10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2005

OR

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

Commission file number 001-12515

OM GROUP, INC.

(Exact name of Registrant as specified in its charter)

Delaware	52-1736882
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
127 Public Square, 1500 Key Tower, Cleveland, Ohio	44114-1221
(Address of principal executive offices)	(Zip Code)

216-781-0083

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $0.01 per share	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

  Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o   No x

  Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o   No x

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

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

  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Large accelerated filer x   Accelerated filer o   Non-accelerated filer o

  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of Act). Yes o   No x

  The aggregate market value of Common Stock, par value $.01 per share, held by nonaffiliates (based upon the closing sale price on the NYSE) on June 30, 2005 was approximately $704 million.

  As of February 28, 2006 there were 29,313,951 shares of Common Stock, par value $.01 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

  Portions of the Company’s Proxy Statement for the 2006 Annual Meeting of Stockholders are incorporated by reference in Part III.

Table of Contents

PART I
Item 1.	Business	2
Item 1A.	Risk Factors	8
Item 1B.	Unresolved Staff Comments	14
Item 2.	Properties	14
Item 3.	Legal Proceedings	15
Item 4.	Submission of Matters to a Vote of Security Holders	16
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
Item 6.	Selected Financial Data	19
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	34
Item 8.	Financial Statements and Supplementary Data	36
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	85
Item 9A.	Controls and Procedures	85
Item 9B.	Other Information	86
PART III
Item 10.	Directors and Executive Officers of the Registrant	87
Item 11.	Executive Compensation	87
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	87
Item 13.	Certain Relationships and Related Transactions	88
Item 14.	Principal Accountant Fees and Services	88
PART IV
Item 15.	Exhibits, Financial Statement Schedules	89
	Signatures	95

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PART I

Item 1. Business

General

OM Group, Inc. (“OMG” or the “Company”) is a leading, vertically integrated international producer and marketer of value-added, metal-based specialty chemicals and related materials, primarily from cobalt and nickel. The Company applies proprietary technology to unrefined cobalt and nickel raw materials to market more than 825 different product offerings to approximately 2,100 customers in over 30 industries. The Company believes that its focus on metal-based specialty chemicals and related materials as a core business and backward raw material integration is a critical component of the Company’s current business model. The Company operates in two business segments — Cobalt and Nickel.

The Cobalt segment produces products using unrefined cobalt and other metals including copper, zinc, manganese and calcium. The Nickel segment produces nickel-based products. The Company’s products are essential components in numerous complex chemical and industrial processes, and are used in many end markets, such as rechargeable batteries, coatings, custom catalysts, liquid detergents, lubricants and fuel additives, plastic stabilizers, polyester promoters, adhesion promoters for rubber tires, colorants, petroleum additives, magnetic media, metal finishing agents, cemented carbides for mining and machine tools, diamond tools used in construction, stainless steel, alloy and plating applications. The Company’s products are sold in various forms such as solutions, crystals, powders, cathodes and briquettes.

The Company’s business is critically connected to both the price and availability of raw materials. The primary raw materials used by the Company are unrefined cobalt and nickel. Cobalt raw materials include ore, concentrate, slag and scrap. Nickel raw materials include concentrates, ore, intermediates, secondaries, scrap and matte. The cost of the Company’s raw materials fluctuates due to actual or perceived changes in supply and demand of raw materials, changes in cobalt and nickel reference/market prices and changes in availability from suppliers. The Company attempts to mitigate changes in availability by maintaining adequate inventory levels and long-term supply relationships with a variety of suppliers. Fluctuations in the prices of cobalt and nickel have been significant in the past and the Company believes that cobalt and nickel price fluctuations are likely to continue in the future. The Company attempts to pass through to its customers increases in raw material prices by increasing the prices of its products. The Company’s profitability is largely dependent on the Company’s ability to maintain the differential between its product prices and product costs. Certain sales contracts and raw material purchase contracts contain variable pricing that adjusts based on changes in the price of cobalt and nickel. During periods of rapidly changing metal prices, however, there may be price lags that can impact the short-term profitability and cash flow from operations of the Company both positively and negatively. The Company attempts to minimize the effect on profitability of changes in the market price of nickel through hedging activities. Reductions in the price of raw materials or declines in the selling prices of the Company’s finished goods could also result in the Company’s inventory carrying value being written down to a lower market value.

In addition to the United States, the Company has manufacturing and other facilities in Africa, Canada, Europe and Asia-Pacific, and markets its products worldwide. Although most of the Company’s raw material purchases and product sales are based on the U.S. dollar, prices of certain raw materials, non-U.S. operating expenses and income taxes are denominated in local currencies. As such, the results of operations are subject to the variability that arises from exchange rate movements (particularly the Euro and the Australian dollar). In addition, fluctuations in exchange rates may affect product demand and profitability in U.S. dollars of products provided by the Company in foreign markets in cases where payments for its products are made in local currency. Accordingly, fluctuations in currency prices affect the Company’s operating results.

The Company has a 55% interest in a smelter joint venture (“GTL”) in the Democratic Republic of Congo (the “DRC”). GTL is consolidated in the Company’s financial statements because the Company has controlling interest in the joint venture. The Company also has a 20% interest in an Australian nickel mining company.

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Significant Events

New President and Chief Executive Officer — On June 13, 2005, Joseph M. Scaminace became President and Chief Executive Officer of the Company. Mr. Scaminace came to the Company from The Sherwin-Williams Company, where he served for 22 years in a variety of positions of increasing responsibility, culminating in the role of president, chief operating officer, and board member. Mr. Scaminace replaced Frank E. Butler, the Company’s interim chief executive officer, who filled that role from January 2005 when James P. Mooney ceased to be employed as the Company’s Chief Executive Officer.

Transition of Board of Directors — During 2005, the Company’s board of directors adopted a new policy that requires all non-executive directors meet its standards of independence. In response to these standards, the Company added three additional directors during 2005: Leo J. Daley, Richard W. Blackburn and Steven J. Demetriou. Each of the Company’s five non-executive directors meets the New York Stock Exchange independence standards as well as the additional requirements implemented by the Company’s board of directors in the Corporate Governance Principles.

Changes and Additions to the Executive Leadership Team — On September 26, 2005, Valerie Gentile Sachs became Vice President, General Counsel and Secretary of the Company. Ms. Sachs came to the Company from Jo-Ann Stores, Inc. where she served as executive vice president, general counsel and secretary since 2003.

On November 14, 2005, Kenneth Haber was named interim Chief Financial Officer. Prior to assuming the duties of Interim Chief Financial Officer, Mr. Haber worked as a consultant to the Company on a number of specific projects during 2005, including helping the company to develop its rigorous new planning/budgeting process, as well as establishing key performance metrics. On March 7, 2006 the Company named Mr. Haber its Chief Financial Officer. Mr. Haber replaced R. Louis Schneeberger, who ceased to be employed as the Company’s Chief Financial Officer on November 11, 2005.

In addition to the changes listed above, since he became President and CEO in June 2005, Mr. Scaminace has made the following changes and additions to the executive leadership team:

•  In October 2005, Gregory J. Griffith was promoted to Vice President, Corporate Affairs & Investor Relations. Mr. Griffith had been Director, Investor Relations since 2002.

•  In October 2005, David S. Hakaim joined the Company as Vice President, Information Systems. From 2003 through October 2005, Mr. Hakaim was a senior consultant with Titan Technology Partners and in that capacity led the Company’s outsourced IT function.

•  In February 2006, Daniel K. Lewis joined the Company as Vice President of Human Resources.

2006 Business Developments — The Company reached a definitive agreement with Inco Limited to toll refine approximately 21,000 to 25,000 tonnes of contained nickel per year over a three-year period, starting July 1, 2006.

The Company has entered into an agreement to acquire Plaschem Specialty Products Pte Ltd. and its subsidiaries. Headquartered in Singapore, Plaschem develops and produces specialty chemicals for printed circuit board chemistries, semiconductor chemistries and general metal finishing. The company’s operations include a plant in Singapore and an integrated manufacturing, research and technical support facility in the People’s Republic of China near the Shanghai area. The company generated sales of approximately US$11 million in 2005.

Settlement of Class Action and Derivative Lawsuits — The Company settled the shareholder class action lawsuits filed in November 2002 relating to the decline in the Company’s stock price after the third quarter 2002 earnings announcement. During 2005, the Company paid $74.0 million in cash and the remaining $8.5 million was settled by the issuance of 407,478 shares of common stock.

The Company also settled the shareholder derivative lawsuits filed in November 2002 against the Company’s then directors and certain of its then executives, which lawsuits also were related to the decline in the Company’s stock price after the third quarter 2002 earnings announcement. During 2005, the Company issued

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380,000 shares of common stock in payment of attorneys’ fees and costs incurred by plaintiffs’ counsel with respect to this litigation and undertook to implement various corporate governance changes as required under the settlement agreement. The market value of the 380,000 shares of common stock was $4.9 million at the date of issuance.

Completion of the Restatement of the 2003 Financial Results — The Company completed the restatement of prior year financial statements included in the Company’s 2003 Form 10-K, which was filed on March 31, 2005 and filed its Form 10-Q’s for each of the first three quarters of 2004 on June 10, 2005. The Company filed its 2004 Form 10-K on August 22, 2005 and filed its Forms  10-Q for the first and second quarter of 2005 on September 23, 2005. Beginning with the third quarter 2005 Form 10-Q filing, the Company has remained current with all its SEC filings.

Products

The Company develops, processes, manufactures and markets specialty chemicals, powders, metals and related products from various base metals feeds, primarily cobalt and nickel. The Company’s products leverage the Company’s production capabilities and bring value to its customers through superior product performance. Typically, the Company’s products represent a small portion of the customer’s total cost of manufacturing or processing, but are critical to the customer’s product performance. The 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. The Company’s products are sold in various forms such as solutions, crystals, powders, cathodes and briquettes.

The following table sets forth key applications for the Company’s products:

Applications	Metals Used	OMG’s Product Attributes
Stainless Steel	Nickel	Improves rust resistance in demanding applications; improves corrosion resistance in aggressive high temperatures or corrosive environments
Rechargeable Batteries	Cobalt, Nickel	Improves the electrical conduction of rechargeable batteries used in cellular phones, video cameras, portable computers, power tools and hybrid electric vehicles
Coatings and paints	Cobalt, Manganese, Calcium, Zirconium, Aluminum	Promotes faster drying in such products as house paints (exterior and interior) and industrial and marine coatings
Printing Inks	Cobalt, Manganese	Promotes faster drying in various printing inks
Tires	Cobalt	Promotes bonding of metal-to-rubber in radial tires
Construction Equipment and Cutting Tools	Cobalt	Strengthens and adds durability to diamond and machine cutting tools and drilling equipment used in construction, oil and gas drilling, and quarrying
Petrochemical Refining	Cobalt, Nickel	Catalyzes reduction of sulfur dioxide and nitrogen emissions
Ceramics and Glassware	Cobalt, Nickel	Provides color for pigments, earthenware and glass and facilitates adhesion of porcelain to metal
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
Memory Disks	Nickel	Enhances information storage on disks for computers and consumer electronics

Financial information, including reportable segment and geographic data, is contained in Note 20 to the consolidated financial statements contained in Item 8 of this Annual Report.

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Competition

The Company encounters a variety of competitors in each of its product lines, and no single company competes with the Company across all of its existing product lines. For 2005, the Company believes that it was the largest refiner of cobalt and producer of cobalt-based specialty products in the world and was the sixth largest refiner of primary nickel and the largest producer of electroless nickel plating chemistry for memory disk applications. Competition in these markets is based primarily on product quality, supply reliability, price, service and technical support capabilities. The markets in which the Company participates have historically been competitive and this environment is expected to continue.

Customers

The Company serves approximately 2,100 customers. During 2005, approximately 54% of the Company’s net sales were in Europe, 19% in the Americas and 27% in Asia-Pacific. In 2005, sales to Outokumpu Oy represented approximately 16% of the Nickel segment’s net sales, 5% of the Cobalt segment’s net sales, and 12% of the Company’s total net sales. In addition, sales to another customer were approximately 21% of the Cobalt segment’s net sales in 2005. No one customer exceeded 10% of the Company’s consolidated net sales in 2004. In 2003, sales to Glencore AG represented approximately 13% of the Company’s net sales.

While customer demand for the Company’s products is generally non-seasonal, supply/demand and price perception dynamics of key raw materials do periodically cause customers to either accelerate or delay purchases of the Company’s products, generating short-term results that may not be indicative of longer-term trends. Historically, revenues during July and August have been lower than other months due to the summer holiday season in Europe. Furthermore, the Company uses the summer season as the appropriate time to perform its annual maintenance shut-down for both of its refineries in Finland.

Raw Materials

The primary raw materials used by the Company in manufacturing its products are unrefined cobalt and nickel. Cobalt raw materials include ore, concentrates, slag and scrap. Nickel raw materials include concentrates, ore, intermediates, secondaries, scrap and matte. The cost of the Company’s raw materials fluctuates due to actual or perceived changes in supply and demand of raw materials, changes in cobalt and nickel reference/market prices and changes in availability from suppliers.

The Company attempts to mitigate changes in prices by passing through to its customers increases in raw material prices by increasing the prices of its products and by entering into sales contracts that contain variable pricing that adjusts based on changes in the price of nickel and cobalt. The Company also attempts to minimize the effect on profitability of changes in the market price of nickel through hedging activities.

Cobalt

A significant portion of the Company’s supply of cobalt historically has been sourced from the DRC, Australia and Finland. Production problems and political and civil instability in certain supplier countries may in the future affect the supply and market price of raw material. During 2005, the reference price of 99.3% cobalt listed in the trade publication, Metal Bulletin, continued the decline from the unusually high prices experienced in early 2004, dropping from an average of $17.26 per pound in the first quarter of 2005 to an average of $12.51 per pound in the fourth quarter of 2005. During 2004, cobalt reference prices ranged from an average of $24.63 per pound in the first quarter, and trended downward to an average of $18.38 per pound in the fourth quarter. From November 1, 2003 to December 31, 2003, the reference price of cobalt increased 105%, from $10.00 to $20.50 per pound. Earlier in 2003 and in 2002, the market price of cobalt remained at unusually low levels of $6.00-$7.00 per pound.

GTL shut down its smelter as scheduled during January of 2005 for approximately four months for maintenance and production improvements. The smelter was re-opened in May of 2005. The Company expects the next extended maintenance shutdown will occur in 2008.

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A graph of the end of the month reference price of 99.3% cobalt (as published in Metal Bulletin magazine) per pound for 2000 through 2005 is as follows:

Nickel

Nickel historically has been sourced from Australia, Finland and Brazil. In December 2001, the Company purchased an intermediate nickel refining facility and associated mine deposits in Australia (the Cawse mine), which provide the Company with direct access to feed to produce approximately 6,500 tons of nickel per year. In the first and second quarter of 2005, the average London Metal Exchange (“LME”) cash nickel price was $6.96 per pound and $7.44 per pound, respectively, falling to an average of $5.73 per pound in the fourth quarter of 2005. During 2004, nickel market prices ranged from approximately $6-$7 per pound, except for a brief drop to approximately $5 per pound in May 2004. From November 1, 2003 to December 31, 2003, the market price of nickel increased 40%, from $5.40 to $7.54 per pound.

A graph of the monthly LME price of nickel per pound for 2000 through 2005 is as follows:

Currently, the Company has arrangements in place for approximately 82% of its practical nickel refining capacity for 2006. This amount includes both supply contracts for raw material feed and tolling agreements to toll refine third party feedstocks. During 2006, the Company reached an agreement to toll refine approximately 21,000 to 25,000 tons of contained nickel per year over a three-year period, starting July 1, 2006 and ending July 31, 2009. As a result of the agreement, the Company’s Harjavalta, Finland refinery will be operating near practical capacity in the second half of 2006. Currently, the Company has arrangements in place for approximately 100% of its practical nickel refining capacity for 2007 and 2008.

6

Research and Development

The Company’s research and new product development program is an integral part of its business. Research and development focuses on adapting proprietary technologies to develop new products and working with 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, and concentrations of various components and product forms. Research and development also focuses on improving refining competency, processes, yield and throughput in each location. Research and development, applied technology and technical service expenses were approximately $14.9 million for 2005, $14.0 million for 2004 and $10.0 million for 2003.

The Company’s research staff of approximately 85 people conducts research and development in laboratories located in Westlake, Ohio; Newark, New Jersey; Kuching, Malaysia; Manchester, England; Kokkola, Finland and Harjavalta, Finland.

Patents and Trademarks

The Company holds 120 patents comprising 36 patent families and has 32 pending patent applications relating to the manufacturing, processing and use of metal-organic and metal-based compounds. Specifically, the majority of these patents cover proprietary technology for base metal refining, metal and metal oxide powders, catalysts, metal-organic compounds and inorganic salts. The Company does not consider any single patent or group of patents to be material to its business as a whole.

Environmental Matters

The Company is subject to a wide variety of environmental laws and regulations in the United States and in foreign countries as a result of its operations and use of certain substances that are, or have been, used, produced or discharged by its 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 the Company. At December 31, 2005 and 2004, the Company has environmental reserves of $8.8 million and $9.5 million, respectively.

Ongoing environmental compliance costs, which are expensed as incurred, were approximately $7.4 million in 2005 and $7.0 million in 2004 and include costs relating to waste water analysis, treatment, and disposal; hazardous and non-hazardous solid waste analysis and disposal; air emissions control; groundwater monitoring and related staff costs. The Company anticipates that it will continue to incur compliance costs at moderately increasing levels for the foreseeable future as environmental laws and regulations are becoming increasingly stringent.

The Company also incurred capital expenditures of approximately $3.9 million in both 2005 and 2004 in connection with ongoing environmental compliance. The Company anticipates that capital expenditure levels for these purposes will increase to approximately $6.7 million in 2006, as it continues to modify certain processes that may have an environmental impact and undertakes new pollution prevention and waste reduction projects.

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

Employees

At December 31, 2005, the Company had 1,451 full-time employees, of which 222 were located in North America, 667 in Europe, 351 in Africa and 211 in Asia-Pacific. Employees at the Company’s production facilities in Franklin, Pennsylvania; Kuching, Malaysia; and Kalgoorlie, Australia are non-unionized. Employees at the Company’s facilities in Harjavalta and Kokkola, Finland are members of several national workers’ unions under

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various union agreements. Generally, these union agreements have two-year terms. Employees at the Company’s facility in Manchester, England are members of various trade unions under a recognition agreement. This recognition agreement has an indefinite term. Employees at the Belleville, Canada facility are members of the Communications, Energy and Paperworkers Union of Canada. The current Belleville union agreement expired in December 2005 after a two-year term. Employees in Belleville are working under the terms of the previous agreement and the Company believes it will be able to successfully negotiate a new agreement. Employees in the DRC are members of various trade unions. The union agreements have a term of three years expiring in April 2008. The Company believes that relations with its employees are good.

SEC Reports

The Company makes available free of charge through its website (www.omgi.com) its reports on Forms 10-K, 10-Q and 8-K as soon as reasonably practicable after the reports are electronically filed with the Securities and Exchange Commission.

Item 1A. Risk Factors

Our business faces significant risks. These risks include those described below and may include additional risks and uncertainties not presently known to us or that we currently deem immaterial. Our business, financial condition and results of operations could be materially adversely affected by any of these risks. These risks should be read in conjunction with the other information in this report.

EXTENDED BUSINESS INTERRUPTION AT OUR FACILITIES COULD HAVE AN ADVERSE IMPACT ON OPERATING RESULTS.

Our results of operations are dependent in large part upon our ability to produce and deliver products promptly upon receipt of orders and to provide prompt and efficient service to our customers. Any disruption of our day-to-day operations could have a material adverse effect on our business, customer relations and profitability. Our Kokkola and Harjavalta, Finland facilities and the Cawse mine and processing facility in Australia are the primary refining and production facilities for our products. The GTL smelter in the DRC is a primary source for cobalt raw material feed. Our Cleveland, Ohio facility serves as our corporate headquarters. These facilities are critical to our business, and a fire, flood, earthquake or other disaster or condition that damaged or destroyed any of these facilities could disable them. Any such damage to, or other condition interfering with the operation of, these facilities would have a material adverse effect on our business, financial position and results of operations.

WE ARE AT RISK FROM FLUCTUATIONS IN THE PRICE OF OUR PRINCIPAL RAW MATERIALS.

The principal raw materials we use in manufacturing base metal chemistry products are cobalt and nickel, and the cost of these raw materials fluctuates due to actual or perceived changes in supply and demand, changes in cobalt and nickel reference/market prices and changes in availability from suppliers. Fluctuations in the prices of cobalt and nickel have been significant in the past and we believe price fluctuations are likely to occur in the future. Our ability to pass increases in raw material prices through to our customers by increasing the prices of our products is an important factor in our business. 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.

We may be required under U.S. GAAP accounting rules to write down the carrying value of our inventory when cobalt and nickel prices decrease. In periods of raw material metal price declines or declines in the selling price of the Company’s finished products, inventory carrying values could exceed the amount the Company could realize on sale, resulting in a charge against inventory that could adversely affect our operating results.

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

Historically, we have sourced our supply of cobalt primarily from the DRC, Australia and Finland. Production problems or political or civil instability in 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 and our operating results could be adversely impacted.

Historically, we have sourced our supply of nickel primarily from Australia, Finland and Brazil. If a substantial interruption should occur in the supply of nickel, we may not be able to obtain as much nickel as would be necessary to satisfy our requirements and our operating results could be adversely impacted.

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

We have manufacturing and other facilities in North America, 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 provided by us in foreign markets where payment for our products is made in the local currency. Accordingly, fluctuations in currency rates may affect our operating results.

OUR SUBSTANTIAL INTERNATIONAL OPERATIONS SUBJECT US TO RISKS, WHICH MAY INCLUDE UNFAVORABLE POLITICAL, REGULATORY, LABOR AND TAX CONDITIONS IN OTHER COUNTRIES.

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:

•  potential supply disruptions as a result of political instability or civil unrest in countries in which we have operations, especially the DRC and surrounding countries;

•  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;

•  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; and

•  compliance with a variety of foreign laws and regulations may be difficult.

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 implement policies and strategies that 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.

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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 were $7.4 million in 2005. In addition, we made capital expenditures of approximately $3.9 million in 2005 in connection with environmental compliance.

As of December 31, 2005, we had reserves of $8.8 million, which we believe to be sufficient to cover our estimated liabilities at that time. However, given the many uncertainties involved in assessing liability for environmental claims, our current reserves may prove to be insufficient. We continually evaluate the adequacy of our reserves and adjust reserves when determined to be appropriate. In addition, our current reserves are based only on known sites and the known contamination on those sites. It is possible that additional remediation sites will be identified in the future or that unknown contamination at previously identified sites will be discovered. This could require us to make additional expenditures for environmental remediation or could result in exposure to claims in the future.

THE COMPANY IS CURRENTLY IN A TRANSITIONAL PERIOD AS WE DEVELOP AND IMPLEMENT A NEW STRATEGIC PLAN.

As a result of changes to the Company’s executive officers and members of the board of directors during 2005, the Company is currently in a transitional period and may make changes, which could be material, to the Company’s business, operations, financial condition and results of operations. It is impossible to predict what these changes will be and the impact they will have on the Company’s future results of operations.

SEC INVESTIGATION.

As previously disclosed, the SEC’s Division of Enforcement is conducting an informal investigation resulting from the self reporting by the Company of an internal investigation. This internal investigation was conducted in 2004 by the audit committee of our board of directors in connection with the previous restatement of our financial results for the periods prior to December 31, 2003. We are cooperating fully with the SEC informal investigation, but we cannot assure you that the SEC’s Division of Enforcement will not take any action that would adversely affect us.

ADVERSE RESOLUTION OF LITIGATION MAY HARM OUR OPERATING RESULTS OR FINANCIAL CONDITION.

We are party to lawsuits in the normal course of business. Litigation can be expensive, lengthy and disruptive to normal business operations. Moreover, the results of complex legal proceedings are difficult to predict. An unfavorable resolution of a particular lawsuit could have a material adverse effect on our business, operating results, or financial condition. For additional information regarding certain of the lawsuits in which we are involved, See Item 3, “Legal Proceedings,” contained in Part I of this report.

IMPLEMENTATION OF AN ENTERPRISE RESOURCE PLANNING (“ERP”) PROJECT HAS THE POTENTIAL FOR BUSINESS INTERRUPTION AND ASSOCIATED ADVERSE IMPACT ON OPERATING RESULTS.

During 2005, we initiated a multi-year ERP project that is expected to be implemented worldwide to achieve increased efficiency and effectiveness in supply chain and financial processes. The system will be implemented at one site in 2006. The implementation of the ERP system has the potential to disrupt our business by delaying the processing of key business transactions. In addition, the implementation of the ERP system may take longer than anticipated or be more costly than originally estimated.

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WE HAVE A SIGNIFICANT AMOUNT OF DEBT, AND THE COST OF SERVICING THAT DEBT COULD ADVERSELY AFFECT OUR LIQUIDITY, FINANCIAL CONDITION OR OUR ABILITY TO TAKE ACTIONS.

Our 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, research and development efforts, and for other 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 our 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, including our outstanding senior subordinated notes, 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 additional indebtedness in the future. Our existing credit facilities and the indenture for our outstanding senior subordinated notes limit us from incurring additional indebtedness but do 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.

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;

•  pay dividends and make other restricted payments;

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

•  enter into sale and leaseback transactions;

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•  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 cash flow coverage ratio and a maximum total leverage ratio.

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 outstanding 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 the notes could elect to declare the notes immediately due and payable. If the indebtedness under our credit facilities or the 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 VERY COMPETITIVE INDUSTRIES.

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 operating cost increases to our customers, which also would reduce profit margins. In addition, we may 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.

INDUSTRY CONSOLIDATION MAY LEAD TO INCREASED COMPETITION AND MAY HARM OUR OPERATING RESULTS.

There has been a trend toward industry consolidation in our markets. We believe that industry consolidation may result in stronger competitors with greater financial and other resources that are better able to compete for customers. This could lead to more variability in operating results and could have a material adverse effect on our business, operating results, and financial condition.

FAILURE TO RETAIN AND RECRUIT KEY PERSONNEL WOULD HARM OUR ABILITY TO MEET KEY OBJECTIVES.

Our key personnel are critical to the management and direction of our businesses. Our future success depends, in large part, on our ability to retain key personnel and other capable management personnel. Although we believe

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that we will be able to attract and retain talented personnel and replace key personnel should the need arise, our inability to do so could make it difficult to meet key objectives and disrupt the operations of the segment affected or our overall operations.

WE MAY EXPAND OUR OPERATIONS THROUGH ACQUISITIONS, WHICH COULD DIVERT MANAGEMENT’S ATTENTION AND EXPOSE US TO UNANTICIPATED COSTS AND LIABILITIES. WE MAY EXPERIENCE DIFFICULTIES INTEGRATING THE ACQUIRED OPERATIONS, AND WE MAY INCUR COSTS RELATING TO POTENTIAL ACQUISITIONS THAT ARE NEVER CONSUMMATED.

Our business plan could include growth through future acquisitions. However, our ability to consummate any future acquisitions on terms that are favorable to us may be limited by the number of attractive acquisition targets, internal demands on our resources and our ability to obtain financing. Our success in integrating newly acquired businesses will depend upon our ability to retain key personnel, avoid diversion of management’s attention from operational matters, and integrate general and administrative services and key information processing systems. In addition, future acquisitions could result in the incurrence of additional debt, costs and contingent liabilities. Integration of acquired operations may take longer, or be more costly or disruptive to our business, than originally anticipated. It is also possible that expected synergies from future acquisitions may not materialize. We may also incur costs and divert management attention as regards potential acquisitions that are never consummated.

Although we undertake a due diligence investigation of each business that we acquire, there may be liabilities of the acquired companies that we fail to or are unable to discover during the due diligence investigation and for which we, as a successor owner, may be responsible. In connection with acquisitions, we generally seek to minimize the impact of these types of potential liabilities through indemnities and warranties from the seller, which may in some instances be supported by deferring payment of a portion of the purchase price. However, these indemnities and warranties, if obtained, may not fully cover the liabilities due to limitations in scope, amount or duration, financial limitations of the indemnitor or warrantor or other reasons.

OUR HEDGING ARRANGEMENTS INVOLVE RISK.

To manage our exposure to market risk, we periodically enter into forward and future contracts to hedge commodity price risk to nickel and swap agreements to hedge interest rate risk related to borrowings. These transactions may expose us to the risk of financial loss in certain circumstances, including instances in which the contractual counterparties fail to perform under the contracts or a sudden, unexpected event materially impacts nickel prices or interest rates.

CHANGES IN EFFECTIVE TAX RATES OR ADVERSE OUTCOMES RESULTING FROM EXAMINATION OF OUR INCOME TAX RETURNS COULD ADVERSELY AFFECT OUR RESULTS.

Our future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates, higher than anticipated in countries where we have higher statutory rates, or if we incur losses for which no corresponding tax benefit can be realized, by changes in the valuation of our deferred tax assets and liabilities, or by changes in tax laws, regulations, accounting principles or interpretations thereof. In addition, we are subject to examination of our income tax returns by the Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these examinations will not have an adverse effect on our operating results and financial condition.

In July 2005, the FASB issued an Exposure Draft of a proposed Interpretation “Accounting for Uncertain Tax Positions — an interpretation of FASB Statement No. 109.” The proposed Interpretation proposes changes to the current accounting for uncertain tax positions. While we cannot predict with certainty the rules in the final Interpretation, there is risk that the final Interpretation could result in a cumulative effect charge to earnings

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upon adoption, increases in future effective tax rates, and/or increases in future interperiod effective tax rate volatility.

OUR STOCK PRICE MAY CONTINUE TO BE VOLATILE.

Our common stock has experienced substantial price volatility, particularly as a result of variations between our actual financial results and the published expectations of analysts. Furthermore, speculation in the press or investment community about our strategic position, financial condition, results of operations, business, or significant transactions can cause changes in our stock price. These factors, as well as general economic and political conditions, may materially adversely affect the market price of our common stock in the future.

Item 1B. Unresolved Staff Comments

The Company has received no written comments regarding its periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more preceding the end of its 2005 fiscal year and that remain unresolved.

Item 2. Properties

The Company believes that its plants and facilities, which are of varying ages and of different construction types, have been satisfactorily maintained, are suitable for the Company’s operations and generally provide sufficient capacity to meet the Company’s production requirements. The land on which the production facilities in Kalgoorlie, Australia are located; the land on which the Harjavalta, Finland (“HNO”) production facilities are located (except for the land on which the HNO chemical plant is located); and the land on which the Kokkola, Finland (“KCO”) production facilities are located are leased under agreements with varying expiration dates. The depreciation lives of fixed assets do not exceed the lives of the land leases. Otherwise, the land associated with the Company’s remaining manufacturing facilities is owned by the Company.

The Company’s KCO production facility is situated on property owned by Boliden Kokkola Oy. KCO and Boliden Kokkola Oy share certain physical facilities, services and utilities under agreements with varying expiration dates. The Company’s HNO production facility is situated on land owned by Boliden Harjavalta Oy. The HNO facility also shares certain physical facilities and has contracts in place for toll smelting, waste disposal, utilities, laboratory services and raw material supply with Boliden Harjavalta Oy with varying expiration dates.

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Information regarding the Company’s primary offices, research and product development, and manufacturing and refining facilities, is set forth below:

			Facility		Approximate
Location	Segment		Function*		Square Feet		Leased/Owned
Africa:
Lubumbashi, DRC		Cobalt		M		116,000		joint venture (55% owned)
North America:
Cleveland, Ohio		Corporate		A		24,500		leased
Westlake, Ohio		Cobalt		A, R		35,200		owned
Belleville, Ontario		Cobalt		M		38,000		owned
Franklin, Pennsylvania		Cobalt		M		331,500		owned
Newark, New Jersey		Nickel		A, R		32,000		owned
Asia-Pacific:
Kalgoorlie, Australia		Nickel		M		294,400		owned
Kuching, Malaysia		Nickel		M, A, R		25,000		owned
Tokyo, Japan		Cobalt		A		2,300		leased
Taipei, Taiwan		Cobalt		A		4,000		leased
Singapore		Nickel		W, A		4,700		leased
Europe:
Manchester, England		Cobalt		M, A, R		73,300		owned
Espoo, Finland		Nickel		A		3,000		leased
Harjavalta, Finland		Nickel		M, A, R		591,000		owned
Kokkola, Finland		Cobalt		M, A, R		470,000		owned

*  M — Manufacturing/refining; A — Administrative; R — Research and Development; W — Warehouse

Item 3. Legal Proceedings

In November 2002, the Company received notice that shareholder class action lawsuits were filed in the U.S. District Court for the Northern District of Ohio related to the decline in the Company’s stock price after the third quarter 2002 earnings announcement. The lawsuits alleged virtually identical claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 against the Company, certain then executive officers and the then members of the board of directors. Plaintiffs sought damages in an unspecified amount to compensate persons who purchased the Company’s stock between November 2001 and October 2002 at allegedly inflated market prices. In July 2004, these lawsuits were amended to include the entire restatement period back to and including 1999, and to add the Company’s independent auditors, Ernst & Young LLP, as a defendant. The Company and the lead plaintiff of the shareholder class action lawsuits entered into a Stipulation and Agreement of Settlement (the “Shareholder Class Action Agreement”) dated June 6, 2005, which Shareholder Class Action Agreement, as amended, was approved on September 8, 2005 by the U.S. District Court hearing the cases. The Company recorded a charge to administrative expense of $82.5 million during the fourth quarter of 2003 related to these lawsuits. During 2005, the Company paid $74.0 million in cash and the remaining $8.5 million was settled by the issuance of 407,478 shares of common stock.

The Company’s insurance policies covered a portion of the settlement amounts. As of December 31, 2005, insurance proceeds of $44.0 million have been received, representing reimbursement of legal expenses ($16.5 million) as well as reimbursement of a portion of the settlement amount paid by the Company ($27.5 million). Amounts recorded in 2005, 2004 and 2003 were $32.4 million, $7.9 million and $3.7 million, respectively, and were recognized when received. The Company has no other insurance coverage available for the settlement.

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In November 2002, the Company also received notice that shareholder derivative lawsuits had been filed in the U.S. District Court for the Northern District of Ohio against the then members of the Company’s board of directors and certain of its then executives. Derivative plaintiffs allege the directors and executives breached their fiduciary duties to the Company in connection with a decline in the Company’s stock price after its third quarter 2002 earnings announcement by failing to institute sufficient financial controls to ensure that the Company and its employees complied with generally accepted accounting principles by writing down the value of the Company’s cobalt inventory on or before December 31, 2001. Derivative plaintiffs sought a number of changes to the Company’s accounting, financial and management structures and unspecified damages from the directors and executives to compensate the Company for costs incurred in, among other things, defending the aforementioned securities lawsuits. In July 2004, the derivative plaintiffs amended these lawsuits to include conduct allegedly related to the Company’s decision to restate its earnings back to and including 1999. The Company and the lead plaintiffs of the shareholder derivative lawsuits entered into a Stipulation and Agreement of Settlement dated September 23, 2005 (the “Shareholder Derivative Agreement”) which was preliminarily approved on September 29, 2005 by the U.S. District Court hearing the cases and finalized in November 2005. The Shareholder Derivative Agreement provided for the Company to issue 380,000 shares of its common stock in payment of attorneys’ fees and costs incurred by plaintiffs’ counsel with respect to this litigation, and also required the Company to implement various corporate governance changes. The Company recorded a charge to administrative expense of $2.0 million during the fourth quarter of 2003 and an additional charge to administrative expense of $7.5 million during the first quarter of 2004 related to these shareholder derivative lawsuits.

Prior to issuance, the 380,000 shares of common stock related to the settlement of the shareholder derivative litigation were marked-to-market through the Statement of Consolidated Income based on changes in the Company’s stock price, as the liability was fixed in shares. The Company recognized income of $4.6 million during 2005 related to the mark-to-market of these shares. In November 2005, the 380,000 shares were issued to settle these lawsuits.

The Company is currently engaged in pending litigation with James P. Mooney in federal court in Florida. The Company brought suit against Mr. Mooney seeking disgorgement of certain bonuses and profits he received during his tenure as Chief Executive Officer. Mr. Mooney has asserted a counterclaim against the Company seeking damages based on additional bonuses he alleges he is owed and other additional payments he claims he is entitled to under his employment agreement. The Company is currently depositing Mr. Mooney’s severance payments into an escrow account. Mr. Mooney has also filed suit against the Company in Delaware state court seeking advancement and reimbursement of his attorney’s fees in connection with the pending Florida litigation and other related matters. The Company is defending these lawsuits.

The SEC’s Division of Enforcement is conducting an informal investigation resulting from the self reporting by the Company of an internal investigation. This internal investigation was conducted in 2004 by the audit committee of the Company’s board of directors in connection with the previously filed restatement of the Company’s financial results for the periods prior to December 31, 2003. The Company is cooperating fully with the SEC informal investigation.

In addition, the Company is a party to various other legal and administrative proceedings incidental to its business. In the opinion of the Company, disposition of all suits and claims related to its ordinary course of business should not in the aggregate have a material adverse effect on the Company’s financial position or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth quarter of the Company’s 2005 fiscal year.

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Executive Officers of the Registrant

The information under this item is being furnished pursuant to Instruction 3 of Item 401(b) of Regulation S-K.

There is set forth below the name, age, positions and offices held by each of the Company’s executive officers, as well as their business experience during the past five years. Years indicate the year the individual was named to the indicated position.

Joseph M. Scaminace — 52

•  Chairman and Chief Executive Officer, August 2005

•  Chief Executive Officer, June 2005

•  President, Chief Operating Officer and Board Member, The Sherwin-Williams Company 1999-2005

Kenneth Haber — 55

•  Chief Financial Officer, March 2006

•  Interim Chief Financial Officer, November 2005 — March 2006

•  Owner and President, G&H Group Company, dba, Partners in Success May 2000 — March 2006

Valerie Gentile Sachs — 50

•  Vice President, General Counsel and Secretary, September 2005

•  Executive Vice President, General Counsel and Secretary, 2003-2005, Jo-Ann Stores, Inc.

•  General Counsel, 2002-2003, Marconi plc.

•  Executive Vice President and General Counsel, April 2001 to March 2002, and Vice President and General Counsel, November 2000 to April 2001, Marconi Communications, Inc., the operating company for Marconi, plc in the Americas.

Marcus P. Bak — 42

•  Vice President and General Manager, Nickel Group, January 2003

•  President, OMG Harjavalta Nickel Oy, October 2002 — January 2003

•  Vice President and General Manager, OMG Powdered Metals, January 2000 — October 2002

Stephen D. Dunmead — 42

•  Vice President and General Manager, Cobalt Group, August 2003

•  Corporate Vice President of Technology, 2000 — August 2003

Gregory J. Griffith — 50

•  Vice President, Corporate Affairs and Investor Relations, October 2005

•  Director of Investor Relations, July 2002 — October 2005

•  Director, Corporate Communications, Great Lakes Chemical Corporation 1999 — 2002

Daniel K. Lewis — 51

•  Vice President, Human Resources, February 2006

•  Director of Human Resources, European Union, Goodyear Tire and Rubber Company June 2005 — February 2006

•  Director of Human Resources, EPD and Chemicals, Goodyear Tire and Rubber Company March 2003 — May 2005

•  Director of Human Resources, Corporate Staffing and Recruiting, Goodyear Tire and Rubber Company June 2001 — March 2003

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company’s common stock is traded on the New York Stock Exchange under the symbol “OMG”. As of December 31, 2005, the approximate number of record holders of the Company’s common stock was 1,556.

The high and low market prices for the Company’s common stock for each quarter during the past two years are presented in the table below:

	2005
	Sales Price
					Cash
	High		Low		Dividend
First quarter	$	33.36	$	27.47	$	—
Second quarter	$	31.36	$	19.35	$	—
Third quarter	$	24.95	$	18.62	$	—
Fourth quarter	$	20.42	$	12.35	$	—

	2004
	Sales Price
					Cash
	High		Low		Dividend
First quarter	$	35.20	$	26.16	$	—
Second quarter	$	33.04	$	24.25	$	—
Third quarter	$	36.56	$	27.30	$	—
Fourth quarter	$	37.38	$	29.58	$	—

On November 17, 2005, the Company issued 380,000 shares of its common stock as part of the settlement of the shareholder derivative lawsuits that were filed in November 2002. These shares were not registered under the Securities Act of 1933 in reliance on the exemption contained in Section 3(a)(10) of such Act, as the share issuance was approved by the U.S. District Court hearing the cases. The Company did not receive any cash proceeds as a result of the issuance. The settlement of the derivative lawsuits is further described in Item 3 of this Annual Report.

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Item 6. Selected Financial Data

		Year Ended December 31,
		2005			2004			2003			2002			2001
(In millions, except per share data)
Income Statement Data:
Net sales		$	1,249.6		$	1,347.3		$	912.1		$	738.9		$	681.6
Cost of products sold			1,092.1			1,016.9			732.1			690.8			578.0
Gross profit			157.5			330.4			180.0			48.1			103.6
Selling, general and administrative expenses			90.0			129.1			197.0			136.0			81.3
Income (loss) from operations		$	67.5		$	201.3		$	(17.0	)	$	(87.9	)	$	22.3
Income (loss) from continuing operations before cumulative effect of change in accounting principle		$	27.2		$	125.7		$	(56.2	)	$	(110.7	)	$	(13.1	)
Income (loss) of discontinued operations, net of tax			9.4			2.9			139.9			(98.1	)		(22.1	)
Cumulative effect of a change in accounting principle			2.3			—			—			—			—
Net income (loss)		$	38.9		$	128.6		$	83.7		$	(208.8	)	$	(35.2	)
Net income (loss) per common share — basic:
	Continuing operations	$	0.95		$	4.42		$	(1.99	)	$	(3.95	)	$	(0.55	)
	Discontinued operations		0.33			0.10			4.94			(3.50	)		(0.91	)
	Cumulative effect of change in accounting principle		0.08			—			—			—			—
	Net income (loss)	$	1.36		$	4.52		$	2.95		$	(7.45	)	$	(1.46	)
Net income (loss) per common share — assuming dilution:
	Continuing operations	$	0.95		$	4.39		$	(1.99	)	$	(3.95	)	$	(0.55	)
	Discontinued operations		0.32			0.10			4.94			(3.50	)		(0.91	)
	Cumulative effect of a change in accounting principle		0.08			—			—			—			—
	Net income (loss)	$	1.35		$	4.49		$	2.95		$	(7.45	)	$	(1.46	)
Dividends declared and paid per common share		$	—		$	—		$	—		$	0.42		$	0.52
Ratio of earnings to fixed charges(a)			1.7	x		5.0	x		—			—			—
Balance Sheet Data:
Total assets		$	1,220.3		$	1,334.7		$	1,211.4		$	2,105.3		$	2,074.0
Long-term debt, excluding current portion(b)		$	416.1		$	24.7		$	430.5		$	1,195.6		$	1,299.7

(a)	Earnings were inadequate to cover fixed charges by $42.9 million, $134.5 million, and $18.5 million in 2003, 2002 and 2001, respectively.
(b)	Amount in 2004 excludes $400 million of long-term debt in default which is classified as current.

Results for 2005 include $27.5 million of income related to the receipt of net insurance proceeds related to the shareholder class action and derivative lawsuits, and $4.6 million of income related to the mark-to-market of 380,000 shares of common stock issued in connection with the shareholder derivative litigation, both partially offset by an $8.9 million charge related to the former chief executive officer’s termination.

Results for 2004 include a charge of $7.5 million for the shareholder derivative lawsuits.

Results for 2003 include the sale of the Company’s Precious Metals Group (PMG) for cash proceeds of approximately $814 million, which resulted in a gain on sale of $145.9 million ($131.7 million after tax). Results for PMG are included in discontinued operations for all periods.

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In 2003, cost of products sold includes restructuring charges of $5.8 million. Selling, general and administrative expenses include restructuring charges of $14.2 million and the shareholder class action and derivative lawsuit charge of $84.5 million. In addition, discontinued operations include $5.6 million of restructuring charges.

In 2002, cost of products sold includes restructuring charges of $37.8 million. Selling, general and administrative expenses include restructuring charges of $44.7 million. Also, in connection with its restructuring program, the Company recorded charges of $73.5 million in discontinued operations primarily associated with the planned disposal of such operations.

Net income for 2001 includes goodwill amortization expense of approximately $6.0 million in selling, general and administrative expenses. Goodwill amortization ceased in 2002 in connection with the adoption of Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets.

In August, 2001 the Company acquired dmc2 Degussa Metals Catalysts Cerdec for a purchase price of approximately $1.1 billion. In September, 2001 the Company disposed of the electronic materials, performance pigments, glass systems and Cerdec ceramics divisions of dmc2 for $525.5 million. The remaining portion became the Company’s PMG businesses.

On April 4, 2000 the Company acquired Outokumpu Nickel Oy (ONO) in Harjavalta, Finland for a cash purchase price of $206.0 million, which included contingent payments in 2004 and 2003 of $6.7 million and $11.2 million, respectively, to the seller under a contingent consideration arrangement (See Note 7 to the consolidated financial statements included in Item 8 of this Annual Report). There will be no further contingent consideration payments subsequent to 2004.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes thereto appearing elsewhere in this Annual Report.

Overview

The Company is a leading, vertically integrated international producer and marketer of value-added, metal-based specialty chemicals and related materials, primarily from cobalt and nickel. The Company applies proprietary technology to unrefined cobalt and nickel raw materials to market more than 825 different product offerings to approximately 2,100 customers in over 30 industries. The Company operates in two business segments — Cobalt and Nickel.

The Company’s business is critically connected to both the price and availability of raw materials. The primary raw materials used by the Company are unrefined cobalt and nickel. Cobalt raw materials include ore, concentrates, slag and scrap. Nickel raw materials include concentrates, ore, intermediates, secondaries, scrap and matte. The cost of the Company’s raw materials fluctuates due to actual or perceived changes in supply and demand, changes in cobalt and nickel reference/market prices and changes in availability from suppliers. The Company attempts to mitigate changes in availability by maintaining adequate inventory levels and long-term supply relationships with a variety of producers. Fluctuations in the prices of cobalt and nickel have been significant in the past and the Company believes that cobalt and nickel price fluctuations are likely to continue in the future. The Company attempts to pass through to its customers increases in raw material prices by increasing the prices of its products. The Company’s profitability is largely dependent on the Company’s ability to maintain the differential between its product prices and product costs. Certain sales contracts and raw material purchase contracts contain variable pricing that adjusts based on changes in the price of cobalt and nickel. During periods of rapidly changing metal prices, however, there may be price lags that can impact the short-term profitability and cash flow from operations of the Company both positively and negatively. The Company attempts to minimize the effect on profitability of changes in the market price of nickel through hedging activities.

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Reductions in the price of raw materials or declines in the selling prices of the Company’s finished goods could also result in the Company’s inventory carrying value being written down to a lower market value.

The Company has manufacturing and other facilities in North America, Africa, Europe and Asia-Pacific, and markets its products worldwide. Although most of the Company’s raw material purchases and product sales are based on the U.S. dollar, prices of certain raw materials, non-U.S. operating expenses and income taxes are denominated in local currencies. As such, the results of operations are subject to the variability that arises from exchange rate movements (particularly the Euro and the Australian dollar). In addition, fluctuations in exchange rates may affect product demand and profitability in U.S. dollars of products provided by the Company in foreign markets in cases where payments for its products are made in local currency. Accordingly, fluctuations in currency prices affect the Company’s operating results.

Overall Operating Results for 2005, 2004 and 2003

Set forth below is a summary of the Statements of Consolidated Income for the years ended December 31,

	2005					2004					2003
(Millions of dollars & percent of net sales)
Net sales	$	1,249.6				$	1,347.3				$	912.1
Cost of products sold		1,092.1					1,016.9					732.1
Gross profit		157.5		12.6	%		330.4		24.5	%		180.0		19.7	%
Selling, general and administrative expenses		90.0		7.2	%		129.1		9.6	%		197.0		21.6	%
Income (loss) from operations		67.5		5.4	%		201.3		14.9	%		(17.0	)	(1.9	)%
Other expense, net (including interest expense)		(36.7	)				(39.1	)				(25.6	)
Income tax expense		(10.7	)				(35.1	)				(14.5	)
Minority interest share of (income) loss		7.1					(1.4	)				0.9
Income (loss) from continuing operations before cumulative effect of change in accounting principle		27.2					125.7					(56.2	)
Income from discontinued operations, net of tax		9.4					2.9					139.9
Income before cumulative effect of change in accounting principle		36.6					128.6					83.7
Cumulative effect of change in accounting principle		2.3					—					—
Net income	$	38.9				$	128.6				$	83.7

2005 Operating Results Compared to 2004

Net sales decreased $97.7 million, or 7.3%, to $1,249.6 million for the year ended December 31, 2005, compared with $1,347.3 million for the year ended December 31, 2004. The decrease in net sales was primarily due to lower cobalt metal prices and lower nickel sales volumes resulting from raw material feed shortages in 2005 compared with 2004, partially offset by higher nickel prices. During 2005, the reference price of 99.3% cobalt continued to decline from the unusually high prices experienced in early 2004, dropping from an average of $17.26 per pound in the first quarter of 2005 to an average of $12.51 per pound in the fourth quarter of 2005. During 2004, cobalt reference prices averaged $24.63 per pound in the first quarter, and trended downward to an average of $18.38 per pound in the fourth quarter.

Gross profit decreased $172.9 million to $157.5 million in 2005, compared with $330.4 million in 2004. Margins decreased to 12.6% from 24.5% primarily due to the sale of cobalt finished goods manufactured using higher cost raw materials purchased before the overall decrease in cobalt metal prices discussed above and the effect of declining cobalt prices throughout 2005 compared to the opposite effect in 2004. Additional items negatively impacting gross profit in 2005 were lower nickel production caused by a lack of raw material feed resulting in

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higher costs per unit produced, higher tolling costs due to a new tolling agreement at the Company’s nickel refinery in Finland, lower of cost or market charges of $6.1 million in 2005 due to decreasing metal prices and the scheduled maintenance shut-down of the DRC smelter.

Selling, general and administrative expenses decreased by $39.1 million to $90.0 million in 2005 compared with $129.1 million in 2004. The decrease was primarily due to $27.5 million of income related to the receipt of net insurance proceeds related to the shareholder class action litigation and $4.6 million of income related to the mark-to-market of 380,000 shares of common stock issued in connection with the shareholder derivative litigation compared with a charge of $7.5 million related to the shareholder derivative lawsuits in 2004. Legal and professional fees decreased $5.4 million in 2005 compared with 2004 due to higher costs in 2004 associated with the restatement process, audit committee investigation and implementation of processes to comply with Sarbanes-Oxley requirements. In addition, 2005 also includes income of $2.5 million related to the collection of a note receivable that had been fully reserved in 2002. These positive factors were partially offset by an $8.9 million charge related to the former chief executive officer’s departure and a $4.2 million charge to establish a reserve against the notes receivable from our joint venture partner in the DRC.

The decrease in other expense, net in 2005 compared with 2004 was primarily due to a gain of $2.4 million on the sale of investments in equity securities.

Income tax expense was $10.7 million on pre-tax income of $30.9 million in 2005. The effective income tax rate for 2005 was 34.8% compared with 21.6% for 2004. The higher rate in 2005 was primarily due to lower income in 2005 compared with 2004 in Finland which has a statutory rate of 26%. In 2004, higher income in Finland significantly lessened the impact on the overall effective income tax rate of losses in the United States with no income tax benefit. In both years, the rate was favorably impacted by the tax “holiday” from income taxes in Malaysia. Also in 2005, the weakening Euro compared with the U.S. dollar negatively impacted the tax rate, as the Company’s statutory tax liability in Finland is payable in Euros but is remeasured to the U.S. dollar functional currency for preparation of consolidated financial statements. In 2004, when the Euro strengthened against the U.S. dollar, the opposite effect occurred reducing the overall effective income tax rate.

Minority interest share of losses in 2005 were due to the losses of GTL which were attributable to the scheduled extended maintenance shut-down of the GTL smelter and delayed shipments out of the DRC due primarily to distribution issues. The Company expects the next extended maintenance shutdown of the GTL smelter will occur in 2008. In 2004, GTL was profitable due to a full year of production and the benefit of higher cobalt prices.

Income from discontinued operations was $9.4 million in 2005. The income relates primarily to the reversal of a $5.5 million tax contingency accrual, a $1.6 million tax refund related to the Company’s former Precious Metals Group (“PMG”) business and a reduction in Retained Liabilities of Businesses Sold attributable to foreign exchange gains of $1.6 million from remeasuring Euro-denominated liabilities to U.S. dollars. During 2005, the Company reversed a $5.5 million tax contingency accrual that was originally established in July 2003 upon the sale of PMG. Subsequent to that date, such amount had been included in Retained Liabilities of Businesses Sold in the Consolidated Balance Sheets. The contingency relates to a tax matter in Brazil for which the Company has indemnified the PMG buyer under terms of the PMG sale agreement. In mid-2005, a Brazilian mid-level federal court made a ruling that was unfavorable to the PMG buyer’s case. However, in November 2005, the Brazilian Federal Supreme Court (the “Court”) ruled in favor of the taxpayer in a similar case, declaring the applicable law unconstitutional. Subsequent to that decision the Court has ruled in favor of the taxpayer in numerous other cases. The Court must hear all remaining individual cases that have been or will be appealed in this matter, including the PMG buyer’s, and that process may take several years. Until the PMG buyer’s case is adjudicated by the Court, the Company will remain liable for this matter based on the indemnification agreement. However, based upon the precedent set by the Court, the Company has concluded that this contingent liability is no longer probable at December 31, 2005, and has reversed the accrual. Although the contingency is no longer probable, the likelihood of an unfavorable outcome of this contingency is reasonably possible based on the length of time expected before the matter is closed and the inherent risk of changes in the political or legal situation in Brazil.

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Income from discontinued operations of $2.9 million in 2004 relates to reductions in estimates of environmental and closure accruals established in connection with the sale of the SCM business and the exit of the Company’s closed manufacturing facilities in St. George, Utah and Midland, Michigan.

Net income in 2005 includes $2.3 million of income related to the cumulative effect of a change in accounting principle for the adoption of FASB Interpretation (“FIN”) No. 47, “Accounting for Conditional Asset Retirement Obligations.” See further discussion of the adoption of FIN No. 47 in Note 2 to the Consolidated Financial Statements in this Form 10-K.

Net income was $38.9 million, or $1.35 per diluted share, in 2005 compared with $128.6 million, or $4.49 per diluted share, in 2004, due primarily to the aforementioned factors.

Cobalt Segment

The following table summarizes the average quarterly reference price of 99.3% cobalt:

	2005		2004		Change
First Quarter	$	17.26	$	24.63	$	(7.37	)
Second Quarter	$	15.03	$	24.91	$	(9.88	)
Third Quarter	$	13.41	$	23.17	$	(9.76	)
Fourth Quarter	$	12.51	$	18.38	$	(5.87	)
Full Year	$	14.55	$	22.76	$	(8.21	)

The following table summarizes the percentage of sales dollars by end market:

	2005			2004			Change
Batteries		28	%		38	%		(10	)%
Catalysts		13	%		13	%		—
Tires		11	%		11	%		—
Hard Metal		11	%		11	%		—
Coatings and Inks		9	%		9	%		—
Other		28	%		18	%		10	%

Cobalt segment net sales decreased to $559.5 million in 2005 from $643.1 million in 2004, primarily due to lower product selling prices caused by the decrease in cobalt reference prices in 2005 compared with 2004 ($82.7 million). In addition, an overall decline in sales volumes was more than offset by a favorable shift in product mix ($13.1 million).

Operating profit for 2005 was $23.5 million compared to $146.9 million in 2004. The decrease was primarily due to the sale of finished goods manufactured using higher cost raw materials that were purchased before the decrease in metal prices which occurred throughout 2005 ($50.8 million) and the impact of lower cobalt metal prices ($23.5 million). In addition, operating profit was also adversely impacted by higher manufacturing costs ($18.5 million) primarily due to higher costs for petroleum-based products and process chemicals Operating profit was also impacted by decreased operating results at the smelter in the DRC ($17.1 million) primarily due to the scheduled maintenance shutdown and lower cobalt prices. During the fourth quarter of 2005, the Company identified irregularities in inventory valuation at a foreign subsidiary resulting in a write-down of approximately $2.0 million. In addition, the Company recorded a $4.2 million charge to establish a reserve against the note receivable from our joint venture partner in the DRC. Operating profit in 2004 included the benefit of increasing cobalt prices, resulting in the sale of finished goods manufactured using lower cost raw materials.

See Note 20 to the consolidated financial statements included in Item 8 of this Annual Report for a reconciliation of segment operating profit (loss) to consolidated income from continuing operations before income taxes and minority interests.

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Nickel Segment

The following table summarizes the average quarterly LME market price of nickel:

	2005		2004		Change
First Quarter	$	6.96	$	6.68	$	0.28
Second Quarter	$	7.44	$	5.67	$	1.77
Third Quarter	$	6.61	$	6.35	$	0.26
Fourth Quarter	$	5.73	$	6.39	$	(0.66	)
Full Year	$	6.69	$	6.27	$	0.42

Nickel segment net sales decreased to $743.5 million in 2005 compared with $781.8 million in 2004 primarily due to lower nickel volumes due to lack of raw material feed ($65.7 million), lower cobalt by-product sales ($23.5 million) primarily as a result of lower cobalt prices, partially offset by a higher average nickel price ($35.3 million) in 2005 compared with 2004, increased sales of memory disk products ($9.3 million), increased copper by-product revenues ($5.6 million) and increased revenue from tolling activities ($3.2 million).

Operating profit for 2005 was $58.1 million compared to $109.1 million in 2004 primarily due to higher manufacturing expenses at the Finland nickel refinery ($24.3 million) and the Cawse mine ($12.9 million). The increases at the Finland nickel refinery were primarily due to lower production caused by a lack of raw material feed resulting in higher costs per unit produced and higher smelting costs due to a new tolling agreement. The decrease was also due to lower by-product credits ($13.9 million) as a result of the lower cobalt prices, higher energy costs, lower feed grade from Cawse and a lower of cost or market charge of $6.1 million in the second and third quarters of 2005. These factors were partially offset by a higher average nickel price in 2005 ($13.9 million), the receipt of $2.5 million related to collection of a note receivable that had been fully reserved in 2002 and the July 2004 mechanical failure at Cawse that negatively impacted operating profit in 2004 ($7.0 million).

See Note 20 to the consolidated financial statements included in Item 8 of this Annual Report for a reconciliation of segment operating profit (loss) to consolidated income from continuing operations before income taxes and minority interests.

Corporate Expenses

Corporate expenses for 2005 were $14.0 million compared with $54.6 million in 2004. Selling general and administrative expenses for 2005 include $27.5 million of income related to the receipt of net insurance proceeds related to the shareholder class action and derivative lawsuits, and $4.6 million of income related to the mark-to-market of 380,000 shares of common stock issued in connection with the shareholder derivative litigation, both partially offset by an $8.9 million severance charge related to the former chief executive officer. Selling, general and administrative expense for 2004 included a $7.5 million charge related to the shareholder derivative lawsuits and $4.9 million for executive compensation awards, of which $3.4 million related to the departure in 2004 of the Company’s former chief financial officer who was employed from 2002 to 2004. In addition, legal and professional fees decreased $5.4 million in 2005 compared with 2004 due to increased costs in 2004 associated with the restatement process, audit committee investigation and implementation of processes to comply with Sarbanes-Oxley requirements.

2004 operating results compared to 2003

The increase in net sales for 2004 as compared to 2003 was primarily due to higher selling prices for cobalt and nickel-based products, resulting from higher reference/market prices of these metals in 2004 compared to 2003. Cobalt prices continued to be positively affected by the growth in the battery sector related to demand for cell phones and other portable electronic devices. Nickel prices continued to be positively affected by significant growth in worldwide demand for stainless steel and other alloys, in addition to the limited availability of raw material feeds.

Gross profit was $330.4, or 24.5% of net sales, in 2004 compared to $180.0 million, or 19.7% of net sales, in 2003. The improvement was primarily due to the benefit of selling lower-cost inventory produced prior to the

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sharp rise in cobalt prices that began in the fourth quarter of 2003 as well as the overall impact of higher average cobalt prices in 2004 versus 2003 ($100.0 million); the impact of higher average nickel prices in 2004 versus 2003 ($76.0 million); stronger results from the Fidelity business in 2004 versus 2003 ($5.0 million); and restructuring charges of $5.8 million in 2003. These benefits were partially offset by the weakening of the dollar versus the Euro and the Australian dollar ($33.0 million); the impact of a new tolling agreement which increased tolling charges at the Finland refinery ($14.0 million); and a mechanical failure at the Cawse facility in July 2004 ($7.0 million).

Selling, general and administrative expenses decreased to $129.1 million in 2004 compared to $197.0 million in 2003. The decrease was primarily due to charges for the shareholder derivative lawsuits in 2004 of $7.5 million compared to $84.5 million in 2003; and restructuring charges of $14.2 million in 2003. These factors were partially offset by increased professional fees of approximately $11.0 million primarily due to the audit committee investigation and the restatement process, and work associated with the requirements of Sarbanes-Oxley.

The increase in other expense, net in 2004 compared to 2003 was due primarily to foreign exchange loss in 2004 of $5.3 million compared to a foreign exchange gain of $3.0 million in 2003 and debt covenant waiver fees of $1.2 million in 2004 associated with the delay in filing periodic reports with the SEC. The 2003 amount included a gain on the sale of the Company’s PVC business of $4.6 million and interest income of $6.9 million in 2003 on notes receivable from a DRC joint venture partner.

Income tax expense was $35.1 million on pre-tax income of $162.3 million in 2004 (21.6%). The effective rate in 2004 is lower than the statutory rate in the United States due primarily to a higher proportion of earnings in jurisdictions having lower statutory tax rates and a tax “holiday” from income taxes in Malaysia, both offset by losses in the United States with no corresponding tax benefit. The 2004 effective tax rate includes a change in the Finnish statutory rate from 29% to 26%, effective January 1, 2005, resulting from legislation that was enacted on July 30, 2004. As a result, a benefit of $1.7 million was recorded in the third quarter from the application of the newly enacted rate to existing deferred tax balances. The 2004 effective tax rate also includes a benefit of $1.7 million related to Malaysian income taxes to be refunded. In 2003, income tax expense was $14.5 million on a pre-tax loss of $42.7 million. The 2003 tax expense results from profitability of Finland operations and no tax benefit from losses in the U.S.

Income from discontinued operations was $2.9 million in 2004 compared to income of $140.0 million in 2003, due primarily to the gain on the PMG sale of $131.7 million after-tax in 2003. There were no discontinued operations in 2004. The 2004 amount represents changes in estimates of certain environmental and closure accruals established in 2002 in connection with the exit of the Company’s closed manufacturing facilities in St. George, Utah and Midland, Michigan.

Net income was $128.6 million, or $4.49 per diluted share, in 2004 compared to $83.7 million, or $2.95 per diluted share, in 2003, due primarily to the aforementioned factors.

