Edgar Filing: OM GROUP INC

Filed Pursuant To Rule 424(b)(4)
Registration No. 333-74566

3,500,000 Shares

[OM GROUP LOGO]

OM GROUP, INC.

Common Stock

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Our common stock is listed on The New York Stock Exchange under the symbol
"OMG". The last reported sale price on January 17, 2002, was $61.00 per share.

The underwriters have an option to purchase a maximum of 525,000 additional
shares to cover over-allotments of shares.

INVESTING IN OUR COMMON STOCK INVOLVES CERTAIN RISKS. SEE "RISK FACTORS" ON
PAGE 9.

UNDERWRITING
DISCOUNTS
PRICE TO AND PROCEEDS TO
PUBLIC COMMISSIONS OM GROUP
------------ ------------ ------------

Per Share...................................... $59.00 $2.80 $56.20

Total.......................................... $206,500,000 $9,800,000 $196,700,000

Delivery of the shares of common stock will be made on or about January 24,
2002.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

CREDIT SUISSE FIRST BOSTON
DEUTSCHE BANC ALEX. BROWN
BANC OF AMERICA SECURITIES LLC
JPMORGAN
MCDONALD INVESTMENTS INC.
FIRST ANALYSIS SECURITIES CORPORATION

The date of this prospectus is January 17, 2002.

[PICTURES]

OMG'S metal powders are used in a wide variety of applications.

OMG's electroless nickel concentrates produce thin film coatings for memory
disks.

OMG supplies specialized products for the automotive industry including
automotive catalysts used in exhaust systems, stainless steel powder used in
automotive parts, and cobalt salts used in airbag technology. OMG is also
actively involved in development of fuel cell technology for automobiles.

OMG's cobalt oxide, lithium cobalt dioxide, and spherical nickel hydroxide are
used in rechargeable batteries for cell phones and other rechargeable battery
applications.

OMG's barium, calcium, and zinc heat stabilizers are less toxic and more
environmentally friendly than traditional cadmium products and enhance
performance of flexible PVC.

OMG's metal oxides are used in the coloring of glass and ceramic products.

OMG's copper and stainless steel powders are used in the production of pressed
metal parts.

OMG's nickel briquettes and cathodes are used in a wide variety of stainless
steel applications including medical instruments.

OMG's silver alloy ball grid arrays are used in electronic packaging.

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TABLE OF CONTENTS

PAGE
----

ABOUT THIS PROSPECTUS................. i
FORWARD-LOOKING STATEMENTS............ i
WHERE YOU CAN FIND MORE INFORMATION... i
PROSPECTUS SUMMARY.................... 1
RISK FACTORS.......................... 9
THE TRANSACTIONS...................... 15
USE OF PROCEEDS....................... 19
PRICE RANGE OF COMMON STOCK AND
DIVIDEND HISTORY.................... 19
CAPITALIZATION........................ 20
SELECTED HISTORICAL FINANCIAL DATA.... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 23
BUSINESS.............................. 32
MANAGEMENT............................ 45

PAGE
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SECURITY OWNERSHIP OF DIRECTORS,
OFFICERS AND CERTAIN BENEFICIAL
OWNERS.............................. 52
RELATED PARTY TRANSACTIONS............ 54
DESCRIPTION OF OUR CAPITAL STOCK...... 55
UNDERWRITING.......................... 56
NOTICE TO CANADIAN RESIDENTS.......... 59
LEGAL MATTERS......................... 60
EXPERTS............................... 60
INDEX TO UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS....... P-1
INDEX TO OM GROUP, INC. FINANCIAL
STATEMENTS.......................... F-1
INDEX TO dmc(2) DEGUSSA METALS
CATALYSTS CERDEC AG FINANCIAL
STATEMENTS.......................... A-1

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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement that we filed with the
Securities and Exchange Commission. This prospectus provides you with a general
description of our common stock and specific information about the terms of this
offering, together with a description of our business. You should read this
prospectus, the additional information described under the heading "Where You
Can Find More Information" and any additional information you may need to make
your investment decision.

FORWARD-LOOKING STATEMENTS

This prospectus contains statements that we believe may be "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934. These forward-looking statements are
not historical facts and generally can be identified by use of statements that
include phrases such as "believe," "expect," "anticipate," "intend," "plan,"
"foresee" or other words or phrases of similar import. Similarly, statements
that describe our objectives, plans or goals also are forward-looking
statements. These forward-looking statements are subject to risks and
uncertainties that are difficult to predict, may be beyond our control and could
cause actual results to differ materially from those currently anticipated.
Factors that could materially affect these forward-looking statements can be
found in this prospectus, including immediately below and as described under
"Risk Factors." Potential investors and other readers are urged to consider
these factors carefully in evaluating the forward-looking statements and are
cautioned not to place undue reliance on the forward-looking statements. The
forward-looking statements included in this document are made only as of the
date of this prospectus and we undertake no obligation to publicly update these
forward-looking statements to reflect new information, future events or
otherwise.

Important facts that may affect our expectations, estimates or projections
include:

- the price and supply of raw materials, particularly cobalt, copper,
nickel, platinum, palladium, gold and silver;

- the demand for metal-based specialty chemicals and products in our
markets;

- the effect of non-currency risks of investing in and conducting
operations in foreign countries, including political, social, economic
and regulatory factors;

- the effects of the substantial debt we have incurred in connection with
our acquisition of the operations of dmc(2) and our ability to refinance
or repay that debt; or

- the effect of fluctuations in currency exchange rates on our
international operations.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file with the
SEC at the SEC's public reference rooms at the following locations:

Public Reference Room Northeast Regional Office Chicago Regional Office
450 Fifth Street, N.W. 233 Broadway Citicorp Center
Room 1024 New York, NY 10279 500 West Madison Street, Suite 1400
Washington, D.C. 20549 Chicago, Illinois 60661-2511

Please call the SEC at 1-800-SEC-0330 for further information on the
operations of the public reference rooms. Our SEC filings also are available to
the public at the SEC's web site at http://www.sec.gov. Our common stock is
listed on the New York Stock Exchange under the symbol "OMG" and all such
reports, proxy statements and other information filed by us with the NYSE may be
inspected at the NYSE's offices at 20 Broad Street, New York, New York 10005.

We have filed a registration statement on Form S-1, of which this
prospectus is a part, covering the common stock offered by this prospectus. As
allowed by SEC rules, this prospectus does not contain all the information set
forth in the registration statement and the related exhibits and financial
statements. We refer you to the registration statement, and the related exhibits
and financial statements for further information. This prospectus is qualified
in its entirety by such other information.

PROSPECTUS SUMMARY

This summary contains basic information about this offering. It may not
contain all of the information that is important to you in making a decision to
invest in our common stock. Financial information we designate as "pro forma"
gives effect to this offering and to the transactions described under "The
Transactions" as if they had occurred on the first day of the periods specified
as relates to statement of operations data and gives effect to this offering as
if it had occurred on September 30, 2001 as relates to balance sheet data. For a
more complete understanding of this offering, we encourage you to read this
entire document and the other documents to which we refer in this prospectus.

ABOUT OM GROUP, INC.

OVERVIEW

We are a leading, vertically integrated international producer and marketer
of value-added, metal-based specialty chemicals and related materials. We apply
proprietary technology to a wide variety of raw material feedstocks to
manufacture, market and supply more than 625 different product offerings to more
than 1,700 customers in over 30 industries. Our products typically represent a
small portion of the customer's total manufacturing or processing costs and are
often essential ingredients for superior product performance. For the twelve
months ended September 30, 2001, on a pro forma basis, our net sales were
$6,227.2 million and our net income before interest, taxes, depreciation and
amortization (EBITDA) was $287.2 million.

We believe we are the world's leading producer of cobalt-based specialty
chemicals and a leading producer of nickel-based specialty chemicals and
platinum group metal catalysts and products. During 2000, on a pro forma basis,
and excluding net sales of our Metal Management segment, we derived
approximately 64% of our net sales from customers in Europe, 25% from customers
in the Americas and 11% from customers in Asia-Pacific. We operate 36
manufacturing facilities worldwide, including 14 in the Americas, 12 in Europe,
8 in Asia-Pacific and 2 in Africa, and employ approximately 4,900 employees in
24 countries.

Our business is conducted through three segments: Base Metal Chemistry,
Precious Metal Chemistry and Metal Management.

OM GROUP
|
--------------------------------------------------------
| | |
BASE METAL PRECIOUS METAL METAL
CHEMISTRY CHEMISTRY MANAGEMENT

(DOLLARS IN MILLIONS)
NET SALES (1) $887.7 $ 1,666.8 $ 3,889.1
------ ---------- ----------
EBITDA (1) $176.6 $ 31.1 $ 26.3
------ ---------- ----------

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(1) Pro forma for the year ended December 31, 2000

Our BASE METAL CHEMISTRY segment develops, processes, manufactures and
markets specialty chemicals, powders and related products from various base
metals. We emphasize products that leverage our production capabilities and
bring value to our customers through superior product performance. These
products frequently are essential components in chemical and industrial
processes where they facilitate a chemical or physical reaction and/or enhance
the physical properties of end-products. Our base metal chemistry products can
be found in a variety of applications for catalysts, coatings, colorants, hard
metal tools, jet engines, lubricants, fuel and petroleum additives, magnetic
media, metal finishing agents, petrochemicals, plastics,

printed circuit boards, rechargeable batteries, stainless steel, super alloys
and tires. In 2000, we sold these products to over 1,500 customers serving more
than 30 industries. Specific examples of applications using our base metal
chemistry products include the following:

- RECHARGEABLE BATTERIES -- battery-grade mixed metal oxides, low sodium
cobalt oxides, cobalt lithium dioxides and spherical nickel hydroxides
improve electrical conductivity and extend battery life between charges;

- HARD METAL TOOLS -- extra-fine cobalt and tungsten powders enhance
strength and durability of diamond-cutting tools and microtools for
printed circuit boards and construction applications;

- PETROCHEMICALS -- cobalt catalysts remove impurities from oil before
refining in order to reduce pollutants;

- PLASTICS -- nontoxic mixed-metal, phenol-free stabilizers boost
flexibility and allow greater use of polyvinyl chloride in medical
applications; and

- COLORANTS -- cobalt oxides provide color for pigments, earthenware and
glass.

We use more than 15 metals as raw materials in this segment, with the most
widely used metals being cobalt, nickel and copper. Our base metal chemistry
products are generally categorized as organics (produced by reacting metals with
organic acids), inorganics (produced by reacting metals with inorganic acids),
powders (produced by chemical reactions using heat and/or water-based
technologies) and metals (produced by refining metal feedstock). These products
are sold in various forms such as solutions, crystals, powders, cathodes and
briquettes.

Our PRECIOUS METAL CHEMISTRY segment develops, produces and markets
specialty chemicals and materials, predominantly from precious metals such as
platinum, palladium, rhodium, gold and silver. We also offer a variety of
refining and processing services to users of precious metals. Our precious metal
chemistry products are used in a variety of applications for automotive
catalysts, fuel cells and fuel processing catalysts, chemical catalysts,
electronics packaging and electroplating products, jewelry and glass
manufacturing for high-definition televisions. In 2000, on a pro forma basis, we
sold these products to over 200 customers serving more than a dozen industries.
Specific examples of applications using our precious metal chemistry products
include the following:

- AUTOMOTIVE CATALYSTS -- platinum group metal, or PGM, catalysts reduce
toxic emissions of internal combustion engines in order to meet
increasingly strict environmental legislation for a wide range of fuels,
including gasoline, diesel, natural gas and alternate fuels;

- FUEL CELLS -- PGM-based catalysts for membrane electrode assemblies and
fuel processing catalysts increase the efficiency of fuel cells and fuel
processing systems; and

- ELECTRONICS -- silver-based, hermetic sealing materials and ball-grid
arrays used in packaging of microelectronic components enable a large
number of interconnections and provide package integration.

Our METAL MANAGEMENT segment acts as a metal sourcing operation for our
other business segments and for our customers, primarily procuring precious
metals. The Metal Management segment centrally manages metal purchases and sales
by providing the necessary precious metal liquidity, financing and hedging for
our other segments.

STRATEGY

TARGET HIGH GROWTH APPLICATIONS AND VALUE-ADDED PRODUCTS. We target
applications that we believe have high growth and high margin potential for our
products. For example, we have targeted the growing rechargeable battery and
nickel catalyst markets through our acquisition of a nickel refinery in
Harjavalta, Finland in April 2000. This acquisition has provided us with a solid
base from which to vertically integrate production of nickel chemicals and
powders. Other examples of value-added products used in targeted applications
include stainless steel powders for automotive pressed metal parts, cobalt salts
and powders for
2

rechargeable batteries used in laptop computers and mobile phones, PGM-based
catalysts for membrane electrode assemblies and fuel processing catalysts for
fuel cells used in stationary and mobile applications.

APPLY METAL TECHNOLOGY TO MEET CUSTOMER NEEDS AND DEVELOP NEW PRODUCTS. We
are focused on increasing sales of value-added products through our emphasis on
research, technology and customer service. For example, we have increased our
sales of cobalt extra-fine powders and created new market opportunities in
tungsten powders by applying our recycling technology to the needs of our
customers in the hard metal tool industry. We also have developed several
products, such as electroless nickel-gold for printed circuit boards, through
continued responsiveness to customer needs and through joint product development
efforts.

Through our acquisition of the dmc(2) operations, we have obtained leading
technology positions in the development of fuel cell components and automotive
catalysts. For example, the flexibility derived from advances in catalyst
technology has enabled us to significantly grow the North American sales of the
dmc(2) operations by providing customers with automotive catalyst solutions
based on multiple precious metals. These new technologies allow our customers
the flexibility to choose the most advantageous or cost-effective catalyst
solution.

CONTINUE TO IMPROVE OUR COST POSITION. We have undertaken several
initiatives to improve the leading cost positions we have developed in nickel
and cobalt procurement and processing as a result of our vertical integration
strategy. Our majority-owned Big Hill smelter facility, which we expect to reach
full-scale production by mid-year 2002, will expand our base of long-term,
low-cost cobalt and copper raw material feedstocks. The conversion of our
Harjavalta, Finland nickel refinery from the processing of commodity products to
higher value-added products is designed to result in the cost-efficient,
vertically integrated production of nickel inorganics and powders. We intend to
continue to improve our cost positions in our other product lines as we begin to
integrate base metal and precious metal separation and processing technologies.

INTEGRATE dmc(2) BUSINESS AND CAPITALIZE ON ACQUISITION-RELATED
OPPORTUNITIES. As part of our plan to integrate the dmc(2) business with our
other operations, we are focused on combining the best practices of each
organization to drive top-line growth, increase manufacturing efficiency and
leverage our common technology platforms. The acquisition of the dmc(2)
operations will allow us to:

- use our combined experience and technical expertise in base metal and
precious metal chemistry to develop new products and improve processing
technology;

- use the combined strength of our respective sales forces to drive growth
of precious metal chemistry products in North America, accelerate the
growth of our base metal chemistry products in Europe and enhance our
presence in Asia;

- cross-sell products to existing customers that have both base metal and
precious metal chemistry needs; and

- enhance our metal management operation by integrating the expertise and
scale of our base metal and precious metal procurement capabilities.

COMPETITIVE STRENGTHS

LEADERSHIP POSITION IN EACH OF OUR CORE PRODUCTS. We believe that as a
result of our high quality products, technological capabilities and focus on
providing customer service and support, we have achieved leading market
positions in the production of metal-based specialty chemicals, materials and
powders. We believe we are the world's leading producer, refiner and marketer of
cobalt and a leading worldwide producer of cobalt organics, cobalt inorganics,
cobalt powders, nickel inorganics, copper powders, automotive catalysts and PGM
compounds.

DIVERSE GEOGRAPHIC AND CUSTOMER BASE. Following our recent acquisition of
the operations of dmc(2), we offer more than 625 products to over 1,700
customers in over 30 industries, including automotive, chemicals, electronics,
industrial products and stainless steel. The diversity of the metals used in our
products and our worldwide presence are reflected in the following charts:

2000 PRO FORMA PRODUCT SALES 2000 PRO FORMA SALES
BY METAL CONTAINED (1) BY GEOGRAPHY (1)(2)

Percent Percent
------- -------

Precious Metals............................. 65% Americas.................................... 25%
Copper...................................... 4% Asia-Pacific................................ 11%
Nickel...................................... 16% Europe...................................... 64%
Cobalt...................................... 11%
Other Base Metals........................... 4%

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(1) Excludes net sales of the Metal Management segment

(2) Sales based on customer location

TECHNOLOGICAL LEADERSHIP. Our research and new product development program
is an integral part of our business. New products introduced in the last five
years, including new chemical formulations and new concentrations of components,
accounted for over 20% of our pro forma 2000 net sales (excluding net sales of
the Metal Management segment). Examples of new products that we have developed
and introduced to the marketplace over the last five years include the
following:

- an electroless nickel-gold process used in printed circuit boards to
increase performance and improve product yields;

- stainless steel powders used in automotive metal parts to prevent
corrosion;

- cobalt catalysts used in air bags to provide safety and enhance
performance; and

- automotive catalysts used in diesel and gasoline direct-injection engines
to improve emission control.

LEADING RAW MATERIAL SOURCING AND PRODUCTION CAPABILITY. We believe we are
the leading producer, refiner and marketer of cobalt and the fifth largest
producer of nickel in the world as a result, in part, of our vertical
integration strategy. We also believe we are among the world's largest
processors of PGMs. Our leading industry positions and long-term relationships
with our suppliers provide us with reliable sources of key raw materials. Our
major manufacturing plants, all of which have received ISO 9002 certification,
are capable of efficiently producing a broad range of metals, specialty
chemicals and powders. Our leading refining and metal separation capabilities
give us the flexibility to work with a variety of raw materials, including
low-grade feedstocks such as slag, concentrates and recycled materials, and
transform them into high-quality finished products. The ability to refine and
recycle these materials enables us to source many grades of feedstocks at
competitive prices and offer recycling services to our customers, giving us a
significant advantage in the marketplace. Through our Metal Management segment,
we are one of the world's leading precious metals sourcing businesses.

EXPERIENCED AND INCENTIVIZED MANAGEMENT TEAM. Our senior management team
has an average of over twenty years experience in the chemical industry. Led by
Chairman and Chief Executive Officer James P. Mooney, President and Chief
Operating Officer Edward "Bud" Kissel and Chief Financial Officer James M.
Materna, we have consistently delivered strong operating and financial
performance. Our senior management team also has significant experience in
executing and integrating acquisitions. Since our initial public offering in
1993, we have successfully integrated thirteen acquisitions. Our management team
collectively holds roughly 6% of our common shares on a fully diluted basis,
with a significant number of these shares issuable under stock option programs.

RECENT DEVELOPMENTS

ACQUISITION OF dmc(2) OPERATIONS AND SALE OF BUSINESSES TO FERRO

On August 10, 2001, we acquired all of the operations of dmc(2) Degussa
Metals Catalysts Cerdec AG from Degussa AG for E1,200.0 million, or
approximately $1,072.0 million based on the exchange rate at closing. dmc(2) was
a worldwide provider of metal-based functional materials for a wide variety of
high-growth end markets and was a leading producer of PGM catalysts and
products. On September 7, 2001, we sold the Electronic Materials and Cerdec
divisions of dmc(2) to Ferro Corporation for approximately $525.5 million.

AMENDMENT TO CREDIT FACILITIES AND ISSUANCE OF BRIDGE NOTES

On August 10, 2001, we amended and restated our existing senior secured
credit facilities to fund the acquisition of the dmc(2) operations, reduce
certain borrowings under our existing revolving credit facility and provide for
our ongoing working capital and other financing requirements. The amended credit
facilities include $325.0 million in aggregate revolving credit facility
commitments and $985.0 million in term loans. We repaid $350.0 million of term
loan borrowings with proceeds from the sale of the dmc(2) divisions to Ferro and
permanently reduced the related commitment under the credit facilities.

In connection with the acquisition of the dmc(2) operations, we also issued
$550.0 million of senior subordinated bridge notes. We repaid $173.0 million of
the bridge notes with proceeds from the sale of the dmc(2) divisions to Ferro.
We repaid the remaining amounts outstanding under the bridge notes with the
proceeds from the debt offering described below.

DEBT OFFERING

On December 12, 2001, we issued $400.0 million of senior subordinated notes
due 2011. The net proceeds from this debt offering were used to repay the
remaining amounts outstanding under the bridge notes and to repay a portion of
the outstanding indebtedness under our credit facilities.

The acquisition of the dmc(2) operations, the sale of the dmc(2) divisions
to Ferro, the amendments to the credit facilities, the issuance of the bridge
notes and the issuance of the senior subordinated notes are collectively
referred to in this prospectus as the "Transactions."

OTHER ACQUISITIONS

On December 21, 2001, we acquired the metal organics business from Rhodia
Holdings Limited, including two manufacturing facilities in Bethlehem,
Pennsylvania and Manchester, England. The acquisition complements our existing
Base Metal Chemistry product offering. We financed the acquisition with debt
incurred under our credit facilities.

On December 27, 2001, we acquired the mineral rights and chemical
processing capabilities of Centaur Mining and Exploration Ltd.'s Cawse operation
in Western Australia. This will provide us with approximately 8,000 tonnes per
annum of nickel feedstock and approximately 800 tonnes per annum of cobalt
feedstock. We funded the acquisition with debt incurred under our credit
facilities.

THE OFFERING

Issuer............................... OM Group, Inc.

Common stock offered................. 3,500,000 shares(1)

Common stock outstanding after the
offering............................. 27,647,273 shares(1)(2)

Use of proceeds...................... We expect to use the net proceeds from
this offering to repay a portion of
our outstanding indebtedness under our
credit facilities. See "Use of
Proceeds."

NYSE Symbol.......................... OMG
---------------

(1) Does not include the over-allotment option we have granted to the
underwriters for an aggregate of 525,000 shares of common stock.

(2) Excludes 2,099,300 shares of common stock issuable pursuant to awards
outstanding on December 31, 2001 under our stock option plans.

RISK FACTORS

See "Risk Factors" immediately following this summary for a discussion of
risks relating to an investment in our common stock.

ADDITIONAL INFORMATION

We are incorporated in the State of Delaware and our executive offices are
located at 50 Public Square, Suite 3500, Cleveland, Ohio 44113. Our telephone
number is (216) 781-0083.

SUMMARY CONSOLIDATED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA

The following table displays our summary financial data for the periods
ended and as of the dates indicated. We derived the historical data for the
years ended 1998, 1999 and 2000 from our audited consolidated financial
statements. We derived the historical data for the nine-month periods ended
September 30, 2000 and 2001 from our unaudited consolidated financial
statements, which include all adjustments, consisting of normal recurring
accruals, that management considers necessary for a fair presentation of the
financial position and results of operations for these periods. The historical
data for the results of operations for the nine months ended September 30, 2001
are not necessarily indicative of results that may be expected for any other
interim period or for the full year ending December 31, 2001. The summary
unaudited pro forma income statement data give effect to the Transactions and
the use of proceeds from this offering as if they occurred on the first day of
the periods specified. The summary unaudited pro forma balance sheet data give
effect to this offering as if it had occurred on September 30, 2001. See "Index
to Unaudited Pro Forma Combined Condensed Financial Statements." The summary
financial data should be read in conjunction with "Use of Proceeds," "Selected
Historical Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the consolidated financial statements
(and related notes) of OM Group, Inc., or "OMG," contained elsewhere in this
prospectus. The pro forma financial data are not intended to represent our
results of operations or financial position had this offering and the
Transactions been completed as of the first day or the last day of the periods
specified or to project our results of operations or financial condition for any
future period or date.

HISTORICAL PRO FORMA
------------------------------------------------ ----------------------------
NINE MONTHS ENDED NINE MONTHS
YEAR ENDED DECEMBER 31, SEPTEMBER 30, YEAR ENDED ENDED
--------------------------- ------------------ DECEMBER 31, SEPTEMBER 30,
1998 1999 2000 2000 2001 2000 2001
------- ------- ------- ------- -------- ------------ -------------
(UNAUDITED) (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

INCOME STATEMENT DATA:
Net sales................... $ 521.2 $ 507.0 $ 887.7 $ 655.2 $1,285.5 $6,443.6 $4,605.7
Cost of products sold....... 376.3 347.5 673.9 501.0 1,067.4 6,046.1 4,280.5
------- ------- ------- ------- -------- -------- --------
Gross profit................ 144.9 159.5 213.8 154.2 218.1 397.5 325.2
Selling, general and
administrative expenses... 58.0 60.8 75.4 52.7 94.2 220.6 159.4
------- ------- ------- ------- -------- -------- --------
Income from operations...... 86.9 98.7 138.4 101.5 123.9 176.9 165.8
Interest expense, net....... (15.4) (18.9) (37.4) (26.8) (37.9) (66.3) (55.9)
Other income (expense),
net....................... (0.2) 0.5 (1.1) (0.6) (1.4) (6.8) 2.4
------- ------- ------- ------- -------- -------- --------
Income before income
taxes..................... 71.3 80.3 99.9 74.1 84.6 103.8 112.3
Income taxes................ 22.9 24.5 28.4 21.9 24.3 29.7 30.2
------- ------- ------- ------- -------- -------- --------
Net income.................. $ 48.4 $ 55.8 $ 71.5 $ 52.2 $ 60.3 $ 74.1 $ 82.1
======= ======= ======= ======= ======== ======== ========
Net income per common
share..................... $ 2.11 $ 2.35 $ 2.99 $ 2.19 $ 2.51 $ 2.71 $ 2.99
Net income per common
share -- assuming
dilution.................. $ 2.05 $ 2.30 $ 2.95 $ 2.15 $ 2.47 $ 2.67 $ 2.94
Weighted average shares
outstanding............... 22.9 23.8 23.8 23.8 24.0 27.3 27.5
Weighted average shares
outstanding -- assuming
dilution.................. 23.5 24.3 24.3 24.2 24.4 27.8 27.9
OTHER DATA:
EBITDA (1).................. $ 112.1 $ 126.1 $ 176.6 $ 130.2 $ 166.4 $ 234.0 $ 226.5
Cash flow from operations... (1.1) 12.4 81.0 45.6 16.6 -- --
Depreciation and
amortization.............. $ 25.4 $ 26.9 $ 39.3 $ 29.3 $ 43.9 $ 63.9 $ 58.3
Capital expenditures........ 91.9 70.2 55.0 33.6 63.3 91.0 92.0

UNAUDITED AS OF
SEPTEMBER 30,
AS OF DECEMBER 31, AS OF SEPTEMBER 30, 2001
---------------------------- --------------------- ---------------
1998 1999 2000 2000 2001 PRO FORMA
------ -------- -------- --------- --------- ---------------
(UNAUDITED)
(DOLLARS IN MILLIONS)

BALANCE SHEET DATA (AS OF END OF
PERIOD):
Cash and cash equivalents.............. $ 7.8 $ 9.4 $ 13.5 $ 15.7 $ 36.4 $ 36.4
Working capital, net (2)............... 294.9 359.1 411.8 466.5 974.7 974.7
Total assets........................... 870.7 1,012.5 1,357.5 1,307.9 2,578.1 2,589.1
Total debt (including current
portion)............................. 312.1 384.9 571.9 583.6 1,269.2 1,087.3
Stockholders' equity................... 404.1 449.2 506.1 489.5 557.0 753.2

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

(1) EBITDA is defined as net income before interest, taxes, depreciation and
amortization. EBITDA is not a measure of operating income, operating
performance or liquidity under GAAP. We include EBITDA and related credit
statistics because we understand these data are used by some investors to
determine our historical ability to service our indebtedness. Nevertheless,
this measure should not be considered in isolation or as a substitute for
operating income (as determined in accordance with GAAP) as an indicator of
our operating performance, or to cash flows from operating activities (as
determined in accordance with GAAP) as a measure of liquidity. In addition,
it should be noted that companies calculate EBITDA differently and,
therefore, EBITDA as presented for us may not be comparable to EBITDA
reported by other companies. See the audited consolidated financial
statements and related notes included elsewhere in this prospectus for the
cash used in and provided by operating activities.

(2) Working capital, net is defined as current assets excluding cash and cash
equivalents minus current liabilities excluding short-term debt and the
current portion of long-term debt.

RISK FACTORS

You should consider carefully the following risk factors, in addition to
the other information contained in this prospectus, before making an investment
in our common stock.

WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE THE dmc(2) OPERATIONS INTO OUR
BUSINESS.

The process of integrating the retained dmc(2) businesses into our existing
businesses may result in unforeseen operating difficulties and may require
significant financial resources that would otherwise be available for the
ongoing development or expansion of existing operations. We cannot assure you
that we will realize all of the anticipated benefits of the acquisition. Some of
the integration difficulties or costs associated with the acquisition of the
dmc(2) operations may arise from:

- unexpected losses of key employees or customers of dmc(2);

- conforming dmc(2) standards, processes, procedures and controls with our
operations;

- coordinating new product and process development;

- hiring additional management and other critical personnel;

- negotiating with labor unions;

- statutory liabilities associated with a health care fund covering Degussa
AG and dmc(2) employees if the fund is closed or liquidated; and

- increasing the scope, geographic diversity and complexity of our
operations.

In addition, we may encounter unforeseen obstacles, liabilities or costs
associated with the dmc(2) integration, including those related to the renewal
of insurance covering some dmc(2) operations. The presence of one or more
material liabilities related to the dmc(2) operations that were unknown to us at
the time of the acquisition of those operations may have a material adverse
effect on our business, financial condition or results of operations.

Historically, we have not been engaged to a significant extent in the
precious metals businesses that we have acquired from dmc(2). The precious
metals businesses involve risks related to price fluctuations, as discussed in
the next risk factor. We will be dependent on the former dmc(2) management team
to operate those businesses, and our ability to operate those businesses
profitably may be impaired if we are unable to retain that management team.
Additionally, the acquisition of the dmc(2) operations has significantly
increased the complexity of our internal financial and accounting processes,
including accounting period closing and auditing processes.

WE ARE AT RISK FROM FLUCTUATIONS IN THE PRICE OF OUR PRINCIPAL RAW MATERIALS,
INCLUDING OUR PRECIOUS METALS INVENTORY, AND FROM OUR PRECIOUS METAL MANAGEMENT
ACTIVITIES.

The primary raw materials we use in manufacturing base metal chemistry
products are cobalt, nickel and copper. The cost of raw materials fluctuates due
to actual or perceived changes in supply and demand. Generally, we are able to
pass increases and decreases in raw material prices through to our customers by
increasing or decreasing, respectively, the prices of our products. The extent
of our profitability depends, in part, on our ability to maintain the
differential between our product prices and raw material prices, and we cannot
guarantee that we will be able to maintain an appropriate differential at all
times.

In manufacturing precious metal chemistry products, we primarily use
platinum, palladium, gold and silver. We intend to continue the dmc(2) practice
of protecting against precious metal price volatility, to the extent possible,
by pricing agreements with customers and by hedging through derivative financial
instruments such as forward or futures contracts. These pricing agreements and
hedging strategies may not be adequate to protect us fully from fluctuations in
precious metal prices, and those fluctuations could materially and adversely
affect the results of the precious metals businesses we have acquired from
dmc(2).

dmc(2) historically obtained a portion of its precious metal inventory
through short-term and medium-term leases, rather than by purchasing the metals,
and we intend to continue this practice. We will be exposed to

the risk that changes in lease rates will increase our lease expense on those
leases. Degussa AG has agreed to lease us precious metals up to an aggregate
amount of DM 650.0 million until August 10, 2002 if we are otherwise unable to
lease precious metals. After this period expires, we may not be able to enter
into metal leases on terms comparable to those historically obtained by dmc(2).

WE ARE AT RISK FROM UNCERTAINTIES IN THE SUPPLY OF SOME OF OUR PRINCIPAL RAW
MATERIALS.

While copper, gold and silver are worldwide commodities and generally
available, we can be less certain of the availability of cobalt, nickel and
platinum group metals, including platinum, palladium and rhodium. Historically,
we have sourced our supply of cobalt primarily from the Democratic Republic of
the Congo (DRC), Australia, Finland and Zambia. Although we have never
experienced a material shortage of cobalt, production problems or political or
civil instability in specific supplier countries may affect the supply and
market price of cobalt. In particular, political and civil instability in the
DRC may affect the availability of raw materials from that country. If a
substantial interruption should occur in the supply of cobalt from the DRC or
elsewhere, we may not be able to obtain as much cobalt from other sources as
would be necessary to satisfy our requirements at prices comparable to our
current arrangements.

Historically, we have sourced our supply of nickel primarily from Australia
and Brazil. Although we have never experienced a material shortage of nickel, if
a substantial interruption should occur in the supply of nickel, we may not be
able to obtain as much nickel from other sources as would be necessary to
satisfy our requirements at prices comparable to our current arrangements.

Historically, we have sourced our supply of platinum group metals primarily
from South Africa, where they are found in primary deposits, and from Russia and
Canada, where they are by-products of copper and nickel mining. We source a
significant portion of our PGM feedstock from one of the largest global
suppliers of platinum group metals, primarily under contract, and obtain the
remainder through a variety of channels. Although we have never experienced a
material shortage of platinum group metals, if a substantial interruption should
occur in the supply of platinum group metals, we may not be able to obtain as
much platinum group metals from other sources as would be necessary to satisfy
our requirements at prices comparable to our current arrangements.

WE INCURRED SUBSTANTIAL INDEBTEDNESS IN CONNECTION WITH THE ACQUISITION OF THE
dmc(2) OPERATIONS, AND OUR INDEBTEDNESS COULD RESTRICT OUR OPERATIONS AND MAKE
US MORE VULNERABLE TO ADVERSE ECONOMIC CONDITIONS.

As a result of the Transactions, we have substantial indebtedness and
significant debt service and other obligations. As of September 30, 2001, and
for the twelve months then ended, on a pro forma basis, we would have had total
debt, stockholders' equity and EBITDA as follows:

(DOLLARS IN MILLIONS)
---------------------

Total debt.................................................. $1,087.3
Stockholders' equity........................................ 753.2
EBITDA...................................................... 287.2

We also may have significant post-closing obligations in connection with the
acquisition of the dmc(2) operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources."

Our high level of debt and debt service requirements could have important
consequences for our business. For example, it could:

- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures and research and development efforts, and for other general
corporate purposes;

- limit our ability to obtain additional funds for working capital, capital
expenditures, acquisitions and general corporate purposes;

- increase our vulnerability to interest rate increases to the extent our
variable-rate debt is not effectively hedged;

- restrict our ability to dispose of assets or to pay cash dividends on, or
repurchase, preferred or common stock;

- increase our vulnerability to adverse economic and industry conditions
and competition;

- limit our flexibility in planning for, or reacting to, changes in our
business and our industry; and

- place us at a competitive disadvantage compared to our competitors that
have less debt.

Any of the foregoing consequences could have a material adverse effect on us.

Our ability to make principal and interest payments, or to refinance our
indebtedness, depends on our future performance. Our future performance is, to a
certain extent, subject to economic, financial, competitive and other factors
beyond our control. We cannot guarantee that our business will generate
sufficient cash flow from operations in the future to service our debt and fund
necessary capital expenditures. If we are unable to generate sufficient cash
flow, we may be required to refinance all or a portion of our existing debt,
sell assets or obtain additional financing. We cannot guarantee that any
refinancing or sale of assets or additional financing would be possible on terms
reasonably favorable to us, or at all. Some of our competitors currently operate
on a less leveraged basis and may have greater operating and financial
flexibility.

WE MAY INCUR MORE DEBT, WHICH COULD EXACERBATE THE RISKS DESCRIBED ABOVE.

We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. Our credit facilities and the indenture for our
senior subordinated notes will limit us from incurring additional indebtedness
but will not fully prohibit us or our subsidiaries from doing so. If new debt is
added to our and our subsidiaries' current debt levels, the related risks that
we and they now face could intensify. See "Capitalization" and "Selected
Historical Financial Data."

THE OPERATING AND FINANCIAL RESTRICTIONS IMPOSED BY OUR DEBT AGREEMENTS,
INCLUDING OUR CREDIT FACILITIES AND THE INDENTURE RELATING TO OUR SENIOR
SUBORDINATED NOTES, LIMIT OUR ABILITY TO FINANCE OPERATIONS AND CAPITAL NEEDS OR
ENGAGE IN OTHER BUSINESS ACTIVITIES.

Our debt agreements contain covenants that restrict our ability to:

- incur additional indebtedness (including guarantees);

- incur liens;

- dispose of assets;

- make some acquisitions;

- pay dividends and make other restricted payments;

- issue preferred stock containing redemption provisions requiring a
payment before the maturity of our senior subordinated notes or, in the
case of our subsidiaries, issue capital stock;

- enter into sale and leaseback transactions;

- make loans and investments;

- enter into new lines of business;

- enter into some leases; and

- engage in some transactions with affiliates.

In addition, our credit facilities require us to comply with specified
financial covenants including minimum interest coverage ratios, maximum leverage
ratios and minimum fixed charge coverage ratios.

Our ability to meet these covenants and requirements in the future may be
affected by events beyond our control, including prevailing economic, financial
and industry conditions. Our breach or failure to comply with any of these
covenants could result in a default under our credit facilities or the indenture
governing our senior subordinated notes. If we default under our credit
facilities, the lenders could cease to make further extensions of credit, cause
all of our outstanding debt obligations under these credit facilities to become
due and payable, require us to apply all of our available cash to repay the
indebtedness under these credit facilities, prevent us from making debt service
payments on any other indebtedness we owe and/or proceed against the collateral
granted to them to secure repayment of those amounts. If a default under the
indenture occurs, the holders of our senior subordinated notes could elect to
declare those notes immediately due and payable. If the indebtedness under our
credit facilities or our senior subordinated notes is accelerated, we may not
have sufficient assets to repay amounts due under these existing debt agreements
or on other debt securities then outstanding.

WE MAY NOT BE ABLE TO RESPOND EFFECTIVELY TO TECHNOLOGICAL CHANGES IN OUR
INDUSTRY OR IN OUR CUSTOMERS' PRODUCTS.

Our future business success will depend in part upon our ability to
maintain and enhance our technological capabilities, develop and market products
and applications that meet changing customer needs and successfully anticipate
or respond to technological changes on a cost-effective and timely basis. Our
inability to anticipate, respond to or utilize changing technologies could have
an adverse effect on our business, financial condition or results of operations.
Moreover, technological and other changes in our customers' products or
processes may render some of our specialty chemicals unnecessary, which would
reduce the demand for those chemicals.

WE OPERATE IN A VERY COMPETITIVE INDUSTRY.

We have many competitors. Some of our principal competitors have greater
financial and other resources, less leverage and greater brand recognition than
we have. Accordingly, these competitors may be better able to withstand changes
in conditions within the industries in which we operate and may have
significantly greater operating and financial flexibility than we do. As a
result of the competitive environment in the markets in which we operate, we
currently face and will continue to face pressure on the sales prices of our
products from competitors and large customers. With these pricing pressures, we
may experience future reductions in the profit margins on our sales, or may be
unable to pass on future raw material price or labor cost increases to our
customers, which also would reduce profit margins. In addition, we cannot
guarantee that we will not encounter increased competition in the future, which
could have a material adverse effect on our business. Since we conduct our
business mainly on a purchase order basis, with few long-term commitments from
our customers, this competitive environment could give rise to a sudden loss of
business.

IF WE LOSE KEY PERSONNEL, OUR BUSINESS MAY BE ADVERSELY AFFECTED.

Our success depends to a large degree on a number of key employees, and the
loss of their services could have a material adverse effect on our business. In
particular, the loss of James P. Mooney, our Chairman of the Board and Chief
Executive Officer, could have a material adverse effect on our business. We have
entered into employment agreements with some of our key employees, including Mr.
Mooney. We cannot guarantee, however, that any of these employment agreements
will prevent us from losing the services of any of our key employees, including
Mr. Mooney.

WE ARE SUBJECT TO STRINGENT ENVIRONMENTAL REGULATION AND MAY INCUR UNANTICIPATED
COSTS OR LIABILITIES ARISING OUT OF ENVIRONMENTAL MATTERS.

We are subject to stringent laws and regulations relating to the storage,
handling, disposal, emission and discharge of materials into the environment,
and we have expended, and may be required to expend in the future, substantial
funds for compliance with such laws and regulations. In addition, we may from
time to time be subjected to claims for personal injury, property damages or
natural resource damages made by third parties or regulators. Our annual
environmental compliance costs approximated $5.0 million in 2000. In
12

addition, we made capital expenditures of approximately $2.1 million in 2000 in
connection with environmental compliance. We expect that these expenditures will
increase as a result of our acquisition of the dmc(2) operations.

Some risk of environmental liability is inherent in the nature of our
business and in the ownership and operation of real property, and we can provide
no assurance that additional environmental costs, which may be material, will
not arise in the future. In addition, we have not previously operated the 20
plants acquired as part of the dmc(2) operations and have limited information
regarding their environmental condition and compliance. Environmental
considerations may affect customer acceptance of some of our products.

WE ARE EXPOSED TO FLUCTUATIONS IN FOREIGN EXCHANGE RATES, WHICH MAY ADVERSELY
AFFECT OUR OPERATING RESULTS AND NET INCOME.

