Class A Common Stock reserved for
issuance under the Company's 1997 Stock Option Plan (of which 310,000 shares
will be reserved for options to be outstanding as of the closing of the
Offering). See "Management -- Stock Option Plan." Also does not include
29,412 shares of Class A Common Stock issuable upon conversion of 8.0%
two-year notes that were issued by the Company in connection with the
acquisition of Hutchinson. Up to $500,000 of the then-outstanding principal
balance is convertible at the option of the holders thereof into shares of
Class A Common Stock at the public offering price.

18
<PAGE> 19

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS

The unaudited pro forma consolidated statements of operations of the
Company for the year ended December 31, 1997 include the historical operations
of the Company and give effect to the Sinterloy acquisition in August 1997 as if
it occurred as of January 1, 1997. The unaudited pro forma consolidated
statements of operations have been prepared by the Company's management. The
information is not designed to represent and does not represent what the
Company's results of operations actually would have been had the Sinterloy
transaction been completed as of January 1, 1997, or to project the Company's
results of operations for any future period. The pro forma adjustments are based
on available information and certain assumptions that the Company currently
believes are reasonable under the circumstances. The unaudited pro forma
consolidated statements of operations should be read in conjunction with the
more detailed information contained in the historical consolidated financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.

19
<PAGE> 20

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

YEAR ENDED DECEMBER 31, 1997

(in thousands, except per share data)

<TABLE>
<CAPTION>
HISTORICAL
HAWK SINTERLOY ADJUSTMENTS
CORPORATION ACQUISITION FOR ACQUISITION PRO FORMA
----------- ----------- ---------------- ----------
<S> <C> <C> <C> <C>
Net sales..................................... $ 159,086 $8,623 -- $ 167,709
Cost of sales................................. 113,650 4,671 -- 118,321
---------- ------ ------- ----------
Gross profit.................................. 45,436 3,952 -- 49,388
Expenses:
Selling, technical, and administrative
expenses.................................. 19,375 643 $ 9(1) 20,027
Amortization of intangibles................. 3,938 -- 239(2) 4,177
Plant consolidation expenses................ 50 -- -- 50
---------- ------ ------- ----------
Total expenses.............................. 23,363 643 248 24,254
---------- ------ ------- ----------
Income from operations........................ 22,073 3,309 (248) 25,134
Interest expense.............................. 15,307 -- 400(3) 15,707
Expenses from canceled public offering........ 889 -- -- 889
Other income, net............................. (676) (61) -- (737)
---------- ------ ------- ----------
Income before income taxes.................... 6,553 3,370 (648) 9,275
Income taxes.................................. 3,679 -- 1,089(4) 4,768
---------- ------ ------- ----------
Net income.................................... $ 2,874 $3,370 $(1,737) $ 4,507
========== ====== ======= ==========
Preferred stock dividend requirements......... $ (320) $ (320)
========== ==========
Net income applicable to common
stockholders................................ $ 2,554 $ 4,187
========== ==========
Basic earnings per share...................... .55 .90
========== ==========
Diluted earnings per share.................... .45 .74
========== ==========
Basic Weighted Average Shares................. 4,664 4,664
========== ==========
Diluted Weighted Average Shares............... 5,688 5,688
========== ==========
</TABLE>

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

(1) Represents incremental depreciation expense due to the write-up of plant,
property and equipment to fair market value under the purchase method of
accounting in the acquisition of Sinterloy.

(2) Represents incremental amortization due to an increase in intangible assets
from applying the purchase method of accounting in the acquisition of
Sinterloy. Intangible assets include goodwill that is amortized over 30
years.

(3) Represents the net adjustment to interest expense, assuming an interest rate
of 10.25%, based on the imputed funding required to effect the acquisition
of Sinterloy.

(4) Represents income taxes that would have been incurred had Sinterloy been
included in the Company's consolidated group for tax reporting purposes.

20
<PAGE> 21

SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)

The selected consolidated financial data presented below under the captions
"Income Statement Data," "Other Data" and "Balance Sheet Data" as of and for
each of the five years ended December 31, 1993, 1994, 1995, 1996 and 1997 have
been derived from the audited consolidated financial statements of the Company.
The selected consolidated financial data as of and for the three months ended
March 31, 1997 and 1998 have been derived from the unaudited consolidated
financial statements of the Company, which have been prepared by management on
the same basis as the audited consolidated financial statements of the Company,
and, in the opinion of management of the Company, reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of such data for such periods and as of such dates. Operating results for the
three month period ended March 31, 1998 are not necessarily indicative of the
results that may be expected for any other interim period or the full year. The
acquisitions of Helsel, SKW, Hutchinson and Sinterloy occurred in June 1994,
June 1995, January 1997 and August 1997, respectively. This data should be read
in conjunction with the more detailed information contained in the consolidated
financial statements and notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales.............................. $ 28,417 $ 41,395 $ 84,643 $ 123,997 $ 159,086 $ 36,884 $ 49,978
Cost of sales.......................... 16,834 26,771 61,164 91,884 113,650 26,368 33,787
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit......................... 11,583 14,624 23,479 32,113 45,436 10,516 16,191
Selling, technical and administrative
expenses............................. 4,833 6,294 11,575 15,468 19,375 4,554 5,703
Amortization of intangibles............ 954 954 1,924 2,806 3,938 829 899
Plant consolidation expense(1)......... -- -- -- 4,028 50 -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from operations............... 5,796 7,376 9,980 9,811 22,073 5,133 9,589
Interest expense....................... 2,654 3,267 7,323 11,270 15,307 3,679 3,824
Expenses from canceled public
offering............................. 889
Other expense (income), net............ -- (234) (130) (366) (676) (250) 4
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes,
minority interest, extraordinary
item and cumulative effect of
change in accounting principle..... 3,142 4,343 2,787 (1,093) 6,553 1,704 5,761
Income taxes........................... 1,716 1,845 1,593 789 3,679 806 2,448
Minority interest...................... -- 211 432 -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary
item and cumulative effect of
change in accounting principle..... 1,426 2,287 762 (1,882) 2,874 898 3,313
Extraordinary item(2).................. -- -- -- (1,196) -- -- --
Cumulative effect of change in
accounting for income taxes.......... 284 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss).................... $ 1,142 $ 2,287 $ 762 $ (3,078) $ 2,874 $ 898 $ 3,313
========== ========== ========== ========== ========== ========== ==========
Preferred stock dividend
requirements......................... $ (263) $ (294) $ (326) $ (226) $ (320) $ (80) $ (80)
Income (loss) before extraordinary
item applicable to common
stockholders....................... 879 1,993 436 (2,108) 2,554 818 3,233
Net income (loss) applicable to
common stockholders................ 879 1,993 436 (3,304) 2,554 818 3,233
Basic earnings (loss) per Share........ .37 .66 .11 (.71) .55 .18 .69
Diluted earnings (loss) per Share...... .29 .54 .09 (.71) .45 .14 .57
Basic Weighted Average Shares.......... 2,363 3,013 4,133 4,664 4,664 4,664 4,664
Diluted Weighted Average Shares........ 3,009 3,659 4,968 4,664 5,688 5,688 5,688
OTHER DATA:
Depreciation and amortization.......... $ 1,920 $ 2,466 $ 5,527 $ 8,418 $ 10,497 $ 2,427 $ 2,706
Capital expenditures (including capital
leases).............................. 586 1,871 3,781 10,294 9,643 1,194 3,658
</TABLE>

(footnotes on the following page)
21
<PAGE> 22

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 63 $ 730 $ 771 $ 25,774 $ 4,388 $ 10,635 $ 6,592
Working capital (deficit)............... (3,709) (4,076) 15,565 48,700 28,794 40,777 30,500
Property, plant and equipment, net...... 5,627 10,166 39,460 44,142 52,480 47,420 54,217
Total assets............................ 33,925 43,645 127,419 158,441 173,086 162,372 180,846
Total long-term debt.................... 24,050 26,726 94,906 129,183 132,148 131,145 131,175
Detachable stock warrants, subject to
put option(3)......................... -- -- 4,600 4,600 9,300 4,600 9,300
Stockholders' equity (deficit).......... 3,377 5,898 3,948 1,190 (2,171) 1,136 804
</TABLE>

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

(1) Reflects charges in 1996 and 1997 relating primarily to the relocation of
machinery and equipment.

(2) Reflects write-off in 1996 of deferred financing costs, net of $798,000 in
income taxes.

(3) Effective June 30, 1995, the Company issued $30.0 million aggregate
principal amount of Senior Subordinated Notes with detachable warrants that
provide the holders the option to purchase 1,023,793 shares of the Company's
Class B Common Stock at a nominal price. Beginning in the year 2001, the
warrant holders have the right to put the warrants to the Company for cash,
at prices based on the fair market value of the Company at the date of put,
as determined by an independent third party. The warrant holders' put option
is terminated upon the closing of an initial public offering. For financial
reporting purposes, the carrying value of the warrants, including the put
option (classified as detachable stock warrants, subject to put option, on
the Company's balance sheet), was $9.3 million as of March 31, 1998, based
on the estimated present value of the future fair market value of the
Company.

22
<PAGE> 23

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in connection with the Company's
consolidated financial statements and notes thereto and other financial
information, included elsewhere in this Prospectus.

OVERVIEW

Hawk is a manufacturing holding company that, through its operating
subsidiaries, designs, engineers, manufactures and markets specialized
components, principally made from powder metals, used in a wide variety of
aerospace, industrial and commercial applications. Since 1989, Hawk has pursued
a strategic growth plan by making complementary acquisitions and broadening its
customer base:

<TABLE>
<CAPTION>
EFFECTIVE DATE YEAR
ACQUISITION OF ACQUISITION BUSINESS FOUNDED
- ----------- -------------- -------- -------
<S> <C> <C> <C>
FPC and Logan March 1989 Friction products for brakes, clutches and 1961
transmissions used in aerospace, industrial
and specialty applications
Helsel June 1994 High precision powder metal components used 1974
primarily in fluid power applications
SKW June 1995 Friction products for industrial applications 1924
Hutchinson January 1997 Die-cast aluminum rotors for small electric 1947
motors used in business equipment, appliances
and exhaust fans
Sinterloy August 1997 Powder metal components for business 1969
equipment
</TABLE>

The above acquisitions were accounted for under the purchase method of
accounting, with the purchase price allocated to the estimated fair market value
of the assets acquired and liabilities assumed. In the acquisitions, any excess
of the purchase price paid over the estimated fair value of the net assets
acquired was allocated to goodwill, which resulted in approximately $41.1
million of goodwill reflected on the December 31, 1997 balance sheet. The annual
amortization of goodwill will result in non-cash charges to future operations of
approximately $1.8 million per year (of which the majority of such amortization
is deductible for tax purposes) based on amortization periods ranging from 15 to
40 years.

In 1995, the Company consolidated SKW's headquarters facility into the
Company's existing facilities, which resulted in an annualized cost savings of
$1.8 million due to the elimination of redundant expenses. During 1996, the
Company consolidated one of SKW's two U.S. manufacturing facilities into the
Company's existing facilities, which resulted in $3.6 million in annualized cost
savings from reduction of overhead expenses. The Company incurred $4.0 million
of costs relating primarily to the relocation of machinery and equipment in
1996. In addition, the manufacturing facility consolidation program had the
effect of decreasing the gross profit margins in 1996 primarily as a result of
the temporary production inefficiencies arising from the relocation of
manufacturing operations. The Company is now benefiting from the synergies
anticipated from the consolidation of these facilities, and due in part to these
benefits, gross margins increased from 25.9% in 1996, to 28.6% in 1997 and to
32.4% in the first three months of 1998.

In November 1996, the Company incurred $2.0 million ($1.2 million after
tax) of non-recurring extraordinary charges as a result of the write-off of
previously capitalized deferred financing costs arising from the termination of
the Company's previous senior credit facility. Primarily because of the

23
<PAGE> 24

non-recurring charges relating to the manufacturing facility consolidation
program and the deferred financing costs, the Company incurred a net loss of
$3.1 million in 1996.

The Company's foreign operations expose it to the risk of exchange rate
fluctuations. For example, because the Company's Italian operation typically
generates positive net cash flow, which is denominated in lire, a decline in the
value of the lira relative to the dollar would adversely affect the Company's
reported sales and earnings. In addition, the restatement of foreign currency
denominated assets and liabilities into U.S. dollars gives rise to foreign
exchange gains or losses which are recorded in stockholders' equity. The Company
does not currently participate in hedging transactions related to foreign
currency. See Note N to the Company's Consolidated Financial Statements. In the
latter part of 1997, the economic climate in Asia worsened considerably.
However, due to the Company's limited exposure to that region, the effects were
not material to the business, financial condition or results of operations of
the Company in 1997 or the first three months of 1998.

YEAR 2000 COMPLIANCE

The Company is addressing the Year 2000 compliance issue with a
corporate-wide initiative led by the Company's Manager of Information Technology
and involving coordinators for each Company location. The initiative includes
the identification of affected software, the development of a plan for
correcting that software in the most effective manner and the implementation and
monitoring of the implemented plan. In most instances, the Company will replace
or upgrade older software with new programs or systems which will handle the
year 2000 and beyond. Although the timing of these replacements is influenced by
Year 2000 compliance, in most instances they will involve capital expenditures
that would have occurred in the normal course of business in any event. The
Company expects that most of the modifications and replacements will be in place
before mid-1999.

Given the information available at this time, the Company currently
anticipates that the amount the Company will spend to modify or replace software
in order to remediate the Year 2000 issue should not have a material adverse
effect on the Company's business, financial condition or results of operations.

24
<PAGE> 25

RESULTS OF OPERATIONS

The following table presents, for the periods indicated, items in the
Company's income statements as a percentage of net sales:

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
----------------------- ----------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit................................. 27.8 25.9 28.6 28.5 32.4
Selling, technical and administrative
expenses*.................................... 13.7 12.5 12.2 12.3 11.4
Amortization of intangible assets.............. 2.3 2.2 2.5 2.2 1.8
Plant consolidation expense.................... -- 3.2 -- -- --
Income from operations....................... 11.8 7.9 13.9 13.9 19.2
Interest expense............................... 8.7 9.1 9.6 10.0 7.7
Other (income) expense, net.................... (0.2) (0.3) 0.1 (0.7) --
Income (loss) before income taxes............ 3.3 (0.9) 4.1 4.6 11.5
Income taxes................................... 1.9 0.6 2.3 2.2 4.9
Minority interest.............................. 0.5 -- -- -- --
Income before extraordinary item............. 0.9 (1.5) 1.8 2.4 6.6
Extraordinary item............................. -- (1.0) -- -- --
Net income (loss)............................ 0.9 (2.5) 1.8 2.4 6.6
</TABLE>

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

* The Company's technical expenses consist primarily of research and product
development expenses.

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997

Net Sales. Sales increased by $13.1 million, or 35.5%, to $50.0 million in
the first quarter of 1998 from $36.9 million in the comparable quarter of 1997.
The sales increase was attributable to the acquisition of Sinterloy in August
1997 and strong customer demand in all of the Company's product lines. Sales
attributed to Sinterloy in the first quarter of 1998, were $5.4 million, or
41.2%, of the net sales increase.

Sales of friction products increased by $5.4 million, or 21.0%, to $31.2
million in the first quarter of 1998 from $25.8 million in the comparable period
of 1997. The Company experienced increased sales activity in all of the markets
it serves, led by strength in the aerospace market.

Sales in the Company's powder metal lines, exclusive of Sinterloy,
increased by $2.2 million, or 36.5%, to $8.2 million in the first three months
of 1998 from $6.0 million in the comparable period of 1997.

Gross Profit. Gross profit increased by $5.7 million, or 53.9%, to $16.2
million in the first quarter of 1998 from $10.5 million in the comparable period
of 1997. The gross profit margin increased to 32.4% in the first quarter of 1998
from 28.5% in the comparable period of 1997. The increase was primarily
attributable to continuing benefits from the 1996 plant consolidation, the
inclusion of Sinterloy in the 1998 results, increased sales and favorable
product mix.

Selling Technical and Administrative ("ST&A") Expenses. ST&A expenses
increased by $1.1 million, or 25.2%, to $5.7 million in the first quarter of
1998 from $4.6 million in the comparable period of 1997. As a percentage of
sales, ST&A decreased to 11.4% in the first quarter of 1998 from 12.3% in the
comparable quarter of 1997. This decrease was primarily attributable to the
increased revenues achieved in the first quarter of 1998. During the first
quarter of 1998, the Company spent $0.8 million on product research and
development, an increase of 6.8% from amounts spent in the first quarter of
1997.

25
<PAGE> 26

Income from Operations. Income from operations increased by $4.5 million,
or 86.8%, to $9.6 million in the first quarter of 1998 from $5.1 million in the
comparable period of 1997. This increase was achieved as a result of the
acquisition of Sinterloy, increased sales and favorable product mix.

Interest Expense. Interest expense increased by $0.1 million, or 3.9%, to
$3.8 million in the first quarter of 1998 from $3.7 million in the comparable
period in 1997.

Income Taxes. The provision for income taxes increased to $2.4 million in
the first quarter of 1998 from $0.8 million for the comparable period in 1997,
reflecting the increase in pre-tax income for the period.

Net Income. As a result of the factors noted above, net income increased
by $2.4 million, or 268.9%, to $3.3 million in the first quarter of 1998 from
$0.9 million in the comparable quarter of 1997.

1997 COMPARED TO 1996

Net Sales. Worldwide sales in 1997 exceeded $150 million for the first
time in the Company's history, 28.3% above 1996. Net sales increased by $35.1
million to $159.1 in 1997 from $124.0 million in 1996. The sales increase was
attributable to the acquisitions of Hutchinson and Sinterloy and strong customer
demand in all of the Company's product lines. Sales attributable to Hutchinson,
which was acquired in January 1997, and Sinterloy, which was acquired in August
1997, were $11.3 million and $5.1 million, respectively, for the year ended
1997, or 46.6% of the net sales increase.

Sales of friction products increased by $13.6 million, or 14.4%, to $107.7
million in 1997 from $94.1 million in 1996. This increase was attributable to
strength in the aerospace, construction, agriculture and truck markets served by
the Company.

Sales in the Company's powder metal product lines increased by $11.1
million, or 54.0%, to $31.8 million in 1997 from $20.7 million in 1996. The
Sinterloy acquisition accounted for 45.6% of the total increase in powder metal
sales in 1997.

Gross Profit. Gross profit increased $13.3 million to $45.4 million during
1997, a 41.5% increase over gross profit of $32.1 million during 1996. The gross
profit margin increased to 28.6% during 1997 from 25.9% in 1996. The increase
was attributable to cost savings resulting from the consolidation of one of the
Company's manufacturing facilities during 1996 into existing Company facilities,
acquisitions of higher margin businesses in 1997, increased sales and favorable
product mix.

Selling, Technical and Administrative Expenses. ST&A expenses increased
$3.9 million, or 25.3%, from $15.5 million during 1996 to $19.4 million during
1997. As a percentage of net sales, ST&A remained relatively constant at 12.2%
during 1997 compared to 12.5% in 1996. To enhance existing product lines, the
Company spent $3.1 million in 1997 on product research and development, 18.8%
above 1996 levels.

Income from Operations. Income from operations increased $12.3 million, or
125.0%, from $9.8 million in 1996 to $22.1 million in 1997. Income from
operations as a percentage of net sales increased to 13.9% in 1997 from 7.9% in
1996, reflecting the benefits achieved from the consolidation of facilities,
reduced plant consolidation expenses, acquisition of businesses in 1997,
increased sales and favorable product mix.

Interest Expense. Interest expense increased $4.0 million, or 35.8%, to
$15.3 million in 1997 from $11.3 million in 1996. The increase was attributable
to higher debt levels, a result of the issuance of the Senior Notes in the
fourth quarter of 1996.

Expenses from Canceled Public Offering. During the fourth quarter 1997,
the Company recognized a one-time charge of $0.9 million for professional
services and other costs in connection with the cancelation of a public offering
of its Class A Common Stock.

26
<PAGE> 27

Income Taxes. The provision for income taxes increased $2.9 million to
$3.7 million in 1997 (56.1% of pre-tax income) from $0.8 million in 1996,
reflecting the increase in pre-tax income. An analysis of changes in income
taxes and the effective tax rate of the Company is presented in Note I of the
Company's Consolidated Financial Statements.

Net Income (Loss). As a result of the factors noted above, net income was
$2.9 million in 1997 compared to a loss of $3.1 million in 1996.

1996 COMPARED TO 1995

Net Sales. Net sales increased $39.4 million, or 46.5%, from $84.6 million
in 1995 to $124.0 million in 1996. Net friction product sales increased $39.2
million, or 61.1%, from $64.2 million in 1995 to $103.4 million in 1996. The net
friction product sales increase was primarily attributable to the purchase of
SKW in June 1995. Sales attributable to the acquired company in 1996 were $68.9
million compared to $32.3 million of SKW sales that were included in the
Company's results for 1995, representing a net increase of $36.6 million, or
93.3%, of the friction product net sales increase. The remaining net friction
product sales increase of $2.6 million in 1996, or 6.7% of the increase, was
primarily attributable to increased aftermarket sales of friction products used
in construction and agricultural equipment and increased sales of specialty
friction products. These sales increases were partially offset by lower sales of
friction products for heavy truck clutches resulting from lower truck
production. Powder metal component net sales increased $212,000, or 1.0%, from
$20.4 million in 1995 to $20.6 million in 1996. The increase in powder metal
component sales was primarily attributable to higher sales of powder metal
components used in hydraulic mechanisms.

Gross Profit. Gross profit in 1996 was $32.1 million, an increase of $8.6
million, or 36.8%, from $23.5 million in 1995. As a percentage of net sales,
gross profit was 25.9% in 1996 and 27.8% in 1995. Gross profit as a percentage
of sales decreased primarily as a result of the change in product mix resulting
from the SKW acquisition and costs associated with the start-up of production
(other than moving expenses) in connection with the manufacturing facility
consolidation program. As a result of the SKW acquisition, sales of the
Company's higher margin aerospace friction products declined from 25.5% of net
sales in 1995 to 20.8% of net sales in 1996. Combined sales of the Company's
lower margin construction and agriculture friction products increased from 17.6%
of net sales in 1995 to 34.2% of net sales in 1996.

ST&A Expenses. ST&A expenses increased $3.9 million, or 33.6%, from $11.6
million in 1995 to $15.5 million in 1996. As a percentage of net sales, ST&A
expenses declined from 13.7% to 12.5% over such periods, primarily as a result
of the reductions in the overhead of SKW and the increase in net sales, as a
result of the SKW acquisition, partially offset by higher incentive compensation
at the Company's friction product facilities.

Income from Operations. Income from operations of $9.8 million in 1996
decreased $169,000, or 1.7%, from $10.0 million in 1995. As a percentage of net
sales, income from operations declined from 11.8% in 1995 to 7.9% in 1996. In
addition to the change in product mix resulting from the SKW acquisition and
production start-up costs and increased ST&A expenses referred to above, the
decrease reflects $4.0 million in non-recurring costs in 1996 in connection with
the SKW manufacturing facility consolidation program and $882,000 in increased
amortization of goodwill and deferred financing costs primarily resulting from
the acquisition of SKW.

Interest Expense. Interest expense increased $4.0 million, or 53.9%, from
$7.3 million in 1995 to $11.3 million in 1996. The increase is primarily related
to the higher average amount of outstanding indebtedness in 1996 resulting from
the acquisition of SKW.

Income Taxes. The provision for income taxes decreased $804,000 from $1.6
million in 1995 (57.2% of pre-tax income) to $789,000 of expense in 1996.

27
<PAGE> 28

Extraordinary Item. In 1996, the Company incurred $2.0 million of
non-recurring extraordinary charges as a result of the write-off of previously
capitalized deferred financing costs arising from the termination of the
Company's previous senior bank credit facility.

Net Income (Loss). The net loss for 1996 was $3.1 million, a change of
$3.8 million compared to net income of $762,000 in 1995, as a result of the
factors noted above.

LIQUIDITY AND CAPITAL RESOURCES

As a result of the recent acquisitions and the issuance of the Senior
Notes, the Company has, and will continue to have, substantial indebtedness. The
Company will therefore be required to use a substantial portion of its cash flow
from operations for the payment of interest expense on indebtedness. In the
first three months of 1998, interest expense was equal to 55.1% of the Company's
cash flow from operations.

The Company's primary source of funds for conducting its business
activities and servicing its indebtedness has been cash generated from
operations and borrowings under its Old Revolving Credit Facility (subject to a
borrowing base of a portion of the eligible accounts receivable and inventory).
As of March 31, 1998, there were no amounts outstanding under the Old Revolving
Credit Facility.

Concurrently with closing of the Offering, the Company expects to enter
into the $50.0 million New Revolving Credit Facility and the $35.0 million New
Term Loan Facility and to terminate the Old Revolving Credit Facility. KeyBank
National Association will be the lender under the New Revolving Credit Facility
and the New Term Loan Facility. The New Revolving Credit Facility and the New
Term Loan Facility will be unsecured, will be guaranteed by the Company's
domestic subsidiaries, will be used for general corporate purposes and may be
used to finance future acquisitions. The New Revolving Credit Facility will not
be subject to a borrowing base formula. Each facility will contain financial and
other covenants with respect to the Company that, among other matters, will (1)
prohibit the payment of cash dividends on the Class A Common Stock except upon
compliance with certain conditions, (2) restrict the creation of liens and sales
of assets and (3) require that the Company maintain a debt coverage ratio (total
debt to consolidated EBITDA) of less than or equal to 3.8 to 1.0 until December
30, 1998 and 3.5 to 1.0 thereafter, and an interest coverage ratio (net income
plus taxes and interest to interest expense) greater than or equal to 2.0 to
1.0. The Company expects to be in compliance with all such covenants at closing.
Principal on the New Term Loan Facility will be payable in quarterly
installments of $1,250,000 commencing September 30, 1998, plus a final payment
of $12,500,000 due March 31, 2003. Amounts outstanding under each facility will
be due five years from the closing date, and bear interest at a variable rate
based on a Eurodollar rate plus a margin that initially is expected to be 1.00%
per annum or, at the Company's option, a variable rate based on the lending
bank's prime rate. The interest rate based on a Eurodollar rate is subject to
increase or decrease depending on the Company's debt to EBITDA ratio.
Replacement of the Old Revolving Credit Facility with the New Revolving Credit
Facility and entry into the New Term Loan Facility are subject to the closing of
the Offering and use of the proceeds of the Offering to effect the Senior Note
Redemption.

The Company has outstanding $100.0 million of Senior Notes, which are
unsecured senior obligations of the Company. The Senior Notes, which mature on
December 1, 2003, are guaranteed on a senior unsecured basis by each of the
present and future domestic subsidiaries of the Company. Interest payments on
the Senior Notes are due semi-annually in arrears on June 1 and December 1 of
each year, commencing on June 1, 1997, to holders of record on the immediately
preceding May 15 and November 15, respectively. Interest on the Senior Notes
accrues at the rate of 10 1/4% per annum. The Company is subject to certain
restrictive covenants contained in the Senior Note Indenture, including, but not
limited to, covenants imposing limitations on: the incurrence of additional
indebtedness; certain payments, including dividends and investments; the
creation of liens; sales of assets and preferred stock; transactions with
interested persons; payment and stock issuance restrictions affecting
subsidiaries; sale-leaseback transactions; and mergers and consolidations. The
Company anticipates that it will effect the Senior Note Redemption, in
accordance with the terms of the Senior Note Indenture, as soon

28
<PAGE> 29

as practicable after the closing of the Offering. Under the Senior Note
Redemption, $35.0 million in principal amount of the Senior Notes, plus accrued
and unpaid interest of $1.8 million, will be redeemed. See "Use of Proceeds."

As of March 31, 1998, the Company was in compliance with the terms of its
indebtedness.

Net cash provided by operations was $6.9 million for the first quarter of
1998 compared to net cash used of $3.5 million in the comparable period for
1997. This change was primarily a result of increased net income and an improved
working capital position as of March 31, 1998. Net cash provided by operating
activities was $14.0 million in 1997 compared to $5.9 million in 1996. The
increase in net income of $6.0 million and non-cash charges of $2.2 million, in
addition to an improved working capital position at December 31, 1997, accounted
for the increased operating cash flow. Net working capital (exclusive of cash)
was $24.4 million at year-end 1997 compared to $22.9 million at year-end 1996.

Net cash used in investing activities was $3.7 million and $11.5 million
for the quarters ending March 31, 1998 and 1997, respectively. The cash used in
the first quarter of 1998 was used primarily for purchases of property, plant
and equipment. Net cash used in investing activities was $35.2 million and $8.1
million in 1997 and 1996, respectively. The cash used in investing activities in
1997 consisted of $27.1 million attributable to the acquisitions of Hutchinson
and Sinterloy and $8.3 million for the purchase of property, plant and
equipment. In 1996, cash used in investing activities consisted primarily of
expenditures for property, plant and equipment.

Net cash used in financing activities was $1.1 million and $0.1 million for
the first quarter of 1998 and the first quarter of 1997, respectively. Cash used
in financing activities in the first quarter of 1998 was used primarily to repay
outstanding principal on notes issued in connection with the acquisition of
Hutchinson. Net cash used in financing activities was $0.1 million in 1997,
primarily for payment of capital lease obligations and preferred stock
dividends. In 1996, net cash provided by financing activities of $27.3 million
was primarily attributable to an increase in borrowing under the Company's
credit facilities.

The primary uses of capital by the Company are (1) to pay interest on, and
to repay principal of, indebtedness, (2) for capital expenditures for
maintenance, replacement and acquisitions of equipment, expansion of capacity,
productivity improvements and product development, and (3) for making additional
strategic acquisitions of complementary businesses. The Company's capital
expenditures, including capital leases, were $9.6 million in 1997. The Company
anticipates that 1998 capital expenditures will be approximately $14.1 million,
primarily for the expansion of the Company's existing manufacturing facilities
and the purchase of additional equipment to expand the Company's manufacturing
capacity.

The Company believes that cash flow from operating activities, funds
available from the sale of the Class A Common Stock in the Offering and
additional funds available under the New Revolving Credit Facility will be
sufficient to meet its currently anticipated operating and capital expenditure
requirements and service its indebtedness for the next 12 months. If the Company
cannot generate sufficient cash flow from operating activities or borrow under
the New Revolving Credit Facility to meet such obligations, then the Company may
be required to take certain actions, including refinancing all or a portion of
its existing debt, selling assets or obtaining additional financing. There is no
assurance that any such refinancing or asset sales would be possible or that any
additional financing could be obtained.

29
<PAGE> 30

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain quarterly statement of operations
data. This unaudited quarterly information has been prepared on the same basis
as the annual information presented elsewhere herein and, in management's
opinion, includes all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the information for each of the quarters
presented.

