10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

Commission File Number 001-13797

HAWK CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware	34-1608156
(State of incorporation)	(I.R.S. Employer Identification No.)

200 Public Square, Suite 1500, Cleveland, Ohio 44114

(Address of principal executive offices) (Zip Code)

(216) 861-3553

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one): Large Accelerated Filer £ Accelerated Filer £ Non-accelerated Filer R

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R

As of August 1, 2006, the Registrant had the following number of shares of common stock outstanding:

Class A Common Stock, $0.01 par value:	9,007,334
Class B Common Stock, $0.01 par value:	None (0)

As used in this Form 10-Q, the terms “Company,” “Hawk,” “Registrant,” “we,” “us,” and “our” mean Hawk Corporation and its consolidated subsidiaries, taken as a whole, unless the context indicates otherwise. Except as otherwise stated, the information contained in this Form 10-Q is as of June 30, 2006.

			Page
PART I.	FINANCIAL INFORMATION
	Item 1.	Financial Statements (Unaudited)	3
	Item 2.	Management’s Discussion and Analysis of Financial	24
		Condition and Results of Operations
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	36
	Item 4.	Controls and Procedures	37
PART II.	OTHER INFORMATION
	Item 1.	Legal Proceedings	37
	Item 1A.	Risk Factors	37
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
	Item 3.	Defaults upon Senior Securities	37
	Item 4.	Submission of Matters to a Vote of Security Holders	38
	Item 5.	Other Information	38
	Item 6.	Exhibits	40
	SIGNATURES

2

PART I.FINANCIAL INFORMATION

ITEM I.  FINANCIAL STATEMENTS

HAWK CORPORATION

CONSOLIDATED BALANCE SHEETS (Unaudited)

(In Thousands, except share data)

	June 30		December 31
	2006		2005
Assets
Current assets:
Cash and cash equivalents	$	5,777	$	7,111
Accounts receivable, less allowance of $1,301 in 2006 and $1,046 in 2005		47,952		36,225
Inventories:
Raw materials		16,537		13,881
Work-in-process		16,937		14,433
Finished products		16,175		18,065
Total inventories		49,649		46,379
Deferred income taxes		4,542		4,430
Taxes receivable		347		347
Assets held for sale		1,644		1,644
Other current assets		5,119		5,660
Assets of discontinued operations		3,091		3,633
Total current assets		118,121		105,429
Property, plant and equipment:
Land and improvements		1,351		1,340
Buildings and improvements		19,089		18,539
Machinery and equipment		132,739		126,201
Furniture and fixtures		9,945		9,365
Construction in progress		4,581		5,317
		167,705		160,762
Less accumulated depreciation		96,569		89,844
Total property, plant and equipment		71,136		70,918
Other assets:
Goodwill		32,495		32,495
Finite-lived intangible assets		8,182		8,435
Deferred income taxes		916		916
Other		7,842		8,035
Total other assets		49,435		49,881
Total assets	$	238,692	$	226,228

3

HAWK CORPORATION

CONSOLIDATED BALANCE SHEETS (Unaudited) (Continued)

(In Thousands, except share data)

	June 30			December 31
	2006			2005
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	32,537		$	30,444
Accrued compensation		7,131			6,102
Accrued interest		4,925			4,895
Accrued taxes		1,355			664
Other accrued expenses		9,015			7,968
Short-term debt		1,043			1,386
Current portion of long-term debt		255			307
Liabilities of discontinued operations		2,242			3,334
Total current liabilities		58,503			55,100
Long-term liabilities:
Long-term debt		120,742			115,892
Deferred income taxes		1,014			885
Pension liabilities		10,552			10,522
Other accrued expenses		3,399			3,113
Total long-term liabilities		135,707			130,412
Shareholders' equity
Series D preferred stock, $.01 par value; an aggregate liquidation value of $1,530, plus any unpaid dividends with 9.8% cumulative dividend (1,530 shares authorized, issued and outstanding)		1			1
Series E preferred stock, $.01 par value; 100,000 shares authorized; none issued or outstanding		-			-
Class A common stock, $.01 par value; 75,000,000 shares authorized; 9,187,750 issued; 9,005,834 and 8,935,659 outstanding in 2006 and 2005, respectively		92			92
Class B common stock, $.01 par value; 10,000,000 shares authorized none issued or outstanding		-			-
Additional paid-in capital		53,357			53,349
Retained deficit		(2,608	)		(4,845	)
Accumulated other comprehensive loss		(4,929	)		(5,986	)
Treasury stock, at cost, 181,916 and 252,091 shares in 2006 and 2005, respectively		(1,431	)		(1,895	)
Total shareholders' equity		44,482			40,716
Total liabilities and shareholders' equity	$	238,692		$	226,228

Note: The balance sheet at December 31, 2005 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to consolidated financial statements.

4

HAWK CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(In Thousands, except per share data)

	Three Months Ended						Six Months Ended
	June 30						June 30
	2006			2005			2006			2005
Net sales	$	76,328		$	70,874		$	154,702		$	142,945
Cost of sales		60,281			53,356			124,338			106,741
Gross profit		16,047			17,518			30,364			36,204
Operating expenses:
Selling, technical and administrative expenses		9,763			9,933			20,696			21,139
Restructuring costs		-			1,172			-			1,903
Amortization of finite-lived intangible assets		126			184			253			368
Total operating expenses		9,889			11,289			20,949			23,410
Income from operations		6,158			6,229			9,415			12,794
Interest expense		(2,844	)		(2,625	)		(5,656	)		(5,241	)
Interest income		14			5			23			15
Other (expense) income, net		(45	)		(105	)		80			(256	)
Income from continuing operations, before income taxes		3,283			3,504			3,862			7,312
Income tax provision		1,549			1,837			1,808			3,774
Income from continuing operations, after income taxes		1,734			1,667			2,054			3,538
Income from discontinued operations, net of tax of $92 and $137 for the three and six months ended June 30, 2006 respectively, and $20 and $60 for the three and six months ended June 30, 2005 respectively		171			38			255			111
Net income	$	1,905		$	1,705		$	2,309		$	3,649
Earnings per share:
Basic earnings per share:
Earnings from continuing operations, after income taxes	$	0.19		$	0.18		$	0.22		$	0.39
Discontinued operations		0.02			-			0.03			0.01
Net earnings per basic share	$	0.21		$	0.18		$	0.25		$	0.40
Diluted earning per share:
Earnings from continuing operations, after income taxes	$	0.18		$	0.17		$	0.21		$	0.37
Discontinued operations		0.02			-			0.03			0.01
Net earnings per diluted share	$	0.20		$	0.17		$	0.24		$	0.38
Average shares outstanding - basic		9,004			8,854			8,997			8,842
Average shares and equivalents outstanding - diluted		9,539			9,420			9,547			9,338

See notes to consolidated financial statements.

5

HAWK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In Thousands)

	Six Months Ended
	June 30			June 30
	2006			2005
Cash flows from operating activities
Net income	$	2,309		$	3,649
Adjustments to reconcile net income to net cash used in operating activities:
Income from discontinued operations, net of tax		(255	)		(111	)
Depreciation and amortization		6,347			5,882
Loss on sale or disposal of fixed assets		39			687
Changes in operating assets and liabilites:
Accounts receivable		(11,114	)		(6,155	)
Inventories		(2,891	)		(5,160	)
Other assets		588			(1,967	)
Accounts payable		1,962			5,216
Accrued expenses		2,675			5,648
Other liabilities and other		371			405
Net cash provided by operating activities of continuing operations		31			8,094
Net cash (used in) provided by operating activities of discontinued operations		(295	)		194
Cash flows from investing activities
Purchases of property, plant and equipment		(6,193	)		(7,897	)
Proceeds from sale of property, plant and equipment		13			10
Net cash used in investing activities of continuing operations		(6,180	)		(7,887	)
Net cash used in investing activities of discontinued operations		-			(38	)
Cash flows from financing activities
Proceeds from short-term debt		355			-
Payments on short-term debt		(724	)		-
Proceeds from long-term debt		46,181			37,322
Payments on long-term debt		(41,356	)		(37,454	)
Stock options and issuance of treasury stock as compensation, net		472			390
Payments of preferred stock dividends		(75	)		(75	)
Net cash provided by financing activities of continuing operations		4,853			183
Net cash provided by financing activities of discontinued operations		-			-
Effect of exchange rate changes on cash		257			(401	)
Net cash used in continuing operations		(1,039	)		(11	)
Net cash (used in) provided by discontinued operations		(295	)		156
Net (decrease) increase in cash and cash equivalents		(1,334	)		145
Cash and cash equivalents at beginning of period		7,111			6,785
Cash and cash equivalents at end of period	$	5,777		$	6,930

See notes to consolidated financial statements.

6

HAWK CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2006

(In Thousands, except share data)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in conformity with U.S generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 2006 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2006. For further information, refer to the consolidated financial statements and footnotes thereto in the Form 10-K for Hawk Corporation (Company) for the year ended December 31, 2005.

The Company, through its business segments, designs, engineers, manufactures and markets specialized components used in a variety of industrial, commercial and aerospace applications.

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

Certain amounts have been reclassified to conform to the 2006 reporting presentation.

NOTE 2 - FINITE-LIVED INTANGIBLE ASSETS

The components of finite-lived intangible assets are as follows:

	June 30, 2006						December 31, 2005
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
Product certifications	$	20,820	$	12,688	$	8,132	$	20,820	$	12,441	$	8,379
Other intangible assets		2,719		2,669		50		2,719		2,663		56
	$	23,539	$	15,357	$	8,182	$	23,539	$	15,104	$	8,435

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

The Company estimates that amortization expense for finite-lived intangible assets in 2006 will be approximately $500.

NOTE 3 - COMPREHENSIVE INCOME

Comprehensive income is as follows:

	Three months ended					Six months ended
	June 30					June 30
	2006		2005			2006		2005
Net income	$	1,905	$	1,705		$	2,309	$	3,649
Foreign currency translation		800		(542	)		1,057		(1,343	)
Comprehensive income	$	2,705	$	1,163		$	3,366	$	2,306

7

NOTE 4 - INVENTORIES

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

NOTE 5 - STOCK COMPENSATION PLAN

On January 1, 2006 the Company adopted the provisions of SFAS No. 123R, Share-Based Payment (SFAS 123R), using the modified prospective transition method. The modified prospective transition method requires that compensation cost be recognized in the financial statements for all awards granted after the date of adoption as well as for existing awards for which the requisite service has not been rendered as of the date of adoption. This method also requires that prior periods not be restated. The Company’s stock compensation plans provide for the granting up to 1,400,000 shares of common stock of the Company. Options generally vest over a five year period after the grant date and expire no more than ten years after grant. Prior to the adoption of SFAS 123R, the Company used the intrinsic-value based method to account for stock options and made no charges against earnings with respect to options granted.

The adoption of SFAS 123R reduced income before income taxes for the three months ended June 30, 2006 by $55 and for the six months ended June 30, 2006 by $102. No stock-based employee compensation cost is reflected in net income prior to the adoption of SFAS 123R, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. In accordance with SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure (SFAS 148), the following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 Accounting for Stock-Based Compensation (SFAS 123) in 2005:

	Three months ended		Six months ended
	June 30, 2005		June 30, 2005
Net income as reported	$	1,705	$	3,649
Employee stock-based compensation expense determined under fair value based methods, net of tax		55		126
Pro forma net earnings	$	1,650	$	3,523
Basic earnings per share:
As reported	$	0.18	$	0.40
Pro forma	$	0.17	$	0.39
Diluted earnings per share:
As reported	$	0.17	$	0.38
Pro forma	$	0.16	$	0.37

8

Stock-based option activity during the six months ended June 30, 2006 is as follows:

	Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (in thousands)
Options outstanding at December 31, 2005		942,080		$	5.13
Granted		20,000			13.97
Exercised		(52,256	)		5.07
Forfeited or expired		(8,000	)		7.70
Options outstanding at June 30, 2006		901,824		$	5.31		6.1 yrs.	$	6,398
Exercisable at June 30, 2006		700,940		$	4.84		5.5 yrs.	$	5,291

Substantially all outstanding stock-based awards are expected to vest. Net cash proceeds from the exercise of stock options was $72 for the three months ended June 30, 2006 and $330 for the six months ended June 30, 2006.

As of June 30, 2006 there was $437 of total unrecognized compensation cost related to the non-vested share-based compensation arrangements under the Company’s stock compensation plans. The cost is expected to be recognized over the next 5 years.

NOTE 6 - DISCONTINUED OPERATIONS

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

The disposition of the Alton facility was completed in 2004. On March 29, 2006, the Company entered into an agreement to sell the Monterrey, Mexico operations contingent on several closing conditions and anticipates the closing to occur prior to the end of 2006.

Operating results from discontinued operations are summarized as follows:

	Three months ended				Six months ended
	June 30				June 30
	2006		2005		2006		2005
Net sales	$	2,488	$	2,428	$	4,933	$	4,773
Income from discontinued operations before income taxes	$	263	$	58	$	392	$	171
Income tax expense		92		20		137		60
Income from discontinued operations, net of tax	$	171	$	38	$	255	$	111

9

The assets and liabilities of this segment, which have been classified as assets and liabilities of discontinued operations in the Consolidated Balance Sheets, consist of the following at June 30, 2006 and December 31, 2005:

	June 30		December 31
	2006		2005
Accounts receivable	$	1,754	$	1,926
Inventory		337		490
Other current assets		672		889
Property, plant and equipment		328		328
Total assets of discontinued operations	$	3,091	$	3,633
Accounts payable	$	2,056	$	3,135
Other accrued expenses		186		199
Total liabilities of discontinued operations	$	2,242	$	3,334

NOTE 7 - RESTRUCTURING

In accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (SFAS 146), the Company recorded liabilities for costs associated with exit or disposal activities, including restructuring costs, when the liability is incurred instead of at the date of commitment to an exit or disposal activity.

In the fourth quarter of 2003, the Company committed to a restructuring program in its friction products segment to achieve cost savings and expand its capacity by moving operations from its Brook Park, Ohio location to a new production facility in Tulsa, Oklahoma. During 2004, the Company substantially completed the construction of its new and larger, leased facility. During 2005, all manufacturing was transferred to Tulsa and the Brook Park operation was closed. This restructuring program was completed in 2005, therefore the Company did not incur any restructuring charges in the six months ended June 30, 2006 and does not anticipate incurring any restructuring charges for the remainder of 2006. However, the Company continues to manage transitional issues during the current period. In the three months and six months ended June 30, 2005, the Company incurred $1,340 and $2,071 of restructuring costs, respectively, primarily for planning, severance and moving costs related to the new production facility in Tulsa. In the three months and six months ended June 30, 2005, $168 of “restructuring costs” were included in “Cost of sales” in the Consolidated Statement of Income.

The following table sets forth the cash flow activity related to restructuring accrual for the six months ended June 30, 2006:

Restructuring cost accrual as of January 1, 2006	$	473
Cash payments through June 30, 2006		473
Restructuring cost accrual as of June 30, 2006	$	-

During the third quarter of 2005, the Company entered into a contract to sell the Brook Park, Ohio manufacturing facility. The assets under contract have been reported as “Assets held for sale” in the Consolidated Balance Sheets, in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. The sale is expected to close during the third quarter of 2006 and the net proceeds are expected to approximate the book value of the facility.

10

NOTE 8 - EMPLOYEE BENEFITS

A summary of the components of net periodic benefit cost of the Company’s defined benefit pension plans for the three and six months ended June 30 is as follows:

	Three months ended						Six months ended
	June 30						June 30
	2006			2005			2006			2005
Service cost – benefits earned during the period	$	251		$	266		$	636		$	531
Interest cost on projected benefit obligation		100			379			897			758
Expected return on plan assets		(49	)		(454	)		(952	)		(907	)
Amortization of prior service cost		21			3			23			5
Pension settlement / curtailment		42			-			42			-
Recognized net actuarial loss		91			66			316			133
Net periodic benefit cost	$	456		$	260		$	962		$	520

As of June 30, 2006, $827 of contributions have been made on a cash basis to the Company’s defined benefit pension plans. Hawk presently anticipates contributing an additional $941 to fund its defined benefit pension plans in 2006 for a total of $1,768.

The Company froze one of its defined benefit pension plans effective May 31, 2006 as part of the Company’s move to a common 401(k) retirement plan program for all non-union salary and hourly employees in the United States as of June 1, 2006.

NOTE 9 - INCOME TAXES

The effective income tax rates from continuing operations for the six months ended June 30, 2006 and 2005 are 46.8% and 51.6%, respectively. The Company’s effective tax rate is higher than the statutory rate primarily due to higher tax rates in the foreign jurisdictions and the lack of state tax benefits for domestic entities in a net loss position. The lower effective tax rate in 2006 compared to 2005 is the result of improved domestic earnings.

In July 2006, FASB issued Financial Interpretation No. 48 Accounting for Uncertainty in Income Taxes - an amendment of FASB Statement No. 109 (FIN 48).  FIN 48 clarifies the accounting for uncertainty in income taxes by establishing minimum standards for the recognition and measurement of tax positions taken or expected to be taken in a tax return.  Under the requirements of FIN 48, the Company must review all of its uncertain tax positions and make a determination as to whether the Company’s position is more-likely-than-not to be sustained upon examination by regulatory authorities.  If a position meets the more-likely-than-not criterion, then the related tax benefit is measured based on the cumulative probability analysis of the amount that is more-likely-than-not to be realized upon ultimate settlement. FIN 48 is effective for fiscal years beginning after December 15, 2006.  FIN 48 represents a significant change in accounting for income taxes. Accordingly, the Company is currently evaluating the impact of this interpretation on its financial statements and will adopt FIN 48 as required.

11

NOTE 10 - EARNINGS PER SHARE

Basic and diluted earnings per share are computed as follows:

	Three months ended				Six months ended
	June 30				June 30
	2006		2005		2006		2005
Income from continuing operations, after income taxes	$	1,734	$	1,667	$	2,054	$	3,538
Less: Preferred stock dividends		37		37		75		75
Income from continuing operations, after income taxes available to common shareholders	$	1,697	$	1,630	$	1,979	$	3,463
Net income	$	1,905	$	1,705	$	2,309	$	3,649
Less: Preferred stock dividends		37		37		75		75
Net income available to common shareholders	$	1,868	$	1,668	$	2,234	$	3,574
Weighted average shares outstanding (in thousands):
Basic weighted average shares outstanding	$	9,004	$	8,854	$	8,997	$	8,842
Diluted:
Basic weighted average shares outstanding	$	9,004	$	8,854	$	8,997	$	8,842
Dilutive effect of stock options		535		566		550		496
Diluted weighted average shares outstanding	$	9,539	$	9,420	$	9,547	$	9,338
Earnings per share:
Basic earnings from continuing operations, after income taxes	$	0.19	$	0.18	$	0.22	$	0.39
Discontinued operations		0.02		-		0.03		0.01
Net earnings per basic share	$	0.21	$	0.18	$	0.25	$	0.40
Diluted earnings from continuing operations, after income taxes	$	0.18	$	0.17	$	0.21	$	0.37
Discontinued operations		0.02		-		0.03		0.01
Net earnings per diluted share	$	0.20	$	0.17	$	0.24	$	0.38

NOTE 11- BUSINESS SEGMENTS

The Company operates in three business segments: friction products, precision components and performance racing. The Company's reportable segments are strategic business units that offer different products and services. They are managed separately based on fundamental differences in their operations.

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

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

The performance racing segment engineers, manufactures and markets premium branded clutch, transmissions and driveline systems. The Company, through this segment, targets leading teams in the National Association for Stock Car Auto Racing (NASCAR), the American LeMans Racing Series (ALMS), and for the weekend enthusiasts in the Sports Car Club of America (SCCA) and other road racing and oval track competition cars.

12

Information by segment is as follows:

	Three months ended					Six months ended
	June 30					June 30
	2006			2005		2006			2005
Net sales to external customers:
Friction products	$	50,152		$	45,620	$	99,239		$	90,013
Precision components		22,832			21,213		48,389			44,012
Performance racing		3,344			4,041		7,074			8,920
Consolidated	$	76,328		$	70,874	$	154,702		$	142,945
Depreciation and amortization: (1)
Friction products	$	1,730		$	1,714	$	3,449		$	3,515
Precision components		1,291			1,027		2,564			2,039
Performance racing		58			55		116			112
Consolidated	$	3,079		$	2,796	$	6,129		$	5,666
Gross profit:
Friction products	$	11,120		$	12,141	$	19,379		$	24,726
Precision components		4,383			4,374		9,648			9,066
Performance racing		544			1,003		1,337			2,412
Consolidated	$	16,047		$	17,518	$	30,364		$	36,204
Income from operations:
Friction products	$	5,167		$	4,866	$	6,469		$	9,884
Precision components		1,438			1,180		3,501			2,209
Performance racing		(447	)		183		(555	)		701
Consolidated	$	6,158		$	6,229	$	9,415		$	12,794

____________

(1)   Depreciation and amortization outlined in this table does not include deferred financing amortization of $110 and $218 in the first three and six months ended June 30, 2006 and $108 and $216 in the first three and six months ended June 30, 2005, which is included in Interest expense on the Consolidated Statements of Income.

The following section discloses adjusted income from operations for each business segment. This disclosure differs from income from operations, the most directly comparable measure calculated in accordance with GAAP. A reconciliation of this financial measure to the most comparable GAAP measure is included in the table below.

13

Reconciliation of Adjusted income from operations to Income from operations determined in accordance with GAAP:

	Three months ended						Six months ended
		June 30					June 30
		2006			2005		2006			2005
Income from operations - Friction products		$	5,167		$	4,866	$	6,469		$	9,884
Restructuring costs			-			1,340		-			2,071
Loan forgiveness costs			-			-		-			593
Adjusted income from operations – Friction products		$	5,167		$	6,206	$	6,469		$	12,548
Income from operations - Precision components		$	1,438		$	1,180	$	3,501		$	2,209
Loan forgiveness costs			-			-		-			443
Adjusted income from operations – Precision components		$	1,438		$	1,180	$	3,501		$	2,652
(Loss) income from operations - Performance racing		$	(447	)	$	183	$	(555	)	$	701
Loan forgiveness costs			-			-		-			64
Adjusted (loss) income from operations – Performance racing		$	(447	)	$	183	$	(555	)	$	765

The Company has presented this non-GAAP financial measure because it believes that meaningful analysis of its financial performance is enhanced by an understanding of isolated factors underlying that performance. In addition, the Company’s chief operating decision makers use this adjusted measure in monitoring and evaluating both its overall performance and the ongoing performance of each of its business segments. This non-GAAP financial measure should not be considered an alternative to measures required by GAAP. Refer to the section “Non-GAAP Financial Measure” in the MD&A section of this Form 10-Q for more detailed disclosure.