We have manufacturing and other facilities in the Americas, Europe,
Asia-Pacific and Africa, and we market our products worldwide. Although most of
our raw material purchases and product sales are transacted in U.S. dollars,
liabilities for non-U.S. operating expenses and income taxes are denominated in
local currencies. In addition, fluctuations in exchange rates may affect product
demand and may adversely affect the profitability in U.S. dollars of products
and services provided by us in foreign markets where payment for our products
and services is made in the local currency. Accordingly, fluctuations in
currency rates may affect our operating results and net income. In order to
partially hedge our balance sheet exposure to fluctuating rates, we enter into
forward contracts to purchase euros. Such transactions cannot, however,
eliminate all of the risks associated with currency fluctuations.

OUR SUBSTANTIAL INTERNATIONAL OPERATIONS SUBJECT US TO RISKS NOT FACED BY
DOMESTIC COMPETITORS, WHICH MAY INCLUDE UNFAVORABLE POLITICAL, REGULATORY, LABOR
AND TAX CONDITIONS IN OTHER COUNTRIES.

About 64% of our net sales in 2000 were derived from our foreign
facilities. As a result of our acquisition of the dmc(2) operations, we estimate
that our sales from our foreign facilities will increase to more than 70% of our
net sales (excluding net sales of the Metal Management segment). Accordingly,
our business is subject to risks related to the differing legal and regulatory
requirements and the social, political and economic conditions of many
jurisdictions. In addition to risks associated with fluctuations in foreign
exchange rates, risks inherent in international operations include the
following:

- agreements may be difficult to enforce and receivables difficult to
collect through a foreign country's legal system;

- foreign customers may have longer payment cycles;

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

- U.S. export licenses may be difficult to obtain;

- intellectual property rights may be more difficult to enforce in foreign
countries;

- general economic conditions in the countries in which we operate could
have an adverse effect on our earnings from operations in those
countries;

- unexpected adverse changes in foreign laws or regulatory requirements may
occur, including with respect to export duties and quotas;

- compliance with a variety of foreign laws and regulations may be
difficult; and

- overlap of different tax structures may subject us to additional taxes.

Our business in emerging markets requires us to respond to rapid changes in
market conditions in these countries. Our overall success as a global business
depends, in part, upon our ability to succeed in differing legal, regulatory,
economic, social and political conditions. We cannot assure you that we will
continue to

succeed in developing and implementing policies and strategies which will be
effective in each location where we do business. Furthermore, we cannot be sure
that any of the foregoing factors will not have a material adverse effect on our
business, financial condition or results of operations.

BECAUSE WE ARE A HOLDING COMPANY, OUR INCOME COMES ENTIRELY FROM DISTRIBUTIONS
FROM OUR SUBSIDIARIES.

We are a holding company with no significant assets other than our
investments in our subsidiaries. Accordingly, we rely entirely upon
distributions from our subsidiaries to generate the funds necessary to meet our
obligations, including the payment of principal and interest on our
indebtedness. The indenture governing our senior subordinated notes and our
credit facilities limit the ability of our subsidiaries to contractually
restrict the payment of dividends and other payments to us, although these
limitations are subject to a number of significant qualifications.

OUR CERTIFICATE OF INCORPORATION AND BYLAWS CONTAIN SOME PROVISIONS THAT MAY
PREVENT OR MAKE MORE DIFFICULT AN ATTEMPT TO ACQUIRE US.

Our certificate of incorporation and bylaws contain some provisions that
may be deemed to have anti-takeover effects. These provisions include a
classified board of directors, the elimination of the ability of stockholders to
act by written consent in lieu of a meeting and the ability of the board to
establish one or more series of preferred stock, having such number of shares,
designations, relative voting rights, dividend rates, liquidation and other
rights, preferences and limitations as the board may fix, without further
stockholder approval. In addition, in 1996 our board of directors adopted a
Stockholder Rights Agreement pursuant to which it declared a dividend
distribution of one stock purchase right for each outstanding share of common
stock. The Stockholder Rights Agreement and the other provisions discussed above
may have anti-takeover effects because they may delay, defer or prevent an
unsolicited acquisition proposal that some, or a majority, of our stockholders
might believe to be in their best interests or in which stockholders might
receive a premium for their common stock over the then market price of such
shares.

THE TRANSACTIONS

This offering follows a series of transactions in which:

- We acquired all of the operations of dmc(2) from Degussa AG for E1,200.0
million in cash, or approximately $1,072.0 million based on the exchange
rate at closing.

- We amended and restated our existing senior secured credit facilities to
partially fund the acquisition of the dmc(2) operations, reduce certain
borrowings under our existing revolving credit facility and provide for
our ongoing working capital and other financing requirements.

- We issued $550.0 million of senior subordinated bridge notes to partially
fund the acquisition of the dmc(2) operations.

- We sold the Electronic Materials and Cerdec divisions of dmc(2) to Ferro
Corporation for approximately $525.5 million in cash, the proceeds of
which were used to repay a portion of the borrowings under the credit
facilities and a portion of the bridge notes.

- We issued $400.0 million of senior subordinated notes to repay the
remaining amounts outstanding under the bridge notes and to repay a
portion of the outstanding indebtedness under our credit facilities.

We refer to these events collectively in this offering circular as the
"Transactions."

PURCHASE OF dmc(2) OPERATIONS

The following is a summary of the material terms of the purchase agreement
among Degussa AG, dmc(2) and OMG dated August 10, 2001, regarding the purchase
of the dmc(2) operations. This summary describes only some provisions of the
purchase agreement and may not describe all terms that may be important to you.
See "Where You Can Find More Information."

REPRESENTATIONS AND WARRANTIES

The purchase agreement contains customary representations and warranties
from dmc(2). However, our ability to recover damages for breach of these
representations and warranties is subject to restrictions, including the
following:

- we can assert claims only if the total amount of claims exceeds E10.0
million and, except for certain claims, any recovery is limited to a
total of 25% of the purchase price prior to any adjustment;

- we may not receive consequential damages or damages for loss of profit;

- we may not recover damages that have been addressed through an adjustment
of the purchase price or a specific reserve in the dmc(2) balance sheet;
and

- we have to assert most claims within 18 months from the closing of the
purchase.

INDEMNIFICATION

Degussa AG and dmc(2) have agreed to indemnify us for specific
environmental as well as contingent liabilities. These are described below:

Environmental Liabilities. In general, dmc(2) agreed to indemnify us
against non-compliance liabilities and cleanup obligations relating to
environmental conditions existing at the date of purchase, subject to specified
conditions and limitations. Limitations on the indemnity obligations of dmc(2)
include the following:

- we may assert environmental claims only if the total amount of claims
exceeds E10.0 million, but upon exceeding such threshold, we may claim
the entire amount;

- the aggregate exposure of dmc(2) for all claims under the purchase
agreement, including environmental claims, is capped at 25% of the
purchase price prior to any adjustment; and
15

- environmental claims are subject to a cost-sharing formula under which we
share an increasing percentage of costs over time, depending on when
notice is given; accordingly, we pay 10% of claims asserted in the first
year, 20% in the second year, 30% in the third year, 40% in the fourth
year, 50% in the fifth year, 60% in the sixth year, 75% in the seventh
year, 90% in the eighth year, and 100% of claims afterward.

The indemnity obligations of dmc(2) are also subject to various conditions
designed to exclude payment for work not required by applicable environmental
laws and to avoid double recovery. For example, our claims may be reduced to the
extent such claims have been provided for through a specific reserve in the
dmc(2) balance sheet, or to the extent we have received payments from a third
party or a tax benefit.

Contingent Liabilities. Degussa AG has agreed to indemnify us for various
claims brought by any third party for any obligation of dmc(2) or Degussa AG
created prior to the date the businesses of dmc(2) were separated from Degussa
AG and transferred to dmc(2). In addition, dmc(2) has agreed to indemnify us for
any losses arising from claims relating to the National Socialist Era and World
War II, including claims in connection with formal forced labor.

POST-CLOSING ADJUSTMENT

The purchase price will be adjusted by any difference between the amount of
net debt (debt less cash) of dmc(2) on December 31, 2000 compared to the net
debt of dmc(2) on June 30, 2001. The purchase price is subject to further
adjustment based on changes in the net working capital of dmc(2) over the same
measurement period. Any amounts we receive as a result of a downward adjustment
of the purchase price may be used to reduce our debt under our credit
facilities.

OTHER PROVISIONS

Guarantee and Non-Compete. Degussa AG has guaranteed all of the
obligations of dmc(2) under the purchase agreement. Degussa AG has further
agreed not to engage or participate in a competing business for five years from
the closing date of the purchase. A competing business does not include the
dental alloy business or any publicly held entity provided Degussa AG holds less
than 25% of the voting shares of such entity. Degussa AG can acquire a business
that includes a competing business as long as the competing business represents
not more than 30% of the aggregate value of the acquired business and Degussa AG
sells the competing business within two years. If the competing business is not
sold, we have the right to purchase the competing business from Degussa AG.
Degussa AG also agreed not to solicit our employees for a period of two years
after the closing.

Employees. We are obligated to continue the employment of employees of
dmc(2) after the closing on terms and conditions that are at least as favorable
to them as the terms and conditions in effect prior to the closing.

Maintenance of Partnership Structure and dmc(2). Prior to the closing, the
German operations of dmc(2) were separated from Degussa AG and transferred to an
entity established as a partnership under German law. We purchased all
outstanding interests of this entity at closing. We are obligated to maintain
the entity as a German partnership until December 31, 2004. Degussa AG may not
dissolve or liquidate dmc(2) prior to December 31, 2005.

Precious Metals Lease Facility. We entered into a precious metals lease
facility with Degussa AG at closing. Under this facility, Degussa AG agreed to
lease to us a maximum of DM 650.0 million in gold, silver, platinum and
palladium. We may draw on this facility, which matures on August 10, 2002, if
and to the extent we are unable to otherwise lease precious metals. Any drawings
under this facility will be secured by liens on assets and real property located
in Germany.

FINANCING

The primary sources of financing for the acquisition of the dmc(2)
operations included our existing credit facilities (which were increased from
$658.0 million to $1,310.0 million) and $550.0 million in bridge notes. In
addition to funding the purchase price, approximately $139.2 million of the
proceeds from borrowings under the credit facilities and from the bridge notes
were used to reduce outstanding amounts under our existing revolving credit
facility and to pay fees and expenses incurred in connection with the
transaction.

CREDIT FACILITIES

The amended and restated credit facilities made available to us are
outlined below:

FACILITIES AMOUNT MATURITY
---------- --------------------- -------------
(DOLLARS IN MILLIONS)

Revolver.............................................. $ 325.0 April 1, 2006
Term Loan A........................................... 135.0 April 1, 2006
Term Loan B........................................... 500.0 April 1, 2007
Asset Sale Term Loan.................................. 350.0 Repaid
--------
TOTAL....................................... $1,310.0

At our option, the loans will bear interest at either the lender's
alternate base rate or LIBOR plus an applicable margin. The initial LIBOR margin
will be 3.0%. The applicable margin for the Revolver, Term Loan A and Term Loan
B will be subject to performance-based adjustments commencing with the fiscal
quarter ended on or nearest to December 31, 2001.

A portion of the Revolver has been made available in euros. Financial
covenants governing the credit facilities include minimum fixed charge coverage,
maximum leverage, minimum interest coverage and maximum debt to capitalization.
The credit facilities provide for a first priority perfected lien on all of our
domestic personal property assets and a first priority pledge of 100% of the
common stock of our domestic subsidiaries and of 65% of the common stock of our
first-tier foreign subsidiaries. The Asset Sale Term Loan was repaid in full
with proceeds from the sale of the Electronic Materials and Cerdec divisions of
dmc(2) to Ferro.

BRIDGE NOTES

In conjunction with the acquisition of the dmc(2) operations, we issued
$550.0 million of bridge notes. The bridge notes were unsecured obligations and
ranked subordinate to the credit facilities. We used $173.0 million of the
proceeds from the sale of the dmc(2) divisions to Ferro to repay a portion of
the outstanding bridge notes, and we used proceeds from the issuance of our
senior subordinated notes to repay the remaining outstanding portion of the
bridge notes.

SALE OF BUSINESSES TO FERRO

On September 7, 2001, we sold the Electronic Materials and Cerdec divisions
of dmc(2) to Ferro Corporation for approximately $525.5 million in cash, subject
to adjustments. The following is a summary of the material terms of the heads of
agreement between OMG and Ferro, dated April 23, 2001 and the purchase agreement
between OMG and Ferro, dated as of August 31, 2001, relating to the sale and
purchase of these businesses. The following summary may not describe all of the
terms of the heads of agreement and the purchase agreement that may be important
to you.

RIGHTS AND OBLIGATIONS

We agreed in general to share with Ferro our rights and obligations under
the purchase agreement with Degussa AG to the extent applicable to the
businesses sold to Ferro. Ferro similarly agreed to comply with any restrictions
or limitations imposed by that purchase agreement as regards the businesses sold
to Ferro. At Ferro's request, we will enforce our rights or secure the benefits
under the purchase agreement with Degussa

AG with respect to the businesses sold to Ferro. Ferro agreed to reimburse us
for expenses incurred by us in doing so and to indemnify us for claims relating
to these businesses prior to the sale of such businesses to Ferro.

PURCHASE PRICE ADJUSTMENT

The purchase price for the businesses sold to Ferro will be adjusted to
reflect changes in net working capital on December 31, 2000 compared to August
31, 2001 and for net debt and cash as of August 31, 2001. In addition, the
purchase price paid by Ferro included an amount reflecting a portion of the
investment banking fees and other costs paid by us for this transaction.

OTHER PROVISIONS

No-Hire. We agreed not to hire any employees transferred with the
businesses sold to Ferro for a period of two years from the transfer date. Ferro
agreed not to hire any employees of the dmc(2) businesses retained by us for a
period of two years from the transfer date.

Non-Compete. We agreed not to develop, produce, market or sell products or
services substantially similar to the products or services sold or provided by
the dmc(2) businesses transferred to Ferro for a period of five years from the
closing date of the purchase. Ferro also agreed not to develop, produce, market
or sell products or services substantially similar to the products or services
sold or provided by the dmc(2) businesses retained by us for the same period.

Shared Services. For a period of time after the closing date, we will
share some plants and facilities with Ferro. We entered into service agreements
with Ferro for the facilities located in South Plainfield, New Jersey and Hanau,
Germany. Under these agreements, each of us has agreed to provide the other
specific services necessary for its respective operations at those facilities.

DEBT OFFERING

USE OF PROCEEDS

We estimate that the net proceeds from this offering, after deducting
applicable underwriting discounts and estimated expenses payable by us, will be
approximately $196.2 million (approximately $225.7 million if the over-allotment
option is exercised in full). We expect to use the net proceeds from this
offering to repay a portion of our outstanding indebtedness incurred under our
amended and restated credit facilities in connection with our acquisition of all
of the operations of dmc(2). The applicable interest rates and maturities of
indebtedness under our credit facilities are described under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Debt Service" in this
prospectus.

PRICE RANGE OF COMMON STOCK AND DIVIDEND HISTORY

Our common stock is listed on the New York Stock Exchange under the symbol
"OMG." The number of shareholders of record of our common stock was 1,877 as of
December 31, 2001. Information relating to the recent price and dividend history
of our common stock follows:

PRICE RANGE OF
COMMON STOCK DIVIDENDS
----------------- DECLARED PER
HIGH LOW SHARE
---- --- ------------

YEAR ENDED DECEMBER 31, 1999:
1st Quarter....................................... $36.563 $26.875 $0.10
2nd Quarter....................................... 42.500 32.500 0.10
3rd Quarter....................................... 40.063 33.750 0.10
4th Quarter....................................... 40.500 31.500 0.10
YEAR ENDED DECEMBER 31, 2000:
1st Quarter....................................... $46.250 $33.750 $0.11
2nd Quarter....................................... 50.875 41.500 0.11
3rd Quarter....................................... 48.500 40.250 0.11
4th Quarter....................................... 57.000 40.130 0.11
YEAR ENDED DECEMBER 31, 2001:
1st Quarter....................................... $55.200 $46.250 $0.13
2nd Quarter....................................... 63.980 49.400 0.13
3rd Quarter....................................... 66.700 49.000 0.13
4th Quarter....................................... 66.190 54.000 0.13

Payment of dividends is made at the discretion of our board of directors
and depends upon our financial condition, operating results, capital
requirements and other factors our board of directors deems relevant. Our
amended and restated credit facilities and the indenture governing our senior
subordinated notes contain provisions that, in some circumstances, could limit
our ability to pay dividends.

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2001
on an actual basis and as adjusted to give pro forma effect to (i) the offering
of senior subordinated notes described under the "Transactions" above, and (ii)
this offering and the application of the estimated proceeds as described under
"Use of Proceeds" above. The table should be read in conjunction with "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements and notes
included elsewhere in this prospectus. Total Stockholders' Equity does not
include common stock issuable pursuant to awards outstanding under our stock
option plans.

AS OF SEPTEMBER 30, 2001
-------------------------------------------------------
AS ADJUSTED FOR THE
OFFERING OF SENIOR AS FURTHER ADJUSTED
ACTUAL SUBORDINATED NOTES FOR THIS OFFERING
------ ------------------- -------------------
(DOLLARS IN MILLIONS)

Cash and Cash Equivalents...................... $ 36.4 $ 36.4 $ 36.4
======== ======== ========
Debt:
Revolving Credit Facility.................... $ 227.1 $ 227.1 $ 129.0
Term Loan A.................................. 135.0 127.2 107.3(1)
Term Loan B.................................. 500.0 499.1 420.9(1)
Senior Subordinated Bridge Notes............. 377.0 -- --
Senior Subordinated Notes.................... -- 400.0 400.0
Other Debt................................... 30.1 30.1 30.1
-------- -------- --------
Total Debt.............................. 1,269.2 1,283.5 1,087.3
Stockholders' Equity:
Preferred Stock........................... -- -- --
Common Stock.............................. 0.2 0.2 0.3
Capital in excess of par value............... 259.0 259.0 455.1
Retained earnings............................ 303.6 303.6 303.6
Treasury stock............................... (0.6) (0.6) (0.6)
Accumulated after comprehensive (loss)
income.................................... (4.9) (4.9) (4.9)
Unearned compensation........................ (0.3) (0.3) (0.3)
-------- -------- --------
Total Stockholders' Equity.............. 557.0 557.0 753.2
-------- -------- --------
Total Capitalization........................... $1,826.2 $1,840.5 $1,840.5
======== ======== ========

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

(1) The allocation of proceeds to Term Loan A and Term Loan B may change
depending on whether prepayment is accepted by the Term Loan B lenders.

SELECTED HISTORICAL FINANCIAL DATA

The following table sets forth our selected historical financial data for
each of the five years in the period ended December 31, 2000 and for the
nine-month periods ended September 30, 2000 and 2001. We derived our selected
historical financial data for the years ended 1998, 1999 and 2000 from our
audited consolidated financial statements for the years ended December 31, 1998,
1999 and 2000 included elsewhere in this prospectus. We derived our selected
historical financial data for the years ended 1996 and 1997 from our audited
consolidated financial statements for the years ended December 31, 1996 and
December 31, 1997 that are not included in this prospectus. We derived the
selected historical financial data for the nine-month periods ended September
30, 2000 and 2001 from our unaudited consolidated financial statements, which
include all adjustments, consisting of normal recurring accruals, that
management considers necessary for a fair presentation of the financial position
and results of operations for these periods. The results of operations for the
nine months ended September 30, 2001 are not necessarily indicative of results
that may be expected for any other interim period or for the full year ending
December 31, 2001. The selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our audited consolidated financial statements (and the related
notes) included elsewhere in this prospectus.

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------- -------------------
1996 1997 1998 1999 2000 2000 2001
------ ------ ------ -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT RATIOS) (UNAUDITED)

INCOME STATEMENT DATA:
Net sales................................... $388.0 $487.3 $521.2 $ 507.0 $ 887.7 $ 655.2 $1,285.5
Cost of products sold....................... 304.0 369.9 376.3 347.5 673.9 501.0 1,067.4
------ ------ ------ -------- -------- -------- --------
Gross profit................................ 84.0 117.4 144.9 159.5 213.8 154.2 218.1
Selling, general and administrative
expenses.................................. 32.6 46.8 58.0 60.8 75.4 52.7 94.2
------ ------ ------ -------- -------- -------- --------
Income from operations...................... 51.4 70.6 86.9 98.7 138.4 101.5 123.9
Interest expense, net....................... (7.2) (13.3) (15.4) (18.9) (37.4) (26.8) (37.9)
Other income (expense), net................. 0.2 0.7 (0.2) 0.5 (1.1) (0.6) (1.4)
------ ------ ------ -------- -------- -------- --------
Income before income taxes.................. 44.4 58.0 71.3 80.3 99.9 74.1 84.6
Income taxes................................ 14.4 19.6 22.9 24.5 28.4 21.9 24.3
------ ------ ------ -------- -------- -------- --------
Net income.................................. $ 30.0 $ 38.4 $ 48.4 $ 55.8 $ 71.5 $ 52.2 $ 60.3
====== ====== ====== ======== ======== ======== ========
Net income per common share................. $ 1.61 $ 1.84 $ 2.11 $ 2.35 $ 2.99 $ 2.19 $ 2.51
Net income per common share -- assuming
dilution.................................. $ 1.56 $ 1.78 $ 2.05 $ 2.30 $ 2.95 $ 2.15 $ 2.47
Weighted average shares outstanding (000)... 18,624 20,929 22,874 23,767 23,843 23,839 23,980
Weighted average shares outstanding (000) --
assuming dilution......................... 19,266 21,654 23,546 24,324 24,251 24,240 24,432
RATIO OF EARNINGS TO FIXED CHARGES (1)...... 6.8x 5.3x 5.0x 3.8x 2.7x 2.6x 2.8x
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 7.8 $ 13.2 $ 7.8 $ 9.4 $ 13.5 $ 15.7 $ 36.4
Working capital, net (2).................... 169.7 210.8 294.9 359.1 411.8 466.5 974.7
Property, plant and equipment, net.......... 110.6 150.2 245.3 318.8 485.4 457.4 707.2
Total assets................................ 443.5 601.1 870.7 1,012.5 1,357.5 1,307.9 2,578.1
Total debt.................................. 112.9 170.6 312.1 384.9 571.9 583.6 1,269.2
Stockholders' equity........................ 185.3 301.2 404.1 449.2 506.1 489.5 557.0
OTHER DATA:
EBITDA (3).................................. $ 67.4 $ 92.5 $112.1 $ 126.1 $ 176.6 $ 130.2 $ 166.4
Cash flow from operations................... 15.8 29.9 (1.1) 12.4 81.0 45.6 16.6
Depreciation and amortization............... 15.8 21.2 25.4 26.9 39.3 29.3 43.9
Capital expenditures........................ 28.1 34.8 91.9 70.2 55.0 33.6 63.3

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

(1) The ratio of earnings to fixed charges is computed by dividing earnings
available for fixed charges by fixed charges. Earnings available for fixed
charges consist of earnings before income taxes plus fixed charges, less
capitalized

interest. Fixed charges consist of interest, whether expensed or
capitalized, amortized capitalized expenses related to indebtedness, and the
portion of operating lease rental expense that represents the interest
factor.

(2) Working capital, net is defined as current assets excluding cash and cash
equivalents minus current liabilities excluding short-term debt and the
current portion of long-term debt.

(3) EBITDA is defined as net income before interest, taxes, depreciation and
amortization. EBITDA is not a measure of operating income, operating
performance or liquidity under GAAP. We include EBITDA data because we
understand these data are used by some investors to determine our historical
ability to service our indebtedness. Nevertheless, this measure should not
be considered in isolation or as a substitute for operating income (as
determined in accordance with GAAP) as an indicator of our operating
performance, or to cash flows from operating activities (as determined in
accordance with GAAP) as a measure of liquidity. In addition, it should be
noted that companies calculate EBITDA differently and therefore EBITDA as
presented for us may not be comparable to EBITDA reported by other
companies. See the audited consolidated financial statements and related
notes included elsewhere in this prospectus for the cash used in and
provided by operating activities.

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

The following management's discussion and analysis of financial condition
and results of operations should be read in conjunction with our pro forma
financial information and our historical financial statements and the related
notes appearing elsewhere in this prospectus.

OVERVIEW

PRIMARY FACTORS AFFECTING OUR BUSINESS

The primary factors that affect our results are:

Economic conditions in the geographic regions in which we operate. We have
operations in a variety of foreign countries. Economic conditions and growth
rates historically have varied in the geographic regions in which we operate and
may do so in the future.

Raw materials availability. The primary raw materials we use in
manufacturing products are cobalt, nickel, copper, gold, silver, platinum and
palladium. Copper, gold and silver are worldwide commodities and are generally
available. We source our other raw materials from various countries in which
localized events or conditions could affect the supply or price of metals,
although historically we have not experienced shortages in these raw materials.
Our refining and metal separation capabilities that allow us to transform
lower-grade feedstocks into high-quality finished products are an important
aspect of our business.

Metal price volatility. The cost of our raw materials fluctuates due to
actual or perceived changes in supply and demand. Generally, we are able to pass
through to our customers increases or decreases in raw material prices by
increasing or decreasing, respectively, the prices of our products or by
invoicing the customer directly for the cost of the raw material.

Effects of currency fluctuations. Our worldwide results of operations are
subject to both currency transaction and translation risk. We incur currency
transaction risk whenever we enter into either a purchase or sale transaction
using a currency other than the local currency of the entity. We incur currency
translation risk because we measure and record the financial condition and
results of operations for many of our subsidiaries in local currencies before
translating these results into U.S. dollars and including them in our historical
consolidated financial statements. Exchange rates between these currencies and
the U.S. dollar in recent years have fluctuated significantly and may do so in
the future. Although raw material purchases and product sales are predominantly
based on U.S. dollars or U.S. dollar quoted prices, we are exposed to
fluctuations in foreign currency exchange rates. Accordingly, fluctuations in
currency rates will affect our operating results and net income. Forward
contracts are utilized to partially hedge our exposures to fluctuating

foreign exchange rates. Such transactions cannot, however, eliminate all of the
risks associated with currency fluctuations.

New product development. The continuing development of new products is an
integral focus of our business. New products developed in the last five years
accounted for more than one-fifth of our pro forma 2000 net sales (excluding net
sales of our Metal Management segment). We develop new products through
continued responsiveness to customer needs and through joint product development
programs.

Acquisitions. We have completed thirteen acquisitions since our initial
public offering in 1993, including our recent acquisition of the operations of
dmc(2). Most of these acquisitions have occurred during the last five years. See
"Business -- History."

ACQUISITION OF dmc(2) OPERATIONS AND SALE OF BUSINESSES TO FERRO

RESULTS OF OPERATIONS -- OMG HISTORICAL

Set forth below is summary consolidated information for the years ended
December 31, 1998, 1999 and 2000 and for the nine-month periods ended September
30, 2000 and 2001.

NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -----------------
1998 1999 2000 2000 2001
------ ------ ------ ------ --------
(DOLLARS IN MILLIONS)

INCOME STATEMENT DATA:
Net sales........................................ $521.2 $507.0 $887.7 $655.2 $1,285.5
Gross profit..................................... 144.9 159.5 213.8 154.2 218.1
Selling, general and administrative expenses..... 58.0 60.8 75.4 52.7 94.2
------ ------ ------ ------ --------
Income from operations........................... 86.9 98.7 138.4 101.5 123.9
Other expense -- net............................. (15.6) (18.4) (38.5) (27.4) (39.3)
Income taxes..................................... 22.9 24.5 28.4 21.9 24.3
------ ------ ------ ------ --------
Net income....................................... $ 48.4 $ 55.8 $ 71.5 $ 52.2 $ 60.3
====== ====== ====== ====== ========

NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2000

Net sales for the nine months ended September 30, 2001 were $1,285.5
million, an increase of 96.2% compared to the same period for 2000. The increase
in sales was primarily due to the acquisition of the dmc(2) operations.

Gross profit increased to $218.1 million for the nine-month period ended
September 30, 2001, a 41.4% increase over the same period in 2000. The increase
in gross profit was primarily due to the acquisition of the dmc(2) operations.
Cost of products sold increased to 83.0% of net sales for the nine months ended
September 30, 2001 from 76.5% of net sales during the same period of 2000,
primarily as a result of the acquisition of the dmc(2) operations with its high
cost of precious metals relative to revenues.

Selling, general and administrative expenses increased by $41.5 million in
the nine-month period ended September 30, 2001, from the same period in 2000,
resulting primarily from the acquisition of the dmc(2) operations, which
resulted in approximately $27.5 million of additional expenses.

As a result of the above factors, EBITDA increased $36.2 million, or 27.8%,
from $130.2 million for the nine-month period ended September 30, 2000 to $166.4
million for the same period in 2001.

Other expense - net for the nine-month period ended September 30, 2001 was
$39.3 million, an increase of 43.4%, due primarily to the additional interest
expense incurred on the additional debt to finance the acquisition of the dmc(2)
operations.

Income taxes as a percentage of income before income taxes, minority
interests and equity in income of affiliates decreased to 28.7% for the first
nine months of 2001 from 29.6% in the same period in 2000. The effective tax
rate is lower than the U.S. statutory tax rate due to higher income earned in
the relatively low statutory tax country of Finland and a tax holiday in
Malaysia.

Net income for the nine-month period ended September 30, 2001 was $60.3
million, an increase of $8.1 million from the same period in 2000, due to the
aforementioned factors.

BASE METAL CHEMISTRY SEGMENT

The following table shows market price fluctuations on the primary raw
materials used by our Base Metal Chemistry segment:

MARKET PRICE RANGES
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------
2000 2001
---------------- ---------------
(DOLLARS PER POUND)

Cobalt - 99.3% Grade................................ $11.55 to $15.25 $8.41 to $12.35
Nickel.............................................. $ 3.43 to $ 4.75 $2.20 to $ 3.35
Copper.............................................. $ 0.75 to $ 0.92 $0.65 to $ 0.85

The following table shows the physical product volumes sold by our Base
Metal Chemistry segment during each period:

NINE MONTHS
ENDED
SEPTEMBER 30,
------------- PERCENTAGE
2000 2001 CHANGE
----- ----- ----------
(POUNDS IN
MILLIONS)

Organics................................................... 58.7 56.7 -3.4%
Inorganics................................................. 79.8 73.6 -7.8%
Powders.................................................... 35.2 33.0 -6.3%
Metals..................................................... 50.8 90.0 77.2%
----- ----- ----
224.5 253.3 12.8%
===== ===== ====

Operating profit for the nine months ended September 30, 2001 was $122.3
million, an increase of 6% compared to the same period for 2000. The increase
was primarily the result of the full impact in 2001 of the results of the
Harjavalta nickel refinery, which was acquired in April 2000. Net sales were
$627.2 million, a decline of 4.3%, resulting principally from lower prices, as
cobalt, nickel and copper raw material market prices decreased compared to the
same period in 2000. Physical sales volumes were up overall by 12.8% primarily
due to the full impact of the Harjavalta nickel refinery operations.

PRECIOUS METAL CHEMISTRY SEGMENT

Our Precious Metal Chemistry segment includes the platinum group and other
precious metals manufacturing businesses that were acquired in the acquisition
of the dmc(2) operations (the results of operations exclude the businesses
divested in September 2001). This segment develops, produces and markets a
variety of products, predominantly from precious metals such as platinum,
palladium, rhodium, gold and silver. Operating profit for this segment was $12.3
million for the three months ended September 30, 2001, primarily as a result of
strong sales of auto catalysts to the European diesel market. Net sales for that
period were $243.9 million.

METAL MANAGEMENT SEGMENT

Our Metal Management segment was acquired in the acquisition of the dmc(2)
operations. This segment acts as a metal sourcing operation for our other
business segments and for our customers, primarily procuring precious metals
such as platinum, palladium, rhodium, gold and silver. The Metal Management
segment also centrally manages metal purchases and sales by providing the
necessary precious metal liquidity, financing and hedging for our other
segments. Net sales for this segment were $414.4 million for the three months
ended September 30, 2001. Operating profit for that period was $5.2 million and
was positively affected by increased volatility in the precious metal markets.

2000 COMPARED TO 1999

Net sales for 2000 were $887.7 million, an increase of 75.1% compared to
1999. The increase in sales resulted principally through an increase in physical
volume of products sold, primarily due to the acquisition of Outokumpu Nickel
Oy.

The following table shows market price fluctuations on the primary raw
materials we used in manufacturing our products:

MARKET PRICE RANGES
YEAR ENDED DECEMBER 31,
----------------------------------
1999 2000
--------------- ----------------
(DOLLARS PER POUND)

Cobalt - 99.3% Grade................................ $6.70 to $20.00 $10.68 to $15.25
Nickel.............................................. $1.81 to $ 3.81 $ 3.25 to $ 4.75
Copper.............................................. $0.61 to $ 0.85 $ 0.75 to $ 0.92

The following table shows the physical product volumes sold during each
period:

PERCENTAGE
1999 2000 CHANGE
----- ----- ----------
(POUNDS IN
MILLIONS)

Organics................................................... 70.2 76.5 9.0%
Inorganics................................................. 96.1 105.6 9.9%
Powders.................................................... 43.1 46.9 8.8%
Metals..................................................... -- 78.2 NA
----- ----- ----
Total.................................................... 209.4 307.2 46.7%
===== ===== ====

We sold 307.2 million pounds of product during 2000, an increase of 46.7%
compared to 209.4 million pounds in 1999. The increase in physical volume of
organic products sold was primarily due to generally stronger cobalt catalyst
sales in all geographic regions and increased sales of plastic additives in
Asia-Pacific. In the inorganics category, the increase in physical volume of
products sold reflects increased volume of electronics chemicals, strong demand
for nickel catalyst products in the United States and higher sales of battery
grade chemicals in Asia-Pacific. The increase in physical volume of powder
products reflects increases in sales of cobalt powder to the Asia-Pacific
battery industry, and increased sales of cobalt extra fine, cobalt briquettes
and tungsten powders to the hard metal and alloy markets, offsetting a decrease
in copper powders used in automotive applications. The increase in physical
volume of metal products sold is a result of the acquisition of Outokumpu Nickel
Oy and the resulting sales of nickel briquettes and cathodes to the European
steel industry.

Gross profit increased to $213.8 million in 2000, a 34.0% increase from
1999. The increase in gross profit was primarily the result of the acquisition
of Outokumpu Nickel Oy and the increased volumes of product sold. Cost of
products sold increased to 75.9% of net sales for the year ended 2000 from 68.5%
of net sales in 1999 as a result of the acquisition of Outokumpu Nickel Oy with
lower value-added nickel products and higher sales of lower value-added cobalt
containing products.

Selling, general and administrative expenses increased by $14.6 million in
2000 from 1999, resulting primarily from general increases in administrative
costs due to our growth and the Outokumpu Nickel Oy acquisition. Due to the
relatively low incremental selling, general and administrative expenses required
to support Outokumpu Nickel Oy and relatively high nickel prices, selling,
general and administrative expenses decreased to 8.5% of net sales in 2000
compared to 12.0% of net sales in 1999.

As a result of the above factors, EBITDA increased $50.5 million, or 40.0%,
from $126.1 million in 1999 to $176.6 million in 2000.

Other expense - net was $38.5 million in 2000 compared to $18.4 million in
1999 due primarily to increased interest expense on higher outstanding
borrowings, primarily as a result of the Outokumpu Nickel Oy acquisition, and
high interest rates.

Income taxes as a percentage of income before income taxes decreased to
28.4% in 2000 from 30.5% in 1999. The lower effective tax rate was due primarily
to a higher percentage of income earned in the relatively low statutory tax
country of Finland and a tax holiday in Malaysia.

Net income for 2000 was $71.5 million, an increase of $15.7 million from
1999, primarily due to the aforementioned factors.

1999 COMPARED TO 1998

Net sales for 1999 were $507.0 million, a decrease of 2.7% compared to
1998. The decrease in sales resulted principally from lower cobalt raw material
prices, which more than offset an increase in physical volume.

The following table shows market price fluctuations on the primary raw
materials we used in manufacturing our products:

MARKET PRICE RANGES
YEAR ENDED DECEMBER 31,
---------------------------------
1998 1999
--------------- ---------------
(DOLLARS PER POUND)

Cobalt - 99.3% Grade................................. $8.85 to $21.18 $6.70 to $20.00
Nickel............................................... $1.71 to $ 2.69 $1.81 to $ 3.81
Copper............................................... $0.65 to $ 0.85 $0.61 to $ 0.85

The following table shows the physical product volumes sold during each
period:

PERCENTAGE
1998 1999 CHANGE
----- ----- ----------
(POUNDS IN
MILLIONS)

Organics................................................... 60.5 70.2 16.0%
Inorganics................................................. 89.3 96.1 7.6%
Powders.................................................... 40.4 43.1 6.7%
Metals..................................................... -- -- NA
----- ----- ----
Total.................................................... 190.2 209.4 10.1%
===== ===== ====

We sold 209.4 million pounds of product during 1999 compared to 190.2
million pounds in 1998, an increase of 10.1%. The increase in physical volume of
organic products sold was primarily the result of an increase in sales of cobalt
organics and PVC plastic additives, both in Europe and Asia-Pacific. In the
inorganic category, the increase in physical volume of products sold reflects
higher sales of memory disk and battery grade chemicals in Asia-Pacific. The
increase in physical volume of powder products reflects continued strong growth
in sales of cobalt fine powder to the hard metal tool industry, coarse grade
powders to the rechargeable battery market and stainless steel alloy powders in
automotive applications.

Gross profit increased to $159.5 million in 1999, a 10.1% increase from
1998. The improvement in gross profit was primarily the result of increased
volumes and an improved product mix increasing contribution

from higher value-added products. Cost of products sold decreased to 68.5% of
net sales for the year ended 1999 from 72.2% of net sales in 1998 as a result of
lower cobalt pricing and improved product mix.

Selling, general and administrative expenses increased to 12.0% of net
sales in 1999 from 11.1% of net sales in 1998, resulting from general increases
in administrative costs due to our growth.

As a result of the above factors, EBITDA increased $14.0 million, or 12.5%,
from $112.1 million in 1998 to $126.1 million in 1999.

Other expense - net was $18.4 million in 1999 compared to $15.6 million in
1998 due primarily to increased interest expense on higher outstanding
borrowings, primarily as a result of provisional payments made on cobalt-copper
concentrate and capital expenditures.

Income taxes as a percentage of income before income taxes decreased to
30.5% in 1999 from 32.1% in 1998. The lower effective tax rate was due primarily
to a higher percentage of income earned in the relatively low statutory tax
country of Finland and a tax holiday in Malaysia.

Net income for 1999 was $55.8 million, an increase of $7.4 million from
1998, primarily due to the aforementioned factors.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are cash flows from operations and
borrowings under our amended and restated credit facilities. Our principal
non-operational uses of cash are for debt service and capital expenditures.

DEBT SERVICE

As of September 30, 2001, on a pro forma basis, we had approximately
$1,087.3 million of indebtedness outstanding. Our principal debt obligations
will include borrowings under our amended and restated credit facilities and the
senior subordinated notes, as described below.

Amended and Restated Credit Facilities. Our amended and restated credit
facilities provide for a $325.0 million revolving credit facility and $635.0
million in term loans. Up to $50.0 million of the Revolver will be available to
permit the issuance of letters of credit. The Revolver will terminate on April
1, 2006. The term loans will mature on April 1, 2006 with respect to the $135.0
million Term Loan A and on April 1, 2007 with respect to the $500.0 million Term
Loan B. Under some circumstances, we may be required to prepay the term loans
out of the proceeds of asset sales, debt and equity issuances and casualty
events.

We are required to pay a facility fee on the Revolver at a rate of 0.5% per
year. Borrowings under the Term Loan A, the Term Loan B and the Revolver bear
interest at a rate equal to, at our option, either (1) the base rate (which is
based on the greater of the prime rate most recently announced by the agent for
the credit facilities or the Federal Funds rate plus one-half of 1%) or (2) the
applicable London interbank rate, in each case plus an applicable margin
determined by reference to the ratio of our Consolidated Total Debt to
Consolidated EBITDA (as each is defined in the credit facilities); provided that
borrowings of swing line loans under the Revolver portion of the amended and
restated credit facilities bear interest at a rate equal to either (1) the money
market rate or (2) the base rate plus an applicable margin determined by
reference to the ratio of our Consolidated Total Debt to Consolidated EBITDA.

Our obligations under the amended and restated credit facilities are
unconditionally guaranteed, jointly and severally, by all of our material
domestic direct and indirect subsidiaries. Our obligations and the obligations
of our guaranteeing subsidiaries under the amended and restated credit
facilities are secured primarily by a first priority perfected lien on all of
our domestic personal property assets and a first priority pledge of 100% of the
common stock of our domestic subsidiaries and of 65% of the common stock of our
first-tier foreign subsidiaries. The amended and restated credit facilities
contain customary covenants and events of default.