<TABLE>
<CAPTION>
1996 1997 1998
----------------------------------------- ----------------------------------------- --------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $31,422 $31,501 $30,749 $30,325 $36,884 $40,097 $39,381 $42,724 $49,978
Gross profit............ 8,366 8,208 8,075 7,464 10,516 12,420 10,486 12,014 16,191
Selling, technical and
administrative
expenses.............. 3,669 3,986 3,957 3,856 4,554 4,893 4,794 5,134 5,703
Amortization of
intangibles........... 651 932 825 398 829 797 949 1,363 899
Plant consolidation
expenses.............. 600 1,539 1,610 279 -- -- 50 -- --
Income from
operations............ 3,446 1,751 1,683 2,931 5,133 6,730 4,693 5,517 9,589
Interest expense........ 2,668 2,616 2,504 3,482 3,679 3,870 3,758 4,000 3,824
Canceled public offering
expenses.............. -- -- -- -- -- -- -- 889 --
Other expense (income),
net................... (150) (150) (112) 46 (250) (210) (86) (130) 4
Income (loss) before
income taxes and
extraordinary item.... 928 (715) (709) (597) 1,704 3,070 1,021 758 5,761
Income (loss) before
extraordinary item.... 512 (721) (1,150) (523) 898 1,887 476 (387) 3,313
Extraordinary item...... -- -- -- (1,196) -- -- -- -- --
Net income (loss)....... $ 512 $ (721) $(1,150) $(1,719) $ 898 $ 1,887 $ 476 (387) $ 3,313
</TABLE>

The Company's results of operations are subject to fluctuations from
quarter to quarter due to changes in demand for its products, changes in product
mix and other factors. Demand for the Company's products in each of the
geographic end markets it serves can vary significantly from quarter to quarter
due to changes in demand for products that incorporate or utilize the Company's
products and other factors beyond the Company's control, such as the high
customer demand at Sinterloy in the first three months of 1997 and the first
three months of 1998 compared to each of the last two quarters of 1997. In the
third quarter, net sales of the Company's products are typically lower than the
first two quarters because of planned production shut downs at the Company's
Italian facility, and in the fourth quarter, net sales of the Company's products
are typically lower than the first two quarters because of holiday-related
manufacturing facility shut downs by the Company and certain of its customers.
In addition, changes in product mix may cause margins to vary from quarter to
quarter. Therefore, year-to-year comparisons of quarterly results may not be
meaningful, and quarterly results during the year are not necessarily indicative
of the results for any future period or for the entire year. See "Risk
Factors -- Fluctuation in Quarterly Results."

INFLATION

Inflation generally affects the Company by increasing interest expense of
floating rate indebtedness and by increasing the cost of labor, equipment and
raw materials. The Company believes that the relatively moderate rate of
inflation over the past few years has not had a significant effect on its
results of operations.

30
<PAGE> 31

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. This
statement establishes standards for reporting financial and descriptive
information about operating segments. Under SFAS No. 131, information pertaining
to the Company's operating segments will be reported on the basis that is used
internally for evaluating segment performance and making resource allocation
determinations. Management is currently studying the potential effects of
adoption of this statement, which is required in 1998.

In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, Employers' Disclosures about Pensions and Other Postretirement Benefits.
This statement does not change the recognition or measurement of pension or
postretirement benefit plans, but standardizes disclosure requirements for
pensions and other postretirement benefits, eliminates certain disclosures and
requires certain additional information. SFAS No. 132 is effective for fiscal
years beginning after December 15, 1997.

31
<PAGE> 32

BUSINESS

OVERVIEW

1997 pro forma for the Sinterloy acquisition. The Company's net sales, pro forma
for all acquisitions, during the period from 1994 through the 12 month period
ended March 31, 1998 grew internally at a compound annual rate of 11.7%.

BUSINESS STRATEGY

The Company's business strategy includes the following principal elements:

- Pursuit of Strategic Acquisitions. Many of the markets in which the
Company competes are fragmented, providing the Company with attractive
acquisition opportunities. The Company will continue to seek to acquire
complementary businesses with leading market positions that will enable it
to expand its product offerings, technical capabilities and customer base.
Historically, the Company has been able to achieve significant cost
reductions through the integration of its acquisitions. For example, since
the acquisition of SKW in 1995, the Company has consolidated SKW's
headquarters facility and one of SKW's two U.S. manufacturing facilities
into its existing facilities, resulting in $5.4 million of annualized cost
savings.

33
<PAGE> 34

ships with its customers provide it with significant competitive advantages
in obtaining and securing new business opportunities.

HISTORY

The Company believes that its management team has demonstrated the ability
to identify, complete and integrate strategic acquisitions. In 1989, an investor
group led by Norman C. Harbert, Chairman of the Board, President and Chief
Executive Officer and a stockholder of the Company, and Ronald E. Weinberg,
Vice-Chairman of the Board, Treasurer and a stockholder of the Company, formed
The Hawk Group of Companies, Inc., an Ohio corporation, to acquire the assets
and liabilities of FPC and Logan, each an Ohio corporation that is a
wholly-owned subsidiary of the Company. The assets of Helsel were acquired in
June 1994 by a group led by Mr. Harbert and Mr. Weinberg, and, in June 1995,
Helsel became a wholly-owned subsidiary of the Company upon its merger with a
subsidiary of the Company. The Company acquired the capital stock of SKW in June
1995, at which time the Company was reincorporated as a Delaware corporation by
means of a parent-subsidiary merger. In October 1996, the Company changed its
name to Hawk Corporation. In November 1996, Hawk Holding Corp., a Delaware
corporation that was a principal stockholder of the Company, merged with and
into the Company. In January 1997, the Company acquired the capital stock of
Hutchinson and, in August 1997, the Company purchased the assets of Sinterloy.

ACQUISITIONS

Building on the base of its original FPC and Logan subsidiaries, the
Company has successfully made the following acquisitions:

- Helsel. The June 1994 Helsel acquisition provided the Company with
the ability to manufacture medium sized, high precision powder metal
components used primarily in fluid power applications. Following the
acquisition, the Company made approximately $5 million in capital
improvements at Helsel, increasing its capacity by approximately 30%. By
focusing on its expertise in fluid power applications and by increasing
capacity, Helsel has increased its sales over 60% since its acquisition by
the Company.

- S.K. Wellman. The June 1995 SKW acquisition furthered the Company's
strategy of consolidating friction product manufacturers. Tracing its
history back to the manufacture of transmission friction discs for the
Model T in the 1920s, SKW brought an established, well-known original
equipment and aftermarket industrial product line to the Company to
complement FPC's core aerospace product line. In addition, the acquisition
provided the Company with strategic access to international markets through
SKW's manufacturing facilities in Italy and Canada and an established
distribution network throughout Europe and the Far East. Following the
acquisition, the Company consolidated one of SKW's two U.S. manufacturing
facilities and SKW's executive offices into other facilities of the
Company.

- Hutchinson. The January 1997 Hutchinson acquisition furthered the
Company's strategy of acquiring complementary businesses and expanded the
Company's product offerings, technical capabilities and customer base.
Hutchinson designs and manufactures die-cast aluminum rotors. The Company
believes that Hutchinson is one of the largest independent domestic
suppliers of these rotors, which are used in subfractional (less than 1/20
horsepower) electric motors for use in business equipment, appliances and
exhaust fans. The Company also believes Hutchinson has growth opportunities
arising from the trend by original equipment motor manufacturers to
outsource production of rotors. Additionally, Hutchinson manufactures
extruded aluminum fan spacers used in commercial diesel engines for heavy
trucks and off-road equipment and precision metal castings used in hand
power tools and gasoline pumping units.

- Sinterloy. The August 1997 acquisition of Sinterloy expanded the
Company's powder metal components business primarily into the business
equipment market. Sinterloy's ability to manufacture high volume small to
medium sized powder metal components complements the Company's
34
<PAGE> 35

other powder metal businesses, which generally produce lower volume, higher
precision components.

Both the friction product and powder metal component industries are
fragmented and are undergoing consolidation due in part to the additional
resources needed (1) to perform the research and development necessary to
satisfy customers' increasingly stringent quality and performance criteria, and
(2) to meet just-in-time delivery requirements. As a result, the Company
believes that it can continue to make strategic acquisitions that may include
other friction product and powder metal component manufacturers. To effect its
acquisition strategy, the Company engages in discussions, from time to time,
with other manufacturers in friction products, powder metal component and other
complementary businesses. At this time, the Company has one outstanding
non-binding letter of intent to acquire a manufacturer of small to medium sized
powder metal components used primarily in the lawn and garden, home appliance
and power hand tool markets. The Company believes that this acquisition will
further diversify the Company's end markets and anticipates that it will close
late in the second quarter of 1998. However, completion of the transaction is
subject to due diligence and other customary conditions. There is no assurance
that the transaction will be closed. The Company expects to finance the
transaction from available cash and, if necessary, its revolving credit
facilities. See "Risk Factors -- Acquisition Strategy."

35
<PAGE> 36

PRODUCTS AND MARKETS

The Company focuses on supplying components to the aerospace, industrial
and commercial 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, which diversification, the Company believes, has
reduced its economic exposure to the cyclicality of any particular industry. In
1997, the Company's sales by principal products and principal end markets were:

Principal Products

<TABLE>
<S> <C> <C> <C> <C>
Friction Products 68%
Powder Metal Components 20%
Rotors 4%
Other* 8%
</TABLE>

Principal Markets

<TABLE>
<S> <C> <C> <C> <C>
Aerospace 18%
Truck 14%
Construction 18%
Agricultural 11%
Specialty Friction 10%
Other** 14%
Pump & Motor 10%
Lawn & Garden 5%
</TABLE>

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

* Includes steel stampings, precision machining and extruded aluminum fan
spacers.

** Includes automotive (original equipment and aftermarket) and business
equipment and other miscellaneous powder metal components.

Friction Products

The Company's friction products are made from proprietary formulations of
composite materials that primarily consist of metal powders 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. For example, the friction brake linings in
aircraft braking systems slow and stop airplanes when landing or taxiing.
Friction products manufactured by the Company also include friction linings 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 linings for
use in other types of braking systems.

The Company's friction products are custom-designed to meet the performance
requirements of a specific application and must meet or exceed the customer's
performance specifications, including temperature, pressure, component life and
noise level criteria. The engineering required in designing a

36
<PAGE> 37

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 products business
include manufacturers of aircraft brakes, truck clutches, heavy-duty
construction and agricultural vehicle brakes, clutches and transmissions, as
well as manufacturers of motorcycle, snowmobile and performance racing brakes.
Based upon net sales, the Company believes that it is among the top three
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 reduce its exposure to adverse economic cycles.

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 McDonnell Douglas DC-9, DC-10 and MD-80 and the Canadair CRJ
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 supplied by the Company, must meet stringent FAA 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 too expensive to redesign
a braking system and meet FAA requirements. Moreover, FAA maintenance
requirements mandate that brake linings 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.

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 1997 Current
Market Outlook, there were over 7,500 single-aisle commercial aircraft in the
world at the end of 1996, and this number is projected to increase to
approximately 11,000 by the end of 2006. The Boeing report also states that
world airline traffic is projected to increase 5.5% per year through 2006. The
Company expects that continued growth in world airline traffic, combined with
the increasing number of single-aisle aircraft, will cause demand for the
Company's aerospace friction products to remain strong. For example, Boeing is
utilizing BFGoodrich braking systems with the Company's friction material on
many of its new 737-600, - 700 and -800 series aircraft.

Construction/Agricultural/Trucks. The Company supplies a variety of
friction products for use in brakes, clutches and transmissions on construction
and agricultural vehicles and equipment and trucks. 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. The Company believes that its trademark, Velvetouch(R)
is 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. The Company expects to grow with its domestic customers in these
applications as they continue to penetrate worldwide markets. The Company also
expects

37
<PAGE> 38

strong sales growth from its facility in Italy as its primary customers, New
Holland, Same Deutz and Clark Hurth, continue to grow in European and emerging
economic markets.

Construction Equipment. The Company supplies friction products such as
transmission discs, clutch facings and brake linings 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 manufacturers
such as Caterpillar, as well as various aftermarket distributors.

Demand for Hawk's friction products in the construction sector is partially
driven by demand for new construction equipment and the overall level of
construction activity. According to an industry publication, unit sales of
construction equipment in North America have grown 10.1% per year from 1992 to
1996. This growth has been driven by economic expansion, a favorable interest
rate environment and the evolution of the rental market for construction
equipment. Additionally, there has been strong demand for construction equipment
overseas, driven principally by infrastructure development in emerging
economies. Currently, the Company is experiencing healthy demand in this market
sector as a result of these favorable trends.

Agricultural Equipment. The Company supplies friction products such as
clutch facings, transmission discs and brake linings for manufacturers of
agricultural equipment, including John Deere and New Holland. The Company
believes it is the second largest domestic supplier of such friction products.
Replacement components for agricultural equipment are sold through original
equipment manufacturers as well as various aftermarket distributors.

Demand for Hawk's friction products in the agricultural sector is partially
driven by a healthy domestic farm economy and the replacement of aging equipment
resulting from underinvestment during the 1980s. According to an industry
publication, since 1992, unit sales of U.S. two wheel drive tractors over 100
horsepower have grown at a compound annual rate of 8.0%. In addition, the
Company has been experiencing strong demand from the agricultural equipment
market in Europe.

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 Eaton and various aftermarket distributors.

Demand for Hawk's friction products in the truck sector is driven by
utilization and original equipment manufacturing volume. Demand for Class 8
(heavy) trucks has been strong over the past several years. According to an
industry publication, sales of Class 8 diesel trucks in 1996 were an estimated
185,000 units, which represents a 46% increase over the 127,000 units sold in
1992. Class 8 truck sales volumes continued to grow in 1997. As a result, the
Company is currently experiencing strong demand for friction products in the
truck sector.

Specialty. The Company supplies friction products for use in other
specialty applications, such as brake pads for Harley-Davidson motorcycles, AM
General Humvees 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 longer product life. Under the "Hawk Brake" tradename, the
Company also supplies high performance friction material for use in racing car
brakes. The Company's high performance brake pad for race cars can operate in
temperatures of over 1,100 degrees Fahrenheit. 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.

Other. In addition to providing metal stampings for its friction business,
the Company's Logan subsidiary also sells transmission plates and other
components to the automotive and trucking industries.

38
<PAGE> 39

Powder Metal Components

The Company is a leading supplier of powder metal components consisting
primarily of pump, motor and transmission elements, gears, pistons and anti-lock
brake sensor rings 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 parts and products industry with a focus on the North
American industrial market, which the Metal Powder Industries Federation
("MPIF"), an industry trade group, estimates had sales of over $1.0 billion in
1996. According to MPIF, the value of iron powder shipments in North America
increased by over 10% per year from 1991 to 1996, and North American powder
manufacturers are anticipating an average annual growth rate of almost 6% per
year for the next ten years.

Fluid Power and Industrial 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, and (2)
transmissions, other drive mechanisms and anti-lock braking systems used in
trucks and off-road equipment. 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 produces powder metal components in three facilities, each
targeting an important 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 believes 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. While Helsel and Sinterloy have small to
medium sized powder metal part capability, FPC 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. For example, the Company believes that
sales of its powder metal components used in anti-lock braking systems will
benefit as domestic trucks comply with the U.S. Department of
Transportation's regulations requiring the installation of anti-lock
braking systems on new trucks.

- High Volume. Sinterloy targets smaller, high volume parts where it
can utilize its efficient pressing and sintering capabilities to their best
advantage. Sinterloy's primary market for growth is powder metal components
for the business equipment market. The Company believes that the addition
of Sinterloy's capabilities will provide the Company with cross-selling
opportunities from the Company's other powder metal facilities.

39
<PAGE> 40

Die-Cast Aluminum Rotors

The Company believes that Hutchinson is the largest independent U.S.
manufacturer of die-cast aluminum rotors for use in subfractional electric
motors. These motors are used in a wide variety of applications such as business
equipment, small household appliances and exhaust fans.

The Company believes that more than 90 million subfractional motors are
manufactured in the United States annually. Hutchinson manufactured
approximately 30 million rotors for these motors in 1996. Increased office
automation, increased sales of small household appliances and increased sales of
exhaust fans for heating, ventilation and air conditioning systems in commercial
buildings and residential buildings are all factors that the Company expects
will increase the growth of subfractional motor sales.

The Company estimates that approximately 50% of all rotors in the
subfractional motor market are made internally by motor manufacturers such as
Emerson and General Electric. However, the Company believes Hutchinson has
growth opportunities arising from the trend by original equipment motor
manufacturers to outsource their production of rotors.

MANUFACTURING

The manufacturing processes for most of the Company's friction products and
powder metal components are essentially similar. In general, both 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, and 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.

- Sintering: After compacting, molded parts are heated in furnaces to
specific temperatures, 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 molded 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 heat treated, precision coined,
ground or drilled or treated with a corrosion resistant coating, such as
oil.

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, molded 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.

40
<PAGE> 41

The Company's die-cast aluminum rotors are produced in a three-step
process. Stamped steel 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 Company
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.

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 linings, which are currently being
installed on many of the braking systems of the newly-designed Boeing 737-600,
- -700 and -800 series of aircraft.

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. Some formulas may have as many as 15 different components. 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 powder metal 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 components with specific performance characteristics and
close dimensional tolerances that would be impractical to produce using
conventional metalworking processes.

CUSTOMERS

The Company's engineers work closely with customers to develop and design
new products and improve the performance of existing products. The Company
believes that its 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. Each of the Company's ten largest customers have been customers
of the Company or its predecessors for more than ten years, 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.

The Company believes that its 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 its
commitment to customer service and satisfaction, the Company has received
numerous preferred supplier awards from its leading customers, including
Aircraft Braking Systems, BFGoodrich Aerospace, Caterpillar, John Deere and New
Holland.

41
<PAGE> 42

The Company's sales to Aircraft Braking Systems represented 10.4% of the
Company's consolidated net sales in 1996 and 8.6% of the Company's consolidated
net sales in 1997. In addition, the Company's top five customers, including
Aircraft Braking Systems, accounted for 40.1% of the Company's consolidated net
sales in 1996 and 33.8% of the Company's consolidated net sales in 1997. See
"Risk Factors -- Reliance on Significant Customers."

MARKETING AND SALES

The Company markets its friction products globally through 11 product
managers, who operate from the Company's facilities in the United States, Italy
and Canada and a sales office in the United Kingdom. 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's marketing and sales of its powder metal components and
die-cast aluminum rotors are directed by six product managers. The Company sells
its powder metal components and rotors to original equipment manufacturers
through independent sales representatives.

SUPPLIERS AND RAW MATERIALS

The principal raw materials used by the Company are copper, steel and iron
powder and custom-formulated cellulose sheet. The Company believes that its
relationships with its suppliers are good. In an effort to ensure a continued
source of supply of the Company's raw materials at competitive prices, the
Company concentrates on developing relationships with its suppliers. In many
instances, the Company works in close consultation with its suppliers in the
development of new combinations of powder metal. Thus, although the Company has
no long-term supply agreements with any of its major suppliers, the Company has
generally been able to obtain sufficient supplies of these raw materials for its
operations. See "Risk Factors -- Supply and Price of Raw Materials."

COMPETITION

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.

The Company also competes with manufacturers that use different
technologies. The metallic aircraft braking systems for which the Company
supplies friction materials compete with a "carbon-carbon" braking system.
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
aircraft, such as the Boeing 747 and military aircraft, where the advantages in
reduced weight justify the additional expense. In addition, as the

42
<PAGE> 43

Company's core powder metal technology improves, enabling its components to be
substituted for wrought steel or iron components, the Company also 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. There is no assurance that competition from
these technologies or others will not adversely affect the Company's business,
financial condition and results of operations. See "Risk
Factors -- Competition."

GOVERNMENT REGULATION

The Company's sales to manufacturers of aircraft braking systems
represented 20.8% of the Company's consolidated net sales in 1996 and 18.0% of
the Company's consolidated net sales in 1997. 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. See "Risk Factors -- Government
Regulation."

ENVIRONMENTAL, HEALTH AND SAFETY MATTERS

Manufacturers such as 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 and
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. See "Risk
Factors -- Environmental, Health and Safety Matters."

43
<PAGE> 44

MANUFACTURING FACILITIES AND OTHER PROPERTIES

The Company's material operations are conducted through the following
facilities, all of which are owned, except as noted:

<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE PRINCIPAL FUNCTIONS
-------- -------------- -------------------
<S> <C> <C>
Medina, Ohio............... 158,000 Manufacturing of friction products and powder metal
components, sales and marketing, research and development,
product engineering, customer service and support, and
administration

Brook Park, Ohio........... 111,000 Manufacturing of friction products, domestic and
international sales and marketing, product engineering,
customer service and support, and administration

Orzinuovi, Italy........... 97,000 Manufacturing of friction products, international sales and
marketing, research and development, and administration

Akron, Ohio................ 81,000 Manufacturing of metal stampings

Campbellsburg, Indiana..... 75,000 Manufacturing of powder metal components, sales and
marketing, product engineering, customer service and
support, and administration

Solon, Ohio(1)............. 58,000 Research and development

Solon Mills, Illinois(2)... 42,000 Manufacturing of powder metal components, sales and
marketing, customer service and support

Alton, Illinois............ 37,000 Manufacturing of die-cast aluminum rotors, sales and
marketing, customer service and support, and administration

Concord, Ontario, 15,000 Manufacturing of friction products, distribution and
Canada(2)................ warehousing

Cleveland, Ohio(3)......... 6,200 Principal executive offices
</TABLE>

- ---------------
(1) Approximately 20,000 square feet of the Solon facility is leased to a third
party.

(2) Leased.

(3) Leased. 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 Mr. Weinberg. See "Certain
Transactions -- Other Transactions."

In June 1996, the Company closed its manufacturing facility in LaVergne,
Tennessee that it acquired in the SKW acquisition and consolidated its
operations with existing Company facilities. The Company has placed the LaVergne
facility on the market for sale and does not anticipate incurring any material
gain or loss as a result of the sale.

The Company's Italian facility is subject to certain security interests
granted to its lenders.

The Company believes that substantially all of its property and equipment
is in good condition. Several of the Company's facilities are operating at or
near capacity. With the planned expansion of these facilities, as described
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Liquidity and Capital Resources," the Company believes that it
will have sufficient capacity to accommodate its needs through 1999.

44
<PAGE> 45

EMPLOYEES

As of December 31, 1997, the Company had 1,295 employees, consisting of 108
management, supervisory and administrative personnel, 102 engineering, quality
control and laboratory personnel, 36 sales and marketing personnel and 1,049
manufacturing personnel.

Approximately 300 employees at the Company's Brook Park, Ohio plant are
covered under a collective bargaining agreement with the United International
Paperworkers Union expiring in October 2000; approximately 70 employees at the
Company's Akron, Ohio facility are covered under a collective bargaining
agreement with the United Automobile Workers expiring in July 2000; and
approximately 185 employees at the Company's Orzinuovi, Italy plant are
represented by a national mechanics union under an agreement that expires in
December 1999. Of the Italian employees represented by the national mechanics
union, approximately 120 employees are also represented by a local union under
an agreement that expires in December 2000. Approximately 70 hourly employees of
Hutchinson are covered under a collective bargaining agreement with the
International Association of Machinists and Aerospace Workers expiring in June
1998. The Company has experienced no strikes and believes its relations with its
employees and their unions to be good. See "Risk Factors -- Collective
Bargaining Agreements" and "Risk Factors -- Dependence on Key Personnel."

INTELLECTUAL PROPERTY MATTERS

Velvetouch(R), Fibertuff(R), Feramic(R), Velvetouch Feramic(R), Velvetouch
Ceramic(R), Velvetouch Organik(R) and Velvetouch Metalik(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 and is
registered in 26 countries. In addition, the Company has a pending application
with the United States Patent and Trademark Office to register the trademark
"Wellman Friction Products."

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.

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. The Company
is not aware of any pending claims of infringement or other challenges to the
Company's right to use any of its intellectual property. See "Risk
Factors -- Intellectual Property Matters."

LEGAL PROCEEDINGS

The Company is involved in lawsuits that arise in the ordinary course of
its business. In the Company's opinion, the outcome of these matters will not
have a material adverse effect on the Company's business, financial condition or
results of operations.

45
<PAGE> 46

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES

The directors, executive officers and significant employees of the Company
and their respective ages and positions held with the Company, are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Norman C. Harbert(1)............... 64 Chairman of the Board, Chief Executive Officer,
President and Director
Ronald E. Weinberg(1).............. 56 Vice-Chairman of the Board, Treasurer and
Director
Jeffrey H. Berlin.................. 36 Executive Vice President
Douglas D. Wilson.................. 54 Executive Vice President, President -- FPC and
President -- SKW
Thomas A. Gilbride................. 44 Vice President-Finance
Joseph J. Levanduski............... 35 Corporate Controller
Jess F. Helsel..................... 73 President -- Helsel
Timothy J. Houghton................ 53 President -- Hutchinson
Paul R. Bishop(2)(3)............... 55 Director
Byron S. Krantz(3)................. 62 Secretary and Director
Dan T. Moore, III(1)............... 58 Director
William J. O'Neill, Jr.(2)......... 64 Director
</TABLE>

- ---------------
(1) Member of the Nominating Committee

(2) Member of the Audit Committee

(3) Member of the Compensation Committee

Norman C. Harbert has served as the Chairman of the Board, President, Chief
Executive Officer and Director of the Company since March 1989. Mr. Harbert has
over 39 years of manufacturing experience. From 1987 to 1988, Mr. Harbert was
Chairman, President and CEO of Maverick Tube Corporation, an oil drilling
equipment manufacturer, and from 1981 to 1986, he served as President and CEO of
Ajax Magnethermic Corporation, an international manufacturer of induction
heating and melting equipment. Prior to that time, Mr. Harbert served at
Reliance Electric Company for 22 years where, in 1980, his last position was as
General Manager, Rotating Products Group, with primary responsibility for a
division with annual sales of $250 million. Mr. Harbert is a director of New
West Eyeworks, Inc., a retail eyewear chain ("New West"), and Second Bancorp
Inc., a bank holding company.

Ronald E. Weinberg has served as Vice-Chairman of the Board, Treasurer and
Director of the Company since March 1989. Mr. Weinberg has over 28 years of
experience in the ownership and management of operating companies, including a
number of manufacturing companies. In 1988, Mr. Weinberg led an investor group
in the acquisition of New West, and Mr. Weinberg has served as Chairman of the
Board of New West since that date. In 1986, Mr. Weinberg led an investor group
in the acquisition of SunMedia Corp., which publishes a chain of weekly
newspapers in the Cleveland market ("SunMedia"), and Mr. Weinberg has served as
Chairman of the Board of SunMedia since the acquisition date. Since December
1997, Mr. Weinberg has been the Chairman and Chief Executive Officer of Timestar
Communications Corp., a direct mail business in Cleveland, formerly owned by
SunMedia ("Timestar").

Jeffrey H. Berlin has served as an Executive Vice President of the Company
since May 1997. Between July 1994 and May 1997, Mr. Berlin served as the Vice
President -- Marketing and Corporate Development of the Company. From August
1991 to July 1994, Mr. Berlin served the Company as its Director of Corporate
Development.

46
<PAGE> 47

Douglas D. Wilson has served as an Executive Vice President of the Company
since September 1996, the President of FPC since January 1992 and the President
of SKW since June 1995. From November 1990 to December 1991, he was the
Executive Vice President of FPC. Mr. Wilson has been the Chairman of the
Industry Advisory Group of the Center for Advanced Friction Studies at the
University of Illinois at Carbondale since its formation in April 1996.

Thomas A. Gilbride has served as Vice President -- Finance of the Company
since January 1993. Between March 1989 and January 1993, Mr. Gilbride was
employed by the Company in various financial and administrative capacities.

Joseph J. Levanduski has served as Corporate Controller of the Company
since April 1997. From August 1995 until April 1997, he was Controller for FPC,
and from March 1996 until April 1997, he was also Group Controller coordinating
the accounting functions of both FPC and SKW. Mr. Levanduski was Controller of
Plasti-Kote Company, Inc., a manufacturer of aerosol spray paints, from 1988 to
1995, and Assistant Controller at Plasti-Kote from 1986 to 1988.

Jess F. Helsel has served as President of Helco, Inc. (the predecessor to
Helsel) since 1974 and has continued in that capacity since the sale of Helsel's
assets to the Company in June 1994. Mr. Helsel has over 52 years of experience
in the powder metal industry.

Timothy J. Houghton has served as President of Hutchinson Foundry Products
Company (the predecessor to Hutchinson) since 1992 and has continued in that
capacity since the acquisition of Hutchinson by the Company in January 1997. Mr.
Houghton also served as Chief Executive Officer of Hutchinson Foundry Products
Company from 1992 until January 1997.

Paul R. Bishop has served as a Director since May 1993. Mr. Bishop has
served as the Chairman, President and Chief Executive Officer of H-P Products,
Inc., a manufacturer of central vacuum systems and fabricated tubing and
fittings, since 1977.

Byron S. Krantz has been the Secretary and a Director since March 1989. Mr.
Krantz has been a partner in the law firm of Kohrman Jackson & Krantz P.L.L.
since its formation in 1984. Mr. Krantz is a director of New West.

Dan T. Moore, III has served as a Director since March 1989. Mr. Moore has
been the founder, owner and President of Dan T. Moore Company, Inc. since 1969,
Soundwich, Inc. since 1988, Flow Polymers, Inc. since 1985 and Perfect
Impression, Inc. since July 1994, all of which are manufacturing companies. Mr.
Moore has also been Chairman of the Board of Advanced Ceramics Corporation since
March 1993. He has been a director of Invacare Corporation, a manufacturer of
health care equipment, since 1979.

William J. O'Neill, Jr. has served as a Director since March 1989. Mr.
O'Neill has been the President and Chief Executive Officer of Clanco Management
Corp., an O'Neill family management company, since 1983. He has also served as
the Managing Partner of Clanco Partners I, an Ohio general partnership, since
March 1989.

The Company's executive officers serve at the discretion of the Board of
Directors, although the Company or its subsidiaries have entered into employment
agreements with certain Named Executive Officers as described in "Employment
Agreements."

COMPOSITION OF BOARD OF DIRECTORS

The Board of Directors of the Company consists of six members. The
Company's Second Amended and Restated Certificate of Incorporation provides that
the holders of the Series D Preferred Stock will have the right to elect a
majority of the directors and that the holders of the Class A Common Stock will
have the right to elect the remainder. The directors are elected at the annual
meeting of stockholders of the Company and each director holds office until the
next annual meeting of the stockholders and until his successor has been duly
elected and qualified. See "Risk Factors -- Effective Voting Control by Existing
Stockholders" and "Description of Capital Stock -- Preferred Stock."
47
<PAGE> 48

Certain transactions among the Company and its directors or entities
affiliated with certain directors of the Company are described below in
"Principal and Selling Stockholders -- Stockholder Agreement" and "Certain
Transactions."

BOARD COMMITTEES

The Nominating Committee of the Board of Directors recommends qualified
candidates for election as directors of the Company. The Audit Committee of the
Board of Directors reviews the accounting and reporting principles, policies and
practices followed by the Company and the adequacy of the Company's internal,
financial and operating controls. The Compensation Committee of the Board of
Directors reviews and makes recommendations regarding the compensation of
executive officers of the Company and reviews general policy relating to the
compensation and benefits of employees of the Company. The Compensation
Committee also administers option grants under the Company's 1997 Stock Option
Plan (the "1997 Plan").

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee consists of Messrs. Bishop and Krantz. Mr.
Bishop was not at any time during 1997, or at any other time, an officer or
employee of the Company. Mr. Krantz is Secretary of the Company and a partner in
the law firm of Kohrman Jackson & Krantz P.L.L., which provides legal services
to the Company. See "Certain Transactions -- Other Transactions."

DIRECTOR COMPENSATION

After the Offering, the Company will pay each director, other than Messrs.
Harbert, Weinberg or Krantz, an annual fee of $10,000 that is payable $5,000 in
cash and $5,000 in shares of Class A Common Stock at the then current market
price, rounded to the nearest 50 shares. In addition, the Company will pay each
such director $1,000 in cash for each board meeting that such director attends
and $500 in cash for each telephonic board meeting that such director
participates in. The Company also reimburses all directors for all expenses
incurred in connection with their services as directors. No additional
consideration is paid to the directors for committee participation.