NOTE 12 - RELATED PARTIES

In July 1995, two of the Company’s senior executive officers were issued interest-bearing notes by the Company in the amount of $1,604, enabling them to repay certain indebtedness incurred by them with respect to an acquisition. The notes bore interest at the prime rate. The notes were due and payable on July 1, 2005. In May 1998, $604 of the principal balance of the notes was repaid by the senior executive officers. On January 30, 2004, the compensation committee of the Company’s Board of Directors approved the forgiveness of the shareholder notes of these two senior executive officers by July 1, 2005 if specific operating targets were achieved. As of March 31, 2005, the remaining $600 of the shareholder notes was forgiven by the compensation committee of the Company’s Board of Directors, based on the achievement of similar specified operating targets. In addition, the Board of Directors awarded $500 to the senior executive officers to pay the taxes associated with the forgiveness of this portion of their debt. As of June 30, 2006, and December 31, 2005, there are no shareholder notes outstanding. The forgiveness of the shareholder notes and the associated taxes were reported as compensation expense and included in Selling, technical and administrative expenses in the Company’s Consolidated Statement of Income for the six months ended June 30, 2005.

NOTE 13- SUPPLEMENTAL GUARANTOR INFORMATION

Each of the guarantor subsidiaries has fully and unconditionally guaranteed, on a joint and several basis, to pay principal, premium, and interest with respect to the Company’s 8¾% Senior Notes due November 1, 2014 (senior notes). The guarantor subsidiaries are direct or indirect wholly-owned subsidiaries of the Company.

The following supplemental condensed consolidating financial statements present:

·   Condensed consolidating balance sheets as of June 30, 2006 and December 31, 2005, condensed consolidating statements of income for the three and six months ended June 30, 2006 and 2005, and condensed consolidating statements of cash flows for the six months ended June 30, 2006 and 2005.

14

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

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

The Company does not believe that separate financial statements of the guarantor subsidiaries are material to investors. Therefore, separate financial statements and other disclosures concerning the guarantor subsidiaries are not presented. The Credit and Security Agreement, dated November 1, 2004, with KeyBank National Association, serving as Administrative Agent and Letter of Credit Issuer (the bank facility) contains covenants with respect to the Company and its subsidiaries that, among other things, would prohibit the payment of dividends to the Company by the subsidiaries (including guarantor subsidiaries) in the event of a default under the terms of the bank facility. The indenture governing the senior notes permits the payment of any dividends to the Company by the subsidiaries (including guarantor subsidiaries) provided that no event of default has occurred under the terms of the indenture.

15

Supplemental Condensed Consolidating

Balance Sheet (Unaudited)

	June 30, 2006
	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	424		$	59		$	5,294		$	-		$	5,777
Accounts receivable, net		-			30,851			17,101			-			47,952
Inventories, net		(837	)		38,156			13,118		$	(788	)		49,649
Deferred income taxes		4,252			-			290			-			4,542
Taxes receivable		347			-			-			-			347
Other current assets		1,153			2,104			1,863			(1	)		5,119
Assets held for sale		-			1,644			-			-			1,644
Assets of discontinued operations		-			5			3,086			-			3,091
Total current assets		5,339			72,819			40,752			(789	)		118,121
Investment in subsidiaries		793			-			-			(793	)		-
Inter-company advances, net		(447	)		2,456			(2,009	)		-			-
Propery, plant and equipment, net		-			59,874			11,262			-			71,136
Other assets:
Goodwill and other intangible assets		269			40,408			-			-			40,677
Other		1,147			6,159			938			514			8,758
Total other assets		1,416			46,567			938			514			49,435
Total assets	$	7,101		$	181,716		$	50,943		$	(1,068	)	$	238,692
Liabilities and shareholders' equity
Current liabilities:
Accounts payable	$	50		$	20,438		$	12,049		$	-		$	32,537
Accrued compensation		475			4,563			2,093			-			7,131
Accrued interest		4,868			29			28			-			4,925
Accrued taxes		(15	)		278			1,358			(266	)		1,355
Other accrued expenses		1,078			7,407			530			-			9,015
Short-term debt		-			-			1,043			-			1,043
Current portion of long-term debt		-			119			136			-			255
Liabilities of discontinued operations		-			33			2,209			-			2,242
Total current liabilities		6,456			32,867			19,446			(266	)		58,503
Long-term liabilities:
Long-term debt		120,000			633			109			-			120,742
Deferred income taxes		79			-			935			-			1,014
Other		663			9,493			3,795			-			13,951
Inter-company advances, net		(192,272	)		181,929			10,340			3			-
Total long-term liabilities		(71,530	)		192,055			15,179			3			135,707
Shareholders' equity		72,175			(43,206	)		16,318			(805	)		44,482
Total liabilities and shareholders' equity	$	7,101		$	181,716		$	50,943		$	(1,068	)	$	238,692

16

Supplemental Condensed Consolidating

Balance Sheet (Unaudited)

	December 31, 2005
	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Elimination			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	229		$	45		$	6,837		$	-		$	7,111
Accounts receivable, net		-			25,989			10,236			-			36,225
Inventories, net		(716	)		37,119			10,543			(567	)		46,379
Deferred income taxes		4,112			-			318			-			4,430
Taxes receivable		347			-			-			-			347
Assets held for sale		-			1,644			-			-			1,644
Other current assets		1,258			2,481			2,038			(117	)		5,660
Assets of discontinued operations		-			5			3,628			-			3,633
Total current assets		5,230			67,283			33,600			(684	)		105,429
Investment in subsidiaries		793			-			-			(793	)		-
Inter-company advances, net		(800	)		2,593			(1,793	)		-			-
Property, plant and equipment, net		-			60,856			10,062			-			70,918
Other assets:
Goodwill and other intangible assets		286			40,644			-			-			40,930
Other		916			8,034			897			(896	)		8,951
Total other assets		1,202			48,678			897			(896	)		49,881
Total assets	$	6,425		$	179,410		$	42,766		$	(2,373	)	$	226,228
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable	$	-		$	20,620		$	9,824		$	-		$	30,444
Accrued compensation		286			3,987			1,829			-			6,102
Accrued interest		4,863			-			32			-			4,895
Accrued taxes		603			197			37			(173	)		664
Other accrued expenses		1,203			6,164			601			-			7,968
Short-term debt		-			-			1,386			-			1,386
Current portion of long-term debt		-			165			142			-			307
Liabilities of discontinued operations		-			67			3,267			-			3,334
Total current liabilities		6,955			31,200			17,118			(173	)		55,100
Long-term liabilities:
Long-term debt		115,041			689			162			-			115,892
Deferred income taxes		-			-			885			-			885
Other		-			10,156			3,479			-			13,635
Inter-company advances, net		(186,777	)		178,420			8,846			(489	)		-
Total long-term liabilities		(71,736	)		189,265			13,372			(489	)		130,412
Shareholders’ equity		71,206			(41,055	)		12,276			(1,711	)		40,716
Total liabilities and shareholders’ equity	$	6,425		$	179,410		$	42,766		$	(2,373	)	$	226,228

17

Supplemental Condensed Consolidating

Statement of Income (Unaudited)

	Three Months Ended June 30, 2006
	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	-		$	60,253		$	19,977		$	(3,902	)	$	76,328
Cost of sales		-			48,504			15,679			(3,902	)		60,281
Gross profit		-			11,749			4,298			-			16,047
Operating expenses:
Selling, technical and administrative expenses		(288	)		8,365			1,686			-			9,763
Amortization of intangibles		-			156			(30	)		-			126
Total operating expenses		(288	)		8,521			1,656			-			9,889
Income from operations		288			3,228			2,642			-			6,158
Interest income (expense), net		892			(3,722	)		-			-			(2,830	)
Income from equity investee		1,336			1,559			-			(2,895	)		-
Other income (expense), net		30			(25	)		(50	)		-			(45	)
Income from continuing operations, before income taxes		2,546			1,040			2,592			(2,895	)		3,283
Income tax provision (benefit)		641			(265	)		1,173			-			1,549
Income from continuing operations, after income taxes		1,905			1,305			1,419			(2,895	)		1,734
Discontinued operations, net of tax		-			31			140			-			171
Net income	$	1,905		$	1,336		$	1,559		$	(2,895	)	$	1,905

18

Supplemental Condensed Consolidating

Statement of Income (Unaudited)

	Three Months Ended June 30, 2005
	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	-		$	56,371		$	17,829		$	(3,326	)	$	70,874
Cost of sales		-			43,192			13,490			(3,326	)		53,356
Gross profit		-			13,179			4,339			-			17,518
Operating expenses:
Selling, technical and administrative expense		(322	)		8,757			1,498			-			9,933
Restructuring costs		-			1,172			-			-			1,172
Amortization of intangibles		-			184			-			-			184
Total operating expenses		(322	)		10,113			1,498			-			11,289
Income from operations		322			3,066			2,841			-			6,229
Interest income (expense), net		893			(3,493	)		(20	)		-			(2,620	)
Income from equity investee		1,580			1,887			-			(3,467	)		-
Other (expense) income, net		(6	)		(135	)		36			-			(105	)
Income from continuing operations, before income taxes		2,789			1,325			2,857			(3,467	)		3,504
Income tax provision (benefit)		1,084			(229	)		982			-			1,837
Income from continuing operations, after income taxes		1,705			1,554			1,875			(3,467	)		1,667
Discontinued operations, net of tax		-			26			12			-			38
Net income	$	1,705		$	1,580		$	1,887		$	(3,467	)	$	1,705

19

Supplemental Condensed Consolidating

Statement of Income (Unaudited)

	Six Months Ended June 30, 2006
	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	-		$	124,230		$	38,343		$	(7,871	)	$	154,702
Cost of sales		-			102,582			29,627			(7,871	)		124,338
Gross profit		-			21,648			8,716			-			30,364
Operating expenses:
Selling, technical and administrative expenses		101			17,262			3,333			-			20,696
Amortization of intangibles		-			253			-			-			253
Total operating expenses		101			17,515			3,333			-			20,949
(Loss) income from operations		(101	)		4,133			5,383			-			9,415
Interest income (expense), net		1,783			(7,382	)		(34	)		-			(5,633	)
Income from equity investee		1,392			3,147			-			(4,539	)		-
Other income (expense), net		30			84			(34	)		-			80
Income (loss) from continuing operations, before income taxes		3,104			(18	)		5,315			(4,539	)		3,862
Income tax provision (benefit)		795			(1,329	)		2,342			-			1,808
Income from continuing operations, after income taxes		2,309			1,311			2,973			(4,539	)		2,054
Discontinued operations, net of tax		-			81			174			-			255
Net income	$	2,309		$	1,392		$	3,147		$	(4,539	)	$	2,309

20

Supplemental Condensed Consolidating

Statement of Income (Unaudited)

	Six Months Ended June 30, 2005
	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	-		$	114,280		$	34,818		$	(6,153	)	$	142,945
Cost of sales		-			86,642			26,252			(6,153	)		106,741
Gross profit		-			27,638			8,566			-			36,204
Operating expenses:
Selling, technical and administrative expense		928			17,276			2,935			-			21,139
Restructuring costs		-			1,903			-			-			1,903
Amortization of intangibles		-			368			-			-			368
Total operating expenses		928			19,547			2,935			-			23,410
(Loss) income from operations		(928	)		8,091			5,631			-			12,794
Interest income (expense), net		1,794			(6,972	)		(48	)		-			(5,226	)
Income from equity investee		4,119			3,420			-			(7,539	)		-
Other (expense) income, net		(34	)		(159	)		(63	)		-			(256	)
Income from continuing operations, before income taxes		4,951			4,380			5,520			(7,539	)		7,312
Income tax provision		1,302			311			2,161			-			3,774
Income from continuing operations, after income taxes		3,649			4,069			3,359			(7,539	)		3,538
Discontinued operations, net of tax		-			50			61			-			111
Net income	$	3,649		$	4,119		$	3,420		$	(7,539	)	$	3,649

21

Supplemental Condensed Consolidating

Cash Flow Statement (Unaudited)

	Six Months Ended June 30, 2006
	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net cash (used in) provided by operating activities of continuing operations	$	(5,161	)	$	3,820		$	1,372		$	-	$	31
Net cash provided by (used in) operating activities of discontinued operations		-			47			(342	)		-		(295	)
Cash flows from investing activities:
Purchases of property, plant and equipment		-			(3,756	)		(2,437	)		-		(6,193	)
Proceeds from sale of property, plant and equipment		-			4			9			-		13
Net cash used in investing activities of continuing operations		-			(3,752	)		(2,428	)		-		(6,180	)
Net cash used in investing activities of discontinued operations		-			-			-			-		-
Cash flows from financing activities:
Proceeds from short-term debt		-			-			355			-		355
Payments on short-term debt		-			(28	)		(696	)		-		(724	)
Proceeds from long-term debt		46,181			-			-			-		46,181
Payments on long-term debt		(41,222	)		(73	)		(61	)		-		(41,356	)
Stock options and issuance of treasury stock as compensation, net		472			-			-			-		472
Payments of preferred stock dividend		(75	)		-			-			-		(75	)
Net cash provided by (used in) financing activities of continuing operations		5,356			(101	)		(402	)		-		4,853
Effect of exchange rate changes on cash		-			-			257			-		257
Net cash provided by (used in) continuing operations		195			(33	)		(1,201	)		-		(1,039	)
Net cash provided by (used in) discontinued operations		-			47			(342	)		-		(295	)
Net increase (decrease) in cash and cash equivalents		195			14			(1,543	)		-		(1,334	)
Cash and cash equivalents, at beginning of period		229			45			6,837			-		7,111
Cash and cash equivalents, at end of period	$	424		$	59		$	5,294		$	-	$	5,777

22

Supplemental Condensed Consolidating

Cash Flow Statement (Unaudited)

	Six Months Ended June 30, 2005
	Parent			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net cash (used in) provided by operating activities of continuing operations	$	(482	)	$	7,097		$	1,479		$	-	$	8,094
Net cash provided by operating activities of discontinued operations		-			-			194			-		194
Cash flows from investing activities:
Purchases of property, plant and equipment		-			(7,067	)		(830	)		-		(7,897	)
Proceeds from sale or property, plant and equipment		-			-			10			-		10
Net cash used in investing activities of continuing operations		-			(7,067	)		(820	)		-		(7,887	)
Net cash used in investing activities of discontinued operations		-			-			(38	)		-		(38	)
Cash flows from financing activities:
Proceeds from long-term debt		36,962			150			210			-		37,322
Payments on long-term debt		(37,182	)		(194	)		(78	)		-		(37,454	)
Stock options and issuance of treasury stock as compensation, net		390			-			-			-		390
Payments of preferred stock dividends		(75	)		-			-			-		(75	)
Net cash provided by (used in) financing activities of continuing operations		95			(44	)		132			-		183
Effect of exchange rate changes on cash		-			-			(401	)		-		(401	)
Net cash (used in) provided by continuing operations		(387	)		(14	)		390			-		(11	)
Net cash provided by discontinued operations		-			-			156			-		156
Net (decrease) increase in cash and cash equivalents		(387	)		(14	)		546			-		145
Cash and cash equivalents, at beginning of period		1,967			49			4,769			-		6,785
Cash and cash equivalents, at end of period	$	1,580		$	35		$	5,315		$	-	$	6,930

23

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read this discussion in conjunction with the consolidated financial statements, notes and tables included in Part I, Item 1 of this Form 10-Q. Statements that are not historical facts, including statements about our confidence in our prospects and strategies and our expectations about growth of existing markets and our ability to expand into new markets, to identify and acquire complementary businesses and to attract new sources of financing, are forward-looking statements that involve risks and uncertainties. In addition to statements which are forward-looking by reason of context, the words “believe,” “expect,” “anticipate,” “intend,” “designed,” “goal,” “objective,” “optimistic,” “will” and other similar expressions identify forward-looking statements. In light of the risks and uncertainties inherent in all future projections, the inclusion of the forward-looking statements should not be regarded as guarantees of performance. Although we believe that our plans, objectives, intentions and expenditures reflected in our forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to uncertainties, risks and factors relating to our operations and business environments, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed or implied by our forward-looking statements

When considering these risk factors, you should keep in mind the cautionary statements elsewhere in this report and the documents incorporated by reference. New risks and uncertainties arise from time to time, and we cannot predict those events or how they may affect us. We assume no obligation to update any forward-looking statements or risk factor after the date of this report as a result of new information, future events or developments, except as required by the federal securities law.

NON-GAAP FINANCIAL MEASURE

In our discussion and analysis of our financial condition and results of operations, we may refer to financial measures which are considered to be “non-GAAP financial measures” under the rules and regulations of the Securities and Exchange Commission (SEC). The non-GAAP financial measure used by us is “Adjusted income from operations.”This measure is reconciled to the most comparable GAAP financial measure in tables presented in this section of this Form 10-Q.

This non-GAAP financial measure is defined by us as income from operations as presented in our Consolidated Statements of Income plus restructuring and loan forgiveness costs. We use this measure to more accurately gauge the ongoing day to day operating activities of our business. As a result of our decision to relocate one of our friction products manufacturing facilities to Tulsa, Oklahoma from Ohio, we incurred significant non-recurring restructuring costs related to this one-time event that impacted our financial results for 2005. This restructuring program was completed as of December 31, 2005. The loan forgiveness expense resulted from a one-time, non-recurring action taken by our compensation committee on January 30, 2004 approving the forgiveness of the shareholder notes of two of our senior executive officers. The action required the full forgiveness of the shareholder notes by July 1, 2005 if specific operating targets were met. Based on our performance, a portion of the shareholder notes was forgiven as of March 31, 2004 and the remainder in March 2005. There were no comparable restructuring or loan forgiveness costs in the second quarter or first six months of 2006.

We have presented this non-GAAP financial measure because we believe that meaningful analysis of our financial performance is enhanced by an understanding of isolated factors underlying that performance. In addition, our chief operating decision makers use this measure in monitoring and evaluating both our overall performance and the ongoing performance of each of our business segments. This non-GAAP financial measure should not be considered an alternative to measures required by GAAP.

GENERAL

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

24

·   Friction Products

We believe that, based on net sales, we are one of the top worldwide manufacturers of friction products used in off-highway, on-highway, industrial, agricultural, performance and aerospace applications. Our friction products segment manufactures parts and components made from proprietary formulations of composite materials, primarily consisting of metal powders and synthetic and natural fibers. Friction products are used in brakes, clutches and transmissions to absorb vehicular energy and dissipate it through heat and normal mechanical wear. Our friction products include parts for brakes, clutches and transmissions used in construction and mining vehicles, agricultural vehicles, trucks, motorcycles and race cars, and brake parts for landing systems used in commercial and general aviation. We believe we are:

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

·   the leading independent supplier of friction materials for braking systems for new and existing series of many commercial aircraft models, including the Boeing 737 and 757 and the MD-80, and several regional jets including the Canadair regional jet series,

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

·   a leading supplier of friction products into performance and specialty markets such as motorcycles, race cars, performance automobiles, military Hummers, ATV’s and snowmobiles.

·   Precision Components

We are a leading supplier of powder metal and metal injection molded precision components used in industrial, consumer and other applications, such as pumps, motors and transmissions, lawn and garden equipment, appliances, small hand tools and telecommunications equipment. We use composite metal alloys in powder form to manufacture high quality custom-engineered metal components. Our precision components segment serves four specific areas of the powder metal marketplace:

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

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

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

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

·   Performance Racing

We engineer, manufacture and market premium branded clutch, transmissions and driveline systems for the performance racing market. Through this segment, we supply parts for the National Association for Stock Car Auto Racing (NASCAR), the American LeMans Series (ALMS) and by weekend enthusiasts in the Sports Car Club of America (SCCA) racing clubs, as well as for other road racing and competition cars.

25

The following chart shows our net sales by segment during the first six months of 2006:

Net Segment Sales

Six Months Ended June 30, 2006

 

As of June 30, 2006, Hawk had approximately 1,800 employees and 17 manufacturing, research, sales and administrative sites in 5 countries at its continuing operations.

Critical Accounting Policies

Some of our accounting policies require the application of significant judgment by us in the preparation of our financial statements. In applying these policies, we use our best judgment to determine the underlying assumptions that are used in calculating the estimates that affect the reported values on our financial statements. On an ongoing basis, we evaluate our estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

We review our financial reporting and disclosure practices and accounting policies quarterly to ensure that they provide accurate and transparent information relative to the current economic and business environment. We base our estimates and assumptions on historical experience and other factors that we consider relevant. If these estimates differ materially from actual results, the impact on our consolidated financial statements may be material. However, historically our estimates have not been materially different from actual results.Our critical accounting policies include the following:

·   Revenue Recognition. We recognize revenues when products are shipped and title has transferred to our customer.  

·   Goodwill. Goodwill represents the excess of the cost of companies we acquired over the fair value of their net assets as of the date of acquisition. In accordance with SFAS No. 142 Goodwill and Other Intangible Assets (SFAS 142),  our policy is to evaluate the carrying value of our goodwill and indefinite-lived intangible assets at least annually, or more frequently if there is a significant adverse event or change in the environment in which one of our business unit operates. We will record any impairment loss identified in the period such determination is made. In assessing the recoverability of our goodwill, we consider changes in economic conditions and make assumptions regarding estimated future cash flows and other factors. Estimates of future discounted cash flows are highly subjective judgments based on our experience and knowledge of operations. These estimates can be significantly impacted by many factors including changes in global and local business and economic conditions, operating costs, inflation and competitive trends. If actual results are materially different than the assumptions used, impairment could result. We did not record any impairment charges in the three or six month periods ended June 30, 2006 and 2005.

26

·   Long-Lived Assets. We review long-lived assets (excluding goodwill) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In assessing the recoverability of our long-lived assets, we consider changes in economic conditions and make assumptions regarding estimated future cash flows and other factors. Estimates of future undiscounted cash flows are highly subjective judgments based on our experience and knowledge of our operations. These estimates can be significantly impacted by many factors including changes in global and local business and economic conditions, operating costs, inflation and competitive trends. If our estimates or underlying assumptions change in the future, we may be required to record impairment charges. We did not record any impairment charges in the three and six month periods ended June 30, 2006 and 2005.  