Senior Subordinated Notes. In conjunction with the acquisition of the
dmc(2) operations, on December 12, 2001 we issued $400.0 million of senior
subordinated notes. The senior subordinated notes are unsecured obligations and
rank subordinate to borrowings under our amended and restated credit facilities.
The interest rate on the senior subordinated notes is 9 1/4% per annum and the
senior subordinated notes will mature on December 15, 2011, unless extended
pursuant to their terms. We may redeem up to 35% of the aggregate principal
amount of the senior subordinated notes on or prior to December 15, 2004 with
the net proceeds of equity offerings. If such redemption is prior to April 12,
2002, the redemption price will be 104% of the principal amount of the senior
subordinated notes redeemed. The indenture governing the senior subordinated
notes contains operating and financial restrictions limiting our ability to
finance operations and capital needs or engage in other business activities.

Metal Leases. In addition to our debt obligations, we also have entered
into several agreements under which we lease precious metals. For purposes of
our financial statements, we account for these as operating leases, and expenses
incurred under these leases are recorded as an operating expense in our income
statement. Our total metal lease expense may range from approximately $5.0
million to $10.0 million annually, depending upon the prices and lease rates of
precious metals. Degussa AG has agreed to lease us precious metals up to an
aggregate amount of DM 650.0 million until August 10, 2002 if we are otherwise
unable to lease precious metals.

Other Obligations. As of September 30, 2001, we had $30.1 million of other
borrowings and commitments of $19.9 million associated with an off-balance sheet
lease obligation.

CAPITAL EXPENDITURES

We have ongoing capital expenditure programs to improve our processing
technology and plant and equipment, and to expand capacity to accommodate future
growth. We anticipate that capital spending, exclusive of acquisitions or joint
ventures, will approximate $95.0 million in 2001 and $90.0 million in 2002.

We believe we will have sufficient cash generated by our operations and
available through our credit facilities to provide for our future working
capital and capital expenditure requirements, to pay interest on the senior
subordinated notes, and to pay, subject to the board's discretion and
limitations under our credit facilities, quarterly dividends on our common
stock. Subject to several limitations in our credit facilities and the indenture
governing the senior subordinated notes, we may incur additional borrowings
under our credit facilities to finance working capital and capital expenditures,
including the purchase of additional raw materials.

ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 42, Goodwill and Other Intangible Assets. The
statement will be effective for our calendar year 2002. Under SFAS No. 142,
amortization of goodwill to earnings will be discontinued. However, goodwill
will be reviewed for impairment at least annually and whenever events indicate
an impairment may have occurred. A benchmark assessment of potential impairment
also must be completed within six months of adopting SFAS No. 142. As of
September 30, 2001, we carried approximately $210.2 million of goodwill on our
balance sheet. Historically, goodwill has been amortized at an annual rate of
approximately $5.0 million. We are currently evaluating the effect that
implementation of SFAS No. 142 will have on our financial statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a result of our global operating and financial activities, we are
exposed to changes in commodity prices, interest rates and foreign currency
exchange rates which may adversely affect our results of operations and
financial position. In seeking to minimize the risks and/or costs associated
with such activities, we manage exposures to changes in commodity prices,
interest rates and foreign currency exchange rates through our regular operating
and financial activities.

The primary raw materials used in manufacturing our products are cobalt,
nickel, copper, platinum, palladium, gold and silver. Our supply of cobalt
historically has been sourced primarily from the DRC, Australia, Finland and
Zambia. Nickel historically has been sourced primarily from Australia and
Brazil. Platinum group metals, including platinum and palladium, historically
have been sourced from South Africa, where they are found in primary deposits,
and from Russia and Canada, where they are by-products of copper and nickel
mining. Copper, gold and silver are worldwide commodities and generally
available. Although we have never experienced a significant shortage of raw
materials, production problems and political and civil instability in certain
supplier countries may affect their supply and market price. If a substantial
interruption should occur in supply from a primary source, there is no assurance
that we would be able to obtain as much from other sources as would be necessary
to satisfy our requirements or at prices comparable to our current arrangements.

We are exposed to risks of precious metals price fluctuations with respect
to our precious metal inventory and with respect to our precious metal trading
activities. Our precious metal inventories are partially protected from precious
metal price decreases by pricing agreements with customers or, if necessary, by
hedging through derivative financial instruments, such as forward or futures
contracts. All of our precious metal trading activities are carried out pursuant
to exposure limits set by management.

We attempt to mitigate changes in prices and availability by maintaining
adequate inventories and long-term supply relationships with a variety of
producers. The cost of raw materials fluctuates due to both actual and perceived
changes in supply and demand. Generally, we are able to pass through to our
customers increases and decreases in raw material prices by increasing or
decreasing, respectively, the prices of our products. The degree of our
profitability principally depends on our ability to maintain the differential
between our product prices and product costs. Substantial, sustained reductions
in the price of raw materials also could result in our inventory being written
down to a lower market value.

We are exposed to interest rate risk primarily through our borrowing
activities. We predominantly utilize U.S. dollar denomination borrowings to fund
our working capital and investment needs. The majority of our borrowings are in
variable rate instruments. We enter into interest rate swap agreements to
convert a portion of the variable-rate instruments to fixed-rate contracts
typically over a two-year period. There is an inherent refinancing risk for
borrowings as they mature and are renewed at current market rates. The extent of
this risk is not quantifiable or predictable because of the variability of
future interest rates and business financing requirements. The following tables
present principal cash flows and related weighted-average interest rates by
expected maturity dates of our long term-debt.

EXPECTED MATURITY DATE
----------------------------------------------------------------------------------
THERE- FAIR
2001 2002 2003 2004 2005 AFTER TOTAL VALUE
------- ------- ------- ------- ------- -------- -------- ----------
(DOLLARS IN THOUSANDS)

AS OF DECEMBER 31, 2000
Long-term debt,
including current
portion
Fixed rate............ $ 115 $ 30 $ 84 $ 210 $ 208 $ 397 $ 1,044 $ 1,044
Average interest
rate................ 2.1% 4.3% 2.2% 1.5% 1.5% 1.3% -- --
Variable rate......... $20,750 $29,500 $39,500 $45,750 $13,250 $422,150 $570,900 $570,900
Average interest
rate................ 8.8% 8.8% 8.8% 8.8% 8.8% 8.8% -- --

EXPECTED MATURITY DATE
----------------------------------------------------------------------------------
THERE- FAIR
2000 2001 2002 2003 2004 AFTER TOTAL VALUE
------- ------- ------- ------- -------- ------- -------- ----------
(DOLLARS IN THOUSANDS)

AS OF DECEMBER 31, 1999
Long-term debt,
including current
portion
Fixed rate............ $ 25 $ 24 $ 20 $ 20 $ 20 $60,054 $ 60,163 $ 60,163
Average interest
rate................ 4.4% 4.3% 4.0% 4.0% 4.0% 7.1% -- --
Variable rate......... -- -- -- -- $324,750 -- $324,750 $324,750
Average interest
rate................ -- -- -- -- 7.38% -- -- --

We have manufacturing and other facilities in the Americas, Europe,
Asia-Pacific and Africa, and we market our products worldwide. Although raw
material purchases and product sales are predominantly based on U.S. dollars or
U.S. dollar quoted prices, liabilities for non-U.S. operating expenses and
income taxes are denominated in local currencies. In addition, fluctuations in
exchange rates may affect product demand and may adversely affect the
profitability in U.S. dollars of products and services provided by us in foreign
markets where payment for our products and services is made in the local
currency. Accordingly, fluctuations in currency rates may affect our operating
results and net income. The acquisition of the operations of dmc(2) increased
our exposure to fluctuations in foreign currency exchange rates. In order to
partially hedge our balance sheet exposure to fluctuating rates, we enter into
forward contracts to purchase euros. Such transactions cannot, however,
eliminate all of the risks associated with currency fluctuations.

BUSINESS

HISTORY

OMG was formed in 1991 through the merger of Mooney Chemicals, Inc.,
Kokkola Chemicals Oy and Vasset, S.A. Mooney Chemicals, Inc. (now known as OMG
Americas, Inc.), founded in 1946, was a family-owned specialty chemical company
and has been led by James P. Mooney, our current Chairman and Chief Executive
Officer, since the 1970's. Kokkola had been a wholly-owned subsidiary of
Outokumpu Oyj, producing primarily cobalt products since 1967. The strategy in
merging these businesses was to take advantage of the combined technical and
manufacturing strengths, niche market positions, high value and diverse product
ranges and low cost raw material sources to create an integrated specialty
chemical company offering high value-added chemicals and powders with advantages
in process capabilities and raw materials procurement.

We grew primarily organically until early 1997, when we purchased SCM
Metals from U.S. Industries. SCM's annual sales of $94.0 million were
predominantly focused on specialty powders. This transaction extended our
product line in copper, iron and stainless steel products.

In early 1998, we purchased Auric Fidelity and Dussek Campbell. Fidelity,
with annual sales of approximately $48.0 million, increased our exposure to the
electronics industry through its electroless nickel product line used in the
manufacturing of hard drives. The Dussek transaction provided geographic
expansion via its Canadian metal organics business. Total sales for Dussek in
1997 were approximately $12.0 million. In addition, in April 1998, we purchased
a specialized metal powder production technology from Dow Chemical.

In April 2000, we acquired Outokumpu Nickel Oy, a nickel refinery located
in Harjavalta, Finland with annual production capacity of 53,000 tons per annum,
from Outokumpu Oyj. The Outokumpu Nickel Oy acquisition was complementary to our
previous business, adding to our nickel inorganics product portfolio and
expanding our raw materials vertical integration.

In August 2001, we acquired all of the operations of dmc(2). dmc(2), a
worldwide provider of metal-based functional materials for a wide variety of
high-growth end markets, was one of the three largest producers of precious
metal containing catalysts and functional materials worldwide. As described
elsewhere in this prospectus, in September 2001, we sold the Electronic
Materials and Cerdec divisions of dmc(2) to Ferro Corporation.

In December 2001, we acquired the metal organics business from Rhodia
Holdings Limited, including two manufacturing facilities in Bethlehem,
Pennsylvania and Manchester, England. The acquisition complements our existing
Base Metal Chemistry product offering. Also in December 2001, we acquired the
mineral rights and chemical processing capabilities of Centaur Mining and
Exploration Ltd.'s Cawse operation in Western Australia. This will provide us
with approximately 8,000 tonnes per annum of nickel feedstock and approximately
800 tonnes per annum of cobalt feedstock.

OVERVIEW

customers in Asia-Pacific. We operate 36 manufacturing facilities worldwide,
including 14 in the Americas, 12 in Europe, 8 in Asia-Pacific and 2 in Africa,
and employ approximately 4,900 employees in 24 countries.

STRATEGY

- use our combined experience and technical expertise in base metal and
precious metal chemistry to develop new products and improve processing
technology;

- cross-sell products to existing customers that have both base metal and
precious metal chemistry needs; and

- enhance our metal management operation by integrating the expertise and
scale of our base metal and precious metal procurement capabilities.

COMPETITIVE STRENGTHS

2000 PRO FORMA PRODUCT SALES 2000 PRO FORMA SALES
BY METAL CONTAINED (1) BY GEOGRAPHY (1)(2)

Percent Percent
------- -------

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

(1) Excludes net sales of the Metal Management segment

(2) Sales based on customer location

- an electroless nickel-gold process used in printed circuit boards to
increase performance and improve product yields;

- stainless steel powders used in automotive metal parts to prevent
corrosion;

- cobalt catalysts used in air bags to provide safety and enhance
performance; and

- automotive catalysts used in diesel and gasoline direct-injection engines
to improve emission control.

high-quality finished products. The ability to refine and recycle these
materials enables us to source many grades of feedstocks at competitive prices
and offer recycling services to our customers, giving us a significant advantage
in the marketplace. Through our Metal Management segment, we are one of the
world's leading precious metals sourcing businesses.

PRODUCTS AND MARKETS

Our business is conducted through three segments: Base Metal Chemistry,
Precious Metal Chemistry and Metal Management.

OM GROUP
|
-------------------------------------------------------
| | |
BASE METAL PRECIOUS METAL METAL
CHEMISTRY CHEMISTRY MANAGEMENT

BASE METAL CHEMISTRY

Our Base Metal Chemistry segment develops, processes, manufactures and
markets specialty chemicals, powders and related products from various base
metals. We emphasize products that leverage our production capabilities and
bring value to our customers through superior product performance. These
products frequently are essential components in chemical and industrial
processes where they facilitate a chemical or physical reaction and/or enhance
the physical properties of end-products. Our base metal chemistry products can
be found in a variety of applications for catalysts, coatings, colorants, hard
metal tools, jet engines, lubricants, fuel and petroleum additives, magnetic
media, metal finishing agents, petrochemicals, plastics, printed circuit boards,
rechargeable batteries, stainless steel, super alloys and tires. We use more
than 15 metals as raw materials in this segment, with the most widely used
metals being cobalt, nickel and copper.

The following table sets forth our historical sales by primary metals used
in our Base Metal Chemistry segment:

HISTORICAL SALES
------------------------------------------
1996 1997 1998 1999 2000
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)

Cobalt.................................... $285.2 $282.1 $286.2 $251.5 $283.2
Nickel.................................... 59.8 64.1 82.3 87.6 403.9
Copper.................................... 5.8 91.0 91.7 91.2 95.0
Other..................................... 37.2 50.1 61.0 76.7 105.6
------ ------ ------ ------ ------
$388.0 $487.3 $521.2 $507.0 $887.7
====== ====== ====== ====== ======

Our base metal chemistry products are generally categorized as organics,
inorganics, powders and metals and are sold in various forms such as solutions,
crystals, powders, cathodes and briquettes.

Organics are produced from the reaction of metals with organic acids (e.g.,
acetic acid). Organics are primarily sold in the form of solutions and crystals.
We use a variety of metals that include barium, calcium, cobalt, iron,
manganese, potassium, rare earth, zinc and zirconium, with cobalt being the
predominant metal.

Inorganics are the products of reactions between metals and inorganic acids
(e.g., sulfuric acid). Inorganics are sold in solutions, crystals and powders.
We use primarily cobalt and nickel metals in our inorganics products. Other
metals used are lithium, copper and manganese.

Powders are produced by separating metal from ores and ore concentrates by
chemical reactions involving heat or water, using several different metal
feedstocks with particle sizes and structures tailored for customer
applications. We believe we are the world's leading producer of cobalt powder
and a leading producer of copper and stainless steel powders. Other metals used
include nickel, iron, lithium, tin, bronze and brass.

Metals are produced from several different nickel concentrate feedstocks
through nickel reduction and an electrowinning process. We are a leading
producer of nickel briquettes and cathodes that are designed to meet exact
customer analysis requirements.

The following table sets forth our historical product volumes as classified
by chemistry:

HISTORICAL PRODUCT VOLUMES
--------------------------------------------
1996 1997 1998 1999 2000
---- ----- ----- ----- -----
(POUNDS IN MILLIONS)

Organics............................ 43.1 50.3 60.5 70.2 76.5
Inorganics.......................... 50.7 61.0 89.3 96.1 105.6
Powders............................. 2.9 38.6 40.4 43.1 46.9
Metals.............................. -- -- -- -- 78.2
---- ----- ----- ----- -----
96.7 149.9 190.2 209.4 307.2
==== ===== ===== ===== =====

The following table sets forth key applications for our base metal
chemistry products:

APPLICATIONS METALS USED PRODUCT ATTRIBUTES
------------ ----------- ------------------

BUSHINGS AND BEARINGS Copper, Tin Enhances performance through porous,
self-lubricating bronze bearings for
electric motors and other industrial
applications

CERAMICS AND GLASSWARE Cobalt, Nickel Provides color for pigments, earthenware
and glass and facilitates adhesion of
porcelain to metal

COATINGS Cobalt, Manganese, Calcium, Promotes faster drying in such products
Zirconium as house paints (exterior and interior)
and industrial and marine coatings

CONSTRUCTION EQUIPMENT Cobalt, Tungsten Strengthens and adds durability to
diamond cutting and drilling equipment
used in construction and quarrying

CUTTING TOOLS Cobalt, Tungsten Strengthens and adds durability to mining
and machine cutting tools, as well as oil
and gas drilling equipment

HIGH-TECH ALLOYS Nickel, Cobalt Prevents corrosion of and strengthens
high-performance alloyed materials

HOUSEHOLD APPLIANCES Cobalt Enhances metal-glass bonding in a variety
of household appliances

APPLICATIONS METALS USED PRODUCT ATTRIBUTES
------------ ----------- ------------------

LUBRICATING OILS Copper, Lead, Zinc, Bismuth Enhances the performance of various
lubricating oils used in automobile
engines, generators and mining equipment
by reducing sludge build-up, preventing
oxidation under high pressure and
reducing friction

MAGNETIC MEDIA Cobalt Improves the recording quality of video
and audio tapes, and enhances the high
screen resolution properties in
television sets

MEMORY DISKS Nickel Enhances information storage on disks and
computers

MICROELECTRONICS Tin, Lead, Silver Reduces the solder bridging and enhances
solder joint strength for circuit boards
and brazing

PAINTS Cobalt, Aluminium, Manganese Enhances antifouling in marine paints

PETROCHEMICAL REFINING Cobalt Reduces sulfur dioxide and nitrogen
emissions

POLYESTER RESINS Cobalt, Copper, Zinc Accelerates the curing of polyester
resins found in reinforced fiberglass
boats, storage tanks, bathrooms, sports
equipment, automobile and truck
components

POLYVINYL CHLORIDE (PVC) Barium, Calcium, Zinc Mitigates the effect of heat on flexible
PVC in such products as medical tubing,
garden hoses, resilient flooring and
shower curtains

PRESSED METAL PARTS Stainless Steel, Copper, Prevents corrosion in automotive exhaust
Iron systems

PRINTING INKS Cobalt, Manganese Promotes faster drying in various
printing inks

RECHARGEABLE BATTERIES Cobalt, Nickel Improves the electrical conduction of
rechargeable batteries used in cellular
phones, video cameras, portable computers
and power tools

STAINLESS STEEL Nickel Improves rust resistance in demanding
plating applications

STEEL Nickel Improves rust resistance in auto and
truck bodies

SYNTHETIC FIBERS Cobalt Improves the efficiency of chemical
processes used to manufacture synthetic
fibers

TIRES Cobalt Promotes bonding of metal-to-rubber in
radial tires

Our Base Metal Chemistry segment serves over 1,500 customers. Sales to
AvestaPolarit, a Finnish stainless steel manufacturer, represented approximately
18% of segment net sales in 2000, with no other customer accounting for more
than 4% of segment net sales. Sales to our ten largest customers (including
AvestaPolarit) accounted for approximately 32% of 2000 segment net sales. This
segment's major customers include AvestaPolarit, BASF, Bayer, DuPont, Ferro,
General Electric, Goodyear Tire, Kennametal, Komag, Nippon, Sandvik, Seido,
Sherwin Williams and Tanaka.

PRECIOUS METAL CHEMISTRY

Our Precious Metal Chemistry segment develops, produces and markets
specialty chemicals and materials, predominantly from precious metals such as
platinum, palladium, rhodium, gold and silver. We also offer a variety of
refining and processing services to users of precious metals. Our precious metal
chemistry products are used in a variety of applications for automotive
catalysts, fuel cells and fuel processing catalysts, chemical catalysts,
electronics packaging and electroplating products, jewelry and glass
manufacturing for high-definition televisions.

Automotive catalysts are produced by coating a ceramic piece in a process
with a washcoat containing performance chemicals and precious metals. We provide
a full-service operation by recycling spent automotive catalysts. Automotive
catalysts represent the largest application for this segment, accounting for
over 54% of 2000 segment net sales.

Membrane electrode assemblies, the core components of fuel cells and fuel
processing catalysts, are produced by coating a membrane with a catalyst that
contains precious metals.

Organic and inorganic heterogenous and homogenous chemical catalysts are
produced from platinum group metals, or PGMs, by chemical or metallurgical
processes.

Electronics packaging is produced from special alloys that contain high
purity materials such as silver. These alloys generally are melted under a
protective atmosphere and then mechanically processed into various delivery
forms and customized products. Electrolytes for electroplating products are
produced by mixing precious metal preparations with alloying metal salts,
conducting salts, complexing agents and other additives.

Jewelry semi-finished materials are produced from gold, silver and platinum
by melting and by mechanical processing. Special chemical and metallurgical
processes are used in the refining stages.

Glass manufacturing components are produced from special high
heat-resistant and corrosion-resistant materials. Using a unique process, we
produce fine grain-stabilized platinum engineered materials made of platinum
group metals. These materials are well suited for manufacturing glass used in
high-tech applications such as flat-screen panels.

The following table sets forth key applications for our precious metal
chemistry products:

APPLICATION METALS USED PRODUCT ATTRIBUTES
----------- ----------- ------------------

AUTOMOTIVE CATALYSTS Platinum, Palladium, Rhodium Improves emission control for gasoline
and diesel passenger cars, heavy duty
trucks and motorcycles
FUEL CELLS Platinum, Palladium, Increases efficiency of fuel processing
Rhodium, Ruthenium systems for stationary, automotive and
portable applications
ELECTRONICS PACKAGING Silver Provides high-purity packaging materials
for micro and power electronics
GLASS Platinum Enhances the resistance and recyclability
of glass and the integration of
electronic circuits on glass
JEWELRY Gold, Silver, Platinum, Provides semi-finished precious metals
Palladium for jewelry and for various industrial
applications (e.g., sputtering targets
for CD-Roms and DVDs)
ELECTROPLATING Gold, Silver, Platinum, Provides electrolytes and precious metal
Palladium, Rhodium, salts for technical and decorative
Ruthenium applications in various industries (e.g.,
printed circuit boards and connectors)

Our Precious Metal Chemistry segment serves over 200 customers. This
segment's major customers include BMW, DaimlerChrysler, Fiat, General Motors,
Kyocera, Mitsubishi, Montblanc, Motorola, Opel/Saab (affiliate of General
Motors) and Volkswagen. The four largest customers of this segment are BMW,
DaimlerChrysler, General Motors and Volkswagen, and the loss of this group of
customers would have a material adverse effect on this segment.

METAL MANAGEMENT

Our Metal Management segment acts as a metal sourcing operation for our
other business segments and for our customers, primarily procuring precious
metals. This segment also provides a centralized operation to manage price risk
associated with metal raw material purchases and sales. Its activities include
the following:

- provision of the necessary precious metal liquidity and financing for our
other segments;

- hedging and risk-pooling for the purchase and sale of precious metals for
our other segments;

- purchasing and selling of precious metals;

- proprietary precious metals trading on a limited scale; and

- precious metal management consulting services.

Our exposure from our proprietary trading activities is reduced by
limitations on both metal quantities and the value of open positions. We also
require our traders to close positions if mark-to-market valuation reaches
specified loss realization limits. Adherence to limits is strictly supervised by
our controlling department.

In addition to purchasing metals, this segment leases precious metals,
primarily gold and silver. The metals primarily are leased from a variety of
financial institutions that have access to large physical inventories of gold
and silver. The metal leases usually allow for return of the metal at the end of
the lease agreement. However, leases are customarily extended at the end of a
lease term or metal is re-leased under a new agreement. We also lease precious
metals to selected customers to support our product business. Our total metal
lease expense may range from approximately $5.0 million to $10.0 million
annually, depending upon the prices and lease rates of precious metals.

In order to support the ownership transition to us, Degussa AG has agreed
to provide us with a lease backstop facility until August 10, 2002. Under the
terms of the facility, if we are not able to otherwise lease precious metals,
Degussa AG will lease precious metals to us up to an aggregate amount of DM
650.0 million.

SALES AND MARKETING

We believe that one of our key strengths is our sales and marketing team.
Our sales force of more than 250 professionals consists of separate teams
dedicated to the Base Metal Chemistry and the Precious Metal Chemistry segments.
Our salespeople are highly knowledgeable about our customers' manufacturing
processes and end-uses, which enables them to add significant value for our
customers. Our salespeople focus primarily on end-users and there is a strong
cooperative interaction among salespeople, technical staff and customers.

We sell and support our products in dozens of countries throughout the
world. Our sales network is primarily segment focused, with global direction
provided for each segment and regional coverage provided as appropriate. For the
year ended December 31, 2000, on a pro forma basis, and excluding net sales of
our Metal Management segment, we derived approximately 64% of our net sales from
customers in Europe, 25% from customers in the Americas and 11% from customers
in Asia-Pacific.

COMPETITION

We encounter a variety of competitors in each of our product lines, but no
single company competes with us across all of our existing product lines. The
value-added, metal-based specialty chemicals industry is highly fragmented and
its participants offer a broad array of product lines and categories,
representing many
39

different products designed to meet specific customer requirements. We compete
in all product lines primarily on the basis of product quality, supply
reliability, price, service and technical support capabilities. Individual
products compete on a global, regional and local level due to the nature of the
businesses and products, as well as the end-use applications and customers
served. The following chart sets forth our primary competitors within each
segment:

SEGMENT PRIMARY COMPETITORS
------- -------------------

Base Metal Chemistry American ChemMet, Bayer, Degussa, Eurotungstene-
Poudres, Hoeganaas, MacDermid, Rohm & Haas,
Rhodia, Sheperd, Sumitomo, Umicore
Precious Metal Chemistry Delphi, Engelhard, Johnson Matthey, Tanaka
Precious Metals, W.C. Heraeus
Metal Management Engelhard, Johnson Matthey, W.C. Heraeus,
various bullion banks

RAW MATERIALS

The primary raw materials used in manufacturing our products are cobalt,
nickel, copper, platinum, palladium, gold and silver, which are either
purchased, leased or provided by our customers on consignment for processing.

The cost of metals we use as raw materials fluctuates due to actual or
perceived changes in supply and demand and changes in availability from
suppliers. We generally are able to pass through fluctuations in raw material
costs to our customers. Our supply of cobalt historically has been sourced
primarily from the DRC, Australia, Finland and Zambia. Nickel historically has
been sourced primarily from Australia and Brazil. Platinum group metals
historically have been sourced from South Africa and, to a lesser extent, from
Russia and Canada. We source a significant portion of our PGM feedstock from one
of the world's largest global suppliers of platinum group metals, primarily
under contract, and obtain the remainder through a variety of channels. Although
we have never experienced a significant shortage of these raw materials,
production problems or political or civil instability in specific supplier
countries may in the future affect their supply and market price. We attempt to
mitigate changes in prices and availability by entering into long-term supply
contracts with a variety of producers. We do not anticipate any substantial
interruption in our cobalt, nickel or PGM supply that would have a material
adverse effect on our operations. Copper, gold and silver are worldwide
commodities and are generally available.

The following graphs set forth the average quarterly published market
prices of cobalt, nickel and copper, and platinum, palladium, gold and silver,
respectively, from January 1, 1998 to September 30, 2001:

BASE METAL PRICES

DATE COBALT COPPER NICKEL
---- ------ ------ ------

1Q98 19.32 0.77 2.48
2Q98 20.75 0.78 2.27
3Q98 18.58 0.75 1.90
4Q98 13.10 0.70 1.79
1Q99 13.51 0.64 2.09
2Q99 15.50 0.67 2.35
3Q99 17.79 0.77 2.87
4Q99 14.11 0.80 3.52
1Q00 13.52 0.82 4.28
2Q00 14.27 0.81 4.27
3Q00 13.13 0.87 3.75
4Q00 12.01 0.86 3.38
1Q01 11.27 0.82 2.98
2Q01 10.45 0.75 3.03
3Q01 9.26 0.67 2.50

PRECIOUS METAL PRICES

DATE GOLD PLATINUM PALLADIUM SILVER
---- ------ -------- --------- ------

1Q98 294.21 386.91 241.98 6.31
2Q98 299.67 385.05 319.31 5.71
3Q98 288.82 369.33 292.65 5.22
4Q98 294.06 346.42 283.76 4.95
1Q99 286.86 363.43 342.47 5.28
2Q99 273.10 356.68 342.20 5.12
3Q99 259.22 357.04 344.70 5.23
4Q99 296.25 431.98 403.58 5.24
1Q00 290.42 479.68 589.16 5.16
2Q00 280.31 529.77 599.11 5.01
3Q00 276.65 576.88 731.10 4.91
4Q00 269.14 593.41 806.01 4.72
1Q01 263.65 602.61 930.38 4.54
2Q01 268.00 594.74 654.00 4.39
3Q01 274.10 480.96 475.84 4.27

RESEARCH AND DEVELOPMENT

Our research and new product development program is an integral part of our
business. Research and development focuses on adapting proprietary technologies
to develop new products and working with
40

customers to meet their specific requirements, including joint development
arrangements with customers that involve innovative products. New products
include new chemical formulations, metal-containing compounds, concentrations of
various components, product forms and packaging methods. Research and
development expenses were approximately $13.3 million for 2000, $11.3 million
for 1999 and $10.4 million for 1998. Expenses for research and development are
expected to increase due to the acquisition of the dmc(2) operations.

Our research staff of approximately 360 full-time personnel conducts
research and development at our laboratories located in Cleveland, Ohio;
Westlake, Ohio; Research Triangle Park, North Carolina; Newark, New Jersey;
Auburn Hills, Michigan; Kokkola, Finland; Hanau, Germany; Schwabisch-Gmund,
Germany; and Himeji, Japan. Our Kokkola facility also maintains a research
agreement with Outokumpu Research Oy.

PATENTS AND TRADEMARKS

We hold approximately 870 patents and have pending approximately 780 patent
applications, including approximately 720 patents and 650 patent applications
from the former dmc(2) operations, related to the manufacturing, processing and
use of metallo-organic and metal-based compounds. In addition, we have the right
to use, and in certain instances to license and sell, technology covered by
approximately 40 patents, including 21 patents from the former dmc(2)
operations, in the areas of hydrometallurgical processes, solvent extraction,
agitators and metal powders. We do not consider any single patent or group of
patents to be material to our business as a whole.

EMPLOYEES

We have approximately 4,900 full-time employees with 1,500 located in the
Americas, 2,600 in Europe, 400 in Africa and 400 in Asia-Pacific. We believe
relations with our employees are good. Approximately 1,375 of our employees are
nonunionized and are located at our production facilities in Newark, New Jersey;
Research Triangle Park, North Carolina; Franklin, Pennsylvania; St. George,
Utah; South Plainfield, New Jersey; Newark, Delaware; Bethlehem, Pennsylvania;
Burlington, Canada; Lubumbashi, the DRC; Kuching, Malaysia; Amsterdam,
Netherlands; Vienna, Austria; Vicenza, Italy; Himeji, Japan; Seoul and Onsan,
Korea; Bangkok, Thailand; and Kalgoorlie, Australia.

Europe. Employees at our facilities in Harjavalta and Kokkola, Finland are
members of several national workers' unions under various union agreements.
Generally, these union agreements have two-year terms. Employees at our
Karlskoga, Sweden facility are members of industrial employees' and workers'
unions with three-year terms, expiring in February 2003. Employees at our
facilities in Hanau, Rheinfelden, Pforzheim and Schwabisch-Gmund, Germany, are
members of several national workers' unions. At these facilities, general
working conditions are set forth in long-term agreements, whereas wage
agreements usually are negotiated annually between the unions and the employers'
associations. Employees at our facilities in Manchester, England are members of
various trade unions under a recognition agreement. This recognition agreement
has an indefinite term.

Americas. Employees at our Johnstown, Pennsylvania facility are members of
the United Steelworkers of America Union, and the current Johnstown union
agreement has a term of five years, expiring in June 2003. Employees at the
Belleville, Canada facility are members of the Communications, Energy and
Paperworkers Union of Canada and the current Belleville union agreement has a
term of five years expiring in May 2003. The Calvert City, Kentucky, facility is
operated under a service contract with Degussa AG, which employs two-thirds of
the site's employees. The Calvert City contract with the Paper, Allied
Industrial, Chemical, Energy Workers' International Union was renegotiated in
January 2001. This union has been notified that as a consequence of the change
in ownership resulting from our acquisition of the dmc(2) operations, we will
separate our workforce and these employees will become employees of one of our
subsidiaries. We anticipate having discussions with this union concerning the
workforce separation before the end of 2001 and we do not expect any material
adverse consequences as a result of these discussions. Employees of our Port
Elizabeth, South Africa facility are members of the Chemical Energy Paper and
Printing Allied Workers' Union and the applicable union agreement has no defined
term. Employees in our facilities in Guarulhos, Americana and Manaus, Brazil are
members of the Metalworkers' Union or of the

Chemical Workers' Union. The terms of these agreements are valid for one year
and expire in October 2002 in Guarulhos and Americana, and in August 2002 in
Manaus. Employees at our facility in Buenos Aires, Argentina are members of the
Union Obrera Metalurgica. The terms of the Buenos Aires agreement do not provide
for an expiration date and the agreement may be terminated by us at any time.

PROPERTIES

We believe that our plants and facilities, which are of varying ages and of
different construction types, have been satisfactorily maintained, are in good
condition, are suitable for our operations and generally provide sufficient
capacity to meet our production requirements. The land on which the Kokkola
plant is located is leased with a remaining term of 90 years. The land on which
the Harjavalta, Finland plant is located is leased with a remaining term of 49
years. The land on which the St. George, Utah plant is located is leased with a
remaining term, including options, of 44 years. Portions of the land on which
the Hanau, Germany plant is located are leased with a remaining term, including
an option, of 41 years. Otherwise, we own the real properties comprising our
manufacturing facilities. The transfer of ownership and some hereditary building
rights have not yet been completed with respect to some facilities located in
Germany that were acquired as part of the dmc(2) operations.

Our Kokkola, Finland production facility (KCO) is situated on property
owned by Outokumpu Zinc Oy. KCO and Outokumpu Zinc Oy share certain physical
facilities, services and utilities under agreements with varying expiration
dates. Utilities and raw material purchase assistance contracts provide that KCO
jointly purchase with, or pay a fee to, affiliates of Outokumpu Oyj for
assistance in negotiating contracts and securing bulk quantity discounts. Our
Harjavalta, Finland production facility is situated on land owned by Outokumpu
Harjavalta Metals Oy. The Harjavalta, Finland facility also shares certain
physical facilities and has contracts in place for waste disposal, tolling,
utilities, laboratory services and raw material supply with varying expiration
dates.

Information regarding our primary offices, research and product development
and manufacturing facilities is set forth below:

FACILITY APPROXIMATE LEASED/
LOCATION SEGMENT FUNCTION* SQUARE FOOTAGE OWNED
-------- ------- --------- -------------- -------

AFRICA:
Lubumbashi, the DRC........... Base Metal M 116,000 joint venture (55%)
Port Elizabeth, South Precious Metal M joint venture (55%)
Africa...................... 181,800

AMERICAS:
Newark, NJ.................... Base Metal M, A, R 32,000 owned
Edison, NJ.................... Base Metal A, W 47,000 leased
Research Triangle Park, NC.... Base Metal M, A, R 148,500 owned
Cleveland, OH................. Base Metal A, R, W 51,400 leased
Westlake, OH.................. Base Metal A, R 35,200 owned
Belleville, Ontario........... Base Metal M 38,000 owned
Bethlehem, PA................. Base Metal M 14,085 owned
Franklin, PA.................. Base Metal M 331,500 owned
Johnstown, PA................. Base Metal M 168,000 owned
St. George, UT................ Base Metal M 193,000 owned
Burlington, Canada............ Precious Metal M 1,550,000 owned
South Plainfield, NJ.......... Precious Metal M, A 71,400 owned/leased
Newark, DE.................... Precious Metal M, A 49,500 leased
Auburn Hills, MI.............. Precious Metal R, A 138,400 owned
Calvert City, KY.............. Precious Metal M 30,900 joint venture (50%)
Manaus, Brazil................ Precious Metal M, A, W 132,500 owned

FACILITY APPROXIMATE LEASED/
LOCATION SEGMENT FUNCTION* SQUARE FOOTAGE OWNED
-------- ------- --------- -------------- -------

Americana, Brazil............. Precious Metal M 290,600 owned
Sao Paulo, Brazil............. Precious Metal M, A 215,400 owned/leased

ASIA-PACIFIC:
Kalgoorlie, Australia......... Base Metal M 294,400 owned
Tokyo, Japan.................. Base Metal A 2,300 leased
Kuching, Malaysia............. Base Metal M, A 25,000 owned
Taipei, Taiwan................ Base Metal A 4,000 leased
Bangkok, Thailand............. Base Metal M, A 107,400 owned
Bangkok, Thailand............. Precious Metal M, A 18,200 leased
Singapore..................... Base Metal M 2,100 joint venture (70%)
Singapore..................... Precious Metal M, A 4,200 leased
Himeji, Japan................. Precious Metal M, A, R 48,200 joint venture (50%)
Onsan, Korea.................. Precious Metal M 89,500 joint venture (50%)

EUROPE:
Manchester, England........... Base Metal M 73,300 owned
Espoo, Finland................ Base Metal A 3,000 leased
Harjavalta, Finland........... Base Metal M, A 280,900 owned
Kokkola, Finland.............. Base Metal M, A, R 470,000 owned
Ezanville, France............. Base Metal M, A 50,000 owned
Dusseldorf, Germany........... Base Metal A 4,800 leased
Hanau, Germany................ Precious Metal M, A, R 1,643,400 owned/leased
Pforzheim, Germany............ Precious Metal M, A, W 196,300 owned/leased
Rheinfelden, Germany.......... Precious Metal M 131,200 owned
Schwabisch-Gmund, Germany..... Precious Metal M, A, R 276,200 owned
Karlskoga, Sweden............. Precious Metal M 123,700 leased
Amsterdam, Netherlands........ Precious Metal M, A 38,900 owned
Vienna, Austria............... Precious Metal M, A, W 107,900 owned
Vicenza, Italy................ Precious Metal M 31,900 owned

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

* M - Manufacturing; A - Administrative; R - Research and Development;
W - Warehouse

ENVIRONMENTAL MATTERS

We are subject to a wide variety of environmental laws and regulations in
the United States and in foreign countries as a result of our operations and use
of certain substances that are, or have been, used, produced or discharged by
our plants. In addition, soil and/or groundwater contamination presently exists
and may in the future be discovered at levels that require remediation under
environmental laws at properties now or previously owned, operated or used by
us.

Environmental compliance costs were approximately $5.0 million in 2000.
Ongoing expenses include costs relating to waste water analysis and disposal,
hazardous and nonhazardous solid waste analysis and disposal, sea water control,
air emissions control, soil and groundwater clean-up and monitoring and related
staffing. We anticipate that we will continue to incur costs and make
expenditures at increasing levels for the foreseeable future as environmental
laws and regulations are becoming increasingly stringent and as we include the
expenditures related to the acquired operations of dmc(2).

We also incurred capital expenditures of approximately $2.1 million in 2000
in connection with environmental compliance. We anticipate that capital
expenditure levels for these purposes will increase to approximately $3.1
million in 2001, as we continue to modify some of our processes that may have an
environmental impact. We also anticipate that capital expenditures for these
purposes will increase due to the acquisition of the dmc(2) operations.

In preparation for the sale of the dmc(2) businesses to us, Degussa AG
engaged independent environmental consultants to conduct a "desktop" survey of
potential environmental liabilities. According to the results of the survey, the
high end of the estimated range of costs for the dmc(2) businesses retained by
us subsequent to the sale to Ferro is approximately $7.5 million. dmc(2) has
agreed to indemnify us against environmental liabilities relating to conditions
existing at the date of purchase, subject to a cap of 25% of the purchase price,
if such damages exceed E10.0 million for all of the former dmc(2) sites
together, including those sites that were sold to Ferro as part of the sale of
the dmc(2) divisions to Ferro (and then for the entire amount of damages). The
environmental liabilities are subject to a cost-sharing formula under which we
share an increasing percentage of costs over time, depending on when notice is
given. Accordingly, we pay 10% of claims asserted in the first year, 20% in the
second year, 30% in the third year, 40% in the fourth year, 50% in the fifth
year, 60% in the sixth year, 75% in the seventh year, 90% in the eighth year,
and 100% of all claims afterward. All of dmc(2)'s indemnification obligations
are guaranteed by Degussa AG.

Due to the ongoing development and understanding of facts and remedial
options and the possibility of unanticipated regulatory developments, the amount
and timing of future environmental expenditures could vary significantly from
those currently anticipated. Although it is difficult to quantify the potential
impact of compliance with or liability under environmental protection laws,
based on presently available information, we believe that our ultimate aggregate
cost of environmental remediation should not result in a material adverse effect
upon our financial condition or results of operations.

LEGAL PROCEEDINGS

We are subject to various legal and administrative proceedings incidental
to our business. We believe that the disposition of all pending suits and
claims, as relates to our business other than the dmc(2) operations, should not
in the aggregate have a material adverse effect on our business or financial
position. We did not assume any material liabilities relating to any pending
suits or claims adverse to dmc(2) as part of the acquisition of the dmc(2)
operations. dmc(2) has agreed to indemnify us for breaches of representations
and warranties made by dmc(2) for an amount up to 25% of the purchase price,
subject to a E10.0 million deductible. dmc(2) has also agreed to indemnify us
against World War II and National Socialist Era claims. All of the
indemnification obligations of dmc(2) are guaranteed by Degussa AG.

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth the names, ages and positions of our
directors and executive officers.