Cobalt Segment

The following table summarizes the average quarterly reference price of 99.3% cobalt:

	2004		2003		Change
First Quarter	$	24.63	$	7.73	$	16.90
Second Quarter	$	24.91	$	9.04	$	15.87
Third Quarter	$	23.17	$	9.75	$	13.42
Fourth Quarter	$	18.38	$	12.61	$	5.77
Full Year	$	22.76	$	9.69	$	13.07

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The following table summarizes the percentage of sales dollars by end market:

	2004			2003			Change
Batteries		38	%		28	%		10	%
Catalysts		13	%		15	%		(2	)%
Tires		11	%		10	%		1	%
Hard Metal		11	%		10	%		1	%
Coatings and Inks		9	%		12	%		(3	)%
Other		18	%		25	%		(7	)%

Cobalt segment net sales increased to $643.1 million in 2004 from $379.9 million in 2003 due to higher cobalt reference prices. Cobalt prices continued to be positively affected by the growth in the battery sector related to demand for cell phones and other portable electronic devices. Overall volume of products sold in the segment declined 12.6%. The decline in volume was the result of a shift away from the ceramics and catalysts markets to the battery and tire sectors.

Operating profit for 2004 was $146.9 million compared to $55.0 million in 2003. The improvement was due primarily to the benefit of higher cobalt reference prices in 2004 and low cost inventory at the beginning of 2004 ($80.0 million), and restructuring charges in 2003 of $9.6 million. Additionally, higher production through the company’s joint venture in the DRC and a shift to higher margin value-added cobalt products added to the improvement. These improvements were offset by the weakening of the U.S. dollar against the Euro ($10.0 million).

See Note 20 to the consolidated financial statements included in Item 8 of this Annual Report for a reconciliation of segment operating profit (loss) to consolidated income from continuing operations before income taxes and minority interests.

Nickel Segment

The following table summarizes the average quarterly LME market price of nickel:

	2004		2003		Change
First Quarter	$	6.68	$	3.79	$	2.89
Second Quarter	$	5.67	$	3.80	$	1.87
Third Quarter	$	6.35	$	4.25	$	2.10
Fourth Quarter	$	6.39	$	5.64	$	0.75
Full Year	$	6.27	$	4.37	$	1.90

Nickel segment net sales increased to $781.8 million in 2004 from $567.9 million in 2003 due to higher nickel LME market prices. Overall volumes in the segment were down 2.7% due to feed limitations and a mechanical failure at the Company’s Cawse facility in July 2004 that resulted in a production shutdown.

Operating profit for 2004 was $109.1 million compared to $58.3 million in 2003. The improvement was due primarily to the higher nickel market price ($76.0 million) and cobalt reference price ($20.0 million); stronger results from the Fidelity business ($5.0 million); and charges taken in 2003 for restructuring activities ($4.1 million) and environmental remediation ($2.5 million) that were not present in 2004. These improvements were offset by the weakening of the U.S. dollar against the Euro and the Australian dollar ($23.0 million); the impact of a new tolling agreement which increased tolling charges at the Finland refinery ($14.0 million); and the impact of the mechanical failure at the Cawse facility ($7.0 million).

See Note 18 to the consolidated financial statements included in Item 8 of this Annual Report for a reconciliation of segment operating profit (loss) to consolidated income from continuing operations before income taxes and minority interests.

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Corporate Expenses

Corporate expenses for 2004 were $54.6 million compared to $130.3 million in 2003. The decrease was due primarily to charges for the shareholder derivative lawsuits in 2004 of $7.5 million compared to $84.5 million in 2003 and restructuring charges of $6.3 million in 2003 compared to a reversal of prior year charges in 2004 of $0.1 million. These improvements were partially offset by increased professional fees in 2004 of approximately $11.0 million primarily due to the audit committee investigation and the restatement process, and work associated with the requirements of Sarbanes-Oxley.

Dispositions and Restructuring

On July 31, 2003, the Company completed the sale of PMG for approximately $814 million in cash. After transaction costs and expenses, the Company recorded a gain of $145.9 million ($131.7 million after-tax). This business was comprised of the Company’s Precious Metals Chemistry and Metal Management reportable segments, which were acquired in August 2001. PMG was classified as a discontinued operation for all periods. The net proceeds were used to repay all of the Company’s indebtedness outstanding under its then-existing senior credit facilities.

On April 1, 2003, the Company completed the sale of its copper powders business, SCM Metal Products, Inc. (“SCM”), for $63.7 million. The net proceeds were used to repay a portion of the Company’s indebtedness outstanding under its then existing Senior credit facilities. There was no gain or loss recorded on the sale of SCM as this business was written-down by $2.6 million to its fair value in 2002. This business is presented as a discontinued operation for all periods.

During 2003, the Company recorded restructuring charges of $20.0 million related to its continuing operations, and an additional $5.6 million related to its discontinued operations, to complete its restructuring program that commenced in the fourth quarter of 2002. The primary objectives of the restructuring plan were to de-leverage the balance sheet, focus on cash generation and restore profitability in certain of the Company’s core businesses that were impacted by the weak economy as well as a sustained decline in the market price of cobalt through the third quarter of 2003. Specific actions taken in 2003 to accomplish these objectives included closure of the manufacturing facility in Thailand, closure of an administrative office in the United States, relocation of the corporate headquarters, disposal of a corporate aircraft, additional headcount reductions, and certain additional asset write-offs.

Liquidity and Capital Resources

The Company’s cash flows from operating, investing and financing activities, as reflected in the Statements of Consolidated Cash Flows, are summarized in the following table (in millions):

Cash Flow Summary

		2005			2004			change
Net cash provided by (used for):
	Operating activities	$	121.8		$	19.6		$	102.2
	Investing activities		(16.7	)		(25.1	)		8.4
	Financing activities		(5.6	)		0.1			(5.7	)
	Effect of exchange rate changes on cash		(5.3	)		1.1			(6.4	)
	Discontinued operations — net cash used in operating activities		(6.4	)		(23.6	)		17.2
Net change in cash and cash equivalents		$	87.8		$	(27.9	)	$	115.7

The $102.2 increase in net cash provided by operating activities was primarily due to the positive cash flow impact of a $111.0 million decrease in inventory at December 31, 2005 compared with December 31, 2004 versus an increase in inventory at December 31, 2004 of $146.3 million compared with December 31, 2003. The increase in inventory during 2004 was primarily due to higher metal prices and a build of inventory due to the planned shutdown of the cobalt smelter in the DRC in the first half of 2005. The shutdown of the smelter was

27

completed and the smelter was re-opened in May 2005. The decrease in inventory during 2005 was primarily due to working down the build up for the smelter shutdown, lower metal prices, lower availability of nickel raw material feedstocks and Company initiatives to reduce inventory levels. Advances to suppliers decreased $27.0 million at December 31, 2005 compared with December 31, 2004 due to a decrease in shipments of inventory that required prepayment to suppliers. The decrease in accounts receivable at December 31, 2005 compared with December 31, 2004 provided $35.2 million to cash flow provided by operating activities. Accounts receivable decreased as a result of decreased sales due to lower metal prices in the fourth quarter of 2005 compared with the fourth quarter of 2004.

The favorable cash flow impact of the inventory reduction in 2005 was partially offset by the payment of $74.0 million related to the shareholder litigation settlement in 2005, a $89.8 million reduction in net income and a $28.9 million decrease in accounts payable in 2005 compared with a $3.9 million decrease in accounts payable in 2004, which corresponds to the changes in inventory levels.

Net cash used in investing activities decreased $8.4 million in 2005 compared with 2004 primarily due to the receipt of $4.5 million from the sale of an investment in equity securities and $5.5 million of proceeds from repayment of notes receivable.

Financing Activities

On December 20, 2005, the Company replaced its existing $150.0 million Senior Secured Revolving Credit Facility with a new Revolving Credit Agreement (the “Revolver”) with availability of up to $100.0 million, including up to the equivalent of $25.0 million in Euros or other foreign currencies. The Revolver includes an “accordion” feature under which the Company may increase the availability by $50.0 million to a maximum of $150.0 million subject to certain conditions. Obligations under the Revolver are guaranteed by each of the Company’s U.S. subsidiaries and are secured by a lien on the assets of the Company and such subsidiaries. The Revolver provides for interest-only payments during its term, with principal due at maturity. The Company has the option to specify that interest be calculated based either on LIBOR, plus a calculated margin amount, or a base rate. The applicable margin for the LIBOR rate ranges from 0.50% to 1.00%. The Revolver also requires the payment of a fee of 0.125% to 0.25% per annum on the unused commitment. The margin and unused commitment fees are subject to quarterly adjustment based on a certain debt to adjusted earnings ratio. The Revolver matures on December 20, 2010 and contains various affirmative and negative covenants. At December 31, 2005, there were no borrowings outstanding under the Revolver and the Company was in compliance with all covenants.

The Company has outstanding $400.0 million of 9.25% Senior Subordinated Notes (the “Notes”) that mature on December 15, 2011. The Notes may be redeemed at the option of the Company beginning December 15, 2006 at prices specified in the indenture. The Company’s domestic subsidiaries are the guarantors of the Notes (See Note 21 to the Consolidated Financial Statements in this Form 10-K). The delay by the Company in filing its Form 10-K for the year ended December 31, 2003 caused events of default under the indenture governing the Notes, and the Company reclassified the Notes from long-term to current as of March 31, 2004, which was the date the 2003 Form 10-K was due. The Company filed its 2003 Form 10-K on March 31, 2005 and filed its Form 10-Qs for each of the first three quarters of 2004 on June 10, 2005. The Company also was delayed in filing its Form 10-K for the year ended December 31, 2004 and its Form 10-Q for the first quarter of 2005, which resulted in new events of default on August 17, 2005 under the indenture governing the Notes. However, the Company filed its 2004 Form 10-K on August 22, 2005. The Company filed its Form 10-Qs for the first and second quarters of 2005 on September 23, 2005. The Company timely filed its Form 10-Q for the third quarter of 2005 on November 8, 2005. At December 31, 2005, the Notes are classified as long-term as the Company is no longer in default under the indenture and the holders of the Notes no longer have the right to accelerate payment of the Notes. At December 31, 2005, the fair value of the Notes, based upon the quoted market price, approximated $389.0 million.

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During December 2003, the Company borrowed $22.9 million from a Belgium bank. This loan bore interest at a rate of LIBOR plus 2.75% and was scheduled to mature in December 2008. In November 2004, the Company refinanced this loan with a Finland bank, resulting in a new principal balance of $23.0 million. The refinanced loan has an interest rate of LIBOR plus 1.25% and is payable in 48 equal installments beginning in January 2005 and ending December 2008. The balance of this note was $17.3 million and $23.0 million at December 31, 2005 and 2004, respectively. Simultaneous to the initial borrowing, the proceeds were loaned by the Company to one of its DRC smelter joint venture partners. The note receivable is recorded in Note receivables from joint venture partner, bears interest at LIBOR plus 2.75% and matures in December 2008.

In August 2003, the Company entered into an interest rate swap agreement to convert the fixed rate on $50.0 million of the Notes to a variable rate of LIBOR plus 4.10% for the period ending December 15, 2011. In addition, in November 2003, the Company entered into another interest rate swap to convert the fixed rate on $50.0 million of the Notes to a variable rate of LIBOR plus 4.39% for the period ending December 15, 2011. These swap agreements are designated as fair value hedges.

In 2002, the Company completed the termination of, and settled for cash, interest rate swap agreements for an aggregate amount of $125.0 million expiring in 2011. These swap agreements converted fixed rate debt of 9.25% to a floating rate. In addition, the Company completed the termination of, and settled for cash, interest rate swap agreements for an aggregate amount of $55.0 million expiring in 2003. These swap agreements converted floating rate debt to a fixed rate. The combined pretax gain on the termination of the swaps of $8.0 million has been deferred and is being amortized to interest expense through the date on which the swaps were originally scheduled to mature.

At December 31, 2005, the combined effective rate of the Company’s borrowings and related swap agreements was 8.91%. The net interest paid or received on interest rate swaps is included in interest expense. The counterparty to the interest rate swaps is an international commercial bank.

The Company has generated sufficient cash from operations during 2005 to provide for its working capital, debt service, litigation settlements and capital expenditure requirements. The Company believes that it will have sufficient cash provided by operations and available from its credit facility to provide for its working capital, debt service and capital expenditure requirements during the next year.

The Company did not pay cash dividends in 2005, 2004 or 2003. The Company intends to continue to retain earnings for use in the operation of the business and therefore does not anticipate paying cash dividends in 2006.

Capital Expenditures

Capital expenditures in 2005 were $25.2 million, related primarily to ongoing projects to maintain current operating levels and were funded through cash flows from operations. The Company expects to incur capital spending of approximately $46.0 million in 2006 primarily for a project at the Kokkola refinery to improve by-product yields, a project at the Cawse mine to increase capacity and other fixed asset replacements at existing facilities.

During 2005, the Company initiated a multi-year ERP project that is expected to be implemented worldwide to achieve increased efficiency and effectiveness in supply chain and financial processes and management reporting. The new ERP system will replace or complement existing legacy systems and business processes. The system will be implemented at one site in 2006 before worldwide implementation begins. The Company anticipates that the ERP system will be substantially complete by 2008.

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Contractual Obligations

The Company has entered into contracts with various third parties in the normal course of business that will require future payments. The following table summarizes the Company’s contractual cash obligations and their expected maturities at December 31, 2005 (in thousands).

	Payments due by period
	Total		2006		2007		2008		2009		2010		Thereafter
Purchase and other obligations(1)	$	1,396,998	$	403,666	$	367,741	$	319,697	$	230,581	$	41,707	$	33,606
Debt obligations		417,250		5,750		5,750		5,750		—		—		400,000
Fixed interest payments on Notes		222,000		37,000		37,000		37,000		37,000		37,000		37,000
Operating lease obligations		26,396		3,842		3,256		2,953		2,561		2,551		11,233
Total	$	2,062,644	$	450,258	$	413,747	$	365,400	$	270,142	$	81,258	$	481,839

(1)  For 2006 through 2011, purchase obligations include raw material contractual obligations reflecting estimated future payments based on committed tons of material per the applicable contract multiplied by the reference/market price of each metal. The price used in the computation is the average daily price for the last week of December 2005 for each respective metal. Commitments made under these contracts represent future purchases in line with expected usage.

Pension funding and postretirement benefit payments can vary significantly each year due to changes in legislation and the Company’s significant assumptions. As a result, pension funding and post-retirement benefit payments have not been included in the table above. The Company expects to contribute approximately $1.0 million related to its SCM pension plan in 2006. Pension benefit payments are made from assets of the pension plan. The Company expects to make payments related to its other postretirement benefit plans of approximately $0.2 million annually over the next ten years. Benefit payments beyond that time cannot currently be estimated. The Company also has an unfunded supplemental executive retirement plan (“SERP”) for the former chief executive officer. The Company expects to make annual benefit payments of approximately $0.7 million related to the SERP from 2010 through 2015. Benefit payments beyond that time cannot currently be estimated.

Off Balance Sheet Arrangements

The Company has not entered into any off balance sheet financing arrangements, other than operating leases which are disclosed in the contractual obligations table and Note 18 to the consolidated financial statements included in Item 8 of this Annual Report.

Critical Accounting Policies

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires the Company’s management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements. In preparing these financial statements, management has made their best estimates and judgments of certain amounts included in the financial statements related to the critical accounting policies described below. The application of these critical accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of the Company’s results of operations to similar businesses.

Revenue Recognition — Revenues are recognized when the revenue is realized or realizable, and has been earned, in accordance with the U.S. Securities and Exchange Commission’s Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements.” The majority of the Company’s sales are related to sales of product. Revenue for product sales is recognized when persuasive evidence of an arrangement exists, unaffiliated customers take title and assume risk of loss, the sales price is fixed or determinable and collection of the related receivable is reasonably assured. Revenue recognition generally occurs upon shipment of product or usage of consignment inventory. Freight costs and any directly related associated costs of transporting finished product to customers are recorded as Cost of products sold. During 2005, the Company began providing nickel tolling services. Revenue associated with nickel tolling is recognized when services are rendered.

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Inventories — The Company’s inventories are stated at the lower of cost or market and valued using the first-in, first-out (FIFO) method. The cost of the Company’s raw materials fluctuates due to actual or perceived changes in supply and demand of raw materials, changes in cobalt and nickel reference/market prices and changes in availability from suppliers. In periods of raw material metal price declines or declines in the selling prices of the Company’s finished products, inventory carrying values may exceed the amount the Company could realize on sale, resulting in a lower of cost or market charge. Monthly, the Company evaluates the need for a lower of cost or market adjustment to inventories based on the end of the month market price.

Long-lived Assets — Goodwill must be reviewed at least annually for impairment, in accordance with a specified methodology. Further, goodwill, intangible and other long-lived assets are assessed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The Company generally invests in long-lived assets to secure raw material feedstocks, produce new products, or increase production capacity or capability. Because market conditions may change, future cash flows may be difficult to forecast. Furthermore, the assets and related businesses may be in different stages of development. If the Company determined that the future undiscounted cash flows from these investments were not expected to exceed the carrying value of the investments, the Company would record an impairment charge. However, determining future cash flows is subject to estimates and different estimates could yield different results. Additionally, other changes in the estimates and assumptions, including the discount rate and expected long-term growth rate, which drive the valuation techniques employed to estimate the future cash flows of the these investments, could change and, therefore, impact the analysis of impairment in the future.

Asset Retirement Obligations — The Company’s estimate of asset retirement obligations under SFAS No. 143, as interpreted by FIN No. 47, which was initially adopted in the fourth quarter of 2005, includes key assumptions, including inflation rates, discount rates and the expected life of the Company’s Cawse mining operations. The estimated obligations are particularly sensitive to the impact of changes in the expected lives and the difference between the inflation and discount rates. Changes in the estimates of closure costs due to changed legal or contractual requirements, available technology, inflation, overhead or profit rates would also have a significant impact on the recorded obligations.

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 determined to be reinvested for an indefinite period of time. The Company has significant operations outside the United States, where most of its pre-tax earnings are derived, and in jurisdictions where the statutory tax rate is lower than in the United States. The Company also has significant cash requirements in the United States to pay interest and principal on borrowings. As a result, significant tax and treasury planning and analysis of future operations are necessary to determine the proper amounts of tax assets, liabilities, and tax expense. The Company’s tax assets, liabilities, and tax expense are supported by its best estimates and assumptions of its global cash requirements, planned dividend repatriations, and expectations of future earnings. Where the Company has determined that it is more likely than not that deferred tax assets will not be realized, a valuation allowance has been established. The existing valuation allowance pertains to the deferred tax assets resulting principally from net operating loss carryforwards in the United States.

Stock Awards Granted to Employees — In December 2002, SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” was issued. SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition when a company voluntarily changes to the fair value based method of recognizing expense in results of operations for stock-based employee compensation, including stock options granted to employees. Prior to 2003, the Company accounted for stock-based employee compensation under APB No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. During the second quarter of 2003, the Company adopted, effective January 1, 2003, the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” Under the prospective method of adoption selected by the Company under the provisions of SFAS No. 148, the fair value

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recognition provisions have been applied to all employee awards granted, modified or settled after January 1, 2003.

Under the fair value recognition provisions of SFAS No. 123, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of stock-based awards at the grant date requires judgment, including estimating the expected term of stock options and the expected volatility of our stock. If actual results differ significantly from these estimates, stock-based compensation expense and results of operations could be materially impacted.

Derivative Instruments — The Company enters into derivative instruments and hedging activities which are closely monitored and controlled in order to manage, where possible and economically efficient, commodity price risk for nickel and copper, interest rate risk related to borrowings, and, at times, foreign currency risk associated with manufacturing and sales locations where fluctuations in currency prices may affect the Company’s operating results.

The Company has certain derivative instruments that are designated as cash flow hedges. For these hedges, the effective portion of the gain or loss from the financial instrument is initially reported as a component of other comprehensive income (loss) in stockholders’ equity and subsequently reclassified to results of operations when the hedged item affects results of operations. Any ineffective portions of the cash flow hedges are recognized immediately in results of operations.

The gain or loss related to financial instruments that are not designated as hedges are recognized immediately in results of operations. These instruments are entered into to economically hedge certain movements in metal prices.

During 2003, the Company entered into interest rate swap agreements that are designated as fair value hedges. For these hedges, changes in the fair value of both the hedging instruments and the underlying debt obligations are immediately recognized in earnings as equal and offsetting gains and losses in interest expense in the Statement of Consolidated Income. All fair value hedges are 100% effective and, therefore, there is no impact on earnings due to hedge ineffectiveness.

Recently Issued Accounting Standards

SFAS No. 155: In May 2005, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Instruments,” which is an amendment of SFAS No. 133 and 140 and allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. Companies must apply the standard prospectively. The Company is currently evaluating the effect the adoption of SFAS No. 155 will have on the Company’s results of operations or financial position.

SFAS No. 154: In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” which replaces APB Opinion No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements,” and provides guidance on the accounting for and reporting of accounting changes and error corrections. SFAS No. 154 applies to all voluntary changes in accounting principle and requires retrospective application (a term defined by the statement) to prior periods’ financial statements, unless it is impracticable to determine the effect of a change. It also applies to changes required by an accounting pronouncement that does not include specific transition provisions. In addition, SFAS No. 154 redefines restatement as the revising of previously issued financial statements to reflect the correction of an error. The statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company will adopt SFAS No. 154 beginning January 1, 2006.

SFAS No. 151: In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs — An amendment of ARB No. 43.” SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs and spoilage should

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be expensed as incurred and not included in overhead. Further, SFAS No. 151 requires that allocation of fixed production overheads to conversion costs should be based on normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Companies must apply the standard prospectively. The adoption of SFAS No. 151 is not expected to have a material impact on the Company’s results of operations or financial position.

SFAS No. 123R: In December 2004, the FASB issued SFAS No. 123 (revised), “Share-Based Payments” (“SFAS No. 123R”). SFAS No. 123R is a revision of SFAS No. 123, “Accounting for Stock Issued to Employees” (“SFAS No. 123”) and supersedes APB Opinion No. 25,“Accounting for Stock Issued to Employees.” SFAS No. 123R requires that the cost of transactions involving share-based payments be recognized in the financial statements based on a fair-value-based measurement. SFAS No. 123R is effective for fiscal years beginning after June 15, 2005. The Company adopted the fair value recognition provisions of SFAS No. 123 in 2003 using the prospective method of adoption under SFAS No. 148. Under the prospective method of adoption, the fair value recognition provisions have been applied to all employee awards granted, modified or settled after January 1, 2003. As allowed under SFAS No. 123, the Company accounted for forfeitures as they occurred. Under SFAS No. 123R that method is no longer allowed and the Company must now estimate forfeitures at the grant date. When the Company adopts SFAS No. 123R on January 1, 2006, the Company will estimate forfeitures for stock options outstanding which have not yet vested. The adoption of SFAS No. 123R is not expected to have a material impact on the Company’s results of operations or financial position.

EITF No. 04-6: In June 2005, the FASB ratified modifications to EITF No. 04-6, “Accounting for Stripping Costs Incurred during Production in the Mining Industry.” EITF No. 04-6 clarifies that stripping costs incurred during the production phase of a mine are variable production costs that should be included in the costs of the inventory produced during the period that the stripping costs are incurred. The Company currently capitalizes and defers stripping costs when developing a new pit or expanding an existing pit until that pit has reached full production. Upon adoption of EITF No. 04-6, the Company will be required to write-off the amount of deferred stripping costs that were incurred after production commenced at each pit. Such amounts capitalized total $1.8 million at December 31, 2005 and are included in Other non-current assets in the Consolidated Balance Sheet. EITF No. 04-6 is effective for fiscal years beginning after December 15, 2005. The transition provisions require that the consensus be accounted for in a manner similar to a cumulative effect adjustment with any adjustment recognized in the opening balance of retained earnings in the year of adoption. The Company will adopt EITF No. 04-06 on January 1, 2006 and the effect of adoption will be a $1.8 million reduction to Other non-current assets and beginning retained earnings.

Effects of Foreign Currency

In addition to the United States, the Company has manufacturing and other facilities in Africa, Canada, Europe and Asia-Pacific, and markets its products worldwide. Although most of the Company’s raw material purchases and product sales are based on the U.S. dollar, prices of certain raw materials, non-U.S. operating expenses and income taxes are denominated in local currencies. As such, the results of operations are subject to the variability that arises from exchange rate movements (particularly the Euro and the Australian dollar). In addition, fluctuations in exchange rates may affect product demand and profitability in U.S. dollars of products provided by the Company in foreign markets in cases where payments for its products are made in local currency. Accordingly, fluctuations in currency prices affect the Company’s operating results.

Environmental Matters

The Company is subject to a wide variety of environmental laws and regulations in the United States and in foreign countries as a result of its operations and use of certain substances that are, or have been, used, produced or discharged by its 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 the Company.

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Due to the ongoing development and understanding of facts and remedial options and due to the possibility of unanticipated regulatory developments, the amount and timing of future environmental expenditures could vary significantly. Although it is difficult to quantify the potential impact of compliance with or liability under environmental protection laws, based on presently available information, the Company believes that its ultimate aggregate cost of environmental remediation as well as liability under environmental protection laws will not result in a material adverse effect upon its financial condition or results of operations. See Item I for further discussion of these matters.

Cautionary Statement for “Safe Harbor” Purposes Under the Private Securities Litigation Reform Act of 1995

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by or on behalf of the Company. This report contains statements that the Company believes may be “forward-looking statements” within the meaning of 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 the Company’s 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 the Company’s control and could cause actual results to differ materially from those currently anticipated. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Significant factors affecting these expectations are set forth under Item 1A — Risk Factors in this Report on Form 10-K.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk

The Company, as a result of its global operating and financing activities, is exposed to changes in metal prices, interest rates and foreign currency exchange rates which may adversely affect its results of operations and financial position. In seeking to minimize the risks and/or costs associated with such activities, the Company manages exposures to changes in metal prices, interest rates and, at times, foreign currency exchange rates through its regular operating and financing activities, which include the use of derivative instruments.

The primary raw materials used by the Company in manufacturing its products are cobalt and nickel. The Company’s supply of cobalt has historically been sourced from the DRC, Australia and Finland. Although the Company has never experienced a significant shortage of cobalt raw material, production problems and political and civil instability in certain supplier countries may in the future affect the supply and market price of cobalt raw materials. Nickel historically has been sourced from Australia, Finland and Brazil. In December 2001, the Company purchased an intermediate nickel refining facility and associated mine deposits in Australia (the Cawse mine), which provide the Company with direct access to approximately 6,500 tons of nickel per year. Currently, the Company has arrangements in place for approximately 82% of its projected nickel refining capacity for 2006. This amount includes both supply contracts for raw material feed and tolling agreements to toll refine third party feedstocks. During 2006, the Company reached an agreement to toll refine approximately 21,000 to 25,000 tons of contained nickel per year over a three-year period, starting July 1, 2006 and ending July 31, 2009. As a result of the agreement, the Company’s Harjavalta, Finland refinery will be operating near practical capacity in the second half of 2006. Currently, the Company has arrangements in place for approximately 100% of its practical nickel refining capacity for 2007 and 2008.

The cost of the Company’s raw materials fluctuates due to actual or perceived changes in supply and demand, changes in cobalt and nickel reference/market prices and changes in availability from suppliers. The Company attempts to mitigate changes in availability by maintaining adequate inventory levels and long-term supply relationships with a variety of producers. Fluctuations in the prices of cobalt and nickel have been significant in the past and the Company believes that cobalt and nickel price fluctuations are likely to continue in the future. The Company attempts to pass through to its customers increases in raw material prices by increasing the prices

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of its products. The Company’s profitability is largely dependent on the Company’s ability to maintain the differential between its product prices and product costs. Certain sales contracts and raw material purchase contracts contain variable pricing that adjusts based on changes in the price of cobalt and nickel. During periods of rapidly changing metal prices, however, there may be price lags that can impact the short-term profitability and cash flow from operations of the Company both positively and negatively. The Company attempts to minimize the effect on profitability of changes in the market price of nickel through hedging activities. Reductions in the price of raw materials or declines in the selling prices of the Company’s finished goods could also result in the Company’s inventory carrying value being written down to a lower market value.

The Company is exposed to interest rate risk primarily through its borrowing activities. The Company predominantly utilizes U.S. dollar denominated borrowings to fund its working capital and investment needs. The majority of the Company’s borrowings are in fixed rate instruments. The Company entered into interest rate swap agreements to convert a portion of the fixed rate instruments to variable rate contracts. There is an inherent rollover 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 (see Note 9 to the consolidated financial statements contained in Item 8 of this Annual Report). The following table presents principal cash flows and related weighted-average interest rates by expected maturity dates of the Company’s debt.

	Fixed Rate
	Senior
	Subordinated			Variable
	Notes			Rate Debt
2006	$	—		$	5,750
2007		—			5,750
2008		—			5,750
2009		—			—
2010		—			—
2011		400,000			—
Total book value	$	400,000		$	17,250
Interest rate at 12/31/2005		9.25	%		5.38	%
Fair value at 12/31/2005	$	389,000		$	17,250

The interest rate on the variable rate debt is based on the LIBOR rate (as of November 1, 2005) plus 1.1%. See Note 9 to the consolidated financial statements contained in Item 8 of this Annual Report for further discussion.

In addition to the United States, the Company has manufacturing and other facilities in Africa, Canada, Europe and Asia-Pacific, and markets its products worldwide. Although most of the Company’s raw material purchases and product sales are based on the U.S. dollar, prices of certain raw materials, non-U.S. operating expenses and income taxes are denominated in local currencies. As such, the results of operations are subject to the variability that arises from exchange rate movements (particularly the Euro and the Australian dollar). In addition, fluctuations in exchange rates may affect product demand and profitability in U.S. dollars of products provided by the Company in foreign markets in cases where payments for its products are made in local currency. Accordingly, fluctuations in currency prices affect the Company’s operating results.

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Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of OM Group, Inc.

We have audited the accompanying consolidated balance sheets of OM Group, Inc. and subsidiaries as of December 31, 2005 and 2004, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the index at Item 15. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (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. and subsidiaries at December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations,” as of October 1, 2005.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2006 expressed an unqualified opinion on management’s assessment that it did not maintain effective internal control over financial reporting as of December 31, 2005 and an adverse opinion on the effectiveness of internal control over financial reporting as of December 31, 2005.

/s/ Ernst & Young LLP

Cleveland, Ohio

February 27, 2006

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of OM Group, Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting included elsewhere herein, that OM Group, Inc. did not maintain effective internal control over financial reporting as of December 31, 2005, because of the material weaknesses identified in management’s assessment, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). OM Group, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in management’s assessment:

•  Inadequate controls over the review of financial results of a foreign subsidiary which accounted for approximately 1% of the Company’s consolidated assets and revenues as of and for the year ended December 31, 2005. During the 2005 year-end closing process, the Company identified irregularities in the subsidiary’s inventory valuation that went undetected in prior periods, resulting in a material adjustment to correct the inventory valuation as of December 31, 2005. Management has performed a comprehensive review of all of the significant accounts at this subsidiary as of December 31, 2005 to ensure that reported amounts are reasonable.

•  Inadequate controls over the review of retained liabilities of businesses sold resulted in a material adjustment to reverse a tax contingency indemnification liability related to one of the Company’s former subsidiaries in Brazil. As a result of a Brazilian Federal Supreme Court ruling in November 2005, as explained further in Note 5 to the consolidated financial statements, the Company’s assessment of the likelihood of an unfavorable

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outcome of the tax contingency changed from probable to reasonably possible. Accordingly, the indemnification liability was reversed through discontinued operations as a result of the year-end audit process.

•

Inadequate controls over the Company’s joint venture smelter in the Democratic Republic of Congo (DRC) resulted in several control deficiencies that were individually not material weaknesses but, when aggregated, constitute a material weakness in internal control over financial reporting. The control deficiencies resulted from inherent control risks of doing business as a joint venture partner in the DRC, inadequate controls over reporting payroll and related taxes to the DRC tax authorities, inadequate general oversight of the finance function, use of Excel spreadsheets in lieu of an accounting system, and timing of reconciliation of certain general ledger accounts. These individual control deficiencies resulted in adjustments to the Company’s results of operations in 2005 and, when considered in the aggregate, could result in material misstatement to annual or interim consolidated financial statements that would not be prevented or detected.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2005 consolidated financial statements, and this report does not affect our report dated February 27, 2006 on those consolidated financial statements.

In our opinion, management’s assessment that OM Group, Inc. did not maintain effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, OM Group, Inc. has not maintained effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.

/s/ Ernst & Young LLP

Cleveland, Ohio

February 27, 2006

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Consolidated Balance Sheets

			December 31
			2005			2004
(In thousands, except share data)
Assets
Current assets
	Cash and cash equivalents		$	114,618		$	26,779
	Accounts receivable, less allowance of $1,348 in 2005 and $1,960 in 2004			128,278			161,346
	Inventories			304,557			415,517
	Advances to suppliers			5,503			32,498
	Other current assets			52,152			52,719
Total current assets				605,108			688,859
Property, plant and equipment, net				369,129			389,812
Goodwill				179,123			181,871
Notes receivable from joint venture partner, less allowance of $4,200 in 2005 and $0 in 2004				25,179			29,379
Other non-current assets				41,734			44,780
Total assets			$	1,220,273		$	1,334,701
Liabilities and Stockholders’ Equity
Current liabilities
	Current portion of long-term debt		$	5,750		$	5,750
	Long-term debt in default			—			400,000
	Accounts payable			103,397			132,312
	Accrued employee costs			21,100			17,062
	Retained liabilities of businesses sold			6,020			21,837
	Shareholder litigation accrual			—			74,000
	Other current liabilities			31,772			50,835
Total current liabilities				168,039			701,796
Long-term debt				416,096			24,683
Deferred income taxes				21,461			31,033
Shareholder litigation accrual				—			18,000
Minority interests				36,994			44,168
Other non-current liabilities				41,150			27,989
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 29,368,519 in 2005 and 28,494,098 shares in 2004		293			285
	Capital in excess of par value			516,510			498,250
	Retained earnings (deficit)			6,811			(32,080	)
	Treasury stock (61,235 shares in 2005 and 14,025 shares in 2004, at cost)			(2,226	)		(710	)
	Accumulated other comprehensive income			15,145			21,287
Total stockholders’ equity				536,533			487,032
Total liabilities and stockholders’ equity			$	1,220,273		$	1,334,701

See accompanying notes to consolidated financial statements.

39

Statements of Consolidated Income

			Year Ended December 31
			2005			2004			2003
(In thousands, except per share data)
Net sales			$	1,249,609		$	1,347,338		$	912,145
Cost of products sold				1,092,088			1,016,891			732,148
				157,521			330,447			179,997
Selling, general and administrative expenses				89,975			129,075			197,023
Income (loss) from operations				67,546			201,372			(17,026	)
Other income (expense):
	Interest expense			(41,282	)		(39,838	)		(41,052	)
	Foreign exchange gain (loss)			(3,874	)		(5,310	)		3,023
	Investment and other income, net			8,498			6,036			12,392
				(36,658	)		(39,112	)		(25,637	)
Income (loss) from continuing operations before income taxes, minority interest and cumulative effect of change in accounting principle				30,888			162,260			(42,663	)
Income tax expense				(10,736	)		(35,068	)		(14,534	)
Minority interest share of (income) loss				7,128			(1,442	)		914
Income (loss) from continuing operations before cumulative effect of change in accounting principle				27,280			125,750			(56,283	)
Discontinued operations:
Income from discontinued operations, net of tax				9,359			2,894			8,199
Gain on disposal of Precious Metals Group, net of tax				—			—			131,748
Income from discontinued operations, net of tax				9,359			2,894			139,947
Income before cumulative effect of change in accounting principle				36,639			128,644			83,664
Cumulative effect of change in accounting principle				2,252			—			—
Net income			$	38,891		$	128,644		$	83,664
Net income (loss) per common share — basic:
		Continuing operations	$	0.95		$	4.42		$	(1.99	)
		Discontinued operations		0.33			0.10			4.94
		Cumulative effect of change in accounting principle		0.08			—			—
		Net income	$	1.36		$	4.52		$	2.95
Net income (loss) per common share — assuming dilution:
		Continuing operations	$	0.95		$	4.39		$	(1.99	)
		Discontinued operations		0.32			0.10			4.94
		Cumulative effect of change in accounting principle		0.08			—			—
		Net income	$	1.35		$	4.49		$	2.95
Weighted average shares outstanding
		Basic		28,679			28,470			28,354
		Assuming dilution		28,726			28,622			28,368

See accompanying notes to consolidated financial statements.

40

Statements of Consolidated Comprehensive Income

		Year Ended December 31
		2005			2004			2003
(In thousands)
Net income		$	38,891		$	128,644		$	83,664
	Foreign currency translation adjustments		(6,365	)		7,662			(26,928	)
	Reclassification of hedging activities into earnings		(3,475	)		(6,689	)		(841	)
	Unrealized gain on cash flow hedges, net of tax expense of $335 in 2005, $1,157 in 2004, and $3,602 in 2003		954			3,475			6,689
	Realized gain on available-for-sale securities		(930	)		—			—
	Unrealized gain on available-for-sale securities		4,745			930			—
	Additional minimum pension liability adjustment		(1,071	)		(1,177	)		4,108
	Net change in accumulated other comprehensive income		(6,142	)		4,201			(16,972	)
Comprehensive income		$	32,749		$	132,845		$	66,692

See accompanying notes to consolidated financial statements.

41

Statements of Consolidated Cash Flows

		Year Ended December 31
					2004 Revised —			2003 Revised —
		2005			See Note 1			See Note 1
(In thousands)
Operating activities
Net income		$	38,891		$	128,644		$	83,664
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
	Income from discontinued operations		(9,359	)		(2,894	)		(139,947	)
	Income from cumulative effect of change in accounting principle		(2,252	)		—			—
	Depreciation and amortization		49,107			50,954			56,442
	Foreign exchange loss (gain)		3,874			5,310			(3,023	)
	Gain on sale of investment in equity securities		(2,359	)		—			—
	Gain on Weda Bay note receivable		(2,500	)		—			—
	Restructuring charges, less cash spent		—			—			7,678
	Provision for receivables from joint venture partner		4,200			—			—
	Deferred income taxes		(7,511	)		6,023			25,923
	Minority interest income (losses)		(7,128	)		1,442			(914	)
	Equity income from investment		(3,207	)		(4,479	)		(1,066	)
	Other non-cash items		836			1,381			1,161
Changes in operating assets and liabilities
	Accounts receivable		35,230			(26,027	)		(38,842	)
	Advances to suppliers		26,996			(13,098	)		(12,272	)
	Notes receivable from joint venture partners		—			21,808			(19,117	)
	Inventories		110,960			(146,316	)		(58,128	)
	Accounts payable		(28,916	)		(3,878	)		36,235
	Shareholder litigation accrual		(74,000	)		7,500			84,500
	Other, net		(11,025	)		(6,759	)		(35,683	)
Net cash provided by (used for) operating activities			121,837			19,611			(13,389	)
Investing activities
Expenditures for property, plant and equipment, net			(25,189	)		(18,417	)		(10,910	)
Proceeds from MPI note receivable			3,035			—			—
Proceeds from Weda Bay note receivable			2,500			—			—
Proceeds from sale of investments in equity securities			4,534			—			—
Investments in non-consolidated joint ventures			(1,534	)		—			—
Acquisition of business			—			(6,715	)		(11,151	)
Proceeds from sales of businesses — net of cash sold			—			—			871,281
Net cash (used for) provided by investing activities			(16,654	)		(25,132	)		849,220
Financing activities
Long-term borrowings			—			23,000			22,919
Payments of long-term debt and revolving line of credit			(55,622	)		(22,919	)		(794,400	)
Proceeds from the revolving line of credit			49,872			—			—
Proceeds from exercise of stock options			117			—			406
Net cash (used for) provided by financing activities			(5,633	)		81			(771,075	)
Effect of exchange rate changes on cash			(5,293	)		1,068			6,238
Cash and cash equivalents
Increase (decrease) from continuing operations			94,257			(4,372	)		70,994
Discontinued operations — net cash used for operating activities			(6,418	)		(23,568	)		(10,012	)
Discontinued operations — net cash used for investing activities			—			—			(18,733	)
Balance at the beginning of the year			26,779			54,719			12,470
Balance at the end of the year		$	114,618		$	26,779		$	54,719

See accompanying notes to consolidated financial statements.

42

Statements of Consolidated Stockholders’ Equity

		Year Ended December 31
		2005			2004			2003
(In thousands)
Common Stock — Shares
	Beginning balance		28,480			28,480			28,452
	Shares issued under stock compensation plans		40			—			28
	Shares issued for settlement of shareholder litigation		787			—			—
			29,307			28,480			28,480
Common Stock — Dollars
	Beginning balance	$	285		$	285		$	284
	Shares issued under stock compensation plans		—			—			1
	Shares issued for settlement of shareholder litigation		8			—			—
			293			285			285
Capital in Excess of Par Value
	Beginning balance		498,250			495,107			494,546
	Shares issued under stock compensation plans		845			—			536
	Settlement of shareholder litigation		13,375			—			—
	Non-employee directors’ compensation		—			190			25
	Stock option compensation		3,184			2,366			—
	Restricted stock compensation		856			587			—
			516,510			498,250			495,107
Retained Earnings (Deficit)
	Beginning balance		(32,080	)		(160,724	)		(244,388	)
	Net income		38,891			128,644			83,664
			6,811			(32,080	)		(160,724	)
Treasury Stock
	Beginning balance		(710	)		(710	)		(710	)
	Reacquired shares		(1,516	)		—			—
			(2,226	)		(710	)		(710	)
Accumulated Other Comprehensive Income
	Beginning balance		21,287			17,086			34,058
	Foreign currency translation adjustments		(6,365	)		7,662			(26,928	)
	Reclassification of hedging activities into earnings		(3,475	)		(6,689	)		(841	)
	Unrealized gain on cash flow hedges, net of tax expense of $335 in 2005, $1,157 in 2004, and $3,602 in 2003		954			3,475			6,689
	Reclassification of realized gain on available-for-sale securities into earnings		(930	)		—			—
	Unrealized gain on available-for-sale securities		4,745			930			—
	Additional minimum pension liability adjustment		(1,071	)		(1,177	)		4,108
			15,145			21,287			17,086
Unearned Compensation
	Beginning balance		—			(592	)		(2,950	)
	Restricted stock compensation		—			592			2,358
			—			—			(592	)
Total Stockholders’ Equity		$	536,533		$	487,032		$	350,452

See accompanying notes to consolidated financial statements.

43

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries

(In thousands, except as noted and per share amounts)

Note 1 — Significant Accounting Policies

Principles of Consolidation — The consolidated financial statements include the accounts of OM Group, Inc. (the “Company”) and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The Company has a 55% interest in a smelter joint venture in the Democratic Republic of Congo (the “DRC”). The joint venture is consolidated because the Company has controlling interest in the joint venture. Minority interest is recorded for the remaining 45% interest. The Company has a 20% interest in an Australian nickel company (Lionore Australia Pty Ltd) that is accounted for by the equity method. The investment is included in other non-current assets in the Consolidated Balance Sheets, and equity income (loss) is included in investment and other income, net in the Statements of Consolidated Income. The Company does not have off-balance sheet arrangements, financings or other relationships with unconsolidated entities or other persons known as “special purpose entities” (“SPE’s”), as defined by Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities”.

Unless otherwise indicated, all disclosures and amounts in the Notes to Consolidated Financial Statements relate to the Company’s continuing operations.

Use of Estimates — The preparation of financial statements in conformity with U.S. 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.

Cash Equivalents — All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents.

Revenue Recognition — The Company recognizes revenue when persuasive evidence of an arrangement exists, unaffiliated customers take title and assume risk of loss, the sales price is fixed or determinable and collection of the related receivable is reasonably assured. Revenue recognition generally occurs upon shipment of product or usage of consignment inventory. During 2005, the Company began providing nickel tolling services. Revenue associated with nickel tolling is recognized when services are rendered.

Cost of Products Sold — Shipping and handling costs are included in cost of products sold.

Concentrations of Credit Risk — Concentration of credit risk in accounts receivable is limited due to the Company’s large number of customers. The Company does not require collateral from its customers.

Allowance for Doubtful Accounts — The Company has recorded an allowance for doubtful accounts to reduce accounts receivable to their estimated net realizable value. The allowance is based upon an analysis of historical bad debts, a review of the aging of accounts receivable and the current creditworthiness of customers. Accounts are written off against the allowance when it becomes evident that collections will not occur. Bad debt expense is included in selling, general and administrative expenses and amounted to $0.6 million, $1.4 million and $1.2 million in 2005, 2004 and 2003, respectively.

Marketable Securities — Prior to 2005, the Company had an interest in Weda Bay Minerals, Inc. (“Weda Bay”) that was accounted for under the equity method. As a result of an other-than-temporary decline in value, the investment was written down to $0 in 2002. In December 2005, Weda Bay completed a private placement of 17,600,000 shares of common stock. Subsequent to that transaction, the Company owns approximately 7% of the outstanding shares of Weda Bay at December 31, 2005. In May of 2005, the Company signed a standstill agreement in which it agreed not to sell or otherwise dispose of it shares of Weda Bay for a period of 18 months. In December 2005, as consideration for consenting to the private placement, the Company was released from the standstill agreement, and is therefore free to sell the Weda Bay shares without restriction. Accordingly, the

44

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

Company concluded that this investment should be accounted for under Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments in Debt and Equity Securities” beginning in December of 2005. These available-for-sale securities are recorded at fair value (based on the quoted market price of related shares) with the unrealized gains and losses included in Accumulated other comprehensive income in the Consolidated Balance Sheets. At December 31, 2005, the unrealized gain of $4.7 million represents the fair value of the investment.

At December 31, 2004, the Company had an available-for-sale-security with an unrealized gain of $0.9 million included in Accumulated other comprehensive income in the Consolidated Balance Sheets. During 2005, this investment was sold resulting in a realized gain of $2.4 million which is included in Investment and other income, net in the Statements of Consolidated Income.

Inventories — Inventories are stated at the lower of cost or market and valued using the first-in, first-out (FIFO) method. The cost of the Company’s raw materials fluctuates due to actual or perceived changes in supply and demand of raw materials, changes in cobalt and nickel market prices and changes in availability from suppliers. Monthly, the Company evaluates the need for a lower of cost or market adjustment to inventories based on the end of the month market price.

Receivables from Joint Venture Partners and Minority Interests — The Company has a 55% interest in a smelter joint venture in the DRC. The remaining 45% interest is owned by two partners at 25% and 20%.

In 2001 and prior years, the Company financed the capital contribution for the 20% minority shareholder in its joint venture in the DRC. During 2004, the receivable from this partner ($21.8 million) was repaid.

In years prior to 2004, the Company refinanced the capital contribution for the 25% minority shareholder in its joint venture in the DRC. At December 31, 2005 the receivables from this partner were $25.2 million, net of a $4.2 million valuation allowance. At December 31, 2004, the receivables from this partner were $29.4 million. The receivables are due in full on December 31, 2008 ($22.9 million) and December 31, 2010 ($6.5 million). The interest rate on the $22.9 million is LIBOR plus 2.75%, or 7.01%, at December 31, 2005 and resets annually on January 2. The interest rate on the $6.5 million is LIBOR plus 1.25%, or 4.35%, at December 31, 2005 and resets quarterly. The Company has recorded a full allowance ($3.4 million and $1.6 million at December 31, 2005 and 2004, respectively) against the interest due on the receivables. Interest income will be recorded when received. No interest payments have been received to date.

Under the terms of the receivables, the partner’s share of any dividends from the joint venture and any other cash flow distributions (“secondary considerations”) paid by the joint venture, if any, first serve to reduce the Company’s receivables before any amounts are remitted to the joint venture partner. The receivables are secured by 80% of the partner’s interest in the joint venture (book value of $16.5 million at December 31, 2005 and $19.6 million at December 31, 2004), and by a loan payable from the joint venture to the partner (principal balance of $3.9 million at December 31, 2005 and 2004, plus accrued interest), as repayment of the loan would qualify as a secondary consideration.

The Company currently anticipates that repayment of the receivables will be made from the partner’s share of any dividends from the joint venture and any other secondary considerations paid by the joint venture.

Advances to Suppliers — Advances to suppliers represent payments under certain raw material purchase agreements that require the Company to make payment prior to title and risk of loss transferring to the Company. When title and risk of loss transfer to the Company, which generally occurs upon receipt of the material at the Company’s manufacturing location, the amount is reclassified to inventories.

Depreciation and Amortization — 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 of

45

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

approximately 30 years for buildings, 3 to 15 years for equipment and 5 years for leasehold improvements. Finite lived intangible assets, which are included in Other non-current assets on the Consolidated Balance Sheets, consist principally of patents and capitalized software and are amortized using the straight-line method over 3 to 17 years.

Long-lived assets, including finite lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. Events or circumstances that would result in an impairment review primarily include operating losses, a significant change in the use of an asset, or the planned disposal or sale of the asset. 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.

Goodwill — In accordance with SFAS No. 142 “Goodwill and Other Intangible Assets,” the Company evaluates the carrying value of goodwill for impairment annually as of October 1 and between annual evaluations if changes in circumstances or the occurrence of certain events indicate potential impairment. The results of the testing as of October 1, 2005 confirmed that the fair value of goodwill exceeded its carrying value and therefore no impairment loss was required to be recognized.

Retained Liabilities of Businesses Sold — Retained liabilities of businesses sold include obligations of the Company related to its former Precious Metals Group (“PMG”), which was sold on July 31, 2003 (see Note 5). Under terms of the sale agreement, the Company will reimburse the buyer of this business for certain items that become due and payable by the buyer subsequent to the sale date. At December 31, 2005, such items are comprised of income taxes payable related to periods during which the Company owned PMG. The total liability at December 31, 2005 is $10.0 million, of which $6.0 million is included in current liabilities and $4.0 million is included in Other non-current liabilities in the Consolidated Balance Sheet.

Research and Development — Research and development costs are charged to operations when incurred, are included in selling, general and administrative expenses and amounted to $14.9 million, $14.0 million and $10.0 million in 2005, 2004 and 2003, respectively.

Repairs and Maintenance — The Company expenses repairs and maintenance costs, including periodic maintenance shutdowns at its manufacturing facilities, when incurred.

Accounting for Leases — Lease expense is recorded on a straight-line basis. The noncancellable lease term used to calculate the amount of the straight-line expense is generally determined to be the initial lease term, including any optional renewal terms that are reasonably assured. Leasehold improvements related to these operating leases are amortized over the shorter of their estimated useful lives or the noncancellable lease.

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 DRC operations is the U.S. dollar since a majority of their purchases and sales are denominated in U.S. dollars. Accordingly, foreign currency exchange gains and losses related to assets, liabilities and transactions denominated in other currencies (principally the Euro and Australian dollar) are included in the Statements of Consolidated Income.

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 Accumulated other comprehensive income in stockholders’ equity.

46

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

Derivative Instruments — The Company enters into derivative instruments and hedging activities to manage, where possible and economically efficient, commodity price risk for nickel and interest rate risk related to borrowings. The use of forward and future contracts to hedge nickel price risk is discussed in Note 10. The use of interest rate swaps to hedge interest rate risk on the Company’s debt is discussed in Note 9.

During 2003, the Company entered into interest rate swap agreements that are designated as fair value hedges. For these hedges, changes in the fair value of both the hedging instruments and the underlying debt obligations are immediately recognized in earnings as equal and offsetting gains and losses in interest expense. All fair value hedges are 100% effective and therefore, there is no impact on earnings.

The Company has certain derivative instruments that are designated as cash flow hedges. For these hedges, the effective portion of the gain or loss from the financial instrument is initially reported as a component of Accumulated other comprehensive income in stockholders’ equity and subsequently reclassified to the Statements of Consolidated Income when the hedged item affects the Statements of Consolidated Income. Any ineffective portions of such cash flow hedges are recognized immediately in the Statements of Consolidated Income.

The gain or loss related to financial instruments that are not designated as hedges are recognized immediately in results of operations. These instruments are entered into to economically hedge certain movements in the price of nickel.

Stock Options and Compensation Plans — In December 2002, SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” was issued. SFAS No. 148 amends SFAS No. No. 123 “Accounting for Stock-Based Compensation,” to provide alternative methods of transition when a company voluntarily changes to the fair value based method. Effective January 1, 2003, the Company adopted the fair value recognition provisions of SFAS No. 123 using the prospective method of adoption under SFAS No. 148. Under the prospective method of adoption, the fair value recognition provisions have been applied to all employee awards granted, modified or settled after January 1, 2003. Accordingly, the Statements of Consolidated Income include compensation expense for stock options granted to employees in 2005, 2004 and 2003 of $3.2 million, $2.6 million and $0.1 million, respectively.

47

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

If the Company had elected to adopt the retroactive restatement provisions of SFAS No. 148 and thereby record compensation expense related to employee stock compensation awards prior to January 1, 2003, pro forma results of operations would have been as follows:

		December 31
		2005			2004			2003
Income (loss) from continuing operations before cumulative effect of change in accounting principle		$	27,280		$	125,750		$	(56,283	)
	Add: Stock-based employee compensation expense included in income from continuing operations before cumulative effect of change in accounting principle		4,040			3,734			2,476
	Deduct: Total stock-based employee compensation expense using the fair value method for all awards		(4,040	)		(4,001	)		(2,662	)
	Pro forma income (loss) from continuing operations before cumulative effect of change in accounting principle	$	27,280		$	125,483		$	(56,469	)
Income (loss) per common share from continuing operations before cumulative effect of change in accounting principle — basic:
	As reported	$	0.95		$	4.42		$	(1.99	)
	Pro forma	$	0.95		$	4.41		$	(1.99	)
Income (loss) per common share from continuing operations before cumulative effect of change in accounting principle — assuming dilution:
	As reported	$	0.95		$	4.39		$	(1.99	)
	Pro forma	$	0.95		$	4.38		$	(1.99	)

The fair value of options was estimated at the date of grant using a Black-Scholes options pricing model with the following weighted-average assumptions:

	December 31
	2005			2004			2003
Risk-free interest rate		4.0	%		3.5	%		3.2	%
Dividend yield		—			—			—
Volatility factor of Company common stock		0.44			0.45			0.42
Weighted-average expected option life (years)		5			5			5

In June 2005, the Company granted 166,194 shares of restricted stock to its new Chief Executive Officer (the “CEO”). The restricted shares vest on May 31, 2008 subject to the CEO remaining employed by the Company on that date. The market value of the restricted stock award based upon the market value of an unrestricted share of the Company’s common stock was $4.1 million and the expense is being recognized ratably over the vesting period.

In April 2002, the Company granted 28,000 shares of restricted stock to its former Chief Financial Officer who was employed from 2002 to 2004. The restricted shares were scheduled to vest in increments of 4,000 shares from April 30, 2003 to April 30, 2009. The market value of the restricted stock award was $1.9 million and was recorded in unearned compensation in stockholders’ equity. On July 31, 2003, in connection with the sale of PMG, the compensation committee of the board of directors approved accelerated vesting of these restricted shares resulting in compensation expense of $1.6 million in 2003.

48

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

The Statements of Consolidated Income include compensation expense related to restricted stock grants of $0.8 million, $1.2 million and $2.4 million in 2005, 2004 and 2003, respectively.

Reclassifications — Certain amounts in the prior years’ consolidated financial statements have been reclassified to conform to the current year’s presentation. The Company has separately disclosed the 2003 operating and investing portions of the cash flows attributable to its discontinued operations, which in prior periods were reported on a combined basis as a single amount. In addition, cash flows associated with liabilities of business sold for 2004 and 2003, which had previously been included in the operating section of the cash flow statement, have been reclassified and are now included with cash flows attributable to discontinued operations.

Note 2 — Recently Issued Accounting Standards

Accounting Standards Adopted in 2005

FIN No. 47: In March 2005, the FASB issued FIN No. 47, “Accounting for Conditional Asset Retirement Obligations,” which clarifies the term conditional asset retirement obligation as used in SFAS No. 143, “Accounting for Asset Retirement Obligations,” as a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Company. FIN No. 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Company adopted FIN No. 47 in the fourth quarter of 2005.

SFAS No. 143 provides accounting requirements for retirement obligations associated with tangible long-lived assets, including: (i) the timing of liability recognition; (ii) initial measurement of the liability; (iii) allocation of asset retirement cost to expense; (iv) subsequent measurement of the liability; and (v) financial statement disclosures. SFAS No. 143 requires that an asset’s retirement cost should be capitalized as part of the cost of the related long-lived asset and subsequently allocated to expense using a systematic and rational method.

As a result of the adoption of FIN No. 47, the Company recorded asset retirement obligations for costs to dismantle the plant, close its surface mines and reclaim the land disturbed as a result of its normal mining activities in Australia. The Company determined these obligations based on estimates adjusted for inflation, projected to the estimated closure dates, and then discounted using a credit-adjusted risk-free interest rate. Because these asset retirement obligations have a remaining expected life of 24 years, an appropriate market risk premium could not be estimated or considered when escalating the estimated obligations.

The estimated future asset retirement obligations have been discounted to their present value and are being accreted to their projected future obligations via charges to operating expenses. Additionally, the fixed assets recorded concurrently with the liabilities are being depreciated over the period until retirement activities are expected to occur. The associated asset established in connection with the implementation of FIN No. 47 is recorded in “Property, Plant and Equipment, net” in the Consolidated Balance Sheet at December 31, 2005. Total accretion and depreciation expense for 2005 was $0.1 million and is included in cost of products sold in the Statement of Consolidated Income.

As of December 31, 2004, a $2.9 million accrual was recorded for future costs associated with land reclamation. As a result of the adoption of FIN No. 47, this liability was remeasured in accordance with SFAS No. 143. At December 31, 2005, the Company has a $3.4 million asset retirement obligation included in Other non-current liabilities in the Consolidated Balance Sheet.

The adoption of FIN No. 47 resulted in a $2.3 million cumulative effect of a change in accounting principle in the Statements of Consolidated Income for the year ended December 31, 2005. The Nickel group’s Australian operation currently has net operating loss carryforwards and a full valuation allowance and accordingly there was no related tax impact.

49

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

The Company is required by the Australian government to maintain bonds to be used for land reclamation. At December 31, 2005 and 2004, the Company recorded $3.2 million and $3.4 million, respectively, for the bonds. The bonds are included in Other non-current assets in the Consolidated Balance Sheets. There are no other assets legally restricted for purposes of settling the asset retirement obligations. The remaining asset retirement obligations will be funded out of general corporate funds.

Assuming the adoption of FIN No. 47 in prior years, the liabilities recorded on the Consolidated Balance Sheets for asset retirement obligations related to mining activities in Australia would have been as follows:

Balance at January 1, 2003	$	0.6
Balance at December 31, 2003	$	0.8
Balance at December 31, 2004	$	1.0

Additional pro forma information, assuming the adoption of FIN No. 47 on January 1, 2003, is as follows for the year ended December 31:

		2004			2003
Reported net income		$	128.6		$	83.7
	Less: Additional expense assuming adoption of FIN No. 47 on January 1, 2003		(0.1	)		(0.1	)
	Add: Cumulative effect of a change in accounting principle		—			0.9
	Add: Reversal of expense actually recorded related to land reclamation		0.5			0.6
Pro-forma net income		$	129.0		$	85.1
Reported earnings per share — basic		$	4.52		$	2.95
	Less: Additional expense assuming adoption of FIN No. 47 on January 1, 2003		—			—
	Add: Cumulative effect of a change in accounting principle		—			0.03
	Add: Reversal of expense actually recorded related to land reclamation		0.02			0.02
Pro-forma earnings per share — basic		$	4.54		$	3.00
Reported earnings per share — assuming dilution		$	4.49		$	2.95
	Less: Additional expense assuming adoption of FIN No. 47 on January 1, 2003		—			—
	Add: Cumulative effect of a change in accounting principle		—			0.03
	Add: Reversal of expense actually recorded related to land reclamation		0.02			0.02
Pro-forma earnings per share — assuming dilution		$	4.51		$	3.00

The American Jobs Creation Act of 2004 (the “AJCA”): The AJCA was enacted on October 22, 2004. The AJCA repeals an export incentive, creates a new deduction for qualified domestic manufacturing activities, and includes a special one-time deduction of 85 percent of certain foreign earnings repatriated to the U.S. In December 2004, the FASB issued FSP No. FAS 109-1, “Application of SFAS No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004” (“FSP 109-1”). In accordance with FSP 109-1, the Company will treat the deduction for qualified domestic manufacturing as a special deduction in future years as realized. The deduction for qualified domestic manufacturing activities did not impact the Company’s consolidated financial statements in 2004 or 2005. The phase-out of the export incentive is not expected to have a material impact on the Company’s effective tax rate in the future. In December 2004, the FASB issued FSP No. FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision with the American Jobs Creation Act of 2004,” allowing companies additional time to evaluate the effect of the AJCA on plans for reinvestment or repatriation of foreign earnings. The Company has not repatriated any foreign earnings under the repatriation provision of the AJCA.

50

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

EITF No. 05-6: In June 2005, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF No. 05-6, “Determining the Amortization Period for Leasehold Improvements.” EITF No. 05-6 requires that leasehold improvements acquired in a business combination or purchased subsequent to the inception of a lease be amortized over the lesser of the useful life of the assets or a term that includes renewals that are reasonably assured at the date of the business combination or purchase. The guidance is effective for periods beginning after June 29, 2005. The adoption of EITF No. 05-6 did not and is not expected to have a material impact on the Company’s results of operations or financial position.

Accounting Standards Not Yet Adopted

SFAS No. 155: In May 2005, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Instruments,” which is an amendment of SFAS No. 133 and 140 and allows financial instruments that have embedded derivatives to be accounted for as a whole (eliminating the need to bifurcate the derivative from its host) if the holder elects to account for the whole instrument on a fair value basis. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. Companies must apply the standard prospectively. The Company is currently evaluating the effect the adoption of SFAS No. 155 will have on the Company’s results of operations and financial position.

SFAS No. 154: In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections,” which replaces APB Opinion No. 20, “Accounting Changes,” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements,” and provides guidance on the accounting for and reporting of accounting changes and error corrections. SFAS No. 154 applies to all voluntary changes in accounting principle and requires retrospective application (a term defined by the statement) to prior periods’ financial statements, unless it is impracticable to determine the effect of a change. It also applies to changes required by an accounting pronouncement that does not include specific transition provisions. In addition, SFAS No. 154 redefines restatement as the revising of previously issued financial statements to reflect the correction of an error. The statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company will adopt SFAS No. 154 beginning January 1, 2006.

SFAS No. 151: In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 151, “Inventory Costs — An amendment of ARB No. 43.” SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs and spoilage should be expensed as incurred and not included in overhead. Further, SFAS No. 151 requires that allocation of fixed production overheads to conversion costs should be based on normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Companies must apply the standard prospectively. The adoption of SFAS No. 151 is not expected to have a material impact on the Company’s results of operations or financial position.