·   Pension Benefits. We account for our defined benefit pension plans in accordance with SFAS No. 87, Employers' Accounting for Pensions (SFAS 87), which requires that amounts recognized in financial statements be determined on an actuarial basis. The most significant elements in determining our pension income (expense) in accordance with SFAS 87 are the expected return on plan assets and appropriate discount rates. We assumed that the expected weighted average long-term rate of return on plan assets would be 8.2% for 2006. Based on our existing and forecasted asset allocation and related long-term investment performance results, we believe that our assumption of future returns is reasonable. However, should the rate of return differ materially from our assumed rate we could experience a material adverse effect on the funded status of our plans and our future pension expense. The assumed long-term rate of return on assets is applied to a calculated value of plan assets, which recognizes changes in the fair value of plan assets in a systematic manner over five years. This produces the expected return on plan assets that is included in pension income (expense). The difference between this expected return and the actual return on plan assets is deferred. The net deferral of past asset gains (losses) affects the calculated value of plan assets and, ultimately, future pension income (expense). Net periodic benefit cost was $1.0 million for the six month period ended June 30, 2006 and $0.5 million for the six month period ended June 30, 2005.   We determine the discount rate to be used to discount plan liabilities at their measurement date, December 31. The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year. At December 31, 2005, we determined this rate to be 5.5%. Changes in discount rates over the past three years have not materially affected pension income (expense), and the net effect of changes in the discount rate, as well as the net effect of other changes in actuarial assumptions and experience, has been deferred as permitted by SFAS 87.  

·   Income Taxes. Our effective tax rate, taxes payable and other tax assets and liabilities reflect the current tax rates in the domestic and foreign tax jurisdictions in which we operate. Deferred income taxes reflect the net effect of temporary differences between the carrying amounts of assets and liabilities for reporting and income tax purposes. Our effective tax rate is substantially driven by the impact of the mix of our foreign and domestic income and losses and the federal and local tax rate differences on each.   SFAS No. 109, Accounting for Income Taxes (SFAS 109) provides certain guidelines to follow in making the determination of the need for a valuation allowance. We must demonstrate that taxable income is expected to be available for future periods sufficient to realize the benefits of temporary differences and carryforwards to not record a valuation allowance for deferred tax assets. We have identified strategies which, if implemented, would enable us to realize the aforementioned tax benefits, and therefore, we have determined that no valuation allowance is required as of June 30, 2006.  

·   Foreign Currency Translation and Transactions. Assets and liabilities of our foreign operations are translated using period-end exchange rates and revenues and expenses are translated using exchange rates as determined throughout the year. Gains or losses resulting from translation are included in a separate component of our shareholders’ equity. Other comprehensive income includes a translation gain of $1.1 million for the six months ended June 30, 2006. Gains or losses resulting from foreign currency transactions are translated to local currency at the rates of exchange prevailing at the dates of the transactions. Sales or purchases in foreign currencies, other than the subsidiary’s local currency, are exchanged at the date of the transaction. The effect of transaction gains or losses are included in “Other (expense) income, net” in our Consolidated Statements of Income. Foreign currency transaction gains and losses were not material to the results of operations for the three and six months ended June 30, 2006 and 2005.

27

·   Recent Accounting Developments.   In June 2006, FASB issued Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an amendment of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes by defining a criterion that an individual tax position must meet for any part of the benefit of that position to be recognized in an enterprise’s financial statements. Additionally, FIN48 provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective in 2007. We are evaluating FIN 48, however we do not expect adoption of FIN 48 to have a material impact on our consolidated financial statements.   In March 2006, FASB issued SFAS 156, Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140 (SFAS 156). SFAS 156 establishes the accounting for all separately recognized servicing assets and servicing liabilities. SFAS 156 amends SFAS 140 to require that all separately recognized servicing assets and servicing liabilities be initially measured at fair value, if practicable. This statement is effective in 2007. We are evaluating SFAS 156, however we do not expect adoption of SFAS 156 to have a material impact on our consolidated financial statements.   On February 16, 2006, FASB issued SFAS No. 155, Accounting for Certain Hybrid Instruments (SFAS 155), which amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133) and SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities (SFAS 140). SFAS 155 allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the instrument on a fair value basis. SFAS 155 also clarifies and amends certain other provisions of SFAS 133 and SFAS 140. This statement is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006. We are evaluating SFAS 155, however we do not expect adoption of SFAS 155 to have a material impact on our consolidated financial statements.   Section 404 of the Sarbanes-Oxley Act of 2002 (Section 404) contains provisions requiring an annual assessment by management, as of the end of the fiscal year, of the effectiveness of internal control for financial reporting. Section 404 also requires attestation and reporting by independent auditors on management’s assessment as well as other control-related matters. On September 21, 2005, the SEC published a ruling extending for one year the compliance dates for non-accelerated filers to report on internal control over financial reporting. For these issuers, Section 404 now will be effective for fiscal years ending on or after July 15, 2007.  On August 9, 2006, the SEC published a new proposed rule that would extend the compliance date for the report on management's assessment  of the effectiveness of internal control over financial reporting until fiscal years ending on or after December 15, 2007 for non-accelerated filers.  The proposed rule would also extend the non-accelerated filer compliance date for the auditor attestation report  on internal control over financial reporting until fiscal years ending on or after December 15, 2008.   At this time, we continue to qualify for non-accelerated filer status and therefore, will not need to comply with Section 404 until December 31, 2007. Our compliance initiatives are proceeding. We anticipate being compliant with the requirements of Section 404 as of December 31, 2007.    

SECOND QUARTER OF 2006 COMPARED TO THE SECOND QUARTER OF 2005

Our continuing operations are organized into three strategic segments. These segments include friction products, precision components and performance racing. In the fourth quarter of 2003, we committed to selling our motor segment. As a result, we have classified this business as a discontinued operation.

Net Sales. Our consolidated net sales for the second quarter of 2006 were $76.3 million, an increase of $5.4 million or 7.6% from the same period in 2005. We experienced record net sales in our friction products segment, primarily as a result of the continuing economic strength during the first six months of 2006 in the industrial markets we serve, new product introductions and continued market share gains during the period.

28

	Three months ended June 30
Net Segment Sales:	2006		2005		$ Change			% Change
	(dollars in millions)
Friction products	$	50.2	$	45.7	$	4.5			9.8	%
Precision components		22.8		21.2		1.6			7.5	%
Performance racing		3.3		4.0		(0.7	)		-17.5	%
Consolidated	$	76.3	$	70.9	$	5.4			7.6	%

·   Friction Products. Net sales in the friction products segment, our largest, were $50.2 million in the second quarter of 2006, an increase of $4.5 million, or 9.8%, compared to $45.7 million in 2005. As a result of new product introductions, general economic strength and market share gains, we experienced increases in most of our major markets, including construction and mining, heavy truck, aerospace, performance automotive and increased sales volumes to our direct aftermarket customer base. This segment continued to experience strong sales growth from our international operations in the second quarter of 2006.  

·   Precision Components. Net sales in our precision components segment were $22.8 million in the second quarter 2006, an increase of 7.5% compared to 2005. The increase in net sales was primarily attributable to continued improving conditions in the general industrial segments of the domestic economy. We experienced sales increases in the fluid power and appliance markets served by this segment during the quarter. In addition, we increased manufacturing capacity in this segment with with our new technology equipment coming on-line during the quarter.  

·   Performance Racing. Net sales in our performance racing segment were $3.3 million, a decrease of 17.5% compared to net sales of $4.0 million in the comparable period of 2005. The decrease in revenues was primarily attributable to a realignment of our strategic customer focus and increased competition in this marketplace. At the end of 2005, we made a significant change in the management of our driveline business, and in so doing, began repositioning this business in the marketplace by increasing the level of engineering support and product design capabilities. In addition, we have partnered with a new provider of premium gears for the racing market.  

Gross Profit. Gross profit decreased $1.5 million to $16.0 million during second quarter of 2006, a 8.6% decline compared to gross profit of $17.5 million in the second quarter of 2005. Our gross profit margin declined to 21.0% of our net sales in the second quarter of 2006 compared to 24.7% of our net sales in the comparable period of 2005. The decline is primarily the result of continuing start-up costs incurred at our facility in Tulsa, volume reduction in our performance racing segment, and to a lesser extent, increased medical expenses, raw material cost increases and increased depreciation expense during the period.

	Three months ended June 30
Gross Profit Margin:	2006			2005			Change
Friction products		22.1	%		26.5	%		-4.4	%
Precision components		19.3	%		20.8	%		-1.5	%
Performance racing		15.2	%		25.0	%		-9.8	%
Consolidated		21.0	%		24.7	%		-3.7	%

·   Friction Products. Our friction products segment reported gross profit of $11.1 million or 22.1% of its net sales in the second quarter of 2006 compared to $12.1 million or 26.5% of its net sales in 2005. The decrease in our gross profit margin was primarily the result of start-up costs at our facility in Tulsa as well as increased medical and raw material costs during the period. The decrease in gross margin was partially offset by the impact of sales volume increases during the period, favorable product mix and operating improvements at our Italian facility.  

·   Precision Components. Gross profit in our precision components segment was flat at $4.4 million in both the second quarter of 2006 and 2005. The segment’s gross profit was 19.3% of its net sales in the second quarter of 2006 compared to 20.8% of its net sales in 2005. The decrease in this segment’s margins was primarily the result of increases in medical and raw material costs and increased depreciation expense as a result of the new technology equipment placed into service in the second half of 2005 and first half of 2006. The decrease in gross profit margin was partially offset by favorable product mix as well as margin improvements from volume related absorption of fixed overhead.  

29

·   Performance Racing. Our performance racing segment reported gross profit of $0.5 million or 15.2% of net sales in the second quarter of 2006 compared to $1.0 million or 25.0% of net sales in the comparable period of 2005. The decline in gross profit in the second quarter of 2006 was primarily the result of the reduced sales volumes in the quarter as well as less favorable product mix.

Selling, Technical and Administrative Expenses. Selling, technical and administrative (ST&A) expenses decreased $0.1 million, or 1.0%, to $9.8 million in the second quarter of 2006 from $9.9 million during 2005. As a percentage of net sales, ST&A decreased to 12.8% in 2006 compared to 14.0% in 2005. The decrease in ST&A expenses resulted primarily from reductions in incentive compensation expense for the period. We spent $1.7 million, or 2.2% of our net sales on product research and development in the second quarter of 2006 compared to $1.6 million, or 2.3%, in 2005.

Income from Operations. Income from operations was flat at $6.2 million for the three months ended June 30, 2006 and 2005. Income from operations as a percentage of net sales decreased to 8.1% for the three month period ended June 30, 2006 from 8.7% in the comparable period of 2005. The decrease was primarily the result of the continued start-up costs associated with the transition of operations to our Tulsa facility, decreased sales volume in our performance racing segment, increased medical and raw material cost increases and increased depreciation expense, partially offset by favorable product mix and operating improvements at our precision components segment and our Italian friction products facility.

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

	Three months ended June 30
Income (loss) from operations by segment:	2006			2005		$ Change			% Change
	(dollars in millions)
Friction products	$	5.2		$	4.8	$	0.4			8.3	%
Precision components		1.4			1.2		0.2			16.7	%
Performance racing		(0.4	)		0.2		(0.6	)		-300.0	%
Consolidated	$	6.2		$	6.2	$	-

Included in our income from operations for the second quarter of 2005 was $1.3 million of direct restructuring costs related to the Tulsa plant relocation. Adjusted income from operations before these charges was $7.5 million or 10.6% of net sales in 2005. There were no comparable charges in for the second quarter of 2006.

		Three months ended June 30
		Income (loss) from operations, as reported (GAAP)						Restructuring costs				Adjusted income (loss) from operations
		2006			2005			2006		2005		2006			2005
	(dollars in millions)
Friction products		$	5.2		$	4.8		$	-	$	1.3	$	5.2		$	6.5
Precision components			1.4			1.2			-		-		1.4			1.4
Performance racing			(0.4	)		0.2			-		-		(0.4	)		(0.4	)
Total		$	6.2		$	6.2		$	-	$	1.3	$	6.2		$	7.5
Operating margin			8.1	%		8.7	%						8.1	%		10.6	%

The table above discloses “Adjusted income (loss) from operations,” which is considered to be a “non-GAAP financial measure” under the rules and regulations of the SEC. We have presented this non-GAAP financial measure because we believe that meaningful analysis of our financial performance is enhanced by an understanding of isolated factors underlying that performance. By excluding our non-recurring restructuring and other costs, we believe that this non-GAAP financial measure allows our investors to more easily compare our financial performance period to period. In addition, our chief operating decision makers use this measure in monitoring and evaluating both our overall performance and the ongoing performance of each of our business segments. This non-GAAP financial measure should not be considered an alternative to measures required by GAAP. See the section captioned “Hawk’s Non-GAAP Financial Measures” in this Form 10-Q for more detailed disclosure.

30

Interest Expense. Interest expense increased $0.2 million during the second quarter ended June 30, 2006 to $2.8 million from $2.6 million in the comparable period of 2005. Higher levels of total borrowings as well as increased interest rates on our variable rate debt during the period were the reason for the increase in interest expense. Included as a component of interest expense in our financial statements are the amortization of deferred financing costs. Amortization of deferred financing costs included in interest expense was $0.1 million for the second quarter ended June 30, 2006 and 2005.

Income Taxes. We recorded a tax provision for our continuing operations of $1.5 million for the second quarter ended June 30, 2006 compared to $1.8 million in the comparable period of 2005. Our effective income tax rate differs from the current federal U.S. statutory rate of 35.0%, primarily as a result of tax rate differences on our foreign income and the lack of state tax benefits for domestic entities in a loss position for the three month period ended June 30, 2006 and 2005. Our worldwide provision for income taxes is based on annual tax rates for the year applied to all of our sources of income.

Discontinued Operations, net of tax. We have committed to a plan to divest our motor segment operations. In accordance with GAAP, we have accounted for the motor segment in our financial statements on the line item “Discontinued operations, net of tax.” The following is a summary of the results of discontinued operations for the second quarter ended June 30, 2006 and 2005. An analysis of Discontinued Operations is contained in “Note 6 — Discontinued Operations” in the accompanying unaudited Consolidated Financial Statements of this Form 10-Q.

	Three months ended
	June 30
	2006		2005
	(dollars in millions)
Net sales	$	2.5	$	2.4
Income from discontinued operations before income taxes	$	0.3	$	-
Income taxes		0.1		-
Income from discontinued operations, net of tax	$	0.2	$	-

Net Income. As a result of the factors noted above, we reported net income of $1.9 million, or $.20 cents per diluted share in 2006 compared to net income of $1.7 million, or $.17 per diluted share in 2005.

FIRST SIX MONTHS OF 2006 COMPARED TO THE FIRST SIX MONTHS OF 2005

Net Sales. Our consolidated net sales for the first six months of 2006 were $154.7 million, an increase of $11.8 million or 8.3% from the same period in 2005. We experienced sales increases as a result of new product introductions and market share gains in our friction products and precision component segments and the continuing economic expansion in the industrial markets we serve during the period.

	Six months ended June 30
Net Segment Sales:		2006		2005		$ Change			% Change
		(dollars in millions)
Friction products		$	99.2	$	90.0	$	9.2			10.2	%
Precision components			48.4		44.0		4.4			10.0	%
Performance racing			7.1		8.9		(1.8	)		-20.2	%
Consolidated		$	154.7	$	142.9	$	11.8			8.3	%

·   Friction Products. Net sales in the friction products segment were $99.2 million for the first six months of 2006, an increase of $9.2 million, or 10.2%, compared to $90.0 million in the comparable period of 2005. Net sales increased as a result of new product introductions, continued market share gains in the construction and mining markets, improving economic conditions in our industrial markets and increased sales to our aftermarket. We experienced sales increases in our construction and mining, heavy truck, aftermarket and agriculture markets during the six month period. Net sales, on a local currency basis, at our Italian facility increased 14.0% in the first six months of 2006 compared to the comparable period of 2005.

31

·   Precision Components. Net sales in our precision components segment were $48.4 million in first six months of 2006, an increase of $4.4 million, or 10.0%, compared to $44.0 million in the comparable period of 2005. The increase in net sales was primarily attributable to improving conditions in the general industrial segments of the domestic economy as well as new product introductions associated with the new technology equipment expansion.

·   Performance Racing. Net sales in our performance racing segment were $7.1 million in the first six months of 2006, a decrease of $1.8 million, or 20.2%, compared to $8.9 million in the comparable period of 2005. The decrease in revenues was primarily attributable to a realignment of our strategic customer focus and increased competition in this marketplace. At the end of 2005, we made a significant change in the management of our driveline business, and in so doing, began repositioning this business in the marketplace by increasing the level of engineering support and product design capabilities. In addition, we have partnered with a new provider of premium gears for the racing market.

Gross Profit. Gross profit decreased $5.8 million to $30.4 million during the first six months of 2006, a 16.0% decrease compared to gross profit of $36.2 million in the comparable period of 2005. The gross profit margin decreased to 19.7% of net sales in 2006 from 29.3% of net sales in the comparable period of 2005.

	Six months ended June 30
Gross Profit Margin:		2006			2005			Change
Friction products			19.6	%		27.4	%		-7.8	%
Precision components			20.0	%		20.7	%		-0.7	%
Performance racing			18.3	%		27.0	%		-8.7	%
Consolidated			19.7	%		25.3	%		-5.6	%

·   Friction Products. Our friction products segment reported gross profit of $19.4 million or 19.6% of its net sales in the first six months of 2006 compared to $24.7 million or 27.4% of its net sales in the comparable period of 2005. The decrease in our gross profit margin was primarily the result of start-up costs at our facility in Tulsa as well as increased medical and raw material costs during the period. The decrease in gross margin was partially offset by the impact of sales volume increases during the period and favorable product mix.

·   Precision Components. Gross profit in our precision components segment was $9.7 million or 20.0% of its net sales in the first six months of 2006 compared to $9.1 million or 20.7% of its net sales in comparable period of 2005. The slight decrease in this segment's gross profit margin was primarily the result of higher medical, depreciation and raw material costs in addition to continued support of our China precision components facility during the period. The decline in the segment’s gross margin was partially offset by margin improvements from volume related absorption of fixed overhead and product mix.

·   Performance Racing. Our performance racing segment reported gross profit of $1.3 million or 18.3% of net sales in the first six months of 2006 compared to $2.4 million or 27.0% of net sales in the comparable period of 2004. The decrease in the gross profit and gross profit percentage during the period was primarily the result of reduced sales volumes during the six month period as well as less favorable product mix.

Selling, Technical and Administrative Expenses. ST&A expenses decreased $0.4 million, or 1.9%, to $20.7 million in the first six months of 2006 from $21.1 million in the comparable period of 2005. As a percentage of net sales, ST&A expenses decreased to 13.4% of net sales in the first six months of 2006 compared to 14.8% of net sales in the comparable period of 2005. The decrease in ST&A expenses resulted primarily from decreased incentive compensation costs and loan forgiveness and the related tax gross-up costs associated with our previously discussed forgiveness ofshareholder loans in the six month period ended June 30, 2005. Included in ST&A expenses for the six months ended June 30, 2005, is $1.1 million of loan forgiveness costs. There were no loan forgiveness costs in the comparable 2006 period. We spent $3.3 million on product research and development in the first six months of 2006 compared to $3.1 million in the comparable period of 2005.

Restructuring Costs. We incurred no direct restructuring costs during the first six month of 2006. Direct restructuring costs, including the $0.2 million recorded in our costs of sales, for the six months ended June 30, 2005 were $2.1 million, consisting of severance, planning, recruiting, relocation and other costs associated with the start-up of our manufacturing facility in Tulsa, Oklahoma.

32

Income from Operations. Income from operations decreased $3.4 million or 26.6% to $9.4 million in the first six months of 2006 from $12.8 million in the comparable period of 2005. Income from operations as a percentage of net sales decreased to 6.1% in the first six months of 2006 from 9.0% in the comparable period of 2005. The decrease was primarily the result of the continued start-up costs associated with the transition of operations to our Tulsa facility, decreased sales volume in our performance racing segment, increased medical and raw material cost increases and increased depreciation expense partially offset by improved absorption of fixed costs as a result of sales volume increases, favorable product mix and continuing cost reduction initiatives.

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

		Six months ended June 30
Income (loss) from operations by segment:		2006			2005		$ Change			% Change
	(dollars in millions)
Friction products		$	6.5		$	9.9	$	(3.4	)		-34.3	%
Precision components			3.5			2.2		1.3			59.1	%
Performance racing			(0.6	)		0.7		(1.3	)		-185.7	%
Consolidated		$	9.4		$	12.8	$	(3.4	)		-26.6	%

Included in our income from operations in the first six months of 2005 was $2.1 million of direct restructuring costs related to the plant relocation ($0.2 million of which was included in cost of sales) and a $1.1 million charge related to the previously disclosed forgiveness of the remaining balance of shareholder loans outstanding as of March 31, 2005. There were no comparable charges incurred by us in the comparable six month period ended June 30, 2006. Adjusted income from operations before these charges for the first six month of 2005 was $16.0 million, or 11.2% of net sales.

		Six months ended June 30
		Income (loss) from operations, as reported (GAAP)						Restructuring costs*				Loan forgiveness costs				Adjusted income (loss) from operations
		2006			2005			2006		2005		2006		2005		2006			2005
	(dollars in millions)
Friction products		$	6.5		$	9.9		$	-	$	2.1	$	-	$	0.6	$	6.5		$	12.6
Precision components			3.5			2.2			-		-		-		0.4		3.5			2.6
Performance racing			(0.6	)		0.7			-		-		-		0.1		(0.6	)		0.8
Total		$	9.4		$	12.8		$	-	$	2.1	$	-	$	1.1	$	9.4		$	16.0
Operating margin			6.1	%		9.0	%										6.1	%		11.2	%

*Restructuring costs in this table for the six months ended June 30, 2005 include $0.2 million classified in the Company’s Consolidated Statement of Income as cost of sales items.