NAME AGE POSITION
---- --- --------

James P. Mooney.............................. 53 Chairman of the Board and Chief Executive
Officer
Edward W. Kissel............................. 59 President, Chief Operating Officer and Director
James M. Materna............................. 56 Chief Financial Officer
Lee R. Brodeur............................... 74 Director
Frank E. Butler.............................. 66 Director
Thomas A. Miklich............................ 54 Director
John E. Mooney............................... 51 Director
Markku Toivanen.............................. 60 Director

The authorized number of directors is presently fixed at seven, divided
into three classes with each designated to serve three-year terms. Two classes
have two members and one class has three members. The term of the Class I
directors expires at the annual stockholders' meeting for election of directors
in 2003, the term of the Class II directors expires at the annual stockholders'
meeting for election of directors in 2004, and the term of the Class III
directors expires at the annual stockholders' meeting for the election of
directors in 2002. Officers are chosen by and serve at the discretion of the
board of directors. A summary of the background and experience of each officer
and director is set forth below.

JAMES P. MOONEY is Chairman of the Board and has been a director and Chief
Executive Officer of OMG since 1991. From 1991 to 1994, Mr. Mooney was President
of OMG. From 1979 to 1991, Mr. Mooney was President and Chief Executive Officer
of Mooney Chemicals, Inc. Mr. Mooney is a member of the Supervisory Board of
Directors of Norddeutsche Affinerie AG and a member of the Board of Trustees of
The Cleveland Clinic Foundation. Mr. Mooney received a B.A. degree in history
from Quincy University. Mr. Mooney is John E. Mooney's brother. Mr. Mooney's
term expires in 2002.

EDWARD W. KISSEL was appointed as a director of OMG in 1999 to fill a
vacancy. Mr. Kissel has been President and Chief Operating Officer of OMG since
June, 1999. Since 1993, he has been Chief Executive Officer of Kissel Group,
Ltd., a holding company with interests in Kissel Group, a consulting business
specializing in strategic business issues and RotoCast Technologies, Inc., a
specialty cast aluminum mold manufacturer. Previously, he was President of the
Passenger and Light Truck Division of Continental-General Tire, Inc. From 1987
to 1990, he was Vice President of manufacturing and engineering for Engelhard
Corporation and previously spent 24 years with the Goodyear Tire & Rubber Co.
Mr. Kissel is a member of the Board of Directors of Myers Industries, Inc. and
Weda Bay Minerals, Inc., Toronto, Ontario. Mr. Kissel's term expires in 2004.

JAMES M. MATERNA has been the Chief Financial Officer of OMG since 1992.
Prior to such time, he was a principal in Ashley Management, a financial
management services and private investment firm, for six years. From 1981 to
1986, Mr. Materna was a partner with the accounting firm of KPMG Peat Marwick in
New York and Cleveland. Mr. Materna received a B.S. degree in chemical
engineering from the University of Pittsburgh and an MBA degree from the
Graduate School of Business of Stanford University. Mr. Materna is a certified
public accountant.

LEE R. BRODEUR has been a director of OMG since 1991 and a director of
Mooney Chemicals, Inc. since 1987. Mr. Brodeur was employed by the Firestone
Tire & Rubber Company in Akron, Ohio from 1951 until his retirement as Vice
Chairman of that company in 1986. Mr. Brodeur's term expires in 2002.

FRANK E. BUTLER has been a director of OMG since 1996. From 1992 until his
retirement in 1997, Mr. Butler was President and General Manager of the Coatings
Division of The Sherwin-Williams Company, a manufacturer, distributor and
retailer of coatings and related products. From 1957 to 1992, Mr. Butler held

various engineering positions in the Chemical Division of Sherwin-Williams. Mr.
Butler received a masters degree in chemistry from Iowa State University. Mr.
Butler's term expires in 2004.

THOMAS R. MIKLICH has been a director of OMG since 1993. Mr. Miklich has
been employed by Invacare Corporation as Chief Financial Officer and General
Counsel since 1993. Prior to joining Invacare, Mr. Miklich was Executive Vice
President, Chief Financial Officer and a Director of Van Dorn Company. For 22
years prior to that, Mr. Miklich was employed with The Sherwin-Williams Company
where he held several financial positions, culminating as Senior Vice President
and Chief Financial Officer. Mr. Miklich's term expires in 2002.

JOHN E. MOONEY has been a director of OMG since 1995. For the past 13
years, Mr. Mooney has been Chief Executive Officer of Sachem, Inc., a specialty
chemicals manufacturer. Mr. Mooney received a B.A. in Economics from the
University of Toronto. Mr. Mooney is James P. Mooney's brother. Mr. Mooney's
term as director will expire in 2003.

MARKKU TOIVANEN has been a director of OMG since 1991 and is currently a
consultant in the base metals industry. During 2000 and until October 2001, Mr.
Toivanen served as Senior Vice President of New Business Ventures of Outokumpu
Oyj. From 1996 to 2000, Mr. Toivanen served as Senior Vice President Corporate
Strategic Development of Outokumpu Oyj. From 1993 to 1996, Mr. Toivanen served
as President and Chief Executive Officer of Outokumpu Metals & Resources Oy. Mr.
Toivanen and Antti Aaltonen, Vice President of Operations for OMG Kokkola
Chemicals Oy, are brothers-in-law. Mr. Toivanen's term as director will expire
in 2003.

DIRECTOR COMPENSATION

Directors who are also officers of OMG receive no additional compensation
for serving as directors. Outside directors receive an annual director's fee of
$36,000 and an annual fee of $5,000 per committee for service on our Audit and
Finance Committee or our Compensation Committee. Committee chairmen also receive
an additional $5,000 per annum. In addition, each outside director receives a
fee of $1,500 for each board meeting he attends. Directors may elect to receive
their compensation in the form of cash, stock options or restricted stock under
our Non-Employee Directors' Equity Compensation Plan. Under this plan, directors
may purchase stock options for a price equal to the difference between the
exercise price (75% of fair market value on date of grant) and the fair market
value per share. Restricted shares may be purchased at a price equal to fair
market value per share. Also, directors electing to receive restricted stock
receive additional restricted stock equal to 5% of cash compensation. Directors
are reimbursed for their travel and other expenses incurred in attending board
and committee meetings.

EXECUTIVE COMPENSATION

Summary Compensation Table. The following table sets forth all
compensation awarded to, earned by or paid to OMG's Chief Executive Officer and
OMG's other two executive officers for services rendered during 1999, 2000 and
2001.

SUMMARY COMPENSATION TABLE

LONG-TERM COMPENSATION AWARDS
ANNUAL COMPENSATION -------------------------------------------
------------------------------------------ SECURITIES AND
RESTRICTED UNDERLYING
NAME AND STOCK STOCK OPTIONS LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) AWARDS(3) (SHARES) PAYOUTS COMPENSATION(4)
------------------ ---- --------- ---------- ---------- -------------- -------- ---------------

James P. Mooney...... 2001 $785,500 (5) $1,776,000 10,000 $ 0 $274,200
Chairman & CEO 2000 $640,500 $1,123,000 $ 0 100,000 $ 0 $178,500
1999 $580,000 $ 630,000 $ 0 85,000 $ 0 $161,000

Edward W. Kissel..... 2001 $540,500 (5) $1,184,000 20,000 $ 0 $168,750
President & COO 2000 $485,500 $ 665,000 $ 0 65,000 $ 0 $ 92,929
1999 $240,208 $ 207,813 $ 570,000 70,000 $ 0 $ 28,125

James M. Materna..... 2001 $339,500 (5) $ 592,000 20,000 $ 0 $ 92,850
CFO 2000 $296,500 $ 360,000 $ 0 50,000 $ 0 $ 68,940
1999 $270,000 $ 243,000 $ 0 37,000 $ 0 $ 62,150

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

(1) Salary amounts include $10,500 401(k) deferral.

(2) Amounts awarded to each officer under OMG's Bonus Program for Key Executives
and Middle Management.

(3) Restricted stock awards granted in 2001 were as follows: Mr.
Mooney -- 30,000 shares; Mr. Kissel -- 20,000 shares; and Mr.
Materna -- 10,000 shares. Dollar amounts shown for each officer in 2001
equal the number of shares of restricted stock granted multiplied by the
stock price on the grant date ($59.20). The dollar amount shown for Mr.
Kissel in 1999 equals the number of shares of restricted stock granted
(15,000) multiplied by the stock price on the grant date ($38.00). The
valuations shown do not take into account the diminution in value
attributable to the restriction applicable to the shares. Dividends will be
paid on all restricted stock shown above. As of December 31, 2001, Mr.
Mooney's 30,000 shares of restricted stock had a value of $1,985,700, Mr.
Kissel's 35,000 shares of restricted stock had a value of $2,316,650 and Mr.
Materna's 10,000 shares of restricted stock had a value of $661,900. The
restricted stock awards granted in 2001 to Mr. Mooney, Mr. Kissel and Mr.
Materna will vest in equal increments over a three-year period on each of
December 31, 2002, 2003 and 2004. As it relates to the restricted stock
award of 15,000 shares granted to Mr. Kissel in 1999, on the three-year
anniversary, June 1, 2002, 5,000 shares will vest and an amount equal to
accrued dividends will be paid and on the five-year anniversary, June 1,
2004, 10,000 shares will vest together with an amount equal to accrued
dividends.

(4) This amount represents amounts contributed for each officer under OMG's
qualified Profit-sharing Plan and amounts accrued under the OM Group, Inc.
Benefit Restoration Plan. The amount OMG contributed during 2001 for the
named executive officers for the Profit Sharing Plan was $15,000 each. For
the Benefit Restoration Plan during 2001 OMG contributed the following
amounts: Mr. Mooney, $259,200; Mr. Kissel, $153,750; and Mr. Materna,
$77,850.

(5) As of the date of this prospectus, bonus amounts for 2001 have not yet been
determined.

Option Grant Table. The following table sets forth additional information
concerning individual grants of stock options pursuant to OMG's Long-term
Incentive Compensation Plan made by OMG during 2001 to the named executive
officers, which options are included in the Summary Compensation Table above.
Stock options granted under the plan have a 10-year term and become fully
exercisable at December 31 of the year following the year in which granted. The
option price for stock options granted under the plan is the closing sale price
of OMG common stock on the date of grant.

OPTION GRANT TABLE

INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
-------------------------------------------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF PERCENTAGE OF OF STOCK APPRECIATION FOR
SECURITIES TOTAL OPTIONS EXERCISE OPTION TERM
UNDERLYING GRANTED TO OR BASE EXPIRATION ---------------------------
NAME OPTIONS GRANTED EMPLOYEES IN 2001 PRICE DATE 5% 10%
---- --------------- ----------------- -------- ---------- ----------- -------------

James P. Mooney.......... 10,000 4% $59.20 11/05/2011 $372,300 $ 943,500
Edward W. Kissel......... 20,000 8% $59.20 11/05/2011 $744,600 $1,887,000
James M. Materna......... 20,000 8% $59.20 11/05/2011 $744,600 $1,887,000

AGGREGATED OPTION EXERCISES AND
FISCAL YEAR-END OPTION VALUE

NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT 12/31/01 OPTIONS AT 12/31/01(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- ----------- ------------- ----------- -------------

James P. Mooney........ 177,161 $9,080,387 548,065(3) 10,000 $19,346,983 $ 69,000
Edward W. Kissel....... -- -- 135,000 20,000 $ 3,333,150 $139,800
James M. Materna....... 19,049 $ 757,177 191,100 20,000 $ 5,855,810 $139,800

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

(1) Market value of stock at date and time of exercise less exercise price.

(2) Based on fair market value at December 31, 2001 of $66.19.

(3) Includes 448,065 stock options transferred in accordance with the terms of
OMG's Long-Term Incentive Compensation Plan to a limited partnership in
which Mr. Mooney is a general partner.

REPORT OF THE COMPENSATION COMMITTEE

The following Report of the Compensation Committee discusses our
compensation policies relating to our executive officers and CEO, with a focus
upon compensation for 2000. Our compensation policies for 2001 were not
materially different from those discussed below; however, final compensation for
2001 has not yet been determined.

Executive Compensation Policy. The Compensation Committee of the Board of
Directors, comprised solely of outside directors of OMG, is responsible for
setting the policies and approving the practices of OMG in its compensation to
executive officers of OMG and its subsidiaries, including those executive
officers named in the compensation tables in this prospectus. The Committee's
general policy on executive compensation is to provide a significant incentive
to management to achieve annual profit goals and to increase the value of OMG's
stock. The policy is intended to cause a significant portion of total executive
compensation to be contingent upon OMG performance and in the form of annual and
longer-term incentives.

In carrying out its responsibilities in 2000, the Committee considered the
following:

1. OMG's financial performance;

2. OMG's general policies and practices for compensation of employees;

3. The recommendations of OMG's management concerning compensation of
individual key employees; and

4. Advice from independent compensation consultants concerning all aspects
of OMG's compensation policies, including how its policies and practices compare
to the policies and practices of other comparable companies.

The three major components of OMG's executive officer compensation program
are (1) base compensation and annual adjustments thereto paid pursuant to
employment contracts with executive officers, (2) annual bonuses paid pursuant
to the Bonus Program for Key Executives and Middle Management, and (3) stock
options issued at fair market value pursuant to OMG's 1998 Long-Term Incentive
Compensation Plan.

Employment Contracts with Executive Officers. OMG has entered into
employment contracts with each of its executive officers. The employment
contracts establish the position of each executive officer and provide that the
executive officer will devote his full professional attention to OMG and that
OMG will not materially decrease his level of responsibility. Each contract
provides for automatic yearly renewals unless the contract is terminated by
either party upon six months' prior notice.

Each contract provides for base compensation which may be increased
annually, but not decreased. In considering annual adjustments to an executive
officer's base compensation, the Committee considers both OMG and individual
performance. In addition, executive officers' base salaries are targeted between
the median and 75th percentile of comparably sized companies in the chemical and
non-durable goods manufacturing industries. Each contract also provides for
annual bonuses paid pursuant to OMG's Bonus Program for Key Executives and
Middle Management described below.

OMG may terminate each contract at any time with or without cause. If
terminated for cause, an officer is entitled to compensation accrued up to the
time of termination. If terminated without cause, the officer is entitled to
accrued compensation and to receive all base compensation, incentive bonuses and
fringe benefits due under his contract for the later of the expiration of the
current contract term or two years after delivery of notice of termination with
respect to James P. Mooney and James M. Materna. If the officer resigns for any
reason, he is entitled to accrued compensation and to receive all base
compensation for three months following the effective date of termination of his
employment.

Mr. Kissel has a three-year employment contract, renewable for two year
periods on six months notice. The contract provides for severance pay in the
amount of base and incentive compensation for the remainder of any portion of
the term not served, unless executive is dismissed for Cause as defined in the
contract.

Bonus Program for Key Executives and Middle Management. OMG pays annual
bonuses to certain employees, including executive officers, based primarily on
OMG's operating profit. In deciding annual bonus amounts, the Committee reviews
OMG's performance against a predetermined consolidated operating profit goal,
approved annually by the board of directors as part of OMG's financial budgeting
process. Annual bonuses are then paid pursuant to a schedule approved by the
board of directors which sets forth specified percentages of base compensation
payable as annual bonuses based upon the level of attainment of the
predetermined operating profit goal. Based on this performance, executive
officers, other than the CEO, received annual bonuses ranging from 60% to 84% of
their annual base salaries in 2000 plus discretionary bonuses in recognition of
the OMG's and their individual performances in 2000.

1998 Long-Term Incentive Compensation Plan. Executive officers and other
key employees also received compensation pursuant to OMG's 1998 Long-Term
Incentive Compensation Plan. The Incentive Plan is designed to promote OMG's
growth and profitability by providing, through common stock ownership,
incentives to attract and retain highly talented persons to provide managerial
and administrative services to OMG and to motivate such persons to use their
best efforts on OMG's behalf. The Incentive Plan provides for the granting of
stock options, stock appreciation rights, restricted stock awards and phantom
stock. Under the 1998 Long-Term Incentive Compensation Plan, the total number of
shares of common stock subject to the plan each year is 1.5% of the total number
of issued and outstanding shares of OMG's common stock as of December 30 of the
preceding calendar year.

The Incentive Plan is administered by the Committee. Subject to the
provisions of the Incentive Plan, the Committee is authorized to determine who
may participate in the Incentive Plan, the Awards made to each
49

participant and the terms and conditions applicable to each Award. The number of
stock options granted to executive officers and key employees during 2000
depended principally upon the individual's level of responsibility within OMG
and the Committee's assessment of individual performance and contribution.

CEO Compensation and Company Performance. In setting Mr. James P. Mooney's
compensation for 2000, the Committee considered OMG's financial performance
during the previous four quarters, Mr. Mooney's personal performance and
comparative data on the salaries for chief executive officers of
comparably-sized companies in the chemical and non-durable goods manufacturing
industries. The Committee also considered various factors of corporate
performance, including profitability, market position, productivity, product
leadership and the balancing of short-term and long-term goals. Based on the
Committee's review of these factors, Mr. Mooney's base compensation was $640,500
in 2000, reflecting a 10% increase in his 1999 base compensation.

Mr. Mooney's contract also provides for bonuses in accordance with the
Bonus Program for Key Executives and Middle Management. The Committee reviewed
OMG's 2000 performance against the predetermined consolidated operating profit
goal for 2000. Based upon OMG's level of attainment of this goal, Mr. Mooney's
annual bonus for 2000 was $775,000, constituting a bonus greater in amount than
his base compensation plus a discretionary bonus in the amount of $348,000 in
recognition of OMG's and his individual performance in 2000.

On November 6, 2000, the Committee approved a grant of 100,000 option
shares to Mr. Mooney pursuant to the Incentive Plan. The size of the grant was
based on the Committee's consideration of the size of stock option grants to
chief executive officers with pay and responsibility comparable to that of Mr.
Mooney and its qualitative assessment of Mr. Mooney's performance during 2000.

The Compensation Committee

Lee R. Brodeur, Chairman
Frank E. Butler

PERFORMANCE COMPARED TO CERTAIN STANDARDS

The chart set forth below compares OMG's cumulative total stockholder
return to (a) that of the Standard & Poor's 500 Index, and (b) that of S&P
Chemicals (Specialty) Index. In all cases, the information is presented on a
dividend reinvested basis.

COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG OM GROUP, INC.,
S&P CHEMICALS (SPECIALTY) AND S&P 500 INDEX

OM GROUP, INC. S&P CHEMICALS (SPECIALTY) S&P 500 INDEX
-------------- ------------------------- -------------

12/31/1996 100 100 100
12/31/1997 136.99 123.83 133.36
12/31/1998 137.79 105.46 171.47
12/31/1999 131.48 116.74 207.56
12/29/2000 210.7 103.84 188.66
12/31/2001 257.56 97.31 166.24

ASSUMES $100 INVESTED ON JAN. 1, 1997
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 2001

SECURITY OWNERSHIP OF DIRECTORS,
OFFICERS AND CERTAIN BENEFICIAL OWNERS

The following table sets forth, as of December 31, 2001, information
concerning the number of shares of our common stock beneficially owned by each
director, nominee and executive officer individually and by all of our executive
officers and directors as a group. No executive officer or director other than
James P. Mooney owns more than 1% of the outstanding shares of our common stock.
Mr. Mooney beneficially owns approximately 4.9% and all executive officers and
directors as a group beneficially own approximately 6.4% of our shares. The
totals shown below for each person and for the group include shares held
personally, shares held by family members, shares held under our profit-sharing
plan, and shares acquirable within sixty days of the above date by the exercise
of stock options granted under our stock option plan.

AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP

NAME OF DIRECTLY PROFIT-SHARING EXERCISABLE
BENEFICIAL OWNER(1) OWNED(2) PLAN OPTIONS(3) TOTAL
------------------- -------- -------------- ----------- ---------

Lee R. Brodeur.................................. 5,750 -- 23,055 28,805
Frank E. Butler................................. -- -- 18,866 18,866
Edward W. Kissel................................ 700 -- 135,000 135,700
James M. Materna................................ 1,050 2,715 191,100 194,865
Thomas R. Miklich............................... 3,450 -- 3,890 7,340
James P. Mooney................................. 655,518 425 548,065 1,204,008
John E. Mooney.................................. 10,854 -- 7,568 18,422
Markku Toivanen................................. -- -- 3,080 3,080
All directors and executive officers as a group
(consisting of 8 persons)..................... 677,332 3,140 930,624 1,611,086

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

(1) Each person has sole voting and investment power with respect to all shares
shown except as indicated below.

(2) James P. Mooney's shares include 541,381 shares held by a limited
partnership, Lion Investment Co. L.P., for which Mr. Mooney is a general
partner.

(3) Represents shares subject to stock options that were exercisable at December
31, 2001 or within 60 days of December 31, 2001. James P. Mooney's options
include 448,065 options transferred to a limited partnership in accordance
with the terms of OMG's Long-Term Incentive Plan. Mr. Mooney, as a general
partner of the limited partnership to which the options have been
transferred, continues to have voting and investment power with respect to
these shares.

The following table sets forth information concerning each person known by
us to be the beneficial owner of more than 5% of our outstanding common stock or
stock convertible into common stock.

AMOUNT AND NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
------------------------------------ -------------------- ----------------

Baron Capital Group, Inc.................................... 3,495,450 14.7%
767 Fifth Avenue
New York, NY 10153 (1)

Citigroup, Inc.............................................. 1,762,845 7.4%
399 Park Avenue
New York, NY 10043
and
Salomon Smith Barney Holdings, Inc.
388 Greenwich Street
New York, NY 10013 (2)

Lord, Abbett & Co........................................... 1,530,285 6.4%
90 Hudson Street
Jersey City, NJ 07302 (3)

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

(1) Information regarding share ownership and ownership percentage was obtained
from Amendment No. 4 to a Schedule 13G filed on February 15, 2001 by BAMCO,
Inc. Baron Capital Group, Inc. is a parent holding company of a group of
investment management companies. BAMCO, Inc. and Baron Capital Management,
Inc. are subsidiaries of Baron Capital Group, Inc. Baron Asset Fund is an
investment advisory client of BAMCO, Inc. Ronald Baron owns a controlling
interest in Baron Capital Group, Inc. Baron Capital Group, Inc. and Ronald
Baron each have shared voting power with respect to 3,477,950 shares and
shared dispositive power with respect to all 3,495,450 shares. BAMCO, Inc.
has shared voting and dispositive power with respect to 2,760,000 shares.
Baron Capital Management, Inc. has shared voting power with respect to
717,650 shares and shared dispositive power with respect to 735,150 shares.
Baron Asset Fund has shared voting and dispositive power with respect to
2,360,300 shares.

(2) Information regarding share ownership and ownership percentage was obtained
from the Schedule 13G filed on February 16, 2001 jointly by Citigroup, Inc.
and Salomon Smith Barney Holdings, Inc. Citigroup, Inc. and Salomon Smith
Barney Holdings, Inc. have shared voting power and dispositive power with
respect to all 1,762,845 shares. Citigroup, Inc. is the sole stockholder and
parent holding company of Salomon Smith Barney Holdings, Inc.

(3) Information regarding share ownership and ownership percentage was obtained
from Amendment No. 1 to a Schedule 13G filed on January 19, 2001 by Lord,
Abbett & Co. Lord, Abbett & Co. has sole voting and dispositive power with
respect to all 1,530,285 shares.

RELATED PARTY TRANSACTIONS

Mr. Markku Toivanen, a director of OMG, was formerly Senior Vice President
of Strategic Development of Outokumpu Oyj, our former majority stockholder. Our
Kokkola, Finland production facility (KCO) is situated on property owned by
Outokumpu Zinc Oy, an affiliate of Outokumpu Oyj. KCO and Outokumpu Zinc Oy
share certain physical facilities, services and utilities under agreements with
various expiration dates. Utilities and raw material purchase assistance
contracts provide that KCO jointly purchase with, or pay a fee to, affiliates of
Outokumpu Oyj for assistance in negotiating contracts and securing bulk quantity
discounts. Amounts paid related to these raw material contracts and utilities
agreements amounted to approximately $110.0 million and $15.0 million,
respectively, in 2000. We have other arrangements with Outokumpu Oyj affiliates
relating to a service agreement, a lease, and research and development. The
aggregate of the amounts paid by us during 2000 pursuant to these other
arrangements amounted to approximately $16.0 million.

DESCRIPTION OF OUR CAPITAL STOCK

For the specific provisions of our capital stock, you should refer to the
exhibits to the registration statement for copies of our certificate of
incorporation and bylaws, which are incorporated by reference as exhibits to the
registration statement of which this prospectus is a part. See "Where You Can
Find More Information."

AUTHORIZED CAPITAL STOCK

Our certificate of incorporation provides that we may issue up to
60,000,000 shares of common stock, par value $0.01 per share, and 2,000,000
shares of preferred stock, par value $0.01 per share. On December 31, 2001,
there were 24,147,273 shares of our common stock issued and outstanding
(excluding 2,359 treasury shares) and no shares of our preferred stock were
issued and outstanding.

DESCRIPTION OF OUR COMMON STOCK

GENERAL

All of our outstanding shares of common stock are, and the shares of common
stock being offered by this prospectus will be upon payment, validly issued,
fully paid and nonassessable. A holder of our common stock has no conversion
rights, redemption rights, exchange rights or preemptive rights to subscribe for
any of our securities. The transfer agent and registrar for our common stock is
National City Bank, Cleveland, Ohio. Our common stock is listed on the New York
Stock Exchange under the trading symbol "OMG."

DIVIDENDS AND LIQUIDATION RIGHTS

Subject to the preferential rights of any holders of preferred stock,
holders of common stock will be entitled to receive dividends or other
distributions on such shares if authorized and declared by our board of
directors. Holders of common stock also will be entitled to share ratably in our
assets legally available for distribution to the stockholders in the event of
our liquidation, dissolution or winding-up after payment of, or adequate
provision for, all of our known debts and liabilities and subject to the
preferential rights of any holder of preferred stock. All of our shares of
common stock rank equally as to their dividend, distribution, liquidation and
other rights.

VOTING RIGHTS

Each outstanding share of common stock entitles the holder to one vote on
all matters submitted to a vote of our stockholders. These matters include the
election of directors and, except as otherwise required by law or except as
provided with respect to any preferred stock, the holders of such shares will
possess exclusive voting power. Our certificate of incorporation provides that
our directors are elected by a plurality vote and that there is no cumulative
voting in the election of directors. It also provides that the approval of a
majority of the votes cast shall be required to approve any other matter
submitted to the stockholders for approval, except as otherwise provided by law,
the certificate of incorporation, or the bylaws.

ADDITIONAL ISSUANCES OF STOCK

Our board of directors has the authority to issue shares of common or
preferred stock from time to time, in one or more series, without any further
action by our stockholders. Issuances of preferred stock could affect the amount
of funds available for dividends on common stock and payments to common
stockholders upon liquidation, dissolution or winding up. Issuances of
additional shares of common stock would dilute the ownership interest of then
existing holders of common stock.

Under certain circumstances, the issuance of shares of preferred stock may
render more difficult or tend to discourage a merger, tender offer or proxy
contest, the assumption of control by a holder of a large block of our
securities or the removal of incumbent management. Such issuances could have the
effect of delaying, deferring or preventing a change of control that might
involve a premium price for common stockholders or otherwise be in their best
interest and may adversely affect the voting and other rights of holders of the
common stock. See "Risk Factors" for a discussion of the provisions of our
organizational documents that may delay, defer or prevent a change of control.

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated January 17, 2002 we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Deutsche Banc
Alex. Brown Inc., Banc of America Securities LLC, J.P. Morgan Securities Inc.,
McDonald Investments Inc. and First Analysis Securities Corporation are acting
as representatives, the following respective numbers of shares of common stock:

NUMBER
UNDERWRITER OF SHARES
----------- ----------

Credit Suisse First Boston Corporation...................... 1,650,000
Deutsche Banc Alex. Brown Inc............................... 495,508
Banc of America Securities LLC.............................. 330,000
J.P. Morgan Securities Inc.................................. 330,000
McDonald Investments Inc.................................... 330,000
First Analysis Securities Corporation....................... 164,492
Salomon Smith Barney Inc.................................... 100,000
Commerce Capital Investments, Inc........................... 50,000
First Tennessee Securities Corp............................. 50,000
----------
Total............................................. 3,500,000
==========

The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or, under
some circumstances, the offering may be terminated.

We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to 525,000 additional shares at the initial public offering price
less the underwriting discounts and commissions. The option may be exercised
only to cover any over-allotments of common stock.

The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a selling concession of $1.68 per share. The
underwriters and selling group members may allow a discount of $0.10 per share
on sales to other broker/dealers. After the initial public offering the
representative may change the public offering price and concession and discount
to broker/dealers.

The following table summarizes the compensation and estimated expenses we
will pay:

PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------

Underwriting Discounts and Commissions
paid by us........................... $2.80 $2.80 $9,800,000 $11,270,000
Expenses payable by us................. $0.14 $0.12 $ 500,000 $ 500,000

We may use more than 10% of the net proceeds from the sale of the common
stock to repay indebtedness owed by us to affiliates of Credit Suisse First
Boston Corporation, Banc of America Securities LLC and J.P. Morgan Securities
Inc. Accordingly, the offering is being made in compliance with the requirements
of Rule 2710(c)(8) of the National Association of Securities Dealers, Inc.
Conduct Rules, relying on the exemption of the existence of a bona fide market
for the securities being offered pursuant to Rule 2720(c)(3). We are in
compliance with the terms of our amended and restated credit facilities. The
decision of Credit Suisse First Boston Corporation, Bank of America Securities
LLC and J.P. Morgan Securities Inc. to distribute our shares of common stock was
not influenced by their respective affiliates that are lenders under our amended
and restated credit facilities and those affiliates had no involvement in

determining whether or when to distribute our shares of common stock under this
offering or the terms of this offering. Credit Suisse First Boston Corporation,
Banc of America Securities LLC and J.P. Morgan Securities Inc. will not receive
any benefit from this offering other than the underwriting commissions as paid
by us.

We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, or publicly
disclose the intention to make any offer, sale, pledge, disposition or filing,
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 90 days after the date of this prospectus, other than grants of
stock options under our stock option plans and issuances of common stock
pursuant to the exercise of stock options outstanding on the date of this
prospectus and pursuant to our dividend reinvestment plan.

Our executive officers and directors have agreed that they will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or indirectly,
any shares of our common stock (including shares acquired through the exercise
of stock options) or securities convertible into or exchangeable or exercisable
for any shares of our common stock, enter into a transaction that would have the
same effect, or enter into any swap, hedge or other arrangement that transfers,
in whole or in part, any of the economic consequences of ownership of our common
stock, whether any of these transactions are to be settled by delivery of our
common stock or other securities, in cash or otherwise, or publicly disclose the
intention to make any offer, sale, pledge or disposition, without the consent of
Credit Suisse First Boston Corporation for a period of 90 days after the date of
this prospectus, other than shares acquired by an executive officer or director
in the open market.

We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments that the underwriters may be required
to make in that respect.

The shares of common stock have been approved for listing on The New York
Stock Exchange subject to official notice of issuance, under the symbol "OMG".

In the ordinary course of business, certain of the underwriters and their
respective affiliates have from time to time performed and may in the future
perform various financial advisory, commercial banking and investment banking
services for us, for which they received or will receive customary fees.

In connection with the offering, the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934.

- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.

- Over-allotment involves sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase, which
creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short
position, the number of shares over-allotted by the underwriters is not
greater than the number of shares that they may purchase in the
over-allotment option. In a naked short position, the number of shares
involved is greater than the number of shares in the over-allotment
option. The underwriters may close out any covered short position by
either exercising their over-allotment option and/or purchasing shares in
the open market.

- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of shares to
close out the short position, the underwriters will consider, among other
things, the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through the
over-allotment option. If the underwriters sell more shares than could be
covered by the over-allotment option, a naked short position, the
position can only be closed out by buying shares in the open market. A
naked short position is more likely to be created if the

underwriters are concerned that there could be downward pressure on the
price of the shares in the open market after pricing that could adversely
affect investors who purchase in the offering.

- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids
may have the effect of raising or maintaining the market price of our common
stock or preventing or retarding a decline in the market price of the common
stock. As a result, the price of our common stock may be higher than the price
that might otherwise exist in the open market. These transactions may be
effected on The New York Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.

A prospectus in electronic format will be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations. Credit Suisse First Boston Corporation may effect an
on-line distribution through its affiliate, CSFBdirect Inc., an on-line broker
dealer, as a selling group member.

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are made. Any resale of the common stock in Canada must
be made under applicable securities laws which will vary depending on the
relevant jurisdiction, and which may require resales to be made under available
statutory exemptions or under a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers are advised to
seek legal advice prior to any resale of the common stock.

REPRESENTATIONS OF PURCHASERS

By purchasing common stock in Canada and accepting a purchase confirmation
a purchaser is representing to us and the dealer from whom the purchase
confirmation is received that

- the purchaser is entitled under applicable provincial securities laws to
purchase the common stock without the benefit of a prospectus qualified
under those securities laws,

- where required by law, that the purchaser is purchasing as principal and
not as agent, and

- the purchaser has reviewed the text above under Resale Restrictions.

RIGHTS OF ACTION -- ONTARIO PURCHASERS ONLY

Under Ontario securities legislation, a purchaser who purchases a security
offered by this prospectus during the period of distribution will have a
statutory right of action for damages, or while still the owner of the common
stock, for rescission against us in the event that this prospectus contains a
misrepresentation. A purchaser will be deemed to have relied on the
misrepresentation. The right of action for damages is exercisable not later than
the earlier of 180 days from the date the purchaser first had knowledge of the
facts giving rise to the cause of action and three years from the date on which
payment is made for the common stock. The right of action for rescission is
exercisable not later than 180 days from the date on which payment is made for
the common stock. If a purchaser elects to exercise the right of action for
rescission, the purchaser will have no right of action for damages against us.
In no case will the amount recoverable in any action exceed the price at which
the shares of common stock were offered to the purchaser and if the purchaser is
shown to have purchased the securities with knowledge of the misrepresentation,
we will have no liability. In the case of an action for damages, we will not be
liable for all or any portion of the damages that are proven to not represent
the depreciation in value of the common stock as a result of the
misrepresentation relied upon. These rights are in addition to, and without
derogation from, any other rights or remedies available at law to an Ontario
purchaser. The foregoing is a summary of the rights available to an Ontario
purchaser. Ontario purchasers should refer to the complete text of the relevant
statutory provisions.

ENFORCEMENT OF LEGAL RIGHTS

All of our directors and officers as well as the experts named herein may
be located outside of Canada and, as a result, it may not be possible for
Canadian purchasers to effect service of process within Canada upon us or those
persons. All or a substantial portion of our assets and the assets of those
persons may be located outside of Canada and, as a result, it may not be
possible to satisfy a judgment against us or those persons in Canada or to
enforce a judgment obtained in Canadian courts against us or those persons
outside of Canada.

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and about the eligibility of the common
stock for investment by the purchaser under relevant Canadian legislation.
59

LEGAL MATTERS

The validity of the common stock offered by this prospectus will be passed
upon for us by Squire, Sanders & Dempsey L.L.P., Cleveland, Ohio. Certain legal
matters will be passed upon for the underwriters by Latham & Watkins, New York,
New York.

EXPERTS

The consolidated financial statements of OM Group, Inc. at December 31,
1999 and 2000, and for each of the three years in the period ended December 31,
2000, appearing in this prospectus and registration statement, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.

The combined financial statements of dmc(2) Degussa Catalysts Cerdec AG as
of December 31, 2000 and 1999, and September 30, 1999 and for the year ended
December 31, 2000, three months ended December 31, 1999, and years ended
September 30, 1999 and 1998, have been included herein and in the registration
statement in reliance upon the report of KPMG Deutsche Truehand-Gesellschaft
Aktiengesellschaft, independent auditors, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.

INDEX TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

OM GROUP, INC.

Unaudited Pro Forma Condensed Combined Statement of Income
for the year ended December 31, 2000...................... P-3
Unaudited Pro Forma Condensed Combined Statement of Income
for the nine months ended September 30, 2001.............. P-4
Notes to Unaudited Pro Forma Condensed Combined Statements
of Income................................................. P-5

P-1

OM GROUP, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined financial statements
have been prepared by OMG's management in accordance with generally accepted
accounting principles in the United States. These pro forma financial statements
reflect OMG's acquisition of all of the operations of dmc(2) Degussa Metals
Catalysts Cerdec AG ("dmc(2) Group") on August 10, 2001 and combine for the
periods or date indicated the historical consolidated financial statements of
OMG and dmc(2) Group using the purchase method of accounting.

The unaudited pro forma condensed combined statements of income reflect
adjustments as if the acquisition had occurred at the beginning of the period
presented. These pro forma financial statements should be read in conjunction
with the historical financial statements and related notes of OMG and dmc(2)
Group. The pro forma financial statements include preliminary estimates and
assumptions that OMG's management believes are reasonable. The pro forma results
are not necessarily indicative of the results which would have occurred if the
business combination had been in effect on the dates indicated, or which may
result in the future, and do not include any adjustments or other effects of the
planned integration of OMG and dmc(2) Group not calculated or prepared in
accordance with Article 11-02 of Regulation S-X.

The pro forma financial statements have been prepared using the following
facts and assumptions:

1. OMG acquires all the businesses of dmc(2) Group in exchange for a
total cash payment of $1,072.0 million.

2. OMG sells the electronic materials, performance pigments, glass
systems and Cerdec ceramics divisions of dmc(2) Group to Ferro
Corporation for a cash purchase price of $525.5 million, the
proceeds from which were used to repay a portion of the debt issued
to finance the acquisition of dmc(2) Group.

3. OMG borrows $594.9 million consisting of $546.5 million to finance
the acquisition price and $48.4 million for estimated financing and
related transaction costs.

4. OMG issues 3.5 million additional shares of its common stock at
$59.00 per share and uses the net proceeds of $196.2 million to pay
a portion of the debt issued to finance the acquisition of dmc(2)
Group.

5. The acquired assets and liabilities of dmc(2) Group are recorded at
estimated fair values, as determined by OMG's management, based on
information currently available and on current tentative
assumptions as to the future operations of dmc(2) Group. OMG is in
the process of obtaining independent appraisals of the acquired
property, plant and equipment, intangible assets, and estimates of
their remaining useful lives. OMG is also reviewing and determining
the fair value of the other assets acquired and liabilities
assumed. Accordingly, the allocation of the purchase price to the
acquired assets and liabilities of dmc(2) Group is subject to
revision as a result of the final determination of the purchase
price and of appraised and other fair values.