SFAS No. 123R: In December 2004, the FASB issued SFAS No. 123 (revised), “Share-Based Payments” (“SFAS No. 123R”). SFAS No. 123R is a revision of SFAS No. 123, “Accounting for Stock Issued to Employees” (“SFAS No. 123”) and supersedes APB Opinion No. 25,“Accounting for Stock Issued to Employees.” SFAS No. 123R requires that the cost of transactions involving share-based payments be recognized in the financial statements based on a fair-value-based measurement. SFAS No. 123R is effective for fiscal years beginning after June 15, 2005. The Company adopted the fair value recognition provisions of SFAS No. 123 using the prospective method of adoption under SFAS No. 148. Under the prospective method of adoption, the fair value recognition provisions have been applied to all employee awards granted, modified or settled after January 1, 2003. As allowed under SFAS No. 123, the Company accounted for forfeitures as they occurred. Under SFAS No. 123R that method is no longer allowed and the Company must instead estimate forfeitures at the grant date. When the Company adopts SFAS No. 123R on January 1, 2006, the Company will estimate

51

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

forfeitures for outstanding stock options which have not yet vested. The adoption of SFAS No. 123R is not expected to have a material impact on the Company’s results of operations or financial position.

EITF No. 04-6: In June 2005, the FASB ratified modifications to EITF No. 04-6, “Accounting for Stripping Costs Incurred during Production in the Mining Industry.” EITF No. 04-6 clarifies that stripping costs incurred during the production phase of a mine are variable production costs that should be included in the costs of the inventory produced during the period that the stripping costs are incurred. The Company currently capitalizes and defers stripping costs when developing a new pit or expanding an existing pit until that pit has reached full production. Upon adoption of EITF No. 04-6, the Company will be required to write-off the amount of deferred stripping costs that were incurred after production commenced at each pit. Such amounts capitalized total $1.8 million at December 31, 2005 and are included in Other non-current assets in the Consolidated Balance Sheet. EITF No. 04-6 is effective for fiscal years beginning after December 15, 2005. The transition provisions require that the consensus be accounted for in a manner similar to a cumulative effect adjustment with any adjustment recognized in the opening balance of retained earnings in the year of adoption. The Company will adopt EITF No. 04-06 on January 1, 2006 and the effect of adoption will be a $1.8 million reduction to Other non-current assets and beginning retained earnings.

Note 3 — Inventories

Inventories consist of the following as of December 31,

	2005		2004
Raw materials and supplies	$	192,739	$	248,536
Work-in-process		21,781		37,711
Finished goods		90,037		129,270
	$	304,557	$	415,517

The Company recorded a lower of cost or market charge of $6.1 million in 2005 due to decreasing metal prices. No lower of cost or market charge was recorded in 2004 or 2003.

Note 4 — Property, Plant and Equipment

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

	2005		2004
Land	$	6,508	$	4,982
Buildings and improvements		166,787		161,566
Machinery and equipment		507,794		493,930
Furniture and fixtures		16,344		17,130
Property, plant and equipment, at cost		697,433		677,608
Less accumulated depreciation		328,304		287,796
	$	369,129	$	389,812

Total depreciation expense on property, plant and equipment was $47.4 million, $45.2 million, and $49.7 million in 2005, 2004, and 2003, respectively.

Note 5 — Divestiture of Precious Metals Group and Other Discontinued Operations

On April 1, 2003, the Company completed the sale of its copper powders business, SCM Metal Products, Inc. (“SCM”) for $63.7 million. The net proceeds were used to repay a portion of the Company’s indebtedness

52

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

outstanding under its then-existing Senior credit facilities. There was no gain or loss recorded on the sale of SCM, as this business was written-down by $2.6 million to its fair value in 2002. This business was classified as a discontinued operation in 2003.

On July 31, 2003, the Company completed the sale of its Precious Metals Group (“PMG”) to Umicore N.A. for approximately $814 million. After transaction costs and expenses, the Company recorded a gain on the sale of this business of $145.9 million ($131.7 million after-tax). This business was comprised of the Company’s Precious Metals Chemistry and Metal Management reportable segments, which were acquired by the Company in August 2001. PMG was classified as a discontinued operation in 2003. The net proceeds were used to repay all of the Company’s indebtedness outstanding under its then-existing Senior credit facilities.

The 2003 operating results for discontinued operations are summarized as follows (in millions):

Net sales	$	2,415.6
Operating income	$	48.0
Interest expense	$	38.8
Income tax benefit	$	(15.3	)
Income	$	8.2

The 2003 operating results summarized above include restructuring and other charges of $5.6 million, primarily to adjust these asset groups to their estimated net realizable value. The results also include an allocation of consolidated interest expense, based on the estimated proceeds from the sales of the PMG business and SCM that were required to be used to re-pay indebtedness outstanding under the Company’s then-existing Senior credit facilities.

In 2004, the Company recorded income from discontinued operations of $2.9 million. The income primarily relates to reductions in estimates of environmental and closure accruals established in connection with the sale of the SCM business and the exit of the Company’s closed manufacturing facilities in St. George, Utah and Midland, Michigan.

In 2005, the Company recorded income from discontinued operations of $9.4 million. The income relates to the reversal of a $5.5 million tax contingency accrual included in Retained Liabilities of Businesses Sold, a $1.6 million tax refund related to PMG, and a reduction in Retained Liabilities of Businesses Sold attributable to foreign exchange gains of $1.6 million from remeasuring Euro-denominated liabilities to U.S. dollars.

During 2005, the Company reversed a $5.5 million tax contingency accrual that was originally established in July 2003 upon the sale of PMG. Subsequent to that date, such amount had been included in Retained Liabilities of Businesses Sold in the Consolidated Balance Sheets. The contingency relates to a tax matter in Brazil for which the Company has indemnified the buyer under terms of the PMG sale agreement. In mid-2005, a Brazilian mid-level federal court made a ruling that was unfavorable to the PMG buyer’s case. However, in November 2005, the Brazilian Federal Supreme Court (the “Court”) ruled in favor of the taxpayer in a similar case, declaring the applicable law unconstitutional. Subsequent to that decision the Court has ruled in favor of the taxpayer in numerous other cases. The Court must hear all remaining individual cases that have been or will be appealed in this matter, including the PMG buyer’s, and that process may take several years. Until the PMG buyer’s case is adjudicated by the Court, the Company will remain liable for this matter based on the indemnification agreement. However, based upon the precedent set by the Court, the Company has concluded that this contingent liability is no longer probable at December 31, 2005, and has reversed the accrual. Although the contingency is no longer probable, the likelihood of an unfavorable outcome of this contingency is reasonably possible based on the length of time expected before the matter is closed and the inherent risk of changes in the political or legal situation in Brazil.

53

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

Note 6 — Restructuring and Other Charges

During 2003, the Company recorded restructuring charges of $20.0 million, completing the program that began in the fourth quarter of 2002. These charges include $5.8 million classified in cost of products sold and $14.2 million classified in selling, general and administrative expenses. A summary of the 2003 charges, which had a cash component of approximately $9.5 million (primarily workforce reductions of $3.7 million, aircraft lease termination of $2.5 million and cash expenses related to the Thailand shut-down of $0.8 million), is as follows (in millions):

Exit of facilities	$	10.7
Workforce reductions		3.7
Inventory and other asset write-downs		1.2
Other		4.4
	$	20.0

Charges for the exit of facilities include amounts related to the shut-down of the U.S. manufacturing operations of the electroless nickel business in Newark, New Jersey ($4.1 million); the shut-down of the manufacturing facility in Thailand ($2.8 million); relocation of the corporate headquarters and shut-down of an administrative facility in Cleveland, Ohio ($3.7 million). With respect to the electroless nickel business, the Company continues to serve customers in that market through manufacturing at its facility in Malaysia, and through tolling agreements in the United States. Other includes $2.5 million related to contract termination payments on the disposal of one of the Company’s corporate aircraft.

The charge for the Newark shut-down ($4.1 million) and the Thailand charges for inventory and fixed asset write-downs ($1.7 million) are included in cost of products sold.

In addition to these charges, the Company also incurred charges of $2.2 million in 2003 related to executive compensation awards that vested upon successful completion of the sale of PMG. These awards were comprised of a cash bonus of $0.6 million to the Company’s former Chief Executive Officer, and accelerated vesting of previously issued restricted stock awards to the Company’s former Chief Financial Officer who was employed from 2002 to 2004 totaling $1.6 million.

An analysis of restructuring activity for the Company’s continuing operations is summarized below (dollars in millions):

							Inventory and
	Number of			Workforce			Other Asset			Exit of Facilities
	Employees			Reductions			Write-downs			and Other			Total
Balance at January 1, 2003		68		$	5.2		$	—		$	2.6		$	7.8
2003 charges		19			3.7			1.2			15.1			20.0
Utilized in 2003		(87	)		(5.8	)		(1.2	)		(16.3	)		(23.3	)
Balance at December 31, 2003		—			3.1			—			1.4			4.5
Reversal of prior year charges		—			(0.5	)		—			(0.1	)		(0.6	)
Utilized in 2004		—			(2.0	)		—			(1.1	)		(3.1	)
Balance at December 31, 2004		—			0.6			—			0.2			0.8
Reversal of prior year charges		—			—			—			(0.1	)		(0.1	)
Utilized in 2005		—			(0.4	)		—			(0.1	)		(0.5	)
Balance at December 31, 2005		—		$	0.2		$	—		$	—		$	0.2

The amounts utilized in 2005, 2004 and 2003 include cash paid of $0.5 million, $3.1 million and $12.3 million, respectively.

54

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

During 2005 and 2004, the Company reversed certain restructuring reserves totaling $0.1 and $0.6 million, respectively, when estimates to complete the activities changed.

Note 7 — Acquisitions

In April 2000, the Company acquired Outokumpu Nickel Oy (“ONO”) for a cash purchase price on the acquisition date of $188.1 million. During 2004 and 2003, the Company made additional payments to the seller in the amount of $6.7 million and $11.2 million, respectively, under a contingent price participation clause of the original purchase agreement, whereby the seller was entitled to receive such payment based on a formula when the LME nickel price was above $3.50 per pound. Such price participation clause was in place through May 2004, at which time this original contract provision expired. The ultimate aggregate purchase price for the ONO acquisition was $206.0 million, including the price participation payments. These price participation payments reduce negative goodwill as calculated in the initial purchase price allocation. In accordance with the provisions of APB 16, “Business Combinations,” such negative goodwill was recorded in the opening balance sheet as a reduction of acquired long-lived assets (primarily property, plant and equipment). The price participation payments were accounted for as a reduction of negative goodwill as initially calculated, resulting in an increase to long-lived assets. Depreciation expense on the increase in long-lived assets has been calculated and recorded on a prospective basis over the estimated remaining useful life of the acquired assets.

Note 8 — Goodwill and Other Intangible Assets

Goodwill is tested for impairment on an annual basis and more often if indicators of impairment exist. Estimates of future cash flows, discount rates and terminal value amounts are used to determine the estimated fair value of the Company’s reporting units. The reporting units are the operating segments: Cobalt and Nickel. Goodwill was originally allocated to the reporting units based on their estimated fair values. The results of the Company’s testing in 2005 and 2004 indicated that no impairment charge for goodwill was required.

Changes in the carrying amount of goodwill by operating segment are as follows:

	Carrying Amount of Goodwill
	Cobalt			Nickel		Consolidated
Balance at January 1, 2004	$	113,965		$	64,713	$	178,678
Foreign currency translation adjustments		3,193			—		3,193
Balance at December 31, 2004		117,158			64,713		181,871
Foreign currency translation adjustments		(2,748	)		—		(2,748	)
Balance at December 31, 2005	$	114,410		$	64,713	$	179,123

A summary of intangible assets follows:

	Gross Carrying		Accumulated
	Amount		Amortization			Net Balance
Customer list	$	4,584	$	(3,285	)	$	1,299
Other intangibles		4,780		(2,332	)		2,448
Balance at December 31, 2005	$	9,364	$	(5,617	)	$	3,747
Customer list	$	4,584	$	(2,979	)	$	1,605
Other intangibles		3,684		(1,148	)		2,536
Balance at December 31, 2004	$	8,268	$	(4,127	)	$	4,141

55

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

All of the Company’s intangible assets have finite lives and are amortized over their useful lives. Other intangible assets included in the table above are primarily capitalized software costs and patents. The weighted average amortization period for the customer list is 4 years and the weighted average amortization period for the other intangibles is 7 years at December 31, 2005. Amortization expense related to intangible assets for the years ended December 31, 2005, 2004 and 2003 was approximately $1.5 million, $1.5 million and $1.3 million, respectively. Estimated annual pretax amortization expense for intangible assets for each of the next five years is approximately $1.0 million for 2006, $0.9 million for 2007 and 2008, $0.5 million for 2009 and $0.2 million for 2010.

Note 9 — Debt and Other Financial Instruments

Debt consists of the following as of December 31:

		2005			2004
Senior Subordinated Notes		$	400,000		$	400,000
Note payable — bank			17,250			23,000
Deferred gain on termination of fair value hedges			5,984			6,711
Fair value of interest rate swaps (fair value hedges)			(1,388	)		722
			421,846			430,433
Less: Current portion of long-term debt			5,750			5,750
	Long-term debt in default		—			400,000
	Total long-term debt	$	416,096		$	24,683

The Senior Subordinated Notes (the “Notes”) bear interest at 9.25%, mature on December 15, 2011 and may be redeemed at the option of the Company beginning December 15, 2006 at prices specified in the indenture. The Company’s domestic subsidiaries are the guarantors of the Notes (See Note 21). The delay by the Company in filing its Form 10-K for the year ended December 31, 2003 caused events of default under the indenture governing the Notes, and the Company reclassified the Notes from long-term to current as of March 31, 2004, which was the date the 2003 Form 10-K was due. The Company filed its 2003 Form 10-K on March 31, 2005 and filed its Form 10-Qs for each of the first three quarters of 2004 on June 10, 2005. The Company also was delayed in filing its Form 10-K for the year ended December 31, 2004 and its Form 10-Q for the first quarter of 2005, which resulted in new events of default on August 17, 2005 under the indenture governing the Notes. However, the Company filed its 2004 Form 10-K on August 22, 2005. The Company filed its Form 10-Qs for the first and second quarters of 2005 on September 23, 2005. The Company timely filed its Form 10-Q for the third quarter of 2005 on November 8, 2005. At December 31, 2005, the Notes are classified as long-term as the Company is no longer in default under the indenture and the holders of the Notes no longer have the right to accelerate payment of the Notes. At December 31, 2005, the fair value of the Notes, based upon the quoted market price, approximated $389.0 million.

On December 20, 2005, the Company replaced its existing $150.0 million Senior Secured Revolving Credit Facility with a new Revolving Credit Agreement (the “Revolver”) with availability of up to $100.0 million, including up to the equivalent of $25.0 million in Euros or other foreign currencies. The Revolver includes an “accordion” feature under which the Company may increase the availability by $50.0 million to a maximum of $150.0 million subject to certain conditions. Obligations under the Revolver are guaranteed by each of the Company’s U.S. subsidiaries and are secured by a lien on the assets of the Company and such subsidiaries. The Revolver provides for interest-only payments during its term, with principal due at maturity. The Company has the option to specify that interest be calculated based either on a London interbank market rate (“LIBOR”), plus a calculated margin amount, or a base rate. The applicable margin for the LIBOR rate ranges from 0.50% to

56

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

1.00%. The Revolver also requires the payment of a fee of 0.125% to 0.25% per annum on the unused commitment. The margin and unused commitment fees are subject to quarterly adjustment based on a certain debt to adjusted earnings ratio. The Revolver matures on December 20, 2010. There were no borrowings outstanding under the Revolver at December 31, 2005.

The Revolver contains certain covenants, including financial covenants, that require the Company to (i) maintain a minimum cash flow coverage ratio and (ii) not exceed a certain debt to adjusted earnings ratio. As of December 31, 2005, the Company was in compliance with all of the covenants in the Revolver.

The Company incurred fees and expenses of approximately $0.4 million in 2005 related to the Revolver. These fees and expenses were deferred and are being amortized to interest expense. Unamortized fees of $0.7 million related to the previous revolver were expensed in 2005 and are included in interest expense in the Statements of Consolidated Income.

During December 2003, the Company borrowed $22.9 million from a Belgium bank. This loan bore interest at a rate of LIBOR plus 2.75% and was scheduled to mature in December 2008. In November 2004, the Company refinanced this loan with a Finland bank, resulting in a new principal balance of $23.0 million. The refinanced loan has an interest rate of LIBOR plus 1.25% and is payable in 48 equal installments beginning in January 2005 and ending December 2008. The balance of this note was $17.3 million and $23.0 million at December 31, 2005 and 2004, respectively. Simultaneous to the initial borrowing, the proceeds were loaned by the Company to one of its DRC smelter joint venture partners. The note receivable is recorded in Receivables from joint venture partners (see further discussion in Note 1).

Aggregate annual maturities of total debt are as follows:

2006	$	5,750
2007		5,750
2008		5,750
2009		—
2010		—
thereafter		400,000
	$	417,250

Interest paid on long-term debt, net of capitalized amounts, was $38.2 million, $37.7 million, and $37.0 million related to continuing operations for 2005, 2004 and 2003, respectively, and $41.1 million related to discontinued operations for 2003. Interest capitalized as part of the acquisition or construction of major fixed assets at the Company’s continuing operations was $0.4 million in 2003. No interest was capitalized in 2005 or 2004.

In August 2003, the Company entered into an interest rate swap agreement to convert the fixed rate on $50 million of the Notes to a variable rate of LIBOR plus 4.10% for the period ending December 15, 2011. In addition, in November 2003, the Company entered into another interest rate swap to convert the fixed rate on $50 million of the Notes to a variable rate of LIBOR plus 4.39% for the period ending December 15, 2011. These swap agreements are designated as fair value hedges.

In 2002, the Company completed the termination of, and settled for cash, interest rate swap agreements for an aggregate amount of $125 million expiring in 2011. These swap agreements converted fixed rate debt of 9.25% to a floating rate. In addition, the Company completed the termination of, and settled for cash, interest rate swap agreements for an aggregate amount of $55 million expiring in 2003. These swap agreements converted floating rate debt to a fixed rate. The combined pretax gain on the termination of the swaps of $8.0 million has been

57

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

deferred and is being amortized to interest expense through the date on which the swaps were originally scheduled to mature.

At December 31, 2005, the combined effective rate of the Company’s borrowings and related swap agreements was 8.91%. The net interest paid or received on interest rate swaps is included in interest expense. The counterparty to the interest rate swaps is an international commercial bank.

The Company used various assumptions and methods in estimating fair value disclosures for financial instruments. The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximated their fair value due to the short maturity of these instruments. The fair value of the Notes was estimated based on quoted market prices. The carrying value of the remaining debt approximates fair value as the interest rate is variable. The fair values of interest rate swaps and commodity forward contracts were estimated based on current settlement prices.

The carrying amounts and fair values of the Company’s financial instruments consisted of the following:

	December 31, 2005						December 31, 2004
	Carrying						Carrying
	Amount			Fair Value			Amount		Fair Value
Marketable securities	$	4,745		$	4,745		$	3,106	$	3,106
Senior Subordinated Notes	$	400,000		$	389,000		$	400,000	$	426,000
Other debt	$	17,250		$	17,250		$	23,000	$	23,000
Interest rate swaps	$	(1,388	)	$	(1,388	)	$	722	$	722
Commodity forward contracts	$	1,319		$	1,319		$	4,633	$	4,633

Note 10 — Metals Financial Instruments

The Company attempts to minimize the effect on profitability of changes in the market price of nickel through hedging activities. The Company enters into forward contracts to hedge the sale and purchase price of nickel transactions. These contracts are designated as cash flow hedges. Therefore, realized gains and losses on these forward contracts are included as a component of net sales or cost of products sold, and are recognized when the related product is sold. Unrealized gains and losses are recorded in Accumulated other comprehensive income. In 2005, 2004 and 2003, there was no impact on earnings resulting from hedge ineffectiveness. At December 31, 2005 and 2004, the notional value of the open contracts approximated $40.7 million and $21.3 million, respectively, and the fair value of open contracts, based on settlement prices at December 31, 2005 and 2004, generated unrealized gains of approximately $1.3 million and $4.6 million, respectively, which are included in Accumulated other comprehensive income. The related receivables are recorded in Other current assets in the Consolidated Balance Sheets. All open contracts at December 31, 2005 mature no later than March 2007 and all open contracts at December 31, 2004 mature no later than June 2006.

In addition, the Company enters into hedging positions on a daily basis to protect its net sale/purchase nickel position. The underlying contracts for these financial instruments do not qualify as accounting hedges under SFAS No. No. 133, and therefore they are marked-to-market with the related gains or losses recognized immediately in the Statements of Consolidated Income. The amounts recorded in the Statements of Consolidated Income are gains of $0.8 million in 2005 and losses of $3.2 million and $4.9 million in 2004 and 2003, respectively, which are included as a component of cost of products sold.

58

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

Note 11 — Income Taxes

Income (loss) from continuing operations before income taxes, minority interest and cumulative effect of change in accounting principle consists of the following:

	Year Ended December 31
	2005			2004			2003
United States	$	(47,897	)	$	(71,900	)	$	(192,915	)
Outside the United States		78,785			234,160			150,252
	$	30,888		$	162,260		$	(42,663	)

Income tax expense (benefit) is summarized as follows:

			Year Ended December 31
			2005			2004		2003
Current tax provision (benefit):
	United States:
		Federal	$	365		$	769	$	1,385
		State and local		(105	)		—		3
	Outside the United States			17,987			28,276		(12,777	)
	Total current			18,247			29,045		(11,389	)
Deferred tax provision (benefit):
	United States			—			—		—
	Outside the United States			(7,511	)		6,023		25,923
	Total deferred			(7,511	)		6,023		25,923
			$	10,736		$	35,068	$	14,534

A reconciliation of income taxes computed using the United States statutory rate to income taxes computed using the Company’s effective income tax rate is as follows:

	Year Ended December 31
	2005			2004			2003
Income (loss) from continuing operations before income taxes, minority interest and cumulative effect of change in accounting principle	$	30,888		$	162,260		$	(42,663	)
Income taxes at the United States statutory rate (35%)	$	10,811		$	56,791		$	(14,932	)
Effective tax rate differential on earnings/losses outside of the United States		(7,740	)		(36,764	)		(32,460	)
Repatriation of foreign earnings		46,900			52,690			31,148
Malaysia tax holiday		(5,986	)		(6,697	)		(4,560	)
Change in Finland tax rate		—			(2,518	)		—
Adjustment of worldwide tax liabilities		(1,587	)		(2,983	)		(2,614	)
Income (loss) with no related tax (expense) benefit		(30,814	)		(24,689	)		37,528
Other, net		(848	)		(762	)		424
Income tax expense	$	10,736		$	35,068		$	14,534
Effective income tax rate		34.8	%		21.6	%		(34.1%	)

59

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

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

	December 31
	2005			2004
Current asset — operating and litigation accruals	$	13,543		$	55,732
Current liability — earnings repatriation		(42,000	)		(36,750	)
Current liability — prepaid expenses		(3,827	)		(2,241	)
Non-current asset — employee benefit and other accruals		29,346			27,949
Non-current asset — operating loss carryforwards		91,120			92,309
Non-current liability — accelerated depreciation		(21,543	)		(33,198	)
Valuation allowance		(91,102	)		(134,649	)
Net deferred tax liability	$	(24,463	)	$	(30,848	)

Deferred income taxes are recorded in the Consolidated Balance Sheets in the following accounts:

	December 31
	2005			2004
Other current assets	$	13		$	—
Other non-current assets		—			185
Other current liabilities		(3,015	)		—
Deferred income taxes — Other non-current liabilities		(21,461	)		(31,033	)
	$	(24,463	)	$	(30,848	)

At December 31, 2005, the Company had net operating loss carryforwards of approximately $280.8 million of which $227.2 million are U.S. federal and state net operating losses and $53.6 million are foreign net operating losses. These carryforwards expire at various dates from 2019 through 2025 (approximately $27.0 million of foreign net operating loss carryforwards have an indefinite carryforward period). The U.S. federal net operating losses utilized in 2005 and 2004 were $0 million and $42.3 million, respectively.

Where the Company has determined that it is more likely than not that deferred tax assets will not be realized, a valuation allowance has been established. The valuation allowance pertains to the deferred tax assets resulting principally from the net operating loss carryforwards in the United States. The Company intends to maintain a valuation allowance until sufficient positive evidence exists to support realization of the related deferred tax assets.

The Company has not provided additional United States income taxes on approximately $292.4 million of undistributed earnings of consolidated foreign subsidiaries. Such earnings 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. It is not practicable to estimate the amount of unrecognized withholding taxes and tax liability on such earnings.

In connection with an investment incentive arrangement, the Company has a “tax holiday” from income taxes in Malaysia. This arrangement, which expires on December 31, 2006, reduced income tax expense by $6.0 million, $6.7 million and $4.6 million for 2005, 2004, and 2003 respectively. The benefit of the tax holiday on net income per diluted share was approximately $0.21, $0.23 and $0.16 in 2005, 2004 and 2003, respectively.

Tax returns of certain of the Company’s subsidiaries are being examined by various taxing authorities. The Company has not been informed of any material assessments resulting from such examinations for which an accrual has not been previously provided, and the Company would vigorously contest any material assessment.

60

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

While the examinations are ongoing, the Company believes that any potential assessment would not materially affect the Company’s financial condition or results of operations.

Income tax payments were $37.0 million, $22.4 million and $4.6 million in 2005, 2004 and 2003, respectively.

Note 12 — Pension and Other Postretirement Benefit Plans

The Company sponsors a defined contribution plan covering all eligible U.S. employees. To be eligible for the plan, an employee must be a full-time associate for at least six months and at least 21 years of age. Company contributions are determined by the board of directors annually and are computed based upon participant compensation. The Company also sponsors a non-contributory, nonqualified supplemental executive retirement plan for certain employees, providing benefits beyond those covered in the defined contribution plan. Aggregate defined contribution plan expenses were $2.2 million, $2.3 million and $2.6 million in 2005, 2004 and 2003, respectively. Company contributions are directed by the employee into various investment options. At December 31, 2005 and 2004, the plan had invested in 77,893 shares, or $1.5 million, and 121,050 shares, or $3.9 million, of the Company’s common stock, respectively, based on the market price of the common stock at those dates.

The Company has a funded non-contributory defined benefit pension plan for certain retired employees in the United States related to the Company’s divested SCM business. The Company also has an unfunded supplemental executive retirement plan (“SERP”) for the former Chief Executive Officer that was executed as of January 1, 2004 and other unfunded postretirement benefit plans (“OPEB”), primarily health care and life insurance for certain employees and non-employees in the United States. The Company uses an October 31 measurement date for both its pension and postretirement benefit plans.

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

	2005			2004
Discount rate		5.50	%		6.00	%
Return on pension plan assets		8.75	%		8.75	%
Projected health care cost trend rate		11.00	%		13.00	%
Ultimate health care cost trend rate		6.00	%		6.00	%
Year ultimate health care trend rate is achieved		2011			2011

Set forth below is a detail of the net periodic pension expense for the defined benefit plans for the years ended December 31:

	Pension Benefits
	2005			2004			2003
Service cost	$	—		$	—		$	—
Interest cost		1,246			1,200			867
Amortization of unrecognized net loss		214			31			176
Expected return on plan assets		(575	)		(854	)		(1,033	)
Amortization of unrecognized prior service cost		172			857			—
Amortization of unrecognized net transition asset		(369	)		(117	)		—
FAS 88 curtailment loss		4,854			—			—
	$	5,542		$	1,117		$	10

61

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

	Other Postretirement
	Benefits
	2005		2004		2003
Service cost	$	69	$	61	$	169
Interest cost		252		251		324
Net amortization		40		40		(18	)
FAS 88 curtailment gain		—		—		(3,085	)
	$	361	$	352	$	(2,610	)

In 2005, the Company recorded a $4.9 million curtailment loss related to the SERP for the former Chief Executive Officer. In 2003, the Company recorded a $3.1 million curtailment gain from freezing retiree health care benefits.

The following table sets forth the changes in the benefit obligation and the plan assets during the year and reconciles the funded status of the defined benefit plans with the amounts recognized in the Consolidated Balance Sheets at December 31:

							Other Postretirement
	Pension Benefits						Benefits
	2005			2004			2005			2004
Change in benefit obligation
Projected benefit obligation at beginning of year	$	(21,917	)	$	(14,056	)	$	(4,341	)	$	(4,133	)
Service cost		—			—			(69	)		(61	)
Interest cost		(1,246	)		(1,200	)		(252	)		(251	)
Participant contributions		—			—			(131	)		(128	)
Actuarial loss		(464	)		(1,393	)		(128	)		(131	)
Benefits paid		890			903			407			363
SERP obligation		—			(6,171	)		—			—
Projected benefit obligation at end of year	$	(22,737	)	$	(21,917	)	$	(4,514	)	$	(4,341	)
Change in plan assets
Fair value of plan assets at beginning of year	$	10,093		$	9,428		$	—		$	—
Actual return on plan assets		575			854			—			—
Employer contributions		173			714			276			235
Participant contributions		—			—			131			128
Benefits paid		(890	)		(903	)		(407	)		(363	)
Fair value of plan assets at end of year	$	9,951		$	10,093		$	—		$	—
Net amount recognized
Obligation in excess of plan assets	$	(12,786	)	$	(11,824	)	$	(4,514	)	$	(4,341	)
Unrecognized actuarial (gain) loss		9,254			8,472			(120	)		(248	)
Unrecognized prior service cost		—			5,314			341			381
Net amount recognized	$	(3,532	)	$	1,962		$	(4,293	)	$	(4,208	)
Amounts recorded in the balance sheet consist of:
Accrued benefit liability	$	(12,786	)	$	(6,221	)	$	(4,293	)	$	(4,208	)
Accumulated other comprehensive income		9,254			8,183			—			—
Net amount recognized	$	(3,532	)	$	1,962		$	(4,293	)	$	(4,208	)

62

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

The accumulated benefit obligation at December 31, 2005 and 2004 equals the projected benefit obligation at December 31, 2005 and 2004 as the Company’s defined benefit plans are frozen and no additional benefits are being accrued.

During 2005, 2004 and 2003, Other Comprehensive Income (Loss) includes $1.1 million loss, $1.2 million loss and $4.1 million income, respectively, resulting from changes in the minimum pension liability adjustments, which were determined in accordance with SFAS No. 87, “Employers’ Accounting for Pensions.” The minimum pension liability adjustment, which is a component of Accumulated other comprehensive income (loss) in the Stockholders’ Equity section of the Consolidated Balance Sheets, represents the income (loss) not yet recognized as net periodic pension cost determined by an actuarial calculation of the funded status of the pension plan at the end of each measurement period.

The Company’s policy is to make contributions to fund these plans within the range allowed by applicable regulations. Expected contributions are dependent on many variables, including the variability of the market value of the assets as compared to the obligation and other market or regulatory conditions. Accordingly, actual funding may differ significantly from current estimates. The Company expects to contribute $1.0 million to its pension plans in 2006.

Benefits are paid to plan participants directly from pension plan assets.

Future pension and other postretirement benefit payments expected to be paid are as follows:

			Other
			Postretirement
Expected Benefit Payments	Pension		Benefits
2006	$	886	$	169
2007	$	874	$	178
2008	$	950	$	166
2009	$	997	$	183
2010	$	1,737	$	184
2011-2015	$	9,059	$	793

The Company employs a total return investment approach for the defined benefit pension plan assets. A mix of equities and fixed income investments are used to maximize the long-term return of assets for a prudent level of risk. In determining the expected long-term rate of return on defined benefit pension plan assets, management considers the historical rates of return over a period of time that is consistent with the long-term nature of the underlying obligations of these plans, the nature of investments and an expectation of future investment strategies.

The Company’s pension plan weighted-average asset allocations and target allocation by asset category are as follows:

	Target			December 31,
	Allocation
	2006			2005			2004
Equity securities		65	%		63	%		72	%
Debt securities		35	%		37	%		25	%
Other		—			—			3	%
Total assets		100	%		100	%		100	%

The Company’s investment objective for defined benefit plan assets is to meet the plan’s benefit obligations, without undue exposure to risk. The investment strategy focuses on asset class diversification, liquidity to meet

63

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

benefit payments and an appropriate balance of long-term investment return and risk. The Investment Committee oversees the investment allocation process, which includes the selection and evaluation of the investment manager, the determination of investment objectives and risk guidelines, and the monitoring of actual investment performance.

Assumed health care cost trend rates may 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
2005 benefit cost	$	78	$	(61	)
Recorded liability at December 31, 2005	$	936	$	(753	)

The Medicare Prescription Drug, Improvement and Modernization Act (“Act”) was enacted on December 8, 2003. The Act introduces a prescription drug benefit under Medicare Part D, in addition to a federal subsidy to sponsors of postretirement benefit plans that provide a prescription drug benefit that is at least actuarially equivalent to Medicare Part D. In May 2004, FASB Staff Position 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003,” was issued which provides guidance on accounting for the federal subsidy. The provisions of FASB 106-2 have been applied prospectively resulting in a $1.2 million reduction of the accumulated postretirement benefit obligation for 2005 and will result in decreased expense beginning in 2006.

Note 13 — Stockholders’ Equity

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 share of common stock outstanding. The rights become exercisable if a person or group (acquiring person) acquires or attempts to acquire 15% or more of the shares of common stock outstanding. 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 initially entitle the holder to purchase a unit consisting of one one-hundredth (a “unit”) of a share of Series A Participating Preferred Stock at an initial purchase price of $160 per unit, subject to adjustment.

If a person or group acquires the threshold percentage of common stock, each right will then entitle the holder (except for rights beneficially owned by the acquiring person, which become null and void) to buy shares of common stock having a market value of twice the exercise price of the rights (e.g. $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 (e.g. $160).

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

64

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

Note 14 — Accumulated Other Comprehensive Income (Loss)

					Unrealized
					Gains and
					Losses, Net			Unrealized			Additional			Accumulated
		Foreign			on Cash Flow			Gain on			Minimum			Other
		Currency			Hedging			Available For-			Pension			Comprehensive
		Translation			Derivatives			Sale Securities			Liability			Income (Loss)
Balance at January 1, 2003		$	44,331		$	841		$	—		$	(11,114	)	$	34,058
	Reclassification adjustments		(74,297	)		(841	)		—			2,484			(72,654	)
	Current period credit		47,369			10,291			—			1,624			59,284
	Deferred taxes		—			(3,602	)		—			—			(3,602	)
Balance December 31, 2003			17,403			6,689			—			(7,006	)		17,086
	Reclassification adjustments		—			(6,689	)		—			—			(6,689	)
	Current period credit (charge)		7,662			4,632			930			(1,177	)		12,047
	Deferred taxes		—			(1,157	)		—			—			(1,157	)
Balance December 31, 2004			25,065			3,475			930			(8,183	)		21,287
	Reclassification adjustments		(723	)		(3,475	)		(930	)		—			(5,128	)
	Current period credit (charge)		(5,642	)		1,289			4,745			(1,071	)		(679	)
	Deferred taxes		—			(335	)		—			—			(335	)
Balance December 31, 2005		$	18,700		$	954		$	4,745		$	(9,254	)	$	15,145

During 2005, $0.7 million which had been included as a component of foreign currency translation in Accumulated other comprehensive income was charged to foreign exchange loss in the Statements of Consolidated Income pursuant to the liquidation of an entity in Thailand.

Note 15 — Earnings Per Share

The following table sets forth the computation of basic and dilutive income (loss) per common share from continuing operations before cumulative effect of change in accounting principle for the years ended December 31:

	2005		2004		2003
Income (loss) from continuing operations before cumulative effect of change in accounting principle	$	27,280	$	125,750	$	(56,283	)
Weighted average shares outstanding		28,679		28,470		28,354
Dilutive effect of stock options and restricted stock		47		152		—
Weighted average shares outstanding — assuming dilution		28,726		28,622		28,354
Income (loss) per common share from continuing operations before cumulative effect of change in accounting principle	$	0.95	$	4.42	$	(1.99	)
Income (loss) per common share from continuing operations before cumulative effect of change in accounting principle — assuming dilution	$	0.95	$	4.39	$	(1.99	)

65

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

For 2005, 2004 and 2003, 1.6 million, 0.3 million and 0.6 million of stock options and restricted stock, respectively, that could potentially dilute income (loss) per common share from continuing operations before cumulative effect of accounting change in the future were not included in the computation because to do so would have been antidilutive.

The following table sets forth the computation of basic and dilutive net income per common share for the years ended December 31:

	2005		2004		2003
Net income	$	38,891	$	128,644	$	83,664
Weighted average shares outstanding		28,679		28,470		28,354
Dilutive effect of stock options and restricted stock		47		152		14
Weighted average shares outstanding — assuming dilution		28,726		28,622		28,368
Net income per common share	$	1.36	$	4.52	$	2.95
Net income per common share — assuming dilution	$	1.35	$	4.49	$	2.95

For 2005, 2004 and 2003, 1.6 million, 0.3 million and 0.6 million of stock options and restricted stock, respectively, that could potentially dilute net income per common share in the future were not included in the computation because to do so would have been antidilutive.

Note 16 — Stock Plans

The Company’s 2002 Stock Incentive Plan authorizes the grant of options and restricted stock to employees and outside directors of up to 1,400,000 shares, with a limit of 200,000 shares to a single individual in any year. The Plan also limits the total number of shares subject to the Plan that may be granted in the form of restricted stock. 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 on the prior December 31, plus unused shares and shares relating to terminated awards from prior years, subject to an overall annual maximum of 2% of common stock outstanding. All options granted have 10-year terms and generally have an exercise price equal to the market price at the date of grant.

Options granted prior to 2003 vest and become fully exercisable at the end of the next fiscal year following the year of grant. Options granted in 2005, 2004 and 2003 vest over three years except for options granted to the new CEO in June 2005 as an inducement to join the company. The new CEO was granted options to purchase 254,996 shares of common stock, of which options for 80,001 shares will vest on May 31, 2006, options for 85,050 shares will vest on May 31, 2007 and options for 89,945 shares will vest on May 31, 2008, subject to the CEO remaining employed by the Company on those dates. The options vesting in 2006 have an exercise price equal to the market price of the Company’s common stock on the date of the grant. The remaining options that vest on May 31, 2007 and 2008 contain exercise prices set above the grant date market price of the Company’s common stock ($28.67 and $33.67, respectively). The Company accounts for options that vest over more than one year as one award and recognizes expense related to those awards on a straight-line basis over the vesting period.

66

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

A summary of the Company’s stock option activity follows:

		2005					2004					2003
					Weighted					Weighted					Weighted
					Average					Average					Average
					Exercise					Exercise					Exercise
		Options			Price		Options			Price		Options			Price
Outstanding at January 1			1,633,191		$	32.58		1,328,691		$	33.82		1,596,561		$	40.31
	Granted — exercise price equals market price at date of grant		197,745			21.75		355,000			31.37		322,409			18.18
	Granted — exercise price exceeds market price at date of grant		174,995			31.24		—			—		—			—
	Exercised		(65,154	)		13.00		—			—		(27,910	)		14.57
	Expired unexercised		(594,627	)		35.71		(50,500	)		56.47		(562,369	)		44.44
	Forfeited		(93,333	)		25.96		—			—		—			—
Outstanding at December 31			1,252,817		$	30.71		1,633,191		$	32.58		1,328,691		$	33.82
Exercisable at end of year			601,188					1,074,858					1,006,282
Weighted-average fair value of options granted during the year					$	9.61				$	14.17				$	8.20

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

The following summarizes stock options outstanding and exercisable at December 31, 2005:

		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:
	$17.41-$26.12		456,632		9	$	19.74		173,331	$	18.21
	$26.13-$39.20		587,985		8	$	31.93		219,657	$	32.95
	$39.21-$58.82		115,200		4	$	45.03		115,200	$	45.03
	$58.83-$59.20		93,000		6	$	59.20		93,000	$	59.20
			1,252,817						601,188

During 2004, the Compensation Committee of the board of directors, acting under authority granted by the board, extended by three months the term of all stock options that were scheduled to expire in November 2004. The options were originally granted in November 1994, were fully vested, and had a ten-year life. These options were held by three employees, including the Company’s former Chief Executive Officer who held options for 56,154 shares of the total 67,770 options covered by the modification. The modification resulted in compensation expense in 2004 of $1.2 million. The modification was made in light of the inability of employees and directors to exercise options during 2004 because of nonpublic material information regarding the restatement of the Company’s consolidated financial statements and the inability of the Company to file periodic reports with the SEC, which resulted in the cessation of effectiveness of the SEC registration statement relating to the shares of common stock issuable upon exercise of stock options. As a result of those extraordinary circumstances, the Compensation Committee concluded that it was appropriate to extend the term of these options for three months. Ultimately, 65,154 of the modified options were exercised during 2005 and the remaining 2,616 expired unexercised.

67

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

Note 17 — Commitments and Contingencies

The Company has entered into raw material purchase contracts for primarily cobalt and nickel with various third parties in the normal course of business. The aggregate estimated future payments under these contracts are as follows:

2006	$	299,242
2007		274,300
2008		256,000
2009		181,700
2010		2,200
Total	$	1,013,442

These amounts reflect estimated future payments based on committed tons of material per the applicable contract multiplied by the average daily reference/market price for the last week of December 2005 for each respective metal. Commitments made under these contracts represent future purchases in line with expected usage.

The Company has commitments outstanding for take-or-pay contracts to purchase sulphuric acid, natural gas, electricity, desalinated water and steam at its Cawse mining facility in Australia. The remaining terms of the contracts extend from two to eleven years. Total purchases under these contracts were $19.1 million in 2005, $18.6 million in 2004 and $16.0 million in 2003. The 2005 amount includes a $0.5 million charge for actual acid purchases short of the commitment.

Take-or-pay obligations at December 31, 2005 are as follows:

2006	$	16,443
2007		16,772
2008		8,853
2009		5,121
2010		5,223
thereafter		33,606
Total	$	86,018

In November 2002, the Company received notice that shareholder class action lawsuits were filed in the U.S. District Court for the Northern District of Ohio related to the decline in the Company’s stock price after the third quarter 2002 earnings announcement. The lawsuits alleged virtually identical claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 against the Company, certain then executive officers and the then members of the board of directors. Plaintiffs sought damages in an unspecified amount to compensate persons who purchased the Company’s stock between November 2001 and October 2002 at allegedly inflated market prices. In July 2004, these lawsuits were amended to include the entire restatement period back to and including 1999, and to add the Company’s independent auditors, Ernst & Young LLP, as a defendant. The Company and the lead plaintiff of the shareholder class action lawsuits entered into a Stipulation and Agreement of Settlement (the “Shareholder Class Action Agreement”) dated June 6, 2005, which Shareholder Class Action Agreement, as amended, was approved on September 8, 2005 by the U.S. District Court hearing the cases. The Company recorded a charge to administrative expense of $82.5 million during the fourth quarter of 2003 related to these lawsuits. During 2005, the Company paid $74.0 million in cash and the remaining $8.5 million was settled by the issuance of 407,478 shares of common stock.

The Company’s insurance policies covered a portion of the settlement amounts. As of December 31, 2005, insurance proceeds of $44.0 million have been received, representing both reimbursement of legal expenses

68

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

($16.5 million) as well as reimbursement of a portion of the settlement amount paid by the Company ($27.5 million). Amounts recorded in 2005, 2004, and 2003 were $32.4 million, $7.9 million, and $3.7 million, respectively, and were recognized when received as a reduction of Selling, general and administrative expenses in the Statements of Consolidated Income. The Company has no other insurance coverage available for the settlement.

In November 2002, the Company also received notice that shareholder derivative lawsuits had been filed in the U.S. District Court for the Northern District of Ohio against the then members of the Company’s board of directors and certain of its then executives. Derivative plaintiffs allege the directors and executives breached their fiduciary duties to the Company in connection with a decline in the Company’s stock price after its third quarter 2002 earnings announcement by failing to institute sufficient financial controls to ensure that the Company and its employees complied with generally accepted accounting principles by writing down the value of the Company’s cobalt inventory on or before December 31, 2001. Derivative plaintiffs sought a number of changes to the Company’s accounting, financial and management structures and unspecified damages from the directors and executives to compensate the Company for costs incurred in, among other things, defending the aforementioned securities lawsuits. In July 2004, the derivative plaintiffs amended these lawsuits to include conduct allegedly related to the Company’s decision to restate its earnings back to and including 1999. The Company and the lead plaintiffs of the shareholder derivative lawsuits entered into a Stipulation and Agreement of Settlement dated September 23, 2005 (the “Shareholder Derivative Agreement”) which was preliminarily approved on September 29, 2005 by the U.S. District Court hearing the cases and finalized in November 2005. The Shareholder Derivative Agreement provided for the Company to issue 380,000 shares of its common stock in payment of attorneys’ fees and costs incurred by plaintiffs’ counsel with respect to this litigation, and also required the Company to implement various corporate governance changes.

The Company recorded a charge to administrative expense of $2.0 million during the fourth quarter of 2003 and an additional charge to administrative expense of $7.5 million during the first quarter of 2004 related to these shareholder derivative lawsuits. Prior to issuance, the 380,000 shares of common stock related to the settlement of the shareholder derivative litigation were marked-to-market through the Statements of Consolidated Income based on changes in the Company’s stock price, as the liability was fixed in shares. The Company recognized income of $4.6 million during 2005 related to the mark-to-market of these shares as a reduction of Selling, general and administrative expense in the Statements of Consolidated Income. In November 2005, the 380,000 shares were issued to settle these lawsuits.

The Company is currently engaged in pending litigation with James P. Mooney in federal court in Florida. The Company brought suit against Mr. Mooney seeking disgorgement of certain bonuses and profits he received during his tenure as Chief Executive Officer. Mr. Mooney has asserted a counterclaim against the Company seeking damages based on additional bonuses he alleges he is owed and other additional payments he claims he is entitled to under his employment agreement. The Company is currently depositing Mr. Mooney’s severance payments into an escrow account. Mr. Mooney has also filed suit against the Company in Delaware state court seeking advancement and reimbursement of his attorney’s fees in connection with the pending Florida litigation and other related matters. The Company is defending these lawsuits.

The SEC’s Division of Enforcement is conducting an informal investigation resulting from the self reporting by the Company of an internal investigation. This internal investigation was conducted in 2004 by the audit committee of Company’s board of directors in connection with the previously filed restatement of the Company’s financial results for the periods prior to December 31, 2003. The Company is cooperating fully with the SEC informal investigation.

During 2005, the Company reversed a $5.5 million tax contingency accrual that was originally established in July 2003 upon the sale of PMG. Subsequent to that date, such amount had been included in Retained Liabilities of

69

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

Businesses Sold in the Consolidated Balance Sheets. The contingency relates to a tax matter in Brazil for which the Company has indemnified the buyer under terms of the PMG sale agreement. In mid-2005, a Brazilian mid-level federal court made a ruling that was unfavorable to the PMG buyer’s case. However, in November 2005, the Brazilian Federal Supreme Court (the “Court”) ruled in favor of the taxpayer in a similar case, declaring the applicable law unconstitutional. Subsequent to that decision the Court has ruled in favor of the taxpayer in numerous other cases. The Court must hear all remaining individual cases that have been or will be appealed in this matter, including the PMG buyer’s, and that process may take several years. Until the PMG buyer’s case is adjudicated by the Court, the Company will remain liable for this matter based on the indemnification agreement. However, based upon the precedent set by the Court, the Company has concluded that this contingent liability is no longer probable at December 31, 2005, and has reversed the accrual. Although the contingency is no longer probable, the likelihood of an unfavorable outcome of this contingency is reasonably possible based on the length of time expected before the matter is closed and the inherent risk of changes in the political or legal situation in Brazil.

The Company is a party to various other 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. A number of factors affect the cost of environmental remediation, including the determination of the extent of contamination, the length of time the remediation may require, the complexity of environmental regulations, and the continuing improvements in remediation techniques. Taking these factors into consideration, the Company has estimated the undiscounted costs of remediation, which will be incurred over several years. The Company accrues an amount consistent with the estimates of these costs when it is probable that a liability has been incurred. At December 31, 2005 and 2004 the Company has recorded environmental liabilities of $8.8 million and $9.5 million, respectively, primarily related to remediation and decommissioning at the Company’s closed manufacturing sites in Newark, New Jersey; St. George, Utah and Vasset, France. The Company has recorded $8.3 million in other current liabilities and $0.5 million in Other non-current liabilities as of December 31, 2005.

Although it is difficult to quantify the potential impact of compliance with or liability under environmental protection laws, the Company believes that any amount it may be required to pay in connection with environmental matters, as well as other legal proceedings arising out of operations in the normal course of business, is not reasonably likely to exceed amounts accrued by an amount that would have a material adverse effect upon its financial condition, results of operations, or cash flows.

Note 18 — Lease Obligations

The Company rents office space, equipment, land and an airplane under long-term operating leases. The Company’s operating lease expense was $4.7 million in 2005, $4.9 million in 2004 and $6.7 million in 2003.

Future minimum payments under noncancellable operating leases at December 31, 2005 are as follows for the year ending December 31:

2006	$	3,842
2007		3,256
2008		2,953
2009		2,561
2010		2,551
2011 and thereafter		11,233
Total minimum lease payments	$	26,396

70

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

Note 19 — Investment and Other Income, Net

	2005		2004		2003
Equity income from investment	$	3,207	$	4,479	$	1,066
Interest income from joint venture partner		—		849		6,895
Gain on sale of equity securities		2,359		—		—
Gain on sale of businesses		—		—		4,609
Other, net		2,932		708		(178	)
Total	$	8,498	$	6,036	$	12,392

During construction of the Company’s joint venture smelter in the DRC during 1998-2001, the Company funded capital expenditures of approximately $23.6 million on behalf of one of its partners. During 2003, the Company finalized agreements with the partner regarding this arrangement, which included a provision for interest on the amounts paid by the Company on behalf of the partner. The Company recorded the interest income of $6.9 million when the agreements were finalized in 2003. As of December 31, 2004, both the amounts funded by the Company and the interest income receivable had been fully collected.

At December 31, 2004, the Company had an available-for-sale security with an unrealized gain of $0.9 million included in Accumulated other comprehensive income in the Company’s Consolidated Balance Sheets. During 2005, this investment was sold resulting in a realized gain of $2.4 million which is included in Investment and other income, net in the Statements of Consolidated Income.

Included in Other, net in 2005 is approximately $1.9 million of interest income, primarily due to interest earned on the increased average cash balance in 2005 compared with 2004.

Note 20 — Reportable Segments and Geographic Information

The Company operates in two business segments — Cobalt and Nickel. The Cobalt segment includes products manufactured using cobalt and other metals including copper, zinc, manganese, and calcium. The Nickel segment includes nickel-based products. The Company’s products are essential components in numerous complex chemical and industrial processes, and are used in many end markets, such as rechargeable batteries, coatings, custom catalysts, liquid detergents, lubricants and fuel additives, plastic stabilizers, polyester promoters, adhesion promoters for rubber tires, colorants, petroleum additives, magnetic media, metal finishing agents, cemented carbides for mining and machine tools, diamond tools used in construction, stainless steel, alloy and plating applications. The Company’s products are sold in various forms such as solutions, crystals, powders, cathodes and briquettes. Corporate is comprised of general and administrative expense not allocated to the segments.

In 2005, sales to one customer represented approximately 16% of the Nickel segment’s net sales, 5% of the Cobalt segment’s net sales, and 12% of the Company’s total net sales. In addition, sales to another customer were approximately 21% of the Cobalt segment’s net sales in 2005. No one customer exceeded 10% of the Company’s consolidated net sales in 2004. In 2003, sales to one customer represented approximately 13% of the Company’s consolidated net sales.

A significant portion of the Company’s supply of cobalt historically has been sourced from the DRC. Production problems and political and civil instability in the DRC may in the future affect the supply and market price of cobalt raw material.

The accounting policies of the segments are the same as the policies described under “Significant Accounting Policies” in Note 1 above. Intersegment sales are accounted for at the same prices as if the sales were made to third parties.

71

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

While its primary manufacturing sites are in Finland, the Company also has manufacturing and other facilities in Australia, Canada, the United States, Europe and Asia-Pacific, and the Company markets its products worldwide. Further, approximately 24% of the Company’s investment in property, plant and equipment is located in the DRC, where the Company operates a smelter through a 55% owned joint venture.

72

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

These segments correspond to management’s approach to aggregating products and business units, making operating decisions and assessing performance. The following table reflects the results of the segments:

			2005			2004			2003
Business Segment Information
Net Sales
	Cobalt		$	559,505		$	643,089		$	379,890
	Nickel			743,524			781,778			567,897
	Intercompany sales between segments:
		Cobalt		(1,181	)		(2,688	)		(4,039	)
		Nickel		(52,239	)		(74,841	)		(31,603	)
			$	1,249,609		$	1,347,338		$	912,145
Income (loss) from operations
	Cobalt(a)		$	23,480		$	146,898		$	55,036
	Nickel(b)			58,108			109,049			58,263
	Corporate(c)			(14,042	)		(54,575	)		(130,325	)
			$	67,546		$	201,372		$	(17,026	)
Interest expense			$	(41,282	)	$	(39,838	)	$	(41,052	)
Foreign exchange gain (loss)				(3,874	)		(5,310	)		3,023
Investment and other income, net				8,498			6,036			12,392
			$	(36,658	)	$	(39,112	)	$	(25,637	)
Income (loss) from continuing operations before income taxes, minority interest and cumulative effect of change in accounting principle			$	30,888		$	162,260		$	(42,663	)
Total assets
	Cobalt		$	693,493		$	741,432
	Nickel			486,403			571,324
	Corporate			40,377			21,945
			$	1,220,273		$	1,334,701
Expenditures for property, plant & equipment
	Cobalt			10,969			9,046			5,713
	Nickel			14,220			9,371			5,197
			$	25,189		$	18,417		$	10,910
Depreciation and amortization
	Cobalt		$	30,302		$	32,414		$	35,458
	Nickel			16,776			15,940			18,674
	Corporate			2,029			2,600			2,310
			$	49,107		$	50,954		$	56,442

73

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

			Property, Plant
			and
	Net Sales(d)		Equipment, net
Geographic Region Information
2005
Finland	$	803,272	$	194,355
United States		177,275		31,392
Japan		184,331		90
Other		84,731		52,904
Democratic Republic of the Congo		—		90,388
	$	1,249,609	$	369,129
2004
Finland	$	831,734	$	205,101
United States		175,830		32,151
Japan		265,301		110
Other		74,473		56,155
Democratic Republic of the Congo		—		96,295
	$	1,347,338	$	389,812
2003
Finland	$	608,007
United States		136,814
Japan		105,989
Other		61,335
Democratic Republic of the Congo		—
	$	912,145

(a)	Cobalt segment operating profit in 2003 includes restructuring charges of $9.6.
(b)	Nickel segment operating profit in 2003 includes restructuring charges of $4.1 million
(c)	In 2005, Corporate expenses include $27.5 million of income related to the receipt of net insurance proceeds after legal expenses, charges totaling $9.6 million related to the departure of the Company’s former CEO and former CFO and $4.6 million of income related to the mark-to-market of 380,000 shares of common stock issued in connection with the shareholder derivative litigation. Corporate expenses in 2004 and 2003 include a charge of $7.5 million and $84.5 million, respectively, related to the shareholder lawsuits. 2003 also includes restructuring charges of $6.3 million.
(d)	Net sales attributed to the geographic area are based on the location of the manufacturing facility, except for Japan, which is a sales office.

Note 21 — Guarantor and Non-Guarantor Subsidiary Information

In December 2001, the Company issued $400 million in aggregate principal amount of 9.25% Senior Subordinated Notes due 2011. These notes are guaranteed by the Company’s wholly-owned domestic subsidiaries. The guarantees are full, unconditional and joint and several. The Company’s foreign subsidiaries are not guarantors of these Notes. The Company as presented below represents OM Group, Inc. exclusive of its

74

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

guarantor subsidiaries and its non-guarantor subsidiaries. Condensed consolidating financial information for the Company, the guarantor subsidiaries, and the non-guarantor subsidiaries is as follows:

		December 31, 2005
				Combined			Combined
		The		Guarantor			Non-guarantor
		Company		Subsidiaries			Subsidiaries		Eliminations			Total
Balance Sheet Data
Current assets:
	Cash and cash equivalents	$	14,286	$	729		$	99,603	$	—		$	114,618
	Accounts receivable, less allowances		521,724		104,655			330,721		(828,822	)		128,278
	Inventories		—		46,953			257,604		—			304,557
	Other current assets		2,813		6,925			47,917		—			57,655
Total current assets			538,823		159,262			735,845		(828,822	)		605,108
Property, plant and equipment, net			—		35,212			333,917		—			369,129
Goodwill			75,830		68,908			34,385		—			179,123
Intercompany receivables			255,830		—			1,013,751		(1,269,581	)		—
Investment in subsidiaries			92,347		—			2,160,527		(2,252,874	)		—
Other non-current assets			6,541		11,571			48,801		—			66,913
Total assets		$	969,371	$	274,953		$	4,327,226	$	(4,351,277	)	$	1,220,273
Current liabilities:
	Current portion of long-term debt	$	—	$	—		$	5,750	$	—		$	5,750
	Accounts payable		4,000		90,040			392,289		(382,932	)		103,397
	Other current liabilities		8,658		19,522			30,712		—			58,892
Total current liabilities			12,658		109,562			428,751		(382,932	)		168,039
Long-term debt			404,596		—			11,500		—			416,096
Deferred income taxes			—		—			21,461		—			21,461
Other long-term liabilities and minority interest			15,584		15,195			47,365		—			78,144
Intercompany payables			—		530,435			1,185,238		(1,715,673	)		—
Stockholder’s equity			536,533		(380,239	)		2,632,911		(2,252,672	)		536,533
Total liabilities and stockholders’ equity		$	969,371	$	274,953		$	4,327,226	$	(4,351,277	)	$	1,220,273

75

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

	Year Ended December 31, 2005
				Combined			Combined
	The			Guarantor			Non-guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Total
Income Statement Data
Net sales	$	—		$	235,645		$	1,425,300		$	(411,336	)	$	1,249,609
Cost of products sold		—			199,298			1,304,126			(411,336	)		1,092,088
		—			36,347			121,174			—			157,521
Selling, general and administrative expenses		—			32,127			57,848			—			89,975
Income from operations		—			4,220			63,326			—			67,546
Interest expense		(39,697	)		(9,036	)		(50,629	)		58,080			(41,282	)
Foreign exchange loss		—			(36	)		(3,838	)		—			(3,874	)
Investment and other income, net		8,307			4,358			53,913			(58,080	)		8,498
Income (loss) from continuing operations before income taxes, minority interest and cumulative effect of change in accounting principle		(31,390	)		(494	)		62,772			—			30,888
Income tax expense		—			—			(10,736	)		—			(10,736	)
Minority interest share of (income) loss		—			—			7,128			—			7,128
Income (loss) from continuing operations before cumulative effect of change in accounting principle		(31,390	)		(494	)		59,164			—			27,280
Income from discontinued operations, net of tax		9,076			283			—			—			9,359
Income (loss) before cumulative effect of change in accounting principle		(22,314	)		(211	)		59,164			—			36,639
Cumulative effect of change in accounting principle		—			—			2,252			—			2,252
Net income (loss)	$	(22,314	)	$	(211	)	$	61,416		$	—		$	38,891

76

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

		Year Ended December 31, 2005
					Combined			Combined
		The			Guarantor			Non-guarantor
		Company			Subsidiaries			Subsidiaries			Eliminations		Total
Cash Flow Data
Net cash provided by operating activities		$	12,054		$	3,758		$	106,025		$	—	$	121,837
Investing activities:
	Expenditures for property plant and equipment, net		—			(4,226	)		(20,963	)		—		(25,189	)
	Proceeds from MPI note receivable		—			—			3,035			—		3,035
	Proceeds from Weda Bay note receivable		—			—			2,500			—		2,500
	Proceeds from sale of investments in equity securities		—			—			4,534			—		4,534
	Investments in non-consolidated joint ventures		—			—			(1,534	)		—		(1,534	)
Net cash used for investing activities			—			(4,226	)		(12,428	)		—		(16,654	)
Financing activities:
	Payments of long-term debt and revolving line of credit		(49,872	)		—			(5,750	)		—		(55,622	)
	Proceeds from revolving line of credit		49,872			—			—			—		49,872
	Proceeds from exercise of stock options		117			—			—			—		117
Net cash provided by (used for) financing activities			117			—			(5,750	)		—		(5,633	)
Effect of exchange rate changes on cash			—			—			(5,293	)		—		(5,293	)
Cash and cash equivalents
Increase (decrease) from continuing operations			12,171			(468	)		82,554			—		94,257
Discontinued operations — net cash used for operating activities			(6,418	)		—			—			—		(6,418	)
Balance at the beginning of the year			8,533			1,197			17,049			—		26,779
Balance at the end of the year		$	14,286		$	729		$	99,603		$	—	$	114,618

77

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

		December 31, 2004
				Combined			Combined
		The		Guarantor			Non-guarantor
		Company		Subsidiaries			Subsidiaries		Eliminations			Total
Balance Sheet Data
Current assets:
	Cash and cash equivalents	$	8,533	$	1,197		$	17,049	$	—		$	26,779
	Accounts receivable, less allowances		496,692		79,383			531,902		(946,631	)		161,346
	Inventories		—		58,450			357,067		—			415,517
	Other current assets		—		6,291			78,926		—			85,217
Total current assets			505,225		145,321			984,944		(946,631	)		688,859
Property, plant and equipment, net			—		35,542			354,270		—			389,812
Goodwill			75,830		68,908			37,133		—			181,871
Intercompany receivables			334,598		—			935,132		(1,269,730	)		—
Investment in subsidiaries			92,347		—			2,160,526		(2,252,873	)		—
Other non-current assets			11,120		12,166			50,873		—			74,159
Total assets		$	1,019,120	$	261,937		$	4,522,878	$	(4,469,234	)	$	1,334,701
Current liabilities:
	Current portion of long-term debt	$	—	$	—		$	5,750	$	—		$	5,750
	Long-term debt in default		400,000		—			—		—			400,000
	Accounts payable		100		76,262			571,394		(515,444	)		132,312
	Other accrued expenses		97,671		18,811			47,252		—			163,734
Total current liabilities			497,771		95,073			624,396		(515,444	)		701,796
Long-term debt			7,433		—			17,250		—			24,683
Deferred income taxes			—		—			31,033		—			31,033
Other long-term liabilities and minority interest			26,884		14,157			49,116		—			90,157
Intercompany payables			—		497,038			1,189,735		(1,686,773	)		—
Stockholder’s equity			487,032		(344,331	)		2,611,348		(2,267,017	)		487,032
Total liabilities and stockholders’ equity		$	1,019,120	$	261,937		$	4,522,878	$	(4,469,234	)	$	1,334,701

78

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

	Year Ended December 31, 2004
				Combined			Combined
	The			Guarantor			Non-guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Total
Income Statement Data
Net sales	$	—		$	217,458		$	1,684,273		$	(554,393	)	$	1,347,338
Cost of products sold		—			160,036			1,411,248			(554,393	)		1,016,891
		—			57,422			273,025			—			330,447
Selling, general and administrative expenses		—			74,665			54,410			—			129,075
Income (loss) from operations		—			(17,243	)		218,615			—			201,372
Interest expense		(37,835	)		(6,021	)		(56,130	)		60,148			(39,838	)
Foreign exchange gain (loss)		(375	)		49			(4,984	)		—			(5,310	)
Investment and other income, net		7,271			690			58,223			(60,148	)		6,036
Income (loss) from continuing operations before income taxes and minority interest		(30,939	)		(22,525	)		215,724			—			162,260
Income tax expense		—			—			(35,068	)		—			(35,068	)
Minority interest share of (income) loss		—			—			(1,442	)		—			(1,442	)
Income (loss) from continuing operations		(30,939	)		(22,525	)		179,214			—			125,750
Income from discontinued operations, net of tax		1,019			1,875			—			—			2,894
Net income (loss)	$	(29,920	)	$	(20,650	)	$	179,214		$	—		$	128,644

79

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

		Year Ended December 31, 2004
					Combined			Combined
		The			Guarantor			Non-guarantor
		Company			Subsidiaries			Subsidiaries			Eliminations		Total
Cash Flow Data
Net cash provided by (used for) operating activities		$	29,977		$	(302	)	$	(10,064	)	$	—	$	19,611
Investing activities:
	Expenditures for property plant and equipment — net		—			(3,054	)		(15,363	)		—		(18,417	)
	Acquisition of businesses		(6,715	)		—			—			—		(6,715	)
Net cash used for investing activities			(6,715	)		(3,054	)		(15,363	)		—		(25,132	)
Financing activities:
	Long-term borrowings		—			—			23,000			—		23,000
	Payments of long-term debt and revolving line of credit		—			—			(22,919	)		—		(22,919	)
Net cash provided by financing activities			—			—			81			—		81
Effect of exchange rate changes on cash			—			—			1,068			—		1,068
Cash and cash equivalents
Increase (decrease) from continuing operations			23,262			(3,356	)		(24,278	)		—		(4,372	)
Discontinued operations — net of cash used for operating activities			(23,568	)		—			—			—		(23,568	)
Balance at the beginning of the year			8,839			4,553			41,327			—		54,719
Balance at the end of the year		$	8,533		$	1,197		$	17,049		$	—	$	26,779

80

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

	Year Ended December 31, 2003
				Combined			Combined
	The			Guarantor			Non-guarantor
	Company			Subsidiaries			Subsidiaries			Eliminations			Total
Income Statement Data
Net sales	$	—		$	166,462		$	1,008,933		$	(263,250	)	$	912,145
Cost of products sold		—			128,806			866,592			(263,250	)		732,148
		—			37,656			142,341			—			179,997
Selling, general and administrative expenses		—			159,338			37,685			—			197,023
Income (loss) from operations		—			(121,682	)		104,656			—			(17,026	)
Interest expense		(69,116	)		(12,031	)		(31,214	)		71,309			(41,052	)
Foreign exchange gain (loss)		(4,236	)		194			7,065			—			3,023
Investment and other income, net		14,202			6,268			63,231			(71,309	)		12,392
Income (loss) from continuing operations before income taxes and minority interest		(59,150	)		(127,251	)		143,738			—			(42,663	)
Income tax expense		—			—			(14,534	)		—			(14,534	)
Minority interest share of (income) loss		—			—			914			—			914
Income (loss) from continuing operations		(59,150	)		(127,251	)		130,118			—			(56,283	)
Income (loss) from discontinued operations, net of tax		120,042			(47,155	)		67,060			—			139,947
Net income (loss)	$	60,892		$	(174,406	)	$	197,178		$	—		$	83,664

81

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

		Year Ended December 31, 2003
					Combined			Combined
		The			Guarantor			Non-guarantor
		Company			Subsidiaries			Subsidiaries			Eliminations		Total
Cash Flow Data
Net cash provided by (used for) operating activities		$	(57,964	)	$	7,919		$	36,656		$	—	$	(13,389	)
Investing activities:
	Expenditures for property plant and equipment — net		—			(5,074	)		(5,836	)		—		(10,910	)
	Acquisition of businesses		(11,151	)		—			—			—		(11,151	)
	Proceeds from sale of businesses — net of cash sold		871,281			—			—			—		871,281
Net cash provided by (used for) investing activities			860,130			(5,074	)		(5,836	)		—		849,220
Financing activities:
	Long-term borrowings		—			—			22,919			—		22,919
	Payments of long-term debt and revolving line of credit		(794,400	)		—			—			—		(794,400	)
	Proceeds from exercise of stock options		406			—			—			—		406
Net cash provided by (used for) financing activities			(793,994	)		—			22,919			—		(771,075	)
Effect of exchange rate changes on cash			—			—			6,238			—		6,238
Cash and cash equivalents
Increase from continuing operations			8,172			2,845			59,977			—		70,994
Discontinued operations — net cash used for operating activities			—			—			(10,012	)		—		(10,012	)
Discontinued operations — net cash used for investing activities			—			—			(18,733	)		—		(18,733	)
Balance at the beginning of the year			667			1,708			10,095			—		12,470
Balance at the end of the year		$	8,839		$	4,553		$	41,327		$	—	$	54,719

82

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

Note 22 — Quarterly Results of Operations (Unaudited)

		2005
		First		Second		Third		Fourth
		Quarter		Quarter		Quarter		Quarter		Full Year
Net sales		$	351,932	$	314,709	$	306,586	$	276,382	$	1,249,609
Gross profit		$	55,851	$	40,573	$	32,144	$	28,953	$	157,521
Income from continuing operations before cumulative effect of change in accounting principle		$	11,780	$	10,474	$	3,228	$	1,798	$	27,280
Income from discontinued operations			784		841		139		7,595		9,359
Cumulative effect of a change in accounting principle			—		—		—		2,252		2,252
Net income		$	12,564	$	11,315	$	3,367	$	11,645	$	38,891
Net income per common share — basic
	Continuing operations	$	0.41	$	0.37	$	0.11	$	0.06	$	0.95
	Discontinued operations		0.03		0.03		0.01		0.26		0.33
	Cumulative effect of a change in accounting principle		—		—		—		0.08		0.08
Net income		$	0.44	$	0.40	$	0.12	$	0.40	$	1.36
Net income per common share — assuming dilution
	Continuing operations	$	0.41	$	0.37	$	0.11	$	0.06	$	0.95
	Discontinued operations		0.03		0.03		0.01		0.26		0.32
	Cumulative effect of a change in accounting principle		—		—		—		0.08		0.08
Net income		$	0.44	$	0.40	$	0.12	$	0.40	$	1.35

In the first quarter of 2005, the Company recorded a charge of $8.7 million related to the former CEO’s separation agreement.