The table above discloses income from operations, per diluted share data and income from operations before restructuring and loan forgiveness costs for each of our business segments and our Company as a whole, which excludes amounts that differ from the most directly comparable measure calculated in accordance with GAAP. A reconciliation of these financial measures to the most comparable GAAP measure is included in the table. Management believes that these financial measures are useful to investors because they exclude transactions of an unusual nature, allowing investors to more easily compare our performance period to period. Management uses this information in monitoring and evaluating the ongoing performance of each of our business segments.

Interest Expense. Interest expense increased $0.5 million in the first six months of 2006 to $5.7 million from $5.2 million in the comparable period of 2005. The increase is attributable to higher levels of total borrowings during the six month period ended June 30, 2006 as well as higher borrowing rates on our variable rate debt during the period. Included as a component of interest expense in our financial statements are deferred financing costs. Deferred financing costs included in interest expense in the first six months of 2006 and 2005 were $0.2 million.

33

Income Taxes. We recorded a tax provision for our continuing operations of $1.8 million in the first six months of 2006 compared to $3.8 million in the comparable period of 2005. Our effective income tax rate of 46.8% and 51.6% for the six month periods ended June 30, 2006 and 2005, respectively, exceed the current federal U.S. statutory rate of 35.0%, primarily as a result of tax rate differences on our expected foreign income and expected individual state tax liabilities. Our worldwide provision for income taxes is based on our estimated annual tax rates for the year applied to all of our sources of income.

Discontinued Operations, net of tax. We have committed to a plan to divest our motor segment operations. In accordance with GAAP, we have accounted for the motor segment in our financial statements on the line item “Discontinued operations, net of tax.” The following is a summary of the results of discontinued operations for the six months ended June 30, 2006 and 2005.

		Six months ended June 30
		2006		2005
	(dollars in millions)
Net sales		$	4.9	$	4.8
Income from discontinued operations before income taxes		$	0.4	$	0.2
Income taxes			0.1		0.1
Income from discontinued operations, net of tax		$	0.3	$	0.1

Net Income. As a result of the factors noted above, we reported net income of $2.3 million in the first six months of 2006 compared to $3.6 million in the comparable prior year period, a decrease of $1.3 million, or 36.1%.

LIQUIDITY AND CAPITAL RESOURCES

Our primary financing requirements are:

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

·   for funding our day-to-day working capital requirements, and  

·   to pay interest on, and to repay principal of, our indebtedness.  

Hawk’s primary source of funds for conducting its business activities and servicing its indebtedness has been cash generated from operations and borrowings under our bank facility and senior notes. The following selected measures of liquidity and capital resources outline various metrics that are reviewed by our management and are provided to enhance the understanding of our business.

Selected Measures of Liquidity and Capital Resources from Continuing Operations

	June 30,2006			December 31, 2005
	(dollars in millions)
Cash and cash equivalents	$	5.8		$	7.1
Working capital (1)	$	59.6		$	50.3
Current ratio (2)		2.0 to 1.0			1.9 to 1.0
Net debt as a % of capitalization (3)		72.3	%		73.1	%
Average number of days sales in accounts receivable		63 days			51 days
Average number of days sales in inventory		76 days			77 days

(1)   Working capital is defined as current assets minus current liabilities.

(2)   Current ratio is defined as current assets divided by current liabilities.

(3)   Net debt is defined as long-term debt, including current portion, and short-term borrowings, less cash. Capitalization is defined as net debt plus shareholders’ equity.

34

As part of our working capital management program, we review certain working capital measures on a continuous basis. The $9.3 million increase in our net working capital from December 31, 2005 resulted primarily from increased receivables and inventory levels to support our increased sales volumes during the period. Our accounts receivable and inventory levels are reviewed through the computation of days sales outstanding and inventory turnover, respectively. The number of days sales outstanding in accounts receivable was 63 days compared to 51 days at December 31, 2005. The increase is mainly attributable to the sales increase during recent months in addition to a reduction of a receivable factoring program at our Italian facility during the first six months of 2006.

Average inventory days improved to 76 days at June 30, 2006 as compared to 77 days at December 31, 2005. Our overall inventory investment has increased approximately $3.2 million at June 30, 2006 as compared to December 31, 2005 levels, primarily to support our increased sales volumes during the recent period.

Debt

The following table summarizes the components of our indebtedness as of June 30, 2006 and December 31, 2005:

		June 30		December 31
		2006		2005
	(dollars in millions)
Short-term debt		$	1.0	$	1.4
Senior notes			110.0		110.0
Bank facility			10.0		5.0
Other			1.0		1.2
Total debt		$	122.0	$	117.6

At June 30, 2006, we had $10.0 million outstanding under the bank facility and $2.2 million of letters of credit outstanding under the letter of credit sub-facility. At June 30, 2006, we had $17.8 million available to borrow under the bank facility. Borrowings under the credit facilities and bankers acceptances with local financial institutions at our facilities in Italy and China totaled $1.0 million as of June 30, 2006.

As of June 30, 2006, we were in compliance with the provisions of all of our debt instruments. 

Cash Flow

The following table summarizes the major components of cash flow:

	Six months ended June 30
	2006			2005
	(dollars in millions)
Cash provided by operating activities of continuing operations	$	-		$	8.1
Cash used in investing activities of continuing operations		(6.2	)		(7.9	)
Cash provided by financing activities of continuing operations		4.9			0.2
Effect of exchange rates on cash		0.3			(0.4	)
Cash used in (provided by) discontinued operations		(0.3	)		0.2
Net (decrease) increase in cash and cash equivalents	$	(1.3	)	$	0.1

At June 30, 2006, we had cash and cash equivalents of $5.8 million compared to $6.9 million at June 30, 2005. The cash on the balance sheet at June 30, 2006 and 2005 is primarily held at our foreign operations. Excess domestic cash is used to pay down the outstanding loans of our bank facility.

35

Net cash provided by our operating activities was $.03 million for the six months ended June 30, 2006 compared to $8.1 million in the comparable six month period of 2005. The increase in cash used in our operations in 2006 compared to 2005 was primarily the result of the increased working capital requirements required to support our sales growth during the 2006 period and the reduction of a receivable factoring program at our Italian facility. Our net working capital was $59.6 million as of June 30, 2006 compared to $52.5 million as of June 30, 2005.

We used cash in our investing activities of $6.2 million during the first six months of 2006 and $7.9 million in the comparable period of 2005 for the purchase of property, plant and equipment.

Cash provided by financing activities was $4.9 million for the six months ended June 30, 2006 compared to $0.2 million during the first six months of 2005. The increase in 2006 financing activities primarily resulted from borrowings in our bank facility to support higher levels of working capital as of June 30, 2006 compared to 2005 and the acquisition of property plant and equipment.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk Disclosures. The following discussion about our market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. In seeking to minimize the risks and costs associated with market risk, we manage our exposures to interest rates and foreign currency exchange rates through our regular operating and financial activities and through foreign currency hedge contracts. We had no foreign currency hedge contracts outstanding as of June 30, 2006. We do not use derivative financial instruments for speculative or trading purposes.

Interest Rate Sensitivity. At June 30, 2006, approximately 9.0%, or $11.0 million, of our total debt bore interest at a variable rate. Our primary interest rate risk exposure results from floating rate debt. If interest rates were to increase 100 basis points (1%) from June 30, 2006 rates, and assuming no changes in debt from June 30, 2006 levels, our additional annual interest expense would be approximately $0.1 million.

Inflation Risk. We manage our inflation risks by ongoing review of product selling prices and production costs. In spite of the recent surcharges and prices increases on a number of our raw materials, we historically have been able to pass these increased costs to our customers, though we do experience a delay between our cost increases and sales price increases. Currently, we do not believe that inflation risks are material to our business, its consolidated financial position, results of operations, or cash flows.

Foreign Currency Exchange Risk. The majority of our receipts and expenditures are contracted in U.S. dollars, and we do not consider the market risk exposure relating to currency exchange to be material at this time. We have operations outside the United States with foreign currency denominated assets and liabilities, primarily denominated in Euros, Canadian dollars, and Chinese Yuan. Because we have foreign currency denominated assets and liabilities, financial exposure may result, primarily from the timing of transactions and the movement of exchange rates. We do not expect that our unhedged foreign currency balance sheet exposure as of June 30, 2006 will result in a significant impact on our earnings or cash flows. We also monitor exposure to transactions denominated in currencies other than the functional currency of each country in which Hawk operates, and have periodically entered into forward contracts to mitigate that exposure. As of June 30, 2006, we have no derivative instruments outstanding.

36

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. As of June 30, 2006, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures. The evaluation was carried out under the supervision of and with the participation of our management, including our Chief Executive Officer, Chief Financial Officer and Vice President - Finance. Based on this evaluation, our Chief Executive Officer, Chief Financial Officer and Vice President - Finance each concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to Hawk, including our consolidated subsidiaries, required to be included in reports we file with or submit to the SEC under the Securities Exchange Act of 1934. We continue to evaluate the need for improvements in our disclosure controls and procedures, including further formalizing our processes, procedures and policies.

On August 9, 2006, the SEC published a new proposed rule that would defer the compliance date for the report on management’s assessment of the effectiveness of internal control over financial reporting until fiscal years ending on or after December 15, 2007 for non-accelerated filers. The proposed rule would also defer the non-accelerated filer compliance date for the auditor attestation report on internal control over financial reporting until fiscal years ending on or after December 15, 2008. However, we anticipate being compliant with Section 404 by December 31, 2007, the currently required compliance date for us based on our non-accelerated filer status.

Changes in Internal Control. There have been no changes in our internal control over financial reporting during the most recent fiscal quarter that are judged to have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A.RISK FACTORS

We have no material changes to the disclosure on this matter since the end of our most recent fiscal year, December 31, 2005, filed on Form 10-K on March 29, 2006 with the SEC.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

37

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

On May 23, 2006, Hawk held its 2006 Annual Meeting of Stockholders to act on a proposal to elect directors for a one year term expiring in 2007. The following table sets forth the number of shares of Class A common stock voted for and withheld with respect to each nominee.

Nominee	Votes For	Votes Withheld
Andrew T. Berlin	7,638,863	286,367
Paul R. Bishop	6,980,447	944,783
Jack Kemp	6,500,373	1,424,857
Dan T. Moore, III	7,552,392	372,838

The holders of the Series D Preferred Stock voted all of their respective shares in favor of electing Ronald E. Weinberg, Norman C. Harbert and Byron S. Krantz as directors at the 2006 Annual Meeting.

ITEM 5. OTHER INFORMATION

On August 14, 2006, Hawk and Joseph J. Levanduski entered into an Employment Agreement to modify certain terms of the employment relationship between the parties. Prior to the execution of the Employment Agreement, Mr. Levanduski was employed by Hawk as its Chief Financial Officer on at “at will” basis which employment was terminable by either party at any time for any or no reason. Under the terms of the Employment Agreement, Mr. Levanduski will continue to be employed as Hawk’s Chief Financial Officer for an initial term of five years which may be extended for additional one year periods upon the written agreement of the parties. Mr. Levanduski will receive a base salary equal to $275,000 per year and an opportunity to earn incentive compensation on an annual basis determined by the Chairman and the Compensation Committee of Hawk. Mr. Levanduski is also entitled to participate in the standard employee benefit programs offered by Hawk and Hawk’s stock option plans.

If the Employment Agreement is terminated by Hawk for any reason other than misconduct by Mr. Levanduski, he will continue to receive his base salary and medical insurance benefits for a period of two years following termination. If Mr. Levanduski becomes mentally or physically disabled during the term of his Employment Agreement, he will be entitled to receive the rate of compensation earned immediately prior to his disability for a period of one year after the onset of such disability. If Mr. Levanduski dies during the term of his Employment Agreement, Hawk will (i) pay compensation to his surviving spouse (or if at the time of Mr. Levanduski’s decease he has no wife, then to his beneficiaries) for a period of one year at the rate of compensation earned immediately prior to his death and (ii) provide medical insurance benefits to Mr. Levanduski’s family for a period of one year.

During Mr. Levanduski’s employment and for a period of two years thereafter, he is precluded from competing with Hawk either as an employee or otherwise.

Additionally, on August 14, 2006, in connection with the Employment Agreement, Mr. Levanduski entered into the Control Agreement described below in more detail. Mr. Levanduski is not entitled to any severance benefits as more fully described in the Employment Agreement if he is entitled to any severance benefits pursuant to the terms of the Control Agreement.

The Employment Agreement with Mr. Levanduski is filed herewith as Exhibit 10.1.

On August 14, 2006, Wellman Products Group, Inc. (“Wellman”) and B. Christopher DiSantis entered into an Employment Agreement to modify certain terms of the employment relationship between the parties. Prior to the execution of the Employment Agreement, Mr. DiSantis was as an officer of Hawk and Friction Products Co. (“Friction”) on at “at will” basis which employment was terminable by either party at any time for any or no reason. Under the terms of the Employment Agreement, Mr. DiSantis will be employed as President of Wellman for an initial term of five years which may be extended for additional one year periods upon the written agreement of the parties. Mr. DiSantis will receive a base salary equal to $300,000 per year and an opportunity to earn incentive compensation on an annual basis determined by the Chairman and the Compensation Committee of Hawk. Mr. DiSantis is also entitled to participate in the standard employee benefit programs offered by Wellman and Hawk’s stock option plans.

38

If the Employment Agreement is terminated by Wellman for any reason other than misconduct by Mr. DiSantis, he will continue to receive his base salary and medical insurance benefits for a period of two years following termination. If Mr. DiSantis becomes mentally or physically disabled during the term of his Employment Agreement, he will be entitled to receive the rate of compensation earned immediately prior to his disability for a period of one year after the onset of such disability. If Mr. DiSantis dies during the term of his Employment Agreement, Wellman will (i) pay compensation to his surviving spouse (or if at the time of Mr. DiSantis’ decease he has no wife, then to his beneficiaries) for a period of one year at the rate of compensation earned immediately prior to his death and (ii) provide medical insurance benefits to Mr. DiSantis’ family for a period of one year.

During Mr. DiSantis’ employment and for a period of two years thereafter, he is precluded from competing with Hawk either as an employee or otherwise.

In addition, on August 14, 2006, in connection with the Employment Agreement, Mr. DiSantis entered into the Control Agreement described below in more detail. Mr. DiSantis is not entitled to any severance benefits as more fully described in the Employment Agreement if he is entitled to any severance benefits pursuant to the terms of the Control Agreement.

The Employment Agreement with Mr. DiSantis is filed herewith as Exhibit 10.2.

On August 14, 2006, Hawk Precision Components Group, Inc. (“HPCG”) and Steven J. Campbell entered into an Agreement of Employment, Confidentiality and Non-Competition (the “New Employment Agreement”) whereby Mr. Campbell is employed as President of HPCG. In connection with the New Employment Agreement, Friction and Mr. Campbell terminated the Agreement of Employment, Confidentiality and Non-Competition dated January 27, 2000, as amended by a First Amendment to Agreement of Employment, Confidentiality and Non-Competition dated October 5, 2004 (collectively, the “Prior Agreements”) whereby Mr. Campbell was employed as President of Friction and President of Hawk’s performance racing segment. The terms of Mr. Campbell’s New Employment Agreement, including employment on an “at will” basis, compensation and benefits are consistent with the Prior Agreements. In addition, on August 14, 2006, in connection with the New Employment Agreement, Mr. Campbell entered into the Control Agreement described below in more detail.

In connection with Mr. Campbell’s employment by HPCG as President, on August 14, 2006, Friction and Mr. Campbell entered into the Memorandum of Agreement Concerning Termination of Employment Relationship (the “Memorandum of Termination”) which provides that the employment relationship between Mr. Campbell and Friction is terminated. In addition, the Memorandum of Termination provides that certain terms of the Prior Agreements shall remain in full force and effect and the performance of Mr. Campbell’s duties for HPCG pursuant to the New Employment Agreement will not constitute a violation of Mr. Campbell’s duties to Friction under the terms of the Prior Agreements.

The New Employment Agreement and the Memorandum of Termination are filed herewith as Exhibits 10.3 and 10.4, respectively.

On August 14, 2006, Steven J. Campbell, B. Christopher DiSantis, Thomas A. Gilbride and Joseph J. Levanduski (each, an “Executive”) entered into Hawk’s executive officer change in control agreement (the “Control Agreement”), which provides certain severance benefits if the employment of any Executive is terminated following a “Change in Control.” A “Change in Control” is defined as any acquiring person, alone or together with its affiliates and associates, having acquired or obtained the right to acquire the beneficial ownership of 50% or more of the outstanding shares of common stock of Hawk. These severance benefits will be paid only if (i) the termination of employment occurs within three years following the Change in Control and (ii) the termination was a “Qualifying Termination” (as such term is defined). If these conditions are met, each Executive will be entitled to receive severance payments equal to such Executive’s (i) base salary through the Executive’s termination date, (ii) prorated annual incentive compensation for the calendar year in which the termination of such Executive’s employment occurs and (iii) Average Compensation (as such term is defined) times a multiple of 2.99. Additionally, the vesting of each Executive’s outstanding equity awards will accelerate. The Control Agreement precludes each Executive from competing with Hawk, either as en employee or otherwise, for a period of one year following the termination of that Executive’s employment, however caused.

A form of the Control Agreement is filed herewith as Exhibit 10.5.

39

The descriptions of the various agreements set forth above are qualified in their entirety by reference to said agreements and incorporated herein by reference.

ITEM 6. EXHIBITS

Exhibits:

10.1*	Employment Agreement, dated August 14, 2006, between Hawk Corporation and Joseph J. Levanduski
10.2*	Employment Agreement, dated August 14, 2006, between Wellman Products Group, Inc. and B. Christopher DiSantis
10.3*	Agreement of Employment, Confidentiality and Non-Competition, dated August 14, 2006, between Hawk Precision Components Group, Inc. and Steven J. Campbell
10.4*	Memorandum of Agreement Concerning Termination of Employment Relationship, dated August 14, 2006, between Friction Products Co. and Steven J. Campbell
10.5*	Form of Change in Control Agreement among Hawk Corporation and certain executive officers
31.1*	Certification of the Chairman of the Board, Chief Executive Officer and President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of the Chairman of the Board, Chief Executive Officer and President pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

____________

* Filed or furnished herewith

40

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 14, 2006HAWK CORPORATION

By: /s/ Ronald E. Weinberg

Ronald E. Weinberg

Chairman of the Board, CEO and President

By: /s/ Joseph J. Levanduski

Joseph J. Levanduski

Chief Financial Officer

41

EX-10.1

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into this 14^th day of August, 2006, by and between HAWK CORPORATION, a Delaware corporation which maintains a place of business at 200 Public Square, Suite 1500, Cleveland Ohio 44114 (hereinafter referred to as “Employer”), and JOSEPH J. LEVANDUSKI, an individual who resides at 9979 Barr Road, Brecksville, Ohio 44141 (hereinafter referred to as “Employee”).

R E C I T A L S :

A.Employer is engaged in the business of the business of designing, engineering, manufacturing and marketing friction materials and powder metal components used in a wide variety of aerospace, industrial, construction and other commercial applications (the “Company Business”).

B.Employee is currently employed by Employer as its Chief Financial Officer, on an “at will” basis, which employment is terminable by either party at any time for any reason or no reason.

C.The work of Employee for Employer has brought and is expected to continue to bring Employee into close contact with many confidential affairs of Employer not readily available to the public.

D.The parties are also contemplating entering into an agreement captioned “Change in Control Agreement” (hereinafter, the “Control Agreement”), a copy of which is attached hereto as Exhibit A.

E.The parties now desire to modify the employment relationship and establish certain protections and obligations, in the manner set forth in this Agreement and in the Control Agreement.

ACCORDINGLY, in consideration of the promises hereinafter set forth in this Agreement and in the Control Agreement, the parties agree as follows:

1.Effective Date. This Agreement shall be effective on the first date after the execution by both of the parties of both this Agreement and the Control Agreement (the “Effective Date”).

2.Position, Duties and Responsibilities. Employer hereby employs Employee, and Employee agrees to be employed by Employer, as its Chief Financial Officer, or to such other senior management position as the parties may define by mutual agreement. During the “Employment Period” (as hereinafter defined), the Chairman of the Board of Directors of Employer (the “Chairman”) or his designee shall be entitled to establish the business hours, conditions of employment, reporting relationships, job assignments, duties and responsibilities of Employee hereunder, and to modify the foregoing from time to time. Those duties include, without limitation, the duties set forth on the job description attached hereto as Exhibit B. As of the date hereof, Employee shall report to the Chairman. Employee shall devote all of his business efforts to the business of Employer.

3.Employment Period. The term of this Agreement shall be five (5) years, commencing on the Effective Date (hereinafter referred to as the “Employment Period”). Thereafter, the Employment Period may be extended for additional one year (1) periods, in each case upon the written agreement of the parties.

42

4.Compensation. For services rendered pursuant to this Agreement, and for the covenants and agreements of Employee set forth herein, Employee shall receive the following: (i) a base salary at the rate of $22,916.67 per month (annual rate: $275,000), which amount is subject to annual review and possible increase at the discretion of Chairman, with the advice and consent of the Compensation Committee of the Board of the Corporation (the “Compensation Committee”); (ii) an opportunity to earn incentive compensation on annual basis, in such amount and manner as may be determined by the Chairman, with the advice and consent of the Compensation Committee, with respect to a particular year; provided, however, that Employee must be actively employed by Employer at the end of a year in order to earn incentive compensation with respect to that year; notwithstanding the foregoing, in the year of termination of Employee’s employment, if the termination is under circumstances which entitle Employee to receive severance pay pursuant to the Control Agreement or Section 5(b) below, Employee shall earn a pro rata portion (computed as the number of days worked during the year divided by 365) of such incentive compensation for the year in which the termination occurs; (iii) four (4) weeks of vacation per year; provided, however, that unused vacation may not be carried over to a subsequent year; (iv) the right to participate in the standard benefits which Employer provides to all of its employees; (v) the right to participate in the Hawk Corporation 1997 Stock Option Plan and the 2000 Long Term Incentive Plan (collectively, the “Plans”) in accordance with and subject to all of the terms and conditions contained in the Plans, subject to the execution of such documents as may be required by the Committee appointed pursuant to the Plans; and (vi) such other benefits and/or perquisites as may be provided at the discretion of the Chairman from time to time.

5.Severance.

(a)The parties acknowledge and agree that (i) certain severance benefits may be provided to Employee pursuant to provisions of the Control Agreement, and (ii) Employee shall not be entitled to any of the “Severance Benefits” described in this Paragraph 5 if he is entitled to any severance benefits pursuant to the terms of the Control Agreement.