The preliminary allocation of the aggregate purchase price of
businesses acquired of dmc(2) Group, and the recognition of the
excess of aggregate purchase price over the estimated fair value of
net assets acquired, is as follows (in millions):

Adjust acquired inventories to estimated fair value......... $ 124.0
Adjust acquired property, plant and equipment to estimated
fair value.................................................. 22.0
Record preliminary adjustment for acquired intangible
assets...................................................... 18.0
Record preliminary estimate of goodwill..................... 45.1
Eliminate acquired goodwill................................. (46.4)
Record estimated financing costs............................ 32.0
Establish environmental accrual............................. (9.0)
Establish deferred tax liability resulting from the
application of purchase accounting.......................... (67.5)
Eliminate debt not assumed.................................. 446.8
Eliminate net equity acquired............................... 29.9
-------
Aggregate purchase price and related transaction costs...... $ 594.9
=======

P-2

OM GROUP, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 2000

PRO FORMA
COMBINED
AFTER
PRO FORMA ADJUSTMENTS OFFERING OFFERING
DMC(2) ----------------------- OF OF
OMG GROUP TRANSACTION DIVISIONS PRO FORMA COMMON COMMON
HISTORICAL HISTORICAL ADJUSTMENTS SOLD COMBINED STOCK STOCK
---------- ---------- ----------- --------- --------- -------- ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)

Net sales................... $887.7 $6,101.5 $(545.6) $6,443.6 $6,443.6
Cost of products sold....... 673.9 5,765.2 $ 2.2(a) (395.2) 6,046.1 6,046.1
------ -------- ------ ------- -------- --------
213.8 336.3 (2.2) (150.4) 397.5 397.5
Selling, general and
administrative expenses... 75.4 282.8 (5.0)(b,c) (132.6) 220.6 220.6
------ -------- ------ ------- -------- --------
Income from operations...... 138.4 53.5 2.8 (17.8) 176.9 176.9
Other income (expense)
Interest expense, net..... (37.4) (26.1) (28.5)(d,e) 9.4 (82.6) $16.3(i) (66.3)
Other..................... (1.1) (3.7) (2.0) (6.8) (6.8)
------ -------- ------ ------- -------- ----- --------
(38.5) (29.8) (28.5) 7.4 (89.4) 16.3 (73.1)
Income before income
taxes..................... 99.9 23.7 (25.7) (10.4) 87.5 16.3 103.8
Income taxes................ 28.4 (18.8) 19.1(f,g) (4.7) 24.0 5.7(f) 29.7
------ -------- ------ ------- -------- ----- --------
Net income.................. $ 71.5 $ 42.5 $(44.8) $ (5.7) $ 63.5 $10.6 $ 74.1
====== ======== ====== ======= ======== ===== ========

Weighted average number of
common shares outstanding
(in millions)............. 23.8 23.8 3.5(i) 27.3
Net income per common
share..................... $ 2.99 $ 2.67 $ 2.71
Weighted average number of
common shares outstanding
(in millions) -- assuming
dilution.................. 24.3 24.3 3.5(i) 27.8
Net income per common
share -- assuming
dilution.................. $ 2.95 $ 2.61 $ 2.67

P-3

OM GROUP, INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001

Net sales................... $1,285.5 $3,614.7 $(294.5) $4,605.7 $4,605.7
Cost of products sold....... 1,067.4 3,431.8 $ 1.3(a) (220.0) 4,280.5 4,280.5
-------- -------- ------ ------- -------- --------
218.1 182.9 (1.3) (74.5) 325.2 325.2
Selling, general and
administrative expenses... 94.2 144.9 (3.0)(b,c) (76.7) 159.4 159.4
-------- -------- ------ ------- -------- --------
Income from operations...... 123.9 38.0 1.7 2.2 165.8 165.8
Other income (expense)
Interest expense, net..... (37.9) (19.9) (12.7)(d,e) 3.9 (66.6) $10.7(i) (55.9)
Other..................... (1.4) 4.5 (.7) 2.4 2.4
-------- -------- ------ ------- -------- ----- --------
(39.3) (15.4) (12.7) 3.2 (64.2) 10.7 (53.5)
Income before income
taxes..................... 84.6 22.6 (11.0) 5.4 101.6 10.7 112.3
Income taxes................ 24.3 12.6 (9.9)(f,h) (0.5) 26.5 3.7(f) 30.2
-------- -------- ------ ------- -------- ----- --------
Net income.................. $ 60.3 $ 10.0 $ (1.1) $ 5.9 $ 75.1 $ 7.0 $ 82.1
======== ======== ====== ======= ======== ===== ========

Weighted average number of
common shares outstanding
(in millions)............. 24.0 24.0 3.5(i) 27.5
Net income per common
share..................... $ 2.51 $ 3.13 $ 2.99
Weighted average number of
common shares outstanding
(in millions) -- assuming
dilution.................. 24.4 24.4 3.5(i) 27.9
Net income per common
share -- assuming
dilution.................. $ 2.47 $ 3.08 $ 2.94

P-4

OM GROUP, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME

The adjustments to give pro forma effect to OMG's acquisition of dmc(2)
Group are as follows:

a. Recognize incremental depreciation on the estimated write-up
of property, plant and equipment to fair value over an
average useful life of ten years.
b. Recognize reduction in goodwill amortization related to the
elimination of acquired goodwill.
c. Adjust amortization expense for acquired intangible assets
over a 15 year life.
d. Recognize additional interest expense due to $594.9 million
increase in consolidated long-term debt to finance the
acquisition and related transaction costs, assuming a
weighted average interest rate of 9.1% in 2000 and 8.9% in
2001, reduced by the elimination of interest expense
associated with debt not assumed, and in 2001 adjusted for
the difference in interest rates between the bridge notes
and the permanent financing. An increase in the LIBOR of
1/8 of 1% would increase pro forma interest expense by
approximately $0.2 million; an increase in the LIBOR of 1/8
of 1% with respect to total pro forma variable rate debt
would increase annual pro forma interest expense by
approximately $1.1 million.
e. Amortize the estimated financing costs over the life of the
related debt.
f. Record the income tax effect assuming a 35% income tax rate.
g. In 2000, to adjust for the one-time effect of certain
non-recurring items, including a reduction in the statutory
tax rate in Germany and changes in German tax law regarding
unrealized gains on marketable securities.
h. In 2001, to adjust tax expense for the acquired business to
reflect the tax structure of the combined organization.
i. Reflect the issuance of 3.5 million shares of OMG common
stock less underwriting fees and discounts.

P-5

INDEX TO OM GROUP, INC. FINANCIAL STATEMENTS

PAGE
----

Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of December 31, 1999 and
2000...................................................... F-3
Statements of Consolidated Income for each of the three
years in the period ended December 31, 2000............... F-4
Statements of Consolidated Stockholders' Equity for each of
the three years in the period ended December 31, 2000..... F-5
Statements of Consolidated Cash Flows for each of the three
years in the period ended December 31, 2000............... F-6
Notes to Consolidated Financial Statements.................. F-7
Condensed Consolidated Balance Sheet as of September 30,
2001 (unaudited).......................................... F-18
Condensed Statements of Consolidated Income for the nine
months ended September 30, 2001 and 2000 (unaudited)...... F-19
Condensed Statements of Consolidated Cash Flows for the nine
months ended September 30, 2001 and 2000 (unaudited)...... F-20
Notes to Condensed Consolidated Interim Financial Statements
(unaudited)............................................... F-21

F-1

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
OM Group, Inc.

We have audited the accompanying consolidated balance sheets of OM Group,
Inc. as of December 31, 2000 and 1999, and the related statements of
consolidated income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of OM Group, Inc.
at December 31, 2000 and 1999, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States.

/s/ Ernst & Young LLP

Cleveland, Ohio
February 9, 2001

F-2

OM GROUP, INC.

CONSOLIDATED BALANCE SHEETS
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)

DECEMBER 31,
-----------------------
1999 2000
---------- ----------

ASSETS
Current assets:
Cash and cash equivalents................................. $ 9,433 $ 13,482
Accounts receivable, less allowance of $1,131 in 1999 and
$2,404 in 2000......................................... 100,492 147,618
Inventories............................................... 332,810 393,849
Other current assets...................................... 52,321 56,792
---------- ----------
TOTAL CURRENT ASSETS........................................ 495,056 611,741
Property, plant and equipment:
Land...................................................... 6,099 6,794
Buildings and improvements................................ 93,819 128,152
Machinery and equipment................................... 317,388 481,548
Furniture and fixtures.................................... 14,419 12,860
---------- ----------
431,725 629,354
Less accumulated depreciation............................. 112,910 144,002
---------- ----------
318,815 485,352
Other assets:
Goodwill and other intangible assets, less accumulated
amortization of $19,125 in 1999 and $26,683 in 2000.... 183,974 192,063
Other assets.............................................. 14,683 68,306
---------- ----------
TOTAL ASSETS................................................ $1,012,528 $1,357,462
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 25 $ 20,865
Accounts payable.......................................... 77,037 103,570
Deferred income taxes..................................... 25,897 37,776
Other accrued expenses.................................... 23,599 45,044
---------- ----------
TOTAL CURRENT LIABILITIES................................... 126,558 207,255
Long-term debt............................................ 384,888 551,079
Deferred income taxes..................................... 24,339 29,116
Other long-term liabilities............................... 6,977 14,333
Minority interest......................................... 20,538 49,549
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized 2,000,000 shares; no shares issued or
outstanding
Common stock, $.01 par value:
Authorized 60,000,000 shares; issued 23,959,346
shares................................................. 240 240
Capital in excess of par value............................ 258,815 258,913
Retained earnings......................................... 198,047 256,183
Treasury stock (165,161 shares in 1999 and 105,065 shares
in 2000, at cost)...................................... (5,537) (4,853)
Accumulated other comprehensive loss...................... (1,837) (3,967)
Unearned compensation..................................... (500) (386)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY.................................. 449,228 506,130
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $1,012,528 $1,357,462
========== ==========

See accompanying notes to consolidated financial statements.
F-3

OM GROUP, INC.

STATEMENTS OF CONSOLIDATED INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

YEAR ENDED DECEMBER 31,
--------------------------------
1998 1999 2000
-------- -------- --------

Net sales.................................................. $521,226 $506,955 $887,743
Cost of products sold...................................... 376,274 347,450 673,877
-------- -------- --------
144,952 159,505 213,866
Selling, general and administrative expenses............... 58,028 60,768 75,373
-------- -------- --------
Income from operations..................................... 86,924 98,737 138,493
Other income (expense)
Interest expense........................................... (15,560) (19,081) (39,829)
Interest income............................................ 223 181 2,435
Foreign exchange (loss) gain............................... (263) 456 (1,123)
-------- -------- --------
(15,600) (18,444) (38,517)
-------- -------- --------
Income before income taxes................................. 71,324 80,293 99,976
Income taxes............................................... 22,966 24,468 28,476
-------- -------- --------
Net income................................................. $ 48,358 $ 55,825 $ 71,500
======== ======== ========
Net income per common share................................ $ 2.11 $ 2.35 $ 2.99
======== ======== ========
Net income per common share -- assuming dilution........... $ 2.05 $ 2.30 $ 2.95
======== ======== ========
Cash dividends paid per common share....................... $ .36 $ .40 $ .44
======== ======== ========

See accompanying notes to consolidated financial statements.
F-4

OM GROUP, INC.

STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(IN THOUSANDS)

CAPITAL ACCUMULATED
IN EXCESS OTHER
COMMON OF PAR RETAINED TREASURY COMPREHENSIVE UNEARNED
STOCK VALUE EARNINGS STOCK LOSS COMPENSATION TOTAL
------ --------- -------- -------- ------------- ------------ --------

BALANCE AT JANUARY 1,
1998 ...................... $222 $189,281 $117,465 $(4,829) $ (898) $301,241
Net income................... 48,358 48,358
Translation adjustment....... (481) (481)
--------

Total comprehensive income... 47,877
Non-employee directors'
compensation............... 133 133
Dividends paid............... (8,246) (8,246)
Treasury stock purchased..... (7,070) (7,070)
Issuance of shares under
benefit plans, including
tax benefit................ (1,886) 3,405 1,519
Sale of common stock......... 18 68,671 68,689
---- -------- -------- ------- ------- ----- --------
BALANCE AT DECEMBER 31,
1998 ...................... 240 258,085 155,691 (8,494) (1,379) 404,143
Net income................... 55,825 55,825
Translation adjustment....... (458) (458)
--------

Total comprehensive income... 55,367
Non-employee directors'
compensation............... 160 160
Restricted stock grants...... 570 $(570)
Restricted stock
compensation............... 70 70
Dividends paid............... (9,517) (9,517)
Treasury stock purchased..... (4,744) (4,744)
Issuance of shares under
benefit plans, including
tax benefit................ (3,952) 7,701 3,749
---- -------- -------- ------- ------- ----- --------
BALANCE AT DECEMBER 31,
1999 ...................... 240 258,815 198,047 (5,537) (1,837) (500) 449,228
Net income................... 71,500 71,500
Translation adjustment....... (2,130) (2,130)
--------

Total comprehensive income... 69,370
Non-employee directors'
compensation............... 98 98
Restricted stock
compensation............... 114 114
Dividends paid............... (10,491) (10,491)
Treasury stock purchased..... (9,650) (9,650)
Issuance of shares under
benefit plans, including
tax benefit................ (2,873) 10,334 7,461
---- -------- -------- ------- ------- ----- --------
BALANCE AT DECEMBER 31,
2000 ...................... $240 $258,913 $256,183 $(4,853) $(3,967) $(386) $506,130
==== ======== ======== ======= ======= ===== ========

See accompanying notes to consolidated financial statements.
F-5

OM GROUP, INC.

STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)

YEAR ENDED DECEMBER 31,
----------------------------------
1998 1999 2000
--------- -------- ---------

OPERATING ACTIVITIES
Net income................................................. $ 48,358 $ 55,825 $ 71,500
Items not affecting cash:
Depreciation and amortization............................ 25,435 26,864 39,298
Foreign exchange loss (gain)............................. 263 (456) 1,123
Deferred income taxes.................................... 17,309 13,327 184
Changes in operating assets and liabilities:
Accounts receivable...................................... 5,139 (19,586) 40,044
Inventories.............................................. (75,976) (49,521) (4,296)
Accounts payable and other accruals...................... (11,387) (4,850) (25,461)
Prepayments, advances and other.......................... (10,283) (9,247) (41,436)
--------- -------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES........ (1,142) 12,356 80,956
INVESTING ACTIVITIES
Expenditures for property, plant and equipment -- net...... (91,942) (70,150) (55,033)
Acquisitions of businesses................................. (103,253) (1,765) (192,689)
--------- -------- ---------
NET CASH USED IN INVESTING ACTIVITIES...................... (195,195) (71,915) (247,722)
FINANCING ACTIVITIES
Dividend payments.......................................... (8,246) (9,517) (10,491)
Short-term borrowings...................................... 2,000
Long-term borrowings....................................... 197,773 74,808 223,750
Payments of short-term debt................................ (2,000)
Payments of long-term debt................................. (63,569) (37,600)
Purchase of treasury stock................................. (7,070) (4,744) (9,650)
Proceeds from exercise of stock options.................... 719 2,755 6,811
Issuance of common stock................................... 68,689
--------- -------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES.................. 190,296 61,302 172,820
Effect of exchange rate changes on cash and cash
equivalents.............................................. 598 (60) (2,005)
--------- -------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... (5,443) 1,683 4,049
Cash and cash equivalents at beginning of year............. 13,193 7,750 9,433
--------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR................... $ 7,750 $ 9,433 $ 13,482
========= ======== =========

See accompanying notes to consolidated financial statements.
F-6

OM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1999 AND 2000
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)

A. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation -- The consolidated financial statements
include the accounts of OM Group, Inc. (the Company) and its majority-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.

Inventories -- Inventories are principally stated at the lower of cost or
market and valued using the last-in, first-out (LIFO) method.

Long-Lived Assets -- Property, plant and equipment is recorded at
historical cost less accumulated depreciation. Depreciation of plant and
equipment is provided by the straight-line method over the useful lives ranging
from 5 to 40 years for buildings and improvements and 3 to 15 years for other
depreciable assets.

Goodwill, which represents the excess of the purchase price of businesses
acquired over the estimated fair value of the net assets acquired, is amortized
on a straight-line basis over 20 to 40 years. Other intangibles represent
principally patents, trademarks, technology acquired and capitalized software
and are being amortized on a straight-line basis over five to seventeen years.

Long-lived assets are assessed for impairment when operating profits for
the related business indicate that the carrying value may not be recoverable.
The asset would be considered impaired when the future net undiscounted cash
flows generated by the asset are less than its carrying value. An impairment
loss would be recognized based on the amount by which the carrying value of the
asset exceeds its fair value.

Research and Development -- Selling, general and administrative expenses
include research and development costs of $10,367, $11,332 and $13,308 in 1998,
1999 and 2000, respectively.

Income Taxes -- Deferred income taxes are provided to recognize the effect
of temporary differences between financial and tax reporting. Deferred income
taxes are not provided for undistributed earnings of foreign consolidated
subsidiaries, to the extent such earnings are reinvested for an indefinite
period of time.

Foreign Currency Translation -- The functional currency for the Company's
Finnish subsidiaries and related African operations is the U.S. Dollar since a
majority of their purchases and sales are denominated in U.S. Dollars.
Accordingly, foreign exchange gains and losses related to assets, liabilities
and transactions which are denominated in other currencies (principally the
euro) are included in results of operations. The Company enters into forward
contracts to partially hedge its balance sheet exposure to the euro, and
accordingly, gains or losses related to the forward contracts are also included
in results of operations.

The functional currency for the Company's other subsidiaries outside of the
United States is the applicable local currency. For those operations, financial
statements are translated into U.S. Dollars at year-end exchange rates as to
assets and liabilities and weighted average exchange rates as to revenues and
expenses. The resulting translation adjustments are recorded as a component of
stockholders' equity.

Cash Equivalents -- For purposes of the statements of consolidated cash
flows, all highly liquid investments with a maturity of three months or less
when purchased are considered to be cash equivalents.

Stock Options and Compensation Plans -- The Company grants stock options
for a fixed number of shares to certain employees with an exercise price equal
to the fair value of the shares at the date of grant and accounts for stock
options using the intrinsic value method. Accordingly, compensation expense is
not recognized for the stock option grants.

Non-employee members of the Board of Directors are eligible to receive
their annual retainer in the form of cash, stock options, or restricted stock.
If stock options or restricted stock are elected, the acquisition price

F-7

OM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

is 75% of the fair market value and directors' cash compensation is utilized to
acquire the options or restricted stock. Also, directors electing to receive
restricted stock receive additional restricted stock equal to 5% of their
applied cash compensation. Accordingly, compensation expense is recognized for
stock option and restricted share grants elected by eligible directors.

Revenue Recognition -- Revenues are recognized when unaffiliated customers
take title and assume ownership of product(s) specified in their purchase
agreements with the Company, which generally occurs upon shipment of product or
usage of consignment inventories. Shipping and handling are included in cost of
product sold and are included in the sales price when billed to customers.

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

Recently Issued Accounting Pronouncements -- In June, 1998, SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS
No. 133 provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. The Company adopted SFAS No.
133 effective January 1, 2001; adoption of this statement did not have a
material effect on earnings or the financial position of the Company.

Financial Presentation Changes -- Certain amounts for prior years have been
reclassified to conform to the current year presentations.

B. INVENTORIES

Inventories consist of the following:

DECEMBER 31,
-------------------
1999 2000
-------- --------

Raw materials and supplies................................ $137,337 $168,750
Finished goods............................................ 138,417 156,159
-------- --------
275,754 324,909
LIFO reserve.............................................. 57,056 68,940
-------- --------
Total inventories............................... $332,810 $393,849
======== ========

C. ACQUISITION AND PRO FORMA EARNINGS PER SHARE

On April 4, 2000, the Company acquired Outokumpu Nickel Oy (OKN) for a
purchase price of $188.1 million, including related financing and transaction
costs. OKN manufactures, distributes and sells a broad range of nickel products,
principally plating and alloy-grade cathodes and briquettes. The acquisition of
OKN, which had fiscal 1999 sales of $341.5 million, was financed through bank
borrowings and has been recorded using the purchase method of accounting.
Accordingly, the Company's results of operations reflect the impact of OKN from
the date of acquisition.

The assets acquired and liabilities assumed were recorded at estimated fair
values as determined by the Company's management based on information currently
available and on current assumptions as to future operations. The Company has
obtained independent appraisals of the fair values of the acquired property,
plant and equipment, and identified intangible assets, and their remaining
useful lives. The Company is also completing the review and determination of the
fair values of the other assets acquired and liabilities assumed, including its
responsibility for any environmental matters at the date of acquisition. In
addition, the

F-8

OM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Company is resolving certain matters with the seller related to the net assets
acquired, which may ultimately impact the final purchase price. Accordingly, the
allocation of the purchase price is subject to revision, which is not expected
to be material, based on the final determination of fair values, and
finalization of the purchase price.

Pro forma net sales, net income and net income per share, for the years
ended December 31, 1999 and 2000, as if the acquisition had occurred as of
January 1, 1999 and 2000, respectively, were as follows:

YEAR ENDED DECEMBER 31,
------------------------
1999 2000
--------- -----------

Net sales.............................................. $848,455 $1,038,000
Net income............................................. $ 44,925 $ 81,600
Net income per common share............................ $ 1.89 $ 3.42
Net income per common share -- assuming dilution....... $ 1.85 $ 3.36

The pro forma results include estimates and assumptions which the Company's
management believes are reasonable. However, the pro forma results are not
necessarily indicative of the results which would have occurred if the
acquisition had occurred on the dates indicated, or which may result in the
future.

The aforementioned pro forma information reflects additional amortization
of goodwill on a straight-line basis over 20 years; additional amortization of
financing costs over 6 years; depreciation for the write-up of property, plant
and equipment over 10 years; and an interest cost on the funds borrowed to
finance the acquisition.

D. FINANCIAL INSTRUMENTS

Long-term debt consists of the following:

DECEMBER 31,
--------------------
1999 2000
-------- --------

Notes payable to financial institutions................. $324,750 $570,900
Notes payable to insurance companies.................... 60,000
Other................................................... 163 1,044
-------- --------
384,913 571,944
Less: Current portion................................... 25 20,865
-------- --------
Total long-term debt.......................... $384,888 $551,079
======== ========

In conjunction with the acquisition of OKN (see note C), the Company
entered into a $675 million senior credit facility with a group of financial
institutions including a $30 million limit for issuance of letters of credit.
These senior secured credit facilities were comprised of a $325 million
revolving credit facility, a $150 million five-year term loan and a $200 million
seven-year term loan. Scheduled maturities on the term loans amounted to $12.75
million in 2000. The facilities have variable interest rates based upon either
the agent bank's prime lending rate plus a 0% to 1.5% margin or LIBOR plus a
1.25% to 3.0% margin at the Company's option. The margin paid is based upon a
defined financial leverage ratio. Under this credit agreement, the Company must
meet various financial covenants, and there are restrictions on investments and
dividend payments. Further investments in Weda Bay Minerals, Inc. (see Note H)
are limited to $18 million. Annual dividends are limited to the greater of $12
million or 25% of consolidated net income.

The Company has entered into several interest rate swap agreements to
convert the variable interest rates on an aggregate contract amount of $60
million to an average fixed rate of 5.65% plus 1.25% to 2.5% for a

F-9

OM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

three year period ending February 9, 2001. The Company has also entered into
several interest rate swap agreements to convert the variable interest rates on
an aggregate contract amount of $120 million to an average fixed rate of 6.88%
plus 1.25% to 2.5% for a three year period ending April 25, 2002.

At December 31, 2000, the combined effective rate of the Company's bank
borrowings and the related swap agreements was 8.82%. The net interest paid or
received on interest rate swaps is included in interest expense. The
counterparties to the interest rate swaps are international commercial banks. At
December 31, 2000, the fair values of the Company's interest rate swaps
approximated $1,558 payable.

Aggregate annual maturities of long-term debt for the five years following
December 31, 2000 are as follows: 2001 -- $20,865; 2002 -- $29,530;
2003 -- $39,584 and 2004 -- $45,960; and 2005 -- $13,458. Interest paid, net of
capitalized amounts, was $15,660, $19,112 and $39,752 for the years ended
December 31, 1998, 1999 and 2000, respectively. Interest capitalized as part of
construction of major fixed assets was $1,605 in 1998, $7,057 in 1999 and
$10,972 in 2000. At December 31, 2000, the carrying value of the Company's debt
approximated its fair value.

The Company enters into forward contracts to purchase euros to partially
hedge its balance sheet exposure and other commitments to rate fluctuations
between the euro and the U.S. Dollar. At December 31, 2000, the notional value
of these forward contracts approximated $4,712. The fair value of the forward
contracts, based on the current settlement price at December 31, 2000,
approximated $349 receivable, which was recorded in results of operations.

The Company also enters into forward contracts to hedge the purchase of
nickel raw material and the sale of nickel products. Realized gains and losses
on these forward contracts are included as a component of purchases and net
sales, as appropriate, and are recognized when the related raw material is
purchased or product is sold. At December 31, 2000, the notional value of open
contracts approximated $7,300. The fair value of the unrealized gain/loss on
these contracts, based on current settlement prices at December 31, 2000,
approximated $1,800 payable.

E. INCOME TAXES

Income (loss) before income taxes consists of the following:

YEAR ENDED DECEMBER 31,
------------------------------
1998 1999 2000
------- ------- --------

United States.................................. $17,998 $(2,715) $(32,986)
Outside the United States...................... 53,326 83,008 132,962
------- ------- --------
$71,324 $80,293 $ 99,976
======= ======= ========

F-10

OM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Income taxes are summarized as follows:

YEAR ENDED DECEMBER 31,
-----------------------------
1998 1999 2000
------- ------- -------

Current:
United States:
Federal.................................... $ 1,634 $ 1,281
State and local............................ 860 88
Outside the United States..................... 3,163 9,772 $28,292
------- ------- -------
5,657 11,141 28,292
Deferred:
United States................................. 5,426 2,817 (11,414)
Outside the United States..................... 11,883 10,510 11,598
------- ------- -------
17,309 13,327 184
------- ------- -------
$22,966 $24,468 $28,476
======= ======= =======

A reconciliation of income taxes computed at the United States statutory
rate to the effective income tax rate follows:

YEAR ENDED DECEMBER 31,
------------------------
1998 1999 2000
----- ------ -----

Income taxes at the United States statutory rate........ 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefit.......... .8 .1 (.8)
Effective tax rate differential of earnings outside of
the United States..................................... (6.0) (10.6) (7.0)
Adjustment of worldwide tax liabilities................. .1 4.2
Non-deductible goodwill................................. 2.0 1.9 1.6
Other -- net............................................ .3 (.1) (.3)
---- ----- ----
32.2% 30.5% 28.5%
==== ===== ====

Significant components of the Company's deferred income taxes are as
follows:

DECEMBER 31,
--------------------
1999 2000
-------- --------

Current asset -- operating accruals..................... $ 1,968 $ 2,505
Current liability -- inventories........................ (27,865) (40,281)
Long-term asset -- benefit accruals..................... 3,425 3,920
Long-term asset -- operating loss carryforwards......... 3,670 20,149
Long-term liability -- accelerated depreciation......... (31,434) (53,185)
-------- --------
$(50,236) $(66,892)
======== ========

At December 31, 2000, certain United States subsidiaries had operating loss
carryforwards of $50,400. These carryforwards expire in 2019 and 2020.

The Company has not provided additional United States income taxes on
approximately $305,000 of undistributed earnings of consolidated foreign
subsidiaries included in stockholders' equity. Such earnings

F-11

OM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

could become taxable upon the sale or liquidation of these foreign subsidiaries
or upon dividend repatriation. The Company's intent is for such earnings to be
reinvested by the subsidiaries or to be repatriated only when it would be tax
effective through the utilization of foreign tax credits. It is not practicable
to estimate the amount of unrecognized withholding taxes and deferred tax
liability on such earnings.

The Company conducts business in Malaysia, which attracts industry by
granting a "holiday" from income taxes. This agreement, which expires in March
2002, reduced income tax expense by $1,051 or $.04; $1,680 or $.07; and $2,572
or $.11 per common share - assuming dilution, in 1998, 1999 and 2000,
respectively.

Income tax payments were $24,611, $7,355 and $15,867 during the years ended
December 31, 1998, 1999 and 2000, respectively.

F. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The Company sponsors several defined contribution plans covering certain
employees. Company contributions are determined by the Board of Directors based
upon participant compensation. The Company also sponsors a non-contributory,
non-qualified supplemental executive retirement plan for certain employees,
providing benefits beyond those covered in the defined contribution plans; the
Company also maintains a 401(k) plan for certain non-union employees in the
United States. Aggregate defined contribution plan expenses were $4,784, $5,351
and $5,565 in 1998, 1999 and 2000, respectively.

The Company has non-contributory defined benefit pension plans and other
postretirement benefit plans, primarily health care and life insurance, for
certain employees in the United States. Components of plan obligations and
assets, and the recorded asset (liability) at December 31 are as follows:

PENSION OTHER POSTRETIREMENT
BENEFITS BENEFITS
-------------------- --------------------
1999 2000 1999 2000
-------- -------- -------- --------

Benefit obligation at beginning of year........... $(15,318) $(13,524) $(9,369) $(5,243)
Service cost...................................... (189) (162) (425) (217)
Interest cost..................................... (977) (1,022) (470) (426)
Participant contributions......................... (89) (103)
Actuarial (loss) gain............................. 2,160 (91) 4,746 433
Benefits paid..................................... 800 816 364 425
-------- -------- ------- -------
Benefit obligation at end of year................. $(13,524) $(13,983) $(5,243) $(5,131)
-------- -------- ------- -------
Fair value of plan assets at beginning of year.... $ 14,767 $ 14,983 $ 0 $ 0
Actual return on plan assets...................... 944 15
Employer contributions............................ 72 483 275 322
Participant contributions......................... 89 103
Benefits paid..................................... (800) (816) (364) (425)
-------- -------- ------- -------
Fair value of plan assets at end of year.......... $ 14,983 $ 14,665 $ 0 $ 0
-------- -------- ------- -------
Plan assets exceeding (less than) benefit
obligations..................................... $ 1,459 $ 682 $(5,243) $(5,131)
Unamortized:
Net loss (gain)................................. (443) 972 (2,009) (2,023)
Prior service cost.............................. 1,389 1,295
Employer contributions.......................... 69 81
-------- -------- ------- -------
Recorded asset (liability)........................ $ 1,016 $ 1,654 $(5,794) $(5,778)
======== ======== ======= =======

F-12

OM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $2,885, $2,885 and $2,328, respectively, as of
December 31, 1999 and $3,137, $3,137 and $2,616, respectively, as of December
31, 2000.

The components of net periodic benefit cost (income) for the years ended
December 31 are as follows:

PENSION BENEFITS
-----------------------------
1998 1999 2000
------- ------- -------

Service cost.......................................... $ 158 $ 189 $ 162
Interest cost......................................... 991 977 1,022
Expected return on plan assets........................ (1,182) (1,249) (1,321)
------- ------- -------
(33) (83) (137)
Curtailment gain...................................... (2,664)
------- ------- -------
$(2,697) $ (83) $ (137)
======= ======= =======

OTHER POSTRETIREMENT BENEFITS
-------------------------------
1998 1999 2000
--------- ------- -------

Service cost............................................... $ 474 $425 $217
Interest cost.............................................. 443 470 426
Net amortization........................................... 90 94 13
------ ---- ----
$1,007 $989 $656
====== ==== ====

During 1998, the Company froze its salaried pension plan, resulting in a
curtailment gain.

Actuarial assumptions used in the calculation of the recorded amounts are
as follows:

1999 2000
----- -----

Discount rate............................................... 7.75% 7.75%
Return on pension plan assets............................... 9.00% 9.00%
Projected health care cost trend rate....................... 8.50% 8.00%
Ultimate health care trend rate............................. 5.50% 5.50%
Year ultimate health care trend rate is achieved............ 2006 2006

Assumed health care cost trend rates have a significant effect on the
amounts reported for other postretirement benefits. A one percentage point
change in the assumed health care cost trend rate would have the following
effect:

1% INCREASE 1% DECREASE
----------- -----------

2000 benefit cost......................................... $ 162 $139
Recorded liability at December 31, 2000................... $1,052 $813

G. STOCKHOLDERS' EQUITY / EARNINGS PER SHARE

In 1996, the Company's Board of Directors adopted a Stockholder Rights
Agreement. Under this plan, rights were distributed as a dividend at the rate of
one right for each outstanding share of common stock of the Company. The rights
become exercisable if a person or group (Acquiring Person) acquires or attempts
to acquire 15% or more of the outstanding shares of the Company's common stock.
In the event that the rights become exercisable, each right (except for rights
beneficially owned by the Acquiring Person, which become null and void) would
entitle the holder to purchase one one-hundredth share of Series A Participating
Preferred Stock at an initial purchase price of $160 per share, subject to
adjustment.

F-13

OM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

If a person or group acquires the threshold percentage of common stock,
each right will entitle the holder, other than the acquiring party, to receive,
upon exercise, shares of common stock having a value equal to two times the
exercise price of the right. For example, at an exercise price of $160 per
right, each right not owned by an Acquiring Person (or by certain related
parties) following an event set forth in the preceding paragraph would entitle
its holder to purchase $320 worth of common stock (or other consideration, as
noted above) for $160. Assuming that the common stock had a per share value of
$40 at such time, the holder of each valid right would be entitled to purchase 8
shares of common stock for $160. If the Company is acquired in a merger or other
business combination, each right will entitle the holder, other than the
acquiring person, to purchase securities of the surviving company having a
market value equal to twice the exercise price of the rights.

The rights may be redeemed by the Board of Directors in whole, but not in
part, at a price of $0.01 per right. The rights have no voting or dividend
privileges and are attached to, and do not trade separately from, the common
stock. The rights expire on November 14, 2006.

During 1999, the Company granted 15,000 shares of restricted stock to an
officer. One-third of these shares vest on the third anniversary of the date of
grant; the remainder vest on the fifth anniversary. The market value of the
restricted stock award was $570, and has been recorded as a separate component
of stockholders' equity.

The following table sets forth the computation of net income per common
share and net income per common share -- assuming dilution:

YEAR ENDED DECEMBER 31,
-----------------------------
1998 1999 2000
------- ------- -------

Net income........................................... $48,358 $55,825 $71,500
======= ======= =======
Weighted average shares outstanding.................. 22,874 23,767 23,843
Dilutive effect of stock options..................... 672 557 408
------- ------- -------
Weighted average shares outstanding -- assuming
dilution........................................... 23,546 24,324 24,251
======= ======= =======
Net income per common share.......................... $ 2.11 $ 2.35 $ 2.99
======= ======= =======
Net income per common share -- assuming dilution..... $ 2.05 $ 2.30 $ 2.95
======= ======= =======

The Company's 1998 Long-Term Incentive Compensation Plan authorizes the
annual grant of options to management personnel of up to one and one-half
percent of the total number of issued and outstanding shares of common stock of
the Company. The Company's 1995 Non-Employee Directors' Equity Compensation Plan
has also authorized the grant of options to non-employee members of the Board of
Directors for up to 250,000 shares of the Company's common stock. All options
granted have 10-year terms and vest and become fully exercisable at the end of
the next fiscal year following the year of grant.

Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, "Accounting for Stock Based Compensation",
and has been determined as if the Company had accounted for its employee and
non-employee stock options under the fair value method of that Statement. The
fair value of these options was estimated at the date of grant using a
Black-Scholes options pricing model with the following weighted-average
assumptions:

F-14

OM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

YEAR ENDED DECEMBER 31,
-----------------------
1998 1999 2000
----- ----- -----

Risk-free interest rate.................................... 5.5% 7.0% 6.0%
Dividend yield............................................. 1.2% 1.2% 1.2%
Volatility factor of Company common stock.................. .25 .25 .25
Weighted-average expected option life (years).............. 5 5 5

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:

1998 1999 2000
------- ------- -------

Net income........................................... $46,718 $53,610 $68,974
Net income per common share.......................... $ 2.04 $ 2.26 $ 2.89
Net income per common share -- assuming dilution..... $ 1.98 $ 2.20 $ 2.84

A summary of the Company's stock option activity, and related information
follows:

1998 1999 2000
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- --------- --------

Outstanding at January 1..... 1,367,773 $17.89 1,606,534 $22.01 1,725,862 $25.83
Granted.................... 341,513 34.60 333,999 35.85 398,251 46.22
Exercised.................. (102,752) 7.00 (214,671) 12.83 (273,850) 24.87
--------- ------ --------- ------ --------- ------
Outstanding at December 31... 1,606,534 $22.01 1,725,862 $25.83 1,850,263 $30.33
Exercisable at end of year... 1,288,534 1,423,362 1,462,763
Weighted-average fair value
of options granted during
the year................... $10.05 $11.39 $13.69

The weighted-average remaining contractual life of options outstanding is
approximately seven years.

The following table summarizes information about stock options outstanding
and exercisable at December 31, 2000:

OUTSTANDING EXERCISABLE
---------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
NUMBER OF CONTRACTUAL EXERCISE NUMBER OF EXERCISE
SHARES LIFE PRICE SHARES PRICE
--------- ----------- -------- --------- --------

Range of exercise prices:
$5.04 -- $13.00................ 428,118 2.3 $ 8.38 428,118 $ 8.38
$17.31 -- $29.96................ 282,145 6.0 $23.59 282,145 $23.59
$35.38 -- $46.75................ 1,140,000 8.5 $40.22 752,500 $36.86

H. COMMITMENTS AND CONTINGENCIES

The Company has a supply agreement with La Generale des Carriers et des
Mines (Gecamines) to purchase all of the concentrate produced by the Luiswishi
mine in Shaba, Democratic Republic of Congo (DRC). Annual production from this
facility is estimated to contain approximately 5,000 metric tons of cobalt and
9,000 metric tons of copper. The cost of the cobalt and copper obtained will be
based upon the prevailing market price as material is processed.

F-15

OM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

In order to develop a long-term nickel raw material source for the OKN
nickel refinery, the Company announced on February 25, 2000 a preliminary joint
agreement with Weda Bay Minerals, Inc. (Weda). The agreement provides for the
Company to provide financing, up to $18 million, to complete a bankable
feasibility study for the development of the Halmahera Island, Indonesia
(Halmahera) nickel and cobalt laterite deposits. The Company has agreed to
purchase all production at Halmahera, which Weda has estimated to yield
approximately 30,000 tons of nickel and 3,000 tons of cobalt annually, beginning
in 2004. At December 31, 2000, the Company had invested approximately $4.6
million in Weda, representing a 19% interest.

The Company is a party to various legal proceedings incidental to its
business and is subject to a variety of environmental and pollution control laws
and regulations in the jurisdictions in which it operates. As is the case with
other companies in similar industries, the Company faces exposure from actual or
potential claims and legal proceedings involving environmental matters. Although
it is difficult to quantify the potential impact of compliance with or liability
under environmental protection laws, management believes that the ultimate
aggregate cost to the Company of environmental remediation, as well as other
legal proceedings arising out of operations in the normal course of business,
will not result in a material adverse effect upon its financial condition or
results of operations.

I. REPORTABLE SEGMENT AND GEOGRAPHIC INFORMATION

The Company and its operating subsidiaries manufacture and sell organics,
inorganics, powders and metal products that are primarily derived from cobalt,
copper and nickel. Organics are essential components in numerous complex
chemical and industrial processes, and are used in many end markets, such as
coatings, custom catalysts, liquid detergents, lubricant and fuel additives,
plastic stabilizers, polyester promoters and adhesion promoters for rubber
tires. Inorganics are used in a wide variety of end products, including
catalysts, colorants, rechargeable batteries, petroleum additives, magnetic
media and metal finishing agents. High specification metal powders have several
important characteristics that make them essential components in cemented
carbides for mining and machine tools, diamond tools used in construction,
rechargeable batteries, and alloyed materials for automotive, electronics,
transportation and catalyst applications. Metal products are important
components in stainless steel applications. The Company operates in a single
business segment serving numerous customers and industries.

1998 1999 2000
-------- -------- --------

INFORMATION ABOUT PRODUCTS
Net Sales
Organics................................... $115,895 $127,246 $129,610
Inorganics................................. 247,896 215,963 241,466
Powders.................................... 157,435 163,746 202,405
Metals..................................... 314,262
-------- -------- --------
$521,226 $506,955 $887,743
======== ======== ========
GEOGRAPHIC INFORMATION
Net Sales(1)
United States.............................. $295,791 $286,503 $318,621
Finland.................................... 201,059 192,317 532,456
Other...................................... 24,376 28,135 36,666
-------- -------- --------
$521,226 $506,955 $887,743
======== ======== ========

F-16

OM GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

1998 1999 2000
-------- -------- --------

Long-Lived Assets
United States.............................. $114,441 $121,178 $117,303
Finland.................................... 95,755 118,341 246,840
Other...................................... 35,149 79,296 121,209
-------- -------- --------
$245,345 $318,815 $485,352
======== ======== ========
Net Sales(2)
Americas................................... $271,038 $258,547 $312,486
Europe..................................... 166,792 158,676 452,749
Asia Pacific and Other..................... 83,396 89,732 122,508
-------- -------- --------
$521,226 $506,955 $887,743
======== ======== ========

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

(1) Net sales are attributed to the geographic area based on the location of the
manufacturing facility.

(2) Net sales are attributed to the geographic area based on the location of the
customer.

Sales to one customer were approximately 18% of the Company's net sales in
2000.

J. QUARTERLY DATA (UNAUDITED)

QUARTER ENDED
---------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------------- --------------- --------------- ---------------

1999
Net sales...................... $114,113 $123,706 $132,092 $137,044
Gross profit................... 37,109 39,462 40,885 42,049
Income from operations......... 22,803 24,630 25,820 25,484
Net income..................... 12,973 14,048 14,260 14,544
Net income per common share.... $.55 $.59 $.60 $.61
Net income per common share --
assuming dilution............ $.54 $.58 $.59 $.60
Market price: high-low......... 36.563-26.875 42.500-32.500 40.063-33.750 40.500-31.500
Dividends paid per share....... $.10 $.10 $.10 $.10

2000
Net sales...................... $148,285 $273,522 $233,384 $232,552
Gross profit................... 42,002 55,400 56,830 59,634
Income from operations......... 27,041 36,912 37,529 37,011
Net income..................... 15,150 18,428 18,627 19,295
Net income per common share.... $.63 $.77 $.78 $.81
Net income per common share --
assuming dilution............ $.63 $.76 $.77 $.79
Market price: high-low......... 46.250-33.750 50.875-41.500 48.500-40.250 57.000-40.130
Dividends paid per share....... $.11 $.11 $.11 $.11

F-17

OM GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
(UNAUDITED)

SEPTEMBER 30,
2001
-------------

ASSETS
Current assets:
Cash and cash equivalents................................. $ 36,361
Accounts receivable....................................... 451,429
Inventories............................................... 746,492
Committed metal positions................................. 139,409
Other current assets...................................... 109,234
----------
TOTAL CURRENT ASSETS........................................ 1,482,925
Property, plant and equipment:
Land...................................................... 25,480
Buildings and improvements................................ 206,828
Machinery and equipment................................... 624,116
Furniture and fixtures.................................... 28,706
----------
885,130
Less accumulated depreciation............................. 177,965
----------
707,165
Other assets:
Goodwill.................................................. 210,175
Other assets.............................................. 177,798
----------
TOTAL ASSETS................................................ $2,578,063
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt..... $ 428,043
Accounts payable.......................................... 169,160
Other accrued expenses.................................... 200,532
Hedged metal obligations.................................. 102,031
----------
TOTAL CURRENT LIABILITIES................................... 899,766
Long-term liabilities:
Long-term debt............................................ 841,184
Deferred income taxes..................................... 116,845
Other long-term liabilities............................... 101,262
Minority interests........................................ 61,958
Stockholders' equity:
Preferred stock, $0.01 par value:
Authorized 2,000,000 shares; no shares issued or
outstanding
Common stock, $0.01 par value:
Authorized 60,000,000 shares; issued 24,145,377 shares
in 2001 and 23,959,346 shares in 2000................. 241
Capital in excess of par value............................ 258,987
Retained earnings......................................... 303,625
Treasury stock (5,459 shares in 2001 and 105,065 shares in
2000, at cost)......................................... (563)
Accumulated other comprehensive loss...................... (4,941)
Unearned compensation..................................... (301)
----------
TOTAL STOCKHOLDERS' EQUITY.................................. 557,048
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $2,578,063
==========

See notes to condensed consolidated financial statements.