48
<PAGE> 49

EXECUTIVE COMPENSATION

The following table sets forth the compensation awarded or paid by the
Company during 1995, 1996 and 1997 to its President and Chief Executive Officer
and the Company's four other most highly compensated officers and key employees
(collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
--------------------------- ---- -------- -------- ---------------
<S> <C> <C> <C> <C>
Norman C. Harbert........................ 1997 $400,000 $499,000 $28,000(2)
Chairman of the Board, President and 1996 377,000 406,000 33,600(2)
Chief Executive Officer 1995 340,000 350,000 25,100(2)

Ronald E. Weinberg....................... 1997 303,000 499,000 3,800
Vice-Chairman of the Board and 1996 266,000 406,000 9,500
Treasurer 1995 231,000 350,000 9,200

Douglas D. Wilson........................ 1997 244,000 134,000 3,800
Executive Vice President; President -- 1996 166,000 116,000 9,500
FPC; and President -- SKW 1995 159,000 100,000 9,200

Jess F. Helsel........................... 1997 150,000 280,000(3) 12,300(4)
President -- Helsel 1996 150,000 912,000(3) 12,300(4)
1995 150,000 910,000(3) 12,300(4)

Jeffrey H. Berlin........................ 1997 164,000 134,000 3,800
Executive Vice President 1996 137,000 96,000 9,500
1995 96,000 75,000 2,500
</TABLE>

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

(1) Unless otherwise described, represents amounts contributed by FPC to FPC's
profit sharing plan on behalf of such Named Executive Officer.

(2) Represents $15,900, $24,100 and $24,200 in premiums paid by the Company in
1995, 1996 and 1997 respectively, for term life policies of which Mr.
Harbert is the insured and his wife is the beneficiary and $9,200, $9,500
and $3,800 contributed in 1995, 1996 and 1997, respectively, by FPC to FPC's
profit sharing plan on behalf of Mr. Harbert.

(3) Upon the Company's acquisition of Helsel, the Company entered into an
Employment Agreement with Mr. Helsel. His bonus is determined in accordance
with an earnings formula set forth in that employment agreement. See
"Employment Agreements."

(4) Includes $1,800 contributed by Helsel to Helsel's employee's savings and
investment plan, as matching contributions relating to before-tax
contributions made by Mr. Helsel under such plan, and $10,500 contributed by
Helsel to Helsel's profit sharing plan on behalf of Mr. Helsel.

None of the Named Executive Officers received any perquisites or other
personal benefits, securities or property that exceeded the lesser of $50,000 or
10% of the salary and bonus for each Named Executive Officer during 1995, 1996
or 1997.

STOCK OPTION PLAN

The 1997 Plan was adopted in November 1997, and provides for the grant of
options to purchase an aggregate of 700,000 shares of the Company's Class A
Common Stock. The 1997 Plan provides for the grant to employees of incentive
stock options within the meaning of sec.422 of the Internal Revenue Code of
1986, as amended (the "Code"), and for the grant of nonstatutory stock options
to eligible employees (including directors and officers) and non-employee
directors.

49
<PAGE> 50

The 1997 Plan is administered by the Compensation Committee of the Board of
Directors, which is charged with designating those persons to whom options are
to be granted and determining the terms of options granted, including the
exercise price, the number of shares subject to the option, and the time of the
exercise. In granting options the Compensation Committee will take into
consideration the past performance and anticipated future contribution of the
potential option recipient and such other considerations the Committee deems
relevant.

Options granted under the 1997 Plan are subject to the following
restrictions, among others: (1) the per share exercise price must be equal to or
greater than 100%, or equal to or greater than 110% in the case of an officer or
other key employee who owns, at the time an incentive stock option is granted,
more than ten percent of the Class A Common Stock, of the fair market value of a
share of Common Stock on the date of grant of the option, except in the case of
a nonstatutory stock option in which the committee has discretion to set a per
share exercise price of less than 100% of fair market value on the date of grant
of the option; and (2) no option may be exercisable after the expiration of ten
years from the date of its grant, and in the case of an incentive stock option
granted to an officer or other key employee who owns, at the time an incentive
stock option is granted, more than ten percent of the Class A Common Stock, no
option is exercisable after the expiration of five years from the date of grant.
If the option holder ceases to be employed by the Company because he or she is
terminated for Cause (as defined in the 1997 Plan), any options held by the
terminated employee will automatically expire. If an option holder's employment
by the Company is terminated by reason of a mental or physical disability or
death, then his or her options will expire one year after the date of
termination. If an option holder's employment is terminated for any other
reason, then his or her options will terminate three months from the date of
termination. The 1997 Plan provides that unless otherwise provided in an
individual grant, an option will become immediately fully exercisable upon the
occurrence of certain transactions, such as the merger or sale of the Company.

The 1997 Plan authorizes the Company to make loans to option holders to
enable them to exercise their options. Such loans must (1) provide for recourse
to the optionee, (2) bear interest at a rate no less than the prime rate of
interest of the Company's principal lender and (3) be secured by the shares of
Common Stock purchased. The Board of Directors has the authority to amend or
terminate the 1997 Plan, provided that no such action impairs the rights of the
holder of any outstanding option without the written consent of such holder, and
provided further that certain amendments of the 1997 Plan are subject to
stockholder approval. Unless terminated sooner, the 1997 Plan will terminate ten
years from its effective date.

At the closing of the Offering, options to purchase 310,000 shares of Class
A Common Stock will be outstanding under the 1997 Plan at an exercise price
equal to the public offering price and will vest over a five-year period with
20% of each such option becoming exercisable on each of the first five
anniversaries of the effective date of grant. Options to purchase 390,000 shares
of Class A Common Stock will remain available for grant.

BENEFIT PLANS

FPC Profit Sharing Plan. FPC maintains a tax-qualified profit sharing
plan, including features under section 401(k) of the Code, that covers
substantially all of its employees. The plan generally provides for voluntary
employee pre-tax contributions ranging from 1% to 10% and a discretionary FPC
contribution allocated to each employee based on compensation.

Helsel Employee's Savings and Investment Plan. Helsel maintains a
tax-qualified savings and investment plan, including features under section
401(k) of the Code, that covers substantially all of its employees. The plan
generally provides for voluntary employee pre-tax contributions ranging from 1%
to 23%, a 50% matching contribution by Helsel (up to a maximum of 2% of an
employee's compensation), and a discretionary Helsel contribution.

50
<PAGE> 51

Helsel Employee's Retirement Plan. Helsel sponsors a tax-qualified defined
contribution plan that covers substantially all of its employees. The retirement
plan provides eligible employees with an annual Helsel contribution equal to 7%
of their compensation.

FPC Pension Plan. FPC sponsors a tax-qualified non-contributory, defined
benefit pension plan covering substantially all of its employees. The plan
provides participating employees with retirement benefits at normal retirement
age (as defined in the plan) based on specified formulas. In no event will the
amount of annual retirement income determined under these formulas and payable
at the participant's retirement date be greater than $90,000. In addition,
federal law defines the maximum amount of annual compensation that may be taken
into account in calculating the amount of the pension benefit as follows:
1989 -- $200,000; 1990 -- $209,200; 1991 -- $222,220; 1992 -- $228,860;
1993 -- $235,840; 1994 through 1996 -- $150,000; 1997 -- $160,000 (indexed for
inflation). The estimated annual benefit payable at normal retirement age for
each Named Executive Officer who is eligible to participate in the FPC pension
plan is as follows: Mr. Harbert -- $59,200; Mr. Weinberg -- $88,100; Mr.
Wilson -- $90,000; and Mr. Berlin -- $90,000.

EMPLOYMENT AGREEMENTS

Pursuant to Employment Agreements, each dated as of November 1, 1996, Mr.
Harbert has agreed to serve as Chairman of the Board, President and Chief
Executive Officer of Hawk, and Mr. Weinberg has agreed to serve as Vice-Chairman
of the Board and Treasurer, through December 2004. Each receives an annual bonus
based on the incentive compensation programs in effect for the Company's
subsidiaries. The base salary may be adjusted by the Compensation Committee of
the Board. If either Mr. Harbert or Mr. Weinberg becomes mentally or physically
disabled during the term, the Company will pay his annual base salary, at the
same rate preceding the disability, for the remainder of the term of the
employment agreement. In the event of the death or disability of either Mr.
Harbert or Mr. Weinberg during the term, the Company will also pay any of his
bonus earned but not paid. Neither Mr. Harbert nor Mr. Weinberg may engage in
any competitive business while he is employed by the Company and for a period of
two years thereafter.

Mr. Harbert is required to devote substantially all of his business time
and effort to the Company but may serve on the boards of other companies and
charitable organizations. Under the terms of Mr. Weinberg's employment
agreement, he is not required to devote all of his time and effort to the
business of the Company, and in recent periods, he has devoted approximately 60%
of his time and effort to the business of the Company. Mr. Weinberg also serves
as Chairman of the Board of New West, Chairman of the Board of SunMedia and
Chairman of the Board and Chief Executive Officer of Timestar.

In January 1998, the Company entered into a split dollar life insurance
agreement with each of Mr. Harbert and Mr. Weinberg (the "Split Dollar
Agreements") pursuant to which the Company purchased life insurance policies on
the lives of Mr. Harbert and Mr. Weinberg in the face amounts of $1.0 million
and $3.8 million, respectively. Under the terms of the Split Dollar Agreements,
the Company will pay the annual premiums of the insurance policies in the amount
of $46,163 for Mr. Harbert's policy and $58,586 for Mr. Weinberg's policy, and
the Company will be reimbursed for such payments from the policy proceeds in an
amount equal to the greater of the cash value of the policies or the total
amount of premiums paid during the term of the policies. The remaining proceeds
of each policy will be paid to beneficiaries designated by the insured. The
Split Dollar Agreements will terminate upon the occurrence of any of the
following events: (1) total cessation of the Company's business; (2) the
bankruptcy, receivership or dissolution of the Company; or (3) the termination
of the insured's employment by the Company (other than for reason of his death
or mental or physical disability). Upon the termination of a Split Dollar
Agreement, the insured will have the right to purchase the policy covered
thereby for an amount equal to the greater of the cash value of the policy or
the total amount of premiums paid during the term of the policy.

51
<PAGE> 52

An existing Wage Continuation Agreement between the Company and Mr. Harbert
was amended and restated in connection with the Company's entry into a Split
Dollar Agreement with Mr. Harbert. The Wage Continuation Agreement, as amended
and restated, provides that if Mr. Harbert dies during the term of his
employment agreement or is no longer in the active employ of the Company solely
because of a mental or physical disability, the Company will pay his spouse a
monthly wage continuation payment until her death in an amount equal to $12,500
per month (on an after-tax basis) less a monthly annuity (on an after-tax basis)
to be purchased for the spouse of Mr. Harbert with Mr. Harbert's share of the
proceeds of the split dollar insurance policy on Mr. Harbert's life. An existing
Wage Continuation Agreement between the Company and Mr. Weinberg was terminated
in connection with the Company's entry into a Split Dollar Agreement with Mr.
Weinberg.

Upon the acquisition of Helsel by a group led by Mr. Harbert and Mr.
Weinberg, Jess F. Helsel entered into an Employment Agreement and a Consulting
Agreement, each effective July 1, 1994. Mr. Helsel agreed to serve as President
of Helsel through the expiration of the term of the employment agreement in June
1997. In June 1997, these agreements were amended to extend the term of the
employment agreement by an additional year ending in June 1998 and to delay the
commencement of the term of the consulting agreement until July 1998. Mr. Helsel
receives an annual base salary of $150,000 and an annual bonus determined in
accordance with specified formulas based on the amount by which Helsel's
earnings before interest, income taxes, depreciation, amortization, certain
corporate charges and payment of Mr. Helsel's bonus exceeds specified targets.
If Mr. Helsel becomes mentally or physically disabled during the term, the
Company will pay his annual base salary and bonus for the remainder of the term.
Under the amended consulting agreement, the Company will pay Mr. Helsel $150,000
for each of the first two years after the expiration of the extended term of the
employment agreement and $75,000 for each of the third and fourth years after
the expiration of such term. Mr. Helsel may not engage in any competitive
business while he is employed by the Company and for a period of five years
after the expiration of the extended term of his employment agreement.

52
<PAGE> 53

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth, as of the date of this Prospectus and
assuming exercise in full of the Underwriters' over-allotment option,
information regarding the beneficial ownership of the Company's Class A Common
Stock and Series D Preferred Stock (collectively, the "Voting Stock"), by (1)
each stockholder known by the Company to be the beneficial owner of more than
five percent of each class of the Company's outstanding shares of Voting Stock,
(2) each director or executive officer who beneficially owns any shares of
Voting Stock, (3) all directors and executive officers of the Company as a group
and (4) all Selling Stockholders. The information set forth in the table below
does not include 29,412 shares of Class A Common Stock, issuable upon conversion
of 8.0% two-year notes in the aggregate principal amount of $1.5 million (of
which up to $500,000 of the then-outstanding principal balance is convertible at
the option of the holders thereof into shares of Class A Common Stock) that were
issued by the Company in connection with the acquisition of Hutchinson, and
assumes the exercise of warrants to purchase 1,023,793 shares of Class B Common
Stock (which will be automatically converted on a one-for-one basis into shares
of Class A Common Stock upon the sale by certain of the Selling Stockholders in
the Offering). See "Management -- Stock Option Plan" and "Certain
Transactions -- Transactions Concurrent with the Offering." In addition, the
information set forth in the table below does not include the following options
to purchase shares of Class A Common Stock which will be issued at the closing
of the Offering under the 1997 Plan: Mr. Berlin -- 20,000; Mr. Wilson -- 20,000;
Mr. Gilbride -- 15,000; Mr. Levanduski -- 10,000; Mr. Harbert -- 10,000; Mr.
Helsel -- 10,000; Mr. Weinberg -- 10,000; Mr. Houghton -- 7,500; Mr.
Bishop -- 5,000; Mr. Krantz -- 5,000; Mr. Moore -- 5,000; and Mr.
O'Neill -- 5,000. Each of the foregoing options will have an exercise price
equal to the public offering price and will vest over a five-year period with
20% of each such option becoming exercisable on each of the first five
anniversaries of the effective date of grant. See "Management -- Stock Option
Plan." Unless otherwise indicated, the Company believes that all persons named
in the table have sole investment and voting power over the shares of Voting
Stock owned. Unless otherwise specified, the stockholders named in the table may
be reached in care of the address of the Company set forth in this Prospectus.

<TABLE>
<CAPTION>
OWNERSHIP PRIOR
TO THE OFFERING OWNERSHIP AFTER THE OFFERING
------------------- SHARES OF -----------------------------------------
CLASS A CLASS A CLASS A SERIES D
COMMON STOCK(1) COMMON COMMON STOCK(1) PREFERRED STOCK(1)
------------------- STOCK ------------------- -------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT OFFERED SHARES PERCENT SHARES PERCENT
- ------------------------ --------- ------- ------------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
William J. O'Neill,
Jr.(2).................. 1,497,050 26.3% 1,215,549 281,501 3.1% -- --
Norman C. Harbert(3)(4)... 1,230,625 21.6% 62,500 1,168,125 12.7% 689 45%
Ronald E.
Weinberg(3)(5).......... 1,197,948 21.1% 62,500 1,135,448 12.4% 689 45%
CIGNA Mezzanine Partners
III, L.P.(6)............ 683,177 12.0% 683,177 -- -- -- --
Byron S. Krantz(3)(7)..... 270,972 4.8% -- 270,972 3.0% 152 10%
Jeffrey H. Berlin(8)...... 259,742 4.6% -- 260,742 2.8% -- --
Lincoln National Life
Insurance Company(9).... 206,642 3.6% 206,642 -- * -- --
Connecticut General Life
Insurance Company(10)... 133,974 2.4% 133,974 -- * -- --
Douglas D. Wilson(8)...... 54,838 * -- 56,838 * -- --
Thomas A. Gilbride(8)..... 48,168 * -- 49,168 * -- --
Sheldon M. Sager(11)...... 19,053 * 19,053 -- * -- --
Martha B. Horsburgh(12)... 15,691 * 15,691 -- * -- --
Barry J. Feld............. 12,329 * 6,164 6,165 * -- --
Dan T. Moore, III......... 10,210 * -- 10,210 * -- --
Jess F. Helsel............ 5,604 * -- 5,604 * -- --
Paul R. Bishop............ 5,604 * -- 5,604 * -- --
All directors and
executive officers as a
group (12
individuals)............ 4,580,761 80.5% 1,340,549 3,244,212 35.3% 1,530 100%
</TABLE>

53
<PAGE> 54

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

* Less than 1.0%.

(1) The Class A Common Stock and Series D Preferred Stock are the only voting
securities of the Company that will be outstanding after the Offering. See
"Description of Capital Stock."

(2) Includes 1,491,446 shares held by Clanco Partners I, an Ohio general
partnership, prior to the Offering and 275,897 shares after the Offering.
Mr. O'Neill is the managing partner of Clanco Partners I and as a result
has voting and dispositive power over the shares held by Clanco Partners I.
Clanco Partners I is an Ohio general partnership whose address is c/o
William J. O'Neill, Jr., 30195 Chagrin Boulevard, Suite 310, Pepper Pike,
Ohio 44124. Mr. O'Neill is a director of the Company.

(3) Each of these stockholders is a party to an agreement governing the voting
and disposition of all shares of Voting Stock of which such stockholders
are the legal or beneficial owners. Each such stockholder disclaims
beneficial ownership of the shares of Voting Stock owned by the other such
stockholders. See "Stockholder Agreement."

(4) Includes 1,107,561 shares held by the Harbert Family Limited Partnership.
The Harbert Family Limited Partnership is an Ohio limited partnership. Mr.
Harbert is the managing general partner of the Harbert Family Limited
Partnership and as a result has voting and dispositive power over the
shares held by the Harbert Family Limited Partnership. Any shares sold by
Mr. Harbert will be sold only if the Underwriters exercise their
over-allotment option.

(5) Includes 1,078,153 shares held by the Weinberg Family Limited Partnership.
The Weinberg Family Limited Partnership is an Ohio limited partnership. Mr.
Weinberg is the managing general partner of the Weinberg Family Limited
Partnership and as a result has voting and dispositive power over the
shares held by the Weinberg Family Limited Partnership. Any shares sold by
Mr. Weinberg will be sold only if the Underwriters exercise their
over-allotment option.

(6) CIGNA Mezzanine Partners III, L.P. is a Delaware limited partnership whose
address is c/o CIGNA Investments, Inc., 900 Cottage Grove Road, Hartford,
Connecticut 06152-2206. Assumes the exercise of warrants to purchase
683,177 shares of Class B Common Stock which will be converted on a
one-for-one basis into shares of Class A Common Stock upon sale by CIGNA
Mezzanine Partners III, L.P. in the Offering.

(7) Includes 243,876 shares held by the Krantz Family Limited Partnership. The
Krantz Family Limited Partnership is an Ohio limited partnership whose
address is c/o Byron S. Krantz, One Cleveland Center, 20th Floor,
Cleveland, Ohio 44114. Mr. Krantz is the managing general partner of the
Krantz Family Limited Partnership and as a result has voting and
dispositive power over the shares held by the Krantz Family Limited
Partnership.

(8) Includes the following shares that these officers have advised the Company
they, or in the case of Mr. Gilbride, his spouse, intend to purchase in the
Offering: Mr. Berlin -- 1,000 shares; Mr. Wilson -- 2,000 shares; and the
spouse of Mr. Gilbride -- 1,000 shares.

(9) Lincoln National Life Insurance Company is an Indiana corporation whose
address is 200 East Berry Street, 2R-13, Fort Wayne, Indiana 46802. Assumes
the exercise of warrants to purchase 206,642 shares of Class B Common Stock
which will be converted on a one-for-one basis into shares of Class A
Common Stock upon sale by Lincoln National Life Insurance Company in the
Offering.

(10) Connecticut General Life Insurance Company is a Connecticut corporation
whose address is c/o CIGNA Investments, Inc., 900 Cottage Grove Road,
Hartford, Connecticut 06152-2206. Assumes the exercise of warrants to
purchase 133,974 shares of Class B Common Stock which will be converted on
a one-for-one basis into shares of Class A Common Stock upon sale by
Connecticut General Life Insurance Company in the Offering.

(11) From September 1993 through December 1997, Mr. Sager was Executive Vice
President of Clanco Management Corp, an O'Neill family management company
of which Mr. O'Neill is the President and Chief Executive Officer.

(12) From September 1992 to March 1995, Ms. Horsburgh was an employee of Clanco
Management Corp.

54
<PAGE> 55

STOCKHOLDER AGREEMENT

Messrs. Harbert, Weinberg and Krantz are parties to a Stockholders' Voting
Agreement, effective as of November 27, 1996, that as amended provides that to
the extent that any of them is the legal or beneficial owner of any shares of
voting stock of the Company, including any shares of Class A Common Stock or
Series D Preferred Stock, they will vote those shares (1) in favor of electing
Messrs. Harbert, Weinberg and Krantz (so long as each desires to serve) or their
respective designees to the Board of Directors of the Company, (2) in favor of
electing such other directors to the Board of Directors as a majority of Messrs.
Harbert, Weinberg and Krantz or their respective designees shall direct and (3)
with respect to such matters as are submitted to a vote of the stockholders of
the Company as a majority of Messrs. Harbert, Weinberg and Krantz or their
respective designees shall direct. If any of Messrs. Harbert, Weinberg or Krantz
or their respective affiliates sells more than 50% of the Class A Common Stock
beneficially owned by such individual on the date of the Offering, the
obligation of the other parties to continue to vote their shares of Class A
Common Stock and Series D Preferred Stock for the selling stockholder or his
designee as a director will terminate. The agreement will terminate upon the
first to occur of the mutual written agreement of the parties to terminate the
agreement or the death of the last to die of Messrs. Harbert, Weinberg or Krantz
or their respective designees; provided that the provisions described in clauses
(1) and (2) above will terminate sooner in the event that none of Messrs.
Harbert, Weinberg and Krantz (or any designee thereof) remains on the Board of
Directors.

CERTAIN TRANSACTIONS

TRANSACTIONS CONCURRENT WITH THE OFFERING

Preferred Stock Redemption. Upon the closing of the Offering, the Company
will effect the Preferred Stock Redemption by (1) redeeming all of the
outstanding shares of Series A Preferred Stock, 351 of the 702 outstanding
shares of Series B Preferred Stock and seven of the 1,189 outstanding shares of
Series C Preferred Stock, at their liquidation value, plus accrued and unpaid
dividends, and (2) exchanging the remaining outstanding shares of Series B and
Series C Preferred Stock for an equal number of shares of Series D Preferred
Stock. Assuming such transactions are consummated as of May 29, 1998, the Series
A Preferred Stock will be redeemed for approximately $1.4 million, the Series B
Preferred Stock for approximately $356,000 and the Series C Preferred Stock for
approximately $7,000, including accrued and unpaid dividends. See "Use of
Proceeds."

The Series A Preferred Stock redemption proceeds will be distributed to the
holders of Series A Preferred Stock, including approximately: $1.0 million to
Clanco Partners I, of which William J. O'Neill, Jr. is the managing partner;
$290,000 to Clanco FLP, of which Mr. O'Neill is a director of its general
partner; and $100,000 to the Dorothy K. O'Neill Revocable Trust, of which Mr.
O'Neill is also a co-trustee. The Series B Preferred Stock redemption proceeds
will be distributed to certain holders of Series B Preferred Stock, including
approximately $320,000 to Clanco FLP.

Following the Preferred Stock Redemption, the Company will exchange all
shares of Series B and Series C Preferred Stock of which each of Messrs.
Harbert, Weinberg and Krantz is the legal and beneficial owner for an equal
number of shares of Series D Preferred Stock. Immediately prior to the Preferred
Stock Redemption, Mr. Weinberg will purchase certain shares of Series C
Preferred Stock from other stockholders so that, following the exchange
described in the preceding sentence, he will own the same amount of shares of
Series D Preferred Stock as Mr. Harbert. Upon the closing of the Offering,
Messrs. Harbert, Weinberg and Krantz will own all of the outstanding shares of
Series D Preferred Stock and there will be no shares of Series A, Series B or
Series C Preferred Stock outstanding. See "Principal and Selling Stockholders"
and "Description of Capital Stock -- Preferred Stock."

55
<PAGE> 56

All shares of Series A, Series B and Series C Preferred Stock redeemed or
exchanged in the Preferred Stock Redemption will be cancelled and permanently
retired. For a description of the terms of the Series D Preferred Stock, see
"Description of Capital Stock -- Preferred Stock."

The Company will not implement the Preferred Stock Redemption or the
exchange of Series B and Series C Preferred Stock for Series D Preferred Stock
unless the Offering is consummated.

Partial June 1995 Note Repayment. On June 30, 1995, Mr. Harbert and Mr.
Weinberg, along with others, issued notes to the Company to repay certain
indebtedness incurred by them with respect to the acquisition of Helsel (the
"June 1995 Notes"). Each of Mr. Harbert's and Mr. Weinberg's note has
outstanding principal in the amount of $802,000. The June 1995 Notes are due and
payable on July 1, 2002 and bore interest at the prime rate plus 1.25% per annum
through September 30, 1996, and at the prime rate thereafter. The Company
expects that each of Mr. Harbert and Mr. Weinberg will use a portion of the
proceeds they receive as Selling Stockholders to repay $302,000 in principal on
the June 1995 Notes, reducing the outstanding principal balance on their
respective notes to $500,000. Any shares sold by Mr. Harbert or Mr. Weinberg
will be sold only if the Underwriters exercise their over-allotment option. See
"Stockholder Notes."

HAWK CONTROLLING STOCKHOLDER MERGER

In November 1996, concurrently with the closing of the offering of the
Senior Notes, the Company completed the merger of Hawk Holding Corp., a Delaware
corporation and a principal stockholder of the Company ("Hawk Holding"), with
and into the Company in a tax-free reorganization under Section 368(a)(1)(A) of
the Code (the "Hawk Controlling Stockholder Merger"). Hawk Holding had no
material assets other than the capital stock of the Company. Prior to the
merger, Hawk Holding owned 33.9% of the outstanding shares of Class A Common
Stock of the Company and 1,250 shares of the Series A Preferred Stock with a
liquidation value of $1.25 million, plus accrued and unpaid dividends. Hawk
Holding's only liabilities were its debts to the Company and Hawk Holding's
stockholders in the aggregate amount of approximately $870,000. As a result of
the merger, the Series A Preferred Stock owned by Hawk Holding was cancelled,
and the Company issued its Series C Preferred Stock in the aggregate amount of
approximately $1.19 million ($1.25 million less $61,000), which was equal to the
liquidation value of the Series A Preferred Stock owned by Hawk Holding less
$61,000 of indebtedness of Hawk Holding to the Company, which was cancelled in
the merger. In the merger, the Company also cancelled the shares of Class A
Common Stock of the Company owned by Hawk Holding and then reissued the same
amount of shares of Class A Common Stock pro rata to the Hawk Holding
stockholders. The common stockholders of Hawk Holding included: Norman C.
Harbert, Chairman of the Board, President, Chief Executive Officer and a
Director and stockholder of the Company who owned 44.2% of Hawk Holding; Ronald
E. Weinberg, Vice-Chairman of the Board, Treasurer and a Director and
stockholder of the Company who owned 42.1%; Byron S. Krantz, Secretary and a
Director and stockholder of the Company who owned 9.7%; Thomas A. Gilbride, Vice
President - Finance and a stockholder of the Company who owned 1.9%; and Dan T.
Moore, III, a Director of the Company, Douglas D. Wilson, Executive Vice
President and a stockholder of the Company, and Clanco Partners I, each of whom
owned less than 1.0%. William J. O'Neill, Jr., a Director and a stockholder of
the Company, is the managing partner of Clanco Partners I.

Hawk Holding's liabilities included $61,000 of indebtedness to the Company
under a note that bore interest at the prime rate and was due on demand, and
approximately $809,000 of indebtedness to certain of its stockholders under a
note that bore interest at the prime rate plus 1.75% per annum and was due March
14, 1994. Upon the effectiveness of the Hawk Controlling Stockholder Merger, the
$61,000 indebtedness of Hawk Holding to the Company was cancelled. Of the
$809,000 aggregate principal amount of indebtedness to stockholders,
approximately $364,000 was owed to Mr. Harbert for his portion of the note,
$347,000 was owed to Mr. Weinberg for his portion and $81,000 was owed to Mr.
Krantz for his portion. Upon the effectiveness of the Hawk Controlling
Stockholder Merger, the $809,000 aggregate principal amount of indebtedness was
converted into Series C Preferred Stock with

56
<PAGE> 57

a liquidation value of $809,000, and the Company issued Series C Preferred Stock
with a liquidation value of $380,000 pro rata to the Hawk Holding stockholders.

THE 1995 HELSEL TRANSACTION

In June 1995, Helsel became a wholly-owned subsidiary of the Company.
Helsel was acquired in June 1994 by a control group of Company stockholders led
by Messrs. Harbert and Weinberg. Helsel was operated by the control group of
Company stockholders from the date of the 1994 acquisition until its merger in
June 1995 with a subsidiary of the Company. Pursuant to the terms of that
merger, each outstanding share of common stock of Helsel was converted into
shares of Class A Common Stock of the Company at an exchange ratio based on an
independent valuation. Each outstanding share of the preferred stock of Helsel
was surrendered in exchange for one fully paid share of Series B Preferred Stock
of the Company. The terms of the Series B Preferred Stock of the Company are
identical in all material respects to the terms of the Helsel preferred stock.
At the time of the merger, the following directors and executive officers of the
Company became the beneficial owners of the number of shares of Class A Common
Stock (as adjusted for the stock split) and Series B Preferred Stock set forth
opposite their names:

<TABLE>
<CAPTION>
SHARES SHARES
OF CLASS A OF SERIES B
NAME OF STOCKHOLDER COMMON STOCK PREFERRED STOCK
------------------- ------------ ---------------
<S> <C> <C>
William J. O'Neill, Jr.*................................ 7,116 315
Norman C. Harbert....................................... 5,313 158
Ronald E. Weinberg...................................... 5,313 158
Jeffrey H. Berlin....................................... 2,532 13
Byron S. Krantz......................................... 1,179 35
Douglas D. Wilson....................................... 123 3
Thomas A. Gilbride...................................... 78 1
Paul R. Bishop.......................................... 55 --
Jess F. Helsel.......................................... 55 --
</TABLE>

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

* Includes 7,061 shares of Class A Common Stock issued to a
predecessor-in-interest of Clanco Partners I and 315 shares of Series B
Preferred Stock owned by Clanco FLP, of which Mr. O'Neill is a director of its
general partner.

In connection with its acquisition of Helsel's assets from Helco, Inc.
("Helco"), the Company issued a secured promissory note in the original
principal amount of $500,000 to Helco, which note is due August 1, 1999. Jess F.
Helsel, the President of Helsel, is a director, officer and stockholder of
Helco. The note bears interest at the rate of prime plus 1% per annum (currently
9.5%), is payable in four equal annual principal installments of $125,000 and
quarterly installments of interest accrued on the outstanding principal balance
(currently $250,000), and is secured by a security interest in Helsel's assets
and certain guaranties made by the Company, Mr. Harbert and Mr. Weinberg.

On July 1, 1994, the Company issued 9% subordinated notes to the investment
group formed to acquire Helsel, Inc. in the aggregate principal amount of
$200,000. One such note, in the original principal amount of $90,000, was issued
to the William J. O'Neill, Sr. Irrevocable Trust A, of which Mr. O'Neill is a
co-trustee. All of these notes were repaid in full in June 1995.

STOCKHOLDER NOTES

Certain stockholders of the Company issued June 1995 Notes as follows: by
Mr. Harbert in the original principal amount of approximately $802,000; by Mr.
Weinberg in the original principal amount of approximately $802,000; and by Mr.
Krantz in the original principal amount of approximately $60,000. The June 1995
Notes remain outstanding. The Company expects that Mr. Harbert and Mr. Weinberg
will

57
<PAGE> 58

use a portion of any proceeds they receive as Selling Stockholders to prepay in
part their June 1995 Notes. See "Transactions Concurrent with the Offering."

In addition, Mr. Wilson and Clanco Partners I each issued a note to the
Company on June 30, 1995 with the same terms as the June 1995 Notes. The
original principal amount of each such note was $162,500. Mr. Wilson repaid his
note to the Company in full in February 1997, and Clanco Partners I repaid its
note to the Company in full in August 1996.