(b)Subject to the terms of subparagraph (a) above, in the event of the termination of Employee’s employment by Employer for a reason other than for “Cause”, Employer will continue to pay to Employee the “Annual Salary” for a period of twenty four (24) months following the date of termination, and will continue to provide to Employee and his family “Basic Medical Coverage” and “Executive Medical Benefits” (as hereinafter defined) for a period of twenty four (24) months following the date of termination. In addition, Employee shall be entitled to receive payment for any earned vacation which he had not used as of the date of termination. For purposes of this Agreement, the definition of “Annual Salary” shall be identical to the definition of “Annual Salary” set forth in Section 1.1(e) of the Control Agreement, and the definition of “Cause” shall be identical to the definition of “Cause” set forth in Section 1.1(k) of the Control Agreement, and each of those definitions is incorporated herein to the same extent as if it had been fully rewritten in this Agreement. For purposes hereof, “Basic Medical Coverage” shall mean the same group medical insurance coverage as is provided to all salaried employees, and “Executive Medical Benefits” shall mean the additional medical benefits that are provided (if any) from time to time to high level executives only, in each case on the same basis as such benefits had been provided immediately prior to the termination and subject to the provisions of the applicable plans.

(c)The continuation of Annual Salary, Basic Medical Coverage and Executive Medical Benefits described in subparagraph (b) above (collectively, the “Severance Benefits”) are intended by the parties to be in settlement of any and all claims of Employee arising out of or related to Employee’s employment with Employer, including, without limitation, the termination of such employment, any express or implied employment agreement, this Agreement, or the breach thereof (collectively, “Employment Claims”). In consideration of Employer providing the Severance Benefits, upon his acceptance of any of the Severance Benefits, and without further action by Employee, Employee will be deemed to have released and waived any and all Employment Claims against Employer, and will be deemed to have covenanted not to sue Employer in connection with any Employment Claim, and Employee hereby so releases, waives and covenants. If Employer so requests, employee shall execute a General Waiver and Release of Claims form substantially the same as the “Release” which is attached to the Control Agreement as Exhibit A thereto, in which event Employer’s obligation to provide the Severance Benefits shall be conditioned upon the execution and delivery by Employee of such a release.

(d)In further consideration for such release and waiver and covenant not to sue, it is agreed that Employee shall not be required to mitigate damages, by seeking other employment or otherwise, and Employer shall not be entitled to set off against amounts payable to Employee pursuant to this subparagraph any amounts earned by Employee from other employment during the balance of the Employment Period.

43

(e)Employer’s obligation to provide the Severance Benefits shall also be subject to, and conditioned upon, Employee’s waiver of any other cash severance payment or other benefits provided Employer or its affiliates pursuant to any other severance agreement with Employee. No amount shall be payable under this Agreement to, or on behalf of, Employee unless and until the Employee has executed and delivered such a waiver, in a form to be presented by Employer.

6.Death of Employee. If Employee should die during the Employment Period, Employer (i) shall continue to pay compensation to Employee’s wife (or if at the time of Employee’s decease Employee has no wife, then to his beneficiaries) for a period of one year, at the rate of compensation earned by Employee immediately prior to his death, and (ii) shall continue to provide the Basic Medical Coverage and Executive Medical Benefits (as defined in paragraph 5(b) above) to Employee’s family for a period of one year. Employer shall have no further duties or obligations to Employee pursuant to this Agreement.

7.Disability of Employee.

(a)In the event that Employee shall become mentally or physically disabled (as hereinafter defined) during the Employment Period, Employer shall continue to pay compensation to Employee, at the rate of compensation earned by Employee immediately prior to his disability, for a period of one year after the onset of such disability. If, at the end of such period, Employee shall continue to be so disabled Employer may elect, upon ten days prior written notice, to discontinue payments of compensation, and to terminate this Agreement, and Employer shall have no further duties or obligations hereunder.

(b)For purposes of this paragraph 7, Employee shall become “mentally or physically disabled” if he is unable to perform the essential functions of his position, with or without reasonable accommodation. In the event that Employee believes that he would be able to perform the essential functions of his position with a reasonable accommodation, the parties shall engage in an interactive process concerning such possible accommodation, in accordance with applicable law. If Employee submits information from one or more physicians in support of that position, Employee hereby agrees to submit to examinations from one or more physicians selected by Employer, so long as the physicians selected by Employer are paid by Employer.

(c)The date on which the disability will be deemed to have occurred shall be the day after Employee last performed the services for Employer which are required of him pursuant to this Agreement, which performance of services was discontinued because of the mental or physical disability described herein.

8.Restrictive Covenants. The provisions of the restrictive covenants contained in Exhibit B to the Control Agreement (hereinafter, the “Restrictive Covenants”) are incorporated herein to the same extent as if they had been fully rewritten in this Agreement; except that, for purposes of this Agreement only, certain of the Restrictive Covenants shall be modified to provide as follows:

(a)The definition of the “Restricted Period” which is set forth in the first sentence of Section 3 of the Restrictive Covenants is hereby modified by changing the phrase “one (1) year following the termination of such employment” to read “two (2) years following the termination of such employment”.

(b)The initial phrase of Section 6 of the Restrictive Covenants is hereby modified by changing the phrase “During and for a period of two (2) years after the expiration of the Restricted Period” to read “During the Restricted Period”.

The Restrictive Covenants, as modified in this paragraph, shall survive the termination of this Agreement, however caused.

9.Disclosure. Employer may notify anyone employing Employee or evidencing an intention to employ Employee as to the existence and provisions of this Agreement.

10.Incorporation by Reference from Control Agreement. Whenever the text of this Agreement contains language to indicate, in essence, that a portion of the Control Agreement is incorporated herein to the same extent as if it had been fully rewritten in this Agreement (or words of similar meaning), and the text so incorporated herein includes the term “Executive” or the “Corporation”, such terms shall have the following meanings in this Agreement: (i) “Executive” shall mean the Employee, and (ii) the Corporation shall mean the Employer, each of its subsidiary companies, each of the constituent entities of any of the foregoing, individually and collectively, and any successor of any of the foregoing (as described in Article V of the Control Agreement).

44

11.Governing Law and Jurisdiction. The parties intend that the validity, performance and enforcement of this Agreement shall be governed by the laws of the State of Ohio. In the event of any claim arising out of or related to this Agreement, or the breach thereof, the parties intend to and hereby confer jurisdiction to enforce the terms of this Agreement upon the courts of any jurisdiction within the State of Ohio, and hereby waive any objections to venue in said courts.

12.Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their heirs, representatives and successors.

13.Severability. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein.

14.Notices. All notices, requests, demands or other communications hereunder shall be sent by registered or certified mail to the parties at the addresses set forth on the first page of this Agreement, or to such other address as a party may designate by notice given pursuant to this paragraph.

15.Effect of Captions. The captions in this Agreement are included for convenience only and shall not in any way effect the interpretation or construction of any provision hereof.

16.Remedies Cumulative; No Waiver. All remedies specified herein or otherwise available shall be cumulative and in addition to any and every other remedy provided hereunder or now or hereafter available. No waiver or failure (intentional or unintentional) to act with respect to any breach or default hereunder shall be deemed to be a waiver with respect to any subsequent breach or default, whether of a similar or different nature.

17.Governing Law; Jurisdiction: Limitations on FilingActions. This Agreement shall be governed by and construed in accordance with the substantive law of the State of Ohio. The parties intend to and hereby do confer jurisdiction upon the courts of any jurisdiction within the State of Ohio to determine any dispute arising out of or related to this Agreement, including the enforcement and the breach hereof. The parties agree that any claim arising out of or related to this Agreement, or the breach hereof, must be filed within six (6) months after the date of the alleged breach, and in any event within six months after the date of termination of Employee’s employment, that any claim which is not filed within such six month period is waived, and that any statute of limitations to the contrary is hereby waived.

18.Acknowledgment. Employee acknowledges that: (i) he has carefully read all of the terms of this Agreement, and that such terms have been fully explained to him; (ii) he understands the consequences of each and every term of this Agreement; (iii) he had other employment opportunities at the time he entered into this Agreement; (iv) he specifically understands that by signing this Agreement he is giving up certain rights he may have otherwise had, and that he is agreeing to limit his freedom to engage in certain employment during and after the termination of this Agreement, and (v) the limitations to his right to compete contained in this Agreement represent reasonable limitations as to scope, duration and geographical area, and that such limitations are reasonably related to protection which Employer reasonably requires.

19.Entire Agreement. This Agreement embodies the entire agreement and understanding between Employer and Employee and supersedes all prior agreements and understandings relating to the subject matter hereof.

45

IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the date first hereinabove mentioned.

HAWK CORPORATION

(“Employer”)

By:/s/ Ronald E. Weinberg

Its:Chairman and Chief Executive Officer

/s/ Joseph J. Levanduski

Joseph J. Levanduski (“Employee”)

EXHIBIT A

THE CONTROL AGREEMENT

See attached document.

46

EXHIBIT B

JOB DESCRIPTION

Title:Chief Financial Officer (CFO) for Hawk Corporation

Reporting Relationship: Reports to the CEO

Education: Bachelor’s degree in accounting, plus a successful combination of training and work experience in a manufacturing environment, and a CPA is required. Master’s degree in finance / accounting is desirable.

PersonalCharacteristics: Excellent interpersonal skills (verbal and written); team player; able to work across organization lines to achieve results; good business skills; analytical and able to solve technical problems; able to visualize and conceptualize concepts ideas; able to quickly grasp and understand technical concepts and application; able to work up and down and across organization structure; able to work in a matrix/team based organization environment; high sense of urgency; outstanding problem solver; good analysis skills; strong personal computer skills Excel Access; high level of integrity; commitment to continuous improvement; understanding of modern accounting control and manufacturing theory and practice.

WorkExperience:Minimum of 10 to 15 years of progressively responsible work experience resulting in a controller’s role for a publicly traded manufacturing company with an integrated computer system.

Principal Area ofResponsibility:The primary focus of the CFO’s position is to direct the finance, accounting, information systems and control functions of the Company, maintain relationships with the investment and banking community, establish consistent policies and procedures throughout the organization to ensure timely and accurate financial information, oversee the Controllers consolidation of the divisional financial information, and ensure that all financial information is prepared in accordance with all GAAP and SEC reporting requirements. The CFO will establish, coordinate and administer an effective, on-going plan for the fiscal control of the operation including full P&L and Balance Sheet. The plan will include, but is not limited to, budgeting, cost control, profit maximization, SOX compliance, capital investing, cost standards, and SEC compliance. Further, the CFO will participate as a senior member of management in aligning the company’s financial goals and operations with its overall strategy.

Specific Duties:

·   Financial reporting: Provide oversight and guidance to controllers in order to maintain accurate general ledger, balance sheet, in accordance with GAAP.

·   Assure that financial reports are established that are required to properly manage the operations.

·   Provide timely reporting of financial performance to SEC in according to GAAP.

·   Establish the appropriate control environment to ensure compliance with Sarbanes Oxley requirements, and that are sufficient to provide a basis to provide appropriate certifications under Section 302 of the law.

·   Review and consolidate the Annual Operating and Capital Budgets for Hawk Corporation and each of its divisions.

·   Lead in the preparation of SEC disclosure information, and ensure that the divisional finance team is trained to understand SEC requirements.

·   Conduct timely reviews of financial data submitted by facilities / divisions as necessary.

·   Coordinate the preparation of all necessary information for external and internal audits.

47

·   Work with manufacturing sites on elimination of errors and misrepresentation of information.

·   Maintain integrity of informational systems used in the organization.

·   Facilitate the effectiveness of the information systems used at the divisional level, including QAD; and the financial consolidation package used at Hawk Corporation.

·   Ensure proper documentation of manufacturing processes is developed and maintained for accurate inventory standards, inventory valuations, and control.

·   Be a point of contact for external auditors, and ensure efficient audits and quarterly reviews.

·   Interpret manufacturing variances, and develop strategies to eliminate unfavorable results.

·   Administratively direct the group and site controllers and all staff associated with the department.

·   Provide input to the divisional controllers as they write annual performance appraisals and career planning processes for their staff.

·   Investigate and provide corrective action for any issues uncovered during the course of the job.

·   Facilitate and provide leadership on company initiatives towards continuous improvement, including best cost initiatives.

·   Establish, monitor and report on cost reduction programs;

·   Support Operations in all financial related issues including short-term problem solving and long-term systems issues.

·   Provide strategic input and leadership on corporate development projects (acquisitions, divestitures, etc.,)

·   Provide the organization with appropriate financial structure to carry out strategic initiatives including bank and high yield debt, and equity options.

·   Develop and maintain appropriate communications and relationships with the investment community.

48

EX-10.2

EXHIBIT 10.2

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into this 14^th day of August, 2006, by and between WELLMAN PRODUCTS GROUP, INC., an Ohio corporation which maintains a place of business at 200 Public Square, Suite 1500, Cleveland Ohio 44114 (hereinafter referred to as “Employer”), and B. CHRISTOPHER DISANTIS, an individual who resides at 8059 Long Forest Drive, Brecksville, Ohio 44141 (hereinafter referred to as “Employee”).

R E C I T A L S :

A.Employer is engaged in the business of designing, engineering, manufacturing and marketing friction materials and powder metal components used in a wide variety of aerospace, industrial, construction and other commercial applications (the “Company Business”).

B.Employee currently serves as an officer of the parent company of Employer, Hawk Corporation (“Hawk”), is employed by Friction Products Co. (“Friction”), a subsidiary of Hawk, and performs services for the foregoing and certain other affiliates of Hawk and/or Employer. All of the foregoing employment is on an “at will” basis, and is terminable by either party at any time for any reason or no reason.

C.The work of Employee for Hawk and/or Employer and/or one or more of the affiliates of Hawk and Employer (all of the foregoing entities being referred to collectively in this Agreement as “the Corporation”) has brought and is expected to continue to bring Employee into close contact with many confidential affairs of the Corporation not readily available to the public.

D.The Hawk and Employee are also contemplating entering into an agreement captioned “Change in Control Agreement” (hereinafter, the “Control Agreement”), a copy of which is attached hereto as Exhibit A.

E.The parties now desire to modify the employment relationship and establish certain protections and obligations, in the manner set forth in this Agreement and in the Control Agreement.

ACCORDINGLY, in consideration of the promises hereinafter set forth in this Agreement and in the Control Agreement, the parties agree as follows:

1.Effective Date. This Agreement shall be effective on the first date after the execution by both of the parties of both this Agreement and the Control Agreement (the “Effective Date”).

2.Position, Duties and Responsibilities. Employer hereby employs Employee, and Employee agrees to be employed by Employer, as its President, or to such other senior management position as the parties may define by mutual agreement. During the “Employment Period” (as hereinafter defined), the Chairman of the Board of Directors of Employer (the “Chairman”) shall be entitled to establish the business hours, conditions of employment, reporting relationships, job assignments, duties and responsibilities of Employee hereunder, and to modify the foregoing from time to time. Those duties include, without limitation, the duties set forth on the job description attached hereto as Exhibit B. Employee shall report to the Chairman. Employee shall devote all of his business efforts to the business of Employer.

3.Employment Period. The term of this Agreement shall be five (5) years, commencing on the Effective Date (hereinafter referred to as the “Employment Period”). Thereafter, the Employment Period may be extended for additional one year (1) periods, in each case upon the written agreement of the parties.

49

4.Compensation. For services rendered pursuant to this Agreement, and for the covenants and agreements of Employee set forth herein, Employee shall receive the following: (i) a base salary at the rate of $25,000.00 per month (annual rate: $300,000), which amount is subject to annual review and possible increase at the discretion of Chairman, with the advice and consent of the Compensation Committee of the Board of Directors of Hawk (the “Compensation Committee”); (ii) an opportunity to earn incentive compensation on annual basis, in such amount and manner as may be determined by the Chairman, with the advice and consent of the Compensation Committee, with respect to a particular year; provided, however, that Employee must be actively employed by the Corporation at the end of a year in order to earn incentive compensation with respect to that year; notwithstanding the foregoing, in the year of termination of Employee’s employment, if the termination is under circumstances which entitle Employee to receive severance pay pursuant to the Control Agreement or Section 5(b) below, Employee shall earn a pro rata portion (computed as the number of days worked during the year divided by 365) of such incentive compensation for the year in which the termination occurs; (iii) four (4) weeks of vacation per year; provided, however, that unused vacation may not be carried over to a subsequent year; (iv) the right to participate in the standard benefits which Employer provides to all of its employees; (v) the right to participate in the Hawk Corporation 1997 Stock Option Plan and the 2000 Long Term Incentive Plan (collectively, the “Plans”) in accordance with and subject to all of the terms and conditions contained in the Plans, subject to the execution of such documents as may be required by the Committee appointed pursuant to the Plans; and (vi) such other benefits and/or perquisites as may be provided at the discretion of the Chairman from time to time.

5.Severance.

(a)The parties acknowledge and agree that (i) certain severance benefits may be provided to Employee pursuant to provisions of the Control Agreement, and (ii) Employee shall not be entitled to any of the “Severance Benefits” described in this Paragraph 5 if he is entitled to any severance benefits pursuant to the terms of the Control Agreement.

(b)Subject to the terms of subparagraph (a) above, in the event of the termination of Employee’s employment by Employer for a reason other than for “Cause”, Employer will continue to pay to Employee the “Annual Salary” for a period of twenty four (24) months following the date of termination, and will continue to provide to Employee and his family “Basic Medical Coverage” and “Executive Medical Benefits” (as hereinafter defined) for a period of twenty four (24) months following the date of termination. In addition, Employee shall be entitled to receive payment for any earned vacation which he had not used as of the date of termination. For purposes of this Agreement, the definition of “Annual Salary” shall be identical to the definition of “Annual Salary” set forth in Section 1.1(e) of the Control Agreement, and the definition of “Cause” shall be identical to the definition of “Cause” set forth in Section 1.1(k) of the Control Agreement, and each of those definitions is incorporated herein to the same extent as if it had been fully rewritten in this Agreement. For purposes hereof, “Basic Medical Coverage” shall mean the same group medical insurance coverage as is provided to all salaried employees, and “Executive Medical Benefits” shall mean the additional medical benefits that are provided (if any) from time to time to high level executives only, in each case on the same basis as such benefits had been provided immediately prior to the termination and subject to the provisions of the applicable plans.

(c)The continuation of Annual Salary, Basic Medical Coverage and Executive Medical Benefits described in subparagraph (b) above (collectively, the “Severance Benefits”) are intended by the parties to be in settlement of any and all claims of Employee arising out of or related to Employee’s employment with Employer, including, without limitation, the termination of such employment, any express or implied employment agreement, this Agreement, or the breach thereof (collectively, “Employment Claims”). In consideration of Employer providing the Severance Benefits, upon his acceptance of any of the Severance Benefits, and without further action by Employee, Employee will be deemed to have released and waived any and all Employment Claims against Employer, and will be deemed to have covenanted not to sue Employer in connection with any Employment Claim, and Employee hereby so releases, waives and covenants. If Employer so requests, employee shall execute a General Waiver and Release of Claims form substantially the same as the “Release” which is attached to the Control Agreement as Exhibit A thereto, in which event Employer’s obligation to provide the Severance Benefits shall be conditioned upon the execution and delivery by Employee of such a release.

(d)In further consideration for such release and waiver and covenant not to sue, it is agreed that Employee shall not be required to mitigate damages, by seeking other employment or otherwise, and Employer shall not be entitled to set off against amounts payable to Employee pursuant to this subparagraph any amounts earned by Employee from other employment during the balance of the Employment Period.

50

(e)Employer’s obligation to provide the Severance Benefits shall also be subject to, and conditioned upon, Employee’s waiver of any other cash severance payment or other benefits provided Employer or its affiliates pursuant to any other severance agreement with Employee. No amount shall be payable under this Agreement to, or on behalf of, Employee unless and until the Employee has executed and delivered such a waiver, in a form to be presented by Employer.

6.Death of Employee. If Employee should die during the Employment Period, Employer (i) shall continue to pay compensation to Employee’s wife (or if at the time of Employee’s decease Employee has no wife, then to his beneficiaries) for a period of one year, at the rate of compensation earned by Employee immediately prior to his death, and (ii) shall continue to provide the Basic Medical Coverage and Executive Medical Benefits (as defined in paragraph 5(b) above) to Employee’s family for a period of one year. Employer shall have no further duties or obligations to Employee pursuant to this Agreement.

7.Disability of Employee.

(a)In the event that Employee shall become mentally or physically disabled (as hereinafter defined) during the Employment Period, Employer shall continue to pay compensation to Employee, at the rate of compensation earned by Employee immediately prior to his disability, for a period of one year after the onset of such disability. If, at the end of such period, Employee shall continue to be so disabled Employer may elect, upon ten days prior written notice, to discontinue payments of compensation, and to terminate this Agreement, and Employer shall have no further duties or obligations hereunder.

(b)For purposes of this paragraph 7, Employee shall become “mentally or physically disabled” if he is unable to perform the essential functions of his position, with or without reasonable accommodation. In the event that Employee believes that he would be able to perform the essential functions of his position with a reasonable accommodation, the parties shall engage in an interactive process concerning such possible accommodation, in accordance with applicable law. If Employee submits information from one or more physicians in support of that position, Employee hereby agrees to submit to examinations from one or more physicians selected by Employer, so long as the physicians selected by Employer are paid by Employer.

(c)The date on which the disability will be deemed to have occurred shall be the day after Employee last performed the services for Employer which are required of him pursuant to this Agreement, which performance of services was discontinued because of the mental or physical disability described herein.

8.Restrictive Covenants. The provisions of the restrictive covenants contained in Exhibit B to the Control Agreement (hereinafter, the “Restrictive Covenants”) are incorporated herein to the same extent as if they had been fully rewritten in this Agreement; except that, for purposes of this Agreement only, certain of the Restrictive Covenants shall be modified to provide as follows:

(a)The definition of the “Restricted Period” which is set forth in the first sentence of Section 3 of the Restrictive Covenants is hereby modified by changing the phrase “one (1) year following the termination of such employment” to read “two (2) years following the termination of such employment”.

(b)The initial phrase of Section 6 of the Restrictive Covenants is hereby modified by changing the phrase “During and for a period of two (2) years after the expiration of the Restricted Period” to read “During the Restricted Period”.