F-18

OM GROUP, INC.
CONDENSED STATEMENTS OF CONSOLIDATED INCOME
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)

NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
2001 2000
---------- --------

Net sales................................................... $1,285,507 $655,191
Cost of products sold....................................... 1,067,418 500,959
---------- --------
218,089 154,232
Selling, general and administrative expenses................ 94,174 52,750
---------- --------
Income from operations...................................... 123,915 101,482
Other income (expense)
Interest expense............................................ (39,943) (28,722)
Interest income............................................. 2,076 1,950
Foreign exchange gain (loss)................................ (479) (571)
---------- --------
(38,346) (27,343)
Income before income taxes, minority interests and equity
income.................................................... 85,569 74,139
Income taxes................................................ (24,272) (21,934)
Minority interests.......................................... (2,143)
Equity in income of affiliates.............................. 1,117
---------- --------
Net income.................................................. $ 60,271 $ 52,205
========== ========
Net income per common share................................. $ 2.51 $ 2.19
Net income per common share -- assuming dilution............ $ 2.47 $ 2.15
Weighted average shares outstanding (000)................... 23,980 23,839
Weighted average shares outstanding (000) -- assuming
dilution.................................................. 24,432 24,240
Dividends paid per common share............................. $ 0.39 $ 0.33

See notes to condensed consolidated financial statements.
F-19

OM GROUP, INC.

CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(THOUSANDS OF DOLLARS)
(UNAUDITED)

NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
2001 2000
---------- ---------

OPERATING ACTIVITIES
Net income................................................ $ 60,271 $ 52,205
Items not affecting cash:
Depreciation and amortization.......................... 43,873 29,286
Foreign exchange (gain) loss........................... 479 571
Deferred income taxes.................................. 523 3,923
Changes in operating assets and liabilities............... (88,573) (40,403)
---------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. 16,573 45,582
INVESTING ACTIVITIES
Expenditures for property, plant and equipment, net....... (63,335) (33,583)
Acquisitions of businesses................................ (1,100,030) (187,700)
Divestiture of businesses................................. 525,473 0
Investment in unconsolidated joint ventures............... (4,743) (4,620)
---------- ---------
NET CASH USED IN INVESTING ACTIVITIES.................. (642,635) (225,903)
FINANCING ACTIVITIES
Dividend payments......................................... (9,358) (7,869)
Long-term borrowings...................................... 1,193,664 223,750
Payments of long-term debt................................ (535,223) (25,294)
Purchase of treasury stock................................ (5,331) (8,133)
Proceeds from exercise of stock options................... 6,152 4,809
---------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.... 649,904 187,263
Effect of exchange rate changes on cash and cash
equivalents............................................... (963) (662)
---------- ---------
Increase in cash and cash equivalents....................... 22,879 6,280
Cash and cash equivalents at beginning of period............ 13,482 9,433
---------- ---------
Cash and cash equivalents at end of period.................. $ 36,361 $ 15,713
========== =========

See notes to condensed consolidated financial statements.
F-20

OM GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2001
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)

NOTE A -- BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
financial presentation have been included. Past operating results are not
necessarily indicative of the results which may occur in future periods. For
further information refer to the consolidated financial statements and notes
thereto for the year ended December 31, 2000 included in pages F-2 through F-17
in this offering circular.

Statements of Financial Accounting Standards (SFAS) No. 141 "Business
Combinations" and No. 142 "Goodwill and Other Intangible Assets" were approved
by the Financial Accounting Standards Board effective June 30, 2001. SFAS No.
141 eliminates the pooling-of-interests method for business combinations and
requires use of the purchase method. SFAS No. 142 changes the accounting for
goodwill from an amortization approach to a non-amortization (impairment)
approach. The Statement requires amortization of goodwill recorded in connection
with previous business combinations to cease upon adoption of the Statement by
calendar year companies on January 1, 2002. The Company is currently studying
the impact of the Statements on its financial position, results of operations
and cash flows.

NOTE B -- FINANCIAL INSTRUMENTS

Effective January 1, 2001, the Company adopted SFAS No. 133 "Accounting for
Derivatives and Hedging Activities", as amended. SFAS No. 133 requires that
derivatives be recognized in the balance sheet and measured at fair value. The
Company's derivatives consist of interest rate swaps and commodity and foreign
currency forward contracts.

NOTE C -- INVENTORIES

Inventories consist of the following:

SEPTEMBER 30,
2001
-------------

Raw materials and supplies.................................. $260,639
Finished goods.............................................. 396,711
--------
657,350
LIFO reserve................................................ 89,142
--------
Total inventories........................................... $746,492
========

NOTE D -- CONTINGENT MATTERS

The Company is a party to various legal proceedings incidental to its
business and is subject to a variety of environmental and pollution control laws
and regulations in the jurisdictions in which it operates. As is the case with
other companies in similar industries, the Company faces exposure from actual or
potential claims and legal proceedings involving environmental matters. Although
it is very difficult to quantify the potential impact of compliance with or
liability under environmental protection laws, management believes that the
ultimate aggregate cost to the Company of environmental remediation, as well as
other legal proceedings arising out of operations in the normal course of
business, will not result in a material adverse effect upon its financial
condition or results of operations.

F-21

OM GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED) -- CONTINUED
SEPTEMBER 30, 2001

NOTE E -- COMPUTATION OF EARNINGS PER SHARE

The following table sets forth the computation of net income per common
share and net income per common share -- assuming dilution (shares in
thousands):

NINE MONTHS ENDED
SEPTEMBER 30,
------------------
2001 2000
------- -------

Net income................................................ $60,271 $52,205
======= =======
Weighted average number of shares outstanding............. 23,980 23,839
Dilutive effect of stock options.......................... 452 401
------- -------
Weighted average number of shares outstanding -- assuming
dilution................................................ 24,432 24,240
======= =======
Net income per common share............................... $ 2.51 $ 2.19
======= =======
Net income per common share -- assuming dilution.......... $ 2.47 $ 2.15
======= =======

NOTE F -- COMPREHENSIVE INCOME

Total comprehensive income consists of the following:

NINE MONTHS ENDED
SEPTEMBER 30,
------------------
2001 2000
------- -------

Net income................................................ $60,271 $52,205
Foreign currency translation.............................. 6,150 (987)
Cumulative effect of change in method of accounting....... (1,558) --
Change in fair value of derivatives....................... (5,566) --
------- -------
Total comprehensive income................................ $59,297 $51,218
======= =======

The components of accumulated other comprehensive loss are as follows:

SEPTEMBER 30,
2001
-------------

Foreign currency translation adjustments.................... $ 2,183
Fair value of derivatives................................... (7,124)
-------
Total accumulated other comprehensive income................ $(4,941)
=======

F-22

INDEX TO dmc(2) DEGUSSA METALS CATALYSTS CERDEC AKTIENGESELLSCHAFT FINANCIAL
STATEMENTS

dmc(2) GROUP

PAGE
----

Independent Auditors' Report................................ A-2
Combined Statements of Operations for the years ended
September 30, 1998 and 1999, three months ended December
31, 1999 and year ended December 31, 2000................. A-3
Combined Balance Sheets as of September 30, 1999, December
31, 1999 and December 31, 2000............................ A-4
Combined Statements of Shareholder's Equity for the years
ended September 30, 1998 and 1999, three months ended
December 31, 1999 and year ended December 31, 2000........ A-5
Combined Statements of Cash Flows for the years ended
September 30, 1998 and 1999, three months ended December
31, 1999 and year ended December 31, 2000................. A-6
Notes to Combined Financial Statements...................... A-7
Interim Condensed Combined Statements of Operations for the
six months ended June 30, 2000 and 2001 (unaudited)....... A-44
Interim Condensed Combined Balance Sheet as of June 30, 2001
(unaudited)............................................... A-45
Interim Condensed Combined Statements of Shareholder's
Equity for the six months ended June 30, 2000 and 2001
(unaudited)............................................... A-46
Interim Condensed Combined Statements of Cash Flows for the
six months ended June 30, 2000 and 2001 (unaudited)....... A-47
Notes to Condensed Combined Interim Financial Statements
(unaudited)............................................... A-48

A-1

INDEPENDENT AUDITORS' REPORT

To the Supervisory Board of
dmc(2) Degussa Metals Catalysts Cerdec Aktiengesellschaft:

We have audited the accompanying combined balance sheets of dmc(2) Degussa
Metals Catalysts Cerdec Aktiengesellschaft and subsidiaries as of December 31,
2000 and 1999, and September 30, 1999, and the related combined statements of
operations, shareholder's equity, and cash flows for the year ended December 31,
2000, three months ended December 31, 1999, and the years ended September 30,
1999 and 1998. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audits.

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

In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of dmc(2)
Degussa Metals Catalysts Cerdec Aktiengesellschaft and subsidiaries as of
December 31, 2000 and 1999, and September 30, 1999 and the results of their
operations and their cash flows for the year ended December 31, 2000, the three
months ended December 31, 1999, and the years ended September 30, 1999 and 1998
in conformity with accounting principles generally accepted in Germany.

Accounting principles generally accepted in Germany vary in certain
respects from accounting principles generally accepted in the United States of
America. Application of accounting principles generally accepted in the United
States of America would have affected shareholder's equity as of December 31,
2000 and 1999 and September 30, 1999 and results of operations for the year
ended December 31, 2000, the three months ended December 31, 1999, and the year
ended September 30, 1999 to the extent summarized in Note 33 to the combined
financial statements.

KPMG DEUTSCHE TREUHAND-GESELLSCHAFT
AKTIENGESELLSCHAFT
WIRTSCHAFTSPRUEFUNGSGESELLSCHAFT

Frankfurt, Germany
November 30, 2001

A-2

dmc(2) GROUP

COMBINED STATEMENTS OF OPERATIONS

GERMAN GAAP

(IN DEM THOUSANDS)

THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
NOTE 1998 1999 1999 2000
---- ------------- ------------- ------------- ------------

SALES.............................. 7 7,509,897 8,144,355 2,230,468 12,127,588
Cost of sales...................... 8 (6,966,900) (7,574,302) (2,078,472) (11,385,746)
---------- ---------- ---------- ------------
GROSS PROFIT....................... 542,997 570,053 151,996 741,842

Selling expenses................... 8 (279,152) (275,338) (75,003) (296,967)
General administrative expenses.... 8 (149,774) (160,949) (49,697) (158,056)
Research and development
expenses......................... 8 (67,740) (72,389) (20,849) (117,838)
Other operating income............. 9 75,644 86,452 29,610 115,276
Other operating expenses........... 10 (67,713) (94,968) (38,937) (80,082)
---------- ---------- ---------- ------------
NET OPERATING INCOME (LOSS)........ 54,262 52,861 (2,880) 204,175

Income (loss) from investments,
net.............................. 11 (1,115) 11,612 2,495 17,549
Write-down of investments.......... -- -- 40 (683)
Interest expense, net.............. 12 (15,709) (27,540) (6,577) (53,875)
---------- ---------- ---------- ------------
INCOME (LOSS) FROM ORDINARY
ACTIVITIES BEFORE EXTRAORDINARY
ITEMS AND INCOME TAXES........... 37,438 36,933 (6,922) 167,166

Extraordinary income (expenses).... 13 119,716 (15,728) (67,107) (36,820)
Income taxes....................... (47,654) (9,168) 9,168 (44,655)
---------- ---------- ---------- ------------
NET INCOME (LOSS).................. 109,500 12,037 (64,861) 85,691
========== ========== ==========

Dividend payment................... --
Minority interests................. 14 (28,309)
Loss brought forward upon
formation........................ (7,042)
Transfer to reserves, net.......... (42,340)
------------
PROFIT AVAILABLE FOR
DISTRIBUTION..................... 8,000
============

The accompanying notes are an integral part of the combined financial
statements.
A-3

dmc(2) GROUP

COMBINED BALANCE SHEETS

GERMAN GAAP

(IN DEM THOUSANDS)

SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
NOTE 1999 1999 2000
---- ------------- ------------ ------------

ASSETS
Intangible assets................................ 16 16,682 11,403 11,623
Property, plant and equipment, net............... 17 524,336 547,662 597,179
Investments...................................... 18 88,723 102,697 128,720
--------- --------- ---------
NON-CURRENT ASSETS............................... 19 629,741 661,762 737,522

Inventories, net................................. 20 575,442 680,597 866,851

Trade accounts receivable, net................... 426,079 444,053 734,363
Accounts receivable from affiliated companies.... 58,084 23,483 56,678
Other accounts receivable and other assets....... 54,705 54,706 90,869
--------- --------- ---------
ACCOUNTS RECEIVABLE AND OTHER ASSETS............. 21 538,868 522,242 881,910
Cash and cash equivalents........................ 22 49,361 70,605 47,146
--------- --------- ---------
CURRENT ASSETS................................... 1,163,671 1,273,444 1,795,907

Deferred charges................................. 23 66,411 61,798 32,995
--------- --------- ---------

TOTAL ASSETS..................................... 1,859,823 1,997,004 2,566,424
========= ========= =========

SHAREHOLDER'S EQUITY AND LIABILITIES
Issued capital................................... -- -- 50,000
Reserves......................................... 25 -- -- 483,885
Profit available for distribution................ -- -- 8,000
Investments by and advances from Degussa......... 1,076,675 1,168,391 --
Minority interests............................... 26 -- -- 110,214
--------- --------- ---------
SHAREHOLDER'S EQUITY............................. 24 1,076,675 1,168,391 652,099

Provisions for pensions and similar
obligations.................................... 78,125 68,758 126,119
Other accrued liabilities........................ 220,251 252,349 247,967
--------- --------- ---------
ACCRUED LIABILITIES.............................. 27 298,376 321,107 374,086

Liabilities to banks............................. 184,019 184,664 938,726
Advance payments received on orders.............. -- 49 2,102
Trade accounts payable........................... 103,600 106,473 252,442
Liabilities to affiliated companies.............. 121,821 146,785 277,497
Other liabilities................................ 73,335 67,374 67,501
--------- --------- ---------
LIABILITIES...................................... 28 482,775 505,345 1,538,268

Deferred income.................................. 1,997 2,161 1,971
--------- --------- ---------
TOTAL SHAREHOLDER'S EQUITY AND LIABILITIES....... 1,859,823 1,997,004 2,566,424
========= ========= =========

The accompanying notes are an integral part of the combined financial
statements.
A-4

dmc(2) GROUP

COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY

GERMAN GAAP

(IN DEM THOUSANDS)

INVESTMENTS
BY AND
PROFIT ADVANCES
ISSUED CAPITAL REVENUE AVAILABLE FOR MINORITY FROM
CAPITAL RESERVE RESERVES DISTRIBUTION INTEREST DEGUSSA TOTAL
------- ------- -------- ------------- -------- ----------- ---------

AS OF SEPTEMBER 30, 1997...... -- -- -- -- -- 796,459 796,459
Net income.................... -- -- -- -- -- 109,500 109,500
Contribution by Degussa,
net......................... -- -- -- -- -- 106,507 106,507
------ ------- ------- ------- ------- --------- ---------
AS OF SEPTEMBER 30, 1998...... -- -- -- -- -- 1,012,466 1,012,466
Net income.................... -- -- -- -- -- 12,037 12,037
Contribution by Degussa,
net......................... -- -- -- -- -- 52,172 52,172
------ ------- ------- ------- ------- --------- ---------
AS OF SEPTEMBER 30, 1999...... -- -- -- -- -- 1,076,675 1,076,675
Net loss...................... -- -- -- -- -- (64,861) (64,861)
Contribution by Degussa,
net......................... -- -- -- -- -- 156,577 156,577
------ ------- ------- ------- ------- --------- ---------
AS OF DECEMBER 31, 1999....... -- -- -- -- -- 1,168,391 1,168,391
Formation (former Cerdec
AG)......................... 32,000 109,346 2,685 (7,042) -- (136,989) --
Contribution of precious
metals and automotive
catalysts divisions by
Degussa..................... 18,000 149,000 -- -- -- (167,000) --
Conversion of advances to
liabilities................. -- -- -- -- -- (689,269) (689,269)
Conversion of advances to
reserves.................... -- -- 93,228 -- -- (93,228) --
Conversion of advances to
minority interest........... -- -- -- -- 81,905 (81,905) --
Contribution by Degussa,
net......................... -- 100,458 -- -- -- -- 100,458
Net income.................... -- -- -- 57,382 28,309 -- 85,691
Dividends paid................ -- -- (23,732) -- -- -- (23,732)
Foreign currency translation
adjustment.................. -- -- 10,560 -- -- -- 10,560
Reclassifications............. -- -- 42,340 (42,340) -- -- --
------ ------- ------- ------- ------- --------- ---------
AS OF DECEMBER 31, 2000....... 50,000 358,804 125,081 8,000 110,214 -- 652,099
====== ======= ======= ======= ======= ========= =========

The accompanying notes are an integral part of the combined financial
statements.
A-5

dmc(2) GROUP

COMBINED STATEMENTS OF CASH FLOWS

GERMAN GAAP

(IN DEM THOUSANDS)

THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
------------- ------------- ------------ ------------

NET INCOME (LOSS).................................. 109,500 12,037 (64,861) 85,691
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization...................... 94,600 91,369 24,561 100,141
(Gain)/loss on disposal of non-current assets...... (127,831) (1,265) 1,150 7,639
Provision for deferred taxes....................... (6,147) (8,755) (6,627) 19,726
(Income)/loss from investments, net................ 1,115 (11,612) (2,495) (17,549)
Write-down of non-current assets................... -- -- 23,507 1,743

CHANGES IN OPERATING ASSETS AND LIABILITIES:
Inventories, net................................... (17,358) 7,752 (108,176) (181,411)
Trade accounts receivable, net..................... (1,493) (72,862) (20,215) (285,256)
Accounts receivable from affiliated companies...... 13,673 46,728 34,498 (33,256)
Other accounts receivable and assets............... (961) (20,084) (391) (31,108)
Deferred charges................................... 24,216 (12,726) 11,807 10,020
Provisions for pensions and similar obligations.... 3,683 8,759 (9,717) 59,151
Other accrued liabilities.......................... 8,032 (5,796) 31,525 (2,147)
Advance payments received on orders................ -- -- 49 2,053
Trade accounts payable............................. (2,465) 17,801 1,999 148,182
Liabilities to affiliated companies................ (84,867) 19,220 21,916 48,818
Other liabilities.................................. (13,969) (9,833) (5,751) 338
Deferred income.................................... 13,605 (10,598) 1,065 161
-------- -------- ------- --------

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.... 13,333 50,135 (66,156) (67,064)

INVESTING ACTIVITIES:
Purchase of intangible assets...................... (194) (8,150) -- (2,847)
Capital expenditures............................... (150,668) (108,036) (52,547) (152,788)
Dividends from investments......................... 9,513 1,457 -- 8,437
Acquisition of business, net of cash acquired...... -- -- -- (8,745)
Proceeds from disposal of non-current assets....... 154,617 16,593 14,272 11,980
-------- -------- ------- --------

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES.... 13,268 (98,136) (38,275) (143,963)

FINANCING ACTIVITIES:
Borrowing from banks, net.......................... (11,653) (2,652) (3,810) 750,515
Net cash from (to) Degussa......................... (43,092) 53,771 125,159 (562,669)
-------- -------- ------- --------

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.... (54,745) 51,119 121,349 187,846
Effect of exchange rate movements on cash.......... (1,807) (415) 4,326 (278)
-------- -------- ------- --------

CHANGE IN CASH AND CASH EQUIVALENTS................ (29,951) 2,703 21,244 (23,459)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD... 76,609 46,658 49,361 70,605
-------- -------- ------- --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD......... 46,658 49,361 70,605 47,146
======== ======== ======= ========

The accompanying notes are an integral part of the combined financial
statements.
A-6

NOTES TO THE COMBINED FINANCIAL STATEMENTS

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

(1) FORMATION OF dmc(2) GROUP, DESCRIPTION OF BUSINESS AND BASIS OF
PRESENTATION

FORMATION OF dmc(2) GROUP

Effective January 1, 2000, Degussa-Huels AG ("Degussa") transferred assets
and liabilities constituting its precious metals and automotive catalysts
businesses to its wholly-owned subsidiary, Cerdec AG, and its subsidiaries (the
"Formation"). Following the Formation, Cerdec AG was renamed dmc(2) Degussa
Metals Catalysts Cerdec AG ("dmc(2) AG", together with its subsidiaries
collectively referred to as "dmc(2) Group").

DESCRIPTION OF BUSINESS

dmc(2) Group produces functional materials using mainly precious metals,
base metals and ceramic materials. dmc(2) Group refines precious metals from
used materials and precious metals management services. dmc(2) Group also
engages in proprietary trading of precious metals.

BASIS OF PRESENTATION

The accompanying combined financial statements were prepared in accordance
with the provisions of the German Commercial Code ("Handelsgesetzbuch" -- "HGB")
and the German Stock Corporation Act ("Aktiengesetz" -- "AktG"). The combined
financial statements of the dmc(2) Group have been prepared in accordance with
German generally accepted accounting principles as if dmc(2) Group had been an
established legal group during all periods presented.

PRESENTATION OF YEARS PRIOR TO dmc(2) GROUP FORMATION

These combined financial statements have been prepared with respect to the
sale on August 10, 2001 of all the assets and liabilities of dmc(2) Group to OM
Group, Inc. Prior to Formation, dmc(2) Group operations were conducted and
accounted for as part of Degussa and of its various subsidiaries. The
accompanying combined financial statements as of and for the three month period
ended December 31, 1999 and as of and for the years ended September 30, 1999 and
1998 ("carve-out periods") are presented as if dmc(2) Group activities carved
out of Degussa had been conducted by separate legal entities for all periods
presented. The carve-out periods include the historical assets, liabilities and
results of operations allocated to dmc(2) Group prepared from the Degussa
historical accounting records and the historical assets, liabilities and results
of operations of Cerdec AG. The combined financial statements for the periods
presented prior to the Formation may not necessarily be indicative of the
results of operations, financial position, and cash flows of dmc(2) Group had it
operated as a separate independent company, nor are they an indicator of future
performance.

During the carve-out periods all revenue and expenses attributable to
dmc(2) Group are included in the statements of operations. Prior to Formation,
the statements of operations also include allocations from Degussa of general
corporate overhead, central organizational costs, and other expenses. In all
cases, management believes the allocation methods used were reasonable.

INDEBTEDNESS AND INTEREST

dmc(2) Group has historically been, and continues to be, dependent upon
Degussa for their financing and capital requirements. Financing is provided by
Degussa in the form of equity contributions, interest and non-interest bearing
intercompany advances and loans. Degussa also guarantees financing obtained from
third parties. Additionally, certain legal subsidiaries comprising dmc(2) Group
had external indebtedness during the carve-out periods and dmc(2) Group
operations incurred interest expense on precious metal lease transactions. Such
indebtedness and interest expense is included in the carve-out periods. The
capital structure and related

A-7

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

interest expense may not necessarily be indicative of the interest expense that
dmc(2) Group would have incurred as a separate independent company.

TAXATION

Income taxes have been calculated as if dmc(2) Group was a stand-alone
entity filing separate tax returns during all periods presented. Income taxes as
calculated may not be indicative of income tax expense that dmc(2) Group would
have incurred had dmc(2) Group been a separate legal entity.

In October 2000, the German government enacted new tax legislation which,
among other changes, will reduce the dmc(2) Group's statutory corporate tax rate
for German companies from 40% on retained earnings and from 30% on distributed
earnings to a uniform 25%, effective for dmc(2) Group's year beginning January
1, 2001. The effects of the rate changes were recorded in 2000.

SHAREHOLDER'S EQUITY

Prior to Formation, the difference between assets and liabilities allocated
to dmc(2) Group is shown as investments by and advances from Degussa within the
combined statements of shareholder's equity. Investments by and advances from
Degussa prior to Formation include indebtedness, provisions for pensions and
similar obligations, trade accounts payable, and other liabilities which could
not be reasonably allocated to dmc(2) Group because these amounts were managed
on a group basis by Degussa.

As of the Formation, issued capital, reserves and profit available for
distribution are that of dmc(2) AG.

CHANGE IN FISCAL YEAR

Effective January 1, 2000, dmc(2) Group's fiscal year end was changed from
September 30 to December 31 to conform with Degussa's fiscal year end. As a
result, the accompanying financial statements present a three month period ended
December 31, 1999.

CLASSIFICATION

To improve clarity, certain balance sheet and statement of operations items
have been combined with the detail provided in the footnotes. The statements of
operations were prepared using the cost-of-sales format. Under the cost-of-sales
format, operating expenses are assigned to one of four areas: manufacturing,
selling, research and development, and general administration.

AFFILIATION WITH THE DEGUSSA AG AND E.ON AG GROUPS

Prior to August 10, 2001, dmc(2) AG was a wholly-owned subsidiary of
Degussa, Frankfurt am Main. dmc(2) AG and the companies consolidated are
included in the exempting consolidated financial statements of Degussa AG,
Frankfurt am Main. The consolidated Degussa group financial statements are on
public record with the District Court (Amtsgericht) of Frankfurt am Main. E.ON
AG, Duesseldorf, prepared the group financial statements for the largest group
of companies of which dmc(2) AG was a part. These group financial statements are
on record with the Commercial Registers in Berlin and Duesseldorf and have been
published in the Federal Bulletin (Bundesanzeiger). Companies controlled
directly and indirectly by E.ON AG are deemed affiliated companies of dmc(2)
Group.

A-8

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

(2) dmc(2) GROUP STRUCTURE

In connection with the Formation of dmc(2) Group as of January 1, 2000, the
following precious metals and automotive catalysts businesses of Degussa were
transferred to dmc(2) Group:

TRANSFERRING COMPANY RECEIVING COMPANY NAME CHANGED TO
-------------------- ----------------- ---------------

Degussa-Huels AG, Frankfurt Cerdec AG, Frankfurt dmc(2) AG, Frankfurt
Degussa-Huels France S.A. Cerdec France S.A. dmc(2) France S.A.
Degussa-Huels Ltda., Brazil Cerdec Produtos Ceramicos dmc(2) Ltda., Brazil
Ltda., Brazil
Degussa-Huels CEE GmbH Oegussa GmbH, Vienna
Vienna
Degussa-Huels Corporation, Cerdec Corporation, USA dmc(2) Corporation, USA
USA
Degussa-Huels Corporation, dmc(2) L.P., USA*
USA
Degussa-Huels Mexico S.A. de Cerdec Mexico S.A. de C.V. dmc(2) S.A. de C.V., Mexico
CV
Degussa-Huels Japan Co., Cerdec Japan Co. Ltd. dmc(2) Japan Ltd.
Ltd.
Degussa-Huels Ltd., UK Cerdec (UK) Ltd. dmc(2) (UK) Ltd.
Degussa-Huels Canada Ltd. dmc(2) Canada Corp.*
Algorax (Pty.) Limited, dmc(2) Catalyst Ltd., South
South Africa Africa*
Degussa-Huels China Ltd., dmc(2) China Ltd., Hong
Hong Kong Kong*

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

* Newly formed company

Furthermore, shares in the following companies were transferred to the
dmc(2) Group during 2000 in accordance with the transfer and acceptance
agreement:

Allgemeine Gold- und Silberscheideanstalt AG, Pforzheim
Degussa-NA Edelmetall GmbH, Hanau
Norddeutsche Affinerie AG, Hamburg
Prometron GmbH Produkte fuer Elektronik und Elektrotechnik GmbH, Hanau
International Catalyst Technology, Inc., Calvert City/USA
Coimpa Sociedade Industrial de Metais Preciosos da Amazonia Ltda.,
Guarulhos/Brazil
Newtechnos Argentina S.A. (NASA), Buenos Aires/Argentina
dmc(2) Metals (Thailand), Bangkok/Thailand
Nadir Allgemeine Soymetaller, Istanbul/Turkey
Allgemeine France S.A.R.L., Brunstatt/France
ICT Co. Ltd., Osaka/Japan
Schoene Edelmetaal B.V., Amsterdam/Netherlands
Degussa Galvanotechnik GmbH, Schwaebisch-Gmuend
Clarex S.A., Guarulhos/Brazil
Icomeq Industria e Comercio Ltda., Guarulhos/Brazil
dmc(2) Electronic Materials B.V., Uden/Netherlands
dmc Catalyst Ltd., Port Elizabeth/South Africa

A-9

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

dmc(2) L.P.

Through a subsidiary, dmc(2) AG owns a 1% interest in dmc(2) L.P. The
remaining 99% interest is owned by dmc(2) AG's parent, Degussa. However,
pursuant to the transfer and acceptance agreement with Degussa, dmc(2) L.P. is
subject to the management authority of dmc(2) AG and thus, control is exercised
by dmc(2) AG. Degussa's interest in dmc(2) L.P.'s equity and profits are
accordingly shown as minority interests in the combined financial statements as
of December 31, 2000. During the carve-out periods, Degussa's interest in dmc(2)
L.P.'s equity is included as investments by and advances from Degussa.

(3) COMBINED AND ASSOCIATED COMPANIES

Besides dmc(2) AG, the dmc(2) Group combined financial statements include
three domestic and thirty-two foreign group companies, which include carved-out
businesses (September 30, 1998: three domestic, twenty-four foreign; September
30, 1999 and December 31, 1999: three domestic, twenty-five foreign). Inclusion
was based on a voting rights majority held either directly or indirectly. dmc(2)
L.P., Washington/U.S.A. was an exception in this respect and was included
pursuant to ss. 290 (2) no. 2 of HGB. Colorificio Pardo, S.p.A., Corlo/Italy,
Degussa Skandinavien Katalysator AB, Karlskoga/Sweden, Cerpart S.R.L.,
Mailand/Italy, Cerdec Holding Co., Las Vegas/USA and Cerdec Royalty Co., Las
Vegas/USA were first included in the scope of consolidation during the year
ended September 30, 1998. dmc(2) Electronic Materials B.V., Uden/Netherlands was
consolidated following acquisition during the year ended September 30, 1999.
Demeca, Mexico was founded in the year ended December 31, 2000. dmc(2)
Electronic Components USA was consolidated following acquisition during the year
ended December 31, 2000.

The 30% minority interest of Cerdec AG, formerly held by Ciba Geigy, was
acquired in the year ended September 30, 1999 and the resulting goodwill was
offset against investments by and advances from Degussa.

Certain carved-out businesses were not established as legal companies prior
to fiscal 2000. These businesses included dmc(2) Iberica S.A., dmc(2) Italia
S.p.A., Cerdec Ceramics Brasil, Cerdec Ceramics Mexico and Cerdec Ceramics Inc.,
USA.

Twelve subsidiaries and carved-out businesses (September 30, 1998: 12;
September 30, 1999: 13; December 31, 1999: 13) have not been consolidated as
they are not material to the dmc(2) Group's net assets, financial position and
operating results.

Nine foreign companies, of which three are subsidiaries, (September 30,
1998: two foreign companies; September 30, 1999: five foreign companies, of
which one is a subsidiary; December 31, 1999: five foreign companies, of which
one is a subsidiary) have been included as equity investments in the combined
financial statements in accordance with the regulations on associated companies
under ss. 311 ff. HGB in conjunction with ss. 312 (1) no. 1 HGB. No adjustments
to comply with uniform Group accounting and valuation guidelines or elimination
of intercompany profits were made in relation to these companies. Investments in
two companies (September 30, 1998: seven companies; September 30, 1999: seven
companies; December 31, 1999: seven companies), were not included as associated
companies because they are not material. As of December 31, 2000, Norddeutsche
Affinerie AG, Hamburg, is included as an other investment due to the
discontinuation of gold and silver refining operations and the decline in mutual
business transactions. Norddeutsche Affinerie AG was included as an equity
investment as of December 31, 1999 and September 30, 1999.

(4) PRINCIPLES OF COMBINATION

In the process of combination, the acquisition cost of subsidiaries is
offset against the book value of the pro rata share of shareholder's equity at
the date of acquisition or initial combination. The resulting difference

A-10

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

between the cost of acquisition and shareholder's equity is allocated to the
relevant assets or liabilities insofar as their fair market value differs from
their book value. In general, the excess of the purchase price over the fair
value of the net assets acquired is offset against shareholder's equity without
impacting the dmc(2) Group operating results. In general, negative goodwill
arising from combinations is shown as a component of shareholder's equity except
when the particular circumstances indicate that a liability exists, in which
case such differences are allocated to liabilities. The initial full combination
of subsidiaries and carved-out businesses resulted in positive (debit)
differences of DM 0.7 million as of December 31, 2000 (September 30, 1998:
positive (debit) differences of DM 8.1 million and negative (credit) differences
of DM 1.7 million; September 30, 1997: DM 0.0 million; December 31, 1999: DM 0.0
million).

The initial inclusion of equity investments in the year ended December 31,
2000 resulted in positive (asset side) differences of DM 10.1 million which are
being amortized as goodwill over 15 years, and negative (equity side)
differences of DM 31.0 million (year ended September 30, 1999: DM 4.1 million)
which were added to shareholder's equity without impacting earnings.

Accounts receivable and accounts payable between combined companies have
been eliminated. The valuation of assets has been adjusted to eliminate
unrealized intercompany profits. Accordingly, such assets are valued at their
cost to the dmc(2) Group as a whole. Intercompany sales and other income from
transactions within the dmc(2) Group have been offset against the corresponding
expenditure.

Deferred taxes are recorded if any difference in the tax charge resulting
from combination measures is expected to be reversed in subsequent financial
years. In this process, prepaid and deferred taxes have been netted, taking into
account the tax adjusting entries in the individual balance sheets.

(5) ACCOUNTING AND VALUATION PRINCIPLES

The combined financial statements of the dmc(2) Group are prepared on a
uniform basis of accounting with respect to combined subsidiaries.

INTANGIBLE ASSETS

Acquired intangible assets, other than goodwill, are shown at the
acquisition cost less scheduled depreciation over a maximum period of 5 years.
Goodwill is depreciated over 15 years. Unscheduled depreciation is taken where
declines in value are expected to be other than temporary.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at historical cost. The production
cost of self-manufactured assets includes an allocation of overhead and
depreciation on production plant and equipment in addition to the cost of
materials and labor.

Depreciation is recorded on a scheduled basis over the useful life that is
usual in the relevant industry sector. Where permissible for tax purposes, the
declining balance method is used until the residual book value over the
remaining useful life of the asset results in a higher straight-line
depreciation charge. Unscheduled depreciation is taken where a loss in value is
expected to be permanent. Low-value items are expensed in full in the year of
acquisition.

INVESTMENTS

Shares in affiliated companies and investments in other companies are
valued at cost of acquisition or at their lower assignable value on the balance
sheet date if declines in value are other than temporary. The book values of
associated enterprises have been adjusted for the pro rata amount of changes in
shareholder's equity. Generally, the accounting policies locally applied by the
associated enterprises were kept unchanged. The cost of acquisition was
generally netted against pro rata shareholder's equity at the time of
acquisition.

A-11

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

INVENTORY

The valuation of raw materials and supplies is based on the lower of
average purchase cost or market price. Write-downs are recorded to reflect
declines in value resulting from obsolete and slow moving items. Precious metals
have generally been accounted for under the LIFO method. Write-downs are
reversed where necessary. Work in progress and finished goods, other than
precious metals are valued at cost of production. The cost of production of work
in progress and finished goods includes all amounts required to be capitalized
for German tax purposes. These include the cost of labor and materials,
appropriate overhead costs, and a pro rata share of depreciation.

RECEIVABLES

Receivables are stated at nominal value less discounts and allowances.
dmc(2) Group covers specific risks relating to accounts receivable with
valuation allowances. The general credit risk is reflected in a general
allowance. For the periods ending September 30, 1998, September 30 and December
31, 1999, the general allowance for receivables not otherwise provided for was
4% of accounts receivable. In the period ended December 31, 2000, the allowance
was revised to 1% for certain subsidiaries to conform with internationally
accepted accounting practices, which focus more directly on the specific
recovery risk. This led to a reduction in the general allowance by approximately
DM 4,700 with respect to accounts receivable as of January 1, 2000.

DEFERRED TAXES

Deferred tax assets and liabilities are calculated for temporary
differences between the valuation of assets and liabilities in the financial
statements of combined companies and the carrying amounts for tax purposes using
the tax rates either in effect or expected to apply in the period of reversal.
Deferred tax assets are calculated with respect to tax loss carry forwards if
there are offsetting deferred tax liabilities. Deferred tax assets are
recognized to the extent they are expected to be realized.

PENSION PROVISIONS

Pension provisions and similar obligations including health care
commitments are actuarially determined utilizing the projected unit credit
method customarily used in international accounting. Thus, pension provisions
are calculated as the present value of the vested pension rights.

Pension provisions are calculated on the basis of local economic
conditions. The German pension calculation used the following rates:

SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1999 2000
-------------- -------------- ----------------

Interest rate................... 6.00% 6.25% 6.25%
Annual pension increase......... 1.00% 1.25% 1.25%
Annual wage and salary
increase...................... 2.50% 2.75% 2.75%
Average staff fluctuation
rate.......................... 2.00% 2.00% 2.00%
Actuarial table................. Bode & Grabner Bode & Grabner Heubeck
PK Chemie 1996 PK Chemie 1996 Richttafeln 1998

ACCRUED LIABILITIES

Other accrued liabilities are shown in the balance sheet at the expected
payable amount. Liabilities are stated at the higher of nominal value or at the
amount repayable.

A-12

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

(6) CURRENCY TRANSLATION

Accounts receivable and payable in foreign currencies, that are not hedged
against changes in exchange rates, are initially recorded at the rates of
exchange in force when first entered in the accounts. Unrealized losses due to
changes in exchange rates are taken into account as of the balance sheet date.
Gains are recognized when realized.

The financial statements of foreign subsidiaries and associated companies
are translated in the group financial statements using the concept of functional
currencies. As a rule, the functional currency is the local currency as these
companies conduct their business independently from a financial, economic and
organizational point of view. Assets and liabilities are therefore translated at
closing rates on the balance sheet date. Shareholder's equity is translated at
historical rates, while income and expenses are translated using average
reporting period rates. Differences arising from the currency translation of
assets and liabilities compared to the previous period and translation
differences between the balance sheet and statement of operations are recorded
in shareholder's equity.

The exchange rates for the more significant currencies for the dmc(2) Group
are as follows:

CLOSING RATE
(DEM) --------------------------------------------------------------
THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
------------- ------------- ------------ ------------

1 USA USD................. 1.67590 1.83380 1.94690 2.10191
1 Brazil BRL................. 1.40770 0.94510 1.08740 1.07790
100 Japan JPY................. 1.23450 1.74070 1.90390 1.82920
100 Mexico MXN................. 16.8649 19.5192 20.5106 21.9235
1 Canada CAD................. 1.10070 1.24960 1.33890 1.40052
1 S. Africa ZAR................. 0.28500 0.30470 0.31650 0.27770

AVERAGE RATE
--------------------------------------------------------------
THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
------------- ------------- ------------ ------------

1 USA USD................. 1.78290 1.78030 1.88330 2.11759
1 Brazil BRL................. 1.56790 1.11840 0.98510 1.15872
100 Japan JPY................. 1.35150 1.51770 1.80270 1.96620
100 Mexico MXN................. 20.8920 18.5220 20.0317 22.3865
1 Canada CAD................. 1.23130 1.18580 1.27910 1.42701
1 S. Africa ZAR................. 0.34060 0.29620 0.30880 0.30582

A-13

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

(7) SALES

THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
(IN DEM MILLION) ------------- ------------- ------------ ------------

SALES BY ACTIVITY
Industrial Products.................. 2,769 3,058 873 4,408
Metals Management.................... 4,741 5,086 1,357 7,720
----- ----- ----- ------
TOTAL GROUP.......................... 7,510 8,144 2,230 12,128
===== ===== ===== ======

SALES BY REGION
Germany.............................. 4,025 4,455 1,185 5,071
Other European countries........... 475 489 149 553
NAFTA.............................. 2,422 2,657 750 5,330
Latin America...................... 359 262 57 466
Asia............................... 153 195 59 374
Africa, Australia, Oceania......... 76 86 30 334
----- ----- ----- ------
Foreign.............................. 3.485 3,689 1,045 7,057
----- ----- ----- ------
TOTAL GROUP.......................... 7,510 8,144 2,230 12,128
===== ===== ===== ======

Sales are reported according to their nature into business activity:
Industrial Products (Advanced Materials, Chemicals & Catalysts) and Metals
Management.