OTHER TRANSACTIONS

The Company is a party to an expense sharing arrangement under which the
Company shares certain expenses of its Cleveland, Ohio headquarters with
Weinberg Capital Corporation, of which Mr. Weinberg is President and sole
shareholder. Pursuant to a formula based on full-time equivalent personnel, the
Company pays approximately 54% of the overhead costs of the headquarters,
including, without limitation, rent, utilities and copying, telephone and other
expenses. The aggregate amount of the payments by the Company for the shared
headquarters was approximately $241,000 in 1997, $128,000 in 1996 and $130,000
in 1995.

The Company purchases raw materials from a corporation of which Dan T.
Moore, III is an officer and a principal shareholder. Mr. Moore is a Director of
the Company. The Company paid approximately $1,143,000 for such raw materials in
1997 and $901,000 in 1996.

Byron S. Krantz, a Director and the Secretary of the Company, is a partner
of the law firm of Kohrman Jackson & Krantz P.L.L., which provides legal
services to the Company. The Company paid legal fees to Kohrman Jackson & Krantz
P.L.L. in 1997 of $413,000 and in 1996 of $469,000 for services in connection
with a variety of matters, including the acquisitions of Hutchinson and
Sinterloy, the registration, sale and exchange of the Senior Notes and the Hawk
Controlling Stockholder Merger.

The Company believes that the terms of the transactions and the agreements
described above are at least as favorable as those which it could otherwise have
obtained from unrelated parties. On-going and future transactions with related
parties will be: (1) on terms at least as favorable as those that the Company
would be able to obtain from unrelated parties; (2) for bona fide business
purposes; and (3) approved by a majority of the disinterested and non-employee
directors.

DESCRIPTION OF CAPITAL STOCK

At the time of the Offering, the authorized capital stock of the Company
consists of (1) 75,000,000 authorized shares of Class A Common Stock, $.01 par
value per share, 9,187,750 shares of which will be outstanding upon consummation
of the Offering, (2) 10,000,000 authorized shares of Class B Common Stock, none
of which will be outstanding upon consummation of the Offering, and (3) 500,000
authorized shares of Serial Preferred Stock, $.01 par value per share
("Preferred Stock"), of which no shares of Series A, Series B or Series C
Preferred Stock and 1,530 shares of Series D Preferred Stock will be outstanding
upon consummation of the Offering and of which 100,000 shares of Series E
Preferred Stock, par value $.01 per share (the "Series E Preferred Stock"), will
be reserved for issuance under the terms of the Rights Agreement described
below. The foregoing description of the Company's capital stock assumes (1) the
sale by the Selling Stockholders of 1,635,000 shares of Class A Common Stock in
the Offering, including the exercise of warrants to purchase 1,023,793 shares of
Class B Common Stock (which will be automatically converted on a one-for-one
basis into shares of Class A Common Stock upon the sale by certain of the
Selling Stockholders in the Offering) and (2) the consummation of the Preferred
Stock Redemption. See "Use of Proceeds" and "Certain
Transactions -- Transactions Concurrent with the Offering." The following
summary description of the capital stock of the Company does not purport to be
complete and is qualified in its entirety by reference to the Second Amended and
Restated Certificate of Incorporation of the Company (the "Certificate") and to
the Amended and Restated By-laws of the Company (the "By-laws"), copies of which
are available as described under "Available Information."

58
<PAGE> 59

COMMON STOCK

The powers, preferences and rights of the Class A Common Stock, and the
qualifications, limitations and restrictions thereof, are in all respects
identical to those of the Class B Common Stock, except for voting and conversion
rights. The Class B Common Stock was issued to comply with certain regulatory
requirements imposed upon stockholders that are affiliates of insurance
institutions.

Each holder of Class A Common Stock is entitled to one vote per share owned
of record on the applicable record date on all matters presented to a vote of
the stockholders, including the election of certain directors. See
"Management -- Composition of Board of Directors" and "Preferred Stock." Except
as may otherwise be required by the Delaware General Corporation Law and the
Certificate, the holders of Class B Common Stock are not entitled to vote on any
matters to be voted on by the stockholders of the Company.

The Class B Common Stock is convertible into Class A Common Stock on a
one-for-one basis (1) automatically upon the closing of an underwritten public
offering pursuant to an effective registration statement under the Securities
Act, and (2) at the request of a third party transferee under certain
circumstances. In case of any merger or consolidation of the Company with any
other entity as a result of which the holders of Class A Common Stock are
entitled to receive cash, property, stock or other securities with respect to or
in exchange for their Class A Common Stock, or in case of any sale or conveyance
of all or substantially all of the assets of the Company, the holders of each
share of Class B Common Stock have the right thereafter to convert such share of
Class B Common Stock into the kind and amount of cash, property, stock or other
securities receivable upon such consolidation, merger, sale or conveyance by a
holder of one share of Class A Common Stock.

Subject to the rights of the holders of any outstanding Preferred Stock,
each holder of Common Stock is entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available therefor. Upon
liquidation or dissolution of the Company, each holder of Common Stock will be
entitled to share pro rata in any distribution of the Company's assets after the
payment of all debts and other liabilities, subject to the rights of the holders
of any outstanding Preferred Stock.

The holders of the Class A and Class B Common Stock have no preemptive
rights to purchase or subscribe for any stock or other securities and there are
no conversion rights (other than as stated herein) or redemption or sinking fund
provisions with respect to such stock.

All outstanding shares of Common Stock are, and when issued the shares of
Class A Common Stock offered hereby will be, fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors has the authority (without action by the
stockholders) to issue the authorized and unissued Preferred Stock in one or
more additional series, to designate the number of shares constituting any such
series, and to fix, by resolution, the preferences, rights, privileges,
restrictions and other rights thereof, including voting rights, liquidation
preferences, dividend rights and conversion and redemption rights of such
series. Under certain circumstances, the Company could issue this Preferred
Stock as a method of discouraging, delaying or preventing a change of control of
the Company. The Company does not currently intend to issue any additional
shares of Preferred Stock except as described in this Prospectus.

Concurrently with the closing of the Offering and pursuant to the Preferred
Stock Redemption, the Company will (1) redeem all of the outstanding shares of
Series A Preferred Stock, 351 of the 702 outstanding shares of Series B
Preferred Stock and seven of the 1,189 outstanding shares of Series C Preferred
Stock, and (2) exchange the remaining outstanding shares of Series B and Series
C Preferred Stock for an equal number of shares of Series D Preferred Stock. As
a result of the Preferred Stock Redemption, all redeemed or exchanged shares of
Series A, Series B and Series C Preferred Stock will be cancelled and
permanently retired. See "Certain Transactions -- Transactions Concurrent with
the Offering."

59
<PAGE> 60

The following is a description of the terms of the Series D Preferred
Stock:

- Dividends on the Series D Preferred Stock are cumulative and accrue at
the rate of 9.8% per annum, payable quarterly.

- The holders of the Series D Preferred Stock have the right to elect a
majority of the members of the Board of Directors and to vote separately
as a class on any proposal to effect a fundamental corporate change (such
as a merger, consolidation, recapitalization or sale of all or
substantially all of the assets of the Company) that is submitted to the
stockholders of the Company for a vote. The voting rights of the shares
of Series D Preferred Stock will terminate: (1) as to any of the Harbert,
Weinberg or Krantz family groups owning such shares on the date of
consummation of the Offering (each, a "Family Group") in the event that
such Family Group sells or otherwise ceases to control more than 50% of
the total number of shares of Class A Common Stock owned by it on the
date of consummation of the Offering, as adjusted; (2) as to all of such
shares upon the earlier to occur of (a) the date of death of the last to
die of Mr. Harbert, his son (Carl J. Harbert, II), Mr. Weinberg or his
son (Ronald E. Weinberg, Jr.) or (b) the date that both the Harbert and
Weinberg Family Groups sell or cease to control more than 50% of the
total number of shares of Class A Common Stock owned by them on the date
of consummation of the Offering, as adjusted; and (3) as to any of the
Family Groups in the event of the breach by such Family Group of the
restrictions on transfer of the Series D Preferred Stock described below.
See "Management -- Composition of Board of Directors" and "Anti-Takeover
Effects of the Company's Governing Documents."

- Shares of Series D Preferred Stock may only be sold or transferred
between any of the Family Groups or any of the members of such Family
Groups. Any Family Group that sells or transfers shares in violation of
such transfer restrictions and any transferee receiving such shares will
not be entitled to vote its shares of Series D Preferred Stock.

- The Company may, either (1) with the consent of all holders of the Series
D Preferred Stock for as long as they have the voting rights described
above, or (2) without the consent of such holders following the
termination of such voting rights, redeem all of the outstanding shares
of Series D Preferred Stock, provided the Company is not in default in
the payment of any dividends on such series of Preferred Stock then
outstanding, for $1,000 per share plus all accrued and unpaid dividends
to the date of redemption.

- Each share of Series D Preferred Stock is entitled to a liquidation
preference equal to $1,000 per share plus any accrued and unpaid
dividends thereon after payment of all debts and other liabilities of the
Company and before any payment or distribution is made on the Common
Stock (or any other subordinate class or series of stock of the Company).
The holders of the Series D Preferred Stock have no preemptive rights to
purchase or subscribe for any stock or other securities and there are no
conversion rights or sinking fund provisions with respect to such stock.
The Series D Preferred Stock is not listed or quoted on any stock
exchange or market.

In addition, the Board of Directors has authorized the issuance of up to
100,000 shares of Series E Preferred Stock in connection with the Rights
Agreement. For a description of the Rights Agreement and the terms of the Series
E Preferred Stock, see "Rights Agreement."

SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW

Generally, Section 203 of the Delaware General Corporation Law prohibits a
publicly-held Delaware corporation from engaging in a broad range of "business
combinations" with an "interested stockholder" (defined generally as a person
owning 15% of more of a corporation's outstanding voting stock) for three years
following the date such person became an interested stockholder unless: (1)
before the person becomes an interested stockholder, the board of directors of
the corporation approves either the transaction resulting in such person
becoming an interested stockholder or the business combination; (2) upon
consummation of the transaction that resulted in the person becoming an
interested stockholder, the interested stockholder owns 85% or more of the
outstanding voting stock

60
<PAGE> 61

of the corporation (excluding shares owned by directors who are also officers of
the corporation or shares held by employee stock plans that do not provide
employees with the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer); or (3) following
the date on which such person became an interested stockholder, the business
combination is approved by the board of directors of the corporation and
authorized at an annual or special meeting of the stockholders, and not by
written consent, by the affirmative vote of at least two-thirds of the
corporation's outstanding voting stock, excluding shares owned by the interested
stockholder. In the Certificate, the Company has opted to be governed by the
foregoing provisions of Section 203.

ANTI-TAKEOVER EFFECTS OF THE COMPANY'S GOVERNING DOCUMENTS

Certain provisions of the Certificate and By-laws of the Company may be
deemed to have an anti-takeover effect and may delay, discourage or prevent a
change of control of the Company. In addition to the ability of the Board of
Directors to issue Preferred Stock, these provisions include the following:

Vacancies on Board of Directors. The Certificate provides that, subject to
the terms of the Preferred Stock, only the Board of Directors may fill vacant
directorships. As a result, a stockholder interested in gaining control of the
Company will be precluded from removing incumbent directors and simultaneously
gaining control of the Board of Directors by filling the vacancies created by
such removal with its own nominees.

Special Meetings of Stockholders. The Certificate provides that special
meetings of stockholders of the Company may be called only by a majority of the
Board of Directors, the Chairman or Vice-Chairman of the Board or holders of at
least 25% of the shares of the Company entitled to vote. This provision will
make it more difficult for stockholders to take actions opposed by the Board of
Directors.

Elimination of Actions by Written Consent. The Certificate provides that
stockholder action can be taken only at an annual or special meeting of
stockholders and cannot be taken by written consent in lieu of a meeting.

Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The By-laws provide that stockholders seeking to bring business
before an annual or special meeting of stockholders, or to nominate candidates
for election as directors at an annual or special meeting of stockholders, must
give the Company not less than 60 days nor more than 90 days prior notice of
such intent; provided, however, that in the event that less than 70 days' notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, such stockholder must give the Company notice of its proposal or
nomination in compliance with the provisions of the By-laws no later than the
close of business on the tenth day following the notice of the meeting; and
provided further that in the event Rule 14a-8, as amended from time to time,
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
requires notice of a stockholders' proposal to be received by the Company more
than 90 days prior to the meeting, such longer notice period shall control.
These provisions may preclude some stockholders from bringing matters before the
stockholders at an annual or special meeting or from making nominations for
directors at an annual or special meeting.

None of the foregoing provisions may be amended or repealed except by an
affirmative vote of the holders of at least two-thirds of the outstanding shares
of voting stock of the Company.

RIGHTS AGREEMENT

Adoption of Rights Agreement. On November 13, 1997, the Board of Directors
declared a dividend of one preferred share purchase right (a "Right") for each
outstanding share of Common Stock. The dividend was paid to the stockholders of
record as of 5:00 P.M., Cleveland, Ohio time, on January 16, 1998 (the
"Effective Date"), and is payable with respect to Common Stock issued thereafter
until the Distribution Date (as defined below) and, in certain circumstances,
with respect to Common Stock issued after the Distribution Date. Except as set
forth below, each Right, when it becomes exercisable, entitles the registered
holder to purchase from the Company one one-thousandth of a

61
<PAGE> 62

share of Series E Preferred Stock (the "Preferred Shares") at a price of $70.00
per one one-thousandth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement, dated as of January 16, 1998 (the "Rights Agreement"), between the
Company and Continental Stock Transfer & Trust Company, as Rights Agent (the
"Rights Agent").

The following summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement
(a copy of which is available as described under "Available Information"),
including the definitions therein of certain terms used in the foregoing
description.

Issue of Right Certificates. The Rights are attached to all certificates
representing outstanding Common Stock, and no separate Right Certificates (as
defined below) have been distributed. The Rights will separate from the Common
Stock on the earliest to occur of (1) the first date of public announcement that
any person or entity, alone or together with its affiliates and associates (a
"Person"), other than those that are Exempt Persons (as defined below), has
acquired beneficial ownership of 15% or more of the outstanding Class A Common
Stock (other than pursuant to certain permitted offers), or (2) the close of
business on the tenth business day (or such later date as the Board of Directors
of the Company may determine) following the commencement of, or first public
announcement of an intention to commence, a tender or exchange offer the
consummation of which would result in any Person becoming an Acquiring Person
(as defined below), including, in the case of both clauses (1) and (2) above,
any such date which is after the date of the Rights Agreement and prior to the
issuance of the Rights (the earliest of such dates being called the
"Distribution Date"). Any Person whose acquisition of Common Stock causes a
Distribution Date pursuant to clause (1) above is an "Acquiring Person." The
first date of public announcement that a Person has become an Acquiring Person
is the "Shares Acquisition Date." For purposes of the Rights Agreement, the
definition of Acquiring Person excludes certain Persons (the "Exempt Persons"),
including Mr. Harbert, Mr. Weinberg and their respective affiliates and
associates.

The Rights Agreement provides that, until the Distribution Date, the Rights
will be transferred with and only with the Common Stock. Until the Distribution
Date (or earlier redemption, exchange, or expiration of the Rights), new Common
Stock certificates issued after the Effective Date upon transfer or new issuance
of Common Stock will contain a notation incorporating the Rights Agreement by
reference. Until the Distribution Date (or earlier redemption, exchange, or
expiration of the Rights), the surrender for transfer of any certificates for
Common Stock outstanding as of the Effective Date will also constitute the
transfer of the Rights associated with the Common Stock represented by such
certificate. As promptly as practicable following the Distribution Date,
separate certificates evidencing the Rights ("Right Certificates") will be
mailed to holders of record of the Common Stock as of the close of business on
the Distribution Date (and to each initial record holder of certain Common Stock
issued after the Distribution Date), and such separate Right Certificates alone
will evidence the Rights.

Exercise and Expiration of Rights. The Rights are not exercisable until
the Distribution Date and will expire at 5:00 P.M., Cleveland, Ohio time, on
January 16, 2008, unless earlier redeemed or exchanged by the Company as
described below. Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company, including, without limitation,
the right to vote or to receive dividends.

Flip-In Provision. In the event that any Person, other than those that are
Exempt Persons, becomes an Acquiring Person other than pursuant to certain
permitted offers, each holder of a Right will have (subject to the terms of the
Rights Agreement) the right to receive upon exercise the number of shares of
Common Stock, or, in the discretion of the Board of Directors, the number of one
one-thousandths of a Preferred Share (or, in certain circumstances, other
securities of the Company) determined in accordance with a formula based on the
then Purchase Price divided by 50% of the then current per share market price of
the Class A Common Stock (the "Flip-In Right"). Notwithstanding the

62
<PAGE> 63

foregoing, all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by any Acquiring Person or any
affiliate or associate thereof will be null and void.

Flip-Over Provision. In the event that, at any time following the Shares
Acquisition Date, (1) the Company is acquired in a merger or other business
combination transaction in which the holders of all of the outstanding Common
Stock immediately prior to the consummation of the transaction are not the
holders of all of the surviving corporation's voting power, or (2) more than 50%
of the Company's assets or earning power is sold or transferred, in either case
with or to an Acquiring Person or any affiliate or associate thereof, or any
other person in which such Acquiring Person, affiliate or associate has an
interest, or any Person acting on behalf of or in concert with such Acquiring
Person, affiliate or associate, or, if in such transaction all holders of Common
Stock are not treated alike, then each holder of a Right (except Rights which
previously have been voided as set forth above) shall thereafter have the right
(the "Flip-Over Right") to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of common stock of
the acquiring company or the Company, as the case may be, having a value
determined in accordance with a formula based on the then Purchase Price divided
by 50% of the then current per share market price of the common stock of such
acquiring company. The holder of a Right will continue to have the Flip-Over
Right whether or not such holder exercises or surrenders the Flip-In Right.

Adjustment of Purchase Price. The Purchase Price payable, and the number
of one one-thousandths of a Preferred Share or other securities issuable, upon
exercise of the Rights are subject to adjustment from time to time to prevent
dilution (1) in the event of a stock dividend on, or a subdivision, combination
or reclassification of, the Preferred Shares, (2) upon the grant to holders of
the Preferred Shares of certain rights or warrants to subscribe for or purchase
Preferred Shares at a price, or securities convertible into Preferred Shares
with a conversion price, less than the then current market price of the
Preferred Shares or (3) upon the distribution to holders of the Preferred Shares
of evidences of indebtedness or assets (excluding regular quarterly cash
dividends or a dividend payable in preferred shares) or of subscription rights
or warrants (other than "equivalent preferred shares," as defined in the Rights
Agreement). The Purchase Price is also subject to adjustment in the event of a
stock split of the Common Stock, or a stock dividend on the Common Stock payable
in Common Stock, or subdivisions, consolidations or combinations of the Common
Stock occurring, in any such case, prior to the Distribution Date.

Redemption of Rights. At any time prior to the earlier to occur of either
(1) a Person becoming an Acquiring Person or (2) the expiration of the Rights,
the Company may redeem the Rights in whole, but not in part, at a price of $.001
per Right (the "Redemption Price"), which redemption shall be effective upon the
action of the Board of Directors. The Company may at its option pay the
Redemption Price in cash or Common Stock. Additionally, the Company may redeem
the then outstanding Rights in whole, but not in part, at the Redemption Price
after a Shares Acquisition Date and before the expiration of any period during
which the Flip-Over Right may be exercised in connection with a merger or other
business combination transaction or series of transactions involving the Company
in which all holders of Common Stock are treated alike but not involving (other
than as a holder of Common Stock being treated like all other such holders) any
Person acting directly or indirectly on behalf of, or in concert with, any
Acquiring Person, or its affiliates or associates. The Board of Directors may
only redeem Rights if a majority of the Disinterested Directors (as defined in
the Rights Agreement) authorizes such redemption. Upon the effective date of the
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption Price.

Exchange of Rights. At any time after a Person becomes an Acquiring Person
but before such Acquiring Person, together with all affiliates and associates
thereof, becomes the "Beneficial Owner" (defined in the Rights Agreement) of 50%
or more of the Common Stock then outstanding, the Company may, at its option,
exchange all or part of the then outstanding and exercisable Rights (other than
those owned by the Acquiring Person, together with any affiliates and associates
of such Acquiring Person, which have become null and void) at an exchange ratio
of one share of Common Stock per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction involving
63
<PAGE> 64

either the Common Stock or the Preferred Shares occurring after the date of the
Rights Agreement (the "Exchange Ratio"). The Board of Directors may only
exchange Rights if a majority of the Disinterested Directors authorizes such
exchange. Immediately upon the action of the Board of Directors ordering the
exchange of any Rights and without any further action and without any notice,
the right to exercise such rights shall terminate and the only right thereafter
of a holder of such Rights shall be to receive that number of shares of Common
Stock equal to the number of such rights held by such holder multiplied by the
Exchange Ratio.

Amendment of Rights Agreement. Prior to the Distribution Date, the Company
may supplement or amend any provision of the Rights Agreement without the
approval of the holders of Common Stock. From and after the Distribution Date,
the Company generally may supplement or amend the Rights Agreement without the
approval of the holders of Right Certificates in order (1) to cure any
ambiguity, (2) to correct or supplement any provision which may be defective or
inconsistent with any other provisions, (3) to shorten or lengthen any time
period or (4) to change or supplement the provisions in any manner which the
Company may deem necessary or desirable and which shall not adversely affect the
interests of the holders of Right Certificates (other than an Acquiring Person
or an affiliate or associate of an Acquiring Person). The Company may not
supplement or amend any provision of the Rights Agreement unless a majority of
the Disinterested Directors authorizes such supplement or amendment.

Anti-Takeover Effects of Rights. The Rights have certain anti-takeover
effects. If triggered, the Rights would cause substantial dilution to an
Acquiring Person that acquires more than 15% of the Class A Common Stock on
terms not approved by a majority of the Disinterested Directors. The Rights
could discourage or make more difficult a merger, tender offer or similar
transaction. However, the Rights should not interfere with any merger or other
business combination approved by a majority of the Disinterested Directors prior
to the time an Acquiring Person becomes such, because until such time the Rights
may be redeemed by the Company.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Certificate provides that directors and officers shall be indemnified
against liabilities arising from their service as directors or officers to the
fullest extent permitted by law, including payment in advance of a final
disposition of a director's or officer's expenses and attorneys' fees incurred
in defending any action, suit or proceeding. Except in the case of an action,
suit or proceeding brought by or in the right of the Company against an officer
or director, a court must approve such indemnification if the officer or
director is adjudged liable. Presently, the Delaware General Corporation Law
provides that to be entitled to indemnification an individual must have acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
Company's best interests, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the person's conduct was
unlawful.

Delaware law permits a corporation to purchase and maintain insurance or
furnish similar protection on behalf of any officer or director against any
liability asserted against him and incurred by him in his capacity, or arising
out of the status, as an officer or director, whether or not the corporation
would have the power to indemnify him against such liability under the Delaware
General Corporation Law. The Company maintains a directors' and officers'
liability insurance policy.

At present, there is no pending litigation or proceeding involving a
director or officer of the Company as to which indemnification is being sought,
nor is the Company aware of any threatened litigation that may result in claims
for indemnification by any director or officer.

LIMITATION ON DIRECTOR LIABILITY

The Certificate also provides that, to the fullest extent permitted by the
Delaware General Corporation Law, a director of the Company shall not be liable
to the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director. This provision presently limits a director's liability
except where a director (1) breaches his or her duty of loyalty to the Company
or its stockholders,
64
<PAGE> 65

(2) fails to act in good faith or engages in intentional misconduct or a knowing
violation of law, (3) authorizes payment of an unlawful dividend or stock
repurchase or redemption or (4) obtains an improper personal benefit.

This provision is consistent with Section 102(b)(7) of the Delaware General
Corporation Law, which is designed, among other things, to encourage qualified
individuals to serve as directors of Delaware corporations. The Company believes
this provision will assist it in maintaining and securing the services of
qualified directors who are not employees of the Company. This provision has no
effect on the availability of non-monetary equitable remedies, such as
injunction or rescission. If equitable remedies are found not to be available to
stockholders for any particular case, stockholders may not have any effective
remedy against actions taken by directors that constitute negligence or gross
negligence.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Class A Common Stock is
Continental Stock Transfer & Trust Company, New York, New York.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, the Company will have 9,187,750 shares of
Class A Common Stock and no shares of Class B Common Stock outstanding. Of these
shares, 5,135,000 shares of Class A Common Stock sold in the Offering will be
freely tradeable without restriction (except as to affiliates of the Company) or
registration under the Securities Act. The remaining 4,052,750 outstanding
shares of Class A Common Stock held by existing stockholders of the Company will
be "restricted securities" within the meaning of Rule 144 under the Securities
Act ("Rule 144"). Of those shares, 48,554 shares held by non-affiliates of the
Company are available for immediate sale in the public market subject to the
limitations of Rule 144. All of the Company's directors, executive officers and
significant employees who held Class A Common Stock prior to the Offering and
certain of the Selling Stockholders have agreed that, subject to certain limited
exceptions (which permit certain sales in compliance with Rule 144), for a
period of 180 days after the date of this Prospectus they will not, without the
prior written consent of Schroder & Co. Inc., offer, sell or otherwise dispose
of any shares of Class A Common Stock. Given these contractual restrictions,
beginning 180 days after the date of this Prospectus, 4,004,196 of such shares
would be available for immediate sale in the public market subject to the
limitations of Rule 144. In addition, a substantial number of shares of Class A
Common Stock issuable upon exercise of options granted pursuant to the 1997 Plan
will become eligible for future sale in the public market at prescribed times.
See "Management -- Stock Option Plan."

In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted shares from the Company
or any "affiliate" of the Company, as that term is defined under the Securities
Act, the acquiror or subsequent holder is entitled to sell within any three-
month period a number of shares that does not exceed the greater of 1% of the
then outstanding shares of the Company's Class A Common Stock (approximately
91,878 shares immediately after the Offering) or the average weekly trading
volume of the Class A Common Stock on the New York Stock Exchange during the
four calendar weeks preceding the date on which notice of the sale is filed with
the Securities and Exchange Commission, Washington, D.C. (the "Commission").
Sales under Rule 144 are also subject to certain manner of sales provisions,
notice requirements and the availability of current public information about the
Company. If two years have elapsed since the later of the date of acquisition of
restricted shares from the Company or from any affiliate of the Company, and the
acquiror or subsequent holder thereof is deemed not to have been an affiliate of
the Company at any time during the 90 days preceding a sale, such person would
be entitled to sell such shares in the public market under Rule 144 without
regard to the volume limitations, manner of sale provisions, public information
requirements or notice requirements.

The Company intends to file a registration statement on Form S-8 under the
Securities Act to register an aggregate of 700,000 shares of Class A Common
Stock reserved for issuance under the
65
<PAGE> 66

1997 Plan. The registration statement is expected to be filed and to become
effective within 180 days following the date of this Prospectus. Shares of
Common Stock issued upon exercise of options granted under the 1997 Plan after
the effective date of such registration statement will be eligible for sale in
the public market subject to the contractual restrictions described above and,
in the case of options exercised by affiliates, the Rule 144 volume limitations
applicable to affiliates.

Since there has been no public market for shares of Class A Common Stock of
the Company, the Company is unable to predict the effect, if any, that sales
made under Rule 144, pursuant to future registration statements, or otherwise,
may have on any then prevailing market price of the Class A Common Stock.
Nevertheless, sales of a substantial amount of the Class A Common Stock in the
public market could adversely affect market prices, as well as the Company's
ability to raise additional capital through an offering of securities.

UNDERWRITING

The Underwriters named below have severally agreed, subject to certain
conditions, to purchase from the Company and the Selling Stockholders the
aggregate number of shares of Class A Common Stock set forth opposite their
respective names:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- ------------ ---------
<S> <C>
Schroder & Co. Inc. ........................................ 1,587,375
Lehman Brothers Inc......................................... 1,587,375
McDonald & Company Securities, Inc. ........................ 560,250
BT Alex. Brown Incorporated................................. 100,000
CIBC Oppenheimer Corp. ..................................... 100,000
A.G. Edwards & Sons, Inc. .................................. 100,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated.......... 100,000
Morgan Stanley & Co. Incorporated........................... 100,000
PaineWebber Incorporated.................................... 100,000
SBC Warburg Dillion Read Inc. .............................. 100,000
Robert W. Baird & Co. Incorporated.......................... 50,000
J.C. Bradford & Co. ........................................ 50,000
EVEREN Securities, Inc. .................................... 50,000
Fahnestock & Co. Inc. ...................................... 50,000
Janney Montgomery Scott Inc. ............................... 50,000
C.L. King & Associates, Inc. ............................... 50,000
Legg Mason Wood Walker, Incorporated........................ 50,000
NatCity Investments, Inc. .................................. 50,000
The Ohio Company............................................ 50,000
Dain Rauscher Wessels....................................... 50,000
The Robinson-Humphrey Company, LLC.......................... 50,000
Roney & Co. ................................................ 50,000
Sanders Morris Mundy Inc. .................................. 50,000
Wit Capital Corporation..................................... 50,000
---------
Total............................................. 5,135,000
=========
</TABLE>

The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the 5,135,000 shares of Class A Common Stock offered hereby, if
any are purchased. The Representatives have advised the Company and the Selling
Stockholders that the Underwriters propose to offer the shares to the public
initially at the public offering price set forth on the cover page of this
Prospectus; that the Underwriters propose initially to offer a concession not in
excess of $0.70 per share to certain dealers, including the Underwriters; that
the Underwriters and such dealers may initially allow a discount not in excess
of $0.10 per share to other dealers; and that the public offering price and the
concession and discount to dealers may be changed by the Representatives after
the commencement of the Offering.

66
<PAGE> 67

Certain of the Selling Stockholders have granted to the Underwriters
options expiring at the close of business on the 30th day after the date of the
Underwriting Agreement, to purchase up to an aggregate of 770,250 additional
shares of Class A Common Stock, at the public offering price less underwriting
discounts and commissions, all as set forth on the cover page of this
Prospectus. The Underwriters may exercise the options only to cover
over-allotments, if any. To the extent that the Underwriters exercise these
options, each Underwriter will be committed, subject to certain conditions, to
purchase a number of the additional shares proportionate to such Underwriter's
initial commitment.

The Company, the Selling Stockholders and the Underwriters have agreed to
indemnify each other against liabilities, including liabilities under the
Securities Act.

The Company and all its directors, executive officers and significant
employees who held Class A Common Stock prior to the Offering and certain of the
Selling Stockholders have agreed, subject to certain limited exceptions (which
permit certain sales in compliance with Rule 144), not to offer to sell, grant
any option to purchase or otherwise dispose of any shares of Class A Common
Stock held by them for a period of 180 days after the date of this Prospectus,
without the prior written consent of Schroder & Co. Inc. See "Shares Eligible
for Future Sale."

At the request of the Company, the Underwriters have reserved up to 50,000
shares of Class A Common Stock for sale at the public offering price to certain
directors, officers and employees of the Company, their business affiliates and
related parties who have expressed an interest in purchasing shares. Such
purchases will be made under the same terms and conditions as will be offered by
the Underwriters in the Offering.

The Class A Common Stock has been approved for listing on the New York
Stock Exchange under the symbol HWK. The Underwriters have advised the New York
Stock Exchange that the minimum distribution, issuance and aggregate market
value requirements for listing on the New York Stock Exchange will be achieved
in the Offering.

The Representatives have advised the Company that, pursuant to Regulation M
under the Exchange Act, certain persons participating in the Offering may engage
in transactions, including over-allotments, stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of the Class A Common Stock at a
level above that which might otherwise prevail in the open market. An
"over-allotment" refers to the Underwriters' sale of more shares of Class A
Common Stock than they are required to purchase from the Company and the Selling
Stockholders in the Offering, thereby creating a short position in the Class A
Common Stock for the account of the Underwriters. A "stabilizing bid" is a bid
for or the purchase of Common Stock on behalf of the Underwriters for the
purpose of fixing or maintaining the market price of the Class A Common Stock. A
"syndicate covering transaction" is a bid for or the purchase of Class A Common
Stock on behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the Offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the Offering
if the shares of Class A Common Stock originally sold by such Underwriter or
syndicate member are purchased by the Representatives in a syndicate covering
transaction and therefore have not been effectively placed by such Underwriter
or syndicate member. The Representatives have advised the Company that such
transactions may be effected on the New York Stock Exchange or otherwise and, if
commenced, may be discontinued at any time.