The Restrictive Covenants, as modified in this paragraph, shall survive the termination of this Agreement, however caused.

9.Disclosure. Employer may notify anyone employing Employee or evidencing an intention to employ Employee as to the existence and provisions of this Agreement.

10.Incorporation by Reference from Control Agreement. Whenever the text of this Agreement contains language to indicate, in essence, that a portion of the Control Agreement is incorporated herein to the same extent as if it had been fully rewritten in this Agreement (or words of similar meaning), and the text so incorporated herein includes the term “Executive” or the “Corporation”, such terms shall have the following meanings in this Agreement: (i) “Executive” shall mean the Employee, and (ii) the Corporation shall mean Hawk, the Employer, each of their subsidiary companies, each of the constituent entities of any of the foregoing, individually and collectively, and any successor of any of the foregoing (as described in Article V of the Control Agreement).

51

    11.Governing Law and Jurisdiction. The parties intend that the validity, performance and enforcement of this Agreement shall be governed by the laws of the State of Ohio. In the event of any claim arising out of or related to this Agreement, or the breach thereof, the parties intend to and hereby confer jurisdiction to enforce the terms of this Agreement upon the courts of any jurisdiction within the State of Ohio, and hereby waive any objections to venue in said courts.

12.Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their heirs, representatives and successors.

13.Severability. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein.

14.Notices. All notices, requests, demands or other communications hereunder shall be sent by registered or certified mail to the parties at the addresses set forth on the first page of this Agreement, or to such other address as a party may designate by notice given pursuant to this paragraph.

15.Effect of Captions. The captions in this Agreement are included for convenience only and shall not in any way effect the interpretation or construction of any provision hereof.

16.Remedies Cumulative; No Waiver. All remedies specified herein or otherwise available shall be cumulative and in addition to any and every other remedy provided hereunder or now or hereafter available. No waiver or failure (intentional or unintentional) to act with respect to any breach or default hereunder shall be deemed to be a waiver with respect to any subsequent breach or default, whether of a similar or different nature.

17.Governing Law; Jurisdiction: Limitations on FilingActions. This Agreement shall be governed by and construed in accordance with the substantive law of the State of Ohio. The parties intend to and hereby do confer jurisdiction upon the courts of any jurisdiction within the State of Ohio to determine any dispute arising out of or related to this Agreement, including the enforcement and the breach hereof. The parties agree that any claim arising out of or related to this Agreement, or the breach hereof, must be filed within six (6) months after the date of the alleged breach, and in any event within six months after the date of termination of Employee’s employment, that any claim which is not filed within such six month period is waived, and that any statute of limitations to the contrary is hereby waived.

18.Acknowledgment. Employee acknowledges that: (i) he has carefully read all of the terms of this Agreement, and that such terms have been fully explained to him; (ii) he understands the consequences of each and every term of this Agreement; (iii) he had other employment opportunities at the time he entered into this Agreement; (iv) he specifically understands that by signing this Agreement he is giving up certain rights he may have otherwise had, and that he is agreeing to limit his freedom to engage in certain employment during and after the termination of this Agreement, and (v) the limitations to his right to compete contained in this Agreement represent reasonable limitations as to scope, duration and geographical area, and that such limitations are reasonably related to protection which Employer reasonably requires.

19.Entire Agreement. This Agreement embodies the entire agreement and understanding between Employer and Employee and supersedes all prior agreements and understandings relating to the subject matter hereof.

IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the date first hereinabove mentioned.

WELLMAN PRODUCTS GROUP, INC.

(“Employer”)

By:/s/ Ronald E. Weinberg

Its: Chairman and Chief Executive Officer

/s/ B. Christopher DiSantis

B. Christopher DiSantis (“Employee”)

52

EXHIBIT A

THE CONTROL AGREEMENT

See attached document.

53

EXHIBIT B

JOB DESCRIPTION

Title:President of U.S. and International Wellman Products Group (“WPG”)

Company:Wellman Products Group includes two plants in Ohio (Medina, Akron), one in Tulsa, Oklahoma, plants in China, Italy and Canada. Products of WPG are used in brakes, clutches, and transmissions for vehicles ranging from jets and heavy trucks to construction vehicles and motorcycles.

Reporting

Relationship:Reports directly to the Chairman of the Board & CEO/President of Hawk Corporation

Education:Minimum of a Bachelor’s Degree in Business, Economics or Marketing. A Master’s Degree in Business or Economics is preferred.

Work Experience:Minimum of 15 years of progressive business and administrative experience with a highly engineered product manufacturer supplying large OEM’s or its equivalent as determined by the Chairman. Experience such as President, General Manager or Team Leader for a multi-facility location in the U.S. or international company. Knowledge of diverse manufacturing processes is essential.

Specific Duties:Serve as the President of Wellman Products Group with P&L responsibility for:

·   Directing long-range and short-range planning with respect to business strategy and its implementation.

·   Managing the functional areas of Wellman Products Group as organized, currently including sales, operations, accounting, human resources and R&D/Engineering to achieve targeted operating profitability growth.

·   Reporting to and consulting with the Chairman of Hawk Corporation, keeping him informed of business operations, both formally and informally.

·   Developing and maintaining indirect and direct customer contacts.

·   Managing the balance sheet and asset usage of the business.

54

EX-10.3

EXHIBIT 10.3

AGREEMENT OF EMPLOYMENT,

CONFIDENTIALITY AND NON-COMPETITION

THIS AGREEMENT OF EMPLOYMENT, CONFIDENTIALITY AND NON-COMPETITION (the "Agreement") is made and entered into as of this 14^th day of August 2006, by and between HAWK PRECISION COMPONENTS GROUP, INC., an Ohio corporation with its principal place of business at 200 Public Square, Suite 1500, Cleveland, Ohio 44114 (hereinafter referred to as "Employer"), and STEVEN J. CAMPBELL, an individual who resides at 451 Falls Road, Chagrin Falls, Ohio 44022 (hereinafter referred to as "Employee").

R E C I T A L S :

A.Employer, both directly and indirectly through its subsidiary companies, is engaged in the business of manufacturing and distributing (i) powder metal and metal injection molded precision components for industrial, consumer and other applications, and (ii) high quality custom-engineered metal components made from composite metal alloys in powder form (the "Company Business"). Employer is a subsidiary of Hawk Corporation (‘Hawk”).

B.Prior to the date of this Agreement, Employee was employed by Friction Products Co. (“Friction”) as its President, pursuant to the terms of an Agreement of Employment, Confidentiality and Non-Competition dated January 27, 2000, as amended by a First Amendment to Agreement of Employment, Confidentiality and Non-Competition dated October 5, 2004 (collectively, the “Friction Agreement”). Friction is also a subsidiary of Hawk. Pursuant to the Friction Agreement, Employee also served as the President of Tex Racing Enterprises, Inc.

C.Employer now desires to hire Employee to work for Employer, and Employee desires to become an employee of Employer.

D.It is expected that the work of Employee for Employer will bring Employee into close contact with many confidential affairs of Employer not readily available to the public.

ACCORDINGLY, in consideration of the promises hereinafter set forth and in consideration of the employment of Employee by Employer, the parties agree as follows:

1.Employment Relationship. Employer hereby hires Employee to work at the position of President of Employer, and Employee agrees to begin working at that position, effective as of the date of this Agreement. Employee shall report to the president of Hawk. The employment relationship between Employer and Employee shall be "at will", terminable by either party at any time for any reason or no reason.

2.Compensation. For services rendered pursuant to this Agreement, and for the covenants and agreements of Employee set forth herein, Employee shall receive the following: (i) a base salary at the rate of $23,750 per month (annual rate: $285,000), (ii) an opportunity to earn a target bonus of $114,000 (40% of base salary), with the possibility of a greater or lesser bonus depending upon achieving objectives, with respect to each full year of employment completed by Employee hereunder, to be computed at the end of the year in accordance with mutually agreed objectives and standards for such year, which will be established on an annual basis, (iii) four weeks of vacation per year, (iv) the right to participate in the standard benefits which Employer provides to all of its employees, and (v) the right to participate in the Hawk Corporation 1997 Stock Option Plan and the 2000 Long Term Incentive Plan (collectively, the “Plans”) in accordance with and subject to all of the terms and conditions contained in the Plans, subject to the execution of such documents as may be required by the Committee appointed pursuant to the Plans.

55

3.Severance. In the event of the termination of Employee's employment by Employer other than for "cause" (as hereinafter defined), Employer will continue to pay to Employee the base salary, and will continue to provide medical insurance benefits on the same basis as such benefits had been provided immediately prior to the termination, for a period of fourteen (14) months following the date of termination. For purposes hereof, a termination for "cause" shall include but not be limited to the following: (i) Employee engaging in fraud, misappropriation of funds, embezzlement or like conduct committed against Employer or a customer or supplier of Employer, (ii) Employee being convicted of a felony or other crime involving dishonesty or moral turpitude, (iii) Employee engaging in any act of sexual misconduct at or in connection with work, including sexual harassment, (iv) Employee violating, in a material respect, a published or otherwise generally recognized policy of Employer, (v) Employee failing to fulfill the duties and responsibilities of his job, including, without limitation, failing to meet established performance objectives, and (vi) Employee violating, in a material respect, any provision of this Agreement. In the event of such a termination for cause, Employer shall have no further obligation to Employee pursuant to this Agreement after the date of termination.

4.Non-Compete. During the period which includes the entire term of Employee's employment with Employer and six (6) months following the termination of such employment, however caused, (the "Restricted Period"), Employee shall not, directly or indirectly, within any state in which Employer has actively engaged in the Company Business during any part of the term of Employee's employment with Employer, or with respect to any customer (wherever located) with whom Employee has had material dealings during any part of the term of Employee's employment with Employer, compete with Employer in any manner, on behalf of Employee or any other person, firm, business, corporation or other entity (each such other person, firm, business, corporation or other entity being referred to hereinafter as a "Person"), including, without limitation, that Employee shall not (i) engage in the Company Business for his own account; (ii) enter the employ of, or render any services to, any Person engaged in the Company Business; (iii) request or instigate any account or customer of Employer to withdraw, diminish, curtail or cancel any of its business with Employer; or (iv) become interested in any Person engaged in the Company Business as an owner, partner, shareholder, officer, director, licensor, licensee, principal, agent, employee, trustee, consultant or in any other relationship or capacity. In the event of Employee's breach of any provision of this section, the running of the Restricted Period shall be automatically tolled (i.e., no part of the Restricted Period shall expire)

from and after the date of the first such breach.

5.Confidential Information.

(a)Belonging To Prior Employer. Employee is specifically directed, and hereby agrees, that he shall not disclose to Employer any trade secrets or confidential information which belongs to any prior employer of Employee.

(b)Belonging to Employer. Employee recognizes and acknowledges that confidential information, including, without limitation, information, knowledge or data (i) of a technical nature such as but not limited to methods, know-how, formulae, compositions, processes, machinery (including computer hardware), discoveries, inventions, products, product specifications, computer programs and similar items or research projects; (ii) of a business nature such as but not limited to information about products, cost, purchasing or suppliers, profits, market, sales or customers, including lists of customers, and the financial condition of Employer; (iii) pertaining to future developments such as but not limited to strategic planning, research and development or future marketing or merchandising, and trade secrets of Employer; and (iv) all other matters which Employer treats as confidential (the items of Employer described above being referred to collectively hereinafter as "Confidential Information"), are valuable, special and unique assets of Employer. During and after the Restricted Period, Employee shall keep secret and retain in strictest confidence, and shall not use for the benefit of himself or others except in connection with the business and affairs of Employer, any and all Confidential Information learned by Employee before or after the date of this Agreement, and shall not disclose such Confidential Information to anyone outside of Employer either during or after employment by Employer, except as required in the course of performing duties of his employment with Employer, without the express written consent of Employer or as required by law.

6.Property of Employer. Employee agrees to deliver promptly to Employer all drawings, blueprints, manuals, letters, notes, notebooks, reports, sketches, formulae, computer programs and files, memoranda, customer lists and all other materials relating in any way to the Company Business and in any way obtained by Employee during the period of his employment with Employer which are in his possession or under his control, and all copies thereof, (i) upon termination of Employee's employment with Employer, or (ii) at any other time at Employer's request. Employee further agrees he will not make or retain any copies of any of the foregoing and will so represent to Employer upon termination of his employment.

56

7.Employees and Consultants of Employer. During the Restricted Period, Employee shall not, directly or indirectly (i) hire, solicit, or encourage to either leave the employment of or cease working with Employer, any person who is then an employee of Employer, or any consultant who is then engaged by Employer, or (ii) hire any employee or consultant who had left the employment of or had ceased consulting with Employer but who had not yet been a former employee or former consultant of Employer for two full years.

8.Rights and Remedies Upon Breach. Both parties recognize that the rights and obligations set forth in this Agreement are special, unique and of extraordinary character. If Employee breaches, or threatens to commit a breach of, any of the provisions of paragraphs 4 through 7 of this Agreement (the "Restrictive Covenants"), then Employer shall have, in addition to, and not in lieu of, any other rights and remedies available to Employer under law or in equity, the right to specific performance and/or injunctive relief, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to Employer and that money damages will not provide an adequate remedy to Employer. If any court determines that any one or more of the Restrictive Covenants, or any part thereof, shall be unenforceable because of the scope, duration and/or geographical area covered by such provision, such court shall have the power to reduce the scope, duration or area of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced.

9.Disclosure. Employer may notify anyone employing Employee or evidencing an intention to employ Employee as to the existence and provisions of this Agreement.

10.Governing Law and Jurisdiction. The parties intend that the validity, performance and enforcement of this Agreement shall be governed by the laws of the State of Ohio. In the event of any claim arising out of or related to this Agreement, or the breach thereof, the parties intend to and hereby confer jurisdiction to enforce the terms of this Agreement upon the courts of any jurisdiction within the State of Ohio, and hereby waive any objections to venue in said courts.

11.Binding Effect. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their heirs, representatives and successors.

12.Severability. In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein.

13.Notices. All notices, requests, demands or other communications hereunder shall be sent by registered or certified mail to the parties at the addresses set forth on the first page of this Agreement, or to such other address as a party may designate by notice given pursuant to this paragraph.

14.Acknowledgment. Employee acknowledges that: (i) he has carefully read all of the terms of this Agreement, and that such terms have been fully explained to him; (ii) he understands the consequences of each and every term of this Agreement; (iii) he had other employment opportunities at the time he entered into this Agreement; (iv) he specifically understands that by signing this Agreement he is giving up certain rights he may have otherwise had, and that he is agreeing to limit his freedom to engage in certain employment during and after the termination of this Agreement, and (v) the limitations to his right to compete contained in this Agreement represent reasonable limitations as to scope, duration and geographical area, and that such limitations are reasonably related to protection which Employer reasonably requires.

15.Termination of Friction Employment Relationship. The parties understand and agree that the employment relationship between Employee and Friction shall be deemed to be terminated as of the date of this Agreement; provided, however, that the terms of paragraphs 4 through 15 of the Friction Agreement shall remain in full force and effect in accordance with their respective terms; provided, however, that the performance of Employee’s duties for Employer pursuant to this Agreement shall not constitute a violation of Employee’s duties to Friction pursuant to paragraph 4 of the Friction Agreement.

16.Entire Agreement. This Agreement embodies the entire agreement and understanding between Employer and Employee and supersedes all prior agreements and understandings relating to the subject matter hereof.

57

IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the date first hereinabove mentioned.

HAWK PRECISION COMPONENTS

GROUP, INC. ("Employer")

By:/s/ Ronald E. Weinberg

Its:Chairman and Chief Executive Officer

/s/ Steven J. Campbell

STEVEN J. CAMPBELL ("Employee")

58

EX-10.4

EXHIBIT 10.4

MEMORANDUM OF AGREEMENT CONCERNING

TERMINATION OF EMPLOYMENT RELATIONSHIP

THIS MEMORANDUM OF AGREEMENT CONCERNING TERMINATION OF EMPLOYMENT RELATIONSHIP (“Memo”) ") is made and entered into as of this 14^th day of August, 2006, by and between FRICTION PRODUCTS CO., an Ohio corporation (“Friction”), and STEVEN J. CAMPBELL, an individual (hereinafter referred to as “Campbell”).

R E C I T A L S :

A.Prior to the date of this Memo, Campbell was employed by Friction as its President, pursuant to the terms of an Agreement of Employment, Confidentiality and Non-Competition dated January 27, 2000, as amended by a First Amendment to Agreement of Employment, Confidentiality and Non-Competition dated October 5, 2004 (collectively, the “Friction Employment Agreement”). Friction is a subsidiary of Hawk Corporation (‘Hawk”). Pursuant to the Friction Employment Agreement, Campbell also served as President of Tex Racing Enterprises, Inc. (“Tex”).

B.As a result of changes in the organization of Hawk’s businesses, Campbell now desires to become President of Hawk Precision Components Group, Inc. (“HPCG”), and to enter into an employment agreement with HPCG (the “HPCG Employment Agreement”). HPCG is also a subsidiary of Hawk.

C.Friction is willing to allow Campbell to leave Friction and become President of HBCG.

ACCORDINGLY, the parties agree as follows:

1.Termination of Employment Relationship. The parties understand and agree that the employment relationship between Campbell and Friction, and between Campbell and Tex, shall be deemed to be terminated as of the date of this Agreement.

2.Continuation of Provisions of Employment Agreement. Notwithstanding the provisions of paragraph 1, above, it is agreed that (i) the terms of paragraphs 4 through 15 of the Friction Employment Agreement shall remain in full force and effect in accordance with their respective terms; and (ii) the performance of Campbell’s duties for HPCG pursuant to the HPCG Employment Agreement shall not constitute a violation of Campbell’s duties to Friction pursuant to paragraph 4 of the Friction Employment Agreement.

 IN WITNESS WHEREOF, the undersigned have hereunto set their hands on the date first hereinabove mentioned.

FRICTION PRODUCTS CO.

By:/s/ Ronald E. Weinberg

Its:Chairman and Chief Executive Officer

/s/ Steven J. Campbell

STEVEN J. CAMPBELL ("Employee")

59

EX-10.5

EXHIBIT 10.5

CHANGE IN CONTROL AGREEMENT

THIS CHANGE IN CONTROL AGREEMENT (“Agreement”) is made as of the _____ day of ______, 20__, by and between , an individual residing at (the “Executive”), and HAWK CORPORATION, a Delaware corporation whose principal address is 200 Public Square, Suite 1500, Cleveland, Ohio 44114 (“Hawk”).

R E C I T A L S :

A.The Executive is an employee of Hawk or one of its subsidiary companies. Hawk and each of its subsidiary companies are referred to collectively in this Agreement as the “Corporation.” The definition of the Corporation includes each of the constituent entities, individually and collectively, and any successors as described in Section 4.2.

B.The Corporation considers it essential to its best interests and the best interests of the stockholders of the Corporation to foster the continued employment of key management personnel.

C.The uncertainty attendant to a possible Change in Control (as defined below) may result in the departure or distraction of management personnel to the detriment of the Corporation and its stockholders.

D.The Board of Directors of Hawk has determined that that it is in the best interest of the Corporation and its stockholders that, in the event of a prospective Change in Control, the Executive be reasonably secure in his employment and position with the Corporation, so that the Executive can exercise independent judgment as to the best interest of the Corporation and its stockholders, without distraction by any personal uncertainties or risks regarding the Executive’s continued employment with the Corporation created by the possibility of such a Change in Control.

E.Therefore, Hawk and the Executive now desire to enter into this Agreement to assure severance benefits to the Executive in the event of a termination of his employment upon or after a Change in Control.

ACCORDINGLY, in consideration of the premises and the agreements hereinafter set forth, the parties agree as follows:

ARTICLE I

DEFINITIONS

1.1As used herein, the following words and phrases shall have the following respective meanings unless the context clearly indicates otherwise:

(a)“Accountants” means Hawk’s independent public accountants.

(b)“Acquiring Person” means any Person who or that, together with all Affiliates and Associates, has acquired or obtained the right to acquire the beneficial ownership of fifty percent (50%) or more of the Shares then outstanding; provided that none of the following shall be deemed an Acquiring Person for purposes of this Agreement: (i) the Corporation; (ii) any Welfare Benefit Plan of the Corporation or any trustee of or fiduciary with respect to any such Plan when acting in such capacity; or (iii) any Person that is the holder of any Series D Preferred Shares of Hawk as of the Commencement Date, and the Affiliates, successors, executors, legal representatives, heirs and legal assigns of such Person.

(c)“Affiliate” shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations promulgated under the Exchange Act.

(d)“Anniversary Date” means January 1 of each Calendar Year.

60

(e)“Annual Salary” means the sum of the amounts of the Executive’s regular base salary from the Corporation, excluding the value of any incentive and bonus compensation, stock option grants, 401(k) or pension contributions by the Corporation, medical, prescription and dental insurance premiums, automobile allowances, club memberships and other similar perquisites.

(f)“Associate” shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations promulgated under the Exchange Act.

(g)“Average Compensation” means fifty percent (50%) of the total amount of Annual Salary and bonus under any annual incentive compensation plan of the Corporation, if any, paid or payable to the Executive during or with respect to the two (2) Calendar Years ending immediately prior to the Calendar Year in which the termination of Executive’s employment occurs.

(h)“Benefit Continuation Period” means the period of thirty-six (36) consecutive months after the effective date of a Qualifying Termination.

(i)“Board” means the Board of Directors of Hawk.

(j)“Calendar Year” means the twelve (12) month period commencing each January 1 and ending each December 31.