The second quarter of 2005 includes $8.5 million of income from insurance proceeds after reimbursement of legal expenses of $4.9 million related to the shareholder litigation settlement partially offset by a $2.3 million lower of cost or market charge.

The third quarter of 2005 includes $2.5 million of income related to the collection of the Weda Bay note receivable that had been fully reserved in 2002 and $1.8 million of income related to the mark-to-market of 380,000 shares issued in connection with the shareholder derivative litigation (see Note 17) partially offset by a $3.8 million lower of cost or market charge.

The decrease in sales in the fourth quarter of 2005 was primarily due to lower cobalt metal prices and lower nickel sales volumes resulting from raw material shortages in 2005 and lower nickel prices. The fourth quarter of 2005 also includes $19.0 million of income from insurance proceeds related to the shareholder litigation settlement and $2.8 million of income related to the mark-to-market of 380,000 shares issued in connection with the shareholder derivative litigation settlement (see Note 17). Income from discontinued operations in the fourth quarter of 2005 includes $5.5 million from reversal of a tax contingency accrual that was originally established in July 2003 upon the sale of PMG (See Note 5). In addition, the Company adopted FIN No. 47 in the fourth quarter of 2005, which resulted in a cumulative effect of a change in accounting principle of $2.3 million (see Note 2).

83

Notes to Consolidated Financial Statements

OM Group, Inc. and Subsidiaries — Continued

In the fourth quarter of 2005, the effective income tax rate for the full year 2005 was adjusted to 34.8% from 26.2%. This adjustment relates primarily to a lower proportion of earnings in jurisdictions having lower statutory rates and increased losses with no corresponding tax benefits compared with forecasts on which the previous estimated effective income tax rate was based resulting in an increase to income tax expense of approximately $2.6 million.

		2004
		First		Second		Third		Fourth
		Quarter		Quarter		Quarter		Quarter		Full Year
Net sales		$	366,630	$	313,738	$	311,902	$	355,068	$	1,347,338
Gross profit		$	112,668	$	69,980	$	77,296	$	70,503	$	330,447
Income from continuing operations		$	48,275	$	17,658	$	29,790	$	30,027	$	125,750
Income from discontinued operations			—		—		—		2,894		2,894
Net income		$	48,275	$	17,658	$	29,790	$	32,921	$	128,644
Net income per common share — basic
	Continuing operations	$	1.70	$	0.62	$	1.05	$	1.05	$	4.42
	Discontinued operations		—		—		—		0.11		0.10
Net income		$	1.70	$	0.62	$	1.05	$	1.16	$	4.52
Net income per common share — assuming dilution
	Continuing operations	$	1.69	$	0.62	$	1.04	$	1.05	$	4.39
	Discontinued operations		—		—		—		0.10		0.10
Net income		$	1.69	$	0.62	$	1.04	$	1.15	$	4.49

In the first quarter of 2004, the Company recorded a charge of $7.5 million related to the shareholder lawsuits (see Note 17).

In the fourth quarter of 2004, the effective income tax rate for the full year 2004 was adjusted to 21.9% from 26.8%. This adjustment relates to discrete items in the fourth quarter and reduced income tax expense by approximately $7.6 million.

Note 23 — Related Party Transactions

During the fourth quarter of 2005, the Company’s Chief Financial Officer (“CFO”) ceased to be employed by the Company. The Company contracted with a consultant to act as interim CFO until a permanent CFO is named. During 2005, the Company paid $0.1 million to this Consultant’s firm prior to the CFO transition.

84

Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There are no such changes or disagreements.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Management of the Company, under the supervision and with the participation of the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of December 31, 2005. As defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”), disclosure controls and procedures are controls and procedures designed to provide reasonable assurance that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported on a timely basis, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. The Company’s disclosure controls and procedures include components of the Company’s internal control over financial reporting.

Based upon, and as of the date of, this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective solely because of the material weaknesses relating to the Company’s internal control over financial reporting as described in “Management’s Report on Internal Control Over Financial Reporting” outlined below. In light of these material weaknesses, the Company performed additional analysis and post-closing procedures as deemed necessary to ensure that the consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the consolidated financial statements included in this report present fairly in all material respects the Company’s financial position, results of operations and cash flows for the period presented.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision of the our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005 based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control-Integrated Framework”. Based on that evaluation, management has concluded that the Company did not maintain effective control over financial reporting solely as a result of the following material weaknesses:

•  Inadequate controls over the review of financial results of a foreign subsidiary which accounted for approximately 1% of the Company’s consolidated assets and revenues as of and for the year ended December 31, 2005. During the 2005 year-end closing process, the Company identified irregularities in the subsidiary’s inventory valuation that went undetected in prior periods, resulting in a material adjustment to correct the inventory valuation as of December 31, 2005. Management has performed a comprehensive review of all of the significant accounts at this subsidiary as of December 31, 2005 to ensure that reported amounts are reasonable.

•  Inadequate controls over the review of Retained Liabilities of Businesses Sold which resulted in a material adjustment to reverse a tax contingency indemnification liability related to one of the Company’s former subsidiaries in Brazil. As a result of a Brazilian Federal Supreme Court ruling in November 2005, as explained further in Note 5 to the consolidated financial statements, the Company’s assessment of the likelihood of an unfavorable outcome of the tax contingency changed from probable to reasonably possible. Accordingly, the indemnification liability was reversed through discontinued operations as a result of the year-end audit process.

•  Inadequate controls over the Company’s joint venture smelter in the Democratic Republic of Congo (DRC) resulted in several control deficiencies that were individually not material weaknesses but, when

85

aggregated, constitute a material weakness in internal control over financial reporting. The control deficiencies resulted from inherent control risks of doing business as a joint venture partner in the DRC, inadequate controls over reporting payroll and related taxes to the DRC tax authorities, inadequate general oversight of the finance function, use of Excel spreadsheets in lieu of an accounting system, and timing of reconciliation of certain general ledger accounts. These individual control deficiencies resulted in adjustments to the Company’s results of operations in 2005 and, when considered in the aggregate, could result in a material misstatement to annual or interim consolidated financial statements that would not be prevented or detected.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included in Item 8 of this Annual Report.

Changes in Internal Controls

As part of the Company’s continuing activities pursuant to the provisions of Section 404 of the Sarbanes-Oxley Act, the Company has made or plans to make changes that improve its internal control environment. Changes that address the material weaknesses discussed above are summarized as follows:

•  Management replaced personnel at the foreign subsidiary, plans to conduct a series of training programs for personnel at the foreign subsidiary and plans to implement a comprehensive review process of reported financial results from its operating locations on a monthly basis.

•  Management plans to improve its process for evaluating the status of its Retained Liabilities of Businesses Sold, including establishing communication protocols and analysis of all factors impacting the evaluation of such liabilities as either probable, reasonably possible or remote.

•  Management continues to implement mitigating controls over the DRC joint venture smelter, including timely financial and operational oversight at both a Group and Corporate level, increased frequency of internal audits at the location, quarterly review of all cash disbursements made by the location and upgrading finance and management personnel at the location.

By implementing the above actions, the Company believes that the material weaknesses are in the process of being remediated.

Item 9B.     Other Information

None.

86

PART III

Item 10. Directors and Executive Officers of the Registrant

Information with respect to directors of the Company will be set forth under the heading “Election of Directors” in the Company’s proxy statement to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 in connection with the 2006 Annual Meeting of Stockholders of the Company (the “2006 Proxy Statement”) and is incorporated herein by reference. For information with respect to the executive officers of the Company, see “Executive Officers of the Registrant” in Part I of this Form 10-K.

Information with respect to the audit committee financial experts will be set forth in the 2006 Proxy Statement under the heading “Election of Directors — Committees and Meetings of the Board of Directors” and is incorporated herein by reference.

Information with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934 will be set forth in the 2006 Proxy Statement under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference.

Code of Conduct and Ethics, Governance Principles and Committee Charters

The Company has adopted a Code of Conduct and Ethics policy that applies to all of its employees, including the chief executive officer, the chief financial officer and the controller. The Code of Conduct and Ethics, the Company’s Corporate Governance Principles and all committee charters are posted on the Corporate Governance portion of the Company’s website (www.omgi.com). A copy of any of these documents is available in print free of charge to any stockholder who requests a copy, by writing to OM Group, Inc., 127 Public Square, 1500 Key Tower, Cleveland, Ohio 44114-1221 USA, Attention: Greg Griffith, Vice President, Corporate Affairs and Investor Relations.

NYSE Certification

In accordance with New York Stock Exchange rules, on November 8, 2005, the Company filed the annual certification by our CEO that, as of the date of the certification, he was unaware of any violation by the Company of the corporate governance listing standards of the New York Stock Exchange.

Item 11.     Executive Compensation

Information with respect to executive and director compensation will be set forth in the 2006 Proxy Statement under the headings “Election of Directors — Compensation of Directors” and “Executive Compensation” and, except for the information set forth in the 2006 Proxy Statement under the subheadings “Report of the Compensation Committee on Executive Compensation” and “Performance Comparisons,” such information is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information with respect to security ownership of certain beneficial owners and management will be set forth in the 2006 Proxy Statement under the heading “Security Ownership of Directors, Executive Officers and Certain Beneficial Owners” and is incorporated herein by reference.

87

Equity Compensation Plan Information

The following table sets forth information concerning common stock issuable pursuant to the Company’s equity compensation plans as of December 31, 2005.

	Number of Securities				Number of Securities
	to be Issued Upon		Weighted-average		Remaining Available for
	Exercise of		Exercise Price of		Future Issuance Under
	Outstanding Options		Outstanding Options		Equity Compensation Plans
Equity Compensation Plans Approved by the Stockholders		1,252,817	$	30.71		(a	)
Equity Compensation Plans Not Approved by the Stockholders		—		—		—

(a)  The Company maintains two equity compensation plans approved by stockholders. The 2002 Stock Incentive Plan permits the issuance of up to 1,400,000 shares of the Company’s common stock, of which 1,200,000 shares were available at December 31, 2005 for awards under the plan. The 1998 Long-Term Incentive Compensation Plan provides that awards may be granted annually in the amount of 1.5% of the Company’s common stock outstanding on the prior December 31, plus unused shares and shares relating to terminated awards from prior years, subject to an overall annual maximum of 2% of outstanding common stock. At December 31, 2005, there were 29,307,284 outstanding shares of common stock of the Company.

Item 13. Certain Relationships and Related Transactions

Information with respect to certain relationships and related transactions will be set forth in the 2006 Proxy Statement under the heading “Certain Relationships and Related Transactions” and is incorporated herein by reference.

Item 14. Principal Accountant Fees and Services

Information with respect to principal accounting fees and services will be set forth in the 2006 Proxy Statement under the heading “Description of Principal Accountant Fees and Services” and is incorporated herein by reference.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(1) The following Consolidated Financial Statements of OM Group, Inc. are included in Part II, Item 8:

Consolidated Balance Sheets at December 31, 2005 and 2004

Statements of Consolidated Income for the years ended December 31, 2005, 2004 and 2003

Statements of Consolidated Comprehensive Income for the years ended December 31, 2005, 2004 and 2003

Statements of Consolidated Cash Flows for the years ended December 31, 2005, 2004 and 2003

Statements of Consolidated Stockholders’ Equity for the years ended December 31, 2005, 2004 and 2003

Notes to Consolidated Financial Statements

(2) Schedule II — Valuation and Qualifying Accounts for the years ended December 31, 2005, 2004 and 2003

      All other schedules are omitted because they are not applicable or because the information required is included in the consolidated financial statements or the notes thereto.

(3) Exhibits

The following exhibits are included in this Annual Report on Form 10-K:

      (3) Articles of Incorporation and By-laws

3.1	Amended and Restated Certificate of Incorporation of the Company.	‡
3.2	Amended and Restated Bylaws of the Company.	‡

      (4) Instruments defining rights of security holders including indentures.

4.1	Form of Common Stock Certificate of the Company.	‡
4.2	Stockholder Rights Agreement dated as of November 5, 1996 between OM Group, Inc. and National City Bank (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-4 (No. 333-84128) filed on March 11, 2002).
4.3	Indenture, dated as of December 12, 2001, among OM Group, Inc., the Guarantors (as defined therein) and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-1/A (No. 333-74566) filed on January 14, 2002).
4.4	Purchase Agreement, dated as of December 7, 2001, among OM Group, Inc., the Guarantors (as defined therein) and Credit Suisse First Boston Corporation, as the representatives of the Several Purchasers (as defined therein) (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-1/A (No. 333-74566) filed on January 14, 2002).
4.5	Registration Rights Agreement, dated as of December 12, 2001, among OM Group, Inc., the Guarantors (as defined therein) and Credit Suisse First Boston Corporation, as the representatives of the Several Purchasers (as defined therein) (incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-1/A (No. 333-74566) filed on January 14, 2002).
4.6	Revolving Credit Agreement, dated as of December 20, 2005, among OM Group, Inc. as the borrower, the lending institutions named therein as lenders; National City Bank, as a Lender, the Swing Line Lender, the Letter of Credit Issuer, the Administrative Agent, the Collateral Agent, the Lead Arranger, and the Book Running Manager.

89

      (10) Material Contracts

10.1	Technology Agreement among Outokumpu Oy, Outokumpu Engineering Contractors Oy, Outokumpu Research Oy, Outokumpu Harjavalta Metals Oy and Kokkola Chemicals Oy dated March 24, 1993.	‡
*10.2	OM Group, Inc. 1992 Long-Term Incentive Compensation Plan.	‡
*10.3	Amendment to OM Group, Inc. Long-Term Incentive Compensation Plan (filed as Exhibit 99(b) to the Company’s Registration Statement on Form S-8 filed on February 1, 1994, and incorporated herein by reference).
*10.4	Amendment to OM Group, Inc. Long-Term Incentive Compensation Plan (filed as Exhibit 99 to the OM Group, Inc. Form S-8 Registration Statement filed on July 3,1996, and incorporated herein by reference).
*10.5	Mooney Chemicals, Inc. Welfare Benefit Plan.	‡
*10.6	Mooney Chemicals, Inc. Profit Sharing Plan.	‡
*10.7	Amendment to Mooney Chemicals, Inc. Profit Sharing Plan.	‡
*10.8	OMG/Mooney Chemicals, Inc. Employee Profit Sharing Plan, as amended (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-4 (No. 333-84128) filed on March 11, 2002).
*10.9	OM Group, Inc. Benefit Restoration Plan, effective January 1, 1995 (incorporated by reference to Exhibit 10.9 to the Company’s Registration Statement on Form S-4 (No. 333-84128) filed on March 11, 2002).
*10.10	Trust under OM Group, Inc. Benefit Restoration Plan, effective January 1, 1995 (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-4 (No. 333-84128) filed on March 11, 2002).
*10.11	Amendment to OMG Americas, Inc. Profit-Sharing Plan (filed as Exhibit 99 to the OM Group, Inc. Form S-8 Registration Statement filed on July 3, 1996, and incorporated herein by reference).
10.12	OM Group, Inc. Non-employee Director’s Equity Compensation Plan (incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-4 (No. 333-84128) filed on March 11, 2002).
*10.13	OM Group, Inc. Bonus Program for Key Executives and Middle Management.	‡
*10.14	Employment Agreement between Mooney Acquisition Corporation and James P. Mooney dated September 30, 1991.	‡
*10.15	Amendment to Employment Agreement between OM Group, Inc. and James P. Mooney dated August 19, 1992.	‡
*10.16	Employment Agreement between OM Group, Inc. and Michael J. Scott (incorporated by reference to Exhibit 10.17 to the Company’s Registration Statement on Form S-4 (No. 333-84128) filed on March 11, 2002).
+10.17	Joint Venture Agreement among OMG B.V., Groupe George Forrest S.A., La Generale Des Carrieres Et Des Mines and OM Group, Inc. to partially or totally process the slag located in the site of Lubumbashi, Democratic Republic of Congo (incorporated by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K filed on March 31, 2005).
++10.18	Agreement for Sale of concentrate production between Kokkola Chemicals Oy and La Generale Des Carriers Et Des Mines dated April 21, 1997, including amendments dated August 27, 2003 (incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K filed on March 31, 2005).
+10.19	Long term Slag Sales Agreement between La Generale Des Carriers Et Des Mines and J.V. Groupement Pour Le Traitement Du Terril De Lubumbashi (filed as an Annex to Exhibit 10.17).

90

+10.20	Long Term Cobalt Alloy Sales Agreement between J.V. Groupement Pour Le Traitement Du Terril De Lubumbashi and OMG Kokkola Chemicals Oy (filed as an Annex to Exhibit 10.17).
+10.21	Tolling Agreement between Groupement Pour Le Traitement Du Terril De Lubumbashi and Societe De Traitement Due Terril De Lubumbashi (filed as an Annex to Exhibit 10.17).
*10.22	OM Group, Inc. 1998 Long-Term Incentive Compensation Plan, Including form of stock option agreement (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K filed on March 31, 2005).
10.23	Lease agreement between Outokumpu Harjavalta Metals Oy and Outokumpu Nickel Oy (filed as Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and incorporated herein by reference).
10.24	Purchase Agreement (as amended and restated) as of August 10, 2001 by and between dmc2 Degussa Metals Catalysts Cerdec AG, Degussa AG and OM Group, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on August 24, 2001).
10.25	Heads of Agreement as of April 23, 2001 between OM Group, Inc. and Ferro Corporation (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed on August 24, 2001).
10.26	OMG-Ferro Purchase Agreement dated as of August 31, 2001 by and between OM Group, Inc. and Ferro Corporation (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on September 21, 2001).
*10.27	Employment Agreement between OM Group, Inc. and Thomas R. Miklich dated May 1, 2002 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 and incorporated herein by reference).
*10.28	OM Group, Inc. 2002 Stock Incentive Plan (incorporated by reference to Appendix A to the Company’s Proxy Statement filed April 5, 2002).
*10.29	Amendment to Employment Agreement between OM Group, Inc. and James P. Mooney dated December 20, 2002 (incorporated by reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K filed on March 25, 2003).
*10.30	Amendment to Employment Agreement between OM Group, Inc. and Thomas R. Miklich dated December 1, 2002 (incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K filed on March 25, 2003).
*10.31	Separation Agreement by and between OM Group, Inc. and Thomas R. Miklich dated October 17, 2003 (incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K filed on March 31, 2005).
*10.32	Employment Agreement by and between OM Group, Inc. and R. Louis Schneeberger dated February 16, 2004 (incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K filed on March 31, 2005).
*10.33	Employment Agreement by and between OM Group, Inc. and Frank E Butler dated February 9, 2005 (incorporated by reference to Exhibit 1 to the Company’s Current Report on Form 8-K filed on February 5, 2005).
*10.34	Supplemental Retirement Plan for James P. Mooney (incorporated by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K filed on March 31, 2005).
10.35	Form of Stock Option Agreement between OM Group, Inc. and Joseph M. Scaminace (incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K filed on August 22, 2005).

91

10.36	Form of Restricted Stock Agreement between OM Group, Inc. and Joseph M. Scaminace (incorporated by reference to Exhibit 10.38 to the Company’s Annual Report on Form 10-K filed on August 22, 2005).
*10.37	Employment Agreement by and between OM Group, Inc. and Joseph M. Scaminace dated May 26, 2005 (incorporated by reference to Exhibit 99 to the Company’s Current Report on Form 8-K filed on June 2, 2005).
*10.38	Form of Change in Control Agreement (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on June 14, 2005).
10.39	Change in Control Agreement by and between OM Group, Inc. and Joseph M. Scaminace dated June 13, 2005 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on June 17, 2005).
10.40	Form of Indemnification Agreement between OM Group, Inc. and its directors and certain officers (incorporated by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K filed on August 22, 2005.
*10.41	Employment Agreement by and between OM Group, Inc. and Valerie Gentile Sachs dated September 8, 2005 (incorporated by reference to Exhibit 10.43 to the Company’s Quarterly Report on Form 10-Q filed on November 8, 2005).
*10.42	Severance Agreement by and between OM Group, Inc. and Valerie Gentile Sachs dated November 7, 2005 (incorporated by reference to Exhibit 10.44 to the Company’s Quarterly Report on Form 10-Q filed on November 8, 2005).
10.43	Form of Non-Incentive Stock Option Agreement under the 1998 Long-Term Incentive Compensation Plan (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on December 21, 2005).
10.44	Form of Non-Incentive Stock Option Agreement under the 2002 Stock-Incentive Plan (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on December 21, 2005).
10.45	Form of Restricted Stock Agreement under the 1998 Long-Term Incentive Compensation Plan and the 2002 Stock Incentive Plan (incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on December 21, 2005).
10.46	Consulting Agreement by and between OM Group, Inc. and Partners in Success dated November 14, 2005.
*10.47	Employment Agreement by and between OM Group, Inc. and Daniel K. Lewis dated January 30, 2006.
12	Computation of Ratio of Earnings to Fixed Charges
18	Letter from Ernst & Young LLP regarding change in accounting principle
21	List of Subsidiaries
23	Consent of Ernst & Young LLP
24	Powers of Attorney
31.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
31.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
32	Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. 1350

92

*    Indicates a management contract, executive compensation plan or arrangement.

+    Portions of Exhibit have been omitted and filed separately with the Securities and Exchange Commission in reliance on Rule 24b-2 and an Order from the Commission granting the Company’s request for confidential treatment dated June 26, 1998.

++  Portions of Exhibit have been omitted and filed separately with the Securities and Exchange Commission in reliance upon the Company’s request for confidential treatment pursuant to Rule 24b-2.

‡   These documents were filed as exhibits to the Company’s Form S-1 Registration Statement (Registration No. 33-60444) which became effective on October 12, 1993, and are incorporated herein by reference.

93

OM Group, Inc.

Schedule II — Valuation and Qualifying Accounts

Years Ended December 31, 2005, 2004 and 2003

(Dollars in Millions)

	Balance		Charged
	at		to Costs			Charged						Balance at
	Beginning		and			to Other						End of
Classifications	of Year		Expenses			Accounts			Deductions			Year
2005:
Allowance for doubtful accounts	$	2.0	$	0.6	(1)	$	(0.2	)(9)	$	(1.0	)(6)	$	1.4
Income tax valuation allowance		134.6		—			—			(43.5	)(2)		91.1
Environmental reserve(8)		9.5		2.4	(3)		—			(3.1	)(7)		8.8
Shareholder litigation accrual		92.0		—			—			(92.0	)(10)		—
	$	238.1	$	3.0		$	(0.2	)	$	(139.6	)	$	101.3
2004:
Allowance for doubtful accounts	$	2.0	$	1.4	(1)	$	—		$	(1.4	)(6)	$	2.0
Income tax valuation allowance		154.1		—			—			(19.5	)(2)		134.6
Environmental reserve(8)		14.2		0.8	(3)		—			(5.5	)(7)		9.5
Shareholder litigation accrual		84.5		7.5	(4)		—			—			92.0
	$	254.8	$	9.7		$	—		$	(26.4	)	$	238.1
2003:
Allowance for doubtful accounts	$	2.4	$	1.2	(1)	$	—		$	(1.6	)(6)	$	2.0
Income tax valuation allowance		91.2		39.8	(2)		23.1	(5)		—			154.1
Environmental reserve(8)		12.5		3.7	(3)		—			(2.0	)(7)		14.2
Shareholder litigation accrual		—		84.5	(4)		—			—			84.5
	$	106.1	$	129.2		$	23.1		$	(3.6	)	$	254.8

(1)	Provision for uncollectible accounts included in selling, general and administrative expenses.
(2)	Increase (decrease) in valuation allowance is recorded as a component of the provision for income taxes.
(3)	Provision for environmental costs included in selling, general and administrative expenses.
(4)	Provision for shareholder class action and shareholder derivative lawsuits. See Note 17 to the Consolidated Financial Statements included in Item 8 of this Annual Report.
(5)	Valuation allowance for deferred tax assets previously classified in discontinued operations. Related deferred tax asset was also reclassified to continuing operations.
(6)	Actual accounts written-off against the allowance — net of recoveries.
(7)	Actual cash expenditures charged against the accrual.
(8)	Includes reserves related to the Company’s continuing and discontinued operations.
(9)	Foreign currency translation adjustment.

(10)  Settlement of shareholder class action and shareholder derivative lawsuits. See Note 17 to the Consolidated Financial Statements included in Item 8 of this Annual Report.

94

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on March 9, 2006.

OM GROUP, INC.

By:  /s/ Joseph M. Scaminace

Joseph M. Scaminace

Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below on March 9, 2006 by the following persons on behalf of the registrant and in the capacities indicated.

Signature	Title
/s/ Joseph M. Scaminace Joseph M. Scaminace	Chairman and Chief Executive Officer (Principal Executive Officer)
/s/ Kenneth Haber Kenneth Haber	Chief Financial Officer (Principal Financial and Accounting Officer)
/s/ Richard W. Blackburn* Richard W. Blackburn	Director
Leo J. Daley	Director
/s/ Steven J. Demetriou* Steven J. Demetriou	Director
/s/ Katharine L. Plourde* Katharine L. Plourde	Director
/s/ William J. Reidy* William J. Reidy	Director
*By: /s/ Joseph M. Scaminace Joseph M. Scaminace Attorney-in-Fact

95

ANNUAL REPORT OF FORM 10-K

OM GROUP, INC.

For the year Ended December 31, 2005

EXHIBIT INDEX

Exhibit
Number			Description
	3	.1	Amended and Restated Certificate of Incorporation of the Company.	‡
	3	.2	Amended and Restated Bylaws of the Company.	‡
	4	.1	Form of Common Stock Certificate of the Company.	‡
	4	.2	Stockholder Rights Agreement dated as of November 5, 1996 between OM Group, Inc. and National City Bank (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-4 (No. 333-84128) filed on March 11, 2002).
	4	.3	Indenture, dated as of December 12, 2001, among OM Group, Inc., the Guarantors (as defined therein) and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-1/A (No. 333-74566) filed on January 14, 2002).
	4	.4	Purchase Agreement, dated as of December 7, 2001, among OM Group, Inc., the Guarantors (as defined therein) and Credit Suisse First Boston Corporation, as the representatives of the Several Purchasers (as defined therein) (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-1/A (No. 333-74566) filed on January 14, 2002).
	4	.5	Registration Rights Agreement, dated as of December 12, 2001, among OM Group, Inc., the Guarantors (as defined therein) and Credit Suisse First Boston Corporation, as the representatives of the Several Purchasers (as defined therein) (incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-1/A (No. 333-74566) filed on January 14, 2002).
	4	.6	Revolving Credit Agreement, dated as of December 20, 2005, among OM Group, Inc. as the borrower, the lending institutions named therein as lenders; National City Bank, as a Lender, the Swing Line Lender, the Letter of Credit Issuer, the Administrative Agent, the Collateral Agent, the Lead Arranger, and the Book Running Manager.
	10	.1	Technology Agreement among Outokumpu Oy, Outokumpu Engineering Contractors Oy, Outokumpu Research Oy, Outokumpu Harjavalta Metals Oy and Kokkola Chemicals Oy dated March 24, 1993.	‡
	*10	.2	OM Group, Inc. 1992 Long-Term Incentive Compensation Plan.	‡
	*10	.3	Amendment to OM Group, Inc. Long-Term Incentive Compensation Plan (filed as Exhibit 99(b) to the Company’s Registration Statement on Form S-8 filed on February 1, 1994, and incorporated herein by reference).
	*10	.4	Amendment to OM Group, Inc. Long-Term Incentive Compensation Plan (filed as Exhibit 99 to the OM Group, Inc. Form S-8 Registration Statement filed on July 3,1996, and incorporated herein by reference).
	*10	.5	Mooney Chemicals, Inc. Welfare Benefit Plan.	‡
	*10	.6	Mooney Chemicals, Inc. Profit Sharing Plan.	‡
	*10	.7	Amendment to Mooney Chemicals, Inc. Profit Sharing Plan.	‡
	*10	.8	OMG/Mooney Chemicals, Inc. Employee Profit Sharing Plan, as amended (incorporated by reference to Exhibit 10.8 to the Company’s Registration Statement on Form S-4 (No. 333-84128) filed on March 11, 2002).
	*10	.9	OM Group, Inc. Benefit Restoration Plan, effective January 1, 1995 (incorporated by reference to Exhibit 10.9 to the Company’s Registration Statement on Form S-4 (No. 333-84128) filed on March 11, 2002).

Exhibit
Number			Description
	*10	.10	Trust under OM Group, Inc. Benefit Restoration Plan, effective January 1, 1995 (incorporated by reference to Exhibit 10.10 to the Company’s Registration Statement on Form S-4 (No. 333-84128) filed on March 11, 2002).
	*10	.11	Amendment to OMG Americas, Inc. Profit-Sharing Plan (filed as Exhibit 99 to the OM Group, Inc. Form S-8 Registration Statement filed on July 3, 1996, and incorporated herein by reference).
	10	.12	OM Group, Inc. Non-employee Director’s Equity Compensation Plan (incorporated by reference to Exhibit 10.12 to the Company’s Registration Statement on Form S-4 (No. 333-84128) filed on March 11, 2002).
	*10	.13	OM Group, Inc. Bonus Program for Key Executives and Middle Management.	‡
	*10	.14	Employment Agreement between Mooney Acquisition Corporation and James P. Mooney dated September 30, 1991.	‡
	*10	.15	Amendment to Employment Agreement between OM Group, Inc. and James P. Mooney dated August 19, 1992.	‡
	*10	.16	Employment Agreement between OM Group, Inc. and Michael J. Scott (incorporated by reference to Exhibit 10.17 to the Company’s Registration Statement on Form S-4 (No. 333-84128) filed on March 11, 2002).
	+10	.17	Joint Venture Agreement among OMG B.V., Groupe George Forrest S.A., La Generale Des Carrieres Et Des Mines and OM Group, Inc. to partially or totally process the slag located in the site of Lubumbashi, Democratic Republic of Congo (incorporated by reference to Exhibit 10.17 to the Company’s Annual Report on Form 10-K filed on March 31, 2005).
	++10	.18	Agreement for Sale of concentrate production between Kokkola Chemicals Oy and La Generale Des Carriers Et Des Mines dated April 21, 1997, including amendments dated August 27, 2003 (incorporated by reference to Exhibit 10.18 to the Company’s Annual Report on Form 10-K filed on March 31, 2005).
	+10	.19	Long term Slag Sales Agreement between La Generale Des Carriers Et Des Mines and J.V. Groupement Pour Le Traitement Du Terril De Lubumbashi (filed as an Annex to Exhibit 10.17).
	+10	.20	Long Term Cobalt Alloy Sales Agreement between J.V. Groupement Pour Le Traitement Du Terril De Lubumbashi and OMG Kokkola Chemicals Oy (filed as an Annex to Exhibit 10.17).
	+10	.21	Tolling Agreement between Groupement Pour Le Traitement Du Terril De Lubumbashi and Societe De Traitement Due Terril De Lubumbashi (filed as an Annex to Exhibit 10.17).
	*10	.22	OM Group, Inc. 1998 Long-Term Incentive Compensation Plan, Including form of stock option agreement (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K filed on March 31, 2005).
	10	.23	Lease agreement between Outokumpu Harjavalta Metals Oy and Outokumpu Nickel Oy (filed as Exhibit 10.27 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and incorporated herein by reference).
	10	.24	Purchase Agreement (as amended and restated) as of August 10, 2001 by and between dmc2 Degussa Metals Catalysts Cerdec AG, Degussa AG and OM Group, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on August 24, 2001).
	10	.25	Heads of Agreement as of April 23, 2001 between OM Group, Inc. and Ferro Corporation (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed on August 24, 2001).
	10	.26	OMG-Ferro Purchase Agreement dated as of August 31, 2001 by and between OM Group, Inc. and Ferro Corporation (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on September 21, 2001).

Exhibit
Number			Description
	*10	.27	Employment Agreement between OM Group, Inc. and Thomas R. Miklich dated May 1, 2002 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 and incorporated herein by reference).
	*10	.28	OM Group, Inc. 2002 Stock Incentive Plan (incorporated by reference to Appendix A to the Company’s Proxy Statement filed April 5, 2002).
	*10	.29	Amendment to Employment Agreement between OM Group, Inc. and James P. Mooney dated December 20, 2002 (incorporated by reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K filed on March 25, 2003).
	*10	.30	Amendment to Employment Agreement between OM Group, Inc. and Thomas R. Miklich dated December 1, 2002 (incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on Form 10-K filed on March 25, 2003).
	*10	.31	Separation Agreement by and between OM Group, Inc. and Thomas R. Miklich dated October 17, 2003 (incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K filed on March 31, 2005).
	*10	.32	Employment Agreement by and between OM Group, Inc. and R. Louis Schneeberger dated February 16, 2004 (incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K filed on March 31, 2005).
	*10	.33	Employment Agreement by and between OM Group, Inc. and Frank E Butler dated February 9, 2005 (incorporated by reference to Exhibit 1 to the Company’s Current Report on Form 8-K filed on February 5, 2005).
	*10	.34	Supplemental Retirement Plan for James P. Mooney (incorporated by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K filed on March 31, 2005).
	10	.35	Form of Stock Option Agreement between OM Group, Inc. and Joseph M. Scaminace (incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K filed on August 22, 2005).
	10	.36	Form of Restricted Stock Agreement between OM Group, Inc. and Joseph M. Scaminace (incorporated by reference to Exhibit 10.38 to the Company’s Annual Report on Form 10-K filed on August 22, 2005).
	*10	.37	Employment Agreement by and between OM Group, Inc. and Joseph M. Scaminace dated May 26, 2005 (incorporated by reference to Exhibit 99 to the Company’s Current Report on Form 8-K filed on June 2, 2005).
	*10	.38	Form of Change in Control Agreement (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on June 14, 2005).
	10	.39	Change in Control Agreement by and between OM Group, Inc. and Joseph M. Scaminace dated June 13, 2005 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on June 17, 2005).
	10	.40	Form of Indemnification Agreement between OM Group, Inc. and its directors and certain officers (incorporated by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K filed on August 22, 2005.
	*10	.41	Employment Agreement by and between OM Group, Inc. and Valerie Gentile Sachs dated September 8, 2005 (incorporated by reference to Exhibit 10.43 to the Company’s Quarterly Report on Form 10-Q filed on November 8, 2005).
	*10	.42	Severance Agreement by and between OM Group, Inc. and Valerie Gentile Sachs dated November 7, 2005 (incorporated by reference to Exhibit 10.44 to the Company’s Quarterly Report on Form 10-Q filed on November 8, 2005).

Exhibit
Number			Description
	10	.43	Form of Non-Incentive Stock Option Agreement under the 1998 Long-Term Incentive Compensation Plan (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on December 21, 2005).
	10	.44	Form of Non-Incentive Stock Option Agreement under the 2002 Stock-Incentive Plan (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on December 21, 2005).
	10	.45	Form of Restricted Stock Agreement under the 1998 Long-Term Incentive Compensation Plan and the 2002 Stock Incentive Plan (incorporated by reference to Exhibit 99.3 to the Company’s Current Report on Form 8-K filed on December 21, 2005).
	10	.46	Consulting Agreement by and between OM Group, Inc. and Partners in Success dated November 14, 2005.
	*10	.47	Employment Agreement by and between OM Group, Inc. and Daniel K. Lewis dated January 30, 2006.
	12		Computation of Ratio of Earnings to Fixed Charges
	18		Letter from Ernst & Young LLP regarding change in accounting principle
	21		List of Subsidiaries
	23		Consent of Ernst & Young LLP
	24		Powers of Attorney
	31	.1	Certification of Principal Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
	31	.2	Certification of Principal Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
	32		Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. 1350

*	Indicates a management contract, executive compensation plan or arrangement.
+	Portions of Exhibit have been omitted and filed separately with the Securities and Exchange Commission in reliance on Rule 24b-2 and an Order from the Commission granting the Company’s request for confidential treatment dated June 26, 1998.
++	Portions of Exhibit have been omitted and filed separately with the Securities and Exchange Commission in reliance upon the Company’s request for confidential treatment pursuant to Rule 24b-2.
‡	These documents were filed as exhibits to the Company’s Form S-1 Registration Statement (Registration No. 33-60444) which became effective on October 12, 1993, and are incorporated herein by reference.

EX-4.6

                                                                     Exhibit 4.6

                           REVOLVING CREDIT AGREEMENT

     THIS REVOLVING CREDIT AGREEMENT, dated as of December 20, 2005, among the
following:

          (I) OM GROUP, INC., a Delaware corporation (herein, together with its
     successors and assigns, the "BORROWER");

          (II) the lending institutions signatory hereto (each a "LENDER" and
     collectively, the "LENDERS"); and

          (III) NATIONAL CITY BANK, a national banking association, as a Lender,
     the Swing Line Lender, the Letter of Credit Issuer, and as the
     administrative agent (the "ADMINISTRATIVE AGENT"), the collateral agent
     (the "COLLATERAL AGENT"), book running manager (the "BOOK RUNNING
     MANAGER"), and lead arranger (the "LEAD ARRANGER"):

     PRELIMINARY STATEMENTS:

     (1) Unless otherwise defined herein, all capitalized terms used herein and
defined in section 1 are used herein as so defined.

     (2) The Borrower has applied to the Lenders for revolving credit facilities
in an aggregate amount of $100,000,000 to refinance certain existing
indebtedness, to support working capital needs, and for general corporate
purposes.

     (3) Subject to and upon the terms and conditions set forth herein, the
Lenders are willing to make available to the Borrower the credit facility
provided for herein.

     NOW, THEREFORE, the parties hereto agree as follows:

SECTION 1. DEFINITIONS AND TERMS

     1.1. CERTAIN DEFINED TERMS. As used herein, the following terms shall have
the meanings herein specified unless the context otherwise requires.

     "ACQUISITION" shall mean and include (i) any acquisition on a going concern
basis (whether by purchase, lease or otherwise) of any facility and/or business
operated by any Person who is not a Subsidiary of the Borrower, and (ii)
acquisitions of a majority of the outstanding equity or other similar interests
in any such Person (whether by merger, stock purchase or otherwise).

     "ADDITIONAL SECURITY DOCUMENT" shall have the meaning provided in section
8.12(b).

     "ADMINISTRATIVE AGENT" shall have the meaning provided in the first
paragraph of this Agreement and shall include any successor to the
Administrative Agent appointed pursuant to section 11.9.

     "ADMINISTRATIVE QUESTIONNAIRE" means an Administrative Questionnaire in a
form supplied by the Administrative Agent.

     "AFFILIATE" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with such Person, or, in the case of any Lender which is an
investment fund, the investment advisor thereof and any investment fund having
the same investment advisor. A Person shall be deemed to control a second Person
if such first Person possesses, directly or indirectly, the power (i) to vote
20% or more of the securities having ordinary voting power for the election of
directors or managers of such second Person or (ii) to direct or cause the
direction of the management and policies of such second Person, whether



through the ownership of voting securities, by contract or otherwise.
Notwithstanding the foregoing, (x) a director, officer or employee of a Person
shall not, solely by reason of such status, be considered an Affiliate of such
Person; and (y) neither the Administrative Agent nor any Lender shall in any
event be considered an Affiliate of the Borrower or any other Credit Party or
any of their respective Subsidiaries.

     "AGREEMENT" shall mean this Revolving Credit Agreement, as the same may be
from time to time further modified, amended, restated, amended and restated
and/or supplemented.

     "ALTERNATIVE CURRENCY" shall mean and include (i) Euros, if at the time
such currency is readily and freely transferable and convertible into Dollars,
and (ii) any other lawful currency other than Dollars that is readily and freely
transferable and convertible into Dollars and is acceptable to the Lenders and
any applicable Letter of Credit Issuer.

     "ALTERNATIVE CURRENCY SUBLIMIT" shall mean $25,000,000.

     "AIRCRAFT LEASE" shall mean the lease between the Borrower and G.E. Capital
dated as of September 28, 2000 with respect to the Borrower's corporate
aircraft.

     "ANTI-TERRORISM LAW" means the USA Patriot Act or any other law pertaining
to the prevention of future acts of terrorism, in each case as such law may be
amended from time to time.

     "APPLICABLE COMMITMENT FEE" shall mean a rate per annum set forth in the
Pricing Grid in section 2.7(g).

     "APPLICABLE EUROCURRENCY MARGIN" shall have the meaning provided in section
2.7(g).

     "APPLICABLE LENDING OFFICE" shall mean, with respect to each Lender, (i)
such Lender's Domestic Lending Office in the case of Borrowings consisting of
Prime Rate Loans and (ii) such Lender's Eurocurrency Lending Office in the case
of Borrowings consisting of Eurocurrency Loans, and (iii) in the case of
Borrowings from the Swing Line Lender which consist of Money Market Rate Loans,
the Domestic Lending Office of the Swing Line Lender.

     "APPLICABLE PRIME RATE MARGIN" shall have the meaning provided in section
2.7(g).

     "ASSET SALE" shall mean, with respect to any Person, any sale, lease,
transfer or other disposition by such Person (including a consolidation or
merger or other sale of any Subsidiary of such Person with, into or to any other
Person in a transaction in which such Subsidiary ceases to be a Subsidiary) of
(i) all or substantially all of the assets of any division or line of business
of such Person or any of its Subsidiaries, (ii) any manufacturing or processing
plant or facility of such Person or any of its Subsidiaries, (iii) shares of
capital stock or other equity interests (or any options, warrants or rights to
acquire any such shares or other equity interests) of a Subsidiary, with the
result that the Borrower's fully diluted direct and indirect percentage
ownership interest in such Subsidiary is reduced, including any such transaction
resulting in such Subsidiary ceasing to be a Subsidiary, or effected by means of
a liquidation of a corporation, partnership or limited liability company which
is not a Wholly-Owned Subsidiary, or (iv) other non-cash assets or rights of
such Person or any Subsidiary outside the ordinary course of business, PROVIDED
that the term Asset Sale specifically excludes (x) any sales, transfers or other
dispositions of inventory, or obsolete or excess furniture, fixtures, equipment
or other property, real or personal, tangible or intangible, in each case in the
ordinary course of business, (y) any Event of Loss, and (z) any sale of
marketable securities in the ordinary course of business. The term Asset Sale
specifically includes any Sale and Lease-Back Transaction.

     "ASSIGNMENT AND ASSUMPTION" means an assignment and assumption entered into
by a Lender and an Eligible Assignee (with the consent of any party whose
consent is required by section 12.4), and accepted by the Administrative Agent,
in substantially the form of Exhibit C or any other form approved by the
Administrative Agent.

     "AUTHORIZED OFFICER" shall mean any officer or employee of the Borrower
designated as such in writing to the Administrative Agent by the Borrower.


                                       2



     "BANKRUPTCY CODE" shall have the meaning provided in section 10.1(h).

     "BASKET INVESTMENTS AND GUARANTEES" has the meaning provided in section
9.5(n).

     "BORROWER" shall have the meaning provided in the first paragraph of this
Agreement.

     "BORROWING" shall mean a Revolving Borrowing or a Swing Line Borrowing, as
the case may be.

     "BUSINESS DAY" shall mean (i) for all purposes other than as covered by
clause (ii) below, any day excluding Saturday, Sunday and any day which shall be
in the city in which the applicable Payment Office is located a legal holiday or
a day on which banking institutions are authorized by law or other governmental
actions to close and (ii) with respect to all notices and determinations in
connection with, and payments of principal and interest on, Eurocurrency Loans,
any day which is a Business Day described in clause (i) and which is also a day
on which dealings are carried on in the London interbank market and banks are
open for business in London and in the country of issue of any Alternative
Currency in which any applicable Eurocurrency Loans are denominated.

     "CAPITAL LEASE" as applied to any Person shall mean any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.

     "CAPITALIZED LEASE OBLIGATIONS" shall mean all obligations under Capital
Leases of the Borrower or any of its Subsidiaries in each case taken at the
amount thereof accounted for as liabilities identified as "capital lease
obligations" (or any similar words) on a consolidated balance sheet of the
Borrower and its Subsidiaries prepared in accordance with GAAP.

     "CASH EQUIVALENTS" shall mean any of the following:

          (i) securities issued or directly and fully guaranteed or insured by
     the United States of America or any agency or instrumentality thereof
     (PROVIDED that the full faith and credit of the United States of America is
     pledged in support thereof) having maturities of not more than one year
     from the date of acquisition;

          (ii) U.S. dollar denominated time deposits, certificates of deposit
     and bankers' acceptances of (x) any Lender or (y) any bank whose short-term
     commercial paper rating from S&P is at least A-1 or the equivalent thereof
     or from Moody's is at least P-1 or the equivalent thereof (any such bank,
     an "APPROVED BANK"), in each case with maturities of not more than three
     months from the date of acquisition;

          (iii) commercial paper issued by any Lender or Approved Bank or by the
     parent company of any Lender or Approved Bank and commercial paper issued
     by, or guaranteed by, any industrial or financial company with a short-
     term commercial paper rating of at least A-1 or the equivalent thereof by
     S&P or at least P-1 or the equivalent thereof by Moody's, or guaranteed by
     any industrial company with a long term unsecured debt rating of at least A
     or A2, or the equivalent of each thereof, from S&P or Moody's, as the case
     may be, and in each case maturing within 90 days after the date of
     acquisition;

          (iv) fully collateralized repurchase agreements entered into with any
     Lender or Approved Bank having a term of not more than 30 days and covering
     securities described in clause (i) above;

          (v) investments in money market funds substantially all the assets of
     which are comprised of securities of the types described in clauses (i)
     through (iv) above;

          (vi) investments in money market funds access to which is provided as
     part of "sweep" accounts maintained with a Lender or an Approved Bank;

          (vii) investments in industrial development revenue bonds which (A)
     "re-set" interest rates not less frequently than quarterly, (B) are
     entitled to the benefit of a remarketing arrangement with an


                                       3



     established broker dealer, and (C) are supported by a direct pay letter of
     credit covering principal and accrued interest which is issued by an
     Approved Bank;

          (viii) investments in pooled funds or investment accounts consisting
     of investments of the nature described in the foregoing clause (vii); and

          (ix) in the case of any Foreign Subsidiary only, short term deposits,
     certificates of deposit, repurchase agreements and similar financial
     instruments, in any currency, with or issued by any local or international
     financial institution with undivided capital and surplus of at least
     $350,000,000 (or the equivalent in any applicable currency).

     "CASH FLOW COVERAGE RATIO" shall mean, for any Testing Period, the ratio of

          (x) Consolidated EBITDA for such Testing Period,

     TO

          (y) the sum of (A) Consolidated Interest Expense and (B) Consolidated
     Capital Expenditures (other than any capital expenditures which are funded
     with the proceeds of Indebtedness permitted hereunder (other than Revolving
     Loans)), for such Testing Period.

     "CASH PROCEEDS" shall mean, with respect to (i) any Asset Sale, the
aggregate cash payments (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, but only as and
when so received) received by the Borrower and/or any Subsidiary from such Asset
Sale, and (ii) any Event of Loss, the aggregate cash payments, including all
insurance proceeds and proceeds of any award for condemnation or taking,
received in connection with such Event of Loss.

     "CERCLA" shall mean the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as the same may be amended from time to time, 42
U.S.C. Section 9601 ET SEQ.

     "CHANGE OF CONTROL" shall mean and include any of the following:

          (I) during any period of two consecutive calendar years, individuals
     who at the beginning of such period constituted the Borrower's Board of
     Directors (together with any new directors (x) whose election by the
     Borrower's Board of Directors was, or (y) whose nomination for election by
     the Borrower's shareholders was (prior to the date of the proxy or consent
     solicitation relating to such nomination), approved by a vote of at least
     two-thirds of the directors then still in office who either were directors
     at the beginning of such period or whose election or nomination for
     election was previously so approved), shall cease for any reason to
     constitute a majority of the directors then in office;

          (II) any Person or group (as such term is defined in section 13(d)(3)
     of the 1934 Act) shall acquire, directly or indirectly, beneficial
     ownership (within the meaning of Rule 13d-3 and 13d-5 of the 1934 Act) of
     more than 50%, on a fully diluted basis, of the economic or voting interest
     in the Borrower's capital stock;

          (III) the shareholders of the Borrower approve a merger or
     consolidation of the Borrower with any other Person, OTHER than a merger or
     consolidation which would result in the voting securities of the Borrower
     outstanding immediately prior thereto continuing to represent (either by
     remaining outstanding or by being converted or exchanged for voting
     securities of the surviving or resulting entity) more than 50% of the
     combined voting power of the voting securities of the Borrower or such
     surviving or resulting entity outstanding after such merger or
     consolidation;


                                       4



          (IV) the shareholders of the Borrower approve a plan of complete
     liquidation of the Borrower or an agreement or agreements for the sale or
     disposition by the Borrower of all or substantially all of the Borrower's
     assets; and/or

          (V) any "change in control" or any similar term as defined in any of
     the indentures, credit agreements or other instruments governing any
     Indebtedness of the Borrower or any of its Subsidiaries with an outstanding
     principal amount, or providing for commitments to lend in an outstanding
     principal amount, of at least $10,000,000 (or the equivalent amount in any
     other currency).

     "CHARGES" has the meaning provided in section 12.25.

     "CIP REGULATIONS" has the meaning provided in section 11.11.

     "CLOSING DATE" shall mean the date, on or after the Effective Date, upon
which the conditions specified in section 6.1 are satisfied.

     "CODE" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and the regulations promulgated and the rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the Effective
Date and any subsequent provisions of the Code, amendatory thereof, supplemental
thereto or substituted therefor.

     "COLLATERAL" shall mean any collateral covered by any Security Document.

     "COLLATERAL AGENT" shall mean the Administrative Agent acting as Collateral
Agent for the Lenders pursuant to the Security Documents.

     "COLLATERAL ASSIGNMENT OF PATENTS" shall mean each collateral assignment of
patents substantially in the form of Exhibit D-1, executed and delivered in
connection herewith, as the same may be amended, restated, amended and restated,
supplemented or otherwise modified from time to time.

     "COLLATERAL ASSIGNMENT OF TRADEMARKS" shall mean each collateral assignment
of trademarks substantially in the form of Exhibit D-2, heretofore or hereafter
executed and delivered in connection herewith, as the same may be amended,
restated, amended and restated, supplemented or otherwise modified from time to
time.

     "COMMITMENT" shall mean, with respect to each Lender, its Revolving
Commitment and its Swing Line Commitment, if any, or either or both of such
Commitments of a Lender, as applicable.

     "COMMITMENT FEE" shall have the meaning provided in section 4.1(a).

     "CONFIDENTIAL INFORMATION" has the meaning provided in section 12.15(b).

     "CONSOLIDATED AMORTIZATION EXPENSE" shall mean, for any period, all
amortization expenses of the Borrower and its Subsidiaries, all as determined
for the Borrower and its Subsidiaries on a consolidated basis in accordance with
GAAP.

     "CONSOLIDATED CAPITAL EXPENDITURES" shall mean, for any period, the
aggregate of all expenditures (whether paid in cash or accrued as liabilities
and including in all events amounts expended or capitalized under Capital Leases
and Synthetic Leases but excluding any amount representing capitalized interest)
by the Borrower and its Subsidiaries during that period that, in conformity with
GAAP, are or are required to be included in the property, plant or equipment
reflected in the consolidated balance sheet of the Borrower and its
Subsidiaries.

     "CONSOLIDATED DEPRECIATION EXPENSE" shall mean, for any period, all
depreciation expenses of the Borrower and its Subsidiaries, all as determined
for the Borrower and its Subsidiaries on a consolidated basis in accordance with
GAAP.


                                       5



     "CONSOLIDATED EBITDA" shall mean, for any period, Consolidated Net Income
for such period; PLUS (A) the sum of the amounts for such period included in
determining such Consolidated Net Income of (i) Consolidated Interest Expense,
(ii) Consolidated Income Tax Expense, (iii) Consolidated Depreciation Expense,
(iv) Consolidated Amortization Expense, (v) non-cash losses and charges which
are properly classified as extraordinary or non-recurring, (vi) non-cash charges
associated with FAS 142 and FAS 144, and (vii) charges associated with the
termination of the Aircraft Lease LESS (B) gains on sales of assets and other
extraordinary gains and other non-recurring non-cash gains; all as determined
for the Borrower and its Subsidiaries on a consolidated basis in accordance with
GAAP; EXCEPT that in computing Consolidated Net Income for purposes of this
definition, there shall be excluded therefrom (x) the income, (or loss) of any
entity (other than Subsidiaries of the Borrower) in which the Borrower or any of
its Subsidiaries has a joint or minority interest, except to the extent of the
amount of dividends or other distributions actually paid to the Borrower or any
of its Subsidiaries during such period, and (y) the income of any Subsidiary of
the Borrower to the extent that the declaration or payment of dividends or
similar distributions by that Subsidiary of that income is not at the time
permitted by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Subsidiary; and PROVIDED THAT "Consolidated EBITDA" shall in any event
include the insurance proceeds received by the Borrower related to the
shareholder litigation settlement in November 2005.

     "CONSOLIDATED INCOME TAX EXPENSE" shall mean, for any period, all
provisions for taxes based on the net income of the Borrower or any of its
Subsidiaries (including, without limitation, any additions to such taxes, and
any penalties and interest with respect thereto), all as determined for the
Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP.

     "CONSOLIDATED INTEREST EXPENSE" shall mean, for any period, total interest
expense (including that which is capitalized, that which is attributable to
Capital Leases or Synthetic Leases and the pre-tax equivalent of dividends
payable on Redeemable Stock) of the Borrower and its Subsidiaries on a
consolidated basis with respect to all outstanding Indebtedness of the Borrower
and its Subsidiaries including, without limitation, all commissions, discounts
and other fees and charges owed with respect to letters of credit and net costs
under Hedge Agreements, BUT EXCLUDING, HOWEVER, any amortization or write-off of
deferred financing costs and any charges for prepayment penalties on prepayment
of Indebtedness.

     "CONSOLIDATED NET INCOME" shall mean for any period, the net income (or
loss), without deduction (or increase) for minority interests, of the Borrower
and its Subsidiaries on a consolidated basis for such period taken as a single
accounting period determined in conformity with GAAP.

     "CONSOLIDATED TOTAL DEBT" shall mean the sum (without duplication) of all
Indebtedness of the Borrower and of each of its Subsidiaries, all as determined
on a consolidated basis.

     "CONTINUE", "CONTINUATION" and "CONTINUED" each refers to a continuation of
Eurocurrency Loans for an additional Interest Period as provided in section 2.8.

     "CONVERT", "CONVERSION" and "CONVERTED" each refers to a conversion of
Loans of one Type into Loans of another Type, pursuant to section 2.6, 2.8(b),
2.9 or 5.2.

     "CREDIT DOCUMENTS" shall mean this Agreement, the Notes, the Subsidiary
Guaranty, the Security Documents, and any Letter of Credit Document.

     "CREDIT EVENT" shall mean the making of any Loans and/or the issuance of
any Letter of Credit.

     "CREDIT PARTY" shall mean the Borrower and each of the Borrower's
Subsidiaries and Affiliates which is a party to any Credit Document.

     "DEFAULT" shall mean any event, act or condition which with notice or lapse
of time, or both, would constitute an Event of Default.

     "DEFAULTING LENDER" shall mean any Lender with respect to which a Lender
Default is in effect.


                                       6



     "DESIGNATED HEDGE AGREEMENT" shall mean any Hedge Agreement to which the
Borrower or any of its Subsidiaries is a party which, pursuant to (x) a written
instrument signed by the Administrative Agent and (y) the following provisions,
has been designated as a Designated Hedge Agreement so that the Borrower's or
Subsidiary's counterparty's credit exposure thereunder will be entitled to share
in the benefits of the Subsidiary Guaranty and the Security Documents to the
extent the Subsidiary Guaranty and such Security Documents provide guarantees or
security for creditors of the Borrower or any Subsidiary under Designated Hedge
Agreements:

          (i) The Administrative Agent will, without the approval or consent of
     the Lenders, designate a Hedge Agreement entered into with any Lender or
     any Affiliate of any Lender as a Designated Hedge Agreement so long as the
     Administrative Agent reasonably determines, at the time of such designation
     and after giving effect thereto, in accordance with its own customary
     valuation practices, that the maximum aggregate credit exposure to the
     Borrower and its Subsidiaries of all counterparties under all Designated
     Hedge Agreements is not more than $30,000,000;

          (ii) The Administrative Agent may, without the approval or consent of
     the Lenders, designate a Hedge Agreement as a Designated Hedge Agreement so
     long as the Administrative Agent reasonably determines, at the time of such
     designation and after giving effect thereto, in accordance with its own
     customary valuation practices, that the maximum aggregate credit exposure
     to the Borrower and its Subsidiaries of all counterparties under all
     Designated Hedge Agreements is not more than $30,000,000;

          (iii) The Administrative Agent will not designate any Hedge Agreement
     as a Designated Hedge Agreement without the approval, consent or
     instructions of the Required Lenders if the Administrative Agent reasonably
     determines, at the time of such designation and after giving effect
     thereto, in accordance with its own customary valuation practices, that the
     maximum aggregate credit exposure to the Borrower and its Subsidiaries of
     all counterparties under all Designated Hedge Agreements is more than
     $30,000,000; and

          (iv) It shall be a condition to the rights of any counterparty
     creditor of the Borrower or any Subsidiary under any Designated Hedge
     Agreement (other than in the case of a Lender or an Affiliate of any
     Lender) to share in any recoveries of enforcement of the Subsidiary
     Guaranty and of the Security Documents, that such counterparty creditor
     shall have entered into an intercreditor or similar agreement with the
     Administrative Agent under which recoveries from the Borrower and its
     Subsidiaries with respect to such Designated Hedge Agreement will be shared
     in a manner consistent with the provisions of section 10.3 hereof;

provided, however, that notwithstanding the foregoing, the existing Hedge
Agreements set forth on Annex VII hereto shall in any event be Designated Hedge
Agreements.