Prior to the Offering, there has been no public market for the Class A
Common Stock. The public offering price will be negotiated between the Company
and the Representatives. Among the factors to be considered in determining the
public offering price, in addition to prevailing market conditions, will be the
Company's historical performance, estimates of the business potential and
earnings prospects of the Company, an assessment of the Company's management and
the consideration of the above factors in relation to market valuation of
companies in related business.

67
<PAGE> 68

Schroder & Co. Inc. and McDonald & Co. Securities, Inc. acted as placement
agents for the Senior Notes and received customary compensation.

LEGAL MATTERS

Certain legal matters with respect to the Class A Common Stock will be
passed upon for the Company by Kohrman Jackson & Krantz P.L.L., Cleveland, Ohio.
Byron S. Krantz, a partner in Kohrman Jackson & Krantz P.L.L., is the beneficial
owner of 270,972 shares of Class A Common Stock and 152 shares of Series D
Preferred Stock, has been granted an option to purchase 5,000 shares of Class A
Common Stock pursuant to the 1997 Plan and is the Secretary and a Director of
the Company. Marc C. Krantz, a son of Byron S. Krantz and a partner in Kohrman
Jackson & Krantz P.L.L., is the Assistant Secretary of the Company. The Company
paid legal fees to Kohrman Jackson & Krantz P.L.L. in 1997 of $413,000 and in
1996 of $469,000 for services in connection with a variety of matters, including
the acquisitions of Hutchinson and Sinterloy, the registration, sale and
exchange of the Senior Notes and the Hawk Controlling Stockholder Merger.
Certain legal matters will be passed upon for the Underwriters by Arter & Hadden
LLP, Cleveland, Ohio.

EXPERTS

The consolidated financial statements of the Company and its subsidiaries
as of December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.

The consolidated financial statements of SKW and subsidiaries as of
December 31, 1994 and 1993, and for each of the two years in the period ended
December 31, 1994, and for the statements of operations and cash flows for the
six month period ended June 30, 1995, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.

The balance sheets of Houghton Acquisition Corporation d/b/a Hutchinson
Foundry Products Company as of December 31, 1996 and 1995 and the related
statements of income, stockholders' equity (deficit) and cash flows for the
years ended December 31, 1996, 1995 and 1994 included in this Prospectus have
been audited by Coopers & Lybrand L.L.P., independent accountants, as set forth
in their report thereon appearing elsewhere herein, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.

The financial statements of Sinterloy Inc. as of December 31, 1996 and
1995, and the related statements of income, stockholder's equity and cash flows
for the years then ended included in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.

AVAILABLE INFORMATION

The Company is currently subject to certain of the informational
requirements of the Exchange Act, and in accordance therewith and the terms of
the Senior Note Indenture, files reports, statements, and other information with
the Commission. Such reports, statements and other information filed by the
Company may be inspected and copied at the Commission's principal office at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and the Commission's
Regional Offices located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any part thereof may be obtained from the

68
<PAGE> 69

Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549 upon payment of fees prescribed by the Commission. In addition, the
Commission maintains a Web site at http://www.sec.gov containing reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission, including the Company.

The Company has filed with the Commission a Registration Statement on Form
S-1 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the
Offering. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and, in each
instance, reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference to such exhibit. For further information with
respect to the Company and the Offering, reference is made to the Registration
Statement, which may be inspected at the office of the Commission without charge
and copies of which may be obtained from and upon request of the Commission and
payment of the prescribed fee.

REPORTS TO HOLDERS OF CLASS A COMMON STOCK

The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent auditors and will
make available copies of quarterly reports for the first three quarters of each
fiscal year containing unaudited financial information.

69
<PAGE> 70

HAWK CORPORATION

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HAWK CORPORATION
Report of Independent Auditors.............................. F-3
Consolidated Balance Sheets as of December 31, 1996 and 1997
and March 31, 1998 (Unaudited)............................ F-4
Consolidated Statements of Operations for the years ended
December 31, 1995, 1996 and 1997 and for the three months
ended March 31, 1997 and 1998 (Unaudited)................. F-6
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended December 31, 1995, 1996 and 1997 and
for the three months ended March 31, 1998 (Unaudited)..... F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997 and for the three months
ended March 31, 1997 and 1998 (Unaudited)................. F-8
Notes to Consolidated Financial Statements.................. F-10

S.K. WELLMAN LIMITED, INC.
Report of Independent Auditors.............................. F-32
Consolidated Balance Sheets as of December 31, 1993 and
1994...................................................... F-33
Consolidated Statements of Operations for the years ended
December 31, 1993 and 1994 and the six months ended June
30, 1995.................................................. F-34
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1993 and 1994.................... F-35
Consolidated Statements of Cash Flows for the years ended
December 31, 1993 and 1994, and the six months ended June
30, 1995.................................................. F-36
Notes to Consolidated Financial Statements.................. F-37

HOUGHTON ACQUISITION CORPORATION D/B/A HUTCHINSON FOUNDRY
PRODUCTS COMPANY
Report of Independent Accountants........................... F-44
Balance Sheets as of December 31, 1995 and 1996............. F-45
Statements of Income for the years ended December 31, 1994,
1995 and 1996............................................. F-46
Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1994, 1995 and 1996.................... F-47
Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996....................................... F-48
Notes to Financial Statements............................... F-49

SINTERLOY, INC.
Report of Independent Auditors.............................. F-57
Balance Sheets as of December 31, 1995 and 1996 and June 30,
1997 (Unaudited).......................................... F-58
Statements of Income for the years ended December 31, 1995
and 1996 and six months ended June 30, 1997 (Unaudited)... F-59
Statements of Shareholder's Equity for the years ended
December 31, 1995 and 1996 and six months ended June 30,
1997 (Unaudited).......................................... F-60
Statements of Cash Flows for the years ended December 31,
1995 and 1996 and six months ended June 30, 1997
(Unaudited)............................................... F-61
Notes to Financial Statements............................... F-62
</TABLE>

F-1
<PAGE> 71

(This page intentionally left blank)
<PAGE> 72

REPORT OF INDEPENDENT AUDITORS

Board of Directors
Hawk Corporation

We have audited the accompanying consolidated balance sheets of Hawk
Corporation and subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of operations, shareholders' equity (deficit), and cash
flows for each of the three years in the period ended December 31, 1997. 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 generally accepted auditing
standards. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Hawk
Corporation and subsidiaries at December 31, 1997 and 1996 and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.

/s/ ERNST & YOUNG LLP
Cleveland, Ohio
March 20, 1998

F-3
<PAGE> 73

HAWK CORPORATION

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 25,774 $ 4,388 $ 6,592
Accounts receivable, less allowance of $182 in 1996,
$321 in 1997 and $382 in 1998..................... 16,783 25,746 30,092
Inventories:
Raw materials and work-in-process................. 16,707 17,362 17,962
Finished products................................. 4,157 4,721 4,169
-------- -------- --------
20,864 22,083 22,131
Deferred income taxes................................ 2,432 2,833 2,822
Other current assets................................. 935 1,375 1,721
-------- -------- --------
Total current assets......................... 66,788 56,425 63,358
PROPERTY, PLANT AND EQUIPMENT:
Land................................................. 1,080 1,218 1,199
Buildings and improvements........................... 7,615 10,877 10,875
Machinery and equipment.............................. 45,766 57,104 58,086
Furniture and fixtures............................... 1,611 2,326 2,524
Construction in progress............................. 2,825 1,914 4,207
-------- -------- --------
58,897 73,439 76,891
Less accumulated depreciation........................ 14,755 20,959 22,674
-------- -------- --------
Total property, plant and equipment.......... 44,142 52,480 54,217
OTHER ASSETS:
Intangible assets.................................... 39,939 56,539 55,775
Net assets held for sale............................. 3,604 3,604 3,604
Shareholder notes.................................... 1,838 1,675 1,673
Other................................................ 2,130 2,363 2,219
-------- -------- --------
Total other assets........................... 47,511 64,181 63,271
-------- -------- --------
TOTAL ASSETS........................................... $158,441 $173,086 $180,846
======== ======== ========
</TABLE>

F-4
<PAGE> 74

HAWK CORPORATION

CONSOLIDATED BALANCE SHEETS -- (CONTINUED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
MARCH 31, 1998
PRO FORMA
DETACHABLE STOCK
DECEMBER 31, WARRANTS AND
------------------- MARCH 31, SHAREHOLDERS'
1996 1997 1998 EQUITY(1)
-------- -------- ----------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable................................... $ 8,194 $ 10,369 $ 14,085
Short term borrowings.............................. 1,744 1,775
Accrued compensation............................... 6,775 8,069 5,556
Other accrued expenses............................. 2,405 5,494 10,043
Current portion of long-term debt.................. 714 1,955 1,399
-------- -------- --------
Total current liabilities................... 18,088 27,631 32,858
LONG-TERM LIABILITIES:
Long-term debt..................................... 128,469 130,193 129,776
Deferred income taxes.............................. 4,090 6,322 6,302
Other.............................................. 2,004 1,811 1,806
-------- -------- --------
Total long-term liabilities................. 134,563 138,326 137,884
DETACHABLE STOCK WARRANTS, SUBJECT TO PUT OPTION..... 4,600 9,300 9,300
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred Stock.................................... 1 1 1
Series D preferred stock, $.01 par value and an
aggregate liquidation value of $1,530, plus any
accrued and unpaid dividends with 9.8% cumulative
dividend (1,530 shares authorized, issued and
outstanding)..................................... $ 1
Class A common stock, $.01 par value;
75,000,000 shares authorized, 4,663,957 issued
and outstanding.................................. 14 14 47 47
Class B common stock, $.01 par value, 10,000,000
shares authorized, none issued or outstanding.... 10
Additional paid-in capital......................... 1,964 1,964 1,931 176
Retained earnings (deficit)........................ (974) (3,120) 113 6,601
Accumulated other comprehensive income............. 185 (1,030) (1,288) (1,288)
-------- -------- -------- -------
Total shareholders' equity (deficit)........ 1,190 (2,171) 804 $ 5,552
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT).......................................... $158,441 $173,086 $180,846
======== ======== ========
</TABLE>

(1) The Unaudited Pro Forma Detachable Stock Warrants and Shareholders' Equity
above gives effect to the exchange of the detachable stock warrants, subject
to put option, for 1,023,793 shares of Class B Common Stock; and the
redemption of all 1,375 outstanding shares of Series A Preferred Stock, 351
of the outstanding shares of Series B Preferred Stock and seven of the
outstanding shares of Series C Preferred Stock, together with accrued and
unpaid dividends thereon.

See notes to consolidated financial statements.
F-5
<PAGE> 75

HAWK CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................. $ 84,643 $ 123,997 $ 159,086 $ 36,884 $ 49,978
Cost of sales............................. 61,164 91,884 113,650 26,368 33,787
--------- --------- --------- --------- ---------
Gross profit.............................. 23,479 32,113 45,436 10,516 16,191
Expenses:
Selling, technical and administrative
expenses............................. 11,575 15,468 19,375 4,554 5,703
Amortization of intangibles............. 1,924 2,806 3,938 829 899
Plant consolidation expense............. 4,028 50
--------- --------- --------- --------- ---------
Total expenses............................ 13,499 22,302 23,363 5,383 6,602
Income from operations.................... 9,980 9,811 22,073 5,133 9,589
Interest expense.......................... 7,323 11,270 15,307 3,679 3,824
Expenses from canceled public offering.... 889
Other (income) expense, net............... (130) (366) (676) (250) 4
--------- --------- --------- --------- ---------
Income (loss) before income taxes,
minority interest and extraordinary
item.................................... 2,787 (1,093) 6,553 1,704 5,761
Income taxes.............................. 1,593 789 3,679 806 2,448
Minority interest......................... 432
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item... 762 (1,882) 2,874 898 3,313
Extraordinary item -- write-off of
deferred financing costs, net of $798
income taxes............................ (1,196)
---------
Net income (loss)......................... $ 762 $ (3,078) $ 2,874 $ 898 $ 3,313
========= ========= ========= ========= =========
Earnings (loss) per share:
Basic:
Earnings (loss) before extraordinary
charge............................. $ .11 $ (.45) $ .55 $ .18 $ .69
Extraordinary charge................. (.26)
--------- --------- --------- --------- ---------
Basic earnings (loss) per share......... $ .11 $ (.71) $ .55 $ .18 $ .69
========= ========= ========= ========= =========
Diluted:
Earnings (loss) before extraordinary
charge............................. .09 (.45) .45 .14 .57
Extraordinary charge................. (.26)
--------- --------- --------- --------- ---------
Diluted earnings (loss) per share....... $ .09 $ (.71) $ .45 $ .14 $ .57
========= ========= ========= ========= =========
</TABLE>

See notes to consolidated financial statements.
F-6
<PAGE> 76

HAWK CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED COMMON COMMON COMMON
PREFERRED PREFERRED STOCK STOCK STOCK STOCK ADDITIONAL
STOCK STOCK $.01 PAR NO PAR $3 PAR $.01 PAR PAID-IN
10% 9% VALUE VALUE VALUE VALUE CAPITAL
--------- --------- --------- ------ ------ -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995................... $ 2,625 $ 370 $ 377 $ 158
Comprehensive income
Net income................................
Other comprehensive income................
Minimum pension liability...............
Foreign currency translation............
Total comprehensive income..................
Merger of Helsel and Hawk................... (2,625) (370) 1 (377) (158) 14 8,724
Preferred stock dividend....................
Purchase of warrants........................ (7,000)
------- ----- ---- ----- ----- ---- -------
Balance at December 31, 1995................. 1 14 1,724
Comprehensive income (loss)
Net loss..................................
Other comprehensive income................
Minimum pension liability...............
Foreign currency translation............
Total comprehensive income (loss)...........
Merger of Hawk Holding Corp. and Hawk....... 240
Preferred stock dividend....................
------- ----- ---- ----- ----- ---- -------
Balance at December 31, 1996................. 1 14 1,964
Comprehensive income
Net income................................
Other comprehensive income................
Minimum pension liability...............
Foreign currency translation............
Total comprehensive income..................
Preferred stock dividend....................
Adjustment to carrying value of detachable
warrant...................................
------- ----- ---- ----- ----- ---- -------
Balance at December 31, 1997................. 1 14 1,964
Comprehensive income (unaudited)
Net income (unaudited)....................
Other comprehensive income................
Foreign currency translation
(unaudited)...........................
Total comprehensive income (unaudited)......
Stock split (unaudited)..................... 33 (33)
Preferred stock dividend (unaudited)........
------- ----- ---- ----- ----- ---- -------
Balance at March 31, 1998 (unaudited)........ $ $ $ 1 $ $ $ 47 $ 1,931
======= ===== ==== ===== ===== ==== =======

<CAPTION>
ACCUMULATED
RETAINED OTHER
EARNINGS COMPREHENSIVE
(DEFICIT) INCOME TOTAL
--------- ------------- -------
<S> <C> <C> <C>
Balance at January 1, 1995................... $ 2,368 $ 5,898
Comprehensive income
Net income................................ 762 762
Other comprehensive income................
Minimum pension liability............... (328) (328)
Foreign currency translation............ 207 207
-------
Total comprehensive income.................. 641
Merger of Helsel and Hawk................... (474) 4,735
Preferred stock dividend.................... (326) (326)
Purchase of warrants........................ (7,000)
------- ------- -------
Balance at December 31, 1995................. 2,330 (121) 3,948
Comprehensive income (loss)
Net loss.................................. (3,078) (3,078)
Other comprehensive income................
Minimum pension liability............... (9) (9)
Foreign currency translation............ 315 315
-------
Total comprehensive income (loss)........... (2,772)
Merger of Hawk Holding Corp. and Hawk....... 240
Preferred stock dividend.................... (226) (226)
------- ------- -------
Balance at December 31, 1996................. (974) 185 1,190
Comprehensive income
Net income................................ 2,874 2,874
Other comprehensive income................
Minimum pension liability............... 337 337
Foreign currency translation............ (1,552) (1,552)
-------
Total comprehensive income.................. 1,659
Preferred stock dividend.................... (320) (320)
Adjustment to carrying value of detachable
warrant................................... (4,700) (4,700)
------- ------- -------
Balance at December 31, 1997................. (3,120) (1,030) (2,171)
Comprehensive income (unaudited)
Net income (unaudited).................... 3,313 3,313
Other comprehensive income................
Foreign currency translation
(unaudited)........................... (258) (258)
-------
Total comprehensive income (unaudited)...... 3,055
Stock split (unaudited).....................
Preferred stock dividend (unaudited)........ (80) (80)
------- ------- -------
Balance at March 31, 1998 (unaudited)........ $ 113 $(1,288) $ 804
======= ======= =======
</TABLE>

See notes to consolidated financial statements.

F-7
<PAGE> 77

HAWK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ------------------
1995 1996 1997 1997 1998
-------- --------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................... $ 762 $ (3,078) $ 2,874 $ 898 $ 3,313
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization............. 5,527 8,418 10,497 2,427 2,638
Accretion of discount on debt............. 325 650 650 163 163
Deferred income taxes..................... 377 352 1,666
Minority interest......................... 432
Extraordinary item, net of tax............ 1,196
Changes in operating assets and liabilities,
net of acquired assets:
Accounts receivable....................... (53) 524 (6,947) (5,097) (4,555)
Inventories............................... (1,398) (759) (963) (1,871) (154)
Other assets.............................. 1,115 4 (621) (953) (367)
Accounts payable.......................... 196 (294) 1,971 859 3,800
Other liabilities......................... 430 (1,147) 4,862 44 2,101
-------- --------- -------- -------- -------
Net cash provided by (used in) operating
activities................................ 7,713 5,866 13,989 (3,530) 6,939
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of S.K. Wellman Limited, Inc., net
of cash acquired.......................... (61,607)
Purchase of Hutchinson Foundry Products
Company................................... (10,639) (10,368)
Purchase of Sinterloy, Inc.................. (16,419)
Purchases of property, plant and
equipment................................. (3,781) (8,275) (8,337) (1,194) (3,658)
Loans to shareholders....................... (2,000)
Payments received on shareholder notes...... 162 163 63 2
-------- --------- -------- -------- -------
Net cash used in investing activities....... (67,388) (8,113) (35,232) (11,499) (3,656)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on short-term
debt...................................... 1,744 87
Proceeds from borrowings on long-term
debt...................................... 102,000 181,373 1,224
Payments on long-term debt.................. (30,726) (149,765) (2,226) (325) (1,086)
Net borrowings (payments) under revolving
credit lines.............................. (1,280)
Purchase of warrants........................ (7,000)
Deferred financing costs.................... (2,799) (4,678) (565) 227
Payments of preferred stock dividends....... (326) (226) (320) (80) (80)
Other....................................... (121) 546 68
-------- --------- -------- -------- -------
Net cash provided by (used in) financing
activities................................ 59,748 27,250 (143) (110) (1,079)
-------- --------- -------- -------- -------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................. 73 25,003 (21,386) (15,139) 2,204
CASH AND CASH EQUIVALENTS BEGINNING OF
PERIOD...................................... 698 771 25,774 25,744 4,388
-------- --------- -------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.... $ 771 $ 25,774 $ 4,388 $ 10,635 $ 6,592
======== ========= ======== ======== =======
</TABLE>

See notes to consolidated financial statements.

F-8
<PAGE> 78

HAWK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS -- CONTINUED

(DOLLARS IN THOUSANDS)

SUPPLEMENTAL CASH FLOW INFORMATION

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- --------------
1995 1996 1997 1997 1998
------- ------- ------- ------ ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash payments for interest............. $ 6,260 $11,024 $14,265 $1,040 $992
======= ======= ======= ====== ====
Cash payments for income taxes......... $ 1,929 $ 1,153 $ 2,187 $100
======= ======= ======= ====
Noncash investing and financing
activities:
Equipment purchased with capital
leases............................ $ 2,019 $ 1,306
======= =======
Acquisition of Helsel minority
interest through issuance of
stock............................. $ 4,735
=======
</TABLE>

Reconciliation of assets acquired and liabilities assumed

<TABLE>
<CAPTION>
SK WELLMAN -- 1995
------------------
<S> <C>
Fair value of assets acquired, net of cash acquired......... $76,666
Liabilities assumed......................................... (15,059)
-------
Cash paid for acquisition, net of cash received............. $61,607
=======
</TABLE>

<TABLE>
<CAPTION>
HUTCHINSON -- 1997
------------------
<S> <C>
Fair value of assets acquired............................... $13,747
Liabilities assumed......................................... (1,608)
Note payable issued......................................... (1,500)
-------
Cash paid for acquisition................................... $10,639
=======
</TABLE>

<TABLE>
<CAPTION>
SINTERLOY -- 1997
-----------------
<S> <C>
Fair value of assets acquired............................... $17,013
Liabilities assumed......................................... (594)
-------
Cash paid for acquisition................................... $16,419
=======
</TABLE>

See notes to consolidated financial statements.

F-9
<PAGE> 79

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

A. BASIS OF PRESENTATION

The consolidated financial statements of Hawk Corporation and its
wholly-owned subsidiaries, also include, effective July 1, 1994, the accounts of
Helsel, Inc. (Helsel) and, effective July 1, 1995, the accounts of S.K. Wellman
Limited, Inc. (Wellman), and, effective January 2, 1997, the accounts of
Hutchinson Products Corporation (Hutchinson), and, effective August 1, 1997, the
accounts of Sinterloy Corporation (Sinterloy) (collectively, the Company). See
Note C. All significant intercompany accounts and transactions have been
eliminated in the accompanying financial statements. Certain amounts have been
reclassified in 1995 and 1996 to conform with the 1997 presentation.

The Company designs, engineers, manufactures and markets specialized
components, principally made from powder metals, used in a wide variety of
aerospace, industrial and commercial applications.

The accompanying unaudited consolidated financial statements at March 31,
1998 and for the three months ended March 31, 1997 and 1998 have been prepared
in accordance with generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three-month period ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.

B. SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a 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 principally uses either the
straight-line or the unit method of depreciation for financial reporting
purposes based on annual rates sufficient to amortize the cost of the assets
over their estimated useful lives (5 to 40 years). Accelerated methods of
depreciation are used for federal income tax purposes.

INTANGIBLE ASSETS

Intangible assets are amortized using the straight-line method over periods
ranging from 3 to 40 years. The ongoing value and remaining useful life of
intangible assets are subject to periodic evaluation and the Company currently
expects the carrying amounts to be fully recoverable. If events and
circumstances indicate that intangible assets might be impaired, an undiscounted
cash flows methodology would be used to determine whether an impairment loss
should be recognized.

F-10
<PAGE> 80
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 other equity adjustments in the consolidated
balance sheets.

REVENUE RECOGNITION

Revenue from the sale of the Company's products is recognized upon shipment
to the customer. Costs and related expenses to manufacture the products are
recorded as costs of sales when the related revenue is recognized.

SIGNIFICANT CONCENTRATIONS

The Company provides credit, in the normal course of its business, to
original equipment and after-market 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.

The Company has one customer that accounted for 13.8%, 10.4% and 8.6% of
net sales during the years ended December 31, 1995, 1996 and 1997, respectively.

Accounts receivable balances from this customer represent approximately 4%
and 5% of the Company's consolidated accounts receivable at December 31, 1996
and 1997, respectively.

PRODUCT RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred. The Company's
expenditures for product development and engineering were approximately $2,000
in 1995, $2,639 in 1996 and $3,136 in 1997.

ADVERTISING

Advertising costs are expensed as incurred. Advertising expenses amounted
to approximately $385, $197 and $292 in 1995, 1996 and 1997, respectively.

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

At December 31, 1996 and 1997 and March 31, 1998, the carrying value of the
Company's financial instruments, which include cash, cash equivalents, accounts
receivable and long-term debt, approximate their fair value.

F-11
<PAGE> 81
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

COMPREHENSIVE INCOME

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, which requires that an enterprise classify items
of other comprehensive income, as defined therein, by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of the balance sheet. The Company adopted SFAS No. 130 in the
first quarter of 1998.

USE OF ESTIMATES

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

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In February 1998, the Financial Accounting Standards Board issued SFAS No.
132, Employers' Disclosures about Pensions and Other Postretirement Benefits.
This statement does not change the recognition or measurement of pension and
postretirement benefit plans, but standardizes disclosure requirements for
pensions and other postretirement benefits, eliminates certain disclosures and
requires certain additional information. SFAS No. 132 is effective for fiscal
years beginning after December 15, 1997.

C. BUSINESS ACQUISITIONS

Effective June 30, 1994, Helsel, a corporation owned 53% by a control group
of Company shareholders (Hawk Control Group) and 47% by other investors,
commenced operations and acquired substantially all of the net assets of Helco,
Inc. (Helco) for approximately $8,600. The acquisition was accounted for as a
purchase. Effective June 30, 1995, Helsel became a wholly-owned subsidiary of
the Company whereby each outstanding share of common stock of Helsel was
exchanged, based on an independent valuation, for .0693955 shares of common
stock of the Company. Additionally, the Company issued one share of 9% preferred
stock for each share of Helsel preferred stock. In total, 6,940 Class A common
shares and 702 Series B preferred shares were issued to the Helsel shareholders.
Because the Hawk Control Group owned a controlling interest in Helsel, the 1995
transaction was accounted for as a merger of entities under common control and
the Company's 1994 financial statements were restated to include Helsel since
June 30, 1994. In addition, the acquisition of the other investors' 47% interest
in Helsel, effective June 30, 1995, was accounted for as the purchase of a
minority interest. Accordingly, the excess of the purchase price over the
estimated fair value of the minority interest ($3,600) was recorded as goodwill
and is being amortized over 30 years.

On June 30, 1995, the Company acquired for cash substantially all of the
net assets of S.K. Wellman Limited, Inc. for approximately $62,000. The
acquisition was accounted for as a purchase. The excess of the purchase price
over the estimated fair value of the net assets acquired in the amount of
$15,800 is being amortized over 15 years and is included in intangible assets.
The operating results of Wellman are included in the Company's consolidated
statements of operations since the date of

F-12
<PAGE> 82
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

acquisition. As a result of this acquisition, the Company consolidated certain
operating facilities. Accordingly, the net carrying value of the facilities the
Company closed and is planning to sell are reflected as net assets held for sale
on the accompanying balance sheets. The net assets held for sale are stated at
the lower of the carrying amount or fair value less costs to sell and consist
primarily of land and buildings. In addition, for the year ended December 31,
1996, the Company incurred and expended approximately $4,000 of costs relating
primarily to the relocation of machinery and equipment.

Effective January 2, 1997, Hutchinson acquired all of the outstanding
capital stock of Hutchinson Products Company for (1) $10,600 in cash; (2) $1,500
in 8% two-year convertible notes; and (3) contingent payments to be made by the
Company if certain earnings targets are met. The acquisition has been accounted
for as a purchase. The excess of the purchase price over the estimated fair
value of the capital stock acquired in the amount of $7,600 is being amortized
over 30 years and is included in intangible assets. The results of operations of
Hutchinson are included in the Company's consolidated statements of operations
since the date of acquisition.

Effective August 1, 1997, Sinterloy acquired substantially all of the
assets (except cash) and assumed certain liabilities of Sinterloy, Inc., for
$16,400 in cash. The acquisition was accounted for as a purchase. The excess of
the purchase price over the estimated fair value of the assets less the assumed
liabilities in the amount of $11,400 is being amortized over 30 years and is
included in intangible assets. The results of operations of Sinterloy are
included in the Company's consolidated statements of operations since the date
of acquisition.

The following unaudited pro forma consolidated results of operations give
effect to the Hutchinson and Sinterloy acquisitions as though they had occurred
on January 1, 1996 and include certain adjustments, such as additional
amortization expense as a result of goodwill and increased interest expense
related to debt incurred for the acquisitions.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------ MARCH 31,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Net sales............................................ $144,215 $167,710 $ 40,684
======== ======== ========
Net income (loss).................................... $ (2,207) $ 5,279 $ 1,662
======== ======== ========
Basic earnings (loss) per share...................... $ (.52) $ 1.06 $ .34
======== ======== ========
Diluted earnings (loss) per share.................... $ (.52) $ .87 $ .28
======== ======== ========
</TABLE>

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

In November 1996, the Company merged with Hawk Holding Corp. (Old Hawk), a
corporation that owned approximately 34% of the outstanding common stock of the
Company, in a tax-free reorganization. At the time of the merger, Old Hawk was
96% owned by the Hawk Control Group and 4% owned by other investors. In the
merger, the Company acquired and canceled the shares of Class A common stock of
the Company owned by Old Hawk and reissued the same amount of shares of Class A
common stock pro rata to the Old Hawk stockholders. In addition, the Company
acquired and canceled the Class A preferred stock of the Company owned by Old
Hawk, and issued 1,190 shares of Class C preferred stock, which has a
liquidation value substantially equal to the aggregate liquidation value of the
Class A preferred stock previously owned by Old Hawk. Since the Company and Old
Hawk were under common control, the Company recorded the acquisition of the Hawk
Control Group's interest in

F-13
<PAGE> 83
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Old Hawk at historical cost and the acquisition of the other investors'
ownership interest as a purchase of minority interest. Accordingly, the excess
of the purchase price over the estimated fair value of the minority interest
acquired in the amount of $240 was recorded as goodwill and is being amortized
over 30 years.

D. INTANGIBLE ASSETS

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

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Product certifications (19 to 40 years).............. $ 20,820 $ 20,820
Goodwill (15 to 40 years)............................ 22,012 41,055
Deferred financing costs (3 to 7 years).............. 4,678 5,611
Proprietary formulations and patents (10 years)...... 1,806 1,806
Other................................................ 779 806
-------- --------
50,095 70,098
Accumulated amortization............................. (10,156) (13,559)
-------- --------
$ 39,939 $ 56,539
======== ========
</TABLE>

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

E. FINANCING ARRANGEMENTS

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Senior Subordinated Notes.............. $ 26,375 $ 27,025 $ 27,188
Senior Notes........................... 100,000 100,000 100,000
Other.................................. 2,808 5,123 3,987
-------- -------- --------
129,183 132,148 131,175
Less current portion................... 714 1,955 1,399
-------- -------- --------
$128,469 $130,193 $129,776
======== ======== ========
</TABLE>

Effective June 30, 1995, the Company issued $30,000 in Senior Subordinated
Notes with $10,000 maturing on January 31, 2004 and June 30, 2004 and 2005.
Interest is payable quarterly at a fixed rate of 12%. In connection with the
Senior Subordinated Notes, the Company issued detachable warrants to the lender
that provide the lender the option to purchase 1,023,793 shares of the Company's
Class B common stock at a per share price of $.01. The warrants are exercisable
through the year 2005. Beginning in the year 2001, the Company has the option to
repurchase the warrants and the warrant holders have the right to put the
warrants to the Company for cash, at prices based on a fair market value of the
Company at the date of put as determined by an independent third party. The
warrant holders' put option is terminated upon the occurrence of certain events,
including the closing of an initial public offering.

For financial reporting purposes at June 30, 1995, the fair value of the
warrants, including the put option, was estimated to be $4,600 and classified as
detachable stock warrant, subject to put option on the accompanying balance
sheets. The resulting discount is being amortized over the life of the debt as
non-cash, imputed interest. The discount is based on an effective interest rate
of 14.2%. The unamor-

F-14
<PAGE> 84
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

tized discount at December 31, 1996, 1997 and March 31, 1998 totaled $3,625,
$2,975 and $2,812, respectively. Adjustments to the carrying value of the
detachable stock warrants are based on revisions to the estimated fair market
value of the Company, with a corresponding charge or credit to retained
earnings. In 1997, the carrying value of the warrants, including the put option,
was increased to $9,300.