(k)“Cause” means any of the following: (i) the Executive’s conviction by a court of competent jurisdiction as to which no further appeal can be taken of a crime involving moral turpitude or a felony, or entering a plea of nolo contendere to such a crime; (ii) the commission by the Executive of a material and demonstrable act of fraud upon, or a material and demonstrable misappropriation of funds or property of, the Corporation; (iii) the material breach by the Executive, without the advance written consent of the Corporation, of any material Restrictive Covenant referenced in Section 4.1; (iv) any material act or omission by the Executive that directly results in material injury to the business or reputation of the Corporation; (v) the material breach by Executive of any material provision of this Agreement or any written employment agreement between the Executive and the Corporation; or (vi) the willful, material and repeated nonperformance of the Executive’s duties to the Corporation other than by reason of the Executive’s illness or incapacity; provided that:

(1)no breach of the Restrictive Covenants shall be deemed to constitute Cause if the Restrictive Covenants have expired pursuant to the provisions of paragraph 1 thereof;

(2)with respect to clauses (iii), (iv), (v) and (vi) of this Section 1.1(k), the Board shall provide the Executive with notice of such material breach or nonperformance (which notice shall specifically identify the manner and set forth specific facts, circumstances and examples of which the Board believes that the Executive has breached the Agreement, any of the Restrictive Covenants or any such employment agreement or not substantially performed his duties) and his continued willful failure to cure such breach or nonperformance within the time period set by the Board (which time period shall not be less than thirty (30) calendar days after his receipt of such notice);

(3)for purposes of clauses (v) and (vi) of this Section 1.1(k), no act or failure to act on the Executive’s part shall be deemed “willful” unless it is done or omitted by the Executive without his reasonable belief that such action or omission was in the best interest of the Corporation (assuming disclosure of the pertinent facts, any action or omission by the Executive after consultation with, and in accordance with the advice of, legal counsel reasonably acceptable to the Corporation shall be deemed to have been taken in good faith and to not be willful for purposes of this Agreement);

(4)any act, or failure to act, by the Executive based upon authority given pursuant to a resolution duly adopted by the Board, or upon the instructions of a more senior officer of the Corporation, or based upon the advice of counsel for the Corporation, shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Corporation; and

61

(5)a Qualifying Termination shall not be for Cause unless the Corporation provides the Executive with a copy of a resolution of the Board, adopted at a meeting of the Board by the affirmative vote of not less than three-quarters of the Whole Board (after at least ten (10) calendar days’ advance notice is provided to the Executive and the Executive is given an opportunity, together with his counsel, to be heard before the Board), determining that Cause exists and specifying the particulars thereof in reasonable detail.

(l)A “Change in Control” shall be deemed to have occurred if and as of such date that any Acquiring Person, alone or together with its Affiliates and Associates, has acquired or obtained the right to acquire the beneficial ownership of fifty percent (50%) or more of the Shares then outstanding.

(m)“CIC Multiple” means a factor of two and ninety-nine one-hundredths (2.99).

(n)“Code” means the Internal Revenue Code of 1986, as amended from time to time, and the Treasury Regulations. References herein to any Section of the Code or Treasury Regulation shall include any successor provisions of the Code or Treasury Regulations.

(o)“Commencement Date” means the later of April 1, 2006, or the date on which this Agreement has been executed by both Hawk and the Executive, which shall be the beginning date of the term of this Agreement.

(p)“Continuing Director” means any director of the Board who either: (i) is a member of the Board on the Commencement Date or thereafter is elected or appointed to the Board by the holders of the Series D Preferred Shares of Hawk; or (ii) is not (A) a Person proposing or attempting to effect a business combination or similar transaction with Hawk (including, without limitation, a merger, tender offer or exchange offer, a sale of substantially all of Hawk’s assets, or a liquidation of Hawk’s assets) or any Affiliate or Associate of such Person, or any Person acting directly or indirectly on behalf of, or as a representative of, or in concert with, any such Person, Affiliate or Associate, (B) an Acquiring Person, an Affiliate or Associate of an Acquiring Person or a Person acting directly or indirectly on behalf of, or as a representative of, or in concert with, an Acquiring Person or an Affiliate or Associate of an Acquiring Person, or (C) a Person who was directly or indirectly proposed or nominated as a director of Hawk by an Acquiring Person (excluding, for purposes of this clause (ii), any Person described in clause (iii) of Section 1.1(b)).

(q)“Disability” means that, as a result of a physical or mental condition, the Executive is unable to perform the essential functions of his job, with or without a reasonable accommodation, at the same level of performance as he engaged in prior to the onset of such condition, and that such situation is likely to continue for a substantial period of time. For purposes hereof, the Executive shall suffer a Disability if the Board determines in good faith that the Executive: (i) has been declared legally incompetent by a final court decree; (ii) has received disability insurance benefits, from any disability income insurance policy maintained by the Corporation, for a period of three (3) consecutive months; or (iii) has suffered a physical or mental disability within the meaning of §22(e)(3) of the Code, as determined by a medical doctor satisfactory to the Board.

(r)“Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time. References herein to any Section of the Exchange Act shall include any successor provisions of the Exchange Act.

(s)“Excise Tax” means the excise tax imposed by Section 4999 of the Code.

(t)“Good Reason” means the occurrence of any one or more of the following events (within the period beginning six (6) months prior to a Change in Control and ending at the end of the twenty-fourth (24th) month immediately following the month in which the Change in Control occurred) without the Executive’s specific written consent, except as a result of actions taken in connection with termination of the Executive’s employment for death, Disability or Cause:

62

(i)a material adverse change in the Executive’s duties, position or responsibilities as an executive of the Corporation as in effect immediately prior to the Change in Control (including but not limited to the Executive’s status, office, title, scope of responsibility over corporate level staff or operations functions, responsibilities as an officer of the Corporation or reporting relationship to the Chief Executive Officer of the Corporation); provided that a reduction in duties, position or responsibilities solely by virtue of the Corporation being acquired and made part of a larger entity (as, for example, if the Chief Financial Officer of the Corporation remains as such following a Change of Control but is not made the Chief Financial Officer of the larger acquiring entity) shall not constitute Good Reason; and further provided that the Executive shall have given the Corporation written notice of the alleged adverse change and the Corporation shall have failed to cure such change within thirty (30) days after its receipt of such notice;

(ii)a failure of the Corporation to pay or provide the Executive in a timely fashion the salary or benefits to which the Executive is entitled (whether under any written employment agreement between the Corporation and the Executive in effect on the date of the Change in Control or under any Welfare Benefit Plans (including but not limited to cash and stock bonus Plans) in which the Executive was participating at the time of the Change in Control); provided that such failure was other than an isolated, insubstantial and inadvertent action not taken in bad faith and is remedied by the Corporation within fifteen (15) days following receipt of written notice thereof from the Executive;

(iii)a reduction of the Executive’s base salary as in effect on the date of the Change in Control;

(iv)the taking of any action by the Corporation (including but not limited to the elimination of a Plan without providing substitutes therefor, the reduction of the Executive’s awards thereunder or failure to continue the Executive’s participation therein) that would materially diminish the aggregate projected value of the Executive’s awards or benefits under, or fail to provide awards or benefits substantially comparable to, the Welfare Benefit Plans of the Corporation in which the Executive was participating at the time of the Change in Control; provided that the diminishment of such awards or benefits as apply to other groups of employees of the Corporation in addition to executives covered by this or a similar agreement shall not constitute Good Reason;

(v)the relocation of the principal office at which the Executive performs services on behalf of the Corporation to a location more than fifty (50) miles from its location immediately prior to the Change in Control, except for required business travel to an extent substantially consistent with the Executive’s travel obligations immediately prior to the Change in Control; or

(vi)a failure by the Corporation to obtain from any successor the assent to this Agreement described in Article IV within thirty (30) days after the occurrence of a Change in Control.

Any circumstance described in this Section 1.1(t) shall constitute Good Reason even if such circumstance would not constitute a breach by the Corporation of the terms of any written employment agreement between the Corporation and the Executive in effect on the date of the Change in Control. The Executive shall be deemed to have terminated his employment for Good Reason upon the effective date stated in a written notice of such termination given by the Executive to Hawk (which notice shall not be given, in the circumstances described in clause (i) of this Section 1.1(t) before the end of the thirty (30) day period described therein, or in the circumstances described in clause (ii) of this Section 1.1(t) before the end of the fifteen (15) day period described therein), setting forth in reasonable detail the facts and circumstances claimed to provide the basis for termination; provided that the effective date may not precede, nor be more than sixty (60) days after, the date such notice is given. The Executive’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder.

(u)“Person” means any individual, firm, corporation, partnership, limited liability company, trust or other entity, including any successor (by merger or otherwise) of such entity.

63

(v)“Plan” means any bonus, incentive compensation, savings, retirement, stock option, stock appreciation, stock ownership or purchase, pension, deferred compensation or Welfare Benefits plan, policy, practice, program or arrangement of (including any separate contract or agreement with) the Corporation for its U.S. employees, but does not include any employment agreement between the Executive and the Corporation.

(w)“Prime Rate” means the rate of interest published from time to time by The Wall Street Journal, and designated as the Prime Rate in the “Money Rates” section of such publication. If such publication describes the Prime Rate as a range of rates, for purposes of this Agreement, the Prime Rate will be the highest rate designated in such range.

(x)“Qualifying Termination” shall mean a termination of the Executive’s employment following a Change in Control, during the term of this Agreement, for any reason excluding: (i) the Executive’s death; (ii) the Executive’s Disability; (iii) the exhaustion of the Executive’s Welfare Benefits under the terms of an applicable sick pay or long-term disability Plan of the Corporation (other than by reason of the amendment or termination of such a Plan); (iv) by the Corporation for Cause; or (v) by the Executive without Good Reason. In addition, a Qualifying Termination shall be deemed to have occurred if, prior to a Change in Control, the Executive’s employment is terminated during the term of this Agreement (A) by the Corporation without Cause or (B) by the Executive based on events or circumstances that would constitute Good Reason if a Change in Control had occurred, in either case, (x) at the request of a Person that has entered into an agreement with the Corporation, the consummation of which would constitute a Change in Control, or (y) otherwise in connection with, as a result of or in anticipation of a Change in Control. The mere act of approving a Change in Control agreement shall not in and of itself be deemed to constitute an event or circumstance in anticipation of a Change in Control for purposes of this Section 1.1(x).

(y)“Release” means a general waiver and release in substantially the form attached hereto as Exhibit A.

(z)“Section 409A” means Section 409A of the Code.

(aa)“Shares” shall mean the shares of Class A Common Stock, $0.01 par value, of Hawk, any securities issued in exchange for or replacement of the shares of Class A Common Stock outstanding from time to time, and such other securities of Hawk as a majority of the Continuing Directors may from time to time determine.

(bb)“Stock Award” means a stock option, stock appreciation right, restricted stock grant, performance share Plan or any other agreement in which the Executive has, or will (by the passage of time only, not based on the Executive’s performance) have, (i) an interest in capital stock of Hawk or a right to obtain capital stock or an interest in capital stock of Hawk or (ii) an interest or right whose economic value depends solely on the performance of the capital stock of Hawk.

(cc)“Treasury Regulations” means the U.S. Department of the Treasury Regulations promulgated or proposed under the Code.

(dd)“Welfare Benefits” means medical, prescription, dental, disability, group life and accidental death insurance (whether funded by insurance policy or self-insured by the Corporation) provided or arranged by the Corporation to be provided to its U.S. employees or former U.S. employees.

(ee)“Welfare Benefit Plan” means any Plan that provides any Welfare Benefits.

(ff)“Whole Board” means the total number of directors the Board would have if there were no vacancies.

64

ARTICLE II

TERM OF AGREEMENT

2.1The initial term of this Agreement shall begin on the Commencement Date and end on the December 31 immediately following the Commencement Date. The term of this Agreement shall automatically be extended for an additional Calendar Year on the first Anniversary Date immediately following the initial term of this Agreement without further action by either party, and shall be automatically extended for an additional Calendar Year on each succeeding Anniversary Date, unless Hawk serves notice on the Executive, at least thirty (30) days prior to such Anniversary Date, of Hawk’s intention not to extend this Agreement. Notwithstanding the foregoing, if a Change in Control shall occur during the term of this Agreement, then this Agreement shall terminate three (3) years after the date the Change in Control is completed.

2.2Notwithstanding Section 2.1, the term of this Agreement shall end upon any termination of the Executive’s employment that is other than a Qualifying Termination in connection with a Change in Control. For example, this Agreement shall terminate if the Executive’s position is eliminated and the Executive’s employment is terminated due to a downsizing, consolidation or restructuring of the Corporation, or due to the sale, disposition or divestiture of all or a portion of the Corporation, in each case other than in connection with a Change in Control.

ARTICLE III

COMPENSATION UPON A QUALIFYING TERMINATION

IN CONNECTION WITH A CHANGE IN CONTROL

3.1Except as otherwise provided in Sections 3.2, 3.3 and 4.2, upon a Qualifying Termination, the Executive shall be under no further obligation to perform services for the Corporation and shall be entitled to receive the following payments and benefits:

(a)Within five (5) days after the expiration of the Revocation Period (as defined in the Release), the Corporation shall make a lump sum cash payment to the Executive in an amount equal to the sum of: (i) the Executive’s Annual Salary through the date of termination, to the extent not theretofore paid; (ii) the product of (x) the bonus or compensation due under any annual incentive compensation plan applicable to the Executive for the Calendar Year in which the termination of Executive’s employment occurs, and (y) a fraction, the numerator of which is the number of days in such Calendar Year through the date of termination, and the denominator of which is 365, except that annual incentive plans that do not have predetermined annual target awards for participants shall have their pro-rated incentive compensation award for the then current Calendar Year paid as soon as practicable; and (iii) all unreimbursed expenses incurred and reported by the Executive in compliance with the Corporation’s business expense reimbursement policies as in effect immediately prior to the Change in Control; in each case in full satisfaction of the rights of the Executive thereto; and

(b)Within sixty (60) days after the expiration of the Revocation Period (as defined in the Release), the Corporation shall make a lump sum cash payment to the Executive in an amount equal to the CIC Multiple times the Executive’s Average Compensation (except to such extent as that amount may be limited by Section 3.3). If the Qualifying Termination is of the nature described in clause (A) or (B) of Section 1.1(x), no such lump sum payment shall be made unless and until the Change in Control related to the Qualifying Termination shall have occurred.

65

(c)The Corporation shall continue to provide or arrange to provide the Executive (whether or not under any Welfare Benefit Plan then maintained), at the Corporation’s sole expense and for the Benefit Continuation Period, Welfare Benefits that are substantially the same the Welfare Benefits provided to the Executive (and the Executive’s spouse, dependents and beneficiaries) immediately before the occurrence of a Qualifying Termination, except that the Welfare Benefits to which the Executive is entitled under this Section 3.1(c) shall be subject to the Executive’s compliance with the restrictions described in Sections 3.2, 3.3 and 4.2, and shall be reduced to the extent that comparable welfare benefits are received by the Executive from an employer other than the Corporation during the Benefit Continuation Period. (Any indirect payment by the Corporation, before the occurrence of a Qualifying Termination, of the cost of the participation by the Executive, or the Executive’s spouse, dependents or beneficiaries, in any Welfare Benefit Plan as a reimbursement or a credit to the Executive does not mean that the corresponding Welfare Benefits were not being “provided to the Executive” by the Corporation for the purpose of this Section 3.1(c)). Notwithstanding the foregoing, this Section 3.1(c) shall not apply if the termination of the Executive’s employment is attributable to the death of the Executive; provided that, in such event, the spouse, dependents and beneficiaries of the Executive shall be entitled to whatever rights and benefits they have under the Plans at the time of death and nothing herein shall be construed to limit such rights and benefits. In the event that the Corporation cannot provide coverage under any Welfare Benefit Plan, as described in this Section 3.1(c), for the entire Benefit Continuation Period or any portion thereof, for whatever reason, then the Corporation shall pay the actuarial equivalent of the present value of such foregone coverage for the Executive (and his spouse, dependents and beneficiaries, as applicable) directly to the Executive, in a cash lump sum payment, within sixty (60) days after the Executive’s return of the signed release referred to in Section 3.2(a). Such determination for each affected Welfare Benefit Plan shall be made in good faith by the Compensation Committee of the Board.

(d)Each Stock Award of the Executive that is outstanding immediately before the occurrence of a Qualifying Termination and not yet exercised or forfeited (as the case may be) shall automatically accelerate and become fully vested, exercisable or nonforfeitable upon the occurrence of a Qualifying Termination, as though all requisite time had passed, or all requisite performance goals had been attained or satisfied, to fully vest the Stock Award or cause it to become fully vested, exercisable or nonforfeitable. In addition to Stock Awards, any compensation due to the Executive under any performance-based, long-term incentive plan of the Corporation will automatically accelerate and become fully payable and nonforfeitable upon the occurrence of a Qualifying Termination, as though all requisite time had passed to fully vest such compensation and all requisite performance goals attributable thereto have been fully attained or satisfied.

(e)The Executive shall be entitled to such outplacement services and other non-cash severance or separation benefits as may then be available under the terms of a Plan or agreement to groups of employees of the Corporation in addition to executives who are covered under the terms of this or a similar agreement. To the extent any benefits described in this Section 3.1(e) cannot be provided pursuant to the appropriate Plan or program maintained by the Corporation, Hawk shall provide such benefits outside such plan or program to the Executive at no additional cost.

3.2Notwithstanding the provisions of Section 3.1:

(a)The severance payments and benefits provided under Sections 3.1(b) through 3.1(e) and, if applicable, Section 3.3 shall be conditioned upon the Executive executing and delivering to Hawk, at the time the Executive’s employment is terminated, the Release. Within ten (10) days after delivery of an executed copy of the Release by the Executive, Hawk shall execute and deliver a copy of the Release to the Executive. The Release shall not become effective unless and until it has been executed and delivered by each of the Executive and Hawk; provided that the severance payments and benefits provided under Sections 3.1(b) through 3.1(e) and, if applicable, Section 3.3 are not be conditioned upon Hawk’s execution or delivery of the Release.

(b)The severance payments and benefits provided under Sections 3.1 through 3.1(e) and, if applicable, Section 3.3 shall be subject to, and conditioned upon, the waiver of any other cash severance payment or other benefits provided by the Corporation pursuant to any other severance agreement between the Corporation and the Executive. No amount shall be payable under this Agreement to, or on behalf of, the Executive unless and until the Executive has executed and delivered such a waiver, in a form established by the Corporation.

66

3.3Notwithstanding the provisions of Section 3.1:

(a)In the event it shall be determined that any compensation by or benefit from the Corporation to the Executive or for the Executive’s benefit, whether pursuant to the terms of this Agreement or otherwise, (i) constitute “parachute payments” within the meaning of Section 280G of the Code and (ii) would be subject to the Excise Tax, then the Executive’s benefits under this Agreement shall be either (x) delivered in full or (y) delivered as to such lesser extent which would result in no portion of such benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by the Executive on an after-tax basis of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under Section 4999 of the Code.

(b)Unless the Corporation and the Executive otherwise agree in writing, any determination required under this Section 3.3 shall be made in writing by the Accountants, whose determination shall be conclusive and binding upon the Executive and the Corporation for all purposes. For purposes of making the calculations required by this Section 3.3, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Corporation and the Executive shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section 3.3. The Corporation shall bear all costs the Accountants may incur in connection with any calculations contemplated by this Section 3.3.

(c)The parties’ intent in entering into this Agreement is that none of the payment arrangements hereunder constitute a “deferral of compensation” under Section 409A, and this Agreement shall be interpreted in a manner consistent with that intent. The parties acknowledge that uncertainty exists with respect to certain interpretive issues under Section 409A. Accordingly, notwithstanding any provision of this Agreement to the contrary, the parties agree that, to the extent the Corporation in good faith determines both that any payment provided for hereunder constitutes a “deferral of compensation” under Section 409A and that the Executive is as of the relevant date a “key employee” as defined in Section 409A(a)-(2)(B)(i), then no amounts shall be payable to the Executive hereunder prior to the earlier of (i) the date of the Executive’s death following a Qualifying Termination, or (ii) the date that is six (6) months following the date of the Executive’s “separation from service” from the Corporation (within the meaning of Section 409A). The parties shall cooperate to make such amendments to the terms of this Agreement as may be necessary to avoid the imposition of penalties and additional taxes under Section 409A; provided that no such amendment shall materially increase the cost to, or impose any additional liability on, the Corporation with respect to any benefits described or provided herein.

(d)The Corporation shall also pay the Executive an amount equal to the reasonable legal fees and other expenses incurred in good faith by him in connection with the contest or defense of any tax audit or proceeding by the Internal Revenue Service to the extent that Section 4999 of the Code is alleged or claimed to apply to any payment or benefit provided under this Agreement. The Corporation shall be obligated under the preceding sentence even if the Executive is not successful in any such tax contest or defense, so long as he acted in good faith. The Corporation shall make any payment required hereby within thirty (30) days after delivery of notice from the Executive requesting payment and providing such evidence of the incurrence of those fees and expenses as the Corporation may reasonably request.

(e)The Corporation shall withhold from any payments or benefits under this Agreement (whether or not otherwise acknowledged under this Agreement) all federal, state, local or other taxes that it is legally required to withhold.

(f)Except as specifically provided herein, the Executive alone shall be liable for the payment of any and all tax cost, incremental or otherwise, incurred by the Executive in connection with the provision of any benefits described in this Agreement. No provision of this Agreement shall be interpreted to provide for the gross-up or other mitigation of any amount payable or benefit provided to the Executive under terms of this Agreement as a result of such taxes.

67

3.4The Corporation acknowledges that it will be difficult, and may be impossible, for the Executive to find reasonably comparable employment following a Qualifying Termination. Accordingly, the parties hereto expressly agree that payments to the Executive in accordance with the terms of this Agreement will be liquidated damages, and that the Executive will not be required to mitigate the amount of any payment provided for in this Agreement by seeking other employment or otherwise, nor will any profits, income, earnings or other benefits from any source whatsoever create any mitigation, offset, reduction or any other obligation on the part of the Executive hereunder or otherwise.

3.5The Corporation’s obligations under this Agreement are absolute and unconditional, and not subject to any set-off, counterclaim, recoupment, defense or other right the Corporation may have against the Executive, except as otherwise specifically provided herein or in the Release.

3.6The Corporation intends that the Executive not be required to incur any expenses associated with the enforcement of the Executive’s rights under this Agreement by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Executive hereunder. Accordingly, if it should appear to the Executive that the Corporation has failed to comply with any of its obligations under this Agreement or in the event that the Corporation or any other Person takes any action to declare the Agreement void or unenforceable, or institutes any litigation designed to deny, or to recover from, the Executive the benefits intended to be provided to the executive hereunder, the Corporation irrevocably authorizes the Executive from time to time to retain counsel of the Executive’s choice, at the expense of the Corporation, to represent the Executive in connection with the litigation or defense of any litigation or other legal action, whether by or against the Corporation or any director, officer, stockholder or other Affiliate or Associate, in any jurisdiction. The Corporation shall make any payment required hereby within thirty (30) days after delivery of notice from the Executive requesting payment and providing such evidence of the incurrence of those fees and expenses as the Corporation may reasonably request.