Advanced Materials consists of the following divisions: Electronic
Materials, Technical Materials, Performance Colors and Pigments, Glass Systems,
Jewelry and Electroplating, and Cerdec Ceramics. These divisions concentrate
primarily on the production of functional materials, multi-layer systems, and
surfaces for different markets.

Chemicals and Catalysts constitutes the chemical sector of the dmc(2)
Group. Its three closely related divisions -- Automotive Catalysts, Precious
Metals Chemistry, and Fuel Cells -- deal primarily with the catalytic effects of
precious metals and their recycling.

Metals Management includes revenue from precious metals trading.

(8) FUNCTIONAL COSTS

Costs of sales consist of manufacturing costs and the cost of purchased
goods sold including costs associated with precious metal trading. Costs of
sales also includes cost of materials, external services and payroll costs,
depreciation relating to manufacturing operations, machinery repairs, taxes and
write-downs on inventories.

Selling expenses include the costs of maintaining sales and distribution
departments and advertising expense. Research and development expenses include
the cost of maintaining the research departments and product and process
development costs. General administrative expenses relate to management and
administrative functions which are not included in manufacturing, selling and
distribution, or research and development departments.

A-14

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

(9) OTHER OPERATING INCOME

Other operating income includes insurance reimbursements, release of
accrued liabilities, exchange gains, and income related to other accounting
periods. Income relating to other accounting periods amounts to DM 10,731 for
the year ended December 31, 2000 (September 30, 1998: DM 20,781; September 30,
1999: DM 5,772; December 31, 1999: DM 4,248) and includes primarily income from
the disposal of non-current assets, the reversal of write-downs of accounts
receivable, and reimbursements for costs incurred in prior years.

THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
------------- ------------- ------------ ------------

Other operating income............... 75,644 86,452 29,610 115,276
====== ====== ====== =======

(10) OTHER OPERATING EXPENSES

Other operating expenses include expenses arising from allowances and
write-downs of accounts receivable, additions to accrued liabilities, and
expenses relating to other accounting periods. Expenses relating to other
accounting periods amount to DM 5,913 for the year ended December 31, 2000
(September 30, 1998: DM 25,756; September 30, 1999: DM 752; December 31, 1999:
DM 10,496).

THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
------------- ------------- ------------ ------------

Other operating expenses............. (67,713) (94,968) (38,937) (80,082)
======= ======= ======= =======

(11) INCOME (LOSS) FROM INVESTMENTS, NET

THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
------------- ------------- ------------ ------------

Income from investments.............. 3,513 1,323 -- 531
(of which from affiliated
companies)...................... (2,764) (611) -- (354)
Equity income (loss)
from associated companies.......... (4,628) 10,289 2,495 17,018
------ ------ ----- ------
TOTAL................................ (1,115) 11,612 2,495 17,549
====== ====== ===== ======

(12) INTEREST EXPENSE, NET

THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
------------- ------------- ------------ ------------

Interest and similar income.......... 40,216 15,604 7,251 43,771
(of which from affiliated
companies)...................... (7,266) (1,204) (311) (5,012)
(of which relate to precious metal
leases)......................... (16,037) (7,801) (4,997) (31,716)
Interest and similar expenses........ (55,925) (43,144) (13,828) (97,646)
(of which from affiliated
companies)...................... (8,282) (18,839) (5,279) (29,160)
(of which relate to precious metal
leases)......................... (28,751) (14,585) (5,777) (24,209)
------- ------- ------- -------
INTEREST EXPENSE, NET................ (15,709) (27,540) (6,577) (53,875)
======= ======= ======= =======

A-15

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

The metals management segment is responsible for managing the metal
position of dmc(2) Group utilizing forward contracts and metal lease contracts
with suppliers, banks, customers and other third parties. Metals management also
finances the production needs of dmc(2) Group entities through the use of metal
leases.

(13) EXTRAORDINARY INCOME (EXPENSES)

The extraordinary income in fiscal year 1998 primarily relates to the sale
of a 10% interest in Norddeutsche Affinerie AG, Hamburg. The extraordinary
expenses shown in the year ended December 31, 2000 reflect primarily the impact
of LIFO valuation of precious metals inventories, the costs of forming the
dmc(2) Group, unscheduled depreciation and expenses related to the transfer of
the Cerdec Ceramics operations. The extraordinary expenses shown in prior
periods resulted primarily from restructuring measures which took place at
different locations in the dmc(2) Group.

THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
------------- ------------- ------------ ------------

Extraordinary income................. 123,199 -- 944 9,237
Extraordinary expense................ (3,483) (15,728) (68,051) (46,057)
------- ------- ------- -------
EXTRAORDINARY INCOME (EXPENSES)...... 119,716 (15,728) (67,107) (36,820)
======= ======= ======= =======

(14) MINORITY INTERESTS

THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
------------- ------------- ------------ ------------

MINORITY INTERESTS................... -- -- -- (28,309)
== == == =======

Minority interests primarily relate to dmc(2) L.P., Coimpa Sociedade
Industrial de Metais Preciosos da Amazonia Ltda., Allgemeine Gold- und
Silberscheideanstalt AG, Degussa Galvanotechnik GmbH, Degussa Catalyst (Pty.)
Ltd., and Schoene Edelmetaal B.V.

(15) ADDITIONAL OPERATING INFORMATION

COST OF MATERIALS

THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
------------- ------------- ------------ ------------

Cost of raw materials, supplies and
merchandise purchased.............. 6,484,049 7,023,576 1,863,538 10,640,983
Cost of external services............ 44,768 43,675 12,460 59,646
--------- --------- --------- ----------
TOTAL................................ 6,528,817 7,067,251 1,875,998 10,700,629
========= ========= ========= ==========

Costs of raw materials, supplies and merchandise purchased includes
precious metal trading activity.

A-16

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

PAYROLL COSTS

THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
------------- ------------- ------------ ------------

PERSONNEL EXPENSES
Wages and salaries................... 343,799 366,987 92,682 453,924
Social security contributions and
expenses for pensions and similar
obligations........................ 110,838 109,539 31,260 126,050
(of which from pensions)........... (35,899) (35,874) (10,425) (41,013)
------- ------- ------- -------
TOTAL................................ 454,637 476,526 123,942 579,974
======= ======= ======= =======

UNSCHEDULED DEPRECIATION OF INTANGIBLE ASSETS AND PROPERTY PLANT AND EQUIPMENT

Unscheduled depreciation of intangible assets and property plant and
equipment totaled DM 23,547 for the three months ended December 31, 1999.

AVERAGE NUMBER OF EMPLOYEES DURING THE FINANCIAL PERIODS

THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
------------- ------------- ------------ ------------

Germany.............................. 2,221 2,203 2,165 2,342
Abroad............................... 2,735 2,869 2,867 3,102
----- ----- ----- -----
TOTAL................................ 4,956 5,072 5,032 5,444
===== ===== ===== =====

AVERAGE NUMBER OF EMPLOYEES BY PRODUCT LINE DURING THE FINANCIAL PERIODS

THREE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1998 1999 1999 2000
------------- ------------- ------------ ------------

Advanced Materials................... 3,608 3,690 3,663 4,087
Chemicals and Catalysts.............. 1,318 1,352 1,340 1,304
Metals Management.................... 30 30 29 53
----- ----- ----- -----
TOTAL................................ 4,956 5,072 5,032 5,444
===== ===== ===== =====

(16) INTANGIBLE ASSETS

BOOK VALUE, NET

SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1999 2000
------------- ------------ ------------

Franchises, licenses and industrial property rights
and similar rights and assets.................... 2,603 3,553 3,644
Goodwill........................................... 14,061 7,472 7,979
Advance payments................................... 18 378 --
------ ------ ------
TOTAL.............................................. 16,682 11,403 11,623
====== ====== ======

A-17

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

DEVELOPMENT

THREE MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1999 2000
------------- ------------ ------------

COSTS OF ACQUISITION OR PRODUCTION
Opening balance................................... 29,845 32,774 37,284
Exchange differences.............................. (828) 859 (277)
Changes in scope of combination................... 1,769 -- --
Additions......................................... 8,150 5,099 5,215
Disposals......................................... (6,469) (1,448) (16,414)
Reclassifications................................. 307 -- 477
------ ------ -------
Closing balance................................... 32,774 37,284 26,285

ACCUMULATED DEPRECIATION
Opening balance................................... 18,863 16,092 25,881
Exchange differences.............................. (1,078) 333 (210)
Additions......................................... 2,681 9,820 3,840
Disposals......................................... (4,374) (364) (14,723)
Reclassifications................................. -- -- (126)
------ ------ -------
Closing balance................................... 16,092 25,881 14,662
------ ------ -------
BOOK VALUE, NET................................... 16,682 11,403 11,623
====== ====== =======

Depreciation of DM 9,820 for the three months ended December 31, 1999
includes DM 9,176 of unscheduled depreciation of goodwill relating to
Colorificio Pardo S.p.A. reducing the related goodwill to zero.

(17) PROPERTY, PLANT AND EQUIPMENT

BOOK VALUE, NET

SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1999 2000
------------- ------------ ------------

Land, land rights, buildings, including buildings
on leased land................................... 200,501 205,284 215,449
Technical equipment and machinery.................. 218,181 220,922 242,805
Other plant, factory and office equipment.......... 49,859 48,250 53,137
Advance payments and construction work in
progress......................................... 55,795 73,206 85,788
------- ------- -------
TOTAL.............................................. 524,336 547,662 597,179
======= ======= =======

A-18

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

DEVELOPMENT

THREE MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1999 2000
------------- ------------ ------------

COSTS OF ACQUISITION OR PRODUCTION
Opening balance................................... 1,265,516 1,333,001 1,391,146
Exchange differences.............................. (28,463) 38,508 (6,990)
Changes in scope of combination................... 17,231 -- 5,881
Additions......................................... 108,036 52,547 158,720
Disposals......................................... (29,012) (32,910) (54,579)
Reclassifications................................. (307) -- (477)
--------- --------- ---------
Closing balance................................... 1,333,001 1,391,146 1,493,701

ACCUMULATED DEPRECIATION
Opening balance................................... 756,183 808,665 843,484
Exchange differences.............................. (20,098) 20,357 (4,012)
Additions......................................... 88,688 38,288 97,361
Disposals......................................... (16,108) (23,826) (40,437)
Reclassifications................................. -- -- 126
--------- --------- ---------
Closing balance................................... 808,665 843,484 896,522
--------- --------- ---------
BOOK VALUE, NET................................... 524,336 547,662 597,179
========= ========= =========

(18) INVESTMENTS

BOOK VALUE, NET

SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1999 2000
------------- ------------ ------------

Shares in affiliated companies.................... 5,211 9,555 10,173
Loans to affiliated companies..................... -- 1,010 2,020
Shares in associated companies.................... 67,240 78,431 59,995
Other investments................................. 9,476 10,773 53,985
Long-term securities held as investments.......... 2,514 1,091 1,198
Other loans....................................... 4,282 1,837 1,349
--------- --------- ---------
TOTAL............................................. 88,723 102,697 128,720
========= ========= =========

A-19

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

DEVELOPMENT

THREE MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1999 2000
------------- ------------ ------------

COSTS OF ACQUISITION OR PRODUCTION
Opening balance................................... 89,574 109,522 123,714
Exchange differences.............................. 1,099 1,332 2,044
Additions......................................... 19,178 18,114 28,437
------- ------- -------
Disposals......................................... (329) (5,254) (3,786)
Closing balance................................... 109,522 123,714 150,409
ACCUMULATED DEPRECIATION
Opening balance................................... 21,509 20,799 21,017
Exchange differences.............................. (710) 258 (11)
Additions......................................... -- (40) 683
------- ------- -------
Closing balance................................... 20,799 21,017 21,689
------- ------- -------
BOOK VALUE........................................ 88,723 102,697 128,720
======= ======= =======

(19) NON-CURRENT ASSETS

The sum of shareholder's equity, long-term accrued liabilities, and
long-term liabilities exceeded non-current assets in all reporting periods.
Liabilities are defined as long-term if not maturing within one year.

(20) INVENTORIES, NET

SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1999 2000
------------- ------------ ------------

Inventories are as follows:

Raw material and supplies.......................... 151,131 174,790 292,510
Work in progress................................... 123,106 129,888 168,909
Finished products and merchandise.................. 293,788 372,756 395,224
Advance payments................................... 7,417 3,163 10,208
------- ------- -------
TOTAL.............................................. 575,442 680,597 866,851
======= ======= =======

Inventory provisions have been established for obsolete and slow moving
inventories.

Borrowed precious metals and the obligation to return similar metal are
excluded from the balance sheet. In connection with dmc(2) Group's precious
metal activities, dmc(2) Group pays and receives interest with respect to
precious metal leases.

A-20

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

(21) ACCOUNTS RECEIVABLE AND OTHER ASSETS

DUE WITHIN DUE AFTER
SEPTEMBER 30, 1999 1 YEAR 1 YEAR TOTAL
------------------ ---------- --------- -------

Trade accounts receivable................................. 425,999 80 426,079
Accounts receivable from affiliated companies............. 58,084 -- 58,084
Accounts receivable from companies in which investments
are held and other assets............................... (47,939) 6,766 (54,705)
------- ------ -------
TOTAL..................................................... 532,022 6,846 538,868
======= ====== =======

DUE WITHIN DUE AFTER
DECEMBER 31, 1999 1 YEAR 1 YEAR TOTAL
----------------- ---------- --------- -------

Trade accounts receivable................................. 443,974 79 444,053
Accounts receivable from affiliated companies............. 23,163 320 23,483
Accounts receivable from companies in which investments
are held................................................ 6,240 -- 6,240
Other assets.............................................. 39,692 8,774 48,466
------- ------ -------
TOTAL..................................................... 513,069 9,173 522,242
======= ====== =======

DUE WITHIN DUE AFTER
DECEMBER 31, 2000 1 YEAR 1 YEAR TOTAL
----------------- ---------- --------- -------

Trade accounts receivable................................. 734,326 37 734,363
Accounts receivable from affiliated companies............. 56,678 -- 56,678
Accounts receivable from companies in which investments
are held................................................ 11,233 -- 11,233
Other assets.............................................. 69,386 10,250 79,636
------- ------ -------
TOTAL..................................................... 871,623 10,287 881,910
======= ====== =======

Accounts receivable from affiliated companies relate primarily to trade
receivables. Other assets include loans, advance payments, receivables from
suppliers, and tax refund claims.

(22) CASH AND CASH EQUIVALENTS

This item is comprised of checks, cash on hand, and bank balances.

(23) DEFERRED CHARGES

SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1999 2000
------------- ------------ ------------

Deferred taxes..................................... 44,485 51,679 30,341
Other deferred charges............................. 21,926 10,119 2,654
------ ------ ------
TOTAL.............................................. 66,411 61,798 32,995
====== ====== ======

Deferred taxes include charges relating to temporary differences in net
income arising from combination entries and interperiod tax allocation in the
financial statements of individual companies. The other deferred charges also
include prepaid expenses.

A-21

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

(24) SHAREHOLDER'S EQUITY

ORDINARY SHARE CAPITAL

At December 31, 2000 dmc(2) AG had outstanding 1,000,000 shares of bearer
stock with a nominal value of DM 50.00 each. At December 31, 2000, Degussa AG
owns all of the outstanding shares of dmc(2) AG.

CAPITAL TRANSACTIONS

Prior to Formation, the difference between all allocable assets and
liabilities for the carved-out businesses is treated as investments by and
advances from Degussa in the combined statements of shareholder's equity.

Cerdec AG, the predecessor to dmc(2) AG, had 640,000 ordinary shares
outstanding with a total nominal value of DM 32,000. At the Formation, dmc(2) AG
issued 360,000 additional ordinary shares with a nominal value of DM 18,000 to
Degussa AG in exchange for the transfer of the precious metals and automotive
catalysts divisions. Capital reserves were increased DM 149,000 representing the
excess of the historical book value of the transferred assets and liabilities
over the nominal value of the issued ordinary shares.

(25) RESERVES

SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1999 2000
------------- ------------ ------------

THE RESERVE ACCOUNTS ARE AS FOLLOWS:
Capital reserve.................................... -- -- 358,804
Revenue reserves................................... -- -- 125,081
------- ------- -------
TOTAL.............................................. -- -- 483,885
======= ======= =======

The dmc(2) Group reserve accounts comprise revenue reserves of the dmc(2)
Group companies and the capital reserve of dmc(2) AG. The reserves furthermore
include net assets that Degussa has contributed to the shareholder's equity of
subsidiaries, the profits available for distribution of the subsidiaries of the
dmc(2) Group, differences from currency translation, and combination
adjustments.

(26) MINORITY INTERESTS

Third parties and affiliates hold equity interests in the following, and
other, consolidated subsidiaries: dmc(2) L.P., Coimpa Sociedade Industrial de
Metais Preciosos da Amazonia Ltda., Allgemeine Gold- und Silberscheideanstalt
AG, Degussa Galvanotechnik GmbH, Degussa Catalyst (Pty.) Ltd., and Schoene
Edelmetaal B.V.

(27) ACCRUED LIABILITIES

SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1999 2000
------------- ------------ ------------

Provisions for pensions and similar obligations.... 78,125 68,758 126,119
Accrued taxes...................................... 27,413 15,556 30,131
(thereof deferred taxes)......................... (9,265) (1,612) --
Other accrued liabilities.......................... 192,838 236,793 217,836
------- ------- -------
TOTAL.............................................. 298,376 321,107 374,086
======= ======= =======

Provision for pensions prior to 2000 includes pensions directly
attributable to Cerdec AG and its subsidiaries. In addition, Degussa maintained
pension plans for which the provision could not be allocated to

A-22

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

the carve-out businesses. The provisions for pensions also include the severance
payment commitments of certain foreign subsidiaries.

Corresponding with the Formation of dmc(2) Group as a separate legal entity
during 2000, certain pension plans were amended to increase employee benefits as
well as expand the number of plan participants.

Accrued taxes include the estimated liabilities for current year taxes
which have not yet been assessed. It also includes deferred taxes for timing
differences resulting as a consequence of combination and otherwise existing for
combined entities.

Other accrued liabilities include provisions for bonuses, guarantee
obligations, obligations under early retirement arrangements, restructuring
accruals, and future repairs. For employees already covered by semi-retirement
employment arrangements or who have already signed contracts, accruals were
established in the full amount for supplementary and settlement payments and pro
rata for wages and salaries in the permanent leave of absence phase. The
obligations were calculated under actuarial principles and discounted at 5.5%.

Furthermore, based on the collective bargaining agreement entered into in
2000, liabilities were also established in 2000 up to a 5% workforce maximum
limit for potential semi-retirement of employees qualifying as of December 31,
2000. No accruals have been set up for employees that may qualify after December
31, 2000 until December 31, 2009 (expiring date of collective bargaining
agreement). As of December 31, 2000 this accrual included future supplementary
and settlement obligations and was likewise calculated under actuarial
principles and discounted at 5.5%.

(28) LIABILITIES

DUE AFTER 1
DUE WITHIN AND WITHIN DUE AFTER
AS OF SEPTEMBER 30, 1999 1 YEAR 5 YEARS 5 YEARS TOTAL
------------------------ ---------- ----------- --------- -------

Liabilities to banks........................... 135,971 47,425 623 184,019
Trade accounts payable......................... 88,333 15,267 -- 103,600
Liabilities to affiliated companies............ 121,821 -- -- 121,821
Liabilities to companies in which investments
are held..................................... 7,967 -- -- 7,967
Other liabilities.............................. 59,960 1,780 3,628 65,368
(of which relating to taxation).............. (9,317) -- -- (9,317)
(of which relating to social security)....... (22,183) -- -- (22,183)
------- ------ ----- -------
TOTAL.......................................... 414,052 64,472 4,251 482,775
======= ====== ===== =======

DUE AFTER 1
DUE WITHIN AND WITHIN DUE AFTER
AS OF DECEMBER 31, 1999 1 YEAR 5 YEARS 5 YEARS TOTAL
----------------------- ---------- ----------- --------- -------

Liabilities to banks........................... 154,150 29,141 1,373 184,664
Advance payments received on orders............ 49 -- -- 49
Trade accounts payable......................... 92,291 14,182 -- 106,473
Liabilities to affiliated companies............ 146,785 -- -- 146,785
Liabilities to companies in which investments
are held..................................... 3,807 -- -- 3,807
Other liabilities.............................. 58,586 2,588 2,393 63,567
(of which relating to taxation).............. (10,836) -- -- (10,836)
(of which relating to social security)....... (25,047) -- -- (25,047)
------- ------ ----- -------
TOTAL.......................................... 455,668 45,911 3,766 505,345
======= ====== ===== =======

A-23

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

DUE AFTER 1
DUE WITHIN AND WITHIN DUE AFTER
AS OF DECEMBER 31, 2000 1 YEAR 5 YEARS 5 YEARS TOTAL
----------------------- ---------- ----------- --------- ---------

Liabilities to banks......................... 872,908 62,784 3,034 938,726
Advance payments received on orders.......... 2,102 -- -- 2,102
Trade accounts payable....................... 252,442 -- -- 252,442
Liabilities to affiliated companies.......... 277,497 -- -- 277,497
Liabilities to companies in which investments
are held................................... 2,263 84 -- 2,347
Liabilities from the acceptance of notes and
notes issued............................... 3,769 1,117 -- 4,886
Other liabilities............................ 57,040 2,221 1,007 60,268
(of which relating to taxation)............ (8,721) -- -- (8,721)
(of which relating to social security)..... (11,823) -- -- (11,823)
--------- ------ ----- ---------
TOTAL........................................ 1,468,021 66,206 4,041 1,538,268
========= ====== ===== =========

Prior to 2000 the liabilities to affiliated companies relate primarily to
trade payables. As of December 31, 2000, liabilities to affiliated companies
also include an interest bearing loan of DM 249,833 to Degussa AG. Other
liabilities include mainly social security contributions, commissions, and
accrued salaries and bonuses. No security in the form of mortgages or other
security interests was given for the liabilities.

(29) CONTINGENT LIABILITIES

SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1999 2000
------------- ------------ ------------

Notes receivable discounted........................ 6,417 3,511 2,894
Guarantee commitments.............................. 5,096 5,716 11,983
------ ----- ------
TOTAL.............................................. 11,513 9,227 14,877
====== ===== ======

The liability on discounted notes receivable relates to Allgemeine Gold-
und Silberscheideanstalt AG.

(30) OTHER FINANCIAL COMMITMENTS

SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1999 2000
------------- ------------ ------------

Commitments under rent and leasing agreements due
for payment in the next financial year........... 5,789 4,875 4,465
due for payment in 2 to 5 financial years........ 12,774 10,971 17,712
Non-security repurchase agreement due in next
financial year................................... 10,216 -- --
------ ------ -------
TOTAL.............................................. 28,779 15,846 22,177
====== ====== =======

The commitments arising from leasing agreements mainly relate to Degussa
and its affiliated companies.

(31) DERIVATIVE FINANCIAL INSTRUMENTS

The dmc(2) Group utilizes derivative financial instruments in the form of
futures contracts in order to economically hedge the operating business against
risks arising from changes in precious metals prices. The

A-24

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

precious metals futures contracts primarily are for gold and silver, but also
include platinum and palladium. The dmc(2) Group also makes use of these
instruments on a limited scale to optimize the precious metals trading result.
The following table summarizes the precious metals futures contracts:

NOMINAL CONTRACT VOLUME MARKET VALUE
------------------------------------------- -------------------------------------------
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
1999 1999 2000 1999 1999 2000
------------- ------------ ------------ ------------- ------------ ------------

Remaining term up to
1 year............. 505,386 568,951 1,098,977 (16,038) (17,407) (11,000)
Remaining term 1 - 5
years.............. 7,628 4,890 11,067 (978) (391) 820
------- ------- --------- ------- ------- -------
PRECIOUS METALS
FUTURES............ 513,014 573,841 1,110,044 (17,016) (17,798) (10,180)
======= ======= ========= ======= ======= =======

To economically hedge against fluctuations in currency exchange rates and
interest rates, the dmc(2) Group also employs, on a limited basis, currency
futures contracts, currency option contracts, and interest rate swaps. The
nominal value of currency futures contracts at December 31, 2000 was DM 162,683
with a market value of DM 1,481. The nominal value of currency option contracts
amounted to DM 4,204 as of December 31, 2000 with a market value of DM 239.
Interest rate swaps as of December 31, 2000 had a nominal value of DM 19,146 and
a market value of DM (799).

Nominal value is the sum of all purchase and sale transactions relating to
derivative financial instruments. Market value is calculated on the basis of
market quotations or customary market prices or the value for derivative
financial instruments derived therefrom. Market value shows how closing out the
derivatives position (entry into offsetting transactions) would affect earnings
(ignoring the underlying transactions).

(32) TOTAL COMPENSATION OF THE BOARD OF MANAGEMENT AND THE SUPERVISORY BOARD;
LOANS GRANTED

For the year ended December 31, 2000, the Board of Management's total
compensation amounted to DM 3,722 for active board members and DM 1,010 for
former board members. The pension accrual for former board members amounted to
DM 2,566. An accrual of DM 396 was established for the compensation of the
members of the Supervisory Board. No loans or advance payments were made.

(33) RECONCILIATION TO U.S. GAAP

dmc(2) Group's combined financial statements are presented in accordance
with German GAAP, which differ in certain significant respects from U.S. GAAP.

A-25

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

The significant differences that affect net income and shareholder's equity
of the dmc(2) Group are set forth below:

THREE MONTHS
YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
NOTE 1999 1999 2000
---- ------------- ------------ ------------

RECONCILIATION OF NET INCOME (LOSS) FROM GERMAN
GAAP TO U.S. GAAP:
Net income (loss) as reported in the combined
statements of operations under German GAAP: ... 12,037 (64,861) 85,691
Provisions and loss contingencies.............. (a) (14,256) 24,435 (21,945)
Valuation of inventory......................... (b) 664 (97) 1,695
Deferred taxes................................. (c) 28,368 3,093 93,483
Foreign currency revaluation................... (d) 626 (430) 873
Pensions and post retirement benefits.......... (e) 0 (372) (7,465)
Allowance for doubtful accounts................ (f) 2,119 644 (2,482)
Valuation of securities........................ (g) 3,291 0 3,072
Valuation fixed assets......................... (h) 686 (1,222) 2,229
Financial instruments.......................... (i) (4,218) 347 3,582
Purchase accounting of dmc(2) Group............ (j) (27,069) (9,594) (40,594)
Purchase of minority interest in Cerdec AG..... (k) (1,952) (835) (3,347)
Combination of majority-owned subsidiaries..... (l) 6,900 290 8,364
Minority interests............................. (m) (931) (1,948) (14,424)
Equity method accounting....................... (n) (7,272) (6,359) (13,305)
Goodwill....................................... (o) (5,610) 6,910 (5,538)
--- ------- ------- -------
Net Income (Loss) in Accordance With U.S. GAAP... (6,617) (49,999) 89,889
======= ======= =======

SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
NOTE 1999 1999 2000
---- ------------- ------------ ------------

RECONCILIATION OF SHAREHOLDER'S EQUITY FROM
GERMAN GAAP TO U.S. GAAP:
Shareholder's equity as reported in the combined
statements of shareholder's equity under German
GAAP:.......................................... 1,076,675 1,168,391 652,099
Provisions and loss contingencies.............. (a) 39,929 68,025 35,157
Valuation of inventory......................... (b) 629 1,292 2,066
Deferred taxes................................. (c) (195,176) (221,000) (89,446)
Foreign currency revaluation................... (d) 99 616 2,299
Pensions and post retirement benefits.......... (e) -- 718 3,597
Allowance for doubtful accounts................ (f) 6,962 7,916 3,118
Valuation of securities........................ (g) 77,477 68,062 38,438
Valuation of fixed assets...................... (h) 3,359 6,990 6,372
Financial instruments.......................... (i) -- 347 5,046

A-26

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

SEPTEMBER 30, DECEMBER 31, DECEMBER 31,
NOTE 1999 1999 2000
---- ------------- ------------ ------------

Purchase accounting of dmc(2) Group............ (j) 658,639 649,045 580,273
Purchase of minority interest in Cerdec AG..... (k) 48,231 47,396 44,049
Combination of majority-owned subsidiaries..... (l) 20,254 22,292 21,303
Minority interests............................. (m) (23,330) (27,705) (26,242)
Equity method accounting....................... (n) (9,451) (15,716) 5,095
Goodwill....................................... (o) (614) (22,791) 10,370
--------- --------- ---------
Shareholder's Equity in Accordance with U.S.
GAAP........................................... 1,703,683 1,753,878 1,293,594
========= ========= =========

(a) PROVISIONS AND LOSS CONTINGENCIES

In accordance with German GAAP, dmc(2) Group recognized provisions for
expected costs to be incurred for certain restructurings and other anticipated
future costs. Under U.S. GAAP, the recognition criteria for such provisions are
more stringent and require a number of prescribed conditions be satisfied before
a liability can be recorded.

(b) VALUATION OF INVENTORY

Under German GAAP, dmc(2) Group capitalizes overhead costs in accordance
with German tax law, which excludes certain indirect and other costs. Under U.S.
GAAP, manufacturing overhead costs include all indirect material, labor and
overhead costs.

Under German GAAP, raw materials inventory is valued at the lower of
average purchase cost or market price. For German GAAP purposes, market price is
the lower of replacement cost and net realizable value. Differences may arise
where sales prices are contracted at period end.

In accordance with German GAAP, LIFO layers are created in each period for
each metal. A lower of cost or market assessment is performed every period for
each metal layer. For U.S. GAAP purposes, the lower of cost or market assessment
is applied to an entire metal position. Under U.S. GAAP, the inventory was
revalued as a result of the purchase accounting described in Note 33j).

Under German GAAP, deferred tax assets and liabilities are generally
recognized for temporary differences between book carrying values and tax bases
of assets and liabilities, with the exception of deferred tax assets relating to
net operating loss carry forwards which are recognized to the extent of
offsetting deferred tax liabilities. Deferred tax assets are recognized to the
extent they are expected to be realized.

Under U.S. GAAP, deferred tax assets and liabilities for temporary
differences using enacted tax rates in effect at period-end are recognized in
accordance with Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, net operating loss
carryforwards that are available to reduce future taxes are recognized as
deferred tax assets. Such amounts are reduced by a valuation allowance to the
extent that it is more likely than not that the deferred tax assets will not be
realized.

The deferred tax adjustment included in the above reconciliation to U.S.
GAAP also contains the income tax effects of the U.S. GAAP adjustments, where
appropriate.

A-27

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

(d) FOREIGN CURRENCY REVALUATION

Under German GAAP, foreign currency denominated receivables (payables) are
translated at the lower (higher) of the period-end spot rate or contracted rate,
respectively.

Under U.S. GAAP, assets and liabilities denominated in a foreign currency
are recorded at current exchange rates at period-end with any resulting
adjustment recognized in operating results.

(e) PENSIONS AND POST RETIREMENT BENEFITS

For German GAAP, certain increases in pension and other similar obligations
are recognized immediately in earnings. Under U.S. GAAP, changes in pension and
similar obligations (including those resulting from plan amendments) as are not
recognized as they occur but are recognized systematically and gradually over
subsequent periods. Following the Formation of dmc(2) Group as a legal entity in
2000, certain pension plans were amended to increase benefits as well as expand
the number of participants.

As part of the Formation of the dmc(2) Group, Degussa assumed the liability
for certain dmc(2) Group employees retired as of January 1, 2000. Under German
GAAP the pension expense associated with these retired employees is not included
in income for the year ended December 2000. For U.S. GAAP, pension costs
associated with the retired employees has been reflected in the U.S. GAAP
reconciliation.

(f) ALLOWANCE FOR DOUBTFUL ACCOUNTS

In addition to specific reserves, dmc(2) Group also maintains a general
allowance as well as a country risk allowance for German GAAP purposes. For U.S.
GAAP purposes, these allowances were reversed except for the amounts based upon
dmc(2) Group's historical loss experience.

(g) VALUATION OF SECURITIES

Under German GAAP, marketable debt and equity securities are generally
carried at the lower of cost or market value. Under U.S. GAAP, marketable debt
and equity securities other than investments accounted for by the equity method,
are categorized as either trading, available-for-sale, or held to maturity.
Securities classified as trading or available-for-sale are reported at fair
value at the balance sheet date and held to maturity securities are reported at
historical cost. Unrealized gains and losses on trading securities are recorded
in net income while unrealized gains and losses on securities categorized as
available-for-sale are recorded in shareholder's equity, net of income tax.

(h) VALUATION OF FIXED ASSETS

Under German GAAP, capitalization of certain construction project costs is
not required. Under U.S. GAAP, certain project costs are required to be
capitalized. Further, capitalization of interest during the construction phase
of the project is permitted but not required under German GAAP. Under U.S. GAAP,
interest is capitalized during the construction phase of major construction
projects. Capitalized interest and other costs are added to the cost of
underlying assets and are depreciated over the useful life of the asset.

(i) FINANCIAL INSTRUMENTS

Under German GAAP, the fair values of precious metal futures contracts are
netted amongst their respective metal portfolios with any resultant unrealized
loss recognized in earnings. Under U.S. GAAP, each metal future contract is
marked to market with both positive or negative fair values recognized in
earnings.

A-28

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

Under German GAAP, negative fair values of foreign currency forwards and
interest rate swaps contracted with third parties are recognized in earnings.
For U.S. GAAP, positive and negative fair values are recognized in earnings.

(j) PURCHASE ACCOUNTING OF dmc(2) GROUP

E.ON AG (formerly Veba AG) acquired Degussa, including the related assets
and liabilities of the dmc(2) Group, in two separate transactions. The initial
36,4% ownership interest was acquired in December 1997 with the remaining 63,6%
interest acquired in February 1999. For German GAAP purposes, the recorded
amounts of dmc(2) Group's assets acquired and liabilities assumed by E.ON AG
remained at historical cost basis. For U.S. GAAP purposes, a new basis of
accounting is established for dmc(2) Group's assets and liabilities based upon
the fair values of the respective assets acquired and liabilities assumed by
E.ON AG at each acquisition date as reflected below:

USEFUL
LIFE STEP I STEP II
(YEARS) DECEMBER 1997 FEBRUARY 1999
------- ------------- -------------

Inventory................................................. -- 53,700 149,605
Property, plant and equipment............................. 5-15 13,989 24,441
Land...................................................... -- 4,897 8,557
Licenses.................................................. 10 5,159 9,015
Patents and Trademarks.................................... 13-20 24,672 43,108
Deferred Taxes............................................ -- (58,378) (133,794)
Goodwill.................................................. 15 130,652 228,282

As a result of the new basis of accounting, shareholder's equity was
increased and additional charges reflected in the reconciliation of net income
for the effects of increases in cost of sales, depreciation expense of tangible
and intangible assets, and related deferred income tax effects. The deferred tax
effects are reflected in Note 33(c).

(k) PURCHASE OF MINORITY INTEREST IN CERDEC AG

In March 1999, Degussa AG purchased the remaining minority interest of 30%
in Cerdec AG from Ciba Geigy. In accordance with German GAAP, the excess of the
acquisition cost of the minority interest acquired over the fair value of the
net assets acquired is offset against shareholder's equity. Under U.S. GAAP,
goodwill is capitalized and depreciated over its useful life. dmc(2) Group's
policy is to depreciate goodwill over 15 years.

(l) COMBINATION OF MAJORITY-OWNED SUBSIDIARIES

As explained in Note 3, under German GAAP dmc(2) Group does not combine a
number of investments in domestic and foreign companies in its combined
financial statements under German GAAP. For U.S. GAAP, the number of companies
consolidated in the combined financial statements has been increased. The
remaining companies not included in the scope of the consolidation for U.S. GAAP
purposes are not material to the combined shareholder's equity, financial
position and net operating results.

Combination of dmc(2) L.P.

As discussed in Note 2, dmc(2) L.P. is consolidated under German GAAP with
Degussa's 99% interest in equity and earnings shown as minority interests. As
these combined financial statements are prepared with respect to the sale of
dmc(2) Group to OMG and OMG has purchased the remaining 99% interest of dmc(2)
L.P.

A-29

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

from Degussa as part of this agreement, dmc(2) L.P. has been fully consolidated
with no minority interests for U.S. GAAP purposes.

(m) MINORITY INTERESTS

Under German GAAP, minority interest is included as a separate component of
shareholder's equity and is not adjusted in determining net income. Under U.S.
GAAP, minority interest is not shown as equity and is adjusted in determining
net income.

(n) EQUITY METHOD ACCOUNTING

In accordance with German GAAP, investments in associated companies subject
to significant influence (generally entities which are 20 - 50% owned) are not
required to be accounted for under the equity method, if certain materiality
tests are met, and can be recorded under the cost method (and, if applicable,
the lower of cost or market value).

Under U.S. GAAP, investments in associated companies are recorded using the
equity method of accounting if the investor has significant influence over the
operating or financial decisions of the investee. For both German GAAP and U.S.
GAAP the balance of each investment is increased or decreased, as appropriate,
to account for the investor's proportionate share of the investee earnings, less
dividends received.

Under German GAAP, based on materiality it is permissible to consolidate
foreign associated companies on the basis of their local accounting principles,
not restated for German GAAP. Foreign associated companies have been converted
to U.S. GAAP for consolidation purposes in the U.S. GAAP reconciliation.

For German GAAP, in cases where the associated company's financial year end
differs from the investor's year end, the associated company's previous
financial information is utilized for consolidation. For U.S. GAAP, financial
information of associated companies for periods ended within 90 days of the year
end of the associated investor's financial year end is used.

(o) GOODWILL

In accordance with German GAAP, goodwill was either charged directly to
shareholder's equity or capitalized and depreciated over 15 years. For U.S. GAAP
purposes all goodwill is capitalized and depreciated over 15 years. The effect
of goodwill adjustments arising from the E.ON AG acquisition of Degussa and the
acquisition of the minority interest in Cerdec AG is included in notes 33(j) and
33(k), respectively.

EXTRAORDINARY INCOME (EXPENSE)

The items classified as extraordinary income (expense) under German GAAP
would not be presented as extraordinary items for U.S. GAAP purposes.

(34) SUBSEQUENT EVENTS

As discussed in Note 1, dmc(2) Group has been sold to OM Group, Inc. on
August 10, 2001. In addition, certain assets and liabilities which constitute
the electronic materials, performance, pigments and colors, glass systems and
Cerdec ceramic businesses of dmc(2) Group have been subsequently sold by OM
Group, Inc. to Ferro Corporation on September 7, 2001. As a result of purchase
accounting which will be applied to these transactions by OM Group, significant
changes can be expected to the recorded assets and liabilities of dmc(2) Group.

A-30

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

SHAREHOLDINGS OF THE dmc(2) GROUP

AS OF SEPTEMBER 30, 1998
------------------------------------------
EQUITY NET INCOME
HOLDINGS EQUITY IN (LOSS)
NAME AND LOCATION OF THE COMPANY IN % MILL. DEM IN MILL. DEM
-------------------------------- -------- ----------- -----------------

Magmalor GmbH,
Colditz/Germany....................................... 100.0 5.0 (0.8)
dmc(2) Holding Co.,
Las Vegas/USA*........................................ -- -- --
(formerly: Cerdec Holding Co., Las Vegas/USA)
dmc(2) France S.A.,
Limoges/France........................................ -- -- --
(formerly: Cerdec France S.A., Limoges/France)
Cerdec Iberica S.A., Castellon de la Plana/Spain........ 100.0 12.8 0.3
Cerdec Italia S.p.A.,
Fiorano/Italy......................................... 100.0 14.9 (3.9)
dmc(2) Ltda.,
Americana/Brazil...................................... -- -- --
(formerly: Cerdec Produtos Ceramicos Ltda.,
Americana/Brazil)
dmc(2) S.A. de C.V.,
Mexico City/Mexico.................................... -- -- --
(formerly: Cerdec Mexico S.A. de C.V., Mexico
City/Mexico)
Cerpart S.R.L.
Milan/Italy........................................... 100.0 23.9 --
Colorificio Pardo S.p.A.,
Corlo/Italy........................................... 100.0 8.9 (1.1)
dmc(2) (UK) Ltd.,
Stoke-on-Trent/Great Britain.......................... -- -- --
(formerly: Cerdec (UK) Ltd., Stoke-on-Trent/Great
Britain)
dmc(2) Japan Ltd., Tokio/Japan.......................... -- -- --
(formerly: Cerdec Japan Co. Ltd., Tokio/Japan)
Degussa Skandinavien Katalysator AB,
Karlskoga/Sweden...................................... 100.0 1.1 (2.5)
Italbras S.p.A
Vicenza/Italy......................................... 100.0 2.2 0.5
Icomeq Industria e Comercio Ltda.,
Guarulhos/Brazil...................................... 100.0 11.2 (1.1)
dmc(2) Canada Corp.,
Burlington/Canada..................................... -- -- --
Prometron GmbH Produkte fuer Elektronik und
Elektrotechnik
Hanau/Germany......................................... 30.0 0.3 0.0
Newtechnos Argentina S.A. (NASA),
Buenos Aires/Argentina................................ 100.0 1.1 0.6
dmc(2) Degussa Metals Catalyst Cerdec
Southern Africa Ltd., Midrand/South Africa............ -- -- --

A-31

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

Oesterreichische Gold- und Silberscheideanstalt
GmbH, Vienna/Austria**................................ -- -- --
Schilling's Graphics Inc., Galion,
Ohio/USA.............................................. 100.0 1.3 (0.6)
dmc(2) Degussa Metals Catalysts Cerdec China Ltd.,
Hong Kong/China....................................... -- -- --
Degussa Catalyst (Thailand) Ltd.,
Bangkok/Thailand...................................... 99.4 0.4 (0.1)
Clarex S.A.,
Guarulhos/Brazil...................................... 100.0 0.6 (0.5)
Degussa-NA Edelmetall GmbH,
Hanau/Germany......................................... 100.0 0.2 (1.0)
dmc(2) Istanbul Degussa Metal Katalizor
Seramik Boyalari Ticaret Limited Sirketi
Istanbul/Turkey.................................... -- -- --
(formerly: Cerdec Istanbul Seramic Bogalari Ticaret,
Istanbul/Turkey)
Schoene Edelmetaal B.V.,
Amsterdam/Netherlands................................. 90.8 11.6 1.9
Degussa Galvanotechnik GmbH,
Schwaebisch-Gmuend/Germany............................ 90.8 5.0 2.6
Allgemeine Gold- und Silberscheideanstalt AG,
Pforzheim/Germany..................................... 90.8 48.5 2.4
Allgemeine France S.A.R.L
Brunstatt/France...................................... 90.8 0.3 --
Coimpa Sociedade Industrial de Metais
Preciosos da Amazonia Ltda., Guarulhos/Brazil......... 78.0 48.4 7.8
Zibo Cerdec Ceramic Colours Co. Ltd.,
Zibo City, Shandong/China............................. 60.0 13.4 1.4
PT Cerdec Indonesia,
Sidoarjo/Indonesia.................................... 51.0 (3.8) (6.3)
Degussa Catalyst Ltd.,
Port Elisabeth/South Africa........................... 55.0 (0.7) (0.6)
dmc Catalyst Port Elisabeth (Pty) Ltd.,
Port Elizabeth/South Africa........................... -- -- --
Thai Ceramic Colors Co. Ltd.,
Bangkok/Thailand...................................... 51.0 0.9 0.2
dmc(2) L.P., Washington/USA
(consolidated pursuant to ss. 290 (2) HGB)............ -- -- --

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

* After consolidation of Cerdec Sales Corporation, Virgin Islands/USA, Cerdec
Royalty Co., Las Vegas/ USA, and dmc(2) Corporation, Washington/USA
(formerly: Cerdec Corporation, Washington/USA).