In November 1996, the Company issued $100,000 in Senior Notes (Notes) due
on December 1, 2003, unless previously redeemed, at the Company's option, in
accordance with the terms of the Notes. Interest is payable semi-annually on
June 1 and December 1 of each year commencing June 1, 1997, at a fixed rate of
10.25%. In connection with the issuance of the Notes, the Company canceled its
existing credit agreement, repaid all outstanding borrowings and incurred an
extraordinary charge of $1,994 relating to the write-off of previously
capitalized deferred financing costs. In March 1997, the Notes were exchanged
for notes registered with the Securities and Exchange Commission. The 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 O.

Also, in November 1996, the Company executed a $25,000 Revolving Credit
Facility (Credit Facility) which matures in November 1999. The Company pays a
commitment fee of 0.5% per annum on the unused portion. Interest is payable
monthly at LIBOR plus 2.25% per annum, or at the Company's option, a variable
rate based on the prime rate plus 1.0% per annum, payable at various interest
periods per the Credit Facility. The Credit Facility contains covenants with
respect to the Company and its subsidiaries that, among other things, prohibit
the payment of any dividends to the Company by its subsidiaries (including the
Guarantor Subsidiaries) in the event of a default under the terms of the Credit
Facility. There were no outstanding borrowings under the Credit Facility at
December 31, 1996 or 1997.

The Company's short-term borrowings represent advances under unsecured
lines of credit. The average borrowing rate was 8% during 1997. Unused amounts
under these lines total approximately $1,200 at December 31, 1997.

Aggregate principal payments due on long-term debt as of December 31, 1997
are as follows: 1998--$1,955; 1999--$1,334; 2000--$560; 2001--$649; 2002--$628;
thereafter--$127,022.

F. SHAREHOLDERS' EQUITY

In accordance with a Merger Agreement and Plan of Reorganization dated June
30, 1995, the Company, formerly an Ohio corporation, was merged with and into a
Delaware corporation under the same name. Concurrently, each issued and
outstanding share of common stock, without par value, of the previous
corporation was converted into one fully paid share of Class A common stock, par
value $.01 per share, of the merged corporation. Additionally, each issued and
outstanding share of preferred stock, $1,000 par value per share, of the
previous corporation was converted into one fully paid share of Series A
preferred stock, par value $.01 per share, of the merged corporation.

The Company's authorized preferred stock includes: 2,625 shares of Series A
preferred stock, $.01 par value, 1,375 shares issued and outstanding; 702 shares
of Series B preferred stock, $.01 par value, 702 shares issued and outstanding;
1,190 shares of Series C preferred stock, $.01 par value, 1,190 shares issued
and outstanding; 1,530 shares of Series D preferred stock, $.01 par value, no
shares issued or outstanding; and 100,000 shares of Series E preferred stock,
$.01 par value, no shares issued or outstanding. Dividends are cumulative at the
rate of 10% of $1,000 per share for Series A and Series C preferred stock, 9% of
$1,000 per share for Series B preferred stock (when issued) and 9.8% for Series
D preferred stock. With the exception of Series E, each share of preferred stock
is: (1) entitled to a liquidation preference equal to $1,000 per share plus any
accrued or unpaid dividends, (2) not entitled to vote, except in certain
circumstances, and (3) redeemable in whole, at the option of the Company, for
$1,000 per share plus all accrued dividends to the date of redemption. Each
share of

F-15
<PAGE> 85
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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
holders of common stock.

Each share of the Class B common stock is convertible into one share of
Class A common stock upon the occurrence of certain events.

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 is payable to the stockholders 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 BENEFITS

The Company has several defined benefit pension plans which 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 ERISA.

A summary of the components of net periodic pension cost (income) for the
plans is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Service cost................................ $ 382 $ 400 $ 404
Interest cost............................... 665 727 744
Actual return on plan assets................ (1,732) (1,435) (1,936)
Net amortization and deferral............... 673 576 923
------- ------- -------
$ (12) $ 268 $ 135
======= ======= =======
</TABLE>

F-16
<PAGE> 86
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

A summary of the actuarially determined benefit obligations and trustees
net assets for Company administered defined benefit pension plans is presented
below, along with a reconciliation of the plans' funded status to amounts
recognized in the Company's balance sheets. The plans' assets are primarily
invested in fixed income and equity securities.
<TABLE>
<CAPTION>
ASSETS EXCEED ACCUMULATED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
<S> <C> <C> <C> <C>
----------------------------------------------

<CAPTION>
1996 1997 1996 1997
--------------------- ---------------------
<S> <C> <C> <C> <C>
Actuarial present value of accumulated
benefit obligations:
Vested................................... $(6,186) $(7,481) $(2,594) $(2,209)
Non-vested............................... (57) (163) (198) (164)
------- ------- ------- -------
$(6,243) $(7,644) $(2,792) $(2,373)
======= ======= ======= =======
Projected benefit obligations.............. $(6,943) $(8,686) $(2,909) $(2,373)
Plan assets at fair value.................. 8,676 11,807 2,261 2,153
------- ------- ------- -------
Projected benefit obligations less than (in
excess of) plan assets................... 1,733 3,121 (648) (220)
Unrecognized net loss...................... (263) (1,215) (66) (197)
Prior service cost not yet recognized in
net periodic pension cost................ 134 188 347 266
Unrecognized net (asset) obligation........ (208) (129) 125 52
Adjustment required to recognize minimum
liability................................ (406) (121)
------- ------- ------- -------
Prepaid (accrued) pension cost at December
31....................................... $ 1,396 $ 1,965 $ (648) $ (220)
======= ======= ======= =======
</TABLE>

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

<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Used to compute the projected benefit obligation as of
December 31:
Weighted average discount rate...................... 7.5% 7.9% 7.9%
Annual salary increase.............................. 3.0 3.0 3.0
Weighted average expected long-term rate of return
on plan assets for the year ended December 31.... 9.6 9.6 9.5
</TABLE>

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 $920 in 1995, $690 in 1996 and $786 in 1997.

H. LEASE OBLIGATIONS

The Company has capital lease commitments for buildings and equipment.
Future minimum annual rentals are: 1998--$1,109, 1999--$895, 2000--$685,
2001--$747, 2002--$368, thereafter--$347. Amount representing interest is $854.
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 $270 in 1995, $609 in
1996 and $875 in 1997. Future minimum lease commitments under these agreements
which have an original or existing term in excess of one

F-17
<PAGE> 87
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

year as of December 31, 1997 are as follows: 1998--$874; 1999--$545; 2000--$528;
2001--$504; 2002--$419 and thereafter--$318.

I. INCOME TAXES

The provision for income taxes, except for the effect of the extraordinary
item, consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------ ----- ------
<S> <C> <C> <C>
Current:
Federal................................................... $ 907 $(624) $1,483
State and local........................................... 235 129 325
Foreign................................................... 74 932 211
------ ----- ------
1,216 437 2,019
Deferred:
Federal................................................... 365 299 1,266
State..................................................... 12 53 225
Foreign................................................... 169
------ ----- ------
377 352 1,660
------ ----- ------
TOTAL INCOME TAXES.......................................... $1,593 $ 789 $3,679
====== ===== ======
</TABLE>

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. At December 31, 1997, the Company had $980 of
Alternative Minimum Tax (AMT) credit carryforwards that do not expire.
Significant components of the Company's deferred tax assets and liabilities as
of December 31 are as follows:

<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward........................... $ 545 $ 95
Accrued vacation.......................................... 318 403
AMT carryforward.......................................... 622 980
Other accruals............................................ 595 505
Foreign capital leases.................................... 1,219
Other..................................................... 352 1,241
------ ------
Total deferred tax assets................................... 2,432 4,443
Deferred tax liabilities:
Tax over book depreciation and amortization............... 4,090 5,887
Foreign leased property................................... 1,473
Other..................................................... 572
------ ------
Total deferred tax liabilities.............................. 4,090 7,932
------ ------
NET DEFERRED TAX LIABILITIES................................ $1,658 $3,489
====== ======
</TABLE>

F-18
<PAGE> 88
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The provision for income taxes, including the tax effect of the
extraordinary item, differs from the amounts computed by applying the federal
statutory rate as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996 1997
----- ------ -----
<S> <C> <C> <C>
Income tax expense (credit) at federal statutory rate....... 34.0% (34.0)% 34.0%
State and local tax, net of federal tax benefit............. 5.7 3.9 5.5
Non-deductible goodwill amortization........................ 7.2 3.7 4.3
Adjustment to worldwide tax liability and other, net........ 9.0 26.4 12.3
----- ------ -----
Provision for income taxes.................................. 55.9% 0.0% 56.1%
===== ====== =====
</TABLE>

Undistributed earnings of the Company's foreign subsidiaries are considered
to be indefinitely reinvested and, accordingly, no provision for U.S. federal
and state income taxes has been provided. 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.

J. EARNINGS PER SHARE

In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share. SFAS No. 128 replaced the previously reported primary
and fully-diluted earnings per share with basic earnings per share and diluted
earnings per share. As required, the Company adopted SFAS No. 128 in the fourth
quarter of 1997. Prior year amounts have been restated to comply with SFAS No.
128 and to give effect to the stock split discussed in Note P.

F-19
<PAGE> 89
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Basic and dilutive earnings per share is computed as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- ------------------
1995 1996 1997 1997 1998
------ ------- ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income (loss) available to common
shareholders:
Income (loss) before extraordinary
charge............................. $ 762 $(1,882) $2,874 $ 898 $3,313
Less: Preferred stock dividends....... 326 226 320 80 80
------ ------- ------ ------ ------
Income (loss) before extraordinary
charge attributable to common
shareholders.......................... $ 436 $(2,108) $2,554 $ 818 $3,233
====== ======= ====== ====== ======
Net income (loss)....................... $ 762 $(3,078) $2,874 $ 898 $3,313
Less: Preferred stock dividends......... 326 226 320 80 80
------ ------- ------ ------ ------
Net income (loss) attributable to common
shareholders.......................... $ 436 $(3,304) $2,554 $ 818 $3,233
------ ------- ------ ------ ------

Weighted average shares:
Basic:
Basic weighted average shares...... 4,133 4,664 4,664 4,664 4,664
====== ======= ====== ====== ======

Diluted:
Basic from above................... 4,133 4,664 4,664 4,664 4,664
Effect of warrant conversion....... 835 1,024 1,024 1,024
------ ------- ------ ------ ------
Diluted weighted average shares.... 4,968 4,664 5,688 5,688 5,688
====== ======= ====== ====== ======

Earnings (loss) per share:
Basic:
Earnings (loss) before
extraordinary charge............. $ .11 $ (.45) $ .55 $ .18 $ .69
Extraordinary charge............... (.26)
------ ------- ------ ------ ------
Basic earnings (loss) per share.... $ .11 $ (.71) $ .55 $ .18 $ .69
====== ======= ====== ====== ======
Diluted:
Earnings (loss) before
extraordinary charge............. $ .09 $ (.45) $ .45 $ .14 $ .57
Extraordinary charge............... (.26)
------ ------- ------ ------ ------
Diluted earnings (loss) per
share............................ $ .09 $ (.71) $ .45 $ .14 $ .57
====== ======= ====== ====== ======
</TABLE>

K. CONTINGENCY

At December 31, 1997, the Company had wage continuation agreements with two
of its officers/shareholders. In the event the officer/shareholder dies or
becomes permanently disabled while employed by the Company, each agreement
provides for payments to be made annually to the officer/shareholder's spouse
based on a compensation formula, until the spouse's death. In January 1998, one
of the agreements was terminated.

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 the acquisition of Helsel. The
notes bear interest at the prime rate plus 1.25% through September 30, 1996

F-20
<PAGE> 90
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

and at the prime rate thereafter. The notes are due and payable on July 1, 2002.
Certain shareholders repaid their notes during 1996 and 1997. The balance of the
notes was $1,838 and $1,675, at December 31, 1996 and December 31, 1997,
respectively.

M. CANCELED PUBLIC OFFERING

In 1997, the Company recognized $889 in expense for professional services
and other costs directly associated with the cancelation of a public offering of
its common stock.

N. GEOGRAPHIC INFORMATION

Geographic information for the years ended December 31, 1995, 1996 and 1997
is as follows:

<TABLE>
<CAPTION>
1995 1996 1997
---------------------------------- ---------------------------------- ----------------------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN DOMESTIC FOREIGN
OPERATIONS OPERATIONS TOTAL OPERATIONS OPERATIONS TOTAL OPERATIONS OPERATIONS TOTAL
---------- ---------- -------- ---------- ---------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $ 76,570 $ 8,073 $ 84,643 $104,262 $19,735 $123,997 $138,124 $20,962 $159,086
Income from
operations......... 9,242 738 9,980 7,326 2,485 9,811 21,416 657 22,073
Net income (loss).... 481 281 762 (3,788) 710 (3,078) 3,079 (205) 2,874
Total assets......... 113,293 14,126 127,419 140,746 17,695 158,441 153,033 20,053 173,086
</TABLE>

The Company has foreign operations in Canada and Italy.

O. SUPPLEMENTAL GUARANTOR INFORMATION

As discussed in Note E, each of the Guarantor Subsidiaries of the Senior
Notes 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.

The following supplemental consolidating condensed financial statements
present (in thousands):

1. Consolidating condensed balance sheets as of December 31, 1996,
December 31, 1997, and March 31, 1998 (unaudited), consolidating
condensed statements of income for the years ended December 31, 1995,
1996 and 1997 and for the three months ended March 31, 1997 and 1998
(unaudited) and consolidating condensed statements of cash flows for
the years ended December 31, 1995, 1996 and 1997 and for the three
months ended March 31, 1997 and 1998 (unaudited).

2. Hawk Corporation (Parent), combined Guarantor Subsidiaries and
combined Non-Guarantor Subsidiaries (consisting of the Company's
subsidiaries in Canada and Italy acquired in 1995) with their
investments in subsidiaries accounted for using the equity method.

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

Management does not believe that separate financial statements of the
Guarantor Subsidiaries of the Senior Notes are material to investors. Therefore,
separate financial statements and other disclosures concerning the Guarantor
Subsidiaries are not presented. The Credit Facility contains covenants with
respect to the Company and its subsidiaries that, among other things, would
prohibit the payment of any dividends to the Company by the subsidiaries of the
Company (including the Guarantor Subsidiaries) in the event of a default under
the terms of the Credit Facility.

F-21
<PAGE> 91
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 25,187 $ 5 $ 582 $ 25,774
Accounts receivable, net........... 189 10,884 5,710 16,783
Inventories, net................... 16,120 4,744 20,864
Deferred income taxes.............. 1,390 1,042 2,432
Other current assets............... 67 373 495 935
-------- -------- -------- --------- --------
Total current assets........ 26,833 28,424 11,531 66,788
OTHER ASSETS:
Investment in subsidiaries......... 775 6,457 $ (7,232)
Inter-company advances, net........ 108,607 19,543 (128,150)
Property, plant and equipment...... 38,394 5,748 44,142
Intangible assets.................. 504 39,435 39,939
Other.............................. 1,838 5,318 416 7,572
-------- -------- -------- --------- --------
Total assets......................... $138,557 $137,571 $ 17,695 $(135,382) $158,441
======== ======== ======== ========= ========

LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable................... $ (157) $ 5,167 $ 3,184 $ 8,194
Accrued compensation............... 100 5,856 819 6,775
Other accrued expenses............. (719) 2,728 396 2,405
Current portion of long-term
debt............................. 289 425 714
-------- -------- -------- --------- --------
Total current liabilities... (776) 14,040 4,824 18,088
LONG-TERM LIABILITIES:
Long-term debt..................... 126,375 1,290 804 128,469
Deferred income taxes.............. 2,729 1,057 304 4,090
Other.............................. 1,272 732 2,004
Inter-company advances, net........ 3,532 120,819 4,574 $(128,925)
-------- -------- -------- --------- --------
Total long-term
liabilities............... 132,636 124,438 6,414 (128,925) 134,563
-------- -------- -------- --------- --------
Total liabilities........... 131,860 138,478 11,238 (128,925) 152,651
Detachable stock warrants, subject to
put option......................... 4,600 4,600
Shareholders' equity (deficit)....... 2,097 (907) 6,457 (6,457) 1,190
-------- -------- -------- --------- --------
Total liabilities and shareholders'
equity............................. $138,557 $137,571 $ 17,695 $(135,382) $158,441
======== ======== ======== ========= ========
</TABLE>

F-22
<PAGE> 92
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......... $ 3,103 $ 469 $ 816 $ 4,388
Accounts receivable, net........... 77 19,402 6,656 $ (389) 25,746
Inventories, net................... 17,455 4,628 22,083
Deferred income taxes.............. 890 1,545 398 2,833
Other current assets............... 142 560 734 (61) 1,375
-------- -------- ------- --------- --------
Total current assets........ 4,212 39,431 13,232 (450) 56,425
Investment in subsidiaries........... 790 4,971 (5,761)
Inter-company advances, net.......... 132,490 1,300 11 (133,801)
Property, plant and equipment........ 46,115 6,365 52,480
Intangible assets.................... 231 56,308 56,539
Other................................ 1,675 7,297 445 (1,775) 7,642
-------- -------- ------- --------- --------
Total assets......................... $139,398 $155,422 $20,053 $(141,787) $173,086
======== ======== ======= ========= ========

LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable................... $ 7,490 $ 3,213 $ (334) $ 10,369
Short term borrowings.............. 1,744 1,744
Accrued compensation............... $ 64 7,189 816 8,069
Other accrued expenses............. (3,219) 8,582 247 (116) 5,494
Current portion of long-term
debt............................. 1,432 523 1,955
-------- -------- ------- --------- --------
Total current liabilities... (3,155) 24,693 6,543 (450) 27,631
Long-term liabilities:
Long-term debt..................... 127,025 2,001 1,167 130,193
Deferred income taxes.............. 5,665 223 434 6,322
Other.............................. 780 1,031 1,811
Inter-company advances, net........ 2,986 126,683 5,907 (135,576)
-------- -------- ------- --------- --------
Total long-term
liabilities............... 135,676 129,687 8,539 (135,576) 138,326
-------- -------- ------- --------- --------
Total liabilities........... 132,521 154,380 15,082 (136,026) 165,957
Detachable stock warrants, subject to
put option......................... 9,300 9,300
Shareholders' equity (deficit)....... (2,423) 1,042 4,971 (5,761) (2,171)
-------- -------- ------- --------- --------
Total liabilities and shareholders'
equity............................. $139,398 $155,422 $20,053 $(141,787) $173,086
======== ======== ======= ========= ========
</TABLE>

F-23
<PAGE> 93
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET

<TABLE>
<CAPTION>
MARCH 31, 1998 (UNAUDITED)
---------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............ $ 5,625 $ 130 $ 837 $ 6,592
Accounts receivable, net........... 639 22,856 7,015 $ (418) 30,092
Inventories, net................... 17,826 4,305 22,131
Deferred income taxes.............. 2,435 387 2,822
Other current assets............... 229 620 915 (43) 1,721
-------- -------- ------- --------- --------
Total current assets............. 8,928 41,432 13,459 (461) 63,358
OTHER ASSETS:
Investment in subsidiaries........... 790 5,329 (6,119)
Inter-company advances, net........ 137,778 1,442 (14) (139,206)
Property, plant and equipment...... 47,697 6,520 54,217
Intangible assets.................. 229 55,546 55,775
Other.............................. 1,673 7,150 448 (1,775) 7,496
-------- -------- ------- --------- --------
Total assets......................... $149,398 $158,596 $20,413 $(147,561) $180,846
======== ======== ======= ========= ========

LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable................... $ 581 $ 11,074 $ 2,848 $ (418) $ 14,085
Short term borrowings.............. 1,775 1,775
Accrued compensation............... 64 4,549 943 5,556
Other accrued expenses............. 6,122 3,680 345 (104) 10,043
Current portion of long-term
debt............................. 906 493 1,399
-------- -------- ------- --------- --------
Total current liabilities........ 6,767 20,209 6,404 (522) 32,858
LONG-TERM LIABILITIES:
Long-term debt..................... 127,188 1,456 1,132 129,776
Deferred income taxes.............. 5,888 414 6,302
Other.............................. 776 1,030 1,806
Inter-company advances, net........ 3,040 131,776 6,104 (140,920)
-------- -------- ------- --------- --------
Total long-term liabilities...... 136,116 134,008 8,680 (140,920) 137,884
-------- -------- ------- --------- --------
Total liabilities................ 142,883 154,217 15,084 (141,442) 170,742
-------- -------- ------- --------- --------
Detachable stock warrants, subject to
put option......................... 9,300 9,300
Shareholders' equity (deficit)....... (2,785) 4,379 5,329 (6,119) 804
-------- -------- ------- --------- --------
Total liabilities and shareholders'
equity............................. $149,398 $158,596 $20,413 $(147,561) $180,846
======== ======== ======= ========= ========
</TABLE>

F-24
<PAGE> 94
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

SUPPLEMENTAL CONSOLIDATING CONDENSED INCOME STATEMENT

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $76,570 $8,073 $ 84,643
Cost of sales.......................... 54,391 6,773 61,164
------- ------- ------ ------- --------
Gross profit........................... 22,179 1,300 23,479
Expenses:
Selling, technical and administrative
expenses........................... 11,013 562 11,575
Amortization of intangible assets.... 1,924 1,924
------- ------- ------ ------- --------
Total expenses......................... 12,937 562 13,499
------- ------- ------ ------- --------
Income from operations................. 9,242 738 9,980
Interest expense....................... $ 325 7,146 119 $ (267) 7,323
Income from equity investees........... 1,099 281 (1,380)
Other (income) expense, net............ (420) (241) 264 267 (130)
------- ------- ------ ------- --------
Income before income taxes and minority
interest............................. 1,194 2,618 355 (1,380) 2,787
Income taxes........................... 1,519 74 1,593
Minority interest...................... 432 432
------- ------- ------ ------- --------
Net income............................. $ 762 $ 1,099 $ 281 $(1,380) $ 762
======= ======= ====== ======= ========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $104,262 $19,735 $123,997
Cost of sales.......................... 76,232 15,652 91,884
------- -------- ------- ------ --------
Gross profit........................... 28,030 4,083 32,113
Expenses:
Selling, technical and administrative
expenses........................... 13,932 1,536 15,468
Amortization of intangible assets.... 2,744 62 2,806
Plant consolidation expense.......... 4,028 4,028
------- -------- ------- ------ --------
Total expenses......................... 20,704 1,598 22,302
------- -------- ------- ------ --------
Income from operations................. 7,326 2,485 9,811
Interest expense....................... $ 650 10,578 369 $ (327) 11,270
Income (loss) from equity investees.... (2,422) 710 1,712
Other (income) expense, net............ (1,190) 24 473 327 (366)
------- -------- ------- ------ --------
Income (loss) before income taxes and
extraordinary item................... (1,882) (2,566) 1,643 1,712 (1,093)
Income taxes (credit).................. (144) 933 789
Income (loss) before extraordinary
item................................. (1,882) (2,422) 710 1,712 (1,882)
Extraordinary item -- write-off of
deferred financing costs, net of
income taxes......................... (1,196) (1,196)
------- -------- ------- ------ --------
Net income (loss)...................... $(3,078) $ (2,422) $ 710 $1,712 $ (3,078)
======= ======== ======= ====== ========
</TABLE>

F-25
<PAGE> 95
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

SUPPLEMENTAL CONSOLIDATING CONDENSED INCOME STATEMENT

<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales.............................. $138,124 $ 20,962 $159,086
Cost of sales.......................... 96,390 17,260 113,650
-------- -------- --------
Gross profit........................... 41,734 3,702 45,436
Expenses:
Selling, technical and administrative
expenses........................... 16,401 2,974 19,375
Amortization of intangible assets.... $ 8 3,859 71 3,938
Plant consolidation expense.......... 50 50
------- -------- -------- ------- --------
Total expenses......................... 8 20,310 3,045 23,363
------- -------- -------- ------- --------
(Loss) income from operations.......... (8) 21,424 657 22,073
Interest expense....................... 650 14,428 484 $ (255) 15,307
Income (loss) from equity investees.... 3,682 (205) (3,477)
Expenses from canceled public
offering............................. 889 889
Other income........................... (819) (110) (2) 255 (676)
------- -------- -------- ------- --------
Income before income taxes............. 2,954 6,901 175 (3,477) 6,553
Income taxes........................... 80 3,219 380 3,679
------- -------- -------- ------- --------
Net income (loss)...................... $ 2,874 $ 3,682 $ (205) $(3,477) $ 2,874
======= ======== ======== ======= ========
</TABLE>

F-26
<PAGE> 96
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

SUPPLEMENTAL CONSOLIDATING CONDENSED INCOME STATEMENT

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
---------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 32,821 $ 5,012 $ (949) $ 36,884
Cost of sales........................ 23,201 4,116 (949) 26,368
-------- -------- -------- --------- --------
Gross profit......................... 9,620 896 -- 10,516
Expenses:
Selling, technical and
administrative expenses.......... 4,044 510 4,554
Amortization of intangible
assets........................... $ 2 827 829
-------- -------- -------- --------- --------
Total expenses....................... 2 4,871 510 5,383
-------- -------- -------- --------- --------
Income (loss) from operations........ (2) 4,749 386 5,133
Interest expense..................... 162 3,421 96 3,679
Income from equity investees......... 832 109 (941)
Other (income) expense, net.......... (274) (139) 163 (250)
-------- -------- -------- --------- --------
Income before income taxes........... 942 1,576 127 (941) 1,704
Income taxes......................... 44 744 18 806
-------- -------- -------- --------- --------
Net Income........................... $ 898 $ 832 $ 109 $ (941) $ 898
======== ======== ======== ========= ========
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
---------------------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 44,243 $ 5,735 $ 49,978
Cost of sales........................ 29,084 4,703 33,787
-------- -------- -------- --------- --------
Gross profit......................... 15,159 1,032 16,191
Expenses:
Selling, technical and
administrative expenses.......... 5,057 646 5,703
Amortization of intangible
assets........................... 2 897 899
-------- -------- -------- --------- --------
Total expenses....................... 2 5,954 646 6,602
Income from operations............... (2) 9,205 386 9,589
Interest expense..................... 162 3,604 122 (64) 3,824
Income from equity investees......... 3,286 213 (3,499)
Other (income) expense, net.......... (202) 126 16 64 4
-------- -------- -------- --------- --------
Income before income taxes........... 3,324 5,688 248 (3,499) 5,761
Income taxes......................... 11 2,402 35 2,448
-------- -------- -------- --------- --------
Net income........................... $ 3,313 $ 3,286 $ 213 $ (3,499) $ 3,313
======== ======== ======== ========= ========
</TABLE>

F-27
<PAGE> 97
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net cash and cash equivalents provided by
operating activities............................ $ 3,934 $ 2,738 $ 1,041 $ 7,713
Cash flows from investing activities:
Purchase of net assets of Wellman, net of cash
acquired...................................... (61,607) (61,607)
Purchase of property, plant and equipment....... (3,145) (636) (3,781)
Loans to shareholders........................... (2,000) (2,000)
-------- -------- -------- --------
Net cash and cash equivalents used in investing
activities...................................... (63,607) (3,145) (636) (67,388)
Cash flows from financing activities:
Proceeds from borrowings of long-term debt...... 102,000 102,000
Payments on long-term debt...................... (30,606) (120) (30,726)
Net borrowings under revolving credit lines..... (1,280) (1,280)
Purchase of warrants............................ (7,000) (7,000)
Deferred financing costs........................ (2,799) (2,799)
Payment of preferred stock dividend............. (326) (326)
Other........................................... (121) (121)
-------- -------- -------- --------
Net cash and cash equivalents provided by
financing activities............................ 59,989 (121) (120) 59,748
-------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... 316 (528) 285 73
Cash and cash equivalents, at beginning of
period.......................................... 92 606 698
-------- -------- -------- --------
Cash and cash equivalents, at end of period....... $ 408 $ 78 $ 285 $ 771
======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net cash and cash equivalents and cash equivalents
provided by (used in) operating activities...... $ 96 $ 3,664 $ 2,106 $ 5,866
Cash flows from investing activities:
Purchase of property, plant and equipment....... (6,247) (2,028) (8,275)
Other........................................... 162 162
-------- -------- -------- --------
Net cash and cash equivalents used in investing
activities...................................... (6,085) (2,028) (8,113)
Cash flows from financing activities:
Proceeds from borrowings of long- term debt..... 178,901 1,966 506 181,373
Payments on long-term debt...................... (149,314) (164) (287) (149,765)
Deferred financing costs........................ (4,678) (4,678)
Payment of preferred stock dividend............. (226) (226)
Other........................................... 546 546
-------- -------- -------- --------
Net cash and cash equivalents provided by
financing activities............................ 24,683 2,348 219 27,250
-------- -------- -------- --------
Net increase (decrease) in cash................... 24,779 (73) 297 25,003
Cash and cash equivalents, at beginning of
period.......................................... 408 78 285 771
-------- -------- -------- --------
Cash and cash equivalents, at end of period....... $ 25,187 $ 5 $ 582 $ 25,774
======== ======== ======== ========
</TABLE>

F-28
<PAGE> 98
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net cash and cash equivalents provided by
operating activities............................ $ 5,131 $ 8,013 $ 845 $ 13,989
Cash flows from investing activities:
Purchase of Hutchinson Foundry Products
Company....................................... (10,639) (10,639)
Purchase of Sinterloy Corp...................... (16,419) (16,419)
Purchase of property, plant and equipment....... (6,618) (1,719) (8,337)
Other........................................... 163 163
-------- -------- -------- --------
Net cash and cash equivalents used in investing
activities...................................... (26,895) (6,618) (1,719) (35,232)
Cash flows from financing activities:
Proceeds from borrowings........................ 1,150 1,818 2,968
Payments on long-term debt...................... (1,150) (366) (710) (2,226)
Deferred financing costs........................ (565) (565)
Payment of preferred stock dividend............. (320) (320)
-------- -------- -------- --------
Net cash and cash equivalents (used in) provided
by financing activities......................... (320) (931) 1,108 (143)
-------- -------- -------- --------
Net (decrease) increase in cash and cash
equivalents..................................... (22,084) 464 234 (21,386)
Cash and cash equivalents, at beginning of
period.......................................... 25,187 5 582 25,774
-------- -------- -------- --------
Cash and cash equivalents, at end of period....... $ 3,103 $ 469 $ 816 $ 4,388
======== ======== ======== ========
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
---------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net cash (used in) provided by operating
activities............................... $ (4,225) $ 519 $ 176 $ (3,530)
Cash flows from investing activities:
Purchase of Hutchinson................... (10,368) (10,368)
Purchase of property, plant and
equipment.............................. (648) (546) (1,194)
Payments on shareholder loans............ 63 63
-------- -------- -------- --------
Net cash used in investing activities...... (10,305) (648) (546) (11,499)
Cash flows from financing activities:
Payments on long-term debt............... (168) (157) (325)
Deferred financing costs................. 227 227
Payment of preferred stock dividend...... (80) (80)
Other.................................... 68 68
-------- -------- -------- --------
Net cash (used in) provided by financing
activities............................... (80) 127 (157) (110)
-------- -------- -------- --------
Net decrease in cash and cash
equivalents.............................. (14,610) (2) (527) (15,139)
Cash and cash equivalents at beginning of
period................................... 25,187 5 582 25,774
-------- -------- -------- --------
Cash and cash equivalents at end of
period................................... $ 10,577 $ 3 $ 55 $ 10,635
======== ======== ======== ========
</TABLE>

F-29
<PAGE> 99
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
---------------------------------------------------------
COMBINED COMBINED
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES CONSOLIDATED
-------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net cash provided by operating
activities............................... $ 2,600 $ 3,751 $ 588 $ 6,939
Cash flows from investing activities:
Purchase of property, plant and
equipment.............................. (3,019) (639) (3,658)
Payments received on shareholder notes... 2 2
-------- -------- -------- --------
Net cash provided by (used in) investing
activities............................... 2 (3,019) (639) (3,656)
Cash flows from financing activities:
Proceeds from borrowings of short-term
debt................................... 87 87
Payments on borrowings of long-term
debt................................... (1,071) (15) (1,086)
Payment of preferred stock dividend...... (80) (80)
-------- -------- -------- --------
Net cash (used in) provided by financing
activities............................... (80) (1,071) 72 (1,079)
-------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents.............................. 2,522 (339) 21 2,204
Cash and cash equivalents at beginning of
period................................... 3,103 469 816 4,388
-------- -------- -------- --------
Cash and cash equivalents at end of
period................................... $ 5,625 $ 130 $ 837 $ 6,592
======== ======== ======== ========
</TABLE>

P. INCREASE IN AUTHORIZED SHARES AND STOCK SPLIT

On January 12, 1998, the Company amended its Certificate of Incorporation
to increase the authorized shares of Class A and Class B Common Stock to
75,000,000 and 10,000,000, respectively. In addition, on January 12, 1998, the
board of directors declared a 3.2299-for-one split of the Company's Class A and
Class B Common Stock in the form of a stock dividend distributed to holders of
record on January 12, 1998. Accordingly all numbers of common shares and per
share data have been restated to reflect the stock split. The par value of the
additional shares of common stock to be issued in connection with the stock
split have been credited to common stock and a like amount charged to additional
paid-in capital in the first quarter of 1998.