     "DESIGNATING LENDER" has the meaning provided in section 12.4(j).

     "DOLLARS", "U.S. DOLLARS" and the sign "$" each means lawful money of the
United States.

     "DOMESTIC LENDING OFFICE" shall mean, with respect to any Lender, the
affiliate, branch or office of such Lender specified as its Domestic Lending
Office in the Administrative Questionnaire delivered by it to the Administrative
Agent or in the Assignment and Assumption pursuant to which it became a Lender,
or such other affiliate, branch or office of such Lender as such Lender may from
time to time specify to the Borrower and the Administrative Agent.

     "DOMESTIC SUBSIDIARY" shall mean any Subsidiary organized under the laws of
the United States of America, any State thereof, the District of Columbia, or
any United States possession, the chief executive office and principal place of
business of which is located in, and which conducts the majority of its business
within, the United States of America and its territories and possessions;
excluding, however, any Subsidiary of a Foreign Subsidiary.

     "EFFECTIVE DATE" shall have the meaning provided in section 12.10.


                                       7



     "ELIGIBLE ASSIGNEE" shall mean (a) a Lender; (b) an Affiliate of a Lender;
and (c) any other Person (other than a natural person) that is an "accredited
investor" (as defined in SEC Regulation D) approved by (i) the Administrative
Agent and (ii) unless a Default or Event of Default shall have occurred and be
continuing, the Borrower (each such approval of the Administrative Agent and the
Borrower not to be unreasonably withheld or delayed); provided that
notwithstanding the foregoing, "Eligible Assignee" shall not include the
Borrower or any of the Borrower's Affiliates or Subsidiaries and shall further
not include any direct competitor of the Borrower or any Person engaged in the
same or similar principal lines of business as the Borrower and its Subsidiaries
considered as a whole, or an Affiliate of any such competitor or Person.

     "ENVIRONMENTAL CLAIMS" shall mean any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices of
non-compliance or violation, investigations or proceedings relating in any way
to any Environmental Law or any permit issued under any such law (hereafter
"CLAIMS"), including, without limitation, (i) any and all Claims by governmental
or regulatory authorities for enforcement, cleanup, removal, response, remedial
or other actions or damages pursuant to any applicable Environmental Law, and
(ii) any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
the storage, treatment or Release (as defined in CERCLA) of any Hazardous
Materials or arising from alleged injury or threat of injury to health, safety
or the environment.

     "ENVIRONMENTAL LAW" shall mean any applicable Federal, state, foreign or
local statute, law, rule, regulation, ordinance, code, binding and enforceable
guideline, binding and enforceable written policy and rule of common law now or
hereafter in effect and in each case as amended, and any binding and enforceable
judicial or administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment issued to or rendered against
the Borrower or any of its Subsidiaries relating to the environment, employee
health and safety or Hazardous Materials, including, without limitation, CERCLA;
RCRA; the Federal Water Pollution Control Act, 33 U.S.C. Section 2601 ET SEQ.;
the Clean Air Act, 42 U.S.C. Section 7401 ET SEQ.; the Safe Drinking Water Act,
42 U.S.C. Section 3803 ET SEQ.; the Oil Pollution Act of 1990, 33 U.S.C. Section
2701 ET SEQ.; the Emergency Planning and the Community Right-to-Know Act of
1986, 42 U.S.C. Section 11001 ET SEQ., the Hazardous Material Transportation
Act, 49 U.S.C. Section 1801 ET SEQ. and the Occupational Safety and Health Act,
29 U.S.C. Section 651 ET SEQ. (to the extent it regulates occupational exposure
to Hazardous Materials); and any state and local or foreign counterparts or
equivalents, in each case as amended from time to time.

     "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to ERISA are to ERISA, as in effect at the
Effective Date and any subsequent provisions of ERISA, amendatory thereof,
supplemental thereto or substituted therefor.

     "ERISA AFFILIATE" shall mean each person (as defined in section 3(9) of
ERISA) which together with the Borrower or a Subsidiary of the Borrower would be
deemed to be a "single employer" (i) within the meaning of section 414(b), (c),
(m) or (o) of the Code or (ii) as a result of the Borrower or a Subsidiary of
the Borrower being or having been a general partner of such person.

     "EURO" shall mean the single currency of the Participating Member States of
the European Union.

     "EUROCURRENCY LENDING OFFICE" shall mean, with respect to any Lender, the
affiliate, branch or office of such Lender specified as its Eurocurrency Lending
Office in the Administrative Questionnaire delivered by it to the Administrative
Agent or in the Assignment and Assumption pursuant to which it became a Lender,
or such other affiliate, branch or office or offices of such Lender as such
Lender may from time to time specify to the Borrower and the Administrative
Agent.

     "EUROCURRENCY LOANS" shall mean each Loan bearing interest at the rates
provided in section 2.7(b).

     "EUROCURRENCY RATE" shall mean with respect to each Interest Period for a
Eurocurrency Loan, (A) either (i) the rate per annum for deposits in Dollars for
a maturity most nearly comparable to such Interest Period which appears on page
3740 or 3750, as applicable, of the Dow Jones Telerate Screen as of 11:00 A.M.
(local time at the Notice Office) on the date which is two Business Days prior
to the commencement of such Interest Period, or (ii) if such a rate does not
appear on such a page, an interest rate per annum equal to the average (rounded
to the nearest


                                       8



ten thousandth of 1% per annum, if such average is not such a multiple) of the
rate per annum at which deposits in Dollars are offered to each of the Reference
Banks by prime banks in the London interbank Eurocurrency market for deposits of
amounts in same day funds comparable to the outstanding principal amount of the
Eurocurrency Loan for which an interest rate is then being determined with
maturities comparable to the Interest Period to be applicable to such
Eurocurrency Loan, determined as of 11:00 A.M. (London time) on the date which
is two Business Days prior to the commencement of such Interest Period, in each
case divided (and rounded to the nearest ten thousandth of 1%) by (B) a
percentage equal to 100% minus the then stated maximum rate of all reserve
requirements (including, without limitation, any marginal, emergency,
supplemental, special or other reserves) applicable to any member bank of the
Federal Reserve System in respect of Eurocurrency liabilities as defined in
Regulation D (or any successor category of liabilities under Regulation D);
PROVIDED, HOWEVER, that in the event that the rate referred to in clause (i)
above is not available at any such time for any reason, then the rate referred
to in clause (i) shall instead be the average (rounded to the nearest ten
thousandth of 1%) of the rates at which U.S. dollar deposits of $5,000,000 are
offered to the Reference Banks in the London interbank market at approximately
11:00 a.m. (London time), two Business Days prior to the commencement of such
Interest Period, for contracts which would be entered into at the commencement
of such Interest Period.

     "EVENT OF DEFAULT" shall have the meaning provided in section 10.1.

     "EVENT OF LOSS" shall mean, with respect to any property, (i) the actual or
constructive total loss of such property or the use thereof, resulting from
destruction, damage beyond repair, or the rendition of such property permanently
unfit for normal use from any casualty or similar occurrence whatsoever, (ii)
the destruction or damage of a portion of such property from any casualty or
similar occurrence whatsoever under circumstances in which such damage cannot
reasonably be expected to be repaired, or such property cannot reasonably be
expected to be restored to its condition immediately prior to such destruction
or damage, within 90 days after the occurrence of such destruction or damage,
(iii) the condemnation, confiscation or seizure of, or requisition of title to
or use of, any property, or (iv) in the case of any property located upon a
Leasehold, the termination or expiration of such Leasehold.

     "EXISTING CREDIT AGREEMENT" means the $150,000,000 Revolving Credit
Agreement, dated as of August 7, 2003, by and among the Borrower, the financial
institutions party thereto, and NCB, as administrative agent.

     "EXISTING INDEBTEDNESS" shall have the meaning provided in section 7.17.

     "EXISTING INDEBTEDNESS AGREEMENTS" shall have the meanings provided in
section 7.17.

     "EXISTING LETTER OF CREDIT" shall have the meaning provided in section
3.1(d).

     "FACILITY" shall mean the Revolving Facility and the Swing Line Facility,
or both of them, as applicable.

     "FACING FEE" shall have the meaning provided in section 4.1(c).

     "FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal Funds
brokers of recognized standing selected by the Administrative Agent.

     "FEES" shall mean all amounts payable pursuant to, or referred to in,
section 4.1.

     "FOREIGN LENDER" means a Person which is not a United States person (as
such term is defined in section 7701(a)(30) of the Code) for Federal Income Tax
purposes.


                                       9



     "FOREIGN SUBSIDIARY" shall mean any Subsidiary which is not incorporated
(or otherwise organized) in the United States and substantially all of whose
assets and properties are located, or substantially all of whose business is
carried on, outside the United States.

     "GAAP" shall mean generally accepted accounting principles in the United
States of America as in effect from time to time; it being understood and agreed
that determinations in accordance with GAAP for purposes of section 9, including
defined terms as used therein, are subject (to the extent provided therein) to
sections 1.3 and 12.7(a).

     "GUARANTY OBLIGATIONS" shall mean as to any Person (without duplication)
any obligation of such Person guaranteeing any Indebtedness ("PRIMARY
INDEBTEDNESS") of any other Person (the "PRIMARY OBLIGOR") in any manner,
whether directly or indirectly, including, without limitation, any obligation of
such Person, whether or not contingent, (a) to purchase any such primary
Indebtedness or any property constituting direct or indirect security therefor,
(b) to advance or supply funds (i) for the purchase or payment of any such
primary Indebtedness or (ii) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary Indebtedness of the
ability of the primary obligor to make payment of such primary Indebtedness, or
(d) otherwise to assure or hold harmless the owner of such primary Indebtedness
against loss in respect thereof, PROVIDED, HOWEVER, that the term Guaranty
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Guaranty
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary Indebtedness in respect of which such Guaranty Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof (assuming such Person is required to perform
thereunder) as determined by such Person in good faith.

     "HAZARDOUS MATERIALS" shall mean (i) any petrochemical or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, transformers or other equipment that
contain dielectric fluid containing levels of polychlorinated biphenyls, and
radon gas; and (ii) any chemicals, materials or substances defined as or
included in the definition of "hazardous substances", "hazardous wastes",
"hazardous materials", "restricted hazardous materials", "extremely hazardous
wastes", "restrictive hazardous wastes", "toxic substances", "toxic pollutants",
"contaminants" or "pollutants", or words of similar meaning and regulatory
effect, under any applicable Environmental Law.

     "HEDGE AGREEMENT" shall mean (i) any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement or other similar agreement or
arrangement (ii) any currency swap agreement, forward currency purchase
agreement or similar agreement or arrangement designed to protect against
fluctuations in currency exchange rates, and (iii) any forward commodity
purchase agreement or similar agreement or arrangement designed to protect
against fluctuations in raw material or other commodity prices.

     "INCREMENTAL REVOLVING FACILITY AMOUNT" shall mean the difference between
(i) $150,000,000 and (ii) the Total Revolving Commitment in effect at such time.

     "INCREMENTAL REVOLVING LENDER" shall have the meaning provided in section
2.1(c) hereof.

     "INDEBTEDNESS" of any Person shall mean without duplication:

          (i) all indebtedness of such Person for borrowed money;

          (ii) all bonds, notes, debentures and similar debt securities of such
     Person;

          (iii) the deferred purchase price of capital assets or services which
     in accordance with GAAP would be shown on the liability side of the balance
     sheet of such Person;

          (iv) the face amount of all letters of credit or bankers' acceptances
     issued for the account of such Person and, without duplication, all drafts
     drawn thereunder;


                                       10



          (v) all obligations, contingent or otherwise, of such Person in
     respect of bankers' acceptances;

          (vi) all Indebtedness of a second Person secured by any Lien on any
     property owned by such first Person, whether or not such Indebtedness has
     been assumed;

          (vii) all Capitalized Lease Obligations of such Person;

          (viii) the present value, determined on the basis of the implicit
     interest rate, of all basic rental obligations under all Synthetic Leases
     of such Person;

          (ix) all net obligations of such Person under Hedge Agreements;

          (x) the full outstanding balance of trade receivables, notes or other
     instruments sold with full recourse (and the portion thereof subject to
     potential recourse, if sold with limited recourse), other than in any such
     case any thereof sold solely for purposes of collection of delinquent
     accounts;

          (xi) the stated value, or liquidation value if higher, of all
     Redeemable Stock of such Person; and

          (xii) all Guaranty Obligations of such Person;

PROVIDED that (x) neither trade payables nor other similar accrued expenses, in
each case arising in the ordinary course of business, nor obligations in respect
of insurance policies or performance or surety bonds which themselves are not
guarantees of Indebtedness (nor drafts, acceptances or similar instruments
evidencing the same nor obligations in respect of letters of credit supporting
the payment of the same), shall constitute Indebtedness; and (y) the
Indebtedness of any Person shall in any event include (without duplication) the
Indebtedness of any other entity (including any general partnership in which
such Person is a general partner) to the extent such Person is liable thereon as
a result of such Person's ownership interest in or other relationship with such
entity, except to the extent the terms of such Indebtedness provide expressly
that such Person is not liable thereon.

     "INDEMNITEES" has the meaning provided in section 12.1(g).

     "INTEREST PERIOD" with respect to any Eurocurrency Loan shall mean the
interest period applicable thereto, as determined pursuant to section 2.8.

     "JUDGMENT CURRENCY" has the meaning provided in section 12.24.

     "JUDGMENT CURRENCY CONVERSION DATE" has the meaning provided in section
12.24.

     "LEAD ARRANGER" shall have the meaning provided in the preamble to this
Agreement.

     "LC PARTICIPANT" shall have the meaning provided in section 3.4(a).

     "LEASEHOLDS" of any Person shall mean all the right, title and interest of
such Person as lessee or licensee in, to and under leases or licenses of land,
improvements and/or fixtures.

     "LENDER" shall have the meaning provided in the first paragraph of this
Agreement, and shall include any Incremental Revolving Lender that becomes a
Lender hereunder pursuant to section 2.1(c).

     "LENDER DEFAULT" shall mean (i) the refusal (which has not been retracted)
of a Lender in violation of the requirements of this Agreement to make available
its portion of any incurrence of Loans, to fund its Swing Line Participation
Amount under section 2.4(b), or to fund its portion of any unreimbursed payment
under section 3.4(c) or (ii) a Lender having notified the Administrative Agent
and/or the Borrower that it does not intend to comply with the obligations under
section 2.1, section 2.4(b) and/or section 3.4(c), in the case of either (i) or
(ii) as a result of the


                                       11



appointment of a receiver or conservator with respect to such Lender at the
direction or request of any regulatory agency or authority.

     "LENDER REGISTER" shall have the meaning provided in section 12.16.

     "LETTER OF CREDIT" shall have the meaning provided in section 3.1(a).

     "LETTER OF CREDIT DOCUMENTS" shall have the meaning specified in section
3.2(a).

     "LETTER OF CREDIT FEE" shall have the meaning provided in section 4.1(b).

     "LETTER OF CREDIT ISSUER" shall mean in respect of any Letter of Credit,
(1) NCB, and/or (2) such other Lender that is requested, and agrees, to so act
by the Borrower, and is approved by the Administrative Agent.

     "LETTER OF CREDIT OBLIGOR" shall have the meaning provided in section
3.1(a).

     "LETTER OF CREDIT OUTSTANDINGS" shall mean, at any time, the sum, without
duplication, of the Dollar amount of (i) the aggregate Stated Amount of all
outstanding Letters of Credit and (ii) the aggregate amount of all Unpaid
Drawings.

     "LETTER OF CREDIT REQUEST" shall have the meaning provided in section
3.2(a).

     "LEVERAGE RATIO" has the meaning provided in section 9.7.

     "LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement or any lease
in the nature thereof).

     "LOAN" shall have the meaning provided in section 2.1.

     "MARGIN STOCK" shall have the meaning provided in Regulation U.

     "MATERIAL ADVERSE EFFECT" shall mean any or all of the following: (i) any
material adverse effect on the business, operations, property, assets,
liabilities or condition (financial or otherwise) of, when used with reference
to the Borrower and/or any of its Subsidiaries, the Borrower and its
Subsidiaries, taken as a whole, or when used with reference to any other Person,
such Person and its Subsidiaries, taken as a whole, as the case may be; (ii) any
material adverse effect on the ability of the Borrower or any other Credit Party
to perform its obligations under the Credit Documents to which it is a party;
(iii) any material adverse effect on the ability of the Borrower and its
Subsidiaries, taken as a whole, to pay their liabilities and obligations as they
mature or become due; or (iv) any material adverse effect on the validity,
effectiveness or enforceability, as against any Credit Party, of any of the
Credit Documents to which it is a party.

     "MATERIAL SUBSIDIARY" shall mean, at any time, with reference to any
Person, any Subsidiary of such Person (i) that has assets at such time
comprising 5% or more of the consolidated assets of such Person and its
Subsidiaries, or (ii) whose operations in the current fiscal year are expected
to, or whose operations in the most recent fiscal year did (or would have if
such Person had been a Subsidiary for such entire fiscal year), represent 5% or
more of the consolidated earnings before interest, taxes, depreciation and
amortization of such Person and its Subsidiaries for such fiscal year.

     "MATURITY DATE" shall mean December 20, 2010, or such earlier date as the
Total Revolving Commitment is terminated.

     "MAXIMUM RATE" has the meaning provided in section 12.25.

     "MINIMUM BORROWING AMOUNT" shall mean:


                                       12



          (i) with respect to Borrowings under the Revolving Facility consisting
     of (x) Prime Rate Loans, $2,500,000, with minimum increments thereafter of
     $500,000, or (y) Eurocurrency Loans, $5,000,000 with minimum increments
     thereafter of $1,000,000; or

          (ii) with respect to a Borrowing under the Swing Line Facility
     consisting of (x) a Prime Rate Loan, $100,000, with minimum increments
     thereafter of $50,000, or (y) a Money Market Rate Loan, $250,000, with
     minimum increments thereafter of $50,000.

     "MONEY MARKET RATE LOAN" shall mean each Swing Line Loan bearing interest
at a rate provided in section 2.7(c).

     "MOODY'S" shall mean Moody's Investors Service, Inc. and its successors.

     "MULTIEMPLOYER PLAN" shall mean a multiemployer plan, as defined in section
4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making or
accruing an obligation to make contributions or has within any of the preceding
three plan years made or accrued an obligation to make contributions.

     "MULTIPLE EMPLOYER PLAN" shall mean an employee benefit plan, other than a
Multiemployer Plan, to which the Borrower or any ERISA Affiliate, and one or
more employers other than the Borrower or an ERISA Affiliate, is making or
accruing an obligation to make contributions or, in the event that any such plan
has been terminated, to which the Borrower or an ERISA Affiliate made or accrued
an obligation to make contributions during any of the five plan years preceding
the date of termination of such plan.

     "NCB" shall mean National City Bank, a national banking association,
together with its successors and assigns.

     "NET CASH PROCEEDS" shall mean, with respect to (i) any Asset Sale, the
Cash Proceeds resulting therefrom net of (A) reasonable and customary expenses
of sale incurred in connection with such Asset Sale, and other reasonable and
customary fees and expenses incurred, and all state and local taxes paid or
reasonably estimated to be payable by such Person, as a consequence of such
Asset Sale and the payment of principal, premium and interest of Indebtedness
(other than the Obligations) secured by the asset which is the subject of the
Asset Sale and required to be, and which is, repaid under the terms thereof as a
result of such Asset Sale, (B) amounts of any distributions payable to holders
of minority interests in the relevant Person or in the relevant property or
assets and (C) incremental federal, state and local income taxes paid or payable
as a result thereof; and (ii) any Event of Loss, the Cash Proceeds resulting
therefrom net of (A) reasonable and customary expenses incurred in connection
with such Event of Loss, and local taxes paid or reasonably estimated to be
payable by such Person, as a consequence of such Event of Loss and the payment
of principal, premium and interest of Indebtedness (other than the Obligations)
secured by the asset which is the subject of the Event of Loss and required to
be, and which is, repaid under the terms thereof as a result of such Event of
Loss, (B) amounts of any distributions payable to holders of minority interests
in the relevant Person or in the relevant property or assets and (C) incremental
federal, state and local income taxes paid or payable as a result thereof.

     "1934 ACT" shall mean the Securities Exchange Act of 1934, as amended.

     "NON-DEFAULTING LENDER" shall mean each Lender other than a Defaulting
Lender.

     "NOTE" shall mean a Revolving Note or the Swing Line Note, as applicable.

     "NOTICE OF BORROWING" shall have the meaning provided in section 2.3(a).

     "NOTICE OF CONVERSION" shall have the meaning provided in section 2.6.

     "NOTICE OFFICE" shall mean the office of the Administrative Agent at
National City Center, 629 Euclid Avenue, Cleveland, Ohio 44114, Attention:
Agency Services Group (facsimile: (216) 222-0012), or such other


                                       13



office, located in a city in the United States Eastern Time Zone, as the
Administrative Agent may designate to the Borrower from time to time.

     "NOTICE OF SWING LINE REFUNDING" shall have the meaning provided in section
2.4(a).

     "OBLIGATIONS" shall mean all amounts, direct or indirect, contingent or
absolute, of every type or description, and at any time existing, owing by the
Borrower or any other Credit Party to the Administrative Agent, the Collateral
Agent, any Lender or any Letter of Credit Issuer pursuant to the terms of this
Agreement or any other Credit Document.

     "OPERATING LEASE" as applied to any Person shall mean any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
conformity with GAAP, is not accounted for as a Capital Lease on the balance
sheet of that Person.

     "PARTICIPANT" has the meaning assigned to such term in section 12.4(d).

     "PAYMENT OFFICE" shall mean the office of the Administrative Agent at
National City Center, 629 Euclid Avenue, Cleveland, Ohio 44114, Attention:
Agency Services Group (facsimile: (216) 222-0012), or such other office, located
in a city in the United States Eastern Time Zone, as the Administrative Agent
may designate to the Borrower from time to time.

     "PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to section 4002 of ERISA, or any successor thereto.

     "PERCENTAGE" shall mean at any time for any Lender with a Commitment under
any Facility (other than the Swing Line Facility), the percentage obtained by
dividing such Lender's aggregate Commitment under such Facilities, as
applicable, by the Total Commitment (exclusive of the Swing Line Commitment),
PROVIDED, that if the Total Commitment has been terminated, the Percentage for
each Lender shall be determined by dividing such Lender's aggregate outstanding
Loans (exclusive of the Swing Line Loans) by the total of all outstanding Loans
for all Lenders (exclusive of the Swing Line Loans).

     "PERMITTED ACQUISITION" shall mean and include any Acquisition as to which
all of the following conditions are satisfied:

          (i) such Acquisition involves a line or lines of business which is
     complementary to the lines of business in which the Borrower and its
     Subsidiaries, considered as an entirety, are engaged on the Effective Date,
     UNLESS the Required Lenders specifically approve or consent to such
     Acquisition in writing;

          (ii) such Acquisition is not actively opposed by the Board of
     Directors (or similar governing body) of the selling Person or the Person
     whose equity interests are to be acquired, UNLESS all of the Lenders
     specifically approve or consent to such Acquisition in writing; and

          (iii) at least 10 Business Days prior to the completion of any such
     Acquisition involving aggregate consideration, including the principal
     amount of any assumed Indebtedness and (without duplication) any
     Indebtedness of any acquired Person or Persons, in excess of $10,000,000,
     the Borrower shall have delivered to the Lenders (A) audited financial
     statements for the acquired businesses for the most recent fiscal year,
     unless the same are unavailable and unaudited financial statements are
     acceptable to the Required Lenders and (B) a certificate of an Authorized
     Officer of the Borrower demonstrating, in reasonable detail, compliance
     with the ratios referred to in sections 9.7 and 9.8 on a Pro Forma Basis;

PROVIDED, that the term Permitted Acquisition specifically excludes any loans,
advances or minority investments otherwise permitted pursuant to section 9.5.

     "PERMITTED LIENS" shall mean Liens permitted by section 9.3.


                                       14



     "PERSON" shall mean any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust, company or other
enterprise or any government or political subdivision or any agency, department
or instrumentality thereof.

     "PLAN" shall mean any multiemployer or single-employer plan as defined in
section 4001 of ERISA, which is maintained or contributed to by (or to which
there is an obligation to contribute by) the Borrower or a Subsidiary of the
Borrower or an ERISA Affiliate, and each such plan for the five year period
immediately following the latest date on which the Borrower, or a Subsidiary of
the Borrower or an ERISA Affiliate maintained, contributed to or had an
obligation to contribute to such plan.

     "PLEDGE AGREEMENT" shall mean each pledge agreement substantially in the
form of Exhibit E, executed and delivered in connection herewith, as the same
may be amended, restated, amended and restated, supplemented or otherwise
modified from time to time.

     "PRICING GRID TABLE" shall have the meaning provided in section 2.7(g).

     "PRIME RATE" shall mean, for any period, a fluctuating interest rate per
annum as shall be in effect from time to time which rate per annum shall at all
times be equal to the greater of (i) the rate of interest established by the
Administrative Agent from time to time, as its prime rate, whether or not
publicly announced, which interest rate may or may not be the lowest rate
charged by it for commercial loans or other extensions of credit; and (ii) the
Federal Funds Effective Rate in effect from time to time PLUS 1/2 of 1% per
annum.

     "PRIME RATE LOAN" shall mean each Loan, bearing interest at the rate
provided in section 2.7(a).

     "PRINCIPAL PARTY" has the meaning provided in section 10.1(h)(i).

     "PRO FORMA BASIS" shall mean, with respect to compliance with any test or
covenant hereunder, in connection with or after the occurrence of any
Acquisition or any Asset Sale, compliance with such covenant or test after
giving effect to such Acquisition or Asset Sale, (including pro forma
adjustments arising out of events which are directly attributable to such
proposed Acquisition or Asset Sale, are factually supportable and are expected
to have a continuing impact, in each case determined on a basis consistent with
Article 11 of Regulation S-X of the Securities Act of 1933, as amended, and as
interpreted by the Staff of the Securities and Exchange Commission using, for
purposes of determining such compliance, the historical financial statements of
all entities or assets so acquired or to be acquired (or the assets so disposed
of or to be disposed of in the Asset Sale) and the consolidated financial
statements of the Borrower and its Subsidiaries which shall be reformulated as
if such Acquisition, such Asset Sale, and any other Acquisitions or Asset Sales
that have been consummated during the relevant period, and the incurrence,
assumption and/or repayment of any Indebtedness or other liabilities incurred in
connection with any such Acquisitions or related to the Assets so disposed of or
to be disposed of in any such Asset Sale or otherwise during the relevant period
had been consummated, incurred or repaid, respectively, at the beginning of such
period and assuming that any such Indebtedness bears interest during any portion
of the applicable measurement period prior to the relevant Acquisition or Asset
Sale at the interest rates applicable to outstanding Loans during such period.
For the avoidance of doubt, to the extent the Borrower or any Subsidiary has, at
the end of any Testing Period, assets on its balance sheet classified as "Assets
held for Sale", such assets, and the related financial items, including income
and expense items, shall be included in calculating compliance with covenants or
tests on a Pro Forma Basis.

     "PRO FORMA COMPLIANCE" shall mean, at any date of determination, that the
Borrower shall be in pro forma compliance with the covenants set forth in
Sections 9.7, 9.8 and 9.9 as of the last day of the most recent fiscal
quarter-end (computed on the basis of (a) balance sheet amounts as of the most
recently completed fiscal quarter, and (b) income statement amounts for the most
recently completed period of four consecutive fiscal quarters, in each case, for
which financial statements have been delivered to the Administrative Agent and
calculated on a Pro Forma Basis.

     "PROHIBITED TRANSACTION" shall mean a transaction with respect to a Plan
that is prohibited under section 4975 of the Code or section 406 of ERISA and
not exempt under section 4975 of the Code or section 408 of ERISA.


                                       15


     "PUBLIC NOTES" shall mean the Borrower's 9.25% Senior Subordinated Notes
due 2011 in the original aggregate principal amount of $400,000,000.

     "PUBLIC NOTES DOCUMENTS" shall mean each of (i) the Public Notes Indenture,
(ii) the Public Notes, and (iii) each other document, agreement or instrument
delivered in connection therewith.

     "PUBLIC NOTES INDENTURE" shall mean (i) the Indenture dated as of December
12, 2001 among the Borrower, as Issuer, and Wells Fargo, as successor trustee,
pursuant to which the Public Notes were issued.

     "PURCHASE DATE" shall have the meaning provided in section 2.4(b).

     "QUOTED RATE" shall have the meaning provided in section 2.3(c).

     "RCRA" shall mean the Resource Conservation and Recovery Act, as the same
may be amended from time to time, 42 U.S.C. Section 6901 ET SEQ.

     "REAL PROPERTY" of any Person shall mean all of the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leaseholds.

     "REDEEMABLE STOCK" shall mean with respect to any Person any capital stock
or similar equity interests of such Person that (i) is by its terms subject to
mandatory redemption, in whole or in part, pursuant to a sinking fund, scheduled
redemption or similar provisions, at any time prior to the latest Maturity Date;
or (ii) otherwise is required to be repurchased or retired on a scheduled date
or dates, upon the occurrence of any event or circumstance, at the option of the
holder or holders thereof, or otherwise, at any time prior to the latest
Maturity Date under this Agreement, other than any such repurchase or retirement
occasioned by a "change of control" or similar event.

     "REFERENCE BANKS" shall mean (i) NCB and (ii) any other Lender or Lenders
selected as a Reference Bank by the Administrative Agent and the Required
Lenders, PROVIDED, that if any of such Reference Banks is no longer a Lender,
such other Lender or Lenders as may be selected by the Administrative Agent
acting on instructions from the Required Lenders.

     "REGULATION D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing reserve requirements.

     "REGULATION U" shall mean Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing margin requirements.

     "RELATED PARTIES" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, trustees, employees,
agents and advisors of such Person and such Person's Affiliates.

     "REPORTABLE EVENT" shall mean an event described in section 4043 of ERISA
or the regulations thereunder with respect to a Plan, other than those events as
to which the notice requirement is waived under subsections .22, .23, .25, .27,
..28, .29, .30, .31, .32, .34, .35, .62, .63, .64, .65 or .67 of PBGC Regulation
section 4043.

     "REQUIRED LENDERS" shall mean Non-Defaulting Lenders whose outstanding
Revolving Loans and Unutilized Revolving Commitments constitute at least 51% of
the sum of the total outstanding Revolving Loans and Unutilized Revolving
Commitments of Non-Defaulting Lenders (PROVIDED that, for purposes hereof,
neither the Borrower, nor any of its Affiliates, shall be included in (i) the
Lenders holding such amount of the Revolving Loans or having such amount of the
Unutilized Revolving Commitments, or (ii) determining the aggregate unpaid
principal amount of the Revolving Loans or Unutilized Revolving Commitments).

     "RESTRICTED PAYMENT" shall mean (i) any dividend or other distribution
(whether in cash, securities or other property) with respect to any shares of
any class of capital stock of the Borrower or any Subsidiary, or (ii) any
payment (whether in cash, securities or other property), including any sinking
fund or similar deposit, on account of


                                       16



the purchase, redemption, retirement, acquisition, cancellation or termination
of any such shares of capital stock of the Borrower or any option, warrant or
other right to acquire any such shares of capital stock of the Borrower.

     "REVOLVING BORROWING" shall mean the incurrence of Revolving Loans
consisting of one Type of Loan, by the Borrower from all of the Lenders having
Commitments in respect thereof on a PRO RATA basis on a given date (or resulting
from Conversions or Continuations on a given date), having in the case of
Eurocurrency Loans the same Interest Period.

     "REVOLVING COMMITMENT" shall mean, with respect to each Lender, the amount
set forth opposite such Lender's name in Annex I hereto as its "Revolving
Commitment" as the same may be reduced from time to time pursuant to section
4.2, 4.3, 5.2 and/or 10.2, increased from time to time pursuant to section
2.1(c) hereof or adjusted from time to time as a result of assignments to or
from such Lender pursuant to section 12.4.

     "REVOLVING FACILITY" shall mean the credit facility evidenced by the Total
Revolving Commitment.

     "REVOLVING FACILITY PERCENTAGE" shall mean at any time for any Lender, the
percentage obtained by dividing such Lender's Revolving Commitment by the Total
Revolving Commitment, PROVIDED, that if the Total Revolving Commitment has been
terminated, the Revolving Facility Percentage for each Lender shall be
determined by dividing such Lender's Revolving Loans by the total of all
outstanding Revolving Loans for all Lenders.

     "REVOLVING LOAN" shall have the meaning provided in section 2.1(a).

     "REVOLVING NOTE" shall have the meaning provided in section 2.5(a).

     "SALE AND LEASE-BACK TRANSACTION" shall mean any arrangement with any
Person providing for the leasing by the Borrower or any Subsidiary of the
Borrower of any property (except for temporary leases for a term, including any
renewal thereof, of not more than one year and except for leases between the
Borrower and a Subsidiary or between Subsidiaries), which property has been or
is to be sold or transferred by the Borrower or such Subsidiary to such Person.

     "S&P" shall mean Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc., and its successors.

     "SEC" shall mean the United States Securities and Exchange Commission.

     "SEC REGULATION D" shall mean Regulation D as promulgated under the
Securities Act of 1933, as amended, as the same may be in effect from time to
time.

     "SECTION 5.4(B)(II) CERTIFICATE" shall have the meaning provided in section
5.4(b)(ii).

     "SECURITY AGREEMENT" shall mean each security agreement substantially in
the form of Exhibit F executed and delivered in connection herewith, as the same
may be amended, restated, amended and restated, supplemented or otherwise
modified from time to time.

     "SECURITY DOCUMENTS" shall mean each Security Agreement, each Pledge
Agreement, each Collateral Assignment of Patents, each Collateral Assignment of
Trademarks, and each other document pursuant to which any Lien or security
interest is granted by any Credit Party to the Collateral Agent as security for
any of the Obligations.

     "STANDARD PERMITTED LIENS" shall mean the following:

          (i) Liens for taxes not yet delinquent or Liens for taxes being
     contested in good faith and by appropriate proceedings for which adequate
     reserves (in the good faith judgment of the management of the Borrower)
     have been established;

          (ii) Liens in respect of property or assets imposed by law which were
     incurred in the ordinary course of business, such as carriers',
     warehousemen's, materialmen's and mechanics' Liens and other


                                       17



     similar Liens arising in the ordinary course of business, which do not in
     the aggregate materially detract from the value of such property or assets
     or materially impair the use thereof in the operation of the business of
     the Borrower or any Subsidiary;

          (iii) Liens created by this Agreement or the other Credit Documents;

          (iv) Liens arising from judgments, decrees or attachments in
     circumstances not constituting an Event of Default under section 10.1(g);

          (v) Liens (other than any Lien imposed by ERISA) incurred or deposits
     made in the ordinary course of business in connection with workers'
     compensation, unemployment insurance and other types of social security;
     and mechanic's Liens, carrier's Liens, and other Liens to secure the
     performance of tenders, statutory obligations, contract bids, government
     contracts, performance and return-of-money bonds and other similar
     obligations, incurred in the ordinary course of business (exclusive of
     obligations in respect of the payment for borrowed money), whether pursuant
     to statutory requirements, common law or consensual arrangements;

          (vi) Leases or subleases granted to others not interfering in any
     material respect with the business of the Borrower or any of its
     Subsidiaries and any interest or title of a lessor under any lease not in
     violation of this Agreement;

          (vii) easements, rights-of-way, zoning or other restrictions, charges,
     encumbrances, defects in title, prior rights of other Persons, and
     obligations contained in similar instruments, in each case which do not
     involve, and are not likely to involve at any future time, either
     individually or in the aggregate, (A) a substantial and prolonged
     interruption or disruption of the business activities of the Borrower and
     its Subsidiaries considered as an entirety, or (B) a Material Adverse
     Effect;

          (viii) Liens arising from the rights of lessors under leases
     (including financing statements regarding property subject to lease) not in
     violation of the requirements of this Agreement, PROVIDED that such Liens
     are only in respect of the property subject to, and secure only, the
     respective lease (and any other lease with the same or an affiliated
     lessor); and

          (ix) rights of consignors of goods purchased or possessed by the
     Borrower or any of its Subsidiaries for inclusion in their inventory,
     whether or not such consignment is perfected by the filing of any financing
     statement under the UCC.

     "STATED AMOUNT" of each Letter of Credit shall mean the maximum available
to be drawn thereunder (regardless of whether any conditions or other
requirements for drawing could then be met).

     "SUBSIDIARY" of any Person shall mean and include (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such Person directly or indirectly through
Subsidiaries, has more than a 50% equity interest at the time. Unless otherwise
expressly provided, all references herein to "Subsidiary" shall mean a
Subsidiary of the Borrower.

     "SUBSIDIARY GUARANTOR" shall mean any Subsidiary which is a party to the
Subsidiary Guaranty.

     "SUBSIDIARY GUARANTY" means any subsidiary guaranty substantially in the
form of Exhibit G executed and delivered in connection herewith, as the same may
be amended, restated, amended and restated, supplemented or otherwise modified
from time to time.


                                       18



     "SUBORDINATED INDEBTEDNESS" shall mean any Indebtedness which has been
subordinated to the Obligations in such manner and to such extent as the
Administrative Agent (acting on instructions from the Required Lenders) may
require.

     "SWING LINE BORROWING" shall mean the incurrence of a single Type of Swing
Line Loan from the Swing Line Lender on a given date.

     "SWING LINE CAP" shall mean $15,000,000.

     "SWING LINE COMMITMENT" shall mean, with respect to the Swing Line Lender,
the amount set forth opposite such Lender's name in Annex I as its "Swing Line
Commitment" as the same may be reduced from time to time pursuant to section
4.2, 4.3 and/or 10.2 or adjusted from time to time as a result of assignments to
or from the Swing Line Lender pursuant to section 12.4.

     "SWING LINE EXPOSURE" shall mean, with respect to any Lender at any time,
such Lender's obligation to refund or purchase a participation equal to, its
Revolving Facility Percentage of the aggregate Swing Line Loans outstanding
advanced to the Borrower.

     "SWING LINE FACILITY" shall mean the credit facility evidenced by the Swing
Line Commitment.

     "SWING LINE LENDER" shall mean the Lender indicated in Annex I hereto as
having the "Swing Line Commitment" and shall include any other single Lender to
whom the Swing Line Lender has transferred its entire Swing Line Commitment and
any Swing Line Loans.

     "SWING LINE LOAN" shall have the meaning provided in section 2.1(b).

     "SWING LINE NOTE" shall have the meaning provided in section 2.5(a).

     "SWING LINE PARTICIPATION AMOUNT" shall have the meaning provided in
section 2.4(b).

     "SYNTHETIC LEASE" shall mean any lease (i) which is accounted for by the
lessee as an Operating Lease, and (ii) under which the lessee is intended to be
the "owner" of the leased property for Federal income tax purposes.

     "TAXES" shall have the meaning provided in section 5.4.

     "TESTING PERIOD" shall mean for any determination a single period
consisting of the four consecutive fiscal quarters of the Borrower then last
ended (whether or not such quarters are all within the same fiscal year), EXCEPT
that if a particular provision of this Agreement indicates that a Testing Period
shall be of a different specified duration, such Testing Period shall consist of
the particular fiscal quarter or quarters then last ended which are so indicated
in such provision.

     "TOTAL COMMITMENT" shall mean the sum of the Commitments of the Lenders.

     "TOTAL REVOLVING COMMITMENT" shall mean the Revolving Commitments of the
Lenders, including any increase thereto pursuant to section 2.1(c).

     "TYPE" shall mean any type of Loan determined with respect to the interest
option applicable thereto, I.E., a Prime Rate Loan, a Eurocurrency Loan or a
Money Market Rate Loan.

     "UCC" shall mean the Uniform Commercial Code.

     "UNCOLLATERALIZED PROPERTY" shall have the meaning provided in section
8.12(a).

     "UNFUNDED CURRENT LIABILITY" of any Plan shall mean the amount, if any, by
which the actuarial present value of the accumulated plan benefits under the
Plan as of the close of its most recent plan year exceeds the fair


                                       19



market value of the assets allocable thereto, each determined in accordance with
Statement of Financial Accounting Standards No. 87, based upon the actuarial
assumptions used by the Plan's actuary in the most recent annual valuation of
the Plan.

     "UNITED STATES" and "U.S." shall each mean the United States of America.

     "UNPAID DRAWING" shall have the meaning provided in section 3.3(a).

     "UNUTILIZED REVOLVING COMMITMENT" shall mean, with respect to any Lender
and its Revolving Commitment, at any time, the excess of (i) such Lender's
Revolving Commitment at such time over (ii) the sum of (x) the principal amount
of Revolving Loans made by such Lender and outstanding at such time, and (y)
such Lender's Revolving Facility Percentage of Letter of Credit Outstandings at
such time.

     "UNUTILIZED SWING LINE COMMITMENT" shall mean, at any time, the excess of
(i) the Swing Line Commitment at such time over (ii) the aggregate principal
amount of all Swing Line Loans then outstanding.

     "UNUTILIZED TOTAL COMMITMENT" shall mean, at any time, the excess of (i)
the Total Commitment at such time over (ii) the sum of (x) the aggregate
principal amount of all Loans then outstanding plus (y) the aggregate Letter of
Credit Outstandings at such time.

     "UNUTILIZED TOTAL REVOLVING COMMITMENT" shall mean, at any time, the excess
of (i) the Total Revolving Commitment at such time over (ii) the sum of (x) the
aggregate principal amount of all Revolving Loans then outstanding plus (y) the
aggregate Letter of Credit Outstandings at such time.

     "USA PATRIOT ACT" means the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT Act)
Act of 2001.

     "WHOLLY-OWNED SUBSIDIARY" shall mean each Subsidiary of the Borrower at
least 95% of whose capital stock, equity interests and partnership interests,
other than director's qualifying shares or similar interests, are owned directly
or indirectly by the Borrower.

     "WRITTEN", "WRITTEN" or "IN WRITING" shall mean any form of written
communication or a communication by means of telex, facsimile transmission,
telegraph or cable.

     1.2. COMPUTATION OF TIME PERIODS. In this Agreement in the computation of
periods of time from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" each means "to but
excluding".

     1.3. ACCOUNTING TERMS. Except as otherwise specifically provided herein,
all terms of an accounting or financial nature shall be construed in accordance
with GAAP, as in effect from time to time; PROVIDED that, if the Borrower
notifies the Administrative Agent that the Borrower requests an amendment to any
provision of section 8 or 9 hereof to eliminate the effect of any change
occurring after the Effective Date in GAAP or in the application thereof to such
provision (or if the Administrative Agent notifies the Borrower that the
Required Lenders request an amendment to any such provision hereof for such
purposes), regardless of whether any such notice is given before or after such
change in GAAP or in the application thereof, then such provision shall be
interpreted on the basis of GAAP as in effect and applied immediately before
such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance with the requirements of this
Agreement.

     1.4. TERMS GENERALLY. The definitions of terms herein shall apply equally
to the singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include", "includes" and "including" shall be deemed to
be followed by the phrase "without limitation". The word "will" shall be
construed to have the same meaning and effect as the word "shall". Unless the
context requires otherwise, (a) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring to such
agreement, instrument or other document


                                       20



as from time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person's successors and assigns, (c) the words "herein", "hereof" and
"hereunder", and words of similar import, shall be construed to refer to this
Agreement in its entirety and not to any particular provision hereof, (d) all
references herein to sections, Annexes and Exhibits shall be construed to refer
to sections of, and Annexes and Exhibits to, this Agreement, and (e) the words
"asset" and "property" shall be construed to have the same meaning and effect
and to refer to any and all real property, tangible and intangible assets and
properties, including cash, securities, accounts and contract rights, and
interests in any of the foregoing.

     1.5. CURRENCY EQUIVALENTS. For purposes of this Agreement, except as
otherwise specified herein, (i) the equivalent in Dollars of Alternative
Currency shall be determined by using the quoted spot rate at which the
Administrative Agent offers to exchange Dollars for Alternative Currency at its
Payment Office at 9:00 A.M. (local time at the Payment Office) two Business Days
prior to the date on which such equivalent is to be determined and (ii) the
equivalent in Alternative Currency of Dollars shall be determined by using the
quoted spot rate at which the Administrative Agent's Payment Office offers to
exchange Alternative Currency for Dollars at the Payment Office at 9:00 A.M.
(local time at the Payment Office) two Business Days prior to the date on which
such equivalent is to be determined; PROVIDED that (A) the equivalent in Dollars
of each Eurocurrency Loan made in Alternative Currency shall be, for the
purposes of determining the unused portion of each Lender's Commitment, or any
or all Loan or Loans outstanding on such date, calculated or recalculated, as
the case may be, on the date that the Eurocurrency Rate applicable to such Loan
is established, on the last day of the Interest Period applicable thereto, and
on each date that it shall be necessary (or the Administrative Agent shall
elect) to determine the unused portion of each Lender's Commitment; (B) the
equivalent in Dollars of any Unpaid Drawing in respect of any Letter of Credit
denominated in Alternative Currency shall be determined at the time the drawing
under such Letter of Credit was paid or disbursed by the applicable Letter of
Credit Issuer; (C) for purposes of determining the Letter of Credit Outstandings
or the Unutilized Total Revolving Commitment as contemplated by sections 2.1(a),
3.1(b) and 5.2, the equivalent in Dollars of the Stated Amount of any Letter of
Credit denominated in Alternative Currency shall be calculated (x) on the date
of the issuance of the respective Letter of Credit, and (y) in any other case
where the same is required or permitted to be calculated, on such other day as
the Administrative Agent may, in its sole discretion, consider appropriate; and
(D) for purposes of sections 4.1(b) and (c), the equivalent in Dollars of the
Stated Amount of any Letter of Credit denominated in Alternative Currency shall
be calculated for the applicable quarterly period at the time of invoicing for
such quarterly period in which the respective payment is due pursuant to said
sections.

     1.6. PRO FORMA CALCULATIONS. Notwithstanding anything to the contrary in
this Agreement, with respect to any period during which any Permitted
Acquisition or any Asset Sale occurs as permitted pursuant to the terms hereof,
for purposes of determining compliance with the covenants set forth in sections
9.7 and 9.8, such compliance shall be determined on the basis of Pro Forma
Compliance and, accordingly, Consolidated EBITDA, Consolidated Total Debt and
the Cash Flow Coverage Ratio shall be calculated with respect to such periods on
a Pro Forma Basis.

SECTION 2. AMOUNT AND TERMS OF LOANS

     2.1. COMMITMENTS FOR LOANS. Subject to and upon the terms and conditions
herein set forth, each Lender severally agrees to make a loan or loans (each a
"LOAN" and, collectively, the "LOANS") to the Borrower, which Loans shall be
drawn, to the extent such Lender has a commitment under a Facility for the
Borrower, under the applicable Facility, as set forth below:

     (A) REVOLVING FACILITY. Loans to the Borrower under the Revolving Facility
(each a "REVOLVING LOAN" and, collectively, the "REVOLVING LOANS"): (i) may be
incurred by the Borrower at any time and from time to time on and after the
Closing Date and prior to the date the Total Revolving Commitment expires or is
terminated; (ii) except as otherwise provided, may, at the option of the
Borrower be incurred and maintained as, or Converted into, Revolving Loans which
are Prime Rate Loans or Eurocurrency Loans, in each case denominated in Dollars
or Alternative Currency, PROVIDED that all Revolving Loans made as part of the
same Revolving Borrowing shall, unless otherwise specifically provided herein,
consist of Revolving Loans of the same Type and currency, and provided further
that the aggregate principle amount of loans denominated in Alternative Currency
shall not exceed at any time outstanding the Alternative Currency Sublimit;
(iii) may be repaid or prepaid and reborrowed in accordance with the provisions
hereof; (iv) may only be made if after giving effect thereto the Unutilized
Total


                                       21



Revolving Commitment exceeds the outstanding Swing Line Loans; and (v) shall not
exceed for any Lender at any time outstanding that aggregate principal amount
which, when added to the sum of (1) such Lender's Swing Line Exposure plus (2)
the product at such time of (A) such Lender's Revolving Facility Percentage,
TIMES (B) the aggregate Letter of Credit Outstandings, equals the Revolving
Commitment of such Lender at such time.

     (B) SWING LINE FACILITY. Loans to the Borrower under the Swing Line
Facility (each a "SWING LINE LOAN" and, collectively, the "SWING LINE LOANS"):
(i) shall be made only by the Swing Line Lender; (ii) may be made at any time
and from time to time on and after the Closing Date and prior to the earlier of
(x) the date the Swing Line Commitment expires or is terminated, or (y) the date
the Total Revolving Commitment expires or is terminated; (iii) shall be made
only in Dollars; (iv) shall have a maturity of no longer than one Business Day;
(v) may be incurred as either a Prime Rate Loan or a Money Market Rate Loan;
(vi) may be repaid or prepaid and reborrowed in accordance with the provisions
hereof; (vii) may only be made if after giving effect thereto the Unutilized
Total Revolving Commitment exceeds the outstanding Swing Line Loans; and (viii)
shall not exceed for the Swing Line Lender at any time outstanding its Swing
Line Commitment at such time; and (ix) shall not exceed in the aggregate, the
Swing Line Cap.

     (C) INCREASE IN REVOLVING CREDIT COMMITMENTS. (i) The Borrower may, by
written notice to the Administrative Agent from time to time, request that the
Total Revolving Commitment be increased by an amount not to exceed the
Incremental Revolving Facility Amount available at such time. Such notice shall
set forth the amount of the requested increase in the Total Revolving Commitment
(which shall be in minimum increments of $5,000,000 and a minimum amount of
$10,000,000 or equal to the Incremental Revolving Facility Amount available at
such time) and the date on which such increase is requested to become effective
(which shall be not less than 10 Business Days nor more than 60 days after the
date of such notice and which, in any event, must be on or prior to the
Revolving Maturity Date). Upon the approval of such request by the
Administrative Agent (which approval shall not be unreasonably withheld), the
Borrower may arrange for one or more banks or other entities, in each case
acceptable to the Administrative Agent (any such bank or other entity referred
to in this clause being an "INCREMENTAL REVOLVING LENDER"), which may include
any Lender, to extend Revolving Commitments or increase their existing Revolving
Commitments in an aggregate amount equal to the requested increase in the Total
Revolving Commitment. The Borrower and each Incremental Revolving Lender shall
execute all such documentation as the Administrative Agent shall reasonably
specify to evidence its Revolving Commitment and/or its status as a Lender with
a Revolving Commitment hereunder. Any increase in the Total Revolving Commitment
may be made in an amount which is less than the increase requested by the
Borrower if the Borrower is unable to arrange for Incremental Revolving Lenders.

     (ii) Each of the parties hereto agrees that the Administrative Agent may
take any and all actions as may be reasonably necessary to ensure that, after
giving effect to any increase in the Total Revolving Commitment pursuant to this
Section 2.1(c), the outstanding Revolving Loans (if any) are held by the Lenders
with Revolving Commitments in accordance with their new Revolving Facility
Percentages. This may be accomplished at the discretion of the Administrative
Agent (w) by requiring the outstanding Revolving Loans to be prepaid with the
proceeds of new Revolving Borrowings, (x) by causing Lenders to assign portions
of their outstanding Revolving Loans to other Lenders, (y) by permitting the
Revolving Borrowings outstanding at the time of any increase in the Total
Revolving Commitment pursuant to this section 2.1(c) to remain outstanding until
the last days of the respective Interest Periods therefor, even though the
Lenders would hold such Revolving Borrowings other than in accordance with their
new Revolving Facility Percentages, or (z) by any combination of the foregoing.
Any prepayment or assignment described in this paragraph (ii) shall be subject
to section 2.10 hereof but otherwise without premium or penalty.

     (iii) Notwithstanding the foregoing, no increase in the Total Revolving
Commitment (or in the Revolving Credit Commitment of any Lender) or addition of
a new Lender shall become effective under this section 2.1(c) unless, (x) on the
date of such increase, the conditions set forth in section 6.2 shall be
satisfied and the Administrative Agent shall have received a certificate to that
effect dated such date and executed by a responsible financial officer of the
Borrower, and (y) the Administrative Agent shall have received (with sufficient
copies for each of the Lenders with Revolving Commitments) legal opinions, board
resolutions and an officer's certificate consistent with those delivered on the
Closing Date under sections 6.1(e), (g) and (j) and such other items as the
Administrative Agent shall reasonably request.


                                       22



     2.2. MINIMUM BORROWING AMOUNTS, ETC.; PRO RATA BORROWINGS. (a) The
aggregate principal amount of each Borrowing by the Borrower shall not be less
than the Minimum Borrowing Amount. More than one Borrowing may be incurred by
the Borrower on any day, PROVIDED that (i) if there are two or more Borrowings
on a single day by the Borrower which consist of Eurocurrency Loans, each such
Borrowing shall have a different initial Interest Period, (ii) only one
Borrowing may be made under the Swing Line Facility on any day, and (iii) at no
time shall there be more than 8 Borrowings of Eurocurrency Loans outstanding
hereunder.

     (b) All Borrowings under the Revolving Facility shall be made by the
Lenders having Revolving Commitments PRO RATA on the basis of their respective
Revolving Commitments. It is understood that no Lender shall be responsible for
any default by any other Lender in its obligation to make Loans hereunder and
that each Lender shall be obligated to make the Loans provided to be made by it
hereunder, regardless of the failure of any other Lender to fulfill its
Commitment hereunder.

     2.3. PROCEDURES FOR BORROWING AND DISBURSEMENT OF FUNDS. (a) NOTICE OF
BORROWING. Whenever the Borrower desires to incur Loans, it shall give the
Administrative Agent at its Notice Office,

          (A) BORROWINGS OF PRIME RATE LOANS UNDER THE REVOLVING FACILITY: in
     the case of any Borrowing under the Revolving Facility of Prime Rate Loans
     to be made hereunder, prior to 12:00 noon (local time at its Notice
     Office), at least one Business Day's prior written or telephonic notice
     thereof (in the case of telephonic notice, promptly confirmed in writing if
     so requested by the Administrative Agent); or

          (B) BORROWINGS OF EUROCURRENCY LOANS UNDER THE REVOLVING FACILITY
     DENOMINATED IN DOLLARS: in the case of any Borrowing under the Revolving
     Facility of Eurocurrency Loans denominated in Dollars to be made hereunder,
     prior to 12:00 noon (local time at its Notice Office), at least three
     Business Days' prior written or telephonic notice thereof (in the case of
     telephonic notice, promptly confirmed in writing if so requested by the
     Administrative Agent); or

          (C) BORROWINGS OF EUROCURRENCY LOANS UNDER THE REVOLVING FACILITIES
     DENOMINATED IN AN ALTERNATIVE CURRENCY: in the case of any Borrowing under
     the Revolving Facility of Eurocurrency Loans denominated in an Alternative
     Currency to be made hereunder, prior to 12:00 noon (local time at its
     Notice Office), at least five Business Days' prior written or telephonic
     notice thereof (in the case of telephonic notice, promptly confirmed in
     writing if so requested by the Administrative Agent); or

          (D) BORROWINGS UNDER THE SWING LINE FACILITY: in the case of any
     Borrowing under the Swing Line Facility of (1) a Prime Rate Loan to be made
     hereunder, prior to 1:00 P.M. (local time at its Notice Office), at least
     same Business Day's prior written or telephonic notice thereof (in the case
     of telephonic notice, promptly confirmed in writing if so requested by the
     Administrative Agent); or (2) a Money Market Rate Loan to be made
     hereunder, if the Administrative Agent shall have furnished the Borrower
     with a Quoted Rate therefor, prior to 1:00 P.M. (local time at its Notice
     Office), at least same Business Day's prior written or telephonic notice
     thereof (in the case of telephonic notice, promptly confirmed in writing if
     so requested by the Administrative Agent), which proposed Borrowing shall
     be within such period as the Administrative Agent shall have specified for
     such Quoted Rate.

Each such notice (each such notice, a "NOTICE OF BORROWING") shall (if requested
by the Administrative Agent to be confirmed in writing), be substantially in the
form of Exhibit B-1, and in any event shall be irrevocable and shall specify:
(i) the aggregate principal amount of the Loans to be made pursuant to such
Borrowing; (ii) the date of the Borrowing (which shall be a Business Day); (iii)
whether the Borrowing shall consist of Prime Rate Loans, Eurocurrency Loans or a
Money Market Rate Loan; (iv) if the Borrowing consists of a Swing Line Loan
which is a Money Market Rate Loan, the Quoted Rate therefor; (v) if the
requested Borrowing consists of Eurocurrency Loans, the Interest Period to be
initially applicable thereto; and (vi) in the case of a requested Borrowing of
Revolving Loans consisting of Loans which are Eurocurrency Loans whether the
Loans are to be denominated in Dollars or Alternative Currency. The stated
maturity date of any Swing Line Loan shall be the Business Day which immediately
follows the date such Swing Line Loan is made, subject to any reborrowing
thereof as provided in section 2.1(b). The Administrative Agent shall promptly
give each Lender written notice (or telephonic notice


                                       23



promptly confirmed in writing) of each proposed Revolving Borrowing, of such
Lender's proportionate share thereof and of the other matters covered by the
Notice of Borrowing relating thereto.

     (B) BORROWINGS OF EUROCURRENCY LOANS DENOMINATED IN ALTERNATIVE CURRENCY.
In the case of a proposed Borrowing comprised of Revolving Loans which are
Eurocurrency Loans denominated in Alternative Currency, the obligation of each
affected Lender to make its Eurocurrency Loan in Alternative Currency as part of
such Borrowing is subject to the confirmation by the Administrative Agent to the
Borrower not later than the fourth Business Day before the requested date of
such Borrowing that such Alternative Currency is readily and freely transferable
and convertible into Dollars. If the Administrative Agent shall not have
provided the confirmation referred to above the Administrative Agent shall
promptly notify the Borrower and each Lender, whereupon the Borrower may by
notice to the Administrative Agent not later than the third Business Day before
the requested date of such Borrowing, withdraw the Notice of Borrowing relating
to such requested Borrowing. If the Borrower does so withdraw such Notice of
Borrowing, the Borrowing requested in such Notice of Borrowing shall not occur
and the Administrative Agent shall promptly so notify each Lender. If the
Borrower does not so withdraw such Notice of Borrowing, the Administrative Agent
shall promptly so notify each Lender and such Notice of Borrowing shall be
deemed to be a Notice of Borrowing which requests a Borrowing of Loans comprised
of Eurocurrency Loans in an aggregate amount in Dollars equivalent, on the date
the Administrative Agent so notifies each Lender, to the amount of the
originally requested Borrowing in Alternative Currency and in such notice by the
Administrative Agent to each Lender the Administrative Agent shall state such
aggregate equivalent amount of such Borrowing in Dollars and such Lender's
ratable portion of such Borrowing.

     (C) BORROWINGS OF MONEY MARKET RATE LOANS. Whenever the Borrower proposes
to submit a Notice of Borrowing with respect to a Swing Line Loan which will be
a Money Market Rate Loan, it will prior to submitting such Notice of Borrowing
notify the Administrative Agent of its intention and request the Administrative
Agent to quote a fixed or floating interest rate (the "QUOTED RATE") to be
applicable thereto prior to the proposed maturity thereof. The Administrative
Agent will immediately so notify the Swing Line Lender, and if the Swing Line
Lender is agreeable to a particular interest rate for the proposed Money Market
Rate Loan if such Loan is made on or prior to a specified date, the
Administrative Agent shall quote such interest rate to the Borrower as the
Quoted Rate applicable to such proposed Money Market Rate Loan if made on or
before such specified date for a maturity of one Business Day as so proposed by
the Borrower. The Swing Line Lender contemplates that any Quoted Rate will be a
rate of interest which reflects a margin corresponding to (or greater than) the
Applicable Eurocurrency Margin in effect at the time of quotation of any Quoted
Rate over the then prevailing fully absorbed average cost of funds of the Swing
Line Lender, Federal Funds Effective Rate, commercial paper, call money,
overnite repurchase or other commonly quoted interest rate, in each case as
selected by the Swing Line Lender. Nothing herein shall be deemed to permit any
Lender other than the Swing Line Lender any right of approval with respect to a
Quoted Rate.

     (D) ACTIONS BY ADMINISTRATIVE AGENT ON TELEPHONE NOTICE. Without in any way
limiting the obligation of the Borrower to confirm in writing any telephonic
notice permitted to be given hereunder, the Administrative Agent may act prior
to receipt of written confirmation without liability upon the basis of such
telephonic notice believed by the Administrative Agent in good faith to be from
an Authorized Officer of the Borrower entitled to give telephonic notices under
this Agreement on behalf of the Borrower. In each such case, the Administrative
Agent's record of the terms of such telephonic notice shall be conclusive absent
manifest error.

     (E) DISBURSEMENT OF FUNDS. (i) No later than 2:00 P.M. (local time at the
Payment Office) on the date specified in each Notice of Borrowing, each Lender
will make available its PRO RATA share, if any, of each Borrowing requested to
be made on such date in the manner provided below. All amounts shall be made
available to the Administrative Agent in Dollars or Alternative Currency, as
applicable, and in immediately available funds at the Payment Office and the
Administrative Agent promptly will make available to the Borrower by depositing
to its account at the Payment Office the aggregate of the amounts so made
available in the type of funds received.

          (ii) Unless the Administrative Agent shall have been notified by any
     Lender prior to the date of Borrowing that such Lender does not intend to
     make available to the Administrative Agent its portion of the Borrowing or
     Borrowings to be made on such date, the Administrative Agent may assume
     that such Lender has made such amount available to the Administrative Agent
     on such date of Borrowing, and the Administrative Agent, in reliance upon
     such assumption, may (in its sole discretion and without any obligation to
     do so) make available to the Borrower a corresponding amount. If such
     corresponding


                                       24



     amount is not in fact made available to the Administrative Agent by such
     Lender and the Administrative Agent has made available same to the
     Borrower, the Administrative Agent shall be entitled to recover such
     corresponding amount from such Lender. If such Lender does not pay such
     corresponding amount forthwith upon the Administrative Agent's demand
     therefor, the Administrative Agent shall promptly notify the Borrower, and
     the Borrower shall immediately pay such corresponding amount to the
     Administrative Agent. The Administrative Agent shall also be entitled to
     recover from such Lender or the Borrower, as the case may be, interest on
     such corresponding amount in respect of each day from the date such
     corresponding amount was made available by the Administrative Agent to the
     Borrower to the date such corresponding amount is recovered by the
     Administrative Agent, at a rate per annum equal to (x) if paid by such
     Lender, the overnight Federal Funds Effective Rate, in the case of any Loan
     denominated in Dollars, or at the weighted average overnight or weekend
     borrowing rate for immediately available and freely transferable funds in
     the applicable Alternative Currency which is offered to the Administrative
     Agent in the international markets, in the case of any Loan denominated in
     Alternative Currency, or (y) if paid by the Borrower, the then applicable
     rate of interest, calculated in accordance with section 2.7, for the
     respective Loans (but without any requirement to pay any amounts in respect
     thereof pursuant to section 2.10).