** Constitutes businesses which have been carved out of Degussa.

A-32

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

Ordeg Co., Limited
Seoul/South Korea..................................... 50.0 5.3 0.2
ICT-International Catalyst Technology Inc.,
Calvert City/USA...................................... 50.0 24.1 6.2
ICT Co. Ltd.,
Osaka/Japan........................................... 50.0 7.0 3.1
Cerdec (Thailand) Co., Ltd.,
Bangkok/Thailand...................................... 49.0 5.3 1.4
dmc(2) Metals (Thailand)
Bangkok/Thailand...................................... 44.5 4.0 (0.1)
Smaltochimica S.R.L.,
Spezzano di Fiorano M./Italy.......................... 40.0 1.4 2.2
Gardenia-Quimica S.A.
Castellon/Spain....................................... 36.0 7.0 0.0
Chilches Materials, S.A.
Alcora/Spain.......................................... 20.0 -- --
Nadir Allgemeine Soymetaller,
Istanbul/Turkey....................................... 13.6 -- --
Norddeutsche Affinerie AG
Hamburg/Germany....................................... 10.0 458.2 (9.0)

A-33

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

SHAREHOLDINGS OF THE dmc(2) GROUP

AS OF SEPTEMBER 30, 1999
-----------------------------------
EQUITY NET INCOME
HOLDINGS EQUITY IN (LOSS)
NAME AND LOCATION OF THE COMPANY IN % MILL. DEM IN MILL. DEM
-------------------------------- -------- --------- ------------

Magmalor GmbH,
Colditz/Germany........................................... 100.0 3.7 (1.3)
dmc(2) Holding Co., Las Vegas/USA*.......................... -- -- --
(formerly: Cerdec Holding Co., Las Vegas/USA)
dmc(2) France S.A., Limoges/France.......................... -- -- --
(formerly: Cerdec France S.A., Limoges/France)
Cerdec Iberica S.A., Castellon de la Plana/Spain............ 100.0 14.4 (1.6)
Cerdec Italia S.p.A., Fiorano/Italy......................... 100.0 (7.1) (8.1)
dmc(2) Ltda., Americana/Brazil.............................. -- -- --
(formerly: Cerdec Produtos Ceramicos Ltda.,
Americana/Brazil)
dmc(2) S.A. de C.V., Mexico City/Mexico..................... -- -- --
(formerly: Cerdec Mexico S.A. de C.V., Mexico City/Mexico)
Cerpart S.R.L
Milan/Italy............................................... 100.0 24.0 (0.3)
Colorificio Pardo S.p.A., Corlo/Italy....................... 100.0 2.8 (6.0)
dmc(2) (UK) Ltd., Stoke-on-Trent/Great Britain.............. -- -- --
(formerly: Cerdec (UK) Ltd., Stoke-on-Trent/Great Britain)
dmc(2) Japan Ltd., Tokio/Japan.............................. -- -- --
(formerly: Cerdec Japan Co. Ltd., Tokio/Japan)
Degussa Skandinavien Katalysator AB, Karlskoga/Sweden....... 100.0 1.2 0.0
Italbras S.p.A
Vicenza/Italy............................................. 100.0 2.7 0.9
Icomeq Industria e Comercio Ltda., Guarulhos/Brazil......... 100.0 8.0 0.2
dmc(2) Canada Corp., Burlington/Canada...................... -- -- --
Prometron GmbH Produkte fuer Elektronik und Elektrotechnik
Hanau/ Germany............................................ 100.0 0.3 --
Newtechnos Argentina S.A. (NASA), Buenos Aires/Argentina.... 100.0 0.0 (0.1)
dmc(2) Degussa Metals Catalyst Cerdec Southern Africa Ltd.,
Midrand/ South Africa..................................... -- -- --

A-34

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

dmc(2) Electronic Materials B.V., Uden/Netherlands.......... 100.0 8.9 2.3
Oesterreichische Gold- und Silberscheideanstalt GmbH,
Vienna/ Austria**......................................... -- -- --
Schilling's Graphics Inc., Galion, Ohio/USA................. 100.0 1.5 0.1
dmc(2) Degussa Metals Catalysts Cerdec China Ltd., Hong
Kong/China................................................ -- -- --
Degussa Catalyst (Thailand) Ltd., Bangkok/Thailand.......... 99.4 1.2 --
Clarex S.A., Guarulhos/Brazil............................... 100.0 0.3 (0.1)
Degussa-NA Edelmetall GmbH, Hanau/Germany................... 100.0 0.7 0.5
dmc(2) Istanbul Degussa Metal Katalizor Seramik Boyalari
Ticaret Limited Sirketi Istanbul/Turkey................... -- -- --
(formerly: Cerdec Istanbul Seramic Bogalari Ticaret,
Istanbul/Turkey)
Schoene Edelmetaal B.V., Amsterdam/Netherlands.............. 90.8 11.0 1.1
Degussa Galvanotechnik GmbH, Schwaebisch-Gmuend/Germany..... 90.8 7.7 2.7
Allgemeine Gold- und Silberscheideanstalt AG,
Pforzheim/Germany......................................... 90.8 67.0 7.7
Allgemeine France S.A.R.L
Brunstatt/France.......................................... 90.8 0.3 --
Coimpa Sociedade Industrial de Metais Preciosos da Amazonia
Ltda., Guarulhos/Brazil................................... 78.0 18.3 (10.7)
Zibo Cerdec Ceramic Colours Co. Ltd., Zibo City,
Shandong/China............................................ 60.0 15.7 1.9
PT Cerdec Indonesia, Sidoarjo/Indonesia..................... 59.0 1.3 0.7
Degussa Catalyst Ltd., Port Elisabeth/South Africa.......... 55.0 3.4 (1.5)
dmc(2) Catalyst Port Elisabeth (Pty) Ltd., Port
Elizabeth/South Africa.................................... -- -- --
Thai Ceramic Colors Co. Ltd., Bangkok/Thailand.............. 51.0 0.9 0.2
dmc(2) L.P., Washington/USA................................. -- -- --
(consolidated pursuant to ss. 290 (2) HGB)

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

* After consolidation of Cerdec Sales Corporation, Virgin Islands/USA, Cerdec
Royalty Co., Las Vegas/ USA, and dmc(2) Corporation, Washington/USA
(formerly: Cerdec Corporation, Washington/USA).

** Constitutes businesses which have been carved out of Degussa.

A-35

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

Ordeg Co., Limited
Seoul/South Korea......................................... 50.0 11.8 3.9
ICT-International Catalyst Technology Inc.,
Calvert City/USA.......................................... 50.0 25.8 (1.3)
ICT Co. Ltd.,
Osaka/Japan............................................... 50.0 18.8 1.7
Cerdec (Thailand) Co., Ltd.,
Bangkok/Thailand.......................................... 49.0 6.4 1.3
dmc(2) Metals (Thailand)
Bangkok/Thailand.......................................... 44.5 3.3 (0.3)
Smaltochimica S.R.L.,
Spezzano di Fiorano M./Italy.............................. 40.0 2.4 2.5
Gardenia-Quimica S.A.
Castellon/Spain........................................... 20.0 8.5 1.8
Chilches Materials, S.A.
Alcora/Spain.............................................. 20.0 9.4 --
Nadir Allgemeine Soymetaller,
Istanbul/Turkey........................................... 13.6 -- --
Norddeutsche Affinerie AG
Hamburg/Germany........................................... 10.0 470.2 60.0

A-36

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

SHAREHOLDINGS OF THE dmc(2) GROUP

AS OF DECEMBER 31, 1999
-----------------------------------
EQUITY NET INCOME
HOLDINGS EQUITY IN (LOSS)
NAME AND LOCATION OF THE COMPANY IN % MILL. DEM IN MILL. DEM
-------------------------------- -------- --------- ------------

Magmalor GmbH,
Colditz/Germany........................................... 100.0 3.3 (3.8)
dmc(2) Holding Co.,
Las Vegas/USA*............................................ -- -- --
(formerly: Cerdec Holding Co., Las Vegas/USA)
dmc(2) France S.A.,
Limoges/France............................................ -- -- --
(formerly: Cerdec France S.A., Limoges/France)
Cerdec Iberica S.A.,
Castellon de la Plana/Spain............................... 100.0 15.4 (2.5)
Cerdec Italia S.p.A.,
Fiorano/Italy............................................. 100.0 3.9 (11.6)
dmc(2) Ltda.,
Americana/Brazil.......................................... -- -- --
(formerly: Cerdec Produtos Ceramicos Ltda.,
Americana/Brazil)
dmc(2) S.A. de C.V.,
Mexico City/Mexico........................................ -- -- --
(formerly: Cerdec Mexico S.A. de C.V., Mexico City/Mexico)
Cerpart S.R.L.
Milan/Italy............................................... 100.0 25.1 (18.9)
Colorificio Pardo S.p.A.,
Corlo/Italy............................................... 100.0 3.4 0.9
dmc(2) (UK) Ltd.,
Stoke-on-Trent/Great Britain.............................. -- -- --
(formerly: Cerdec (UK) Ltd., Stoke-on-Trent/Great Britain)
dmc(2) Japan Ltd.,
Tokio/Japan............................................... -- -- --
(formerly: Cerdec Japan Co. Ltd., Tokio/Japan)
Degussa Skandinavien Katalysator AB,
Karlskoga/Sweden.......................................... 100.0 1.3 0.2
Italbras S.p.A
Vicenza/Italy............................................. 100.0 1.6 0.2
Icomeq Industria e Comercio Ltda.,
Guarulhos/Brazil.......................................... 100.0 9.2 0.4
dmc(2) Canada Corp.,
Burlington/Canada......................................... -- -- --
Prometron GmbH Produkte fuer Elektronik und Elektrotechnik
Hanau/Germany............................................. 100.0 0.3 --
Newtechnos Argentina S.A. (NASA),
Buenos Aires/Argentina.................................... 100.0 0.0 (1.1)
dmc(2) Degussa Metals Catalyst Cerdec Southern Africa Ltd.,
Midrand/South Africa...................................... -- -- --
dmc(2) Electronic Materials B.V.,
Uden/Netherlands.......................................... 100.0 9.2 0.2

A-37

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

Oesterreichische Gold- und Silberscheideanstalt
GmbH, Vienna/Austria **................................... -- -- --
dmc(2) Degussa Metals Catalysts Cerdec China Ltd.,
Hong Kong/China........................................... -- -- --
Degussa Catalyst (Thailand) Ltd.,
Bangkok/Thailand.......................................... 99.4 0.7 0.0
Clarex S.A.,
Guarulhos/Brazil.......................................... 100.0 0.3 (0.1)
Degussa-NA Edelmetall GmbH,
Hanau/Germany............................................. 100.0 0.7 0.5
dmc(2) Istanbul Degussa Metal Katalizor
Seramik Boyalari Ticaret Limited Sirketi
Istanbul/Turkey........................................... -- -- --
(formerly: Cerdec Istanbul Seramic Bogalari Ticaret,
Istanbul/Turkey)
Schoene Edelmetaal B.V.,
Amsterdam/Netherlands..................................... 90.8 11.4 0.4
Degussa Galvanotechnik GmbH,
Schwaebisch-Gmuend/Germany................................ 90.8 5.0 0.6
Allgemeine Gold- und Silberscheideanstalt AG,
Pforzheim/Germany......................................... 90.8 79.3 12.3
Allgemeine France S.A.R.L
Brunstatt/France.......................................... 90.8 0.3 --
Coimpa Sociedade Industrial de Metais
Preciosos da Amazonia Ltda.,
Guarulhos/Brazil.......................................... 78.0 29.2 7.3
Zibo Cerdec Ceramic Colours Co. Ltd.,
Zibo City, Shandong/China................................. 60.0 16.8 0.5
PT Cerdec Indonesia,
Sidoarjo/Indonesia........................................ 59.0 1.9 0.2
Degussa Catalyst Ltd.,
Port Elisabeth/South Africa............................... 55.0 3.9 0.4
dmc(2) Catalyst Port Elisabeth (Pty) Ltd.,
Port Elizabeth/South Africa............................... -- -- --
Thai Ceramic Colors Co. Ltd.,
Bangkok/Thailand.......................................... 51.0 1.1 0.1
dmc(2) L.P., Washington/USA
(consolidated pursuant to ss. 290 (2) HGB)................ -- -- --

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

* After consolidation of Cerdec Sales Corporation, Virgin Islands/USA, Cerdec
Royalty Co., Las Vegas/ USA, dmc(2) Corporation, Washington/USA (formerly:
Cerdec Corporation, Washington/USA), and Schilling's Graphics, Inc., Galion,
Ohio/USA.

** Constitutes businesses which have been carved out of Degussa.

A-38

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

SHAREHOLDINGS OF THE dmc(2) GROUP

Ordeg Co., Limited
Seoul/South Korea......................................... 50.0 30.2 1.2
ICT-International Catalyst Technology Inc.,
Calvert City/USA.......................................... 50.0 27.2 (0.2)
ICT Co. Ltd.,
Osaka/Japan............................................... 50.0 20.7 0.1
Cerdec (Thailand) Co., Ltd.,
Bangkok/Thailand.......................................... 49.0 7.7 0.6
dmc(2) Metals (Thailand)
Bangkok/Thailand.......................................... 44.5 3.8 (0.3)
Smaltochimica S.R.L.,
Spezzano di Fiorano M./Italy.............................. 40.0 2.7 0.3
Gardenia-Quimica S.A.
Castellon/Spain........................................... 20.0 0.4 0.2
Chilches Materials, S.A.
Alcora/Spain.............................................. 20.0 0.9 --
Nadir Allgemeine Soymetaller,
Istanbul/Turkey........................................... 13.6 -- --
Norddeutsche Affinerie AG
Hamburg/Germany........................................... 10.0 457.0 (13.0)

A-39

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

SHAREHOLDINGS OF THE dmc(2) GROUP

AS OF DECEMBER 31, 2000
-----------------------------------
EQUITY NET INCOME
HOLDINGS EQUITY IN (LOSS)
NAME AND LOCATION OF THE COMPANY IN % MILL. DEM IN MILL. DEM
-------------------------------- -------- --------- ------------

Magmalor GmbH,
Colditz/Germany........................................... 100.0 3.7 0.3
dmc(2) Holding Co.,
Las Vegas/USA*............................................ 100.0 179.0 (4.7)
(formerly: Cerdec Holding Co., Las Vegas/USA)
dmc(2) France S.A.,
Limoges/France............................................ 100.0 21.9 1.1
(formerly: Cerdec France S.A., Limoges/France)
Cerdec Iberica S.A.,
Castellon de la Plana/Spain**............................. 100.0 15.5 2.2
Cerdec Italia S.p.A.,
Fiorano/Italy............................................. 100.0 9.3 0.7
dmc(2) Ltda.,
Americana/Brazil***....................................... 100.0 90.1 15.9
(formerly: Cerdec Produtos Ceramicos Ltda.,
Americana/Brazil)
dmc(2) S.A. de C.V.,
Mexico City/Mexico****.................................... 100.0 18.0 1.1
(formerly: Cerdec Mexico S.A. de C.V., Mexico City/Mexico)
Cerpart S.R.L
Milan/Italy............................................... 100.0 13.1 (0.4)
Colorificio Pardo S.p.A.,
Corlo/Italy............................................... 100.0 4.8 1.3
dmc(2) (UK) Ltd.,
Stoke-on-Trent/Great Britain.............................. 100.0 1.8 0.8
(formerly: Cerdec (UK) Ltd., Stoke-on-Trent/Great Britain)
dmc(2) Japan Ltd.,
Tokio/Japan............................................... 100.0 18.8 2.5
(formerly: Cerdec Japan Co. Ltd., Tokio/Japan)
Degussa Skandinavien Katalysator AB,
Karlskoga/Sweden.......................................... 100.0 1.9 0.7
Italbras S.p.A
Vicenza/Italy............................................. 100.0 2.7 1.1
Icomeq Industria e Comercio Ltda.,
Guarulhos/Brazil.......................................... 100.0 9.2 --
dmc(2) Canada Corp.,
Burlington/Canada......................................... 100.0 22.3 3.0
Prometron GmbH Produkte fuer Elektronik und Elektrotechnik
Hanau/Germany*****........................................ 100.0 0.3 --
Newtechnos Argentina S.A. (NASA),
Buenos Aires/Argentina.................................... 100.0 0.5 (1.1)
dmc(2) Degussa Metals Catalyst Cerdec
Southern Africa Ltd., Midrand/South Africa................ 100.0 0.7 0.8
dmc(2) Electronic Materials B.V.,
Uden/Netherlands.......................................... 100.0 12.2 3.1
dmc(2) Degussa Metals Catalysts Cerdec China Ltd.,
Hong Kong/China........................................... 100.0 2.5 0.2

A-40

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

Degussa Catalyst (Thailand) Ltd.,
Bangkok/Thailand.......................................... 99.4 0.5 0.3
Clarex S.A.,
Guarulhos/Brazil.......................................... 100.0 0.9 (0.2)
Cerdec Ceramics GmbH,
Oberursel, Germany........................................ 100.0 0.1 --
Braze Tec GmbH,
Hanau/Germany............................................. 100.0 0.2 --
dmc(2) Italia S.p.A.,
Fiorano/Italy............................................. 100.0 2.8 (0.4)
dmc(2) Pte Ltd.,
Singapore................................................. 100.0 0.4 --
Degussa-NA Edelmetall GmbH,
Hanau/Germany............................................. 100.0 1.4 0.7
dmc(2) Istanbul Degussa Metal Katalizor
Seramik Boyalari Ticaret Limited Sirketi
Istanbul/Turkey........................................... 99.0 0.9 0.1
(formerly: Cerdec Istanbul Seramic Bogalari Ticaret,
Istanbul/Turkey)
Schoene Edelmetaal B.V.,
Amsterdam/Netherlands..................................... 90.8 10.8 1.2
Degussa Galvanotechnik GmbH,
Schwaebisch-Gmuend/Germany................................ 90.8 12.7 4.4
Oesterreichische Gold- und Silberscheideanstalt GmbH,
Vienna/Austria............................................ 90.8 8.2 3.0
Allgemeine Gold- und Silberscheideanstalt AG,
Pforzheim/Germany......................................... 90.8 88.4 14.1
Allgemeine France S.A.R.L
Brunstatt/France******.................................... 90.8 0.3 --
Coimpa Sociedade Industrial de Metais Preciosos da Amazonia
Ltda.,
Guarulhos/Brazil.......................................... 78.0 23.6 16.5
Zibo Cerdec Ceramic Colours Co. Ltd.,
Zibo City, Shandong/China................................. 60.0 21.2 5.0
PT Cerdec Indonesia,
Sidoarjo/Indonesia........................................ 59.0 2.7 1.5
Degussa Catalyst Ltd.,
Port Elisabeth/South Africa............................... 55.0 21.1 19.5
dmc(2) Catalyst Port Elisabeth (Pty) Ltd.,
Port Elizabeth/South Africa............................... 55.0 2.5 2.8
Thai Ceramic Colors Co. Ltd.,
Bangkok/Thailand.......................................... 51.0 0.7 0.3
dmc(2) L.P., Washington/USA
(consolidated pursuant to ss. 290 (2) HGB)................ 1.0 110.1 34.3
dmc(2) Electronic Components Inc.,
Newark (Delaware)/USA..................................... 100.0 3.2 (5.2)

A-41

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

---------------
* After consolidation of Cerdec Sales Corporation, Virgin Islands/USA,
Cerdec Royalty Co., Las Vegas/USA, dmc(2) Corporation, Washington/USA
(formerly: Cerdec Corporation, Washington/USA), Schilling's Graphics,
Inc., Galion, Ohio/USA and Cerdec Ceramics Inc., Dallas/USA.

** After consolidation of dmc(2) Degussa Metals Catalysts Cerdec Iberica,
S.A., Castellon, Spain.

*** After consolidation of Cerdec Ceramics do Brasil Ltda., Americana/Brazil.

**** After consolidation of Cerdec Ceramics Mexico S.A. de C.V., Puebla,
Mexico, and Demeca S.A. de C.V. San Juan Xalpa, Mexico.

***** Figure as of December 31, 1999.

****** Net result before taxes.

A-42

NOTES TO THE COMBINED FINANCIAL STATEMENTS -- CONTINUED

GERMAN GAAP

(IN DEM THOUSANDS, UNLESS OTHERWISE NOTED)

AS AT DECEMBER 31, 2000
----------------------------------
EQUITY NET INCOME
HOLDINGS EQUITY IN (LOSS)
NAME AND LOCATION OF THE COMPANY IN % MILL. DM IN MILL. DM
-------------------------------- -------- --------- -----------

Ordeg Co., Limited
Seoul/South Korea*........................................ 50.0 28.9 5.1
ICT-International Catalyst Technology Inc.,
Calvert City/USA.......................................... 50.0 23.9 (5.4)
ICT Co. Ltd.,
Osaka/Japan**............................................. 50.0 18.6 (0.2)
Cerdec (Thailand) Co., Ltd.,
Bangkok/Thailand.......................................... 49.0 9.6 2.6
dmc(2) Metals (Thailand)
Bangkok/Thailand***....................................... 44.5 4.3 0.4
Smaltochimica S.R.L.,
Spezzano di Fiorano M./Italy.............................. 40.0 9.0 2.9
Gardenia-Quimica S.A.
Castellon/Spain........................................... 36.0 5.7 1.7
Chilches Materials, S.A.
Alcora/Spain.............................................. 20.0 9.4 (0.1)
Nadir Allgemeine Soymetaller,
Istanbul/Turkey****....................................... 13.6 -- --
Norddeutsche Affinerie AG
Hamburg/Germany*****...................................... 10.0 489.5 79.7

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

* Figure as of December 31, 1999.

** Financial year from April 1, 1999 to March 31, 2000.

*** Net result before taxes.

**** No other information available.

***** Financial year from October 1, 1999 to September 30, 2000.

BOARD MANAGEMENT

Richard Adante

A-43

dmc(2) GROUP

INTERIM CONDENSED COMBINED STATEMENTS OF OPERATIONS

GERMAN GAAP

(IN DEM THOUSANDS)

(UNAUDITED)

SIX MONTHS ENDED
JUNE 30,
-----------------------
2000 2001
---------- ----------

SALES....................................................... 5,993,876 6,784,068
Cost of sales............................................... (5,607,059) (6,449,300)
---------- ----------
GROSS PROFIT................................................ 386,817 334,768
Selling expenses............................................ (137,336) (146,705)
General administrative expenses............................. (85,659) (118,405)
Research and development expenses........................... (47,242) (60,226)
Other operating income...................................... 46,009 102,102
Other operating expenses.................................... (60,258) (48,307)
---------- ----------
NET OPERATING INCOME........................................ 102,331 63,227
Income from investments, net................................ 10,152 9,444
Write-down of investments................................... -- (252)
Interest expense, net....................................... (26,128) (35,322)
---------- ----------
INCOME FROM ORDINARY ACTIVITIES BEFORE EXTRAORDINARY ITEMS
AND INCOME TAXES.......................................... 86,355 37,097
Extraordinary expense....................................... (2,700) (4,859)
Income taxes................................................ (36,641) (19,886)
---------- ----------
NET INCOME.................................................. 47,014 12,352
Dividend payment............................................ -- (7,953)
Minority interests.......................................... (22,182) 2,035
(Loss) profit brought forward............................... (7,042) 8,000
Transfer to reserves, net................................... (13,790) (4,951)
---------- ----------
PROFIT AVAILABLE FOR DISTRIBUTION........................... 4,000 9,483
========== ==========

The accompanying notes are an integral part of the interim condensed combined
financial statements.
A-44

dmc(2) GROUP

INTERIM CONDENSED COMBINED BALANCE SHEET

GERMAN GAAP

(IN DEM THOUSANDS)

(UNAUDITED)

JUNE 30,
2001
---------

ASSETS
Intangible assets........................................... 14,622
Property, plant and equipment, net.......................... 660,125
Investments................................................. 121,409
---------
NON-CURRENT ASSETS.......................................... 796,156
Inventories, net............................................ 830,191
Trade accounts receivable, net.............................. 803,459
Accounts receivable from affiliated companies............... 78,638
Other accounts receivable and other assets.................. 69,161
---------
ACCOUNTS RECEIVABLE AND OTHER ASSETS........................ 951,258
Cash and cash equivalent.................................... 55,133
---------
CURRENT ASSETS.............................................. 1,836,582
Deferred charges............................................ 72,264
---------
TOTAL ASSETS................................................ 2,705,002
=========

SHAREHOLDER'S EQUITY AND LIABILITIES
Issued capital.............................................. 50,000
Reserves.................................................... 534,198
Profit available for distribution........................... 9,483
Minority interests.......................................... 129,619
---------
SHAREHOLDER'S EQUITY........................................ 723,300
Provisions for pensions and similar obligations............. 130,016
Other accrued liabilities................................... 254,573
---------
ACCRUED LIABILITIES......................................... 384,589
Liabilities to banks........................................ 102,874
Trade accounts payable...................................... 290,613
Liabilities to affiliated companies......................... 1,107,633
Other liabilities........................................... 93,394
---------
LIABILITIES................................................. 1,594,514
Deferred income............................................. 2,599
---------
TOTAL SHAREHOLDER'S EQUITY AND LIABILITIES.................. 2,705,002
=========

The accompanying notes are an integral part of the interim condensed combined
financial statements.
A-45

dmc(2) GROUP

INTERIM CONDENSED COMBINED STATEMENTS OF SHAREHOLDER'S EQUITY

GERMAN GAAP

(IN DEM THOUSANDS)

(UNAUDITED)

INVESTMENTS
PROFIT BY AND
AVAILABLE ADVANCES
ISSUED CAPITAL REVENUE FOR MINORITY FROM
CAPITAL RESERVE RESERVES DISTRIBUTION INTERESTS DEGUSSA TOTAL
------- ------- -------- ------------ --------- ----------- ---------

AS OF DECEMBER 31, 1999....... -- -- -- -- -- 1,168,391 1,168,391
Formation (former Cerdec
AG)......................... 32,000 109,346 2,685 (7,042) -- (136,989) --
Contribution of precious
metals and automotive
catalysts divisions by
Degussa..................... 18,000 149,000 -- -- -- (167,000) --
Conversion of advances to
liabilities................. -- -- -- -- -- (689,269) (689,269)
Conversion of advances to
reserves.................... -- -- 93,228 -- -- (93,228) --
Conversion of advances to
minority interest........... -- -- -- -- 81,905 (81,905) --
Contribution from Degussa,
net......................... -- 100,458 -- -- -- -- 100,458
Net income.................... -- -- -- 24,832 22,182 -- 47,014
Dividends paid................ -- -- (18,110) -- -- -- (18,110)
Foreign currency translation
adjustment.................. -- -- 20,952 -- -- -- 20,952
Reclassifications............. -- -- 13,790 (13,790) -- -- --
------ ------- ------- ------- ------- --------- ---------
AS OF JUNE 30, 2000........... 50,000 358,804 112,545 4,000 104,087 -- 629,436
====== ======= ======= ======= ======= ========= =========

PROFIT
AVAILABLE
ISSUED CAPITAL REVENUE FOR MINORITY
CAPITAL RESERVE RESERVES DISTRIBUTION INTERESTS TOTAL
------- ------- -------- ------------ --------- -------

AS OF DECEMBER 31, 2000............ 50,000 358,804 125,081 8,000 110,214 652,099
Net income......................... -- -- -- 14,387 (2,035) 12,352
Dividends paid..................... -- -- -- (7,953) -- (7,953)
Contribution by minority partner... -- -- -- -- 21,440 21,440
Foreign currency translation
adjustment....................... -- -- 45,362 -- -- 45,362
Reclassifications.................. -- -- 4,951 (4,951) -- --
------ ------- ------- ------- ------- -------
AS OF JUNE 30, 2001................ 50,000 358,804 175,394 9,483 129,619 723,300
====== ======= ======= ======= ======= =======

The accompanying notes are an integral part of the interim condensed combined
financial statements.
A-46

dmc(2) GROUP

INTERIM CONDENSED COMBINED STATEMENTS OF CASH FLOWS

GERMAN GAAP

(IN DEM THOUSANDS)

(UNAUDITED)

SIX MONTHS ENDED
JUNE 30,
--------------------
2000 2001
-------- --------

NET INCOME.................................................. 47,014 12,352
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization............................... 41,146 46,362
(Gain)/loss on disposal of non-current assets............... 1,326 (255)
Provision for deferred taxes................................ 15,573 9,784
Loss from investments, net.................................. (10,152) (9,444)
Write-down of non-current assets............................ -- 252
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Inventories, net............................................ (52,611) 42,322
Trade accounts receivable, net.............................. (193,188) (66,850)
Accounts receivable from affiliated companies............... (118,859) (17,042)
Other accounts receivable and assets........................ 495 21,940
Deferred charges............................................ 8,170 (26,782)
Provisions for pensions and similar obligations............. 77,366 6,067
Other accrued liabilities................................... (23,397) (13,518)
Advance payments received on orders......................... (49) (2,102)
Trade accounts payable...................................... 87,861 38,979
Liabilities to affiliated companies......................... 49,707 37,194
Other liabilities........................................... 17,135 13,567
Deferred income............................................. 12,361 636
-------- --------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES............. (40,102) 93,462
INVESTING ACTIVITIES:
Elimination of goodwill..................................... -- 30,841
Purchase of intangible assets............................... -- (3,804)
Capital expenditures........................................ (71,714) (107,746)
Acquisition of business, net of cash acquired............... (8,745) --
Proceeds from disposal of non-current assets................ 7,569 22,097
-------- --------
CASH USED IN INVESTING ACTIVITIES........................... (72,890) (58,612)
FINANCING ACTIVITIES:
Borrowings from banks, net.................................. 750,119 (836,716)
Net cash from (to) Degussa.................................. (636,406) 786,620
Contribution by minority interest........................... -- 21,440
-------- --------
CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES................................................ 113,713 (28,656)
Effect of exchange rate movements on cash................... (803) 1,793
-------- --------

CHANGE IN CASH AND CASH EQUIVALENTS......................... (82) 7,987
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 70,605 47,146
-------- --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. 70,523 55,133
======== ========

The accompanying notes are an integral part of the interim condensed combined
financial statements.
A-47

NOTES TO THE COMBINED INTERIM FINANCIAL STATEMENTS

dmc(2) GROUP

(IN DEM THOUSANDS)

(UNAUDITED)

(1) BASIS OF PREPARATION

The accompanying combined financial statements were prepared in accordance
with the provisions of the German Commercial Code ("Handelsgesetzbuch" -- "HGB")
and the German Stock Corporation Act ("Aktiengesetz" -- "AktG"). These combined
financial statements of the dmc(2) Group have been prepared in accordance with
accounting principles generally accepted in Germany (German GAAP) as if the
dmc(2) Group had always been an established legal group.

(2) RECONCILIATION TO U.S. GAAP

The interim combined financial statements are presented in accordance with
German GAAP, which differ in certain significant respects from accounting
principles generally accepted in the United States of America ("U.S. GAAP").

The significant differences that affect net income and shareholder's equity
of dmc(2) Group are set forth below:

SIX MONTHS ENDED JUNE 30,
---------------------------
NOTE 2000 2001
----- -------- --------

RECONCILIATION OF NET INCOME (LOSS) TO U.S. GAAP:
Net income as reported in the combined statements of
operations under German GAAP.............................. 47,014 12,352
Provisions and loss contingencies...................... a) (2,550) (6,190)
Valuation of inventory................................. b) 503 (203)
Deferred taxes......................................... c) 1,096 13,517
Foreign currency revaluation........................... d) 3,652 (2,069)
Pensions and post retirement benefits.................. e) (3,240) (4,796)
Allowance for doubtful accounts........................ f) 8,541 (4,359)
Valuation of securities................................ g) 3,072 10
Valuation of fixed assets.............................. h) 24 2,713
Financial instruments.................................. i) 1,671 30,188
Purchase accounting of dmc(2) Group.................... j) (17,093) (17,094)
Purchase of minority interest in Cerdec AG............. k) (1,675) (1,672)
Combination of majority-owned subsidiaries............. l) 5,171 4,779
Minority interests..................................... m) (7,058) (11,627)
Equity method accounting............................... n) (9,697) (3,322)
Goodwill............................................... o) (2,913) 1,883
------- -------
NET INCOME IN ACCORDANCE WITH U.S. GAAP..................... 26,518 14,110
======= =======

A-48

NOTES TO THE COMBINED INTERIM FINANCIAL STATEMENTS -- CONTINUED

dmc(2) GROUP

SIX MONTHS ENDED JUNE 30,
----------------------------
NOTE 2000 2001
---- --------- ---------

RECONCILIATION OF SHAREHOLDER'S EQUITY TO U.S. GAAP:
Shareholder's equity as reported in the combined
statements of shareholder's equity under German
GAAP................................................. 629,436 723,300
Provisions and loss contingencies................. (a) 47,057 24,691
Valuation of inventory............................ (b) 5,009 3,453
Deferred taxes.................................... (c) (149,579) (137,792)
Foreign currency revaluation...................... (d) 7,453 (13)
Pensions and post retirement benefits............. (e) (3,721) (1,384)
Allowance for doubtful accounts................... (f) 17,877 4,497
Valuation of securities........................... (g) 92,385 46,114
Valuation of fixed assets......................... (h) 3,051 12,065
Financial instruments............................. (i) (415) 31,685
Purchase accounting of dmc(2) Group............... (j) 618,200 577,605
Purchase of minority interest in Cerdec AG........ (k) 45,721 42,377
Combination of majority -- owned subsidiaries..... (l) 25,162 13,291
Minority interests................................ (m) (24,129) (57,189)
Equity method accounting.......................... (n) (19,787) 4,591
Goodwill.......................................... (o) (24,883) (2,268)
--------- ---------
SHAREHOLDER'S EQUITY IN ACCORDANCE WITH U.S. GAAP...... 1,268,837 1,285,023
========= =========

(a) PROVISIONS AND LOSS CONTINGENCIES

(b) VALUATION OF INVENTORY

Under German GAAP, raw materials inventory is valued at the lower of
average purchase cost or market price, similar to U.S. GAAP. However, for German
GAAP purposes, market price is the lower of replacement cost and net realizable
value. Differences may arise where sales prices are contracted at period end.

Under German GAAP, deferred tax assets and liabilities are generally
recognized for temporary differences between book carrying values and tax bases
of assets and liabilities, with the exception of

A-49

NOTES TO THE COMBINED INTERIM FINANCIAL STATEMENTS -- CONTINUED

dmc(2) GROUP

deferred tax assets relating to net operating loss carry forwards which are
recognized to the extent of offsetting deferred tax liabilities. Deferred tax
assets are recognized to the extent they are expected to be realized.

The deferred tax adjustment included in the above reconciliation to U.S.
GAAP also contains the income tax effects of the above U.S. GAAP adjustments,
where appropriate.

(d) FOREIGN CURRENCY REVALUATION

Under German GAAP, foreign currency denominated receivables (payables) are
translated at the lower (higher) of the period-end spot rate or contracted rate,
respectively.

Under U.S. GAAP, assets and liabilities denominated in a foreign currency
are recorded at current exchange rates at period-end with any resulting
adjustments in operating results.

(e) PENSIONS AND POST RETIREMENT BENEFITS

For German GAAP, certain increases in pension and other similar obligations
are recognised immediately in earnings. Under U.S. GAAP, changes in pension and
similar obligations (including those resulting from plan amendments) are not
recognised as they occur but are recognised systematically and gradually over
subsequent periods. Following the Formation of dmc(2) Group as a legal entity in
2000, certain pension plans were amended to increase benefits as well as expand
the number of participants.

As part of the Formation of the dmc(2) Group, Degussa assumed the liability
for certain dmc(2) Group employees retired as of January 1, 2000. Under German
GAAP the pension expense associated to these retired employees is not included
in income for the year ended December 2000. For U.S. GAAP, pension costs
associated with the retired employees has been reflected in the U.S. GAAP
reconciliation.

(f) ALLOWANCE FOR DOUBTFUL ACCOUNTS

(g) VALUATION OF SECURITIES

A-50

NOTES TO THE COMBINED INTERIM FINANCIAL STATEMENTS -- CONTINUED

dmc(2) GROUP

(h) VALUATION OF FIXED ASSETS

(i) FINANCIAL INSTRUMENTS

Precious metal leases are treated off balance sheet under German GAAP since
title and ownership of the leased metal do not pass to the lessee. Precious
metal leases were similarly treated for U.S. GAAP until the adoption of
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), as amended on January 1, 2000.
After adoption, precious metal leases are treated as derivative instruments.
Therefore, changes in fair values are reported in earnings.

(j) PURCHASE ACCOUNTING OF DMC(2) GROUP

As a result of the new basis of accounting, shareholder's equity was
increased and additional charges reflected in the reconciliation of net income
for the effects of increases in cost of sales, depreciation expense of tangible
and intangible assets, and related deferred taxes. The deferred tax effect is
reflected in Note 2(c) above.

(k) PURCHASE OF MINORITY INTEREST IN CERDEC AG

(l) COMBINATION OF MAJORITY-OWNED SUBSIDIARIES

dmc(2) Group does not combine a number of investments in domestic and
foreign companies in its combined financial statements under German GAAP. For
U.S. GAAP, the number of companies consolidated in the combined financial
statements has been increased. The remaining companies not included in the scope

A-51

NOTES TO THE COMBINED INTERIM FINANCIAL STATEMENTS -- CONTINUED

dmc(2) GROUP

of the consolidation for U.S. GAAP purposes are not material to the combined
shareholder's equity, financial position, and net operating results.

Combination of dmc(2) L.P.

dmc(2) L.P. is consolidated under German GAAP with Degussa's 99% interest
in equity and earnings shown as minority interests. As these combined financial
statements are prepared with respect to the sale of dmc(2) Group to OMG and OMG
has purchased the remaining 99% interest of dmc(2) L.P. from Degussa as part of
this agreement, dmc(2) L.P. has been fully consolidated with no minority
interests for U.S. GAAP purposes.

(m) MINORITY INTERESTS

(n) EQUITY METHOD ACCOUNTING

Under U.S. GAAP, investments in associated companies are recorded using the
equity method of accounting if the investor has significant influence over the
operating or financial decisions of the investee. For both German GAAP and U.S.
GAAP, the balance of each investment is increased or decreased, as appropriate,
to account for the investor's proportionate share of the investee earnings, less
dividends received.

(o) GOODWILL

Extraordinary Income (Expense)

The items classified as extraordinary income (expense) under German GAAP
would not be presented as extraordinary items for U.S. GAAP purposes.

(3) SUBSEQUENT EVENT

On August 10, 2001, Degussa forgave approximately DM 1,109,427 of affiliate
advances due from dmc(2) Group to Degussa AG.

A-52

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