Q. SUBSEQUENT EVENTS (UNAUDITED)

Initial Public Offering

On April 21, 1998, the Company's board of directors authorized the filing
of a registration statement with the Securities and Exchange Commission
permitting the Company to sell up to an aggregate of 3.5 million shares of its
Class A Common Stock (not including the underwriters' over-allotment option) to
the public. In connection with the public offering (the Offering), or as soon as
practicable after the closing, the Senior Subordinated Notes, together with
accrued and unpaid interest thereon, will be repaid in full, $35.0 million of
the Senior Notes, together with accrued and unpaid interest thereon, will be
repaid and certain shares of the Company's Series A, Series B and Series C
Preferred Stock will be redeemed, together with accrued and unpaid dividends
thereon. In connection with the repayment of the Senior Notes, the Company
expects to incur non-recurring extraordinary charges of $3,600 in prepayment
penalties and $1,700 as a result of the write-off of previously capitalized
deferred financing costs. The Company also intends to enter into a $35.0 million
five year unsecured term loan facility and replace its existing Credit Facility
with a new $50.0 million unsecured revolving credit facility.

The Company will effect the Preferred Stock Redemption by (1) redeeming all
of the outstanding shares of Series A Preferred Stock, 351 of the 702
outstanding shares of Series B Preferred Stock and seven of the 1,189
outstanding shares of Series C Preferred Stock at their liquidation value, plus

F-30
<PAGE> 100
HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

accrued and unpaid dividends, and (2) exchanging the remaining outstanding
shares of Series B and Series C Preferred Stock for an equal number of shares of
Series D Preferred Stock. All shares of Series A, Series B, and Series C
Preferred Stock redeemed or exchanged in the Preferred Stock Redemption will be
cancelled and permanently retired.

Dividends on the Series D Preferred Stock will be cumulative and accrue at
the rate of 9.8% per annum, payable quarterly. The holders of the Series D
Preferred Stock have the right to elect a majority of the members of the board
of directors and to vote separately as a class on any proposal to effect a
fundamental corporate change that is submitted to the stockholders of the
Company for a vote. The voting rights of the shares of the Series D Preferred
Stock will terminate upon the occurrence of certain events. The Company may,
either (1) with the consent of all holders of the Series D Preferred Stock for
as long as they have the voting rights described above, or (2) without the
consent of such holders following the termination of such voting rights, redeem
all of the outstanding shares of Series D Preferred Stock, provided the Company
is not in default in the payment of any dividends on such series of Preferred
Stock then outstanding, for $1,000 per share plus all accrued and unpaid
dividends to the date of redemption. Each share of Series D Preferred Stock is
entitled to a liquidation preference equal to $1,000 per share plus any accrued
and unpaid dividends thereon after payment of all debts and other liabilities of
the Company and before any payment or distribution is made on the Common Stock.

Stock Option Plan

The 1997 Stock Option Plan was adopted in November 1997, and provides for
the grant of options to purchase an aggregate of 700,000 shares of the Company's
Class A Common Stock. The 1997 Plan provides for the grant to employees of
incentive stock options within the meaning of the Internal Revenue Code and for
the grant of nonstatutory options to eligible employees and non-employee
directors. Incentive stock options may be exercisable for up to ten years at an
option price of not less than the fair market value of the Common Stock on the
date that the option is granted, or for up to five years at an option price of
not less than 110% of the fair market value of the Class A Common Stock on the
date the option is granted in the case of an officer or other key employee who
owns, at the time the option is granted, more than ten percent of the Class A
Common Stock. Nonstatutory stock options may be exercisable for up to ten years
at such exercise price and upon such terms and conditions as a committee of the
board of directors may determine.

The 1997 Plan provides that unless otherwise provided in an individual
grant, an option will become immediately fully exercisable upon the occurrence
of certain transactions, such as the merger or sale of the Company.

F-31
<PAGE> 101

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
S.K. Wellman Limited, Inc.

We have audited the consolidated balance sheets of S.K. Wellman Limited,
Inc. and subsidiaries (a wholly-owned subsidiary of MLX Corp.) as of December
31, 1993 and 1994, and the related consolidated statements of operations,
shareholder's equity, and cash flows for the years then ended. We have also
audited the statements of operations and cash flows of S.K. Wellman Limited,
Inc. and subsidiaries for the six months ended June 30, 1995. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of S.K. Wellman
Limited, Inc. and subsidiaries at December 31, 1993 and 1994, and the
consolidated results of their operations and their cash flows for the years
ended December 31, 1993 and 1994 and the six months ended June 30, 1995 in
conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Cleveland, Ohio
September 26, 1996

F-32
<PAGE> 102

S.K. WELLMAN LIMITED, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1993
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 290 $ 446
Accounts receivable....................................... 8,357 9,638
Inventories:
Raw materials and work-in-process...................... 6,151 7,328
Finished products...................................... 2,298 2,353
------- -------
8,449 9,681
Prepaid expenses and other current assets................. 585 957
Deferred income taxes..................................... 825 618
------- -------
Total current assets........................................ 18,506 21,340
Property, plant and equipment:
Land and improvements..................................... 1,179 1,239
Buildings and improvements................................ 6,908 7,376
Machinery and equipment................................... 15,686 17,581
Construction in progress.................................. 533 1,178
------- -------
24,306 27,374
Less accumulated depreciation and amortization............ 12,250 14,012
------- -------
12,056 13,362
Other assets:
Receivable from MLX Corp.................................. 1,467 2,151
Intangible assets, less accumulated amortization of $3,060
in 1993 and $3,558 in 1994............................. 2,370 1,925
Other..................................................... 536 510
------- -------
TOTAL ASSETS................................................ $34,935 $39,288
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,356 $ 4,615
Accrued compensation and benefits......................... 2,214 2,764
Accrued taxes............................................. 403 769
Other accrued liabilities and expenses.................... 1,481 1,552
Current portion of long-term debt......................... 53 61
------- -------
Total current liabilities................................... 7,507 9,761
Long-term liabilities:
Debt...................................................... 12,390 10,997
Deferred income taxes..................................... 224 181
Other..................................................... 2,261 2,893
------- -------
Total long-term liabilities................................. 14,875 14,071
Shareholder's equity:
Preferred stock, $100 par value -- authorized 20,000
shares; none outstanding
Common stock, $1 par value -- authorized and outstanding
250,000 shares......................................... 250 250
Retained earnings......................................... 14,044 16,838
Other equity adjustments.................................. (1,536) (1,427)
Cost of 3,750 shares of common stock held for
retirement............................................. (205) (205)
------- -------
Total shareholder's equity.................................. 12,553 15,456
------- -------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY.................. $34,935 $39,288
======= =======
</TABLE>

See notes to consolidated financial statements.
F-33
<PAGE> 103

S.K. WELLMAN LIMITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED
------------------ JUNE 30,
1993 1994 1995
------- ------- ----------
<S> <C> <C> <C>
Net sales................................................ $57,036 $60,858 $34,916
Costs and expenses:
Cost of products sold.................................. 43,174 46,365 26,617
Selling, general and administrative expenses........... 6,196 6,772 3,085
MLX Corp. management fee............................... 950 1,200 600
Amortization of intangibles............................ 175 175 87
------- ------- -------
50,495 54,512 30,389
------- ------- -------
Operating earnings....................................... 6,541 6,346 4,527
Interest expense......................................... (1,746) (1,369) (660)
Intercompany interest income............................. 151 185 109
Other (expense) income................................... (122) 115 (6)
------- ------- -------
Earnings before income taxes............................. 4,824 5,277 3,970
Provision for income taxes:
Federal income taxes................................... 1,422 1,489 1,016
Foreign, state and local income taxes.................. 533 994 680
------- ------- -------
1,955 2,483 1,696
------- ------- -------
NET EARNINGS............................................. $ 2,869 $ 2,794 $ 2,274
======= ======= =======
</TABLE>

See notes to consolidated financial statements.

F-34
<PAGE> 104

S.K. WELLMAN LIMITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON
STOCK TOTAL
COMMON RETAINED OTHER EQUITY HELD FOR SHAREHOLDER'S
STOCK EARNINGS ADJUSTMENTS RETIREMENT EQUITY
------ -------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1993........ $250 $14,552 $(1,026) $(205) $13,571
Net earnings....................... 2,869 2,869
Dividend to MLX Corp............... (3,377) (3,377)
Foreign currency translation
adjustment....................... (445) (445)
Pension adjustment................. (65) (65)
---- ------- ------- ----- -------
Balances at December 31, 1993...... 250 14,044 (1,536) (205) 12,553
Net earnings....................... 2,794 2,794
Foreign currency translation
adjustment....................... 109 109
---- ------- ------- ----- -------
Balances at December 31, 1994...... $250 $16,838 $(1,427) $(205) $15,456
==== ======= ======= ===== =======
</TABLE>

See notes to consolidated financial statements.

F-35
<PAGE> 105

S.K. WELLMAN LIMITED, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED
------------------ JUNE 30,
1993 1994 1995
------- ------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings.............................................. $ 2,869 $ 2,794 $ 2,274
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization........................... 2,501 2,269 1,099
Changes in operating assets and liabilities:
Accounts receivable.................................. (84) (1,281) (907)
Inventories and prepaid expenses..................... (507) (1,604) (891)
Accounts payable and accrued expenses................ 1,486 2,116 143
Deferred income taxes................................ (449) 191
Other................................................ (1,152) 124 301
------- ------- -------
Net cash provided by operating activities................. 4,664 4,609 2,019
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment................ (1,820) (2,983) (1,334)
Collection of intercompany advances and interest.......... 1,731 1,140 372
Advances to MLX Corp...................................... (1,247) (1,824)
------- ------- -------
Net cash used in investing activities..................... (1,336) (3,667) (962)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings of long-term debt.............................. 10,740 365
Repayments of long-term debt.............................. (8,132) (1,750) (1,759)
Changes in capital lease obligations...................... 599 256
Dividends paid to MLX Corp................................ (5,900)
------- ------- -------
Net cash used in financing activities..................... (3,292) (786) (1,503)
------- ------- -------
Net increase (decrease) in cash........................... 36 156 (446)
Cash at beginning of period............................... 254 290 446
------- ------- -------
CASH AT END OF PERIOD..................................... $ 290 $ 446 $ 0
======= ======= =======
</TABLE>

See notes to consolidated financial statements.

F-36
<PAGE> 106

S.K. WELLMAN LIMITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1993 AND 1994
AND THE SIX MONTHS ENDED JUNE 30, 1995

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF THE BUSINESS

S.K. Wellman Limited, Inc. (S.K. Wellman or the Company), is a wholly-owned
subsidiary of MLX Corp. (MLX). The Company designs and manufactures proprietary
high-energy friction material and related products for original equipment and
aftermarket applications in the aircraft industry and for heavy equipment
brakes, transmissions and clutches. The Company serves many large manufacturing
companies around the world through subsidiary manufacturing and sales offices
located in Brook Park, Ohio; LaVergne, Tennessee; Solon, Ohio; Concord, Ontario;
Orzinuovi, Italy; and an affiliation with Tokai Carbon Co., Limited in Tokyo,
Japan.

On June 30, 1995, substantially all of the net assets of the Company were
acquired, for cash, by Hawk Corporation for a purchase price of approximately
$62 million. The acquisition was accounted for as a purchase. The operating
results of the Company have been included in Hawk Corporation's consolidated
financial statements since the date of acquisition.

PRINCIPLES OF CONSOLIDATION

The financial statements include the accounts of S.K. Wellman and its
wholly-owned subsidiaries. Upon consolidation, all significant intercompany
accounts and transactions have been eliminated.

INVENTORIES

Inventories are stated at 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. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
respective assets.

INTANGIBLE ASSETS

Intangible assets are amortized using the straight-line method over the
weighted average lives indicated in the following table. The components of
intangible assets are as follows:

<TABLE>
<CAPTION>
1993 1994 LIFE
------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Excess of cost of acquired businesses over
the fair value of the net assets
acquired.................................. $ 1,699 $ 1,699 10 years
Deferred financing costs.................... 907 953 11 years
Proprietary formulations and patents........ 1,806 1,806 10 years
Pension costs............................... 1,018 1,025 15 years
------- --------
5,430 5,483
Accumulated amortization.................... (3,060) (3,558)
------- --------
$ 2,370 $ 1,925
======= ========
</TABLE>

F-37
<PAGE> 107
S.K. WELLMAN LIMITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

PRODUCT RESEARCH AND DEVELOPMENT

Costs incurred in research, product development and engineering ($3.4
million in 1993 and 1994 and $1.9 million for the six months ended June 30,
1995) are charged to operations as incurred. The Company recorded the research
and product development portion of this expense ($1.7 million in 1993, $1.4
million in 1994 and $.7 million for the six months ended June 30, 1995) as
selling, general and administrative expense in the Consolidated Statements of
Operations.

FOREIGN CURRENCY TRANSLATION

The assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at current exchange rates with the resulting cumulative translation
adjustment reflected as an Other Equity Adjustment in shareholder's equity.
Exchange adjustments resulting from certain transactions, included in other
(expense) income in the accompanying Consolidated Statements of Operations were
a $255,000 loss in 1993, $95,000 income in 1994 and $10,000 income for the six
months ended June 30, 1995.

INCOME TAXES

In accordance with a tax sharing agreement between MLX and the Company, MLX
charges the Company for federal income taxes computed as if the Company was not
part of the consolidated federal income tax return. In addition, the Company
records provisions for foreign, state and local income taxes.

Deferred income taxes arise from temporary differences between income tax
and financial reporting and principally relate to accruals recorded for book
purposes that are not deductible for tax purposes until paid and the use of
accelerated depreciation methods for property, plant and equipment for income
tax purposes.

RECLASSIFICATION

Certain reclassifications have been made in the 1993 financial statements
to conform with the 1994 and 1995 presentation.

B. RELATIONSHIP WITH MLX CORP.

The Company has a Management Services Agreement with MLX under which MLX
provides certain senior management and financial services to the Company for a
fee.

The Company advanced $4 million in cash to MLX in 1990 and made additional
advances totaling $1.2 million in 1993 and $1.8 million in 1994. The Company
charges MLX interest on these advances at a rate which is equal to the rate
which the Company pays on its senior credit facility. The intercompany balance
is adjusted quarterly for charges by MLX for federal income taxes on the
Company's taxable income.

F-38
<PAGE> 108
S.K. WELLMAN LIMITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

C. LONG-TERM DEBT

The components of long-term debt are as follows:

<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Senior credit facility:
Revolving credit facility............................. $ 2,345 $ 1,981
Real estate term facility............................. 6,450 8,399
Mezzanine component................................... 1,350 550
Equipment term note................................... 420
Subordinated note....................................... 1,703
Note payable to bank.................................... 175 128
12,443 11,058
Less current portion.................................... 53 61
------- -------
$12,390 $10,997
======= =======
</TABLE>

The Company has available a $19.7 million credit facility (the senior
credit facility). During 1994, the loan and security agreement was amended to
extend the expiration of the facility through January 1998 and to consolidate
the real estate term facility, the original equipment term note and the proceeds
used to repay the seller note into the consolidated term loan.

The senior credit facility provides for four borrowing components with
varying rates and repayment obligations. Included in the senior credit facility
is a secured revolving credit component with a maximum borrowing limit of $7.2
million which expires in January 1998. This revolving loan bears interest at
prime rate plus 1.25% (9.75%) at December 31, 1994 compared to prime rate plus
2.0% (8%) at December 31, 1993. The amount which may be borrowed is subject to
certain availability formulas regarding accounts receivable and inventory.

The senior credit facility also includes a secured consolidated term loan
component with an initial balance of $8.5 million. This loan requires monthly
amortization of $101,000 with any remaining unpaid balance payable in January
1998. The loan bears an initial interest rate of prime plus 2% dropping to prime
plus 1.75% after certain conditions are met.

These components of the senior credit facility are secured by a lien on
substantially all the North American assets of the Company and a pledge of the
common stock of its Italian subsidiary. The agreements require the Company to,
among other things, maintain specified levels of working capital, net worth and
profitability. This agreement also limits cash dividends and loans to MLX. Under
the most restrictive covenants, retained earnings in the amount of approximately
$1.3 million were free from limitations on the payment of dividends to MLX at
December 31, 1994.

An additional component of the senior credit facility is a $2 million,
unsecured, 30-month mezzanine term facility expiring in July 1995 with monthly
amortization requirements of $67,000 and an interest rate of prime plus 3.5%.
This facility may be prepaid, under certain circumstances, with no penalty.

The senior credit facility also has available a line of credit intended to
fund capital expenditures up to a maximum of $2 million. This note bears
interest at prime rate plus 1.75% and requires equal monthly amortization
payments based on a five year term with any remaining unpaid balance payable in
January 1997. Advances are made at the Company's request and may occur at any
time until January 1997. At December 31, 1994 no amounts were outstanding under
the arrangement.

F-39
<PAGE> 109
S.K. WELLMAN LIMITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The note payable to bank was used to fund certain capital expenditures in
Italy. The note bears interest at 9%, is unsecured, and is due in varying
quarterly installments through December 1996.

The Company intends to finance current maturities of long-term borrowings,
except the Italian note payable to bank, through availability under the
revolving credit facility.

Aggregate maturities and other reductions of debt are: 1995 -- $61,000;
1996 -- $1.3 million; 1997 -- $1.2 million and 1998 -- $8.5 million.

Interest paid was $1.4 million in 1993, $1.2 million in 1994 and $.6
million for the six months ended June 30, 1995.

D. EMPLOYEE BENEFITS

The Company sponsors a defined contribution pension plan which covers a
majority of its U.S. employees. The plan provides for voluntary employee
contributions, a matching Company contribution and a discretionary Company
contribution. Expenses related to this plan were $470,000, $516,000 and $285,000
in 1993, 1994 and for the six months ended June 30, 1995, respectively.

The Company and certain of its subsidiaries sponsor two non-contributory
defined benefit pension plans covering certain of their U.S. and Canadian
employees. Benefits under one plan is based on compensation during the years
immediately preceding retirement. Under the other plan, the benefits are based
on a fixed annual benefit for each year of credited service. It is the Company's
policy to make contributions to these plans sufficient to meet minimum funding
requirements of the applicable laws and regulations, plus such additional
amounts, if any, as the Company's actuarial consultants advise to be
appropriate. Plan assets consist principally of equity securities and fixed
income instruments.

A summary of the components of net periodic pension costs for the plans is
as follows:

<TABLE>
<CAPTION>
1994 1993
------ ------
(IN THOUSANDS)
<S> <C> <C>
Service cost................................................ $ 105 $ 125
Interest cost............................................... 259 160
Actual return on plan assets................................ (281) 71
Net amortization and deferral............................... 88 (227)
------ ------
$ 171 $ 129
====== ======
Assumptions used were:
Weighted average discount rate............................ 7.44% 8.38%
Rate of increase in compensation levels................... 6.00% 5.00%
Weighted average expected long-term rate of return on
assets................................................. 8.63% 8.63%
</TABLE>

F-40
<PAGE> 110
S.K. WELLMAN LIMITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The following table presents the funded status and amounts recognized in
the consolidated financial statements at December 31, 1993 and 1994, related to
the defined benefit plans (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1994
-------------------------- --------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ACTUARIAL PRESENT VALUE OF BENEFIT
OBLIGATIONS
Vested benefit obligations........ $ (423) $(1,407) $(372) $(1,558)
====== ======= ===== =======
Accumulated benefit obligations... $ (434) $(1,613) $(381) $(1,772)
====== ======= ===== =======
Projected benefit obligations..... $ (537) $(1,613) $(495) $(1,772)
Plan assets at fair value......... 1,012 984 891 1,038
------ ------- ----- -------
Projected benefit obligations less
than (in excess of) plan
assets.......................... 475 (629) 396 (734)
Unrecognized net loss............. 93 86 149
Prior service cost not yet
recognized in net periodic
pension cost.................... 200 170 349
Unrecognized net obligation
(asset) at January 1............ (284) 214 (246) 76
Adjustment required to recognize
minimum liability............... (500) (574)
------ ------- ----- -------
PREPAID (ACCRUED) PENSION COST AT
DECEMBER 31..................... $ 284 $ (629) $ 320 $ (734)
====== ======= ===== =======
</TABLE>

The Company provides a fixed noncontributory benefit toward postretirement
health care for certain of its U.S. retired union employees. Projected future
costs of providing postretirement health care benefits are recognized as expense
as employees render service. In 1993, the Company recognized a transition
obligation amounting to approximately $540,000, for prior service costs as of
January 1, 1993. This transition obligation is being amortized into general and
administrative expenses over 20 years. The weighted average discount rate used
in determining the accumulated postretirement benefit obligation was 7%.
Postretirement benefit costs amounted to $62,000, $50,000 and $13,500 in 1993,
1994 and the six months ended June 30, 1995, respectively.

E. LEASES

The Company has lease commitments for buildings and equipment. Future
minimum annual rentals are: 1995 -- $211,000, 1996 -- $188,000, 1997 -- $158,000
1998 -- $115,000, 1999 -- $47,000, thereafter -- $135,000. Amount representing
interest is $211,000.

The Company leases certain office and warehouse facilities and equipment
under operating leases. Rental expense was $312,000, $367,000 and $162,000, in
1993, 1994 and the six months ended June 30, 1995, respectively. Future minimum
lease commitments under these agreements which have an original or existing term
in excess of one year as of December 31, 1994 are as follows: 1995 -- $259,000;
1996 -- $128,000; 1997 -- $76,000; 1998 -- $11,000 and 1999 -- $9,000.

F-41
<PAGE> 111
S.K. WELLMAN LIMITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

F. INCOME TAXES

The results of the Company's operations are included in the consolidated
federal income tax returns of MLX Corp. Income taxes set forth in the
Consolidated Statements of Operations are as follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED
---------------- JUNE 30,
1993 1994 1995
------ ------ ----------
<S> <C> <C> <C>
Federal:
Current.................................... $1,810 $1,298 $1,016
Deferred................................... (388) 191 0
------ ------ ------
1,422 1,489 1,016
219 699 424
Foreign,
State and local:
Current.................................... 375 295 256
Deferred................................... (61)
------ ------ ------
314 295 256
------ ------ ------
$1,955 $2,483 $1,696
====== ====== ======
</TABLE>

The provision for income taxes differ from the amounts computed by applying
the federal statutory rate as follows:

<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED
------------ JUNE 30,
1993 1994 1995
---- ---- ----------
<S> <C> <C> <C>
Income tax at federal statutory rate.............. 34.0% 34.0% 34.0%
State and local tax, net.......................... 4.3 3.7 4.3
Nondeductible goodwill amortization and other..... 0.6 0.9 0.7
Foreign tax rate differential..................... 3.5 6.1 3.8
Other, net........................................ (1.9) 2.4 0.0
---- ---- ----
40.5% 47.1% 42.8%
==== ==== ====
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax

F-42
<PAGE> 112
S.K. WELLMAN LIMITED, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

purposes. Significant components of the Company's net deferred tax assets as of
December 31, 1993 and 1994 are as follows (in thousands):

<TABLE>
<CAPTION>
1993 1994
----- -----
<S> <C> <C>
Deferred tax assets:
Accrued vacation.......................................... $ 321 $ 181
Inventory obsolescence.................................... 193 93
Accrued pension........................................... 138 8
Other reserves............................................ 173 336
----- -----
Total deferred tax assets................................... 825 618
Deferred tax liabilities:
Tax over book depreciation................................ (193) (201)
Other..................................................... (31) 20
----- -----
Total deferred tax liabilities.............................. (224) (181)
----- -----
Net deferred tax assets..................................... $ 601 $ 437
===== =====
</TABLE>

Undistributed earnings of the Company's foreign subsidiaries were not
significant at December 31, 1994. Those earnings are considered to be
indefinitely reinvested and, accordingly, no provision for U.S. federal and
state income taxes has been provided. Upon distribution of these earnings in the
form of dividends or otherwise, the Company would be subject to both U.S. income
taxes and withholding taxes payable to various foreign countries.

The Company paid foreign, state and local income taxes amounting to
$504,000 and $628,000 in 1993 and 1994, respectively.

G. OTHER MATTERS

Sales of foreign operations were $10.1 million, $11.8 million and $7.6
million in 1993, 1994 and for the six months ended June 30, 1995, respectively,
with operating earnings of $.9 million, $1.6 million and $1.2 million in 1993,
1994 and six months ended June 30, 1995, respectively, and net loss of $16,000,
net income of $514,000 and net income of $385,000 in 1993, 1994 and for the six
months ended June 30, 1995, respectively. Identifiable assets of foreign
operations were $9.4 million and $10.8 million at December 31, 1993 and 1994,
respectively.

The percentage of net sales to major customers was as follows:

<TABLE>
<CAPTION>
YEARS ENDED SIX MONTHS
DECEMBER 31, ENDED
------------ JUNE 30,
1993 1994 1995
---- ---- ----------
<S> <C> <C> <C>
Customer A.......................................... 16% 15% 17%
Customer B.......................................... 9% 9% 13%
Customer C.......................................... 14% 16% 12%
</TABLE>

The Company provides credit, in the normal course of its business, to
original equipment and after-market companies in the aircraft and heavy
equipment industries. 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.

F-43
<PAGE> 113

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Houghton Acquisition Corporation d/b/a
Hutchinson Foundry Products Company:

We have audited the accompanying balance sheets of Houghton Acquisition
Corporation d/b/a Hutchinson Foundry Products Company (the "Company") as of
December 31, 1996 and 1995 and the related statements of income, stockholders'
equity (deficit) and cash flows for each of the years in the three-year period
ended December 31, 1996. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1996 and 1995 and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1996, in conformity
with generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

St. Louis, Missouri
February 5, 1997

F-44
<PAGE> 114

HOUGHTON ACQUISITION CORPORATION d/b/a
HUTCHINSON FOUNDRY PRODUCTS COMPANY

BALANCE SHEETS

DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 289,620 $ 21,945
Accounts receivable, net of estimated allowance for
doubtful accounts of $-0- and $90,500 in 1996 and 1995,
respectively........................................... 1,378,577 1,007,205
Inventories............................................... 444,751 226,150
Prepaid expenses and other assets......................... 142,650 35,608
Refundable income taxes................................... 141,259
Deferred income taxes..................................... 51,000 124,000
---------- ----------
Total current assets................................. 2,447,857 1,414,908
---------- ----------
Property, plant and equipment............................... 3,957,584 3,248,921
Less accumulated depreciation............................... 1,140,904 827,744
---------- ----------
2,816,680 2,421,177
---------- ----------
Other assets:
Prepaid pension cost...................................... 175,789 177,373
Debt financing costs, net of accumulated amortization of
$196,238 in 1995....................................... 10,586
Noncompete agreement, net of accumulated amortization of
$400,000 and $300,000 in 1996 and 1995, respectively... 100,000 200,000
Goodwill, net of accumulated amortization of $104,933 and
$78,699 in 1996 and 1995, respectively................. 789,314 815,548
Other intangible assets, net of accumulated amortization
of $57,512 and $45,484 in 1996 and 1995,
respectively........................................... 16,727 28,755
---------- ----------
Total other assets................................... 1,081,830 1,232,262
---------- ----------
Total assets......................................... $6,346,367 $5,068,347
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Borrowings on revolving line of credit.................... $ 131,950
Current portion of long-term debt......................... $ 100,000 100,000
Current portion of capital lease obligations.............. 79,584
Accounts payable.......................................... 518,940 223,227
Accrued expenses.......................................... 249,915 345,771
Income taxes payable...................................... 52,000
Preferred stock dividends payable......................... 38,389
---------- ----------
Total current liabilities............................ 948,439 891,337
Long-term debt, net of current portion...................... 25,000 375,000
Capital lease obligations, net of current portion........... 545,157
Deferred income taxes....................................... 350,000 308,000
Cumulative redeemable preferred stock....................... 1,434,000 1,360,000
Common stock purchase warrants subject to put option........ 3,283,524 2,269,470
Stockholders' equity (deficit).............................. (239,753) (135,460)
---------- ----------
Total liabilities and stockholders' equity
(deficit)......................................... $6,346,367 $5,068,347
========== ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-45
<PAGE> 115

HOUGHTON ACQUISITION CORPORATION d/b/a
HUTCHINSON FOUNDRY PRODUCTS COMPANY

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net sales............................................ $8,621,385 $8,133,452 $8,687,853
Cost of goods sold................................... 5,776,692 5,417,039 5,860,256
---------- ---------- ----------
Gross profit....................................... 2,844,693 2,716,413 2,827,597
Selling, general and administrative expenses......... 793,944 868,470 876,046
Amortization expense................................. 148,848 493,160 689,260
---------- ---------- ----------
Income from operations............................. 1,901,901 1,354,783 1,262,291
---------- ---------- ----------
Other income (expense):
Interest expense................................... (23,530) (145,061) (254,775)
Other, net......................................... 20,390 7,150 8,975
---------- ---------- ----------
(3,140) (137,911) (245,800)
---------- ---------- ----------
Income before provision for income taxes........... 1,898,761 1,216,872 1,016,491
Provision for income taxes........................... 791,000 486,000 419,400
---------- ---------- ----------
Net income........................................... $1,107,761 $ 730,872 $ 597,091
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-46
<PAGE> 116

HOUGHTON ACQUISITION CORPORATION d/b/a
HUTCHINSON FOUNDRY PRODUCTS COMPANY

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
RETAINED
ADDITIONAL EARNINGS
COMMON PAID-IN (ACCUMULATED
STOCK CAPITAL DEFICIT) TOTAL
------ ---------- ------------ -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1994...................... $5,000 $495,000 $ 42,044 $ 542,044
Net income.................................... 597,091 597,091
Dividends on preferred stock.................. (123,997) (123,997)
Accretion on preferred stock and stock
warrants.................................... (954,412) (954,412)
------ -------- ----------- -----------
Balance, December 31, 1994.................... 5,000 495,000 (439,274) 60,726
Net income.................................... 730,872 730,872
Dividends on preferred stock.................. (124,000) (124,000)
Accretion on preferred stock and stock
warrants.................................... (803,058) (803,058)
------ -------- ----------- -----------
Balance, December 31, 1995.................... 5,000 495,000 (635,460) (135,460)
Net income.................................... 1,107,761 1,107,761
Dividends on preferred stock.................. (124,000) (124,000)
Accretion on preferred stock and stock
warrants.................................... (1,088,054) (1,088,054)
------ -------- ----------- -----------
Balance, December 31, 1996.................... $5,000 $495,000 $ (739,753) $ (239,753)
====== ======== =========== ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-47
<PAGE> 117

HOUGHTON ACQUISITION CORPORATION d/b/a
HUTCHINSON FOUNDRY PRODUCTS COMPANY

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 1,107,761 $ 730,872 $ 597,091
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation..................................... 313,160 289,064 282,642
Amortization..................................... 148,848 493,160 689,260
Deferred income taxes............................ 115,000 14,000 107,000
Loss on disposals of equipment................... 10,918
Changes in Assets and Liabilities:
Accounts receivable.............................. (371,372) 53,736 91,486
Inventories...................................... (218,601) 80,534 (27,470)
Prepaid expenses and other assets................ (107,042) (9,313) (15,511)
Prepaid pension cost............................. 1,584 (28,714) (17,061)
Accounts payable................................. 295,713 (76,871) 24,219
Accrued expenses................................. (95,856) (51,105) 43,954
Income taxes refundable/payable.................. (193,259) 30,825 14,175
----------- ----------- ----------
Net cash provided by operating activities........... 995,936 1,537,106 1,789,785
----------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment.......... (58,035) (57,119) (93,278)
Proceeds from disposals of equipment................ 32,000 42,500
----------- ----------- ----------
Net cash used in investing activities............... (58,035) (25,119) (50,778)
----------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt........................ (350,000) (2,134,150) (1,350,044)
Repayments of capital lease obligations............. (25,887)
Borrowings under revolving line of credit........... 1,328,895 461,644 327,843
Repayments under revolving line of credit........... (1,460,845) (329,694) (327,843)
Dividends paid on preferred stock................... (162,389) (124,000) (123,318)
----------- ----------- ----------
Net cash used in financing activities............... (670,226) (2,126,200) (1,473,362)
----------- ----------- ----------
Net increase (decrease) in cash and cash
equivalents...................................... 267,675 (614,213) 265,645
Cash and cash equivalents, beginning of year.......... 21,945 636,158 370,513
----------- ----------- ----------
Cash and cash equivalents, end of year................ $ 289,620 $ 21,945 $ 636,158
=========== =========== ==========
SUPPLEMENTAL DISCLOSURES:
Income taxes paid................................... $ 869,000 $ 451,000 $ 298,000
=========== =========== ==========
Interest paid....................................... $ 24,000 $ 170,000 $ 236,000
=========== =========== ==========
NONCASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital lease agreements..... $ 650,628
===========
Dividends declared but not paid as of December 31..... $ 38,389 $ 38,389
=========== ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.