3.7Without limiting the rights of the Executive at law or in equity, if the Corporation fails to make any payment required to be under this Agreement on a timely basis, the Corporation shall pay interest on the amount thereof at an annualized rate of interest equal to the then-applicable Prime Rate or, if lesser, the highest rate allowed by applicable usury laws.

ARTICLE IV

RESTRICTIVE COVENANTS

4.1In consideration of the execution and delivery of this Agreement by the Corporation, the Executive agrees to abide by the restrictive covenants set forth in Exhibit B hereto (collectively, the “Restrictive Covenants”), which are incorporated by reference as though fully rewritten here.

4.2The severance payments and benefits provided under Article III of this Agreement shall be subject to, and conditioned upon, the Executive’s compliance with the Restrictive Covenants unless the Restrictive Covenants have expired as provided in paragraph 1 thereof.

ARTICLE V

SUCCESSOR TO CORPORATION

5.1This Agreement shall bind any successor of the Corporation, its assets or its businesses (whether direct or indirect, by purchase, merger, consolidation or otherwise) in the same manner and to the same extent that Hawk would be obligated under this Agreement if no succession had taken place.

5.2In the case of any transaction in which a successor would not by the foregoing provision or by operation of law be bound by this Agreement, the Corporation shall require such successor expressly and unconditionally to assume and agree to perform Hawk’s obligations under this Agreement, in the same manner and to the same extent that Hawk would be required to perform if no such succession had taken place. The term “Corporation,” as used in this Agreement, shall mean the Corporation as hereinbefore defined and any such successor assignee to its business or assets which by reason hereof becomes bound by this Agreement.

68

ARTICLE VI

MISCELLANEOUS

6.1Any notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when delivered or when mailed, by certified or registered mail, return receipt requested, postage prepaid, to the parties hereto at the address set forth in the preamble of this Agreement, or to such other address as a party shall furnish to the other by notice given in accordance with this Section.

6.2Except to the extent otherwise provided in Article II, no provision of this Agreement may be modified, waived or discharged except in writing specifically referring to such provision and signed by the party against whom enforcement of such modification, waiver or discharge is sought. No waiver by either party of the breach of any condition or provision of this Agreement shall be deemed a waiver of any other condition or provision at the same or any other time.

6.3This Agreement and all rights hereunder shall be governed by, and construed and interpreted in accordance with, the laws of the State of Ohio applicable to contracts made and to be performed entirely within that State. Subject to Section 3.1(g), the parties intend to and hereby do confer exclusive jurisdiction upon the courts of any jurisdiction located within Cuyahoga County, Ohio to determine any dispute arising out of or related to this Agreement, including the enforcement and the breach hereof.

6.4The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect.

6.5All remedies specified herein or otherwise available shall be cumulative and in addition to any and every other remedy provided hereunder or now or hereafter available.

6.6The captions in this Agreement are included for convenience only and shall not in any way effect the interpretation or construction of any provision hereof.

6.7This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, legal representatives, successors and permitted assigns of the parties hereto. Nothing in this Agreement is intended, and it shall not be construed, to give any Person other than the parties hereto any right, remedy or claim under or in respect of this Agreement or any provisions hereof.

6.8This Agreement embodies the entire agreement and understanding between Hawk and the Executive with respect to the subject matter hereof, and supersedes all prior agreements and understandings, oral or written, relating to the subject matter hereof (including but not limited to any previous non-disclosure and/or non-competition agreement between the Executive and the Corporation).

6.9This Agreement may be executed in any number of counterparts, each of which, when executed, shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.

6.10THIS AGREEMENT DOES NOT CONSTITUTE AN EMPLOYMENT CONTRACT OR IMPOSE ON THE EXECUTIVE OR THE CORPORATION ANY OBLIGATION TO RETAIN THE EXECUTIVE AS AN EMPLOYEE OR TO CHANGE THE STATUS OF THE EXECUTIVE’S EMPLOYMENT. NOTHING IN THIS AGREEMENT SHALL CONFER UPON THE EXECUTIVE ANY RIGHT OR ENTITLEMENT WITH RESPECT TO CONTINUATION OF EMPLOYMENT BY THE CORPORATION OR INTERFERE IN ANY WAY WITH THE RIGHT OR POWER OF THE CORPORATION TO TERMINATE THE EXECUTIVE’S EMPLOYMENT AT ANY TIME, WITH OR WITHOUT CAUSE.

[Signature Page Follows]

69

IN WITNESS WHEREOF, the Executive has executed this Agreement, and Hawk has caused this Change in Control Agreement to be duly executed on its behalf, as of the date first written above.

HAWK CORPORATION

By:

Its:

EXECUTIVE:

70

EXHIBIT A

FORM OF THE RELEASE

GENERAL WAIVER AND RELEASE OF CLAIMS

THIS GENERAL WAIVER AND RELEASE OF CLAIMS (“Release”) is made by and between HAWK CORPORATION, a Delaware corporation (“Hawk” and, together with its direct and indirect subsidiaries, the “Corporation”), and the undersigned executive officer or employee of the Corporation (the “Executive”).

R E C I T A L S :

A.The Executive has been employed by the Corporation and, in connection therewith, the Executive and Hawk have previously entered into a Change in Control Agreement (the “CIC Agreement”).

B.This Release is being entered into pursuant to Section 3.2(a) of the CIC Agreement and in connection with the termination of the Executive’s employment by the Corporation, and in consideration for the payment by the Corporation of certain severance benefits as more fully described in the CIC Agreement.

ACCORDINGLY, in consideration of the foregoing premises and the agreements hereinafter set forth, the parties agree as follows:

1.Confirmation of Termination. The Executive hereby confirms the termination of his employment with the Corporation effective as of ____________________, _____ (the “Termination Date”).

2.Release of Claims. For good and valuable consideration, including but not limited to the agreement to provide certain benefits pursuant to the CIC Agreement, the Executive does hereby fully, finally and forever release and discharge the Corporation, its predecessors, successors, subsidiaries, divisions, affiliates, representatives, officers, directors, members, managers, shareholders, agents, employees, attorneys and assigns, of and from all claims, demands, actions, causes of action, suits, damages, losses and expenses of any and every nature whatsoever, whether known or not known, from the beginning of time to the date of this Release, concerning the employment or termination of the Executive by the Corporation, and including any and all acts that have been or could have been alleged to have violated the Executive’s rights under federal, state or local law (including but not limited to the following: the Civil Rights Acts of 1866, 1871, 1964 and 1991; the Age Discrimination in Employment Act of 1967; the Older Workers Benefit Protection Act of 1990; the Americans with Disabilities Act of 1990; the Human Rights Laws of the State and City of New York; the California Fair Employment and Housing Act; all Federal and State Family and Medical Leave Acts; the Employee Retirement Income Security Act (ERISA)), or any contract of employment, express or implied and any provision of any other law concerning the Executive’s employment or termination thereof, common or statutory, including but not limited to any law of the United States of America, the State of Ohio or any other state or government entity. Notwithstanding the foregoing, excluded from this release are any claims or causes of action by or on behalf of the Executive for: (i) any payment or benefit that may be due or payable under the CIC Agreement or any Plan (as defined in the CIC Agreement) prior to the receipt thereof; (ii) any failure by the Corporation to cooperate with the Executive in exercising his vested Stock Awards (as defined in the CIC Agreement) in accordance with the terms hereof and of the respective Plan and any other agreement relating to the Stock Awards; (iii) the non-payment of any accrued and unpaid salary or benefits to which the Executive is entitled from the Corporation as of the effective date of the Qualifying Termination (as defined in the CIC Agreement); (iv) a breach by the Corporation of this Release, the CIC Agreement or the provisions of any written employment agreement between the Corporation and the Executive that expressly survive the Termination Date; or (v) any failure by the Corporation to provide the Executive with any indemnification, advancement of expenses (including but not limited to attorneys fees) or insurance proceeds to which the Executive is entitled under the Corporation’s charter documents or directors and officers insurance policy.

71

IN ACCORDANCE WITH THE OLDER WORKERS BENEFIT PROTECTION ACT OF 1990, THE EXECUTIVE IS HEREBY ADVISED AS FOLLOWS:

(A)THE EXECUTIVE HAS THE RIGHT TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS DOCUMENT CONTAINING A RELEASE;

(B)THE EXECUTIVE HAS UP TO TWENTY-ONE (21) DAYS FROM THE DATE ON WHICH HE RECEIVES THIS DOCUMENT TO CONSIDER WHETHER OR NOT HE WILL SIGN IT; AND

(C)THE EXECUTIVE HAS SEVEN (7) DAYS AFTER SIGNING THIS DOCUMENT (THE “REVOCATION PERIOD”) TO REVOKE HIS SIGNATURE, AND THE RELEASE WILL NOT BECOME EFFECTIVE UNTIL THE REVOCATION PERIOD HAS EXPIRED.

IF THE EXECUTIVE CHOOSES TO REVOKE THIS RELEASE, HIS REVOCATION MUST BE IN A SIGNED WRITING AND MUST BE RECEIVED BY THE CHIEF EXECUTIVE OFFICER OF HAWK PRIOR TO THE EXPIRATION OF THE REVOCATION PERIOD.

THE EXECUTIVE ACKNOWLEDGES THAT CERTAIN OF THE SEVERANCE PAYMENTS AND BENEFITS DESCRIBED IN THE CIC AGREEMENT ARE CONTINGENT UPON HIS SIGNING THIS RELEASE AND ARE PAYABLE ONLY IF THE REVOCATION PERIOD HAS EXPIRED WITHOUT REVOCATION OF THIS RELEASE.

Except for obligations of the Executive created by this Release, the CIC Agreement (including but not limited to the Restrictive Covenants) and the provisions of any written employment agreement between the Corporation and the Executive that expressly survive the Termination Date, the Corporation does hereby fully, finally and forever release and discharge the Executive and his heirs, estate, beneficiaries, agents, employees, attorneys, successors and assigns, of and from all claims, demands, actions, causes of action, suits, damages, losses and expenses of any and every nature whatsoever, whether known or not known, from the beginning of time to the date of this Release, including but not limited to all claims arising from Executive’s position as an officer, director, manager or employee of the Corporation and the termination of that relationship.

3.No Admission of Wrongdoing. This Agreement shall not in any way be construed as an admission by the Executive of any acts of wrongdoing against the Corporation or any other person or that the Executive has any claim, whatsoever, against the Corporation or any of the Corporation’s officers, directors, members, managers, employees, affiliates or agents.

4.Cooperation. The Executive agrees to fully cooperate, in good faith and to the best of his ability, with reasonable requests of the Corporation in connection with all pending, threatened or future claims, actions, litigations, arbitrations or inquiries by any state, federal, foreign or private person or entity, directly or indirectly arising from or relating to any transaction, event or activity he was involved in, participated in, or had knowledge of, in the course of his employment. Such cooperation will be at mutually-agreeable times and the Corporation agrees to reimburse the Executive for the time (to the extent that such cooperation exceeds one hour in any given day) and expenses incurred in providing such cooperation including, in accordance with the Corporation’s practice, customary per-diem amounts incurred in providing testimony. This Section 4 shall not apply if the claim, action, litigation or arbitration relates to a dispute or controversy between the Corporation and the Executive.

5.Severability. If any provision of this Release is declared or determined by a court of competent jurisdiction not to be enforceable in the manner set forth in this Release, the validity of the remaining parts, terms or provisions shall not be affected thereby. Furthermore, the parties hereto agree that it is their intention that any unenforceable provision shall be reformed to make it enforceable in accordance with the interest of the parties hereto.

6.Amendment and Waiver. No provision of this Release may be modified, waived or discharged except in writing specifically referring to such provision and signed by the party against whom enforcement of such modification, waiver or discharge is sought. No waiver by either party of the breach of any condition or provision of this Release shall be deemed a waiver of any other condition or provision at the same or any other time.

72

7Governing Law, Venue and Submission to Jurisdiction. This Release and all rights hereunder shall be governed by, and construed and interpreted in accordance with, the laws of the State of Ohio applicable to contracts made and to be performed entirely within that State. The parties intend to and hereby do confer exclusive jurisdiction upon the courts of any jurisdiction located within Cuyahoga County, Ohio to determine any dispute arising out of or related to this Release, including the enforcement and the breach hereof.

8.Binding on Successors, Etc. This Release shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, legal representatives, successors and permitted assigns of the parties hereto. Nothing in this Release is intended, and it shall not be construed, to give any person or entity other than the parties hereto (other than the direct and indirect subsidiaries of Hawk) any right, remedy or claim under or in respect of this Release or any provisions hereof.

9.Notices. All notices, demands and other communications required or permitted to be given hereunder shall be subject to Section 5.1 of the CIC Agreement.

10.Section Headings. Section headings are for convenient reference only and shall not affect the meaning or have any bearing on the interpretation of any provision of this Release.

11.Entire Agreement. This Release embodies the entire agreement and understanding between Hawk and the Executive with respect to the subject matter hereof, and supersedes all prior agreements and understandings, oral or written, relating to the subject matter hereof.

12.Counterparts. This Release may be executed in any number of counterparts, each of which, when executed, shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument.

[Signature Page Follows]

IN WITNESS WHEREOF, the Executive has executed this Release, and Hawk has caused this Release to be duly executed on its behalf, as of the Termination Date.

HAWK CORPORATION

By:

Its:

EXECUTIVE

Signature:

Printed name:

73

EXHIBIT B

RESTRICTIVE COVENANTS

1.Expiration. Notwithstanding any provision to the contrary set forth below or elsewhere in this Agreement, these Restrictive Covenants shall expire and be of no further force or effect upon the effective date of the sooner to occur of (i) any Change in Control that has not been approved by a majority of the Continuing Directors or (ii) a Qualifying Termination of the Executive’s employment that is of the nature described in clause (A) or (B) of Section 1.1(x) of the Agreement.

2.The Company Business. The parties acknowledge that the Corporation is engaged in the business of designing, engineering, manufacturing and marketing friction materials and powder metal components used in a wide variety of aerospace, industrial, construction and other commercial applications (the “Company Business”).

3.Non-Compete. During the period which includes the entire term of the Executive’s employment with the Corporation and one (1) year following the termination of such employment, however caused (the “Restricted Period”), the Executive shall not, directly or indirectly, either (a) within any state in which the Corporation has actively engaged in the Company Business during any part of the term of the Executive’s employment with the Corporation, or (b) within any state in which the Executive has actively engaged in any activities on behalf of the Corporation during any part of the term of the Executive’s employment with the Corporation, or (c) with respect to any customer or supplier with whom the Executive has had material dealings on behalf of the Corporation during any part of the term of the Executive’s employment with the Corporation, compete with the Corporation in any manner in any area of the Company Business in which the Executive has worked for the Corporation, on behalf of the Executive or any other Person, including, without limitation, that the Executive shall not: (i) engage in the Company Business for his own account; (ii) enter the employ of, or render any services to, any Person engaged in the Company Business; (iii) request or instigate any account or customer of the Corporation to withdraw, diminish, curtail or cancel any of its business with the Corporation; or (iv) become interested in any Person engaged in the Company Business as an owner, partner, stockholder, officer, director, licensor, licensee, principal, agent, the Executive, trustee, consultant or in any other relationship or capacity; provided that the Executive may own, directly or indirectly, solely as an investment, securities of any corporation which are traded on any national securities exchange if he (x) is not a controlling person of, or a member of a group which controls, such corporation or (y) does not, directly or indirectly, own one percent (1%) or more of any class of securities of such corporation. In the event of the Executive’s breach of any provision of this section, the running of the Restricted Period shall be automatically tolled (i.e., no part of the Restricted Period shall expire) from and after the date of the first such breach.

4.Confidential Information. The Executive acknowledges that confidential information, including, without limitation, information, knowledge or data (i) of a technical nature such as but not limited to methods, know-how, formulae, compositions, processes, machinery (including computer hardware), discoveries, inventions, products, product specifications, computer programs and similar items or research projects; (ii) of a business nature such as but not limited to information about products, cost, purchasing or suppliers, profits, market, sales or customers, including lists of customers, and the financial condition of the Corporation; (iii) pertaining to future developments such as but not limited to strategic planning, research and development or future marketing or merchandising, and trade secrets of the Corporation; and (iv) all other matters which the Corporation treats as confidential (the items described above being referred to collectively hereinafter as “Confidential Information”), are valuable, special and unique assets of the Corporation. During and after the Restricted Period, the Executive shall keep secret and retain in strictest confidence, and shall not use for the benefit of himself or others except in connection with the business and affairs of the Corporation, any and all Confidential Information learned by the Executive before or after the date of this Agreement, and shall not disclose such Confidential Information to anyone outside of the Corporation either during or after employment by the Corporation, except as required in the course of performing duties of his employment with the Corporation, without the express written consent of the Corporation or as required by law.

5.Property of the Corporation. The Executive agrees to deliver promptly to the Corporation all drawings, blueprints, manuals, letters, notes, notebooks, reports, sketches, formulae, computer programs and files, memoranda, customer lists and all other materials relating in any way to the Company Business and in any way obtained by the Executive during the period of his employment with the Corporation which are in his possession or under his control, and all copies thereof, (i) upon termination of the Executive’s employment with the Corporation, or (ii) at any other time at the Corporation’s request. The Executive further agrees he will not make or retain any copies of any of the foregoing and will so represent to the Corporation upon termination of his employment.

74

  6.Employees and Consultants of the Corporation. During and for a period of two (2) years after the expiration of the Restricted Period, the Executive shall not, directly or indirectly (i) hire, solicit, or encourage to either leave the employment of or cease working with the Corporation, any person who is then an employee of the Corporation, or any consultant who is then engaged by the Corporation, or (ii) hire any employee or consultant who had left the employment of or had ceased consulting with the Corporation but who had not yet been a former employee or former consultant of the Corporation for one (1) full year.

7.Inventions.

(a)The Executive will promptly disclose in writing to the Corporation all inventions, discoveries, developments, improvements and innovations (collectively, “Inventions”) whether patentable or not, conceived or made by the Executive, either solely or in concert with others, during the period of his employment with the Corporation, including, but not limited to, any period prior to the date of this Agreement, whether or not made or conceived during working hours that (i) relate in any manner to the existing or contemplated business or research activities of the Corporation, or (ii) are suggested by or result from the Executive’s work with the Corporation, or (iii) result from the use of the Corporation’s time, materials or facilities, and the Executive agrees and understands that all such Inventions shall be the exclusive property of the Corporation.

(b)The Executive hereby assigns to the Corporation his entire right, title and interest to all such Inventions which are the property of the Corporation under the provisions of paragraph 7(a) above; and to all unpatented Inventions which the Executive now owns except those specifically described in paragraph 9 below, and the Executive will, at the Corporation’s request and expense, execute specific assignments to any such Invention and execute, acknowledge and deliver such other documents and take such further action as may be considered necessary by the Corporation at any time during or subsequent to the period of his employment with the Corporation to obtain and defend letters patent in any and all countries and to vest title in such Inventions in the Corporation or its assigns.

(c)The Executive agrees that an Invention disclosed by him to a third person or described in a patent application filed by him or in his behalf within six (6) months following the period of his employment with the Corporation shall be presumed to have been conceived or made by him during the period of his employment with the Corporation unless proved to have been conceived and made by him following the termination of employment with the Corporation.

8.Rights and Remedies Upon Breach. Both parties recognize that the rights and obligations set forth in this Agreement are special, unique and of extraordinary character. If the Executive breaches, or threatens to commit a breach of, any of the provisions of paragraphs 3 through 7 above (collectively, the “Restrictive Covenants”), then the Corporation shall have the following rights and remedies, each of which shall be independent of the other and severally enforceable, and all of which rights and remedies shall be in addition to, and not in lieu of, any other rights and remedies available to the Corporation under law or in equity:

(a)Specific Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Corporation and that money damages will not provide adequate remedy to the Corporation. As to the covenants contained in paragraph 3 above, specific performance shall be for a period of time equal to the unexpired portion of the Restricted Period, giving full effect to the tolling provision of paragraph 3 above, and beginning on the earlier of the date on which the court’s order becomes final and non-appealable and the date on which all appeals have been exhausted.

(b)Accounting. The right and remedy to require the Executive to account for and pay over to the Corporation all compensation, profits, monies, accruals, increments or other benefits (collectively, “Benefits”) derived or received by it as the result of any transactions constituting a breach of any of the Restrictive Covenants, and the Executive shall account for and pay over such Benefits to the Corporation.

(c)Blue-Pencilling. If any court determines that any one or more of the Restrictive Covenants, or any part thereof, shall be unenforceable because of the scope, duration and/or geographical area covered by such provision, such court shall have the power to reduce the scope, duration or area of such provision and, in its reduced form, such provision shall then be enforceable and shall be enforced.

9.Excluded Inventions. The following is a list of all Inventions, whether patented or unpatented, in which the Executive has any interest and that the Executive does not assign to the Corporation pursuant hereto (if no Inventions are described below, then there are no exclusions from the assignment set forth herein):

Initials of the signatory for the Corporation: _____Initials of the Executive: _____

75

EX-31.1

EXHIBIT 31.1

Certification of Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer)

I, Ronald E. Weinberg, Chairman of the Board, Chief Executive Officer and President of Hawk Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hawk Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

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

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

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

(c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2006

/s/ Ronald E. Weinberg

Ronald E. Weinberg

Chairman of the Board, Chief Executive Officer and President

76

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer (Principal Financial Officer)

I, Joseph J. Levanduski, Chief Financial Officer of Hawk Corporation, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hawk Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

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

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

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report, based on such evaluation; and

(c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 14, 2006

/s/ Joseph J. Levanduski

Joseph J. Levanduski

Chief Financial Officer

77

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Hawk Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2006, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ronald E. Weinberg, Chairman of the Board, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Ronald E. Weinberg

Ronald E. Weinberg

Chairman of the Board, Chief Executive Officer and President

August 14, 2006

This certification is made solely for the purpose of 18 U.S.C. § 1350, subject to the knowledge standard contained in that statute, and not for any other purpose.

78

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Hawk Corporation (the “Company”) on Form 10-Q for the period ending June 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph J. Levanduski, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15 (d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

/s/ Joseph J. Levanduski

Joseph J. Levanduski

Chief Financial Officer

August 14, 2006

This certification is made solely for the purpose of 18 U.S.C. § 1350, subject to the knowledge standard contained in that statute, and not for any other purpose.

79