          (iii) Nothing in this section 2.3(e) and no subsequent termination of
     the Commitments pursuant to section 4.2 or 4.3 shall be deemed to relieve
     any Lender from its obligation to fulfill its Commitment hereunder and in
     existence from time to time or to prejudice any rights which the Borrower
     may have against any Lender as a result of any default by such Lender
     hereunder.

     2.4. REFUNDING OF, OR PARTICIPATION IN, SWING LINE LOANS. (a) If any Event
of Default exists, the Swing Line Lender may, in its sole and absolute
discretion, direct that the Swing Line Loans owing to it be refunded by
delivering a notice to such effect to the Administrative Agent, specifying the
aggregate principal amount thereof (a "NOTICE OF SWING LINE REFUNDING").
Promptly upon receipt of a Notice of Swing Line Refunding, the Administrative
Agent shall give notice of the contents thereof to the Lenders and, unless an
Event of Default specified in section 10.1(h) in respect of the Borrower has
occurred, also to the Borrower. Each such Notice of Swing Line Refunding shall
be deemed to constitute delivery by the Borrower of a Notice of Borrowing
requesting Revolving Loans denominated in Dollars and consisting of Prime Rate
Loans in the amount of the Swing Line Loans to which it relates. Each Lender
with a Revolving Commitment (including the Swing Line Lender in its capacity as
a Lender) hereby unconditionally agrees (notwithstanding that any of the
conditions specified in section 6.2 hereof or elsewhere in this Agreement shall
not have been satisfied, but subject to the provisions of paragraph (b) below)
to make a Revolving Loan to the Borrower in an amount equal to such Lender's
Revolving Facility Percentage of the aggregate Dollar amount of the Swing Line
Loans to which such Notice of Swing Line Refunding relates. Each such Lender
shall make the amount of such Revolving Loan available to the Administrative
Agent in immediately available funds at the Payment Office not later than 2:00
P.M. (local time at the Payment Office), if such notice is received by such
Lender prior to 11:00 A.M. (local time at its Domestic Lending Office), or not
later than 2:00 P.M. (local time at the Payment Office) on the next Business
Day, if such notice is received by such Lender after such time. The proceeds of
such Revolving Loans shall be made immediately available to the Swing Line
Lender and applied by it to repay the principal amount of the Swing Line Loans
to which such Notice of Swing Line Refunding related.

     (b) If prior to the time a Revolving Loan would otherwise have been made as
provided above as a consequence of a Notice of Swing Line Refunding, any of the
events specified in section 10.1(h) shall have occurred in respect of the
Borrower or one or more of the Lenders with Revolving Commitments shall
determine that it is legally prohibited from making a Revolving Loan under such
circumstances, each Lender (other than the Swing Line Lender), or each Lender
(other than the Swing Line Lender) so prohibited, as the case may be, shall, on
the date such Revolving Loan would have been made by it (the "PURCHASE DATE"),
purchase an undivided participating interest in the outstanding Swing Line Loans
to which such Notice of Swing Line Refunding related, in an amount (the "SWING
LINE PARTICIPATION AMOUNT") equal to such Lender's Revolving Facility Percentage
of such Swing Line Loans. On the Purchase Date, each such Lender or each such
Lender so prohibited, as the case may be, shall pay to the Swing Line Lender in
immediately available funds, such Lender's Swing Line Participation Amount, and
promptly upon receipt thereof the Swing Line Lender shall, if requested by such
other Lender, deliver to such Lender a participation certificate, dated the date
of the Swing Line Lender's receipt of the funds from, and evidencing such
Lender's participating interest in such Swing Line Loans and its Swing Line
Participation Amount


                                       25



in respect thereof. If any amount required to be paid by a Lender to the Swing
Line Lender pursuant to the above provisions in respect of any Swing Line
Participation Amount is not paid on the date such payment is due, such Lender
shall pay to the Swing Line Lender on demand interest on the amount not so paid
at the overnight Federal Funds Effective Rate from the due date until such
amount is paid in full.

     (c) Whenever, at any time after the Swing Line Lender has received from any
other Lender such Lender's Swing Line Participation Amount, the Swing Line
Lender receives any payment from or on behalf of the Borrower on account of the
related Swing Line Loans, the Swing Line Lender will promptly distribute to such
Lender its Revolving Facility Percentage of such payment on account of its Swing
Line Participation Amount (appropriately adjusted, in the case of interest
payments, to reflect the period of time during which such Lender's participating
interest was outstanding and funded); PROVIDED, HOWEVER, that in the event such
payment received by the Swing Line Lender is required to be returned, such
Lender will return to the Swing Line Lender any portion thereof previously
distributed to it by the Swing Line Lender.

     (d) Each Lender's obligation to make Revolving Loans and/or to purchase
participations in connection with a Notice of Swing Line Refunding (which shall
in all events be within such Lender's Unutilized Revolving Commitment, taking
into account all outstanding participations in connection with Swing Line
Refundings) shall be subject to the conditions that:

          (i) such Lender shall have received a Notice of Swing Line Refunding
     complying with the provisions hereof, and

          (ii) at the time the Swing Line Loans which are the subject of such
     Notice of Swing Line Refunding were made, the Swing Line Lender had no
     actual written notice from another Lender notifying the Swing Line Lender
     that an Event of Default had occurred and was continuing under this
     Agreement and that any further increases in the aggregate principal amount
     of Swing Line Loans would not be entitled to the benefit of the
     participation arrangements provided in this section 2.4,

but otherwise shall be absolute and unconditional, shall be solely for the
benefit of the Swing Line Lender and shall not be affected by any circumstance,
including, without limitation, (A) any set-off, counterclaim, recoupment,
defense or other right which such Lender may have against any other Lender, any
Credit Party, or any other Person, or any Credit Party may have against any
Lender or other Person, as the case may be, for any reason whatsoever; (B) the
occurrence or continuance of a Default or Event of Default; (C) any event or
circumstance involving a Material Adverse Effect upon the Borrower; (D) any
breach of any Credit Document by any party thereto; or (E) any other
circumstance, happening or event, whether or not similar to any of the
foregoing.

     2.5. NOTES; LOAN ACCOUNTS (a) FORMS OF NOTES. The obligation of the
Borrower to pay the principal of, and interest on, the Loans made to it by each
Lender shall be evidenced hereunder and (i) if a Revolving Loan, and if so
requested by any Lender with a Revolving Commitment, by a promissory note of the
Borrower substantially in the form of Exhibit A-1 with blanks appropriately
completed in conformity herewith (each a "REVOLVING NOTE" and, collectively, the
"REVOLVING NOTES"), and (ii) if a Swing Line Loan, by a promissory note of the
Borrower substantially in the form of Exhibit A-2 with blanks appropriately
completed in conformity herewith (the "SWING LINE NOTE").

     (B) REVOLVING NOTES. The Revolving Note issued by the Borrower to a Lender
with a Revolving Commitment shall: (i) be executed only by the Borrower; (ii) be
payable to the order of such Lender and be dated on or prior to the Closing
Date; (iii) be payable in the principal amount of Revolving Loans evidenced
thereby; (iv) mature on the Maturity Date; (v) bear interest as provided in
section 2.7 in respect of the Prime Rate Loans or Eurocurrency Loans, as the
case may be, evidenced thereby; (vi) be subject to mandatory prepayment as
provided in section 5.2; and (vii) be entitled to the benefits of this Agreement
and the other Credit Documents.

     (C) SWING LINE NOTE. The Swing Line Revolving Note issued to the Swing Line
Lender shall: (i) be executed by the Borrower; (ii) be payable to the order of
such Lender and be dated on or prior to the date the first Loan evidenced
thereby is made; (iii) be in a stated principal amount equal to the Swing Line
Commitment of such Lender and be payable in the principal amount of Swing Line
Loans evidenced thereby; (iv) mature as to any Swing Line Loan evidenced thereby
on the first Business Day following the date such Swing Line Loan was made; (v)
bear


                                       26



interest as provided in section 2.7 in respect of the Prime Rate Loans or Money
Market Rate Loans, as the case may be, evidenced thereby; (vi) be subject to
mandatory prepayment as provided in section 5.2; and (vii) be entitled to the
benefits of this Agreement and the other Credit Documents.

     (D) LOAN ACCOUNTS OF LENDERS. Each Lender shall maintain in accordance with
its usual practice an account or accounts evidencing the indebtedness of the
Borrower to such Lender resulting from each Loan made by such Lender, including
the amounts of principal and interest payable and paid to such Lender from time
to time hereunder.

     (E) LOAN ACCOUNTS OF ADMINISTRATIVE AGENT. The Administrative Agent shall
maintain accounts in which it shall record (i) the amount of each Loan made
hereunder, the Type thereof, and the particular Facility under which such Loan
was made, (ii) the Interest Period and applicable interest rate if such Loan is
a Eurocurrency Loan, (iii) the maturity date and interest rate if such Loan is a
Swing Line Loan, (iv) the amount of any principal due and payable or to become
due and payable from the Borrower to each Lender hereunder, and (v) the amount
of any sum received by the Administrative Agent hereunder for the account of the
Lenders and each Lender's share thereof.

     (F) EFFECT OF LOAN ACCOUNTS, ETC. The entries made in the accounts
maintained pursuant to section 2.5(d) and (e) shall be PRIMA FACIE evidence of
the existence and amounts of payments and amounts of the obligations recorded
therein; PROVIDED, that the failure of any Lender or the Administrative Agent to
maintain such accounts or any error therein shall not in any manner affect the
obligation of the Borrower to repay or prepay the Loans in accordance with the
terms of this Agreement.

     (G) ENDORSEMENTS OF AMOUNTS ON NOTES PRIOR TO TRANSFER. Each Lender will,
prior to any transfer of any of the Notes issued to it by the Borrower, endorse
on the reverse side thereof or the grid attached thereto the outstanding
principal amount of Loans evidenced thereby. Failure to make any such notation
or any error in any such notation shall not affect the Borrower's obligations in
respect of such Loans.

     2.6. VOLUNTARY CONVERSIONS OF REVOLVING LOANS DENOMINATED IN DOLLARS.

     The Borrower shall have the option to Convert on any Business Day all or a
portion at least equal to the applicable Minimum Borrowing Amount of the
outstanding principal amount of its Revolving Loans denominated in Dollars of
one Type owing by it into a Revolving Borrowing or Revolving Borrowings of
another Type of Loans denominated in Dollars, PROVIDED that:

          (i) any Conversion of Eurocurrency Loans into Prime Rate Loans shall
     be made on, and only on, the last day of an Interest Period for such
     Eurocurrency Loans;

          (ii) Prime Rate Loans may only be Converted into Eurocurrency Loans if
     no Default under section 10.1(a) or Event of Default is in existence on the
     date of the Conversion unless the Required Lenders otherwise agree;

          (iii) Prime Rate Loans may not be Converted into Eurocurrency Loans
     during any period when such Conversion is not permitted under section 2.9;
     and

          (iv) Borrowings of Eurocurrency Loans resulting from this section 2.6
     shall conform to the requirements of section 2.2.

Each such Conversion shall be effected by the Borrower giving the Administrative
Agent at its Notice Office, prior to 12:00 noon (local time at such Notice
Office), at least three Business Days', in the case of Conversion into a
Eurocurrency Loans (or prior to 12:00 noon (local time at such Notice Office)
same Business Day's, in the case of a Conversion into Prime Rate Loans), prior
written notice (or telephonic notice promptly confirmed in writing if so
requested by the Administrative Agent) (each a "NOTICE OF CONVERSION"),
substantially in the form of Exhibit B-2, specifying the Revolving Loans to be
so Converted, the Type of Loans to be Converted into and, if to be Converted
into a Borrowing of Eurocurrency Loans, the Interest Period to be initially
applicable thereto. The Administrative Agent shall give each Lender prompt
notice of any such proposed Conversion. For the avoidance of doubt, the


                                       27



prepayment or repayment of any Revolving Loans out of the proceeds of other
Revolving Loans by the Borrower is not considered a Conversion of Revolving
Loans into other Revolving Loans. Revolving Loans denominated in Alternative
Currency may be continued as Revolving Loans denominated in Alternative
Currency, bearing interest based on the Eurocurrency Rate, at the end of any
relevant Interest Period.

     2.7. INTEREST. (a) INTEREST ON PRIME RATE LOANS. During such periods as a
Revolving Loan is a Prime Rate Loan, it shall bear interest at a fluctuating
rate per annum which shall at all times be equal to the Prime Rate in effect
from time to time PLUS the Applicable Prime Rate Margin in effect from time to
time for such Revolving Loan.

     (B) INTEREST ON EUROCURRENCY LOANS. During such periods as a Revolving Loan
is a Eurocurrency Loan, it shall bear interest at a rate per annum which shall
at all times during an Interest Period therefor be the relevant Eurocurrency
Rate for such Eurocurrency Loan for such Interest Period PLUS the Applicable
Eurocurrency Margin in effect from time to time for such Revolving Loan.

     (C) INTEREST ON MONEY MARKET RATE LOANS. During such periods as a Swing
Line Loan is a Money Market Rate Loan, it shall bear interest until maturity
(whether by acceleration or otherwise) at the rate per annum which shall be
equal to the Quoted Rate therefor.

     (D) DEFAULT INTEREST. Notwithstanding the above provisions, if a Default
under section 10.1(a) or Event of Default is in existence, all outstanding
amounts of principal and, to the extent permitted by law, all overdue interest,
in respect of each Loan shall (i) at the election of the Required Lenders bear
interest, payable on demand, at a rate per annum equal to 2% per annum above the
interest rate which is or would be applicable from time to time pursuant to
section 2.7(a) or (ii) in the event such an election is not made by the Required
Lenders, at the rate specified in subpart (C) of section 2.7(g). If any amount
(other than the principal of and interest on the Loans) payable by the Borrower
under the Credit Documents is not paid when due, such amount shall at the option
of the Required Lenders bear interest, payable on demand, at a rate per annum
equal to 2% per annum above the interest rate which is or would be applicable
from time to time pursuant to section 2.7(a).

     (E) ACCRUAL AND PAYMENT OF INTEREST. Interest shall accrue from and
including the date of any Borrowing to but excluding the date of any prepayment
or repayment thereof and shall be payable:

          (i) in respect of any Swing Line Loan, monthly in arrears on the first
     Business Day of the next succeeding month;

          (ii) in respect of each Prime Rate Loan under the Revolving Facility,
     quarterly in arrears on each April 1, July 1, October 1 and January 1, and

          (iii) in respect of each Eurocurrency Loan under the Revolving
     Facility, on the last day of each Interest Period applicable thereto and,
     in the case of an Interest Period in excess of three months, on the dates
     which are successively three months after the commencement of such Interest
     Period, and

          (iv) in the case of any Loan under any Facility, on any repayment,
     prepayment or Conversion (on the amount repaid, prepaid or Converted), at
     maturity (whether by acceleration or otherwise) and, after such maturity,
     on demand.

     (F) COMPUTATIONS OF INTEREST. All computations of interest hereunder shall
be made in accordance with section 12.7(b).

     (G) INTEREST RATE MARGINS. As used herein the terms "APPLICABLE PRIME RATE
MARGIN", "APPLICABLE EUROCURRENCY MARGIN" and "APPLICABLE COMMITMENT FEE" shall
mean the particular rate per annum determined by the Administrative Agent in
accordance with the Pricing Grid Table which appears below (the "PRICING GRID
TABLE"), based on the Borrower's ratio of Consolidated Total Debt to
Consolidated EBITDA, as computed in accordance with section 9.7 hereof, and such
Pricing Grid Table, and the following provisions:


                                       28



          (A) Initially, until changed hereunder in accordance with the
     following provisions, the Applicable Prime Rate Margin for Revolving Loans
     and Swing Line Loans will be 0 basis points per annum, the Applicable
     Eurocurrency Margin for Revolving Loans will be 100 basis points per annum,
     and the Applicable Commitment Fee shall be 25 basis points per annum.

          (B) Commencing with the fiscal quarter of the Borrower ended on or
     nearest to December 31, 2005, and continuing with each fiscal quarter
     thereafter, the Administrative Agent will determine the Applicable Prime
     Rate Margin or Applicable Eurocurrency Margin for any Revolving Loan or
     Swing Line Loan and the Applicable Commitment Fee in accordance with the
     Pricing Grid Table, based on the Borrower's ratio of (x) Consolidated Total
     Debt as of the end of the fiscal quarter, to (y) Consolidated EBITDA for
     the Testing Period ended on the last day of the fiscal quarter, as computed
     in accordance with section 9.7 hereof, and identified in such Pricing Grid
     Table. Changes in the Applicable Prime Rate Margin, Applicable Eurocurrency
     Margin or Applicable Commitment Fee based upon changes in such ratio shall
     become effective on the first day of the month following the receipt by the
     Administrative Agent pursuant to section 8.1(a) or (b) of the financial
     statements of the Borrower, accompanied by the certificate and calculations
     referred to in section 8.1(c), demonstrating the computation of such ratio,
     based upon the ratio in effect at the end of the applicable period covered
     (in whole or in part) by such financial statements.

          (C) Notwithstanding the above provisions and subject to section
     2.7(d), during any period when (1) the Borrower has failed to timely
     deliver its consolidated financial statements referred to in section 8.1(a)
     or (b), accompanied by the certificate and calculations referred to in
     section 8.1(c), (2) a Default under section 10.1(a) has occurred and is
     continuing, or (3) an Event of Default has occurred and is continuing, the
     Applicable Prime Rate Margin and the Applicable Eurocurrency Margin for
     Revolving Loans and Swing Line Loans and the Applicable Commitment Fee
     shall be the highest rate per annum indicated therefor in the Pricing Grid
     Table, regardless of the Borrower's ratio of Consolidated Total Debt to
     Consolidated EBITDA at such time.

          (D) Any changes in the Applicable Prime Rate Margin or Applicable
     Eurocurrency Margin for Revolving Loans or Swing Line Loans and the
     Applicable Commitment Fee shall be determined by the Administrative Agent
     in accordance with the above provisions and the Administrative Agent will
     promptly provide notice of such determinations to the Borrower and the
     Lenders. Any such determination by the Administrative Agent pursuant to
     this section 2.7(g) shall be conclusive and binding absent manifest error.

                               PRICING GRID TABLE
                                       FOR
                      REVOLVING LOANS AND SWING LINE LOANS
                           (EXPRESSED IN BASIS POINTS)



                    RATIO OF
             CONSOLIDATED TOTAL DEBT                                   APPLICABLE      APPLICABLE
                       TO                          APPLICABLE PRIME   EUROCURRENCY   COMMITMENT FEE
               CONSOLIDATED EBITDA                    RATE MARGIN        MARGIN           RATE
             -----------------------               ----------------   ------------   --------------
                                                                            
Equal to or greater than 3.00                              0               100            25.0

Equal to or greater than 2.50 and less than 3.00           0                80            20.0

Equal to or greater than 2.00 and less than 2.50           0                70            17.5



                                       29





                    RATIO OF
             CONSOLIDATED TOTAL DEBT                                   APPLICABLE      APPLICABLE
                       TO                          APPLICABLE PRIME   EUROCURRENCY   COMMITMENT FEE
               CONSOLIDATED EBITDA                    RATE MARGIN        MARGIN           RATE
             -----------------------               ----------------   ------------   --------------
                                                                            
Equal to or greater than 1.50 and less than 2.00           0                60            15.0

Less than 1.50                                             0                50            12.5


     (H) INFORMATION AS TO INTEREST RATES. The Administrative Agent upon
determining the interest rate for any Borrowing shall promptly notify the
Borrower and the Lenders thereof. If the Administrative Agent is unable to
determine the Eurocurrency Rate for any Borrowing of Eurocurrency Loans based on
the quotation service referred to in clause (i) of the definition of the term
Eurocurrency Rate, it will promptly so notify the Reference Banks and each
Reference Bank will furnish the Administrative Agent timely information for the
purpose of determining the Eurocurrency Rate for such Borrowing. If any one or
more of the Reference Banks shall not timely furnish such information, the
Administrative Agent shall determine the Eurocurrency Rate for such Borrowing on
the basis of timely information furnished by the remaining Reference Banks.

     2.8. SELECTION AND CONTINUATION OF INTEREST PERIODS. (a) The Borrower shall
have the right

          (x) at the time it gives a Notice of Borrowing or Notice of Conversion
     in respect of the making of, or Conversion into, a Borrowing of
     Eurocurrency Loans, to select in such Notice the Interest Period to be
     applicable to such Borrowing, and

          (y) prior to 12:00 noon (local time at the Notice Office) on the third
     Business Day prior to the expiration of an Interest Period applicable to a
     Borrowing under the Revolving Facility of Eurocurrency Loans, to elect by
     giving the Administrative Agent written or telephonic notice (in the case
     of telephonic notice, promptly confirmed in writing if so requested by the
     Administrative Agent) to Continue all or the Minimum Borrowing Amount of
     the principal amount of such Revolving Loans as one or more Borrowings of
     Eurocurrency Loans and to select the Interest Period to be applicable to
     any such Borrowing (any such notice, a "NOTICE OF CONTINUATION"),

which Interest Period shall, at the option of the Borrower, be a one, two, three
or six month period; PROVIDED, that notwithstanding anything to the contrary
contained above, the Borrower's right to select an Interest Period or to effect
any Continuation shall be subject to the applicable provisions of section 2.9
and to the following:

          (i) the initial Interest Period for any Borrowing of Eurocurrency
     Loans shall commence on the date of such Borrowing (the date of a Borrowing
     resulting from a Conversion or Continuation shall be the date of such
     Conversion or Continuation) and each Interest Period occurring thereafter
     in respect of such Borrowing shall commence on the day on which the next
     preceding Interest Period expires;

          (ii) if any Interest Period begins on a day for which there is no
     numerically corresponding day in the calendar month at the end of such
     Interest Period, such Interest Period shall end on the last Business Day of
     such calendar month;

          (iii) if any Interest Period would otherwise expire on a day which is
     not a Business Day, such Interest Period shall expire on the next
     succeeding Business Day, PROVIDED that if any Interest Period would
     otherwise expire on a day which is not a Business Day but is a day of the
     month after which no further Business Day occurs in such month, such
     Interest Period shall expire on the next preceding Business Day;


                                       30


          (iv) no Interest Period for any Eurocurrency Loan may be selected
     which would end after the Maturity Date applicable thereto;

          (v) each Borrowing resulting from a Continuation shall be in at least
     the Minimum Borrowing Amount applicable thereto; and

          (vi) no Interest Period may be elected at any time when a Default
     under section 10.1(a) or an Event of Default is then in existence unless
     the Required Lenders otherwise agree.

     (b) If upon the expiration of any Interest Period the Borrower has failed
to (or may not) elect a new Interest Period to be applicable to the respective
Borrowing of Eurocurrency Loans as provided above, in the case of any such
Eurocurrency Loans which are denominated in Dollars, the Borrower shall be
deemed to have elected to convert such Borrowing to Prime Rate Loans effective
as of the expiration date of such current Interest Period, and in the case of
any such Eurocurrency Loans which are denominated in Alternative Currency, the
Borrower shall be deemed to have elected effective as of the expiration date of
such current Interest Period to continue such Loans in such Alternative Currency
with an Interest Period of one month.

     2.9. INCREASED COSTS, ILLEGALITY, ETC. (a) In the event that (x) in the
case of clause (i) below, the Administrative Agent or (y) in the case of clauses
(ii) and (iii) below, any Lender, shall have determined on a reasonable basis
(which determination shall, absent manifest error, be final and conclusive and
binding upon all parties hereto):

          (i) on any date for determining the Eurocurrency Rate for Eurocurrency
     Loans denominated in Dollars or in Alternative Currency for any Interest
     Period that, by reason of any changes arising after the Effective Date
     affecting the interbank Eurocurrency market, adequate and fair means do not
     exist for ascertaining the applicable interest rate on the basis provided
     for in the definition of Eurocurrency Rate; or

          (ii) at any time, that such Lender shall incur increased costs or
     reductions in the amounts received or receivable hereunder in an amount
     which such Lender deems material with respect to any Eurocurrency Loans
     (other than any increased cost or reduction in the amount received or
     receivable resulting from the imposition of or a change in the rate of
     taxes or similar charges) because of (x) any change since the Effective
     Date in any applicable law, governmental rule, regulation, guideline, order
     or request (whether or not having the force of law), or in the
     interpretation or administration thereof and including the introduction of
     any new law or governmental rule, regulation, guideline, order or request
     (such as, for example, but not limited to, a change in official reserve
     requirements, but, in all events, excluding reserves includable in the
     Eurocurrency Rate pursuant to the definition thereof) and/or (y) other
     circumstances adversely affecting the interbank Eurocurrency market or the
     position of such Lender in such market; or

          (iii) at any time, that the making or continuance of any Eurocurrency
     Loan denominated in Dollars or in Alternative Currency has become unlawful
     by compliance by such Lender in good faith with any change since the
     Effective Date in any law, governmental rule, regulation, guideline or
     order, or the interpretation or application thereof, or would conflict with
     any thereof not having the force of law but with which such Lender
     customarily complies or has become impracticable as a result of a
     contingency occurring after the Effective Date which materially adversely
     affects the interbank Eurocurrency market;

THEN, and in any such event, such Lender (or the Administrative Agent in the
case of clause (i) above) shall (x) on or promptly following such date or time
and (y) within 10 Business Days of the date on which such event no longer exists
give notice (by telephone confirmed in writing) to the Borrower and to the
Administrative Agent of such determination (which notice the Administrative
Agent shall promptly transmit to each of the other applicable Lenders).
Thereafter (x) in the case of clause (i) above, Eurocurrency Loans shall no
longer be available in the applicable currency until such time as the
Administrative Agent notifies the Borrower and the applicable Lenders that the
circumstances giving rise to such notice by the Administrative Agent no longer
exist, and any Notice of Borrowing, Notice of Conversion or Notice of
Continuation given by the Borrower or with respect to Eurocurrency Loans
denominated in Dollars or in Alternative Currency which have not yet been
incurred, Converted or Continued shall be deemed rescinded or, in the case of a
Notice of Borrowing, shall, at the option of the Borrower, be deemed


                                       31



converted into a Notice of Borrowing for Prime Rate Loans to be made on the date
of Borrowing contained in such Notice of Borrowing, (y) in the case of clause
(ii) above, the Borrower shall pay to such Lender, upon written demand therefor,
such additional amounts (in the form of an increased rate of, or a different
method of calculating, interest or otherwise as such Lender shall determine) as
shall be required to compensate such Lender, for such increased costs or
reductions in amounts receivable hereunder (a written notice as to the
additional amounts owed to such Lender, showing the basis for the calculation
thereof, which basis must be reasonable, submitted to the Borrower by such
Lender shall, absent manifest error, be final and conclusive and binding upon
all parties hereto) and (z) in the case of clause (iii) above, the Borrower
shall take one of the actions specified in section 2.9(b) as promptly as
possible and, in any event, within the time period required by law.

     (b) At any time that any Eurocurrency Loan denominated in Dollars or in
Alternative Currency is affected by the circumstances described in section
2.9(a)(ii) or (iii), the Borrower may (and in the case of a Eurocurrency Loan
affected pursuant to section 2.9(a)(iii), shall) either (i) if the affected
Eurocurrency Loan is then being made pursuant to a Borrowing, by giving the
Administrative Agent telephonic notice (confirmed promptly in writing) thereof
on the same date that the Borrower was notified by a Lender pursuant to section
2.9(a)(ii) or (iii), cancel said Borrowing, convert the related Notice of
Borrowing into one requesting a Borrowing of Prime Rate Loans or require the
affected Lender to make its requested Revolving Loan as a Prime Rate Loan, or
(ii) if the affected Eurocurrency Loan is then outstanding, upon at least one
Business Day's notice to the Administrative Agent, require the affected Lender
to Convert each such Eurocurrency Loan into a Prime Rate Loan denominated in
Dollars, PROVIDED that if more than one Lender is affected at any time, then all
affected Lenders must be treated the same pursuant to this section 2.9(b).

     (c) If any Lender shall have determined that after the Effective Date, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
by law with the interpretation or administration thereof, or compliance by such
Lender or its parent corporation with any request or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank, or comparable agency, in each case made subsequent to the Effective Date,
has or would have the effect of reducing by an amount reasonably deemed by such
Lender to be material the rate of return on such Lender's or its parent
corporation's capital or assets as a consequence of such Lender's commitments or
obligations hereunder to a level below that which such Lender or its parent
corporation could have achieved but for such adoption, effectiveness, change or
compliance (taking into consideration such Lender's or its parent corporation's
policies with respect to capital adequacy), then from time to time, within 15
days after demand by such Lender (with a copy to the Administrative Agent), the
Borrower shall pay to such Lender such additional amount or amounts as will
compensate such Lender or its parent corporation for such reduction. Each
Lender, upon determining in good faith that any additional amounts will be
payable pursuant to this section 2.9(c), will give prompt written notice thereof
to the Borrower, which notice shall set forth, in reasonable detail, the basis
of the calculation of such additional amounts, which basis must be reasonable,
although the failure to give any such notice shall not release or diminish any
of the Borrower's obligations to pay additional amounts pursuant to this section
2.9(c) upon the subsequent receipt of such notice.

     (d) Notwithstanding anything in this Agreement to the contrary, (i) no
Lender shall be entitled to compensation or payment or reimbursement of other
amounts under section 2.9, 3.5 or 5.4 for any amounts incurred or accruing more
than 270 days prior to the giving of notice to the Borrower of additional costs
or other amounts of the nature described in such sections, and (ii) no Lender
shall demand compensation for any reduction referred to in section 2.9(c) or
payment or reimbursement of other amounts under section 3.5 or 5.4 if it shall
not at the time be the general policy or practice of such Lender to demand such
compensation, payment or reimbursement in similar circumstances under comparable
provisions of other credit agreements.

     2.10. BREAKAGE COMPENSATION. The Borrower shall compensate each applicable
Lender, upon its written request (which request shall set forth the detailed
basis for requesting and the method of calculating such compensation), for all
reasonable losses, expenses and liabilities (including, without limitation, any
loss, expense or liability incurred by reason of the liquidation or reemployment
of deposits or other funds required by such Lender to fund its Eurocurrency
Loans or Money Market Rate Loans) which such Lender may sustain: (i) if for any
reason (other than a default by such Lender or the Administrative Agent), (A) a
Borrowing of Eurocurrency Loans does not occur on a date specified therefor in a
Notice of Borrowing, Notice of Conversion or Notice of Continuation


                                       32



(whether or not rescinded or withdrawn by or on behalf of the Borrower or deemed
rescinded or withdrawn pursuant to section 2.9(a)), or (B) a Borrowing of Money
Market Rate Loans does not occur on a date specified therefor in a Notice of
Borrowing; (ii) if any repayment, prepayment, Conversion or Continuation of any
of its Eurocurrency Loans occurs on a date which is not the last day of an
Interest Period applicable thereto; (iii) if any repayment or prepayment of any
Money Market Rate Loan occurs on a date which is not the maturity date thereof;
(iv) if any prepayment of any Eurocurrency Loans or Money Market Rate Loans, as
the case may be, is not made on any date specified in a notice of prepayment
given by or on behalf of the Borrower; (v) if the Borrower, pursuant to section
2.11(b) hereof, requires any Lender (other than a Defaulting Lender) to transfer
its Eurocurrency Loans and/or Money Market Rate Loans, as the case may be, on
any date other than the last day of the Interest Period or maturity date
thereof; or (vi) as a consequence of (x) any other default by the Borrower to
repay its Eurocurrency Loans or Money Market Rate Loans, as the case may be,
when required by the terms of this Agreement or (y) an election made pursuant to
section 2.9(b). Such loss, cost, expense and liability to any Lender shall be
deemed to include an amount determined by such Lender to be the excess, if any,
of (i) the amount of interest which would have accrued on the principal amount
of such Loan had such event not occurred, at the interest rate that would have
been applicable to such Loan, for the period from the date of such event to the
last day of the then current Interest Period therefor or the then maturity date
thereof in the case of any Money Market Rate Loan (or, in the case of a failure
to effect a Borrowing, Conversion or Continuation, for the period that would
have been the Interest Period for such Loan or the period to maturity of such
Loan, in the case of a Money Market Rate Loan), over (ii) the amount of interest
which would accrue on such principal amount for such period at the interest rate
which such Lender would bid were it to bid, at the commencement of such period,
for Dollar deposits of a comparable amount and period from other banks in the
London interbank market. A certificate of any Lender setting forth any amount or
amounts that such Lender is entitled to receive pursuant to this section shall
be delivered to the Borrower and shall be conclusive absent convincing evidence
of error. The Borrower shall pay such Lender the amount shown as due on any such
request as soon as practicable but in any event within 30 days after receipt by
the Borrower thereof.

     2.11. CHANGE OF LENDING OFFICE; REPLACEMENT OF LENDERS. (a) Each Lender
agrees that, upon the occurrence of any event giving rise to the operation of
section 2.9(a)(ii) or (iii), 2.9(c), 3.5 or 5.4 with respect to such Lender, it
will, if requested by the Borrower, use reasonable efforts (subject to overall
policy considerations of such Lender) to designate another Applicable Lending
Office for any Loans or Commitment affected by such event, PROVIDED that such
designation is made on such terms that such Lender and its Applicable Lending
Office suffer no economic, legal or regulatory disadvantage, with the object of
avoiding the consequence of the event giving rise to the operation of any such
section.

     (b) If any Lender requests any compensation, reimbursement or other payment
under section 2.9(a)(ii) or (iii), 2.9(c) or 3.5 with respect to such Lender, or
if the Borrower is required to pay any additional amount to any Lender or
governmental authority pursuant to section 5.4, or if any Lender is a Defaulting
Lender, then the Borrower may, at its sole expense and effort, upon notice to
such Lender and the Administrative Agent, require such Lender to assign and
delegate, without recourse (in accordance with the restrictions contained in
section 12.4(b)), all its interests, rights and obligations under this Agreement
to an assignee that shall assume such obligations (which assignee may be another
Lender, if a Lender accepts such assignment); PROVIDED that (i) the Borrower
shall have received the prior written consent of the Administrative Agent, which
consent shall not be unreasonably withheld, (ii) such Lender shall have received
payment of an amount equal to the outstanding principal of its Loans, accrued
interest thereon, accrued fees and all other amounts payable to it hereunder,
from the assignee (to the extent of such outstanding principal and accrued
interest and fees) or the Borrower (in the case of all other amounts, including
any breakage compensation under section 2.10 hereof), and (iii) in the case of
any such assignment resulting from a claim for compensation, reimbursement or
other payments required to be made under section 2.9(a)(ii) or (iii), 2.9(c) or
3.5 with respect to such Lender, or resulting from any required payments to any
Lender or governmental authority pursuant to section 5.4, such assignment will
result in a reduction in such compensation, reimbursement or payments. A Lender
shall not be required to make any such assignment and delegation if, prior
thereto, as a result of a waiver by such Lender or otherwise, the circumstances
entitling the Borrower to require such assignment and delegation cease to apply.

     (c) Nothing in this section 2.11 shall affect or postpone any of the
obligations of the Borrower or the right of any Lender provided in section 2.9,
3.5 or 5.4.


                                       33



SECTION 3. LETTERS OF CREDIT

     3.1. LETTERS OF CREDIT. (a) Subject to and upon the terms and conditions
herein set forth, the Borrower may request a Letter of Credit Issuer at any time
and from time to time on or after the Closing Date and prior to the date that is
60 Business Days prior to the Revolving Maturity Date to issue, for the account
of the Borrower or any of its Subsidiaries (the Borrower or any such Subsidiary,
a "LETTER OF CREDIT OBLIGOR"), and in support of worker compensation, liability
insurance, releases of contract retention obligations, contract performance
guarantee requirements and other bonding obligations of the Borrower or any such
other Letter of Credit Obligor incurred in the ordinary course of its business,
and such other standby obligations of the Borrower and the other Letter of
Credit Obligors that are acceptable to the Letter of Credit Issuer, and subject
to and upon the terms and conditions herein set forth, such Letter of Credit
Issuer agrees to issue from time to time, irrevocable standby letters of credit
denominated and payable in Dollars or Alternative Currency in such form as may
be approved by such Letter of Credit Issuer and the Administrative Agent (each
such letter of credit (and each Existing Letter of Credit described in section
3.1(d)), a "LETTER OF CREDIT" and collectively, the "LETTERS OF CREDIT").

     (b) Notwithstanding the foregoing, (i) no Letter of Credit shall be issued,
and the Stated Amount of any outstanding Letter of Credit shall not be
increased, if after giving effect thereto the Letter of Credit Outstandings
would exceed either (x) $25,000,000 or (y) when added to the aggregate principal
amount of all Revolving Loans and Swing Line Loans then outstanding, an amount
equal to the Total Revolving Commitment at such time; (ii) no individual Letter
of Credit (other than any Existing Letter of Credit) shall be issued which has
an initial Stated Amount less than $100,000 unless such lesser Stated Amount is
acceptable to the Letter of Credit Issuer; and (iii) each Letter of Credit shall
have an expiry date (including any renewal periods) occurring not later than the
earlier of (A) one year from the date of issuance thereof, unless a longer
period is approved by the relevant Letter of Credit Issuer and Lenders (other
than any Defaulting Lender) holding a majority of the Total Revolving
Commitment, and (B) 15 Business Days prior to the Revolving Maturity Date, in
each case on terms acceptable to the Administrative Agent and the relevant
Letter of Credit Issuer.

     (c) Notwithstanding the foregoing, in the event a Lender Default exists, no
Letter of Credit Issuer shall be required to issue any Letter of Credit unless
either (i) such Letter of Credit Issuer has entered into arrangements
satisfactory to it and the Borrower to eliminate such Letter of Credit Issuer's
risk with respect to the participation in Letters of Credit of the Defaulting
Lender or Lenders, including by cash collateralizing such Defaulting Lender's or
Lenders' Revolving Facility Percentage of the Letter of Credit Outstandings; or
(ii) the issuance of such Letter of Credit, taking into account the potential
failure of the Defaulting Lender or Lenders to risk participate therein, will
not cause the Letter of Credit Issuer to incur aggregate credit exposure
hereunder with respect to Revolving Loans and Letter of Credit Outstandings in
excess of its Revolving Commitment, and the Borrower has undertaken, for the
benefit of such Letter of Credit Issuer, pursuant to an instrument satisfactory
in form and substance to such Letter of Credit Issuer, not to thereafter incur
Loans or Letter of Credit Outstandings hereunder which would cause the Letter of
Credit Issuer to incur aggregate credit exposure hereunder with respect to
Revolving Loans and Letter of Credit Outstandings in excess of its Revolving
Commitment.

     (d) Annex VI hereto contains a description of all letters of credit
outstanding on, and to continue in effect after, the Closing Date. Each such
letter of credit issued by a bank that is or becomes a Lender under this
Agreement on the Effective Date (each, an "EXISTING LETTER OF CREDIT") shall
constitute a "Letter of Credit" for all purposes of this Agreement, issued, for
purposes of section 3.4(a), on the Closing Date, and the Borrower, the
Administrative Agent and the applicable Lenders hereby agree that, from and
after such date, the terms of this Agreement shall apply to such Letters of
Credit, superseding any other agreement theretofore applicable to them to the
extent inconsistent with the terms hereof.

     3.2. LETTER OF CREDIT REQUESTS: NOTICES OF ISSUANCE. (a) Whenever it
desires that a Letter of Credit be issued, the Borrower shall give the
Administrative Agent and the Letter of Credit Issuer written or telephonic
notice (in the case of telephonic notice, promptly confirmed in writing if so
requested by the Administrative Agent) which, if in the form of written notice
shall be substantially in the form of Exhibit B-3, or transmit by electronic
communication (if arrangements for doing so have been approved by the Letter of
Credit Issuer), prior to 12:00 noon (local time at its Notice Office) at least
three Business Days (or such shorter period as may be acceptable to the relevant
Letter of Credit Issuer), in the case of Letters of Credit denominated in
Dollars, or at least five Business Days, in the case of Letters of Credit
denominated in an Alternative Currency, prior to the proposed date of issuance


                                       34



(which shall be a Business Day) (each a "LETTER OF CREDIT REQUEST"), which
Letter of Credit Request shall include such supporting documents that such
Letter of Credit Issuer customarily requires in connection therewith (including,
in the case of a Letter of Credit for an account party other than the Borrower,
an application for, and if applicable a reimbursement agreement with respect to,
such Letter of Credit). Any such documents executed in connection with the
issuance of a Letter of Credit, including the Letter of Credit itself, are
herein referred to as "LETTER OF CREDIT DOCUMENTS". In the event of any
inconsistency between any of the terms or provisions of any Letter of Credit
Document and the terms and provisions of this Agreement respecting Letters of
Credit, the terms and provisions of this Agreement shall control. The
Administrative Agent shall promptly notify each Lender of each Letter of Credit
Request.

     (b) Each Letter of Credit Issuer shall, on the date of each issuance of a
Letter of Credit by it, give the Administrative Agent, each applicable Lender
and the Borrower written notice of the issuance of such Letter of Credit,
accompanied by a copy to the Administrative Agent of the Letter of Credit or
Letters of Credit issued by it. Each Letter of Credit Issuer shall provide to
the Administrative Agent a quarterly (or monthly if requested by any applicable
Lender) summary describing each Letter of Credit issued by such Letter of Credit
Issuer and then outstanding and an identification for the relevant period of the
daily aggregate Letter of Credit Outstandings represented by Letters of Credit
issued by such Letter of Credit Issuer.

     3.3. AGREEMENT TO REPAY LETTER OF CREDIT DRAWINGS. (a) The Borrower hereby
agrees to reimburse (or cause any Letter of Credit Obligor for whose account a
Letter of Credit was issued to reimburse) each Letter of Credit Issuer, by
making payment directly to such Letter of Credit Issuer in immediately available
funds at the payment office of such Letter of Credit Issuer, for any payment or
disbursement made by such Letter of Credit Issuer under any Letter of Credit
(each such amount so paid or disbursed until reimbursed, an "UNPAID DRAWING")
immediately after, and in any event on the date on which, such Letter of Credit
Issuer notifies the Borrower (or any such other Letter of Credit Obligor for
whose account such Letter of Credit was issued) of such payment or disbursement
(which notice to the Borrower (or such other Letter of Credit Obligor) shall be
delivered reasonably promptly after any such payment or disbursement), such
payment to be made in Dollars (and in the amount which is the Dollar equivalent
of any such payment or disbursement made or denominated in Alternative
Currency), with interest on the amount so paid or disbursed by such Letter of
Credit Issuer, to the extent not reimbursed prior to 1:00 P.M. (local time at
the payment office of the Letter of Credit Issuer) on the date of such payment
or disbursement, from and including the date paid or disbursed to but not
including the date such Letter of Credit Issuer is reimbursed therefor at a rate
per annum which shall be the rate then applicable to Prime Rate Loans (plus an
additional 2% per annum if not reimbursed on the date of such payment or
disbursement), any such interest also to be payable on demand.

     (b) The Borrower's obligation under this section 3.3 to reimburse, or cause
another Letter of Credit Obligor to reimburse, each Letter of Credit Issuer with
respect to Unpaid Drawings (including, in each case, interest thereon) shall be
absolute and unconditional under any and all circumstances and irrespective of
any setoff, counterclaim or defense to payment which the Borrower or any other
Letter of Credit Obligor may have or have had against such Letter of Credit
Issuer, the Administrative Agent, any other Letter of Credit Issuer or any
Lender, including, without limitation, any defense based upon the failure of any
drawing under a Letter of Credit to conform to the terms of the Letter of Credit
or any non-application or misapplication by the beneficiary of the proceeds of
such drawing, PROVIDED, HOWEVER that the Borrower shall not be obligated to
reimburse, or cause another Letter of Credit Obligor to reimburse, a Letter of
Credit Issuer for any wrongful payment made by such Letter of Credit Issuer
under a Letter of Credit as a result of acts or omissions constituting willful
misconduct or gross negligence on the part of such Letter of Credit Issuer.

     3.4. LETTER OF CREDIT PARTICIPATIONS. (a) Immediately upon the issuance by
a Letter of Credit Issuer of any Letter of Credit (and on the Closing Date with
respect to any Existing Letter of Credit), such Letter of Credit Issuer shall be
deemed to have sold and transferred to each Lender with a Revolving Commitment,
and each such Lender (each a "LC PARTICIPANT") shall be deemed irrevocably and
unconditionally to have purchased and received from such Letter of Credit
Issuer, without recourse or warranty, an undivided interest and participation,
to the extent of such Lender's Revolving Facility Percentage, in such Letter of
Credit, each substitute letter of credit, each drawing made thereunder, the
obligations of the Borrower under this Agreement with respect thereto (although
Letter of Credit Fees shall be payable directly to the Administrative Agent for
the account of the Lenders as provided in section 4.1(b) and the LC Participants
shall have no right to receive any portion of any fees of the nature


                                       35



contemplated by section 4.1(c)), the obligations of any Letter of Credit Obligor
under any Letter of Credit Documents pertaining thereto, and any security for,
or guaranty pertaining to, any of the foregoing. Upon any change in the
Revolving Commitments of the Lenders pursuant to section 12.4(b), it is hereby
agreed that, with respect to all outstanding Letters of Credit and Unpaid
Drawings, there shall be an automatic adjustment to the participations pursuant
to this section 3.4 to reflect the new Revolving Facility Percentages of the
assigning and assignee Lender.

     (b) In determining whether to pay under any Letter of Credit, a Letter of
Credit Issuer shall not have any obligation relative to the LC Participants
other than to determine that any documents required to be delivered under such
Letter of Credit have been delivered and that they appear to comply on their
face with the requirements of such Letter of Credit. Any action taken or omitted
to be taken by a Letter of Credit Issuer under or in connection with any Letter
of Credit if taken or omitted in the absence of gross negligence or willful
misconduct, shall not create for such Letter of Credit Issuer any resulting
liability.

     (c) In the event that a Letter of Credit Issuer makes any payment under any
Letter of Credit and the Borrower shall not have reimbursed (or caused any
applicable Letter of Credit Obligor to reimburse) such amount in full to such
Letter of Credit Issuer pursuant to section 3.3(a), such Letter of Credit Issuer
shall promptly notify the Administrative Agent, and the Administrative Agent
shall promptly notify each LC Participant of such failure, and each LC
Participant shall promptly and unconditionally pay to the Administrative Agent
for the account of such Letter of Credit Issuer, the amount of such LC
Participant's Revolving Facility Percentage of such payment in Dollars (the
Administrative Agent having determined in the case of any payment by a Letter of
Credit Issuer made in Alternative Currency the equivalent thereof in Dollars)
and in same day funds, PROVIDED, HOWEVER, that no LC Participant shall be
obligated to pay to the Administrative Agent its Revolving Facility Percentage
of such unreimbursed amount for any wrongful payment made by such Letter of
Credit Issuer under a Letter of Credit as a result of acts or omissions
constituting willful misconduct or gross negligence on the part of such Letter
of Credit Issuer. If the Administrative Agent so notifies any LC Participant
required to fund a payment under a Letter of Credit prior to 11:00 A.M. (local
time at its Notice Office) on any Business Day, such LC Participant shall make
available to the Administrative Agent for the account of the relevant Letter of
Credit Issuer such LC Participant's Revolving Facility Percentage of the amount
of such payment on such Business Day in same day funds. If and to the extent
such LC Participant shall not have so made its Revolving Facility Percentage of
the amount of such payment available to the Administrative Agent for the account
of the relevant Letter of Credit Issuer, such LC Participant agrees to pay to
the Administrative Agent for the account of such Letter of Credit Issuer,
forthwith on demand such amount, together with interest thereon, for each day
from such date until the date such amount is paid to the Administrative Agent
for the account of such Letter of Credit Issuer at the Federal Funds Effective
Rate. The failure of any LC Participant to make available to the Administrative
Agent for the account of the relevant Letter of Credit Issuer its Revolving
Facility Percentage of any payment under any Letter of Credit shall not relieve
any other LC Participant of its obligation hereunder to make available to the
Administrative Agent for the account of such Letter of Credit Issuer its
Revolving Facility Percentage of any payment under any Letter of Credit on the
date required, as specified above, but no LC Participant shall be responsible
for the failure of any other LC Participant to make available to the
Administrative Agent for the account of such Letter of Credit Issuer such other
LC Participant's Revolving Facility Percentage of any such payment.

     (d) Whenever a Letter of Credit Issuer receives a payment of a
reimbursement obligation as to which the Administrative Agent has received for
the account of such Letter of Credit Issuer any payments from the LC
Participants pursuant to section 3.4(c) above, such Letter of Credit Issuer
shall pay to the Administrative Agent and the Administrative Agent shall
promptly pay to each LC Participant which has paid its Revolving Facility
Percentage thereof, in Dollars and in same day funds, an amount equal to such LC
Participant's Revolving Facility Percentage of the principal amount thereof and
interest thereon accruing after the purchase of the respective participations,
as and to the extent so received.

     (e) The obligations of the LC Participants to make payments to the
Administrative Agent for the account of each Letter of Credit Issuer with
respect to Letters of Credit shall be irrevocable and not subject to
counterclaim, set-off or other defense or any other qualification or exception
whatsoever and shall be made in accordance with the terms and conditions of this
Agreement under all circumstances, including, without limitation, any of the
following circumstances:


                                       36



          (i) any lack of validity or enforceability of this Agreement or any of
     the other Credit Documents;

          (ii) the existence of any claim, set-off defense or other right which
     the Borrower (or any other Letter of Credit Obligor) may have at any time
     against a beneficiary named in a Letter of Credit, any transferee of any
     Letter of Credit (or any Person for whom any such transferee may be
     acting), the Administrative Agent, any Letter of Credit Issuer, any Lender,
     or other Person, whether in connection with this Agreement, any Letter of
     Credit, the transactions contemplated herein or any unrelated transactions
     (including any underlying transaction between the Borrower (or any other
     Letter of Credit Obligor) and the beneficiary named in any such Letter of
     Credit), other than any claim which the Borrower (or any other Letter of
     Credit Obligor which is the account party with respect to a Letter of
     Credit) may have against any applicable Letter of Credit Issuer for gross
     negligence or willful misconduct of such Letter of Credit Issuer in making
     payment under any applicable Letter of Credit;

          (iii) any draft, certificate or other document presented under the
     Letter of Credit proving to be forged, fraudulent, invalid or insufficient
     in any respect or any statement therein being untrue or inaccurate in any
     respect;

          (iv) the surrender or impairment of any security for the performance
     or observance of any of the terms of any of the Credit Documents: or

          (v) the occurrence of any Default or Event of Default.

     (f) To the extent the Letter of Credit Issuer is not indemnified by the
Borrower, the LC Participants will reimburse and indemnify the Letter of Credit
Issuer, in proportion to their respective Revolving Facility Percentages, for
and against any and all liabilities, obligations, losses, damages, penalties,
claims, actions, judgments, costs, expenses or disbursements of whatsoever kind
or nature which may be imposed on, asserted against or incurred by the Letter of
Credit Issuer in performing its respective duties in any way related to or
arising out of its issuance of Letters of Credit, PROVIDED that no LC
Participants shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, claims, actions, judgments, costs, expenses or
disbursements resulting from the Letter of Credit Issuer's gross negligence or
willful misconduct.

     3.5. INCREASED COSTS. If after the Effective Date, the adoption of any
applicable law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Letter of Credit Issuer or any Lender with any
request or directive (whether or not having the force of law) by any such
authority, central bank or comparable agency (in each case made subsequent to
the Effective Date) shall either (i) impose, modify or make applicable any
reserve, deposit, capital adequacy or similar requirement against Letters of
Credit issued by such Letter of Credit Issuer or such Lender's participation
therein, or (ii) shall impose on such Letter of Credit Issuer or any Lender any
other conditions affecting this Agreement, any Letter of Credit or such Lender's
participation therein; and the result of any of the foregoing is to increase the
cost to such Letter of Credit Issuer or such Lender of issuing, maintaining or
participating in any Letter of Credit, or to reduce the amount of any sum
received or receivable by such Letter of Credit Issuer or such Lender hereunder
(other than any increased cost or reduction in the amount received or receivable
resulting from the imposition of or a change in the rate of taxes or similar
charges), then, upon demand to the Borrower by such Letter of Credit Issuer or
such Lender (a copy of which notice shall be sent by such Letter of Credit
Issuer or such Lender to the Administrative Agent), the Borrower shall pay to
such Letter of Credit Issuer or such Lender such additional amount or amounts as
will compensate any such Letter of Credit Issuer or such Lender on an after tax
basis for such increased cost or reduction. A certificate submitted to the
Borrower by any Letter of Credit Issuer or any Lender, as the case may be (a
copy of which certificate shall be sent by such Letter of Credit Issuer or such
Lender to the Administrative Agent), setting forth, in reasonable detail, the
basis for the determination of such additional amount or amounts necessary to
compensate any Letter of Credit Issuer or such Lender as aforesaid shall be
conclusive and binding on the Borrower absent manifest error, although the
failure to deliver any such certificate shall not release or diminish any of the
Borrower's obligations to pay additional amounts pursuant to this section 3.5.
Reference is hereby made to the provisions of section 2.9(d) for certain
limitations upon the rights of a Letter of Credit Issuer or Lender under this
section.


                                       37



     3.6. GUARANTY OF LETTER OF CREDIT OBLIGATIONS OF OTHER LETTER OF CREDIT
OBLIGORS. (a) The Borrower hereby unconditionally guarantees, for the benefit of
the Administrative Agent and the Lenders, the full and punctual payment of the
Obligations of each other Letter of Credit Obligor under each Letter of Credit
Document to which such other Letter of Credit Obligor is now or hereafter
becomes a party. Upon failure by any such other Letter of Credit Obligor to pay
punctually any such amount, the Borrower shall forthwith on demand by the
Administrative Agent pay the amount not so paid at the place and in the currency
and otherwise in the manner specified in this Agreement or any applicable Letter
of Credit Document.

     (b) As a separate, additional and continuing obligation, the Borrower
unconditionally and irrevocably undertakes and agrees, for the benefit of the
Administrative Agent and the Lenders, that, should any amounts not be
recoverable from the Borrower under section 3.6(a) for any reason whatsoever
(including, without limitation, by reason of any provision of any Credit
Document or any other agreement or instrument executed in connection therewith
being or becoming void, unenforceable, or otherwise invalid under any applicable
law) then, notwithstanding any notice or knowledge thereof by any Lender, the
Administrative Agent, any of their respective Affiliates, or any other Person,
at any time, the Borrower as sole, original and independent obligor, upon demand
by the Administrative Agent, will make payment to the Administrative Agent, for
the account of the Lenders and the Administrative Agent, of all such obligations
not so recoverable by way of full payment therefor, in such currency and
otherwise in such manner as is provided in the Credit Documents.

     (c) The obligations of the Borrower under this section shall be
unconditional and absolute and, without limiting the generality of the foregoing
shall not be released, discharged or otherwise affected by the occurrence, one
or more times, of any of the following:

          (i) any extension, renewal, settlement, compromise, waiver or release
     in respect to any obligation of any other Letter of Credit Obligor under
     any Letter of Credit Document, by operation of law or otherwise;

          (ii) any modification or amendment of or supplement to this Agreement,
     any Note or any other Credit Document;

          (iii) any release, non-perfection or invalidity of any direct or
     indirect security for any obligation of the Borrower under this Agreement,
     any Note or any other Credit Document or of any other Letter of Credit
     Obligor under any Letter of Credit Document;

          (iv) any change in the corporate existence, structure or ownership of
     any other Letter of Credit Obligor or any insolvency, bankruptcy,
     reorganization or other similar proceeding affecting any other Letter of
     Credit Obligor or its assets or any resulting release or discharge of any
     obligation of any other Letter of Credit Obligor contained in any Letter of
     Credit Document;

          (v) the existence of any claim, set-off or other rights which the
     Borrower may have at any time against any other Letter of Credit Obligor,
     the Administrative Agent, any Lender or any other Person, whether in
     connection herewith or any unrelated transactions;

          (vi) any invalidity or unenforceability relating to or against any
     other Letter of Credit Obligor for any reason of any Letter of Credit
     Document, or any provision of applicable law or regulation purporting to
     prohibit the payment by any other Letter of Credit Obligor of any
     Obligations in respect of any Letter of Credit; or

          (vii) any other act or omission to act or delay of any kind by any
     other Letter of Credit Obligor, the Administrative Agent, any Lender or any
     other Person or any other circumstance whatsoever which might, but for the
     provisions of this section, constitute a legal or equitable discharge of
     the Borrower's obligations under this section.

     (d) The Borrower's obligations under this section shall remain in full
force and effect until the Commitments shall have terminated and the principal
of and interest on the Notes and all other amounts payable by


                                       38



the Borrower under the Credit Documents and by any other Letter of Credit
Obligor under the Letter of Credit Documents shall have been paid in full. If at
any time any payment of any of the Obligations of any other Letter of Credit
Obligor in respect of any Letter of Credit Documents is rescinded or must be
otherwise restored or returned upon the insolvency, bankruptcy or reorganization
of such other Letter of Credit Obligor, the Borrower's obligations under this
section with respect to such payment shall be reinstated at such time as though
such payment had been due but not made at such time.

     (e) The Borrower irrevocably waives acceptance hereof, presentment, demand,
protest and any notice not provided for herein, as well as any requirement that
at any time any action be taken by any Person against any other Letter of Credit
Obligor or any other Person, or against any collateral or guaranty of any other
Person.

     (f) Until the indefeasible payment in full of all of the Obligations and
the termination of the Commitments of the Lenders hereunder, the Borrower shall
have no rights, by operation of law or otherwise, upon making any payment under
this section to be subrogated to the rights of the payee against any other
Letter of Credit Obligor with respect to such payment or otherwise to be
reimbursed, indemnified or exonerated by any other Letter of Credit Obligor in
respect thereof.

     (g) In the event that acceleration of the time for payment of any amount
payable by any other Letter of Credit Obligor under any Letter of Credit
Document is stayed upon insolvency, bankruptcy or reorganization of such other
Letter of Credit Obligor, all such amounts otherwise subject to acceleration
under the terms of any applicable Letter of Credit Document shall nonetheless be
payable by the Borrower under this section forthwith on demand by the
Administrative Agent.

SECTION 4. FEES; COMMITMENTS

     4.1. FEES. (a) COMMITMENT FEES. The Borrower agrees to pay to the
Administrative Agent fees ("COMMITMENT FEES") for the account of each
Non-Defaulting Lender for the period from and including the Effective Date to,
but not including, the Maturity Date or, if earlier, the date upon which the
Total Revolving Commitment has been terminated, computed for each day at a rate
per annum equal to the Applicable Commitment Fee for such day on the amount of
such Lender's Revolving Facility Percentage of the Total Revolving Commitment
for such day. Commitment Fees shall be due and payable in arrears on April 1,
July 1, October 1 and January 1 and on the Maturity Date or, if earlier, the
date upon which the Total Revolving Commitment has been terminated.

     (B) LETTER OF CREDIT FEES. The Borrower agrees to pay to the Administrative
Agent, for the account of each Non-Defaulting Lender, PRO RATA on the basis of
its Revolving Facility Percentage, a fee in respect of each Letter of Credit
(the "LETTER OF CREDIT FEE"), computed for each day at the rate per annum equal
to the Applicable Eurocurrency Margin then in effect for Revolving Loans on the
Stated Amount of all Letters of Credit outstanding on such day. Accrued Letter
of Credit Fees shall be due and payable quarterly in arrears on each April 1,
July 1, October 1 and January 1 and on the date when the Total Revolving
Commitment expires or is terminated and no Letters of Credit remain outstanding.
The Borrower also agrees to pay to the Administrative Agent, for the account of
each Non-Defaulting Lender which has a Revolving Commitment, PRO RATA on the
basis of its Revolving Facility Percentage, additional Letter of Credit Fees, on
demand, at the rate of 200 basis points per annum, on the Stated Amount of each
Letter of Credit, for any period when a Default under section 10.1(a) or Event
of Default is in existence.

     (C) FACING FEES. The Borrower agrees to pay directly to each Letter of
Credit Issuer a fee in respect of each Letter of Credit issued by it (a "FACING
FEE"), computed for each day at the rate of 1/8 of 1% per annum on the Stated
Amount of such Letter of Credit issued by such Letter of Credit Issuer which is
outstanding on such day. Accrued Facing Fees shall be due and payable quarterly
in arrears on April 1, July 1, October 1 and January 1 and on the date on which
the Total Revolving Commitment expires or is terminated and no Letters of Credit
remain outstanding.

     (D) ADDITIONAL CHARGES OF LETTER OF CREDIT ISSUER. The Borrower agrees to
pay directly to each Letter of Credit Issuer upon each issuance of, drawing
under, and/or amendment, extension, renewal or transfer of, a Letter of Credit
issued by it such amount as shall at the time of such issuance, drawing,
amendment, extension, renewal or transfer be the administrative or processing
charge which such Letter of Credit Issuer is customarily


                                       39



charging for issuances of, drawings under or amendments, extensions, renewals or
transfers of, letters of credit issued by it.

     (E) OTHER FEES. The Borrower shall pay to the Administrative Agent and/or
the Lead Arranger, on the Effective Date and thereafter, for its or their own
account and/or for distribution to the Lenders, such fees as have heretofore
been agreed by the Borrower in a letter among the Borrower, the Administrative
Agent and the Lead Arranger.

     (F) COMPUTATIONS OF FEES. All computations of Fees shall be made in
accordance with section 12.7(b).

     4.2. VOLUNTARY TERMINATION/REDUCTION OF COMMITMENTS. Upon at least three
Business Days' prior written notice (or telephonic notice confirmed in writing)
to the Administrative Agent at its Notice Office (which notice the
Administrative Agent shall promptly transmit to each of the Lenders), the
Borrower shall have the right to:

     (a) terminate the Total Revolving Commitment, PROVIDED that (i) all
outstanding Loans are contemporaneously prepaid in accordance with section 5.1,
and (ii) either (A) no Letters of Credit remain outstanding, or (B) the Borrower
shall contemporaneously either (x) cause all outstanding Letters of Credit to be
surrendered for cancellation (any such Letters of Credit to be replaced by
letters of credit issued by other financial institutions acceptable to each
Letter of Credit Issuer and the Required Lenders), or (y) the Borrower shall pay
to the Collateral Agent an amount in cash and/or Cash Equivalents equal to 100%
of the Letter of Credit Outstandings and the Collateral Agent shall hold such
payment as security for the reimbursement obligations of the Borrower and the
other Letter of Credit Obligors in respect of Letters of Credit pursuant to a
cash collateral agreement to be entered into in form and substance reasonably
satisfactory to the Collateral Agent, each Letter of Credit Issuer and the
Borrower (which shall permit certain investments in Cash Equivalents
satisfactory to the Collateral Agent, each Letter of Credit Issuer and the
Borrower until the proceeds are applied to the secured obligations);

     (b) partially and permanently reduce the Total Revolving Commitment,
PROVIDED that:

          (i) any such reduction shall apply to proportionately and permanently
     reduce the Revolving Commitment of each of the Lenders;

          (ii) any partial reduction of the Total Revolving Commitment pursuant
     to this section 4.2(b) shall be in the amount of at least $5,000,000 (or,
     if greater, in integral multiples of $1,000,000);

          (iii) the Total Revolving Commitment as so reduced shall be at least
     $25,000,000; and

          (iv) after giving effect to any such partial reduction of the Total
     Revolving Commitment, (x) the Total Revolving Commitment then in effect
     shall exceed the aggregate of the Swing Line Commitment then in effect by
     at least $25,000,000, and (y) the resulting Total Revolving Commitment
     shall exceed the outstanding Swing Line Loans, if any, by at least
     $25,000,000;

     (c) partially and permanently reduce the Swing Line Commitment, PROVIDED
that any partial reduction of the Unutilized Swing Line Commitment pursuant to
this section 4.2(c) shall be in the amount of at least $1,000,000 (or, if
greater, in integral multiples of $1,000,000).