F-48
<PAGE> 118

HOUGHTON ACQUISITION CORPORATION d/b/a
HUTCHINSON FOUNDRY PRODUCTS COMPANY

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994

1. DESCRIPTION OF BUSINESS:

Effective December 31, 1992, Houghton Acquisition Corporation (the
"Company") purchased substantially all of the assets of Hutchinson Foundry
Products Company. The Company's principal business is the production and sale of
rotors for use in subfractional horsepower motors and, to a lesser extent, the
machining and sale of aluminum extrusions and castings, principally fan spacers
used by engine manufacturers and gas nozzles used in gasoline pumping units. The
Company sells its products primarily in the Midwest region of the United States.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

A. CASH AND CASH EQUIVALENTS: Cash and cash equivalents include cash, bank
deposits and highly liquid investments purchased with original
maturities of three months or less.

B. INVENTORIES: Inventories are stated at the lower of cost or market.
Cost is determined principally using the first-in, first-out method.

C. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment acquired
in conjunction with the Acquisition (see Note 1) were recorded at their
estimated fair value at the acquisition date based on independent
appraisals obtained near the acquisition date. Property, plant and
equipment purchased subsequent to the acquisition are recorded at cost.
Depreciation is computed utilizing the straight-line method over the
estimated useful lives of the assets which are as follows:

Land improvements................................ 15 years
Buildings........................................ 20 years
Machinery and equipment.......................... 10 years
Vehicles and computers........................... 3-5 years

Upon retirement or replacement, the cost and related accumulated
depreciation are removed from the respective accounts and any resulting
gain or loss is included in earnings. Expenditures for maintenance and
repairs are charged to operations as incurred, while renewals and
betterments which extend the useful lives of the assets are capitalized.

D. DEBT FINANCING COSTS: Costs incurred in connection with obtaining and
securing the bank loan agreement have been capitalized and are being
amortized over the period of the related borrowings. Amortization
expense for 1996, 1995 and 1994 was $10,586, $68,948 and $68,957,
respectively.

E. NONCOMPETE AGREEMENT: In connection with the acquisition (see Note 1),
the Company entered into a noncompete agreement with the seller valued
at $500,000. Under this noncompete agreement, the seller has agreed not
to compete with the Company through December 31, 1997.

The value of the noncompete agreement is being amortized over the term
of the agreement using the straight-line method. Amortization expense
was $100,000 for 1996, 1995 and 1994.

F. GOODWILL: The excess of the purchase price of the Company over the fair
value of the tangible and identifiable intangible net assets acquired
(see Note 1) has been allocated to goodwill. Goodwill is being amortized
on a straight-line basis over a period of forty years. Amortization
expense was $26,234 for 1996, 1995 and 1994.

F-49
<PAGE> 119
HOUGHTON ACQUISITION CORPORATION d/b/a
HUTCHINSON FOUNDRY PRODUCTS COMPANY

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

At each balance sheet date, management assesses whether there has been a
permanent impairment of the value of goodwill. The factors considered by
management in performing this assessment include current operating
results, trends and prospects as well as the effects of obsolescence,
demand, competition and other economic factors. Management has concluded
that no impairment of the value of goodwill has occurred as of any of
the balance sheet dates presented.

G. OTHER INTANGIBLE ASSETS: Other intangible assets at December 31, 1996
consist of organization costs which are being amortized over five years.
Amortization expense related to these costs amounted to $12,028 for
1996.

Prior to 1996, other intangible assets also included a sales agreement
and a union employment agreement, the values of which were based on
independent appraisals at the date of acquisition (see Note 1). These
intangible assets were amortized on a straight-line basis over the terms
of the respective agreements and became fully amortized during 1995.
Amortization expense related to other intangible assets amounted to
$297,978 and $494,069 in 1995 and 1994, respectively.

H. INCOME TAXES: Deferred tax liabilities and assets are recognized for
the expected future tax consequences of events that have been included
in the financial statements or tax returns. Deferred tax liabilities and
assets are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax
rates as of the balance sheet date which are expected to be applied to
taxable income in the periods in which the deferred tax liability or
asset is expected to be settled or realized. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized.

I. PREFERRED STOCK AND STOCK WARRANTS: The proceeds received related to
the preferred stock and stock warrants have been allocated to the
respective instruments based upon their estimated fair values as of
March 10, 1993, the effective date of the related Securities Purchase
Agreement. The preferred stock is being accreted to its redemption value
as of March 10, 1998 using the interest method. The stock warrants are
being accreted on a straight-line basis to their estimated value as of
their earliest put date, March 10, 1998, using a formula based on a
multiple of earnings adjusted for certain items as defined in the
Securities Purchase Agreement. Accretion is effected via corresponding
decreases to the Company's retained earnings and constitutes noncash
transactions for purposes of the accompanying statements of cash flows.

J. ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.

3. MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK:

The Company has entered into an agreement with one of its largest customers
which entitles the Company to be this customer's exclusive supplier of die cast
rotors, under certain terms and conditions. The current agreement extends
through August 31, 1998.

F-50
<PAGE> 120
HOUGHTON ACQUISITION CORPORATION d/b/a
HUTCHINSON FOUNDRY PRODUCTS COMPANY

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

The following is a summary of sales and uncollateralized accounts
receivable by year and as of December 31, respectively, to individual customers
in amounts that exceeded ten percent of total Company net sales and accounts
receivable, respectively:

<TABLE>
<CAPTION>
NUMBER OF
CUSTOMERS COMBINED PERCENT OF
WITH SALES TO TOTAL
SIGNIFICANT SIGNIFICANT COMPANY
YEAR ENDED DECEMBER 31, SALES CUSTOMERS NET SALES
- ----------------------- ----------- ------------- ----------
<S> <C> <C> <C>
1996....................................... 2 $3.9 million 45%
1995....................................... 2 $3.9 million 48%
1994....................................... 3 $5.0 million 58%
</TABLE>

<TABLE>
<CAPTION>
NUMBER OF
CUSTOMERS COMBINED PERCENT OF
WITH ACCOUNTS TOTAL
SIGNIFICANT RECEIVABLE COMPANY
ACCOUNTS OF SIGNIFICANT ACCOUNTS
AS OF DECEMBER 31, RECEIVABLE CUSTOMERS RECEIVABLE
- ------------------ ----------- -------------- ----------
<S> <C> <C> <C>
1996........................................ 3 $860,000 62%
1995........................................ 2 $577,000 57%
</TABLE>

Management expects that sales to the Company's major customers will
continue to be a significant portion of its annual sales. The Company performs
ongoing credit evaluations of its customers and has historically experienced
insignificant credit losses.

Substantially all of the Company's balances of cash and cash equivalents
are maintained in accounts at one financial institution.

4. INVENTORIES:

Inventories consist of the following as of December 31:

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Raw materials........................................... $260,216 $102,455
Work-in-process......................................... 107,145 30,579
Finished goods.......................................... 77,390 93,116
-------- --------
$444,751 $226,150
======== ========
</TABLE>

5. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consists of the following as of December 31:

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Land and improvements................................ $ 179,450 $ 179,450
Buildings............................................ 694,841 677,664
Machinery and equipment.............................. 3,013,590 2,329,588
Vehicles and computers............................... 69,703 62,219
---------- ----------
$3,957,584 $3,248,921
========== ==========
</TABLE>

As of December 31, 1996, machinery and equipment includes $650,628 of
assets acquired pursuant to capital lease agreements and accumulated
depreciation and depreciation expense include $21,688 related to those assets as
of December 31, 1996 and for the year then ended.

F-51
<PAGE> 121
HOUGHTON ACQUISITION CORPORATION d/b/a
HUTCHINSON FOUNDRY PRODUCTS COMPANY

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

Depreciation expense amounted to $313,160, $289,064 and $282,642 for the
years ended December 31, 1996, 1995 and 1994, respectively.

6. DEBT:

Long-term debt consists of the following as of December 31:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Obligation under noncompete agreement -- Payable in
quarterly installments through January 1, 1998....... $ 125,000 $ 225,000
Subordinated debt -- Note payable to former owner,
interest payable quarterly at floating rate tied to a
bank's prime rate (10.5% at December 31, 1995),
repaid during 1996................................... 250,000
--------- ---------
125,000 475,000
Less current portion................................... (100,000) (100,000)
--------- ---------
$ 25,000 $ 375,000
========= =========
</TABLE>

Management estimates that the fair value of its outstanding long-term debt
approximates its carrying value.

The Company also has a senior revolving line of credit agreement with a
bank which provides for borrowings up to the lesser of $1 million or an amount
based on specified percentages of the Company's eligible accounts receivable and
inventory, as defined in the agreement. Interest is payable monthly at a
floating rate tied to the bank's prime rate (8.25% at December 31, 1996), plus
.25% on the unused portion of the amount available. The Company had no
outstanding balance under the revolving line of credit agreement as of December
31, 1996.

7. CAPITAL LEASE OBLIGATIONS:

During 1996, the Company entered into various capital lease agreements for
certain machinery and equipment used in its operations.

The following is a schedule, by years, of future minimum lease payments
required under capital lease agreements, together with the present value of the
net minimum lease payments as of December 31, 1996:

<TABLE>
<S> <C>
1997........................................................ $ 131,603
1998........................................................ 131,603
1999........................................................ 131,603
2000........................................................ 131,603
2001........................................................ 254,926
---------
Total minimum lease payments.............................. 781,338
Less amount representing interest........................... (156,597)
---------
Present value of minimum lease payments................... 624,741
Less current portion........................................ (79,584)
---------
Long-term portion......................................... $ 545,157
=========
</TABLE>

F-52
<PAGE> 122
HOUGHTON ACQUISITION CORPORATION d/b/a
HUTCHINSON FOUNDRY PRODUCTS COMPANY

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

8. COMMON STOCK, PREFERRED STOCK AND STOCK WARRANTS:

Common stock consists of the following as of December 31:

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Common stock; voting; $1 par value; 30,000 shares
authorized; 5,000 shares issued and outstanding;
3,696 shares reserved for issuance upon exercise of
Common Stock Purchase Warrants..................... $ 5,000 $ 5,000
========== ==========
</TABLE>

Preferred stock consists of the following as of December 31:

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Class A Cumulative Redeemable Preferred Stock;
voting; $100 par value; 15,500 shares issued and
outstanding; mandatory dividend rate of 8% per
annum payable quarterly; redeemable by the Company
at any time, however, redemption is mandatory by
March 10, 1998; holders have the option to redeem
upon an event of default as defined in the related
Securities Purchase Agreement, registration of
securities or if the Company's president ceases to
hold a majority of voting securities; redemption
price of $100 per share............................ $1,434,000 $1,360,000
========== ==========
</TABLE>

Stock warrants consist of the following as of December 31:

<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Common Stock Purchase Warrants; issued to holders of
Class A Cumulative Redeemable Preferred Stock;
rights to purchase an aggregate of 3,479 shares of
Company's common stock, exercisable at any time for
$1 per share; on or after March 10, 1998, warrant
holders have the option to require the Company to
purchase such warrants, or any common stock
obtained as result of prior exercise of warrants,
at a price based on a multiple of the Company's
adjusted earnings, as defined in the related
Securities Purchase Agreement; holders of stock
issued upon exercise of warrants have the right to
cause the Company to register such shares under the
Securities Act of 1933; if not exercised, warrants
terminate on the sixth anniversary of the date all
preferred stock has been redeemed.................. $3,283,524 $2,269,470
========== ==========
</TABLE>

The Company has also issued other common stock purchase warrants to two
individuals to purchase an aggregate of 217 shares of the Company's common stock
on or before March 15, 1998 at an exercise price of approximately $446 per
share.

Pursuant to the terms of the Securities Purchase Agreement, preferred
stockholders and warrant holders are protected against dilution or other
impairment of their respective interests.

F-53
<PAGE> 123
HOUGHTON ACQUISITION CORPORATION d/b/a
HUTCHINSON FOUNDRY PRODUCTS COMPANY

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

Amounts recorded for accretion of the Cumulative Redeemable Preferred Stock
and Common Stock Purchase Warrants were as follows for the years ended December
31:

<TABLE>
<CAPTION>
CUMULATIVE
REDEEMABLE COMMON STOCK
PREFERRED PURCHASE
STOCK WARRANTS
---------- ------------
<S> <C> <C>
1996............................................. $74,000 $1,014,054
1995............................................. $64,000 $ 739,058
1994............................................. $55,000 $ 899,412
</TABLE>

9. INCOME TAXES:

The Company's provision for income taxes consists of the following for the
years ended December 31:

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Federal:
Current................................ $550,000 $381,000 $254,000
Deferred............................... 100,000 12,000 93,000
-------- -------- --------
650,000 393,000 347,000
-------- -------- --------
State:
Current................................ 126,000 91,000 58,400
Deferred............................... 15,000 2,000 14,000
-------- -------- --------
141,000 93,000 72,400
-------- -------- --------
$791,000 $486,000 $419,400
======== ======== ========
</TABLE>

The provision for income taxes for the years ended December 31 differs from
the "expected" tax expense computed by applying the U.S. federal corporate tax
rate of 34% to income before provision for income taxes as follows:

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Computed "expected" income tax
provision.............................. $646,000 $414,000 $346,000
State income tax provision, net of
federal income tax benefit............. 82,000 59,000 51,000
Goodwill................................. 10,000 10,000 10,000
Other, net............................... 53,000 3,000 12,400
-------- -------- --------
$791,000 $486,000 $419,400
======== ======== ========
</TABLE>

F-54
<PAGE> 124
HOUGHTON ACQUISITION CORPORATION d/b/a
HUTCHINSON FOUNDRY PRODUCTS COMPANY

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

The significant components of the Company's deferred tax assets and
liabilities recognized in the accompanying balance sheets as of December 31 are
as follows:

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Accrued vacation.................................... $ 47,000 $ 47,000
Accrued compensation................................ 41,000
Allowance for doubtful accounts..................... 35,000
Other............................................... 4,000 1,000
-------- --------
Total deferred tax assets................... 51,000 124,000
Deferred tax liabilities -- Property, plant and
equipment basis differences......................... 350,000 308,000
-------- --------
Net deferred tax liabilities................ $299,000 $184,000
======== ========
</TABLE>

10. EMPLOYEE BENEFIT PLANS:

The Company has a defined benefit retirement plan, Hutchinson Foundry
Retirement Plan for Employees (the "Plan"), which covers substantially all
employees of the Company. The Plan provides benefits in accordance with a
formula equal to $16 per month multiplied by the participants' years of service
as of their retirement date. Benefit payments to retired participants commence
at age 65 (or at some earlier date at a discounted amount as defined by the
Plan, if so elected, for early retirees) and continue for the life of the
participant. Participants also have the option of electing a lump sum
distribution at retirement. The Plan is funded in accordance with ERISA.
Required contributions were $-0-, $18,000 and $-0- for 1996, 1995 and 1994,
respectively.

Net periodic pension (cost) income consists of the following for the years
ended December 31:

<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Actual return (loss) on plan assets...... $149,499 $ 160,672 $(83,820)
Service cost............................. (21,168) (17,134) (15,865)
Interest cost............................ (34,719) (31,426) (32,584)
Net amortization and deferral............ (95,196) (112,440) 149,330
Settlement gain.......................... 10,468
-------- --------- --------
Net periodic pension (cost)
income....................... $ (1,584) $ 10,140 $ 17,061
======== ========= ========
</TABLE>

F-55
<PAGE> 125
HOUGHTON ACQUISITION CORPORATION d/b/a
HUTCHINSON FOUNDRY PRODUCTS COMPANY

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

The following table presents the funded status of the Plan determined as of
December 31:

<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation:
Vested............................................. $ 492,089 $392,196
Nonvested.......................................... 20,381 15,261
--------- --------
Accumulated benefit obligation............. $ 512,470 $407,457
========= ========
Actuarial present value of projected benefit
obligation......................................... $ 512,470 $407,457
Plan assets at fair value............................ 781,655 646,550
--------- --------
Plan assets in excess of projected benefit
obligation............................... 269,185 239,093
Unrecognized prior service cost...................... 38,005
Unrecognized net gain................................ (131,401) (61,720)
========= ========
Prepaid pension cost....................... $ 175,789 $177,373
========= ========
</TABLE>

Plan assets consist of corporate stocks and bonds, mutual funds and money
market accounts. The applicable portion of the unrecognized net gain is being
amortized over the average future working lifetime of the participants. The
assumptions used in developing the present value of the benefit obligations and
pension cost were as follows:

<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Weighted-average discount rate.......................... 7.5% 7.5% 8.0%
Long-term rate of return on plan assets................. 9.0% 9.0% 9.0%
</TABLE>

The Company also has a 401(k) defined contribution plan for substantially
all of its employees. Participants may contribute up to 15% of their
compensation each year. The Company, at its discretion, may elect to match a
percentage of employees' contributions each year, as determined by its Board of
Directors, not to exceed the maximum amount deductible for federal income tax
purposes. The Company contributed $5,000, $5,000 and $10,000 to the 401(k) plan
in 1996, 1995 and 1994, respectively.

11. SUBSEQUENT EVENT:

In January 1997, all of the Company's common stock, preferred stock and
related common stock purchase warrants were sold to Hawk Corporation ("Hawk"), a
Delaware Corporation headquartered in Cleveland, Ohio. Hawk is a manufacturer of
various products requiring sophisticated engineering and production techniques
in numerous industrial markets. No adjustments have been reflected in the
accompanying financial statements as a result of this transaction.

F-56
<PAGE> 126

REPORT OF INDEPENDENT AUDITORS

Shareholder
Sinterloy, Inc.

We have audited the accompanying balance sheets of Sinterloy, Inc. as of
December 31, 1996 and 1995, and the related statements of income, shareholder's
equity, and cash flows for the years then ended. 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.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sinterloy, Inc. at December
31, 1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

Cleveland, Ohio
August 22, 1997

F-57
<PAGE> 127

SINTERLOY, INC.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1995 1996 1997
---------- ---------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 545,412 $1,552,611 $2,301,628
Accounts receivable.............................. 965,982 1,294,066 1,666,361
Inventories...................................... 316,640 506,835 407,256
Prepaid expenses................................. 64,750 10,642 18,353
---------- ---------- ----------
Total current assets..................... 1,892,784 3,364,154 4,393,598
Property and equipment:
Machinery and equipment.......................... 1,706,700 3,410,892 3,662,128
Office furniture and fixtures.................... 91,642 65,314 72,324
---------- ---------- ----------
1,798,342 3,476,206 3,734,452
Less accumulated depreciation.................... 869,347 1,350,392 1,569,425
---------- ---------- ----------
928,995 2,125,814 2,165,027
---------- ---------- ----------
TOTAL ASSETS....................................... $2,821,779 $5,489,968 $6,558,625
========== ========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable................................. $ 232,075 $ 755,503 $ 298,043
Accrued expenses................................. 135,758 222,513 187,902
Accrued income taxes............................. 16,000 30,000 --
Current portion of note payable.................. 22,174 23,687 24,482
---------- ---------- ----------
Total current liabilities................ 406,007 1,031,703 510,427
Note payable....................................... 109,896 86,209 73,766
Shareholder's equity:
Common stock, no par value, 100,000 shares
authorized, issued and outstanding............ 10,000 10,000 10,000
Retained earnings................................ 2,295,876 4,362,056 5,964,432
---------- ---------- ----------
Total shareholder's equity............... 2,305,876 4,372,056 5,974,432
---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY......... $2,821,779 $5,489,968 $6,558,625
========== ========== ==========
</TABLE>

See notes to financial statements.

F-58
<PAGE> 128

SINTERLOY, INC.

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED
-------------------------- JUNE 30,
1995 1996 1997
----------- ----------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
Net sales................................... $ 7,586,030 $11,596,950 $7,734,875
Cost of sales............................... 5,215,868 7,422,194 4,091,492
----------- ----------- ----------
Gross profit................................ 2,370,162 4,174,756 3,643,383
General and administrative expenses......... 868,970 1,053,213 515,804
----------- ----------- ----------
Operating income............................ 1,501,192 3,121,543 3,127,579
Other income (expense):
Miscellaneous income...................... 5,720 783 7,638
Loss on sale of equipment................. -- (1,628) --
Interest income........................... 12,604 32,485 42,860
Interest expense.......................... (18,733) (8,668) (3,575)
----------- ----------- ----------
Other income (expense) -- net............... (409) 22,972 46,923
----------- ----------- ----------
Income before income taxes.................. 1,500,783 3,144,515 3,174,502
Income taxes................................ 36,077 33,767 --
----------- ----------- ----------
NET INCOME.................................. $ 1,464,706 $ 3,110,748 $3,174,502
=========== =========== ==========
</TABLE>

See notes to financial statements.

F-59
<PAGE> 129

SINTERLOY, INC.

STATEMENTS OF SHAREHOLDER'S EQUITY

<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
------- ----------- -----------
<S> <C> <C> <C>
Balance at January 1, 1995.......................... $10,000 $ 1,223,233 $ 1,233,233
Net income.......................................... 1,464,706 1,464,706
Cash distribution to shareholder.................... (392,063) (392,063)
------- ----------- -----------
Balance at December 31, 1995........................ 10,000 2,295,876 2,305,876
Net income.......................................... 3,110,748 3,110,748
Cash distributions to shareholder................... (1,044,568) (1,044,568)
------- ----------- -----------
Balance at December 31, 1996........................ 10,000 4,362,056 4,372,056
======= =========== ===========
Net income (unaudited).............................. 3,174,502 3,174,502
Cash distributions to shareholder (unaudited)....... (1,572,126) (1,572,126)
------- ----------- -----------
Balance at June 30, 1997 (unaudited)................ $10,000 $ 5,964,432 $ 5,974,432
======= =========== ===========
</TABLE>

See notes to financial statements.

F-60
<PAGE> 130

SINTERLOY, INC.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
DECEMBER 31, SIX MONTHS ENDED
------------------------- JUNE 30,
1995 1996 1997
----------- ---------- ----------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................. $ 1,464,706 $3,110,748 $3,174,502
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation............................. 267,539 509,276 219,033
Loss on sale of equipment................ -- 1,628 --
Change in operating assets and
liabilities:
Accounts receivable.................... (262,316) (328,084) (372,295)
Inventories............................ (65,321) (190,195) 99,579
Prepaid expenses....................... (53,983) (10,642) (7,711)
Accounts payable....................... 83,207 523,428 (457,460)
Accrued expenses and other............. 112,943 86,755 (64,611)
Accrued income taxes................... 11,500 14,000
----------- ---------- ----------
Net cash provided by operating activities... 1,558,275 3,716,914 2,591,037
INVESTING ACTIVITIES
Purchases of property and equipment......... (536,543) (1,642,973) (258,246)
FINANCING ACTIVITIES
Payments on line of credit.................. (200,000) -- --
Payments on note payable.................... (20,758) (22,174) (11,648)
Shareholder distributions................... (392,063) (1,044,568) (1,572,126)
----------- ---------- ----------
Net cash used in financing activities....... (612,821) (1,066,742) (1,583,774)
----------- ---------- ----------
Net increase in cash........................ 408,911 1,007,199 749,017
Cash and cash equivalents at beginning of
year..................................... 136,501 545,412 1,552,611
----------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.... $ 545,412 $1,552,611 $2,301,628
=========== ========== ==========
</TABLE>

See notes to financial statements.

F-61
<PAGE> 131

SINTERLOY, INC.

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1996 AND 1995

SIX MONTHS ENDED JUNE 30, 1997

A. BASIS OF PRESENTATION

Sinterloy, Inc. (the Company) is primarily engaged in the production of
structural sintered metal parts. The plant facility is located in Solon Mills,
Illinois. The Company was incorporated in Illinois on March 23, 1988.

UNAUDITED INTERIM FINANCIAL INFORMATION

The accompanying unaudited financial statements at June 30, 1997 and for
the six months ended June 30, 1997 have been prepared in accordance with
generally accepted accounting principles for the interim financial information
and with Article 10 of Regulation S-X. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six-month period
ended June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997.

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

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

INVENTORIES

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

Inventories consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Raw material and supplies.............................. $ 92,799 $242,791 $297,042
Work in process........................................ 126,135 148,789 68,787
Finished goods......................................... 97,706 115,255 41,427
-------- -------- --------
$316,640 $506,835 $407,256
======== ======== ========
</TABLE>

PROPERTY AND EQUIPMENT

Property and equipment has been recorded at cost.

Depreciation is provided by using an accelerated method over the useful
lives of the assets. Estimated useful lives range from 3 to 7 years.

INCOME TAXES

Effective October 1, 1994, the Company elected S Corporation status. Under
those provisions, the shareholder is liable for individual income taxes on the
Company's taxable income. The Company is responsible for paying Illinois
Replacement Tax of 1.5% of taxable income.

States taxes paid in 1996 and 1995 were $19,767 and $24,577, respectively.

F-62
<PAGE> 132
SINTERLOY, INC.

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

USE OF ESTIMATES

C. NOTE PAYABLE

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
-------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Payable to a former shareholder, in monthly
installments of $2,621 principal and interest,
bearing interest at 6.62%, due February, 2001,
unsecured............................................ $132,070 $109,896 $ 98,248
Less current portion................................... 22,174 23,687 24,482
-------- -------- --------
LONG-TERM NOTE PAYABLE................................. $109,896 $ 86,209 $ 73,766
======== ======== ========
</TABLE>

Aggregate maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
1997.......................................... $ 23,687
1998.......................................... 25,304
1999.......................................... 27,081
2000.......................................... 28,875
2001.......................................... 4,949
--------
$109,896
========
</TABLE>

During 1995, 1996 and 1997, the Company had a revolving line of credit with
a maximum of $500,000 bearing interest at prime. There were no borrowings on the
line of credit at December 31, 1996 and 1995 and June 30, 1997.

Interest paid in 1996 and 1995 was $8,668 and $18,733, respectively.

D. LEASE COMMITMENT

In 1995, the Company leased its facilities from a third party with monthly
rental payments of $5,429. In February 1996 the facilities were purchased by the
Company's sole shareholder who leases the facilities to the Company under a five
year operating lease through January 31, 2001. Beginning March 1996, monthly
rental payments were increased to $13,150 due to a significant addition to the
facility in 1996. The Company also has operating leases for two vehicles and
other miscellaneous equipment. Rent expense was $148,650 and $56,288 for the
years ended December 31, 1996 and 1995, respectively.

Future minimum lease commitments are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------
<S> <C>
1997.......................................... $166,206
1998.......................................... 157,800
1999.......................................... 157,800
2000.......................................... 157,800
2001.......................................... 13,150
--------
$652,756
========
</TABLE>

F-63
<PAGE> 133
SINTERLOY, INC.

NOTES TO FINANCIAL STATEMENTS -- CONTINUED

E. PROFIT SHARING PLAN

On September 1, 1993, the Company established a 401(k) profit sharing plan.
Eligible employees may elect to defer up to 10% of their total compensation or
as prescribed by the Internal Revenue Service regulations. The Company
contributes a matching fifty percent (50%) of each employee's elective deferral.
Additionally, the plan allows for the Company to make discretionary
contributions. Company contributions for the years ended December 31, 1996 and
1995 were $59,203 and $53,375, respectively.

The discretionary portion of the contributions was $20,000 for the years
ended December 31, 1996 and 1995.

F. MAJOR CUSTOMERS

For the years ended December 31, 1996 and 1995, the Company generated
approximately 72% and 60%, respectively, of its revenue from three major
customers. Accounts receivable from the three customers was $887,525 and
$684,687, as of December 31, 1996 and 1995, respectively.

G. SUBSEQUENT EVENT

Effective August 1, 1997, the Company sold substantially all of its assets
except cash, and certain liabilities for $15,000,000 (the purchase price). The
purchase price will be adjusted dollar for dollar based on the adjusted net
equity position of the Company at closing compared to the net equity position of
the Company at December 31, 1996.

F-64
<PAGE> 134

Hawk Logo

THE COMPANY'S PRINCIPAL MARKETS

[PHOTOGRAPH OF TRACTOR]
Agriculture

[PHOTOGRAPH OF BULLDOZER]
Construction

[PHOTOGRAPH OF AIRPLANE]
Aerospace

[PHOTOGRAPH OF TRUCK]
Truck
<PAGE> 135

======================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITY OTHER THAN THE CLASS A COMMON STOCK, NOR DOES IT CONSTITUTE
AN OFFER OR SOLICITATION IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT
IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION, OR AN OFFER OR SOLICITATION
BY ANYONE IN ANY JURISDICTION IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................... 3
Risk Factors............................... 8
Use of Proceeds............................ 14
Dividend Policy............................ 15
Capitalization............................. 16
Dilution................................... 18
Unaudited Pro Forma Consolidated Statements
of Operations............................ 19
Selected Consolidated Financial Data....... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 23
Business................................... 32
Management................................. 46
Principal and Selling Stockholders......... 53
Certain Transactions....................... 55
Description of Capital Stock............... 58
Shares Eligible for Future Sale............ 65
Underwriting............................... 66
Legal Matters.............................. 68
Experts.................................... 68
Available Information...................... 68
Reports to Holders of Class A
Common Stock............................. 69
Index to Financial Statements.............. F-1
</TABLE>

======================================================

======================================================
5,135,000 Shares

[HAWK LOGO]

Hawk Corporation
Class A Common Stock

($.01 par value)
------------------------
Schroder & Co. Inc.

Lehman Brothers

McDonald & Company
Securities, Inc.
May 12, 1998
======================================================