     4.3. MANDATORY ADJUSTMENTS OF COMMITMENTS, ETC. (a) The Total Revolving
Commitment (and the Revolving Commitment of each Lender) shall terminate on the
earlier of (x) the Maturity Date and (y) the date on which a Change of Control
occurs.

     (b) The Swing Line Commitment shall terminate on the earlier of (x) the
Maturity Date and (y) the date on which a Change of Control occurs.


                                       40



     (c) The Total Revolving Commitment shall be permanently reduced, without
premium or penalty, at the time that any mandatory prepayment of Revolving Loans
would be made pursuant to section 5.2(f), (g), (h) or (i) as if Revolving Loans
were then outstanding in the full amount of the Total Revolving Commitment, in
an amount equal to the required prepayment of principal of Revolving Loans which
would be required to be made in such circumstance; PROVIDED that no such
reduction in the Total Revolving Commitment shall be required as a result of any
required prepayment of Revolving Loans which would be attributable to the
receipt of Net Cash Proceeds representing proceeds of business interruption
insurance or insurance on inventory pursuant to section 5.2(h). Any such
required reduction shall apply to proportionately and permanently reduce the
Revolving Commitment of each of the Lenders. The Borrower will provide at least
three Business Days' prior written notice (or telephonic notice confirmed in
writing) to the Administrative Agent at its Notice Office (which notice the
Administrative Agent shall promptly transmit to each of the Lenders), of any
reduction of the Total Revolving Commitment pursuant to this section 4.3(c),
specifying the date and amount of the reduction.

SECTION 5. PAYMENTS

     5.1. VOLUNTARY PREPAYMENTS. The Borrower shall have the right to prepay any
of its Loans, in whole or in part, without premium or penalty, from time to
time, but only on the following terms and conditions:

     (A) NOTICES: the Borrower shall give the Administrative Agent at the Notice
Office written or telephonic notice (in the case of telephonic notice, promptly
confirmed in writing if so requested by the Administrative Agent) of its intent
to prepay the Loans, the amount of such prepayment and (in the case of
Eurocurrency Loans or Money Market Rate Loans) the specific Borrowing(s)
pursuant to which made, which notice shall be received by the Administrative
Agent by

          (i) 11:00 A.M. (local time at the Notice Office) three Business Days
     prior to the date of such prepayment, in the case of any prepayment of
     Eurocurrency Loans or Money Market Rate Loans, or

          (ii) 11:00 A.M. (local time at the Notice Office) on the date of such
     prepayment, in the case of any prepayment of Prime Rate Loans, and which
     notice shall promptly be transmitted by the Administrative Agent to each of
     the affected Lenders;

     (B) PARTIAL PREPAYMENTS OF REVOLVING BORROWING: in the case of prepayment
of a Borrowing under the Revolving Facility, each partial prepayment of such
Borrowing shall be in an aggregate principal of at least $2,500,000 or an
integral multiple of $500,000 in excess thereof, in the case where such
Borrowing consists of Prime Rate Loans, and at least $5,000,000 (or the
substantial equivalent thereof in Alternative Currency) or an integral multiple
of $1,000,000 (or the substantial equivalent thereof in Alternative Currency) in
excess thereof, in the case where such Borrowing consists of Eurocurrency Loans;

     (C) PARTIAL PREPAYMENT OF SWING LINE BORROWING: in the case of prepayment
of a Borrowing under the Swing Line Facility, each partial prepayment of such
Borrowing shall be in an aggregate principal of at least $100,000 or an integral
multiple of $50,000 in excess thereof;

     (D) MINIMUM BORROWING AMOUNT AFTER PARTIAL PREPAYMENT: no partial
prepayment of any Loans made pursuant to a Borrowing shall reduce the aggregate
principal amount of such Loans outstanding pursuant to such Borrowing to an
amount less than the Minimum Borrowing Amount applicable thereto;

     (E) PREPAYMENTS TO BE APPLIED PRO RATA: each prepayment in respect of any
Loans made pursuant to a Borrowing shall be applied PRO RATA among such Loans;
and

     (F) BREAKAGE COMPENSATION: each prepayment of Eurocurrency Loans or Money
Market Rate Loans pursuant to this section 5.1 on any date other than the last
day of the Interest Period applicable thereto, in the case of Eurocurrency
Loans, or the maturity date thereof, in the case of Money Market Rate Loans,
shall be accompanied by any amounts payable in respect thereof under section
2.10.


                                       41



     5.2. SCHEDULED REPAYMENTS AND MANDATORY PREPAYMENTS. The Loans shall be
subject to mandatory repayment or prepayment in accordance with the following
provisions:

     (A) SCHEDULED REPAYMENTS OF LOANS. The Borrower shall repay the entire
principal amount outstanding of any Revolving Loans on the Maturity Date.

     (B) MANDATORY PREPAYMENT---IF OUTSTANDING REVOLVING LOANS, SWING LINE LOANS
AND LETTER OF CREDIT OUTSTANDINGS EXCEED TOTAL REVOLVING COMMITMENT. If on any
date (after giving effect to any other payments on such date) the sum of (i) the
aggregate outstanding principal amount of Revolving Loans plus (ii) the
aggregate outstanding principal amount of Swing Line Loans plus (iii) the
aggregate amount of Letter of Credit Outstandings, exceeds the Total Revolving
Commitment as then in effect, then the Borrower shall prepay on such date that
principal amount of Swing Line Loans and, after Swing Line Loans have been paid
in full, Revolving Loans, and after Revolving Loans have been paid in full,
Unpaid Drawings, in an aggregate amount at least equal to such excess and
conforming in the case of partial prepayments of Loans to the requirements as to
the amounts of partial prepayments which are contained in section 5.1. If, after
giving effect to the prepayment of Swing Line Loans, Revolving Loans and Unpaid
Drawings, the aggregate amount of Letter of Credit Outstandings exceeds the
Total Revolving Commitment as then in effect, then the Borrower shall pay to the
Collateral Agent an amount in cash and/or Cash Equivalents equal to such excess
and the Collateral Agent shall hold such payment as security for the
reimbursement obligations of the Borrower and other Letter of Credit Obligors in
respect of Letters of Credit pursuant to a cash collateral agreement or other
appropriate documentation to be entered into in form and substance reasonably
satisfactory to the Collateral Agent, each Letter of Credit Issuer and the
Borrower (which shall permit certain investments in Cash Equivalents
satisfactory to the Collateral Agent, each Letter of Credit Issuer and the
Borrower until the proceeds are applied to the secured obligations).

     (C) MANDATORY PREPAYMENT---IF SWING LINE LOANS EXCEED UNUTILIZED TOTAL
REVOLVING COMMITMENT. If on any date (after giving effect to any other payments
on such date) the aggregate outstanding principal amount of Swing Line Loans
exceeds the Unutilized Total Revolving Commitment as then in effect, the
Borrower shall prepay on such date Swing Line Loans in an aggregate principal
amount at least equal to such excess and conforming in the case of partial
prepayments of Swing Line Loans to the requirements as to the amounts of partial
prepayments which are contained in section 5.1.

     (D) MANDATORY PREPAYMENT---IF SWING LINE LOANS EXCEED SWING LINE
COMMITMENT. If on any date (after giving effect to any other payments on such
date) the aggregate outstanding principal amount of Swing Line Loans exceeds the
Swing Line Commitment as then in effect, the Borrower shall prepay on such date
Swing Line Loans in an aggregate principal amount at least equal to such excess
and conforming in the case of partial prepayments of Loans to the requirements
as to the amounts of partial prepayments which are contained in section 5.1.

     (E) MANDATORY PREPAYMENT---IF LOANS DENOMINATED IN ALTERNATIVE CURRENCY
EXCEED ALTERNATIVE CURRENCY SUBLIMIT. If on any date (after giving effect to any
other payments on such date) the aggregate outstanding principal amount of
Revolving Loans denominated in Alternative Currency exceeds the Alternative
Currency Sublimit, the Borrowers shall prepay on such date Revolving Loans
denominated in Alternative Currency in an aggregate principal amount at least
equal to such excess and conforming in the case of partial prepayments of
Revolving Loans to the requirements as to the amounts of partial prepayments
which are contained in section 5.1.

     (F) MANDATORY PREPAYMENT---CERTAIN PROCEEDS OF ASSET SALES. If during any
fiscal year of the Borrower, the Borrower and its Subsidiaries have received
cumulative Cash Proceeds during such fiscal year from one or more Asset Sales of
at least $20,000,000, not later than the fifth Business Day following the date
of receipt of any Cash Proceeds in excess of such amount, an amount, conforming
to the requirements as to the amount of partial prepayments contained in section
5.1, at least equal to 100% of the Net Cash Proceeds then received in excess of
such amount from any Asset Sale, shall be applied as a mandatory prepayment of
principal of FIRST, Swing Line Loans, SECOND, after all Swing Line Loans have
been paid in full, Unpaid Drawings, and THIRD, after all Unpaid Drawings have
been paid in full, Revolving Loans; PROVIDED, that if (A) no Default under
section 10.1(a) or Event of Default shall have occurred and be continuing, (B)
the Borrower and its Subsidiaries have scheduled Consolidated Capital
Expenditures during the following 359 days, and (C) the Borrower notifies the
Administrative


                                       42



Agent of the amount and nature thereof and of its intention to reinvest all or a
portion of such Net Cash Proceeds in such Consolidated Capital Expenditures
during such 359 day period, THEN no such prepayment shall be required to the
extent of the amount of such Net Cash Proceeds as to which the Borrower so
indicates such reinvestment will take place. If at the end of any such 359 day
period any portion of such Net Cash Proceeds has not been so reinvested, the
Borrower will immediately make a prepayment of the principal of FIRST, Swing
Line Loans, SECOND, after all Swing Line Loans have been paid in full, Unpaid
Drawings, and THIRD, after all Unpaid Drawings have been paid in full, Revolving
Loans. Notwithstanding the foregoing, the Borrower shall not in any event permit
to exist Excess Proceeds (as defined in the Public Notes Indenture), unless at
such time the Borrower is permitted to redeem Public Notes under section 9.10
hereof and the Borrower does in fact make an Asset Sale Offer (as defined in the
Public Notes Indenture) to redeem Public Notes as contemplated by section 4.10
of the Public Notes Indenture in the amount of any such Excess Proceeds.

     (G) MANDATORY PREPAYMENT---CERTAIN PROCEEDS OF DEBT SECURITIES. Not later
than the Business Day following the date of the receipt by the Borrower or any
Subsidiary of the cash proceeds (net of underwriting discounts and commissions,
placement agent fees and other customary fees and costs associated therewith) in
excess of $25,000,000 in the aggregate during the term of this Agreement from
any sale or issuance of debt securities by the Borrower or any Subsidiary after
the Closing Date in an underwritten public offering, Rule 144A offering, or
private placement with one or more institutional investors, the Borrower will
prepay the principal of FIRST, Swing Line Loans, SECOND, after all Swing Line
Loans have been paid in full, Unpaid Drawings, and THIRD, after all Unpaid
Drawings have been paid in full, Revolving Loans, in an amount at least equal to
the lesser of (x) 100% of such net proceeds, and (y) an amount equal to the then
aggregate outstanding principal amount of the outstanding Loans, if any.

     (H) MANDATORY PREPAYMENT---CERTAIN PROCEEDS OF AN EVENT OF LOSS. If during
any fiscal year of the Borrower, the Borrower and its Subsidiaries have received
cumulative Net Cash Proceeds during such fiscal year from one or more Events of
Loss of at least $20,000,000, not later than the fifth Business Day following
the date of receipt of any Net Cash Proceeds in excess of such amount, an
amount, conforming to the requirements as to the amount of partial prepayments
contained in section 5.1, at least equal to 100% of the Net Cash Proceeds then
received in excess of such amount from any Event of Loss, shall be applied as a
mandatory prepayment of principal of FIRST, Swing Line Loans, SECOND, after all
Swing Line Loans have been paid in full, Unpaid Drawings, and THIRD, after all
Unpaid Drawings have been paid in full, Revolving Loans; PROVIDED, that if (A)
no Default under section 10.1(a) or Event of Default shall have occurred and be
continuing, and (B) the Borrower notifies the Administrative Agent of the amount
and nature thereof and of its intention to reinvest all or a portion of such Net
Cash Proceeds in replacement assets during the following 359 days, THEN no such
prepayment shall be required to the extent of the amount of such Net Cash
Proceeds as to which the Borrower so indicates such reinvestment will take
place. If at the end of any such 359 day period any portion of such Net Cash
Proceeds has not been so reinvested, the Borrower will immediately make a
prepayment of the principal of FIRST, Swing Line Loans, SECOND, after all Swing
Line Loans have been paid in full, Unpaid Drawings, and THIRD, after all Unpaid
Drawings have been paid in full, Revolving Loans.

     (I) MANDATORY PREPAYMENT---CHANGE OF CONTROL. On the date of which a Change
of Control occurs, notwithstanding anything to the contrary contained in this
Agreement, no further Borrowings shall be made and the then outstanding
principal amount of all Loans, if any, and other Obligations, shall become due
and payable and shall be prepaid in full, together with accrued interest and
Fees and the Borrower shall contemporaneously either (i) cause all outstanding
Letters of Credit to be surrendered for cancellation (any such Letters of Credit
to be replaced by letters of credit issued by other financial institutions
acceptable to the Required Lenders), or (ii) the Borrower shall pay to the
Collateral Agent an amount in cash and/or Cash Equivalents equal to 100% of the
Letter of Credit Outstandings and the Administrative Agent shall hold such
payment as security for the reimbursement obligations of the Borrower and the
other Letter of Credit Obligors in respect of Letters of Credit pursuant to a
cash collateral agreement to be entered into in form and substance reasonably
satisfactory to the Collateral Agent, each Letter of Credit Issuer and the
Borrower (which shall permit certain investments in Cash Equivalents
satisfactory to the Collateral Agent, each Letter of Credit Issuer and the
Borrower until the proceeds are applied to the secured obligations).

     (J) PARTICULAR LOANS TO BE PREPAID. With respect to each repayment or
prepayment of Loans required by this section 5.2, the Borrower shall designate
the Types of Loans which are to be repaid or prepaid and


                                       43



the specific Borrowing(s) pursuant to which such repayment or prepayment is to
be made, PROVIDED that (i) the Borrower shall first so designate all Loans that
are Prime Rate Loans and Eurocurrency Loans with Interest Periods ending on the
date of repayment or prepayment prior to designating any other Eurocurrency
Loans for repayment or prepayment, (ii) if the outstanding principal amount of
Eurocurrency Loans made pursuant to a Borrowing is reduced below the applicable
Minimum Borrowing Amount as a result of any such repayment or prepayment, then
all the Loans outstanding pursuant to such Borrowing shall be Converted into
Prime Rate Loans, and (iii) each repayment and prepayment of any Loans made
pursuant to a Borrowing shall be applied PRO RATA among such Loans. In the
absence of a designation by the Borrower as described in the preceding sentence,
the Administrative Agent shall, subject to the above, make such designation in
its sole discretion with a view, but no obligation, to minimize breakage costs
owing under section 2.10. Any repayment or prepayment of Eurocurrency Loans or
Money Market Loans pursuant to this section 5.2 shall in all events be
accompanied by such compensation as is required by section 2.10.

     5.3. METHOD AND PLACE OF PAYMENT. (a) Except as otherwise specifically
provided herein, all payments under this Agreement shall be made to the
Administrative Agent for the ratable (based on its PRO RATA share) account of
the Lenders entitled thereto, not later than 12:00 noon (local time at the
Payment Office) on the date when due and shall be made at the Payment Office in
immediately available funds and in lawful money of the United States of America
(in the case of Loans denominated in Dollars), or in Alternative Currency (in
the case of Loans denominated in Alternative Currency), at the Payment Office,
it being understood that written notice by the Borrower to the Administrative
Agent to make a payment from the funds in the Borrower's account at the Payment
Office shall constitute the making of such payment to the extent of such funds
held in such account. Any payments under this Agreement which are made later
than 12:00 noon (local time at the Payment Office) shall be deemed to have been
made on the next succeeding Business Day. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Business Day, the
due date thereof shall be extended to the next succeeding Business Day and, with
respect to payments of principal, interest shall be payable during such
extension at the applicable rate in effect immediately prior to such extension.

     (b) If at any time insufficient funds are received by and available to the
Administrative Agent to pay fully all amounts of principal, Unpaid Drawings,
interest and Fees then due hereunder and an Event of Default is not then in
existence, such funds shall be applied (i) FIRST, towards payment of interest
and Fees then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of interest and Fees then due to such parties, and
(ii) SECOND, towards payment of principal and Unpaid Drawings then due
hereunder, ratably among the parties entitled thereto in accordance with the
amounts of principal and Unpaid Drawings then due to such parties.

     5.4. NET PAYMENTS. (a) All payments made by the Borrower hereunder, under
any Note or any other Credit Document, will be made without setoff, counterclaim
or other defense. Except as provided for in section 5.4(b), all such payments
will be made free and clear of, and without deduction or withholding for, any
present or future taxes, levies, imposts, duties, fees, assessments or other
charges of whatever nature now or hereafter imposed by any jurisdiction or by
any political subdivision or taxing authority thereof or therein with respect to
such payments (but excluding, except as provided in the second succeeding
sentence, any tax, imposed on or measured by the net income or net profits of a
Lender pursuant to the laws of the jurisdiction under which such Lender is
organized or the jurisdiction in which the principal office or Applicable
Lending Office of such Lender is located or any subdivision thereof or therein)
and all interest, penalties or similar liabilities with respect to such non
excluded taxes, levies imposts, duties, fees, assessments or other charges (all
such nonexcluded taxes levies, imposts, duties, fees assessments or other
charges being referred to collectively as "TAXES"). If any Taxes are so levied
or imposed, the Borrower agrees to pay the full amount of such Taxes and such
additional amounts as may be necessary so that every payment by them of all
amounts due hereunder, under any Note or under any other Credit Document, after
withholding or deduction for or on account of any Taxes will not be less than
the amount provided for herein or in such Note or in such other Credit Document.
If any amounts are payable in respect of Taxes pursuant to the preceding
sentence, the Borrower agrees to reimburse each Lender, upon the written request
of such Lender for taxes imposed on or measured by the net income or profits of
such Lender pursuant to the laws of the jurisdiction in which such Lender is
organized or in which the principal office or Applicable Lending Office of such
Lender is located or under the laws of any political subdivision or taxing
authority of any such jurisdiction in which the principal office or Applicable
Lending Office of such Lender is located and for any withholding of income or
similar taxes imposed by the United States of America as such Lender shall
determine are payable by, or withheld from, such Lender in respect of such
amounts so paid to or on behalf of such Lender pursuant to the preceding


                                       44



sentence and in respect of any amounts paid to or on behalf of such Lender
pursuant to this sentence, which request shall be accompanied by a statement
from such Lender setting forth, in reasonable detail, the computations used in
determining such amounts. The Borrower will furnish to the Administrative Agent
within 45 days after the date the payment of any Taxes, or any withholding or
deduction on account thereof, is due pursuant to applicable law certified copies
of tax receipts, or other evidence satisfactory to the relevant Lender,
evidencing such payment by the Borrower. The Borrower will indemnify and hold
harmless the Administrative Agent and each Lender, and reimburse the
Administrative Agent or such Lender upon its written request, for the amount of
any Taxes so levied or imposed and paid or withheld by such Lender.

     (b) Each Lender that is a Foreign Lender agrees to provide to the Borrower
and the Administrative Agent on or prior to the Effective Date, or in the cases
of a Lender that is an assignee or transferee of an interest under this
Agreement pursuant to section 12.4 (unless the respective Lender was already a
Lender hereunder immediately prior to such assignment or transfer and such
Lender is in compliance with the provisions of this section 5.4(b)), on the date
of such assignment or transfer to such Lender, (i) two accurate and complete
original signed copies of Internal Revenue Service Form W-8BEN or W-8ECI (or
successor forms) certifying to such Lender's entitlement to a complete exemption
from United States withholding tax with respect to payments to be made under
this Agreement, any Note or any other Credit Document, or (ii) if the Lender is
not a "bank" within the meaning of section 881(c)(3)(A) of the Code and cannot
deliver either Internal Revenue Service Form W-8BEN or W-8ECI pursuant to clause
(i) above, (x) a certificate substantially in the form of Exhibit H (any such
certificate, a "SECTION 5.4(B)(II) CERTIFICATE") and (y) two accurate and
complete original signed copies of Internal Revenue Service Form W-8 (or
successor form) certifying to such Lender's entitlement to a complete exemption
from United States withholding tax with respect to payments of interest to be
made under this Agreement, any Note or any other Credit Document. In addition,
each Lender agrees that from time to time after the Effective Date, when a lapse
in time or change in circumstances renders the previous certification obsolete
or inaccurate in any material respect, it will deliver to the Borrower and the
Administrative Agent two new accurate and complete original signed copies of
Internal Revenue Service Form W-8BEN or W-8ECI, and a Section 5.4(b)(ii)
Certificate, as the case may be, and such other forms as may be required in
order to confirm or establish the entitlement of such Lender to a continued
exemption from or reduction in United States withholding tax with respect to
payments under this Agreement, any Note or any other Credit Document, or it
shall immediately notify the Borrower and the Administrative Agent of its
inability to deliver any such Form or Certificate, in which case such Lender
shall not be required to deliver any such Form or Certificate pursuant to this
section 5.4(b). Notwithstanding anything to the contrary contained in section
5.4(a), but subject to section 12.4(g) and the immediately succeeding sentence,
(x) the Borrower shall be entitled, to the extent it is required to do so by
law, to deduct or withhold income or other similar taxes imposed by the United
States (or any political subdivision or taxing authority thereof or therein)
from interest, fees or other amounts payable hereunder for the account of any
Lender which is a Foreign Lender and which has not provided to the Borrower such
forms that establish a complete exemption from such deduction or withholding and
(y) the Borrower shall not be obligated pursuant to section 5.4(a) hereof to
gross-up payments to be made to a Lender in respect of income or similar taxes
imposed by the United States or any additional amounts with respect thereto (I)
if such Lender has not provided to the Borrower the Internal Revenue Service
forms required to be provided to the Borrower pursuant to this section 5.4(b) or
(II) in the case of a payment other than interest, to a Lender described in
clause (ii) above, to the extent that such forms do not establish a complete
exemption from withholding of such taxes. Notwithstanding anything to the
contrary contained in the preceding sentence or elsewhere in this section 5.4
and except as specifically provided for in section 12.4(g), the Borrower agrees
to pay additional amounts and indemnify each Lender in the manner set forth in
section 5.4(a) (without regard to the identity of the jurisdiction requiring the
deduction or withholding) in respect of any Taxes deducted or withheld by it as
described in the previous sentence as a result of any changes after the
Effective Date in any applicable law, treaty, governmental rule, regulation,
guideline or order, or in the interpretation thereof, relating to the deducting
or withholding of income or similar Taxes.

     (c) If any Lender, in its sole opinion, determines that it has finally and
irrevocably received or been granted a refund in respect of any Taxes paid as to
which indemnification has been paid by the Borrower pursuant to this section, it
shall promptly remit such refund (including any interest received in respect
thereof), net of all out-of-pocket costs and expenses; PROVIDED, that the
Borrower agrees to promptly return any such refund (plus interest) to such
Lender in the event such Lender is required to repay such refund to the relevant
taxing authority. Any such Lender shall provide the Borrower with a copy of any
notice of assessment from the relevant taxing authority


                                       45



(redacting any unrelated confidential information contained therein) requiring
repayment of such refund. Nothing contained herein shall impose an obligation on
any Lender to apply for any such refund.

     (d) Reference is hereby made to the provisions of section 2.9(d) for
certain limitations upon the rights of a Lender under this section.

SECTION 6. CONDITIONS PRECEDENT

     6.1. CONDITIONS PRECEDENT AT CLOSING DATE. The obligation of the Lenders to
make Loans, and of any Letter of Credit Issuer to issue Letters of Credit, is
subject to the satisfaction of each of the following conditions on or prior to
the Closing Date:

     (A) EFFECTIVENESS; NOTES. On or prior to the Closing Date, (i) the
Effective Date shall have occurred and (ii) if requested by any Lender, there
shall have been delivered to the Administrative Agent for the account of each
Lender each appropriate Note executed by the Borrower, in each case, in the
amount, maturity and as otherwise provided herein.

     (B) FEES, ETC. The Borrower shall have paid or caused to be paid all fees
required to be paid by it on or prior to such date pursuant to section 4.1
hereof and all reasonable fees and expenses of the Lead Arranger and the
Administrative Agent and of special counsel to the Administrative Agent which
have been invoiced on or prior to such date in connection with the preparation,
execution and delivery of this Agreement and the other Credit Documents and the
consummation of the transactions contemplated hereby and thereby.

     (C) OTHER CREDIT DOCUMENTS. The Credit Parties named therein shall have
duly executed and delivered and there shall be in full force and effect, and
original counterparts shall have been delivered to the Administrative Agent, in
sufficient quantities for the Lenders, of: (i) the Subsidiary Guaranty; (ii) the
Security Agreement; (iii) the Collateral Assignment of Patents; (iv) the
Collateral Assignment of Trademarks; and (v) the Pledge Agreement.

     (D) CHARTER AND BY-LAWS, GOOD STANDING. The Administrative Agent shall have
received, in sufficient quantity for the Administrative Agent and the Lenders,
(i) a copy of the certificate or articles of incorporation of the Borrower and
each other Credit Party, including any amendments or restatements thereof,
certified as of a recent date by the Secretary of State or other governmental
official of the jurisdiction of its formation, (ii) a copy of the By-Laws or
equivalent governing documents of the Borrower and each other Credit Party,
certified as true, correct and in full force and effect by the Secretary or an
Assistant Secretary of such Credit Party; and (iii) a copy of a certificate of
good standing for the Borrower and each other Credit Party, issued as of a
recent date by the Secretary of State or other governmental official of the
jurisdiction of its formation.

     (E) CORPORATE RESOLUTIONS AND APPROVALS. The Administrative Agent shall
have received, in sufficient quantity for the Administrative Agent and the
Lenders, certified copies of the resolutions of the Board of Directors (or the
equivalent) of the Borrower and each other Credit Party approving this Agreement
and all Other Credit Documents and of all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to the
execution, delivery and performance by the Borrower and each other Credit Party
of this Agreement.

     (F) INCUMBENCY CERTIFICATES. The Administrative Agent shall have received,
in sufficient quantity for the Administrative Agent and the Lenders, a
certificate of the Secretary or an Assistant Secretary of the Borrower and each
other Credit Party, certifying the names and true signatures of the officers of
the Borrower or such other Credit Party, as the case may be, authorized to sign
the Credit Documents to which the Borrower or such other Credit Party is a party
and the other documents which may be executed and delivered in connection
herewith.

     (G) OPINION OF COUNSEL. On the Closing Date, the Administrative Agent shall
have received an opinion, addressed to the Administrative Agent and each of the
Lenders and dated the Closing Date, from Squire, Sanders & Dempsey LLP, special
counsel to the Borrower covering such matters incident to the transactions


                                       46



contemplated hereby as the Administrative Agent may reasonably request, such
opinion to be in form and substance satisfactory to the Administrative Agent.

     (H) NO MATERIAL ADVERSE CHANGE IN LOAN SYNDICATION OR CAPITAL MARKETS.
There shall not have occurred a material disruption or material adverse change
in financial, banking, loan syndication or capital market conditions generally
syndicated leveraged loans which, in the sole judgment of the Lead Arranger,
could be expected to materially adversely affect the syndication of portions or
all of the Facilities to additional Lenders.

     (I) NO MATERIAL ADVERSE EFFECT. Since December 31, 2004, there shall have
been no change in the condition, business, affairs or prospects of the Borrower
and its Subsidiaries taken as a whole, or their properties and assets considered
as an entirety, EXCEPT FOR changes none of which, individually or in the
aggregate, has had or could reasonably be expected to have, a Material Adverse
Effect.

     (J) BORROWER'S CLOSING CERTIFICATE. On the Closing Date the Administrative
Agent shall have received a certificate, dated the Closing Date, of an
Authorized Officer of the Borrower to the effect that, at and as of the Closing
Date and both before and after giving effect to the initial Borrowings hereunder
and the application of the proceeds thereof, (i) the Borrower is in compliance
with all of the covenants contained in sections 8 and 9 of this Agreement, (ii)
no Default or Event of Default has occurred or is continuing, and (iii) all
representations and warranties of the Credit Parties contained herein or in the
other Credit Documents are true and correct in all material respects with the
same effect as though such representations and warranties had been made on and
as of the Closing Date, except that, as to any such representations and
warranties which expressly relate to an earlier specified date, such
representations and warranties are only represented as having been true and
correct in all material respects as of the date when made.

     (K) PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings and all
documents incidental to the transactions contemplated hereby shall be
satisfactory in substance and form to the Administrative Agent and the Lenders
and the Administrative Agent and its special counsel and the Lenders shall have
received all such counterpart originals or certified or other copies of such
documents as the Administrative Agent or its special counsel or any Lender may
reasonably request.

     (L) ABSENCE OF LITIGATION. There shall not be any action, suits or
proceedings pending or threatened with respect to the Borrower or its
Subsidiaries (i) that have, or could reasonably be expected to have, a Material
Adverse Effect, or (ii) that question the validity or enforceability of any of
the Credit Documents, or of any action to be taken by the Borrower or any of the
Credit Parties pursuant to any of the Credit Documents.

     (M) NO OTHER MATERIAL INDEBTEDNESS. The Borrower shall have repaid the
amounts outstanding under the Existing Credit Facility, shall have no other
material Indebtedness (or commitments for additional Indebtedness) outstanding
(excluding the existing Public Notes and the Existing Indebtedness Agreements).

     (N) RECORDATION OF SECURITY DOCUMENTS, DELIVERY OF COLLATERAL, TAXES, ETC.
The Security Documents (or proper notices or financing statements in respect
thereof) shall have been duly recorded, published and filed in such manner and
in such places as is required by law to establish, perfect, preserve and protect
the rights and security interests of the parties thereto and their respective
successors and assigns, all collateral items required to be physically delivered
to the Collateral Agent thereunder shall have been so delivered, accompanied by
any appropriate instruments of transfer, and all taxes, fees and other charges
then due and payable in connection with the execution, delivery, recording,
publishing and filing of such instruments and the issue and delivery of the
Notes shall have been paid in full.

     (O) EVIDENCE OF INSURANCE. The Collateral Agent shall have received
certificates of insurance and other evidence, satisfactory to it, of compliance
with the insurance requirements of this Agreement and the Security Documents.

     (P) SEARCH REPORTS. The Administrative Agent shall have received completed
requests for information on Form UCC-11, or search reports from one or more
commercial search firms acceptable to the Administrative Agent, listing all of
the effective financing statements filed against the Borrower and its Domestic


                                       47



Subsidiaries in any jurisdiction in which such person maintains or maintained an
office or in which any assets of such person is located, together with copies of
such financing statements.

     (Q) PUBLIC NOTES INDENTURE. The Administrative Agent shall have received a
certificate, dated the Closing Date, of a responsible financial officer of the
Borrower in form and substance satisfactory to the Administrative Agent to the
effect that (i) no default or event of default exists under the Public Notes
Indenture both before and after giving effect to the initial Loans hereunder,
(ii) all of the Obligations constitute "Designated Senior Debt" and "Permitted
Debt" (each as defined in the Public Notes Indenture), and (iii) such other
matters with respect to the Public Notes Indenture and the other Public Notes
Documents as the Administrative Agent shall request, together with the
calculations or other evidence supporting the same.

     6.2. CONDITIONS PRECEDENT TO ALL CREDIT EVENTS. The obligations of the
Lenders to make each Loan and/or of a Letter of Credit Issuer to issue each
Letter of Credit is subject, at the time thereof, to the satisfaction of the
following conditions:

     (A) NOTICE OF BORROWING, ETC. The Administrative Agent shall have received
a Notice of Borrowing meeting the requirements of section 2.3 with respect to
the incurrence of Loans or a Letter of Credit Request meeting the requirement of
section 3.2 with respect to the issuance of a Letter of Credit.

     (B) NO DEFAULT; REPRESENTATIONS AND WARRANTIES. At the time of each Credit
Event and also after giving effect thereto, (i) there shall exist no Default or
Event of Default and (ii) all representations and warranties of the Credit
Parties contained herein or in the other Credit Documents shall be true and
correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the date of such
Credit Event, except to the extent that such representations and warranties
expressly relate to an earlier specified date, in which case such
representations and warranties shall have been true and correct in all material
respects as of the date when made.

The acceptance of the benefits of each Credit Event shall constitute a
representation and warranty by the Borrower to each of the Lenders that all of
the applicable conditions specified in section 6.1 and/or 6.2, as the case may
be, have been satisfied as of the times referred to in sections 6.1 and 6.2. All
of the certificates, legal opinions and other documents and papers referred to
in this section 6, unless otherwise specified, shall be delivered to the
Administrative Agent for the account of each of the Administrative Agent and the
Lenders and, except for the Notes, in sufficient counterparts for the
Administrative Agent and the Lenders, and the Administrative Agent will promptly
distribute to the Lenders their respective Notes and the copies of such other
certificates, legal opinions and documents.

SECTION 7. REPRESENTATIONS AND WARRANTIES

     In order to induce the Lenders to enter into this Agreement and to make the
Loans, and/or to issue and/or to participate in the Letters of Credit provided
for herein, the Borrower makes the following representations and warranties to,
and agreements with, the Lenders, all of which shall survive the execution and
delivery of this Agreement and each Credit Event:

     7.1. CORPORATE STATUS, ETC. Each of the Borrower and its Subsidiaries (i)
is a duly organized or formed and validly existing corporation, partnership or
limited liability company, as the case may be, in good standing under the laws
of the jurisdiction of its formation and has the corporate, partnership or
limited liability company power and authority, as applicable, to own its
property and assets and to transact the business in which it is engaged and
presently proposes to engage, and (ii) has duly qualified and is authorized to
do business in all jurisdictions where it is required to be so qualified except
where the failure to be so qualified would not have a Material Adverse Effect.

     7.2. SUBSIDIARIES. Annex II hereto lists, as of the date hereof, each
Subsidiary of the Borrower (and the direct and indirect ownership interest of
the Borrower therein).


                                       48


     7.3. CORPORATE POWER AND AUTHORITY, ETC. Each Credit Party has the
corporate or other organizational power and authority to execute, deliver and
carry out the terms and provisions of the Credit Documents to which it is party
and has taken all necessary corporate or other organizational action to
authorize the execution, delivery and performance of the Credit Documents to
which it is party. Each Credit Party has duly executed and delivered each Credit
Document to which it is party and each Credit Document to which it is party
constitutes the legal, valid and binding agreement or obligation of such Credit
Party enforceable in accordance with its terms, except to the extent that the
enforceability thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws generally affecting creditors'
rights and by equitable principles (regardless of whether enforcement is sought
in equity or at law).

     7.4. NO VIOLATION. Neither the execution, delivery and performance by any
Credit Party of the Credit Documents to which it is party nor compliance with
the terms and provisions thereof (i) will contravene any provision of any law,
statute, rule, regulation, order, writ, injunction or decree of any court or
governmental instrumentality applicable to such Credit Party or its properties
and assets, (ii) will conflict with or result in any breach of, any of the
terms, covenants, conditions or provisions of, or constitute a default under, or
result in the creation or imposition of (or the obligation to create or impose)
any Lien (other than the Liens created pursuant to the Security Documents) upon
any of the property or assets of such Credit Party pursuant to the terms of any
promissory note, bond, debenture, indenture, mortgage, deed of trust, credit or
loan agreement, or any other material agreement or other instrument, to which
such Credit Party is a party or by which it or any of its property or assets are
bound or to which it may be subject, or (iii) will violate any provision of the
certificate or articles of incorporation, code of regulations or by-laws, or
other charter documents of such Credit Party.

     7.5. GOVERNMENTAL APPROVALS. No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any foreign or domestic governmental or public body or authority,
or any subdivision thereof, is required to authorize or is required as a
condition to (i) the execution, delivery and performance by any Credit Party of
any Credit Document to which it is a party, or (ii) the legality, validity,
binding effect or enforceability of any Credit Document to which any Credit
Party is a party, EXCEPT for the filing and recording of financing statements
and other documents necessary in order to perfect the Liens created by the
Security Documents.

     7.6. LITIGATION. There are no actions, suits or proceedings pending or, to
the knowledge of the Borrower, threatened with respect to the Borrower or any of
its Subsidiaries (i) that have, or could reasonably be expected to have, a
Material Adverse Effect, or (ii) which question the validity or enforceability
of any of the Credit Documents, or of any action to be taken by the Borrower or
any of the other Credit Parties pursuant to any of the Credit Documents.

     7.7. USE OF PROCEEDS; MARGIN REGULATIONS. (a) The use of proceeds of any
Borrowing shall be utilized to support working capital needs, to repurchase
Public Notes (subject to the provisions of section 9.10), to refinance existing
Indebtedness (in the case of Borrowings on the Closing Date) and otherwise be
utilized for lawful purposes not inconsistent with the requirements of this
Agreement.

     (B) No part of the proceeds of any Credit Event will be used directly or
indirectly to purchase or carry Margin Stock, or to extend credit to others for
the purpose of purchasing or carrying any Margin Stock, in violation of any of
the provisions of Regulation T, U or X of the Board of Governors of the Federal
Reserve System. The Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying any Margin Stock. At no time would
more than 25% of the value of the assets of the Borrower or of the Borrower and
its consolidated Subsidiaries that are subject to any "arrangement" (as such
term is used in section 221.2(g) of such Regulation U) hereunder be represented
by Margin Stock.

     7.8. FINANCIAL STATEMENTS, ETC. (a) The audited consolidated balance sheets
of the Borrower as of December 31, 2002, 2003 and 2004 and the audited
consolidated statements of operations and cash flows for the fiscal years ended
December 31, 2002, 2003 and 2004 were prepared in accordance with Regulation S-X
and fairly present the financial position of the Borrower as of each such date
and its results of operations for each such period. The Borrower and its
Subsidiaries did not have, as of the date of the latest Financial Statements
referred to above, and will not have as of the Closing Date after giving effect
to the incurrence of Loans hereunder, any material or significant contingent
liability or liability for taxes, long-term lease or unusual forward or
long-term commitment


                                       49



that is not reflected in the foregoing financial statements or the notes thereto
in accordance with GAAP and which in any such case is material in relation to
the business, operations, properties, assets, condition (financial or otherwise)
or prospects of the Borrower and its Subsidiaries.

     (b) The Borrower has received consideration which is the reasonable
equivalent value of the obligations and liabilities that the Borrower has
incurred to the Administrative Agent and the Lenders. The Borrower now has
capital sufficient to carry on its business and transactions and all business
and transactions in which it is about to engage and is now solvent and able to
pay its debts as they mature and the Borrower, as of the Closing Date, owns
property having a value, both at fair valuation and at present fair salable
value, greater than the amount required to pay the Borrower's debts; and the
Borrower is not entering into the Credit Documents with the intent to hinder,
delay or defraud its creditors. For purposes of this section 7.8(b), "DEBT"
means any liability on a claim, and "CLAIM" means (x) right to payment whether
or not such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured
or unsecured; or (y) right to an equitable remedy for breach of performance if
such breach gives rise to a payment, whether or not such right to an equitable
remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed,
undisputed, secured or unsecured.

     (c) The Borrower has delivered or caused to be delivered to the Lenders
prior to the execution and delivery of this Agreement a copy of the Borrower's
Report on Form 10-K as filed (without Exhibits) with the SEC for its fiscal year
ended December 31, 2004, which contains a general description of the business
and affairs of the Borrower and its Subsidiaries.

     7.9. NO MATERIAL ADVERSE CHANGE. Since December 31, 2004, there has been no
change in the condition, business, affairs or prospects of the Borrower and its
Subsidiaries taken as a whole, or their properties and assets considered as an
entirety, EXCEPT FOR changes none of which, individually or in the aggregate,
has had or could reasonably be expected to have, a Material Adverse Effect.

     7.10. TAX RETURNS AND PAYMENTS. Each of the Borrower and each of its
Subsidiaries has filed all federal income tax returns and all other material tax
returns, domestic and foreign, required to be filed by it and has paid all
material taxes and assessments payable by it which have become due, other than
those not yet delinquent and except for those contested in good faith. The
Borrower and each of its Subsidiaries has established on its books such charges,
accruals and reserves in respect of taxes, assessments, fees and other
governmental charges for all fiscal periods as are required by GAAP. The
Borrower knows of no proposed assessment for additional federal, foreign or
state taxes for any period, or of any basis therefor, which, individually or in
the aggregate, taking into account such charges, accruals and reserves in
respect thereof as the Borrower and its Subsidiaries have made, could reasonably
be expected to have a Material Adverse Effect.

     7.11. TITLE TO PROPERTIES, ETC. The Borrower and each of its Subsidiaries
has good and marketable title, in the case of real property, and good title (or
valid Leaseholds, in the case of any leased property), in the case of all other
property, to all of its properties and assets free and clear of Liens other than
Permitted Liens. The interests of the Borrower and each of its Subsidiaries in
the properties reflected in the most recent balance sheet referred to in section
7.8, taken as a whole, were sufficient, in the judgment of the Borrower, as of
the date of such balance sheet for purposes of the ownership and operation of
the businesses conducted by the Borrower and such Subsidiaries.

     7.12. LAWFUL OPERATIONS, ETC. Except for known situations or incidents
which are reserved for on the most recent consolidated balance sheet referred to
in section 7.8 or which, if not so reserved, could not reasonably be expected to
have a Material Adverse Effect, the Borrower and each of its Subsidiaries is in
full compliance with all material requirements imposed by law, whether federal
or state, including (without limitation) Environmental Laws and zoning
ordinances.

     7.13. ENVIRONMENTAL MATTERS. (a) The Borrower and each of its Subsidiaries
is in compliance with all Environmental Laws governing its business, except to
the extent that any such failure to comply (together with any resulting
penalties, fines or forfeitures) would not reasonably be expected to have a
Material Adverse Effect. All licenses, permits, registrations or approvals
required for the business of the Borrower and each of its Subsidiaries under any
Environmental Law have been secured and the Borrower and each of its
Subsidiaries is in substantial


                                       50



compliance therewith, except for such licenses, permits, registrations or
approvals the failure to secure or to comply therewith is not reasonably likely
to have a Material Adverse Effect. Neither the Borrower nor any of its
Subsidiaries has received written notice, or otherwise knows, that it is in any
respect in noncompliance with, breach of or default under any Environmental
Laws, and no event has occurred and is continuing which, with the passage of
time or the giving of notice or both, would constitute noncompliance, breach of
or default thereunder, except in each such case, such noncompliance, breaches or
defaults as would not reasonably be expected to, in the aggregate, have a
Material Adverse Effect. There are no Environmental Claims pending or, to the
best knowledge of the Borrower, threatened wherein an unfavorable decision,
ruling or finding would reasonably be expected to have a Material Adverse
Effect.

     (b) Hazardous Materials have not at any time been (i) generated, used,
treated or stored on, or transported to or from, any Real Property of the
Borrower or any of its Subsidiaries or (ii) released on any such Real Property,
in each case where such occurrence or event is not in compliance with
Environmental Laws and is reasonably likely to have a Material Adverse Effect.

     7.14. COMPLIANCE WITH ERISA. Compliance by the Borrower and each of its
Subsidiaries with the provisions hereof and Credit Events contemplated hereby
will not involve any prohibited transaction within the meaning of ERISA or
section 4975 of the Code. The Borrower and each of its Subsidiaries, (i) has
fulfilled all obligations under minimum funding standards of ERISA and the Code
with respect to each Plan that is not a Multiemployer Plan or a Multiple
Employer Plan, (ii) has satisfied all respective contribution obligations in
respect of each Multiemployer Plan and each Multiple Employer Plan, (iii) is in
compliance in all material respects with all other applicable provisions of
ERISA and the Code with respect to each Plan, each Multiemployer Plan and each
Multiple Employer Plan, and (iv) has not incurred any liability under the Title
IV of ERISA to the PBGC with respect to any Plan, any Multiemployer Plan, any
Multiple Employer Plan, or any trust established thereunder. No Plan or trust
created thereunder has been terminated, and there have been no Reportable
Events, with respect to any Plan or trust created thereunder or with respect to
any Multiemployer Plan or Multiple Employer Plan, which termination or
Reportable Event will or could result in the termination of such Plan,
Multiemployer Plan or Multiple Employer Plan or give rise to a material
liability of the Borrower or any ERISA Affiliate in respect thereof. Neither the
Borrower nor any ERISA Affiliate is at the date hereof, or has been at any time
within the two years preceding the date hereof, an employer required to
contribute to any Multiemployer Plan or Multiple Employer Plan, or a
"contributing sponsor" (as such term is defined in section 4001 of ERISA) in any
Multiemployer Plan or Multiple Employer Plan. Neither the Borrower nor any ERISA
Affiliate has any contingent liability with respect to any post-retirement
"welfare benefit plan" (as such term is defined in ERISA) except as has been
disclosed to the Lenders in writing.

     7.15. INTELLECTUAL PROPERTY, ETC. The Borrower and each of its Subsidiaries
has obtained or has the right to use all material patents, trademarks, service
marks, trade names, copyrights, licenses and other rights with respect to the
foregoing necessary for the present and planned future conduct of its business,
without any known conflict with the rights of others, EXCEPT for such patents,
trademarks, service marks, trade names, copyrights, licenses and rights, the
loss of which, and such conflicts, which in any such case individually or in the
aggregate would not reasonably be expected to have a Material Adverse Effect.

     7.16. INVESTMENT COMPANY ACT, ETC. Neither the Borrower nor any of its
Subsidiaries is subject to regulation with respect to the creation or incurrence
of Indebtedness under the Investment Company Act of 1940, as amended, the ICC
Termination Act of 1995, as amended, the Federal Power Act, as amended, the
Public Utility Holding Company Act of 1935, as amended, or any applicable state
public utility law.

     7.17. EXISTING INDEBTEDNESS. Annex III sets forth a true and complete list,
as of the date or dates set forth therein, of all Indebtedness of the Borrower
and each of its Subsidiaries, on a consolidated basis, which (i) has an
outstanding principal amount of at least $1,000,000, or may be incurred pursuant
to existing commitments or lines of credit, or (ii) is secured by any Lien on
any property of the Borrower or any Subsidiary, and which will be outstanding on
the Closing Date after giving effect to any Borrowing hereunder which is
expected to be made on the Closing Date, other than the Indebtedness created
under the Credit Documents (all such Indebtedness, whether or not in a principal
amount meeting such threshold and required to be so listed on Annex III, herein
the "EXISTING INDEBTEDNESS"). The Borrower has provided to the Administrative
Agent prior to the date of execution hereof true


                                       51



and complete copies (or summary descriptions) of all agreements and instruments
governing the Indebtedness listed on Annex III (the "EXISTING INDEBTEDNESS
AGREEMENTS").

     7.18. BURDENSOME CONTRACTS; LABOR RELATIONS. Neither the Borrower nor any
of its Subsidiaries (i) is subject to any burdensome contract, agreement,
corporate restriction, judgment, decree or order, (ii) is a party to any labor
dispute affecting any bargaining unit or other group of employees generally,
(iii) is subject to any material strike, slow down, workout or other concerted
interruptions of operations by employees of the Borrower or any Subsidiary,
whether or not relating to any labor contracts, (iv) is subject to any
significant pending or, to the knowledge of the Borrower, threatened, unfair
labor practice complaint, before the National Labor Relations Board, and (v) is
subject to any significant pending or, to the knowledge of the Borrower,
threatened, grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement, (vi) is subject to any significant
pending or, to the knowledge of the Borrower, threatened, significant strike,
labor dispute, slowdown or stoppage, or (vii) is, to the knowledge of the
Borrower, involved or subject to any union representation organizing or
certification matter with respect to the employees of the Borrower or any of its
Subsidiaries, EXCEPT (with respect to any matter specified in any of the above
clauses), for such matters as, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.

     7.19. SECURITY INTERESTS. Until terminated in accordance with the terms
thereof, each of the Security Documents creates, as security for the obligations
purported to be secured thereby, a valid and enforceable perfected security
interest in and Lien on all of the Collateral subject thereto from time to time,
in favor of the Collateral Agent for the benefit of the Secured Creditors
referred to in the Security Documents, superior to and prior to the rights of
all third Persons and subject to no other Liens, EXCEPT that the Collateral
under the Security Documents may be subject to Permitted Liens. No filings or
recordings are required in order to perfect the security interests created under
any Security Document except for filings or recordings required in connection
with any such Security Document which shall have been made, or for which
satisfactory arrangements have been made, upon or prior to the execution and
delivery thereof. All recording, stamp, intangible or other similar taxes
required to be paid by any Person under applicable legal requirements or other
laws applicable to the property encumbered by the Security Documents in
connection with the execution, delivery, recordation, filing, registration,
perfection or enforcement thereof have been paid.

     7.20. PUBLIC NOTES INDENTURE. No default or event of default exists, nor
will any such event of default or default exist under the Public Notes Indenture
(or any other Public Notes Document) immediately after the making of any Loan or
other extension of credit hereunder. The Indebtedness created under this
Agreement constitutes and at all times will constitute "Designated Senior Debt"
and "Permitted Debt" (each as defined in the Public Notes Indenture).

     7.21. TRUE AND COMPLETE DISCLOSURE. All factual information (taken as a
whole) heretofore or contemporaneously furnished by or on behalf of the Borrower
or any of its Subsidiaries in writing to the Administrative Agent or any Lender
for purposes of or in connection with this Agreement or any transaction
contemplated herein is, and all other such factual information (taken as a
whole) hereafter furnished by or on behalf of such Person in writing to any
Lender will be, true and accurate in all material respects on the date as of
which such information is dated or certified and not incomplete by omitting to
state any material fact necessary to make such information (taken as a whole)
not misleading at such time in light of the circumstances under which such
information was provided, except that any such future information consisting of
financial projections prepared by the Borrower is only represented herein as
being based on good faith estimates and assumptions believed by such Persons to
be reasonable at the time made, it being recognized by the Lenders that such
projections as to future events are not to be viewed as facts and that actual
results during the period or periods covered by any such projections may differ
materially from the projected results.

     7.22. ANTI-TERRORISM LAW COMPLIANCE. Neither the Borrower nor any of its
Subsidiaries is subject to or in violation of any law, regulation, or list of
any government agency (including, without limitation, the U.S. Office of Foreign
Asset Control list, Executive Order No. 13224 or the USA Patriot Act) that
prohibits or limits the conduct of business with or the receiving of funds,
goods or services to or for the benefit of certain Persons specified therein or
that prohibits or limits any Lender or Letter of Credit Issuer from making any
advance or extension of credit to the Borrower or from otherwise conducting
business with the Borrower.


                                       52



SECTION 8. AFFIRMATIVE COVENANTS

     The Borrower hereby covenants and agrees that on the Effective Date and
thereafter so long as this Agreement is in effect and until such time as the
Total Commitment has been terminated, no Notes or Letters of Credit remain
outstanding and the Loans, together with interest, Fees and all other
Obligations incurred hereunder and under the other Credit Documents, have been
paid in full:

     8.1. REPORTING REQUIREMENTS. The Borrower will furnish to the
Administrative Agent and each Lender (except with respect to the information to
be provided in paragraph (d) below, which information shall be provided to a
Lender by the Administrative Agent upon request therefor):

     (A) ANNUAL FINANCIAL STATEMENTS. As soon as available and in any event
within 90 days after the close of each fiscal year of the Borrower, the
consolidated balance sheets of the Borrower and its consolidated Subsidiaries as
at the end of such fiscal year and the related consolidated statements of
income, of stockholders' equity and of cash flows for such fiscal year, in each
case setting forth comparative figures for the preceding fiscal year, all in
reasonable detail and accompanied by the opinion with respect to such
consolidated financial statements of independent public accountants of
recognized national standing selected by the Borrower, which opinion shall be
unqualified and shall (i) state that such accountants audited such consolidated
financial statements in accordance with generally accepted auditing standards,
that such accountants believe that such audit provides a reasonable basis for
their opinion, and that in their opinion such consolidated financial statements
present fairly, in all material respects, the consolidated financial position of
the Borrower and its consolidated Subsidiaries as at the end of such fiscal year
and the consolidated results of their operations and cash flows for such fiscal
year in conformity with generally accepted accounting principles, or (ii)
contain such statements as are customarily included in unqualified reports of
independent accountants in conformity with the recommendations and requirements
of the American Institute of Certified Public Accountants (or any successor
organization).

     (B) QUARTERLY FINANCIAL STATEMENTS. As soon as available and in any event
within 45 days after the close of each of the first three quarterly accounting
periods in each fiscal year of the Borrower, the unaudited consolidated balance
sheets of the Borrower and its consolidated Subsidiaries as at the end of such
quarterly period and the related unaudited consolidated statements of income and
of cash flows for such quarterly period and/or for the fiscal year to date, and
setting forth, in the case of such unaudited consolidated statements of income
and of cash flows, comparative figures for the related periods in the prior
fiscal year, and which shall be certified on behalf of the Borrower by the Chief
Executive Officer, President, Chief Financial Officer, Treasurer or other
Authorized Officer of the Borrower, subject to changes resulting from normal
year-end audit adjustments.

     (C) OFFICER'S COMPLIANCE CERTIFICATES. At the time of the delivery of the
financial statements provided for in sections 8.1(a) and (b), a certificate on
behalf of the Borrower of the Chief Executive Officer, President, Chief
Financial Officer, Treasurer or other Authorized Officer of the Borrower to the
effect that, to the best knowledge of the Borrower, no Default or Event of
Default exists or, if any Default or Event of Default does exist, specifying the
nature and extent thereof and the actions the Borrower proposes to take with
respect thereto, which certificate shall set forth the calculations required to
establish compliance with the provisions of sections 9.7 and 9.8 of this
Agreement, and in the event the compliance with any such covenant is being
calculated on a Pro Forma Basis, such certificate shall contain a certification
that the financial items presented on a Pro Forma Basis have been derived in
accordance with the definition of Pro Forma Basis and the relevant assumptions
made in such determination.

     (D) BUDGETS AND FORECASTS. Not later than (i) 5 days after approval thereof
by the Board of Directors of the Borrower in the case of the 2006 fiscal year
and (ii) 90 days following commencement thereof in the case of any other fiscal
year of the Borrower and its Subsidiaries, a consolidated budget in reasonable
detail for each of the four fiscal quarters of such fiscal year, as customarily
prepared by management for its internal use, setting forth the forecasted
balance sheet, income statement, operating cash flows and capital expenditures
of the Borrower and its Subsidiaries for the period covered thereby.

     (E) NOTICE OF DEFAULT, LITIGATION OR CERTAIN MATTERS INVOLVING MAJOR
CUSTOMERS OR SUPPLIERS. Promptly, and in any event within three Business Days,
in the case of clause (i) below, or 10 days, in the case of clause (ii) or (iii)
below, after the Borrower or any of its Subsidiaries obtains knowledge thereof,
notice of


                                       53



          (i) the occurrence of any event which constitutes a Default or Event
     of Default, which notice shall specify the nature thereof, the period of
     existence thereof and what action the Borrower proposes to take with
     respect thereto,

          (ii) the commencement of, or any other material development
     concerning, any litigation or governmental or regulatory proceeding pending
     against the Borrower or any of its Subsidiaries, if the same involves (in
     the Borrower's reasonable judgment) any substantial likelihood of having a
     Material Adverse Effect, and

          (iii) if the same involves (in the Borrower's reasonable judgment) any
     substantial likelihood of having a Material Adverse Effect, any significant
     adverse change in the Borrower's or any Subsidiary's relationship with, or
     any significant event or circumstance which is in the Borrower's reasonable
     judgment likely to adversely affect the Borrower's or any Subsidiary's
     relationship with, (A) any customer (or related group of customers)
     representing more than 10% of the Borrower's consolidated revenues during
     its most recent fiscal year, or (B) any supplier which is material to the
     operations of the Borrower and its Subsidiaries considered as an entirety.

     (F) ERISA. Promptly, and in any event within 10 days after the Borrower,
any Subsidiary of the Borrower or any ERISA Affiliate knows of the occurrence of
any of the following, the Borrower will deliver to each of the Lenders a
certificate on behalf of the Borrower of an Authorized Officer of the Borrower
setting forth the full details as to such occurrence and the action, if any,
that the Borrower, such Subsidiary or such ERISA Affiliate is required or
proposes to take, together with any notices required or proposed to be given to
or filed with or by the Borrower, the Subsidiary, the ERISA Affiliate, the PBGC,
a Plan participant or the Plan administrator with respect thereto:

          (i) that a Reportable Event has occurred with respect to any Plan;

          (ii) the institution of any steps by the Borrower, any ERISA
     Affiliate, the PBGC or any other Person to terminate any Plan;

          (iii) the institution of any steps by the Borrower or any ERISA
     Affiliate to withdraw from any Plan;

          (iv) the institution of any steps by the Borrower or any Subsidiary to
     withdraw from any Multiemployer Plan or Multiple Employer Plan, if such
     withdrawal could result in withdrawal liability (as described in Part 1 of
     Subtitle E of Title IV of ERISA) in excess of $5,000,000;

          (v) a non-exempt "prohibited transaction" within the meaning of
     section 406 of ERISA in connection with any Plan;

          (vi) that a Plan has an Unfunded Current Liability exceeding
     $5,000,000;

          (vii) any material increase in the contingent liability of the
     Borrower or any Subsidiary with respect to any post-retirement welfare
     liability; or

          (viii) the taking of any action by, or the threatening of the taking
     of any action by, the Internal Revenue Service, the Department of Labor or
     the PBGC with respect to any of the foregoing.

     (G) ENVIRONMENTAL MATTERS. Promptly upon, and in any event within 10
Business Days after, an officer of the Borrower or any of its Subsidiaries
obtains knowledge thereof, notice of one or more of the following environmental
matters: (i) any pending or threatened material Environmental Claim against the
Borrower or any of its Subsidiaries or any Real Property owned or operated by
the Borrower or any of its Subsidiaries; (ii) any condition or occurrence on or
arising from any Real Property owned or operated by the Borrower or any of its
Subsidiaries that (A) results in material noncompliance by the Borrower or any
of its Subsidiaries with any applicable Environmental Law or (B) would
reasonably be expected to form the basis of a material Environmental Claim


                                       54



against the Borrower or any of its Subsidiaries or any such Real Property; (iii)
any condition or occurrence on any Real Property owned, leased or operated by
the Borrower or any of its Subsidiaries that could reasonably be expected to
cause such Real Property to be subject to any material restrictions on the
ownership, occupancy, use or transferability by the Borrower or any of its
Subsidiaries of such Real Property under any Environmental Law; and (iv) the
taking of any material removal or remedial action in response to the actual or
alleged presence of any Hazardous Material on any Real Property owned, leased or
operated by the Borrower or any of its Subsidiaries as required by any
Environmental Law or any governmental or other administrative agency. All such
notices shall describe in reasonable detail the nature of the Environmental
Claim, the Borrower's or such Subsidiary's response thereto and the potential
exposure in dollars of the Borrower and its Subsidiaries with respect thereto.

     (H) SEC REPORTS AND REGISTRATION STATEMENTS. Promptly after transmission
thereof or other filing with the SEC, copies of all registration statements
(other than the exhibits thereto and any registration statement on Form S-8 or
its equivalent) and all annual, quarterly or current reports that the Borrower
or any of its Subsidiaries files with the SEC on Form 10-K, 10-Q or 8-K (or any
successor forms).

     (I) ANNUAL AND QUARTERLY REPORTS, PROXY STATEMENTS AND OTHER REPORTS
DELIVERED TO STOCKHOLDERS GENERALLY. Promptly after transmission thereof to its
stockholders, copies of all annual, quarterly and other reports and all proxy
statements that the Borrower furnishes to its stockholders generally.

     (J) PRESS RELEASES. Promptly after the release thereof to any news
organization or news distribution organization, copies of any press releases and
other similar statements intended to be made available generally by the Borrower
or any of its Subsidiaries to the public concerning material developments
relating to the Borrower or any of its Subsidiaries.

     (K) OTHER INFORMATION. With reasonable promptness, such other information
or documents (financial or otherwise) relating to the Borrower or any of its
Subsidiaries as any Lender may reasonably request from time to time.

     8.2. BOOKS, RECORDS AND INSPECTIONS. (a) The Borrower will, and will cause
each of its Subsidiaries to, keep proper books of record and account, in which
full and correct entries shall be made of all financial transactions and the
assets and business of the Borrower or such Subsidiaries, as the case may be, in
accordance with GAAP.

     (b) The Borrower will permit officers and designated representatives of the
Administrative Agent, the Collateral Agent or any Lender, upon at least two
Business Days' notice to the Chief Financial Officer of the Borrower, to visit
and inspect any of the properties or assets of the Borrower and any of its
Subsidiaries in whomsoever's possession (but only to the extent the Borrower or
such Subsidiary has the right to do so to the extent in the possession of
another Person), to examine the books of account, records, reports and other
papers of the Borrower and any of its Subsidiaries, and make copies thereof and
take extracts therefrom, and to discuss the affairs, finances and accounts of
the Borrower and of any of its Subsidiaries with, and be advised as to the same
by, its and their officers and independent accountants and independent
actuaries, if any (and by this provision the Borrower authorizes such
independent accountants and actuaries to discuss the affairs, finances and
accounts of the Borrower and any of its Subsidiaries), all at such reasonable
times and intervals and to such reasonable extent as the Administrative Agent,
the Collateral Agent or any such Lender may request. The Administrative Agent
and the Collateral Agent may (at their own initiative), and shall (if so
instructed by the Required Lenders), exercise their rights under this section
8.2(b) from time to time. In any event, the Administrative Agent and the
Collateral Agent will promptly furnish the Lenders, and any Lender shall provide
the Administrative Agent (which shall in turn provide the Lenders) with copies
of any material documentation obtained by any of them during the course of any
inspection, examination or discussions pursuant to this section 8.2(b). If any
Lender requests copies of any other documentation so obtained by the
Administrative Agent or the Collateral Agent, the Administrative Agent or the
Collateral Agent, as applicable, will promptly furnish copies thereof to all of
the Lenders.

     8.3. INSURANCE. (a) The Borrower will, and will cause each of its
Subsidiaries to, (i) maintain insurance coverage by such insurers and in such
forms and amounts and against such risks as are generally consistent with the
insurance coverage maintained by the Borrower and its Subsidiaries at the date
hereof, and (ii) forthwith upon the Administrative Agent's written request
(which the Administrative Agent may make on its own


                                       55



initiative and shall make if so requested by the Required Lenders), furnish to
the Administrative Agent (who shall promptly distribute copies to the Lenders)
such information about such insurance as the Administrative Agent may from time
to time reasonably request, which information shall be prepared in form and
detail satisfactory to the Administrative Agent and certified by an Authorized
Officer of the Borrower.

     (b) The Borrower will, and will cause each of its Subsidiaries which is a
Credit Party to, at all times keep their respective property which is subject to
the Lien of any Security Document insured in favor of the Collateral Agent, and
all policies or certificates (or certified copies thereof) with respect to such
insurance (and any other insurance maintained by the Borrower or any such
Subsidiary) (i) shall be endorsed to the Collateral Agent's satisfaction for the
benefit of the Collateral Agent (including, without limitation, by naming the
Collateral Agent as loss payee (with respect to Collateral) or, to the extent
permitted by applicable law, as an additional insured), (ii) shall state that
such insurance policies shall not be canceled without 30 days' prior written
notice thereof (or 10 days' prior written notice in the case of cancellation for
the non-payment of premiums) by the respective insurer to the Collateral Agent,
(iii) shall provide that the respective insurers irrevocably waive any and all
rights of subrogation with respect to the Collateral Agent and the Lenders, and
(iv) shall in the case of any such certificates or endorsements in favor of the
Collateral Agent, be delivered to or deposited with the Collateral Agent. In no
event shall the Borrower be required to deposit the actual insurance policies
with the Collateral Agent. The Administrative Agent shall deliver copies of any
certificates of insurance to a Lender upon such Lender's reasonable request.

     (c) If the Borrower or any of its Subsidiaries shall fail to maintain all
insurance in accordance with this section 8.3, or if the Borrower or any of its
Subsidiaries shall fail to so endorse and deliver or deposit all endorsements or
certificates with respect thereto, the Administrative Agent and/or the
Collateral Agent shall have the right (but shall be under no obligation), upon
prior written notice to the Borrower, to procure such insurance and the Borrower
agrees to reimburse the Administrative Agent or the Collateral Agent, as the
case may be, on demand, for all costs and expenses of procuring such insurance.

     8.4. PAYMENT OF TAXES AND CLAIMS. The Borrower will pay and discharge, and
will cause each of its Subsidiaries to pay and discharge, all taxes, assessments
and governmental charges or levies imposed upon it or upon its income or
profits, or upon any properties belonging to it, prior to the date on which
penalties attach thereto, and all lawful claims which, if unpaid, might become a
Lien or charge upon any properties of the Borrower or any of its Subsidiaries;
PROVIDED that neither the Borrower nor any of its Subsidiaries shall be required
to pay any such tax, assessment, charge, levy or claim which is being contested
in good faith and by proper proceedings if it has maintained adequate reserves
with respect thereto in accordance with GAAP; and PROVIDED, FURTHER, that the
Borrower will not be considered to be in default of any of the provisions of
this sentence if the Borrower or any Subsidiary fails to pay any such amount
which, individually or in the aggregate, is immaterial. Without limiting the
generality of the foregoing, the Borrower will, and will cause each of its
Subsidiaries to, pay in full all of its wage obligations to its employees in
accordance with the Fair Labor Standards Act (29 U.S.C. sections 206-207) and
any comparable provisions of applicable law.

     8.5. CORPORATE FRANCHISES. The Borrower will do, and will cause each of its
Subsidiaries to do, or cause to be done, all things necessary to preserve and
keep in full force and effect its corporate existence, rights and authority,
PROVIDED that nothing in this section 8.5 shall be deemed to prohibit (i) any
transaction permitted by section 9.2; (ii) the termination of existence of any
Subsidiary if (A) the Borrower determines that such termination is in its best
interest and (B) such termination is not adverse in any material respect to the
Lenders; or (iii) the loss of any rights, authorities or franchises if the loss
thereof, in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.

     8.6. MAINTENANCE OF PROPERTIES. The Borrower will, and will cause each of
its Subsidiaries to, ensure that its material properties and equipment used or
useful in its business in whomsoever's possession they may be, in good repair,
working order and condition, ordinary wear and tear excepted, and that from time
to time there are made in such properties and equipment all needful and proper
repairs, renewals, replacements, extensions, additions, betterments and
improvements, thereto, to the extent and in the manner customary for companies
in similar businesses.

     8.7. COMPLIANCE WITH STATUTES, ETC. The Borrower will, and will cause each
of its Subsidiaries to, comply, in all material respects, with all applicable
statutes, regulations and orders of, and all applicable restrictions


                                       56



imposed by, all governmental bodies, domestic or foreign, in respect of the
conduct of its business and the ownership of its property, other than those the
noncompliance with which would not have, and which would not be reasonably
expected to have, a Material Adverse Effect.

     8.8. COMPLIANCE WITH ENVIRONMENTAL LAWS. Without limitation of the
covenants contained in section 8.7 hereof,

     (a) The Borrower will comply, and will cause each of its Subsidiaries to
comply, in all material respects, with all Environmental Laws applicable to the
ownership, lease or use of all Real Property now or hereafter owned, leased or
operated by the Borrower or any of its Subsidiaries, and will promptly pay or
cause to be paid all costs and expenses incurred in connection with such
compliance, EXCEPT to the extent that such compliance with Environmental Laws is
being contested in good faith and by appropriate proceedings and for which
adequate reserves have been established to the extent required by GAAP, and an
adverse outcome in such proceedings is not reasonably expected to have a
Material Adverse Effect.

     (b) The Borrower will keep or cause to be kept, and will cause each of its
Subsidiaries to keep or cause to be kept, all such Real Property free and clear
of any Liens imposed pursuant to such Environmental Laws which are not permitted
under section 9.3.

     (c) Neither the Borrower nor any of its Subsidiaries will generate, use,
treat, store, release or dispose of, or permit the generation, use, treatment,
storage, release or disposal of, Hazardous Materials on any Real Property now or
hereafter owned, leased or operated by the Borrower or any of its Subsidiaries
or transport or permit the transportation of Hazardous Materials to or from any
such Real Property other than in compliance with applicable Environmental Laws
and in the ordinary course of business, except for such noncompliance as would
not have, and which would not be reasonably expected to have, a Material Adverse
Effect.

     (d) If required to do so under any applicable order of any governmental
agency, the Borrower will undertake, and cause each of its Subsidiaries to
undertake, any clean up, removal, remedial or other action necessary to remove
and clean up any Hazardous Materials from any Real Property owned, leased or
operated by the Borrower or any of its Subsidiaries in accordance with, in all
material respects, the requirements of all applicable Environmental Laws and in
accordance with, in all material respects, such orders of all governmental
authorities, except to the extent that the Borrower or such Subsidiary is
contesting such order in good faith and by appropriate proceedings and for which
adequate reserves have been established to the extent required by GAAP.

     (e) At the written request of the Administrative Agent or the Required
Lenders, which request shall specify in reasonable detail the basis therefor, at
any time and from time to time after the Lenders receive notice under section
8.1(g) for any Environmental Claim involving potential expenditures by the
Borrower or any of its Subsidiaries in excess of $5,000,000 in the aggregate for
any Real Property, the Borrower will provide, at its sole cost and expense, an
environmental site assessment report concerning any such Real Property now or
hereafter owned, leased or operated by the Borrower or any of its Subsidiaries,
prepared by an environmental consulting firm reasonably acceptable to the
Administrative Agent, indicating the presence or absence of Hazardous Materials
and the potential cost of any removal or a remedial action in connection with
any Hazardous Materials on such Real Property. If the Borrower fails to provide
the same within 90 days after such request was made, the Administrative Agent
may order the same, and the Borrower shall grant and hereby grants, to the
Administrative Agent and the Lenders and their agents, access to such Real
Property and specifically grants the Administrative Agent and the Lenders an
irrevocable non-exclusive license, subject to the rights of tenants, to
undertake such an assessment, all at the Borrower's expense.

     8.9. FISCAL YEARS, FISCAL QUARTERS. If the Borrower shall change any of its
or any of its Subsidiaries' fiscal years or fiscal quarters (other than the
fiscal year or fiscal quarters of a Person which becomes a Subsidiary, made at
the time such Person becomes a Subsidiary to conform to the Borrower's fiscal
year and fiscal quarters), the Borrower will promptly, and in any event within
30 days following any such change, deliver a notice to the Administrative Agent
and the Lenders describing such change and any material accounting entries made
in connection therewith and stating whether such change will have any impact
upon any financial computations to be made hereunder, and if any such impact is
foreseen, describing in reasonable detail the nature and extent of such impact.
If the Required Lenders determine that any such change will have any impact upon
any financial


                                       57



computations to be made hereunder which is adverse to the Lenders, the Borrower
will, if so requested by the Administrative Agent, enter into an amendment to
this Agreement, in form and substance reasonably satisfactory to the
Administrative Agent and the Required Lenders, modifying any of the financial
covenants or related provisions hereof in such manner as the Required Lenders
determine is necessary to eliminate such adverse effect.

     8.10. HEDGE AGREEMENTS, ETC. In the event the Borrower or any of its
Subsidiaries determines to enter into a Hedge Agreement it may do so, provided
that (i) the Hedge Agreement does not expose the Borrower or its Subsidiaries to
predominantly speculative risks unrelated to the amount of assets, Indebtedness
or other liabilities intended to be subject to coverage on a notional basis
under all such Hedge Agreements; and (ii) in the case of any Hedge Agreement
entered into after the Effective Date with respect to interest rates, only if
the proposed form thereof (including any proposed pricing or other material
terms) has been provided to the Administrative Agent, for its consideration of
any potential intercreditor issues, contemporaneously with the entry into such
Hedge Agreement.

     8.11. CERTAIN SUBSIDIARIES TO JOIN IN SUBSIDIARY GUARANTY. (a) In the event
that at any time after the Closing Date

          (x) the Borrower has any Subsidiary (other than a Subsidiary that is
     not a Material Subsidiary and other than a Foreign Subsidiary as to which
     section 8.11(b) applies) that is not a party to the Subsidiary Guaranty, or

          (y) an Event of Default shall have occurred and be continuing and the
     Borrower has any Subsidiary which is not a party to the Subsidiary
     Guaranty,

the Borrower will notify the Administrative Agent in writing of such event,
identifying the Subsidiary in question and referring specifically to the rights
of the Administrative Agent and the Lenders under this section. The Borrower
will, within 30 days following request therefor from the Administrative Agent
(who may give such request on its own initiative or upon request by the Required
Lenders), cause such Subsidiary to deliver to the Administrative Agent, in
sufficient quantities for the Lenders, (i) a joinder supplement, reasonably
satisfactory in form and substance to the Administrative Agent and the Required
Lenders, duly executed by such Subsidiary, pursuant to which such Subsidiary
joins in the Subsidiary Guaranty as a guarantor thereunder, and (ii) resolutions
of the Board of Directors (or similar governing body) of such Subsidiary,
certified by the Secretary or an Assistant Secretary of such Subsidiary as duly
adopted and in full force and effect, authorizing the execution and delivery of
such joinder supplement, or if such Subsidiary is not a corporation, such other
evidence of the authority of such Subsidiary to execute such joinder supplement
as the Administrative Agent may reasonably request. Notwithstanding anything
herein to the contrary, in the event that any Subsidiary of the Borrower is at
any time a guarantor under the Public Notes Documents and has not guaranteed the
Obligations hereunder, such Subsidiary shall have executed and delivered a
Subsidiary Guaranty and the Additional Security documents contemplated by
section 8.12 hereof in form and substance acceptable to the Administrative Agent
in its discretion.

     (b) Notwithstanding the foregoing provisions of this section 8.11 or the
provisions of section 8.12 hereof, the Borrower shall not, unless an Event of
Default shall have occurred and be continuing, be required to pledge (or cause
to be pledged) more than 65% of the stock or other equity interests in any first
tier Foreign Subsidiary, or any of the stock or equity interests in any first
tier Foreign Subsidiaries which alone or when combined or consolidated with each
other would not constitute a Material Subsidiary, or any of the stock or other
equity interests in any other Foreign Subsidiary, or to cause a Foreign
Subsidiary to join in the Subsidiary Guaranty or to become a party to the
Security Agreement or any other Security Document.

     8.12. ADDITIONAL SECURITY; FURTHER ASSURANCES. (a) In the event that at any
time after the Closing Date the Borrower or any of its Subsidiaries owns or
holds an interest in any Real Property, assets, stock, securities or any other
property or interest, located within or outside of the United States or arising
out of business conducted from any location within or outside the United States,
which is not at the time included in the Collateral and is not subject to a
Permitted Lien securing Indebtedness (all of the foregoing, "UNCOLLATERALIZED
PROPERTY"), the Borrower will notify the Administrative Agent in writing of such
event, identifying the Uncollateralized Property in question and referring
specifically to the rights of the Administrative Agent and the Lenders under
this section 8.12; PROVIDED that notwithstanding the foregoing, the Borrower
need not notify the Administrative Agent under this section 8.12(a) of (x) any
leasehold interest which is acquired or held by the Borrower or any Subsidiary
unless the same involves a


                                       58



nominal or bargain purchase price option, or (y) any Uncollateralized Property
which at the time is not required to be included in the Collateral pursuant to
section 8.11(b) or the proviso at the end of section 8.12(b).

     (b) The Borrower will, or will cause an applicable Subsidiary to, within 30
days following request by the Collateral Agent (who may make such request on its
own initiative or upon instructions from the Required Lenders), grant the
Collateral Agent for the benefit of the Secured Creditors (as defined in the
Security Documents) security interests and mortgages or deeds of trust, pursuant
to the Pledge Agreement or other new documentation (each an "ADDITIONAL SECURITY
DOCUMENT") or joinder in any existing Security Document to which it is not
already a party, in all of the Uncollateralized Property as to which the
Administrative Agent has notified the Borrower that the same is required to be
included in the Collateral, SUBJECT to obtaining any required consents from
third parties (including third party lessors and co-venturers) necessary to be
obtained for the granting of a Lien on any particular Uncollateralized Property
(with the Borrower hereby agreeing to use, and to cause its Subsidiaries to use,
reasonable best efforts to obtain such consents), and ALSO subject to the
provisions of section 8.11(b); PROVIDED that the Borrower shall not be required
to cause to be delivered any mortgage or deed of trust on any Leasehold or other
Real Property, or any chattel mortgage or security agreement covering an
aircraft, unless an Event of Default shall have occurred and be continuing. The
Borrower will, or will cause an applicable Subsidiary to, upon the request of
the Collateral Agent, delivered after the occurrence and during the continuance
of an Event of Default, promptly deliver mortgages, deeds of trust, chattel
mortgages and other security agreements covering any Uncollateralized Property
as the Collateral Agent may request.

     (c) Each Additional Security Document (i) shall be granted pursuant to
documentation reasonably satisfactory in form and substance to the
Administrative Agent, which documentation shall in the case of Real Property
owned in fee be accompanied by such Phase I environmental reports or
assessments, a mortgage policy of title insurance (subject to a standard survey
exception), and other supporting documentation requested by and reasonably
satisfactory in form and substance to the Administrative Agent; and (ii) shall
constitute a valid and enforceable perfected Lien upon the interests or
properties so included in the Collateral, superior to and prior to the rights of
all third Persons and subject to no other Liens except those permitted by
section 9.3 or otherwise agreed by the Administrative Agent at the time of
perfection thereof and (in the case of Real Property or interests therein) such
other encumbrances as may be set forth in the mortgage policy, if any, relating
to such Additional Security Document which shall be delivered to the Collateral
Agent together with such Additional Security Document and which shall be
satisfactory in form and substance to the Collateral Agent and the
Administrative Agent. The Borrower, at its sole cost and expense, will cause
each Additional Security Document or instruments related thereto to be duly
recorded or filed in such manner and in such places as are required by law to
establish, perfect, preserve and protect the Liens created thereby required to
be granted pursuant to the Additional Security Document, and will pay or cause
to be paid in full all taxes, fees and other charges payable in connection
therewith. Furthermore, the Borrower shall cause to be delivered to the
Collateral Agent such opinions of local counsel, appraisals, title insurance,
environmental assessments, consents of landlords, lien waivers from landlords or
mortgagees and other related documents as may be reasonably requested by the
Collateral Agent in connection with the execution, delivery and recording of any
Additional Security Document, all of which documents shall be in form and
substance reasonably satisfactory to the Collateral Agent and the Administrative
Agent, except that no leasehold mortgage or deed of trust, title insurance or
surveys shall be required for any leasehold properties (unless the lessee has a
nominal or bargain purchase option).

     (d) The Borrower will, and will cause each of its Subsidiaries to, at the
expense of the Borrower, make, execute, endorse, acknowledge, file and/or
deliver to the Collateral Agent from time to time such conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, and other
assurances or instruments and take such further steps relating to the Collateral
covered by any of the Security Documents as the Collateral Agent may reasonably
require. If at any time the Collateral Agent determines, based on applicable
law, that all applicable taxes (including, without limitation, mortgage
recording taxes or similar charges) were not paid in connection with the
recordation of any mortgage or deed of trust, the Borrower shall promptly pay
the same upon demand.

     (e) The Borrower will if requested by any Lender at any time, in order to
meet any legal requirement applicable to such Lender, provide to the Collateral
Agent and the Lenders, at the sole cost and expense of the Borrower, appraisals
and other supporting documentation relating to any mortgage or deed of trust
delivered as an Additional Security Document hereunder, as specified by any
Lender, meeting the appraisal and other


                                       59



documentation requirements of the Real Estate Reform Amendments of the Financial
Institution Reform, Recovery and Enforcement Act of 1989, as amended, or any
other legal requirements applicable to any Lender, which in the case of any such
appraisal shall be prepared by one or more valuation firms of national standing,
acceptable to the Required Lenders, utilizing appraisal standards satisfying
such Amendments, Act or other legal requirements.

     (f) For the avoidance of doubt, the Borrower shall have no obligation to
cause to be delivered any survey of any Real Property which is covered by any
mortgage, deed of trust or similar instrument constituting an Additional
Security Document so as to permit a title Borrower to eliminate by endorsement
the "survey exception" to the title policy for such Real Property.

     (g) Notwithstanding the foregoing provisions of this section 8.12, in the
event the Administrative Agent notifies the Borrower that the Required Lenders
have determined on the basis of an environmental report or assessment delivered
by the Borrower pursuant to the provisions of section 8.12(c) that an Additional
Security Document encumbering any particular Real Property should not be
delivered under this section 8.12, the Borrower shall be relieved of its
obligation in this section 8.12 to deliver or cause to be delivered an
Additional Security Document in the form of a mortgage, deed of trust or similar
instrument covering such Real Property, SUBJECT to any later determination by
the Required Lenders notified to the Borrower by the Administrative Agent that
an Additional Security Document in the form of a mortgage, deed of trust or
similar instrument covering such Real Property should be executed and delivered
hereunder.

     (h) As promptly as practicable after the date (i) any Credit Party has any
Collateral located in a jurisdiction as to which the Administrative Agent shall
not previously have received a lien search report listing all effective UCC
financing statements and other Liens filed against such Credit Party in such
jurisdiction and containing copies of all such effective UCC financing
statements and other Lien documents, (ii) any Person first becomes a Credit
Party, or (iii) any UCC financing statement or Security Document is filed
against any Credit Party to perfect security interests granted pursuant to the
Security Agreement or any other Security Document, the Borrower will, at its
expense, cause to be delivered to the Administrative Agent and the Lenders
search reports listing all effective UCC financing statements and other Lien
documents filed against such Person or Credit Party in each applicable
jurisdiction and containing copies of all such effective UCC financing
statements and other Lien documents. In addition, whenever requested by the
Administrative Agent, but not more frequently than once in any 12-month period,
the Borrower will promptly provide the Administrative Agent and the Lenders with
such new or updated title, lien, judgment, patent, trademark and UCC financing
statement searches or reports as to the Borrower or any of its Subsidiaries, or
any Collateral of any Credit Party, as the Administrative Agent may specify to
the Borrower in its request.

     (i) The Collateral Agent is authorized, without the consent of any of the
Lenders, to (i) enter into any modification of any Security Document which the
Collateral Agent reasonably believes is required to conform to the mandatory
requirements of local law, or to local customs followed by financial
institutions with respect to similar collateral documents involving property
located in any particular jurisdiction, (ii) in the case of any Security
Document relating to property located in a particular jurisdiction which imposes
a tax with respect to such Security Document based on the amount of the
obligations secured thereby, expressly limit the amount of such secured
obligations which are secured by such property to such amount as, in the
Collateral Agent's good faith judgment, is appropriate so that the amount of
such tax is reasonable in light of the estimated value of the property located
in such jurisdiction, and/or (iii) designate the amount of title insurance
coverage for any title insurance policy provided hereunder in an amount
reasonably believed by the Collateral Agent to be representative of the fair
value of the property covered thereby.

     (j) The Borrower will provide the Administrative Agent with sufficient
copies of each Additional Security Document and any additional supporting
documents delivered in connection therewith for distribution of copies thereof
to the Lenders, and the Administrative Agent will promptly so distribute such
copies.

     8.13. CASUALTY AND CONDEMNATION. (a) The Borrower will promptly (and in any
event within 10 days) furnish to the Administrative Agent and the Lenders
written notice of any Event of Loss involving any property included in the
Collateral which is reasonably believed to be in excess of $10,000,000.


                                       60



     (b) If any Event of Loss results in Net Cash Proceeds (whether in the form
of insurance proceeds, a condemnation award or otherwise), a portion or all of
which is required to be applied as a prepayment of the Loans or to the
rebuilding or restoration of any affected property pursuant to section 5.2, the
Collateral Agent is authorized to collect such Net Cash Proceeds and, if
received by any Credit Party, the Borrower will, or will cause any applicable
Credit Party, to pay over such Net Cash Proceeds to the Collateral Agent.

     8.14. LANDLORD/MORTGAGEE WAIVERS; BAILEE LETTERS. If requested to do so by
the Administrative Agent (who may so request on its own initiative and who shall
so request if required to do so by instructions from the Required Lenders), the
Borrower will promptly (and in any event within 60 days following any such
request) obtain, and thereafter the Borrower will maintain in effect, (a) lien
waivers from landlords and mortgagees having any interest in any Real Property
on which any tangible items of Collateral, having a minimum value as specified
by the Administrative Agent in such request, are located, substantially in the
form provided by, or otherwise reasonably acceptable to, the Administrative
Agent, and (b) bailee letters, substantially in the form provided by, or
otherwise reasonably acceptable to, the Administrative Agent, from Persons
unrelated to any of the Credit Parties who are parties to the Security Agreement
to whom any tangible items of Collateral having a minimum value as specified by
the Administrative Agent in such request, have been delivered for storage, use,
consignment or similar purposes.

     8.15. MOST FAVORED COVENANT STATUS. Should the Borrower at any time after
the Effective Date, issue or guarantee any Indebtedness denominated in Dollars
for money borrowed or represented by bonds, notes, debentures or similar
securities in an aggregate amount exceeding $10,000,000, to any lender or group
of lenders acting in concert with one another, or one or more institutional
investors, pursuant to a loan agreement, credit agreement, note purchase
agreement, indenture, guaranty or other similar instrument, which agreement,
indenture, guaranty or instrument, includes affirmative or negative business or
financial covenants (or any events of default or other type of restriction which
would have the practical effect of any affirmative or negative business or
financial covenant, including, without limitation, any "put" or mandatory
prepayment of such Indebtedness upon the occurrence of a "change of control")
which are applicable to the Borrower, other than those set forth herein or in
any of the other Credit Documents, the Borrower shall promptly so notify the
Administrative Agent and the Lenders and, if the Administrative Agent shall so
request by written notice to the Borrower (after a determination has been made
by the Required Lenders that any of the above-referenced documents or
instruments contain any such provisions, which either individually or in the
aggregate, are more favorable to the holders of such unsecured Indebtedness than
any of the provisions set forth herein), the Borrower, the Administrative Agent
and the Lenders shall promptly amend this Agreement to incorporate some or all
of such provisions, in the discretion of the Administrative Agent and the
Required Lenders, into this Agreement and, to the extent necessary and
reasonably desirable to the Administrative Agent and the Required Lenders, into
any of the other Credit Documents, all at the election of the Administrative
Agent and the Required Lenders.

     8.16. SENIOR DEBT. The Borrower will at all times ensure that (i) the
claims of the Lenders in respect of the Obligations of the Borrower will in all
respects rank prior to the claims of every unsecured creditor of the Borrower,
and (ii) any Indebtedness of the Borrower which is subordinated in any manner to
the claims of any other creditor of the Borrower will be subordinated in like
manner to such claims of the Lenders.

SECTION 9. NEGATIVE COVENANTS

     The Borrower hereby covenants and agrees that on the Effective Date and
thereafter for so long as this Agreement is in effect and until such time as the
Total Commitment has been terminated, no Notes or Letters of Credit remain
outstanding and the Loans, together with interest, Fees and all other
Obligations incurred hereunder and under the other Credit Documents, have been
paid in full:

     9.1. CHANGES IN BUSINESS. Neither the Borrower nor any of its Subsidiaries
will engage in any business if, as a result, the general nature of the business,
taken on a consolidated basis, which would then be engaged in by the Borrower
and its Subsidiaries, would be substantially changed from the general nature of
the business engaged in by the Borrower and its Subsidiaries on the Effective
Date.

     9.2. CONSOLIDATION, MERGER, ACQUISITIONS, ASSET SALES, ETC. The Borrower
will not, and will not permit any Subsidiary to, (1) wind up, liquidate or
dissolve its affairs, (2) enter into any transaction of merger or consolidation,
(3) make or otherwise effect any Acquisition, (4) sell or otherwise dispose of
any of its property or


                                       61



assets outside the ordinary course of business, or otherwise make or otherwise
effect any Asset Sale, or (5) agree to do any of the foregoing at any future
time, EXCEPT that the following shall be permitted:

     (A) CERTAIN INTERCOMPANY MERGERS, ETC. If no Default or Event of Default
shall have occurred and be continuing or would result therefrom,

          (i) the merger, consolidation or amalgamation of any Subsidiary of the
     Borrower with or into the Borrower, PROVIDED the Borrower is the surviving
     or continuing or resulting corporation;

          (ii) the merger, consolidation or amalgamation of any Domestic
     Subsidiary of the Borrower with or into another Domestic Subsidiary of the
     Borrower, PROVIDED that the surviving or continuing or resulting
     corporation is a Domestic Subsidiary of the Borrower which is a Subsidiary
     Guarantor and a Wholly-Owned Subsidiary of the Borrower;

          (iii) the merger, consolidation or amalgamation of any Foreign
     Subsidiary of the Borrower (other than any which is the Borrower hereunder)
     with or into another Foreign Subsidiary of the Borrower, PROVIDED that the
     surviving or continuing or resulting corporation is a Wholly-Owned
     Subsidiary of the Borrower;

          (iv) the liquidation, winding up or dissolution of (x) any
     Wholly-Owned Subsidiary of the Borrower; or (y) any other Subsidiary of the
     Borrower in an Asset Sale permitted under section 9.2(d); and

          (v) the transfer or other disposition of any property by the Borrower
     to any Wholly-Owned Subsidiary or by any Subsidiary to the Borrower or any
     other Wholly-Owned Subsidiary of the Borrower, regardless of whether such
     intercompany transaction would constitute an Asset Sale.

     (B) OTHER MERGERS, ETC. INVOLVING THE BORROWER. The Borrower may
consolidate or merge with any other corporation, or sell, transfer or otherwise
dispose of all or substantially all of the property and assets of the Borrower
and its Subsidiaries to any Person, if (i) the surviving, continuing or
resulting corporation of such merger or consolidation (if other than the
Borrower) or the acquiring Person unconditionally assumes the obligations of the
Borrower under the Credit Documents pursuant to an assumption agreement in form
and substance reasonably satisfactory to the Required Lenders, (ii) no Event of
Default has occurred and is continuing or would result therefrom, (iii) no
Change of Control would be occasioned thereby; and (iv) if any such merger or
consolidation is entered into for the purpose of effecting an Acquisition, such
Acquisition is permitted by section 9.2(c).

     (C) ACQUISITIONS. If no Default or Event of Default shall have occurred and
be continuing or would result therefrom, the Borrower or any Subsidiary may make
any Acquisition which is a Permitted Acquisition, PROVIDED that all of the
conditions contained in the definition of the term Permitted Acquisition are
satisfied.

     (D) PERMITTED DISPOSITIONS. If no Default or Event of Default shall have
occurred and be continuing or would result therefrom, the Borrower or any of its
Subsidiaries may (i) sell any property, land or building (including any related
receivables or other intangible assets) to any Person which is not a Subsidiary
of the Borrower, or (ii) sell the entire capital stock (or other equity
interests) and Indebtedness of any Subsidiary owned by the Borrower or any other
Subsidiary to any Person which is not a Subsidiary of the Borrower, or (iii)
permit any Subsidiary to be merged or consolidated with a Person which is not an
Affiliate of the Borrower, or (iv) consummate any other Asset Sale with a Person
who is not a Subsidiary of the Borrower; PROVIDED that:

               (A) the consideration for such transaction represents fair value
          (as determined by management of the Borrower), and at least 80% of
          such consideration consists of cash;

               (B) the cumulative aggregate consideration for all such
          transactions completed during any fiscal year does not exceed
          $35,000,000;

               (C) in the case of any such transaction involving consideration
          in excess of $10,000,000, at least five Business Days prior to the
          date of completion of such transaction the


                                       62



          Borrower shall have delivered to the Administrative Agent an officer's
          certificate executed on behalf of the Borrower by an Authorized
          Officer of the Borrower, which certificate shall contain (1) a
          description of the proposed transaction, the date such transaction is
          scheduled to be consummated, the estimated purchase price or other
          consideration for such transaction, (2) a certification that no
          Default or Event of Default has occurred and is continuing, or would
          result from consummation of such transaction, and (3) which shall (if
          requested by the Administrative Agent) include a certified copy of the
          draft or definitive documentation pertaining thereto; and

               (D) contemporaneously with the completion of such transaction the
          Borrower prepays the Loans as and to the extent required by section
          5.2 hereof.


     (E) LEASES. The Borrower or any of its Subsidiaries may enter into leases
of property or assets not constituting Acquisitions, PROVIDED such leases are
not otherwise in violation of this Agreement.

     (F) CAPITAL EXPENDITURES: The Borrower and its Subsidiaries shall be
permitted to make any Consolidated Capital Expenditures, PROVIDED such
Consolidated Capital Expenditures are not otherwise in violation of this
Agreement.

     (G) PERMITTED INVESTMENTS. The Borrower and its Subsidiaries shall be
permitted to make the investments permitted pursuant to section 9.5.

To the extent any Collateral is sold, transferred or disposed of as permitted by
this section 9.2, (i) such Collateral shall be sold, transferred or disposed of
free and clear of the Liens created by the respective Security Documents; (ii)
if such Collateral includes all of the capital stock of a Subsidiary which is a
party to the Subsidiary Guaranty or whose stock is pledged pursuant to the
Pledge Agreement, such capital stock shall be released from the Pledge Agreement
and such Subsidiary shall be released from the Subsidiary Guaranty; and (iii)
the Administrative Agent and the Collateral Agent shall be authorized to take
actions deemed appropriate by them in order to effectuate the foregoing.

     9.3. LIENS. The Borrower will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets of any kind (real or personal, tangible or
intangible) of the Borrower or any such Subsidiary whether now owned or
hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable or notes with or without
recourse to the Borrower or any of its Subsidiaries, other than for purposes of
collection of delinquent accounts in the ordinary course of business) or assign
any right to receive income, or file or permit the filing of any financing
statement under the UCC or any other similar notice of Lien under any similar
recording or notice statute, EXCEPT that the foregoing restrictions shall not
apply to:

     (A) STANDARD PERMITTED LIENS: the Standard Permitted Liens;

     (B) EXISTING LIENS, ETC.: Liens (i) in existence on the Effective Date
which are listed, and the Indebtedness secured thereby and the property subject
thereto on the Effective Date described, in Annex IV, or (ii) arising out of the
refinancing, extension, renewal or refunding of any Indebtedness secured by any
such Liens, PROVIDED that the principal amount of such Indebtedness is not
increased and such Indebtedness is not secured by any additional assets;

     (C) PURCHASE MONEY LIENS: Liens (i) which are placed upon fixed or capital
assets, acquired, constructed or improved by the Borrower or any Subsidiary,
PROVIDED that (A) such Liens secure Indebtedness permitted by section 9.4(c),
(B) such Liens and the Indebtedness secured thereby are incurred prior to or
within 120 days after such acquisition or the completion of such construction or
improvement, (C) the Indebtedness secured thereby does not exceed 100% of the
cost of acquiring, constructing or improving such fixed or capital assets; and
(D) such Liens shall not apply to any other property or assets of the Borrower
or any Subsidiary; or (ii) arising out of the refinancing, extension, renewal or
refunding of any Indebtedness secured by any such Liens, PROVIDED that the


                                       63



principal amount of such Indebtedness is not increased and such Indebtedness is
not secured by any additional assets;

     (D) LIENS ON ACQUIRED PROPERTIES: any Lien (i) existing on any property or
asset prior to the acquisition thereof by the Borrower or any Subsidiary, or
existing on any property or asset of any Person that becomes a Subsidiary after
the date hereof prior to the time such Person becomes a Subsidiary; PROVIDED
that (A) such Lien secures Indebtedness permitted by section 9.4(c), (B) such
Lien is not created in contemplation of or in connection with such acquisition
or such Person becoming a Subsidiary, as the case may be, (C) such Lien shall
not attach or apply to any other property or assets of the Borrower or any
Subsidiary, (D) such Lien shall secure only those obligations which it secures
on the date of such acquisition or the date such Person becomes a Subsidiary, as
the case may be; or (ii) arising out of the refinancing, extension, renewal or
refunding of any Indebtedness secured by any such Liens, PROVIDED that the
principal amount of such Indebtedness is not increased and such Indebtedness is
not secured by any additional assets; and

     (E) ADDITIONAL LIENS: additional Liens (including Liens securing
Indebtedness permitted pursuant to section 9.4(c)(iii)) covering property of the
Borrower or its Subsidiaries, securing Indebtedness in an aggregate principal
amount not exceeding, at the time of incurrence thereof, $25,000,000 as to all
such Indebtedness.

     9.4. INDEBTEDNESS. The Borrower will not, and will not permit any of its
Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness of the Borrower or any of its Subsidiaries, EXCEPT:

     (A) CREDIT DOCUMENTS: Indebtedness incurred under this Agreement and the
other Credit Documents;

     (B) EXISTING INDEBTEDNESS: Existing Indebtedness (including, without
limitation, the Indebtedness of the Borrower under the Public Notes), and any
refinancing, extension, renewal or refunding of any such Existing Indebtedness,
not involving an increase in the principal amount thereof or a reduction of more
than 10% in the remaining weighted average life to maturity thereof (computed in
accordance with standard financial practice);

     (C) CERTAIN PRIORITY DEBT: in addition to the Indebtedness which is
permitted by the preceding clauses, the following additional Indebtedness:

          (i) Indebtedness consisting of Capitalized Lease Obligations of the
     Borrower and its Subsidiaries,

          (ii) Indebtedness consisting of obligations under Synthetic Leases of
     the Borrower and its Subsidiaries,

          (iii) Indebtedness secured by a Lien referred to in section 9.3(c) or
     9.3(d), and

          (iv) other Indebtedness of Subsidiaries of the Borrower (exclusive of
     Indebtedness owed pursuant to any of the Credit Documents, or to the
     Borrower or a Wholly-Owned Subsidiary of the Borrower);

     PROVIDED that (A) at the time of any incurrence thereof after the date
     hereof, and after giving effect thereto, the Borrower would be in
     compliance with sections 9.7, 9.8, and 9.9, and no Event of Default shall
     have occurred and be continuing or would result therefrom; and (B) the
     aggregate outstanding principal amount (using Capitalized Lease Obligations
     in lieu of principal amount, in the case of any Capital Lease, and using
     the present value, based on the implicit interest rate, in lieu of
     principal amount, in the case of any Synthetic Lease) of Indebtedness
     permitted by this clause (c), shall not exceed $30,000,000;

     (D) INTERCOMPANY DEBT: the following: (i) unsecured Indebtedness of the
Borrower owed to any of its Subsidiaries, PROVIDED such Indebtedness constitutes
Subordinated Indebtedness; and (ii) unsecured Indebtedness of any of the
Borrower's Subsidiaries to the Borrower or to another Subsidiary of the
Borrower, representing loans or advances permitted by section 9.5 hereof
provided that any such intercompany loans which are made by or to


                                       64



Domestic Subsidiaries are evidenced by promissory notes pledged to the
Collateral Agent pursuant to the Security Documents;

     (E) HEDGE AGREEMENTS: Indebtedness of the Borrower and its Subsidiaries
under Hedge Agreements;

     (F) GUARANTY OBLIGATIONS: any Guaranty Obligations permitted by section
9.5; and

     (G) ADDITIONAL DEBT OF FOREIGN SUBSIDIARIES: unsecured Indebtedness not
otherwise permitted by the foregoing clauses incurred by Foreign Subsidiaries in
an amount not to exceed at any time $50,000,000.

     9.5. ADVANCES, INVESTMENTS, LOANS AND GUARANTY OBLIGATIONS. The Borrower
will not, and will not permit any of its Subsidiaries to, (1) lend money or
credit or make advances to any Person, (2) purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, or other investment in, any Person, (3) create, acquire or hold
any Subsidiary, (4) be or become a party to any joint venture or partnership, or
(5) be or become obligated under any Guaranty Obligations (other than those
which may be created in favor of the Lenders and any other benefited creditors
under any Designated Hedge Agreements pursuant to the Credit Documents), EXCEPT:

     (a) the Borrower or any of its Subsidiaries may invest in cash and Cash
Equivalents;

     (b) any endorsement of a check or other medium of payment for deposit or
collection, or any similar transaction in the normal course of business;

     (c) the Borrower and its Subsidiaries may acquire and hold receivables
owing to them in the ordinary course of business and payable or dischargeable in
accordance with customary trade terms;

     (d) investments acquired by the Borrower or any of its Subsidiaries (i) in
exchange for any other investment held by the Borrower or any such Subsidiary in
connection with or as a result of a bankruptcy, workout, reorganization or
recapitalization of the issuer of such other investment, or (ii) as a result of
a foreclosure by the Borrower or any of its Subsidiaries with respect to any
secured investment or other transfer of title with respect to any secured
investment in default;

     (e) loans and advances to employees for business-related travel expenses,
moving expenses, costs of replacement homes, business machines or supplies,
automobiles and other similar expenses, in each case incurred in the ordinary
course of business;

     (f) to the extent not permitted by the foregoing clauses, the existing
loans, advances, investments and guarantees described on Annex V hereto;

     (g) investments of the Borrower and its Subsidiaries in Hedge Agreements;

     (h) existing investments in any Subsidiaries and any additional investments
in any Domestic Subsidiary Guarantor;

     (i) intercompany loans and advances made by the Borrower or any other
Subsidiary to a Subsidiary which is both a Subsidiary Guarantor and a Domestic
Subsidiary necessary in the ordinary course of business consistent with past
practices and pursuant to business needs of the Borrower and its Subsidiaries,
PROVIDED no Default under section 10.1(a) or Event of Default has occurred and
be continuing at the time any such loan or advance is made;

     (j) intercompany loans and advances made after the Closing Date by the
Borrower or any Domestic Subsidiary to any Foreign Subsidiary necessary in the
ordinary course of business consistent with past practices and pursuant to
business needs of the Borrower and its Subsidiaries, PROVIDED no Default under
section 10.1(a) or Event of Default has occurred and be continuing at the time
any such loan or advance is made;


                                       65


     (k) the Acquisitions permitted by section 9.2; and loans, advances and
investments of any Person which are outstanding at the time such Person becomes
a Subsidiary of the Borrower as a result of an Acquisition permitted by section
9.2, but not any increase in the amount thereof;

     (l) any unsecured Guaranty Obligation incurred by the Borrower or any
Subsidiary with respect to (i) Indebtedness of a Wholly-Owned Subsidiary of the
Borrower which is permitted under section 9.4 without restriction upon the
ability of the Borrower or any Subsidiary to guarantee the same, or (ii) other
obligations of a Wholly-Owned Subsidiary of the Borrower which are not
prohibited by this Agreement;

     (m) advances to any supplier who is not an Affiliate, consisting of
prepayments for raw materials purchased for consumption or processing in the
ordinary course of business and pursuant to arrangements designed to assure an
adequate supply of such raw materials;

     (n) any other loans, advances, investments (whether in the form of cash or
contribution of property, and if in the form of a contribution of property, such
property shall be valued for purposes of this clause at the fair value thereof
as reasonably determined by the Borrower) and Guaranty Obligations, in or to or
for the benefit of, any corporation, partnership, limited liability company,
joint venture or other business entity, which is not itself a Subsidiary of the
Borrower or owned or controlled by any director, officer or employee of the
Borrower or any of its Subsidiaries, not otherwise permitted by the foregoing
clauses, made after the Closing Date (such loans, advances and investments and
Guaranty Obligations, collectively, "BASKET INVESTMENTS AND GUARANTEES"), shall
be permitted to be incurred if (i) no Event of Default shall have occurred and
be continuing, or would result therefrom, and (ii) the aggregate cumulative
amount of such Basket Investments and Guarantees (taking into account any
repayments of loans or advances), does not exceed $25,000,000.

     9.6. DIVIDENDS AND OTHER RESTRICTED PAYMENTS. The Borrower will not, and
will not permit any of its Subsidiaries to, declare or make, or agree to pay or
make, directly or indirectly, any Restricted Payment, EXCEPT:

     (a) the Borrower may declare and pay or make dividends or other
distributions with respect to any class of its capital stock which are payable
solely in additional shares of its common stock (or warrants, options or other
rights to acquire additional shares of its common stock);

     (b) any Subsidiary of the Borrower may declare and pay or make dividends or
distributions ratably with respect to its capital stock;

     (c) the Borrower may make Restricted Payments pursuant to and in accordance
with its existing stock option, stock purchase and other benefit plans of
general application to management, directors or other employees of the Borrower
and its Subsidiaries;

     (d) the Borrower may, during any fiscal year, declare and pay cash
dividends on its common stock, if immediately prior to and immediately after
giving effect to such action (A) no Default under section 10.1(a) or Event of
Default shall have occurred and be continuing, (B) the Borrower shall be in
compliance with sections 9.7 and 9.8, after giving pro forma effect to such
action, and (C) the aggregate amount so expended during such fiscal year is not
in excess of the greater of (x) $15,000,000, or (y) 25% of the Borrower's
year-to-date Consolidated Net Income (if positive) for the portion of the
current fiscal year ending on the last day of the month preceding the date of
payment;

     (e) the Borrower may, during any fiscal year, repurchase shares of its
common stock in open market transactions or privately negotiated transactions,
for cash consideration and for use in satisfying current and reasonably
projected stock option and similar exercises by employees and/or directors under
stock option, stock grant, stock purchase and similar plans, if immediately
prior to and immediately after giving effect to such action (A) no Default under
section 10.1(a) or Event of Default shall have occurred and be continuing, and
(B) the Borrower shall be in compliance with sections 9.8 and 9.9, after giving
pro forma effect to such action.

     9.7. CONSOLIDATED LEVERAGE RATIO. The Borrower will not on the last day of
any Testing Period indicated below permit the ratio of (i) the amount of its
Consolidated Total Debt at such time to (ii) its Consolidated


                                       66



EBITDA for its Testing Period most recently ended (the "LEVERAGE RATIO"), to
exceed the ratio specified below for any Testing Period:



              TESTING PERIOD                     RATIO
              --------------                 ------------
                                          
Testing Period ended September 30, 2005      4.00 to 1.00
Testing Period ended December 31, 2005       4.00 to 1.00
Testing Period ended March 31, 2006          4.00 to 1.00
Testing Period ended June 30, 2006           4.00 to 1.00
Testing Period ended September 30, 2006      4.00 to 1.00
Testing Period ended December 31, 2006 and
   any Testing Period thereafter             3.50 to 1.00


     9.8. CASH FLOW COVERAGE RATIO. The Borrower will not permit its Cash Flow
Coverage Ratio for any Testing Period to be less than 1.50 to 1.00.

     9.9. LIMITATION ON CERTAIN RESTRICTIVE AGREEMENTS. The Borrower will not,
and will not permit any of its Subsidiaries to, directly or indirectly, enter
into, incur or permit to exist or become effective, any "negative pledge"
covenant or other agreement, restriction or arrangement that prohibits,
restricts or imposes any condition upon (a) the ability of the Borrower or any
Subsidiary to create, incur or suffer to exist any Lien upon any of its property
or assets as security for Indebtedness, or (b) the ability of any such
Subsidiary to pay dividends or make any other distributions on its capital stock
or any other interest or participation in its profits owned by the Borrower or
any Subsidiary of the Borrower, or pay any Indebtedness owed to the Borrower or
a Subsidiary of the Borrower, or to make loans or advances to the Borrower or
any of the Borrower's other Subsidiaries, or transfer any of its property or
assets to the Borrower or any of the Borrower's other Subsidiaries, EXCEPT for
such restrictions existing under or by reason of (i) applicable law, (ii) this
Agreement and the other Credit Documents, (iii) customary provisions restricting
subletting or assignment of any lease governing a leasehold interest, (iv)
customary provisions restricting assignment of any licensing agreement entered
into in the ordinary course of business, (v) customary provisions restricting
the transfer or further encumbering of assets subject to Liens permitted under
section 9.3(b) or 9.3(c), (vi) restrictions contained in the Existing
Indebtedness Agreements as in effect on the Effective Date (and any similar
restrictions contained in any agreement governing any refinancing or refunding
thereof not prohibited by this Agreement), (vii) customary restrictions
affecting only a Subsidiary of the Borrower under any agreement or instrument
governing any of the Indebtedness of a Subsidiary permitted pursuant to 9.4,
(viii) restrictions affecting any Foreign Subsidiary of the Borrower under any
agreement or instrument governing any Indebtedness of such Foreign Subsidiary
permitted pursuant to 9.4, and customary restrictions contained in "comfort"
letters and guarantees of any such Indebtedness, (ix) any document relating to
Indebtedness secured by a Lien permitted by section 9.3, insofar as the
provisions thereof limit grants of junior liens on the assets securing such
Indebtedness, and (x) any Operating Lease or Capital Lease, insofar as the
provisions thereof limit grants of a security interest in, or other assignments
of, the related leasehold interest to any other Person.

     9.10. PREPAYMENTS AND REFINANCINGS OF OTHER DEBT, ETC. The Borrower will
not, and will not permit any of its Subsidiaries to, make (or give any notice in
respect thereof) any voluntary or optional payment or prepayment or redemption
or acquisition for value of (including, without limitation, by way of depositing
with the trustee with respect thereto money or securities before due for the
purpose of paying when due) or exchange of, or refinance or refund, any
Indebtedness of the Borrower or its Subsidiaries which has an outstanding
principal balance (or Capitalized Lease Obligation, in the case of a Capital
Lease, or present value, based on the implicit interest rate, in the case of a
Synthetic Lease) greater than $1,000,000 (other than the Obligations and
intercompany loans and advances among the Borrower and its Subsidiaries);
PROVIDED that (i) subject to the provisions of section 9.13, the Borrower or any
Subsidiary may refinance or refund any such Indebtedness if the aggregate
principal amount thereof (or Capitalized Lease Obligation, in the case of a
Capital Lease, or present value, based on the implicit interest rate, in the
case of a Synthetic Lease) is not increased and the weighted average life to
maturity thereof (computed in accordance with standard financial practice) is
not reduced by more than 10%, (ii) the Borrower may


                                       67



make a prepayment with respect to obligations under the Aircraft Lease in
connection with the termination thereof; (iii) OMG Kokkola Chemicals Oy may
prepay all or any portion of the promissory note dated November 1, 2004 payable
to Sampo Bank in a principal amount not to exceed $18,687,000 (together with
interest due thereon) (iv) the Borrower may make voluntary or optional
redemptions of, or may acquire for value and must subsequently retire) its
Public Notes provided that (A) at the time thereof and after giving effect
thereto, the Borrower would be in compliance with sections 9.7 and 9.8 and no
Event of Default shall have occurred and be continuing or result therefrom, and
(B) after giving effect to any such redemption, the Unutilized Total Revolving
Commitment would be greater than or equal to $25,000,000; and (v) the Borrower
and its Subsidiaries may make other voluntary or optional payments or
prepayments or redemptions or acquisitions for value of any other Indebtedness
of the Borrower or its Subsidiaries in an amount not to exceed $25,000,000 in
the aggregate during any fiscal year of the Borrower.

     9.11. TRANSACTIONS WITH AFFILIATES. The Borrower will not, and will not
permit any Subsidiary to, enter into any transaction or series of transactions
with any Affiliate (other than, in the case of the Borrower, any Subsidiary, and
in the case of a Subsidiary, the Borrower or another Subsidiary) other than in
the ordinary course of business of and pursuant to the reasonable requirements
of the Borrower's or such Subsidiary's business and upon fair and reasonable
terms no less favorable to the Borrower or such Subsidiary than would obtain in
a comparable arm's-length transaction with a Person other than an Affiliate,
EXCEPT (i) sales of goods to an Affiliate for use or distribution outside the
United States which in the good faith judgment of the Borrower complies with any
applicable legal requirements of the Code, or (ii) agreements and transactions
with and payments to officers, directors and shareholders which are either (A)
entered into in the ordinary course of business and not prohibited by any of the
provisions of this Agreement, or (B) entered into outside the ordinary course of
business, approved by the directors or shareholders of the Borrower, and not
prohibited by any of the provisions of this Agreement.

     9.12. PLAN TERMINATIONS, MINIMUM FUNDING, ETC. The Borrower will not, and
will not permit any ERISA Affiliate to, (i) terminate any Plan or Plans so as to
result in liability of the Borrower or any ERISA Affiliate to the PBGC in excess
of, in the aggregate, $5,000,000, (ii) permit to exist one or more events or
conditions which reasonably present a material risk of the termination by the
PBGC of any Plan or Plans with respect to which the Borrower or any ERISA
Affiliate would, in the event of such termination, incur liability to the PBGC
in excess of such amount in the aggregate, or (iii) fail to comply with the
minimum funding standards of ERISA and the Code with respect to any Plan.

     9.13. AMENDMENTS TO MATERIAL AGREEMENTS. Following the Closing Date, the
Borrower will not enter into or permit any amendment to, or modification or
change of, any Public Notes Document as in effect on the Closing Date, if such
amendment, modification or change would be adverse to the interests of the
Lenders UNLESS, prior to the effectiveness thereof, such amendment, modification
or change has been approved in writing by the Administrative Agent, acting on
instructions from the Required Lenders.

     9.14. ANTI-TERRORISM LAWS. Neither the Borrower nor any of its Subsidiaries
shall be subject to or in violation of any law, regulation, or list of any
government agency (including, without limitation, the U.S. Office of Foreign
Asset Control list, Executive Order No. 13224 or the USA Patriot Act) that
prohibits or limits the conduct of business with or the receiving of funds,
goods or services to or for the benefit of certain Persons specified therein or
that prohibits or limits any Lender or Letter of Credit Issuer from making any
advance or extension of credit to the Borrower or from otherwise conducting
business with the Borrower.

SECTION 10. EVENTS OF DEFAULT

     10.1. EVENTS OF DEFAULT. Any of the following specified events shall
constitute an Event of Default (each an "EVENT OF DEFAULT"):

     (A) PAYMENTS: the Borrower shall (i) default in the payment when due
(whether at the Maturity Date, on a date fixed for a Scheduled Repayment, on a
date on which a required prepayment is to be made, upon acceleration or
otherwise) of any principal of the Loans or any reimbursement obligation in
respect of any Unpaid Drawing; or (ii) default, and such default shall continue
for five or more days, in the payment when due of any interest on the Loans or
any Fees or any other amounts owing hereunder or under any other Credit
Document; or


                                       68



     (B) REPRESENTATIONS, ETC.: any representation, warranty or statement made
by the Borrower or any other Credit Party herein or in any other Credit Document
or in any statement or certificate delivered or required to be delivered
pursuant hereto or thereto shall prove to be untrue in any material respect on
the date as of which made or deemed made; or

     (C) CERTAIN COVENANTS: the Borrower shall default in the due performance or
observance by it of any term, covenant or agreement contained in section 8.11,
8.12(b) or 8.16, or sections 9.2 through 9.9, inclusive, of this Agreement; or

     (D) OTHER COVENANTS: the Borrower shall default in the due performance or
observance by it of any term, covenant or agreement contained in this Agreement
or any other Credit Document, other than those referred to in section 10.1(a) or
(b) or (c) above, and such default is not remedied within 30 days after the
earlier of (i) an officer of the Borrower obtaining actual knowledge of such
default and (ii) the Borrower receiving written notice of such default from the
Administrative Agent or the Required Lenders (any such notice to be identified
as a "notice of default" and to refer specifically to this paragraph); or

     (E) CROSS DEFAULT UNDER OTHER AGREEMENTS: the Borrower or any of its
Subsidiaries shall (i) default in any payment with respect to any Indebtedness
(other than the Obligations) owed to any Lender, or having an aggregate unpaid
principal amount (or Capitalized Lease Obligation, in the case of a Synthetic
Lease, or present value, based on the implicit interest rate, in the case of a
Synthetic Lease) of $10,000,000 or greater, and such default shall continue
after the applicable grace period, if any, specified in the agreement or
instrument relating to such Indebtedness or (ii) default in the observance or
performance of any agreement or condition relating to any such Indebtedness or
contained in any instrument or agreement evidencing, securing or relating
thereto (and all grace periods applicable to such observance, performance or
condition shall have expired), or any other event shall occur or condition
exist, the effect of which default or other event or condition is to cause, or
to permit the holder or holders of such Indebtedness (or a trustee or agent on
behalf of such holder or holders) to cause any such Indebtedness to become due
prior to its stated maturity; or any such Indebtedness of the Borrower or any of
its Subsidiaries shall be declared to be due and payable, or shall be required
to be prepaid (other than by a regularly scheduled required prepayment or
redemption, prior to the stated maturity thereof); or (iii) without limitation
of the foregoing clauses, the Borrower or any of its Subsidiaries shall default
in any payment obligation under a Designated Hedge Agreement, and such default
shall continue after the applicable grace period, if any, specified in such
Designated Hedge Agreement or any other agreement or instrument relating
thereto; or

     (F) OTHER CREDIT DOCUMENTS: the Subsidiary Guaranty or any Security
Document (once executed and delivered) shall cease for any reason (other than
termination in accordance with its terms) to be in full force and effect; or any
Credit Party shall default in any payment obligation thereunder; or any Credit
Party shall default in any material respect in the due performance and
observance of any other obligation thereunder and such default shall continue
unremedied for a period of at least 30 days after notice by the Administrative
Agent or the Required Lenders; or any Credit Party shall (or seek to) disaffirm
or otherwise limit its obligations thereunder otherwise than in strict
compliance with the terms thereof; or

     (G) JUDGMENTS: one or more judgments, orders or decrees shall be entered
against the Borrower and/or any of its Subsidiaries involving a liability (other
than a liability covered by insurance, as to which the carrier has adequate
claims paying ability and has not effectively reserved its rights) of $5,000,000
or more in the aggregate for all such judgments, orders and decrees for the
Borrower and its Subsidiaries, and any such judgments or orders or decrees shall
not have been vacated, discharged or stayed or bonded pending appeal within 30
days (or such longer period, not in excess of 60 days, during which enforcement
thereof, and the filing of any judgment lien, is effectively stayed or
prohibited) from the entry thereof; or

     (H) BANKRUPTCY, ETC.: any of the following shall occur:

          (i) the Borrower, any of its Material Subsidiaries or any other Credit
     Party (the Borrower and each of such other Persons, each a "PRINCIPAL
     PARTY") shall commence a voluntary case concerning itself under Title 11 of
     the United States Code entitled "Bankruptcy," as now or hereafter in
     effect, or any successor thereto, or any other similar laws in other
     jurisdictions (the "BANKRUPTCY CODE"); or


                                       69



          (ii) an involuntary case is commenced against any Principal Party
     under the Bankruptcy Code and the petition is not controverted within 10
     days, or is not dismissed within 60 days, after commencement of the case;
     or

          (iii) a custodian (as defined in the Bankruptcy Code) is appointed
     for, or takes charge of, all or substantially all of the property of any
     Principal Party; or

          (iv) any Principal Party commences (including by way of applying for
     or consenting to the appointment of, or the taking of possession by, a
     rehabilitator, receiver, custodian, trustee, conservator or liquidator
     (collectively, a "CONSERVATOR") of itself or all or any substantial portion
     of its property) any other proceeding under any reorganization,
     arrangement, adjustment of debt, relief of debtors, dissolution,
     insolvency, liquidation, rehabilitation, conservatorship or similar law of
     any jurisdiction whether now or hereafter in effect relating to such
     Principal Party; or

          (v) any such proceeding is commenced against any Principal Party to
     the extent such proceeding is consented by such Person or remains
     undismissed for a period of 60 days; or

          (vi) any Principal Party is adjudicated insolvent or bankrupt; or

          (vii) any order of relief or other order approving any such case or
     proceeding is entered; or

          (viii) any Principal Party suffers any appointment of any conservator
     or the like for it or any substantial part of its property which continues
     undischarged or unstayed for a period of 60 days; or

          (ix) any Principal Party makes a general assignment for the benefit of
     creditors; or

          (x) any corporate (or similar organizational) action is taken by any
     Principal Party for the purpose of effecting any of the foregoing; or

     (I) ERISA: (i) any of the events described in clauses (i) through (viii) of
section 8.1(f) shall have occurred; or (ii) there shall result from any such
event or events the imposition of a lien, the granting of a security interest,
or a liability or a material risk of incurring a liability; and (iii) any such
event or events or any such lien, security interest or liability, individually,
and/or in the aggregate, in the opinion of the Required Lenders, has had, or
could reasonably be expected to have, a Material Adverse Effect.

     10.2. ACCELERATION, ETC. Upon the occurrence of any Event of Default, and
at any time thereafter, if any Event of Default shall then be continuing, the
Administrative Agent shall, upon the written request of the Required Lenders, by
written notice to the Borrower, take any or all of the following actions,
without prejudice to the rights of the Administrative Agent, the Collateral
Agent or any Lender to enforce its claims against the Borrower or any other
Credit Party in any manner permitted under applicable law:

     (a) declare the Total Revolving Commitment terminated, whereupon the
Commitment of each Lender shall forthwith terminate immediately without any
other notice of any kind;

     (b) declare the principal of and any accrued interest in respect of all
Loans, all Unpaid Drawings and all other Obligations owing hereunder and under
the other Credit Documents, to be, whereupon the same shall become, forthwith
due and payable without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Borrower;

     (c) terminate any Letter of Credit which may be terminated in accordance
with its terms;

     (d) direct the Borrower to pay (and the Borrower hereby agrees that on
receipt of such notice or upon the occurrence of an Event of Default with
respect to the Borrower under section 10.1(h), it will pay) to the Collateral
Agent an amount of cash equal to the aggregate Stated Amount of all Letters of
Credit then outstanding


                                       70



(such amount to be held as security for the Borrower's and any other Letter of
Credit Obligor's reimbursement obligations in respect thereof); and/or

     (e) exercise any other right or remedy available under any of the Credit
Documents or applicable law;

PROVIDED that, if an Event of Default specified in section 10.1(h) shall occur
with respect to the Borrower, the result which would occur upon the giving of
written notice by the Administrative Agent as specified in clauses (a) and/or
(b) above shall occur automatically without the giving of any such notice.

     10.3. APPLICATION OF LIQUIDATION PROCEEDS. All monies received by the
Administrative Agent, the Collateral Agent or any Lender from the exercise of
remedies hereunder or under the other Credit Documents or under any other
documents relating to this Agreement shall, unless otherwise required by the
terms of the other Credit Documents or by applicable law, be applied as follows:

          (I) FIRST, to the payment of all expenses (to the extent not otherwise
     paid by the Borrower or any of the other Credit Parties) incurred by the
     Administrative Agent and the Lenders in connection with the exercise of
     such remedies, including, without limitation, all reasonable costs and
     expenses of collection, reasonable documented attorneys' fees, court costs
     and any foreclosure expenses;

          (II) SECOND, to the payment PRO RATA of interest then accrued on the
     outstanding Loans;

          (III) THIRD, to the payment PRO RATA of any fees then accrued and
     payable to the Administrative Agent, any Letter of Credit Issuer or any
     Lender under this Agreement in respect of the Loans or the Letter of Credit
     Outstandings;

          (IV) FOURTH, to the payment PRO RATA of (A) the principal balance then
     owing on the outstanding Loans, (B) the settlement and termination
     liabilities, fees and premiums then due under Designated Hedge Agreements
     to creditors of the Borrower or any Subsidiary, subject to confirmation by
     the Administrative Agent of any calculations of termination or other
     payment amounts being made in accordance with normal industry practice, and
     (C) the Stated Amount of the Letter of Credit Outstandings (to be held and
     applied by the Collateral Agent as security for the reimbursement
     obligations in respect thereof);

          (V) FIFTH, to the payment to the Lenders of any amounts then accrued
     and unpaid under sections 2.9, 2.10, 3.5 and 5.4 hereof, and if such
     proceeds are insufficient to pay such amounts in full, to the payment of
     such amounts PRO RATA;

          (VI) SIXTH, to the payment PRO RATA of all other amounts owed by the
     Borrower to the Administrative Agent, to any Letter of Credit Issuer or any
     Lender under this Agreement or any other Credit Document, and to any
     counterparties under Designated Hedge Agreements of the Borrower and its
     Subsidiaries, and if such proceeds are insufficient to pay such amounts in
     full, to the payment of such amounts PRO RATA; and

          (VII) FINALLY, any remaining surplus after all of the Obligations have
     been paid in full, to the Borrower or to whomsoever shall be lawfully
     entitled thereto.

SECTION 11. THE ADMINISTRATIVE AGENT

     11.1. APPOINTMENT. Each Lender hereby irrevocably designates and appoints
NCB as Administrative Agent (such term to include, for the purposes of this
section 11, NCB acting as Collateral Agent) to act as specified herein and in
the other Credit Documents, and each such Lender hereby irrevocably authorizes
NCB as the Administrative Agent for such Lender, to take such action on its
behalf under the provisions of this Agreement and the other Credit Documents and
to exercise such powers and perform such duties as are expressly delegated to
the Administrative Agent by the terms of this Agreement and the other Credit
Documents, together with such other powers as are reasonably incidental thereto.
The Administrative Agent agrees to act as such upon the express


                                       71



conditions contained in this section 11. Notwithstanding any provision to the
contrary elsewhere in this Agreement, the Administrative Agent shall not have
any duties or responsibilities, except those expressly set forth herein or in
the other Credit Documents, nor any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or otherwise exist against the
Administrative Agent. The provisions of this section 11 are solely for the
benefit of the Administrative Agent, and the Lenders, and the Borrower and its
Subsidiaries shall not have any rights as a third party beneficiary of any of
the provisions hereof. In performing its functions and duties under this
Agreement, the Administrative Agent shall act solely as agent of the Lenders and
does not assume and shall not be deemed to have assumed any obligation or
relationship of agency or trust with or for the Borrower or any of its
Subsidiaries.

     11.2. DELEGATION OF DUTIES. The Administrative Agent may execute any of its
duties under this Agreement or any other Credit Document by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Administrative Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care except to the extent otherwise required by
section 11.3.

     11.3. EXCULPATORY PROVISIONS. Neither the Administrative Agent nor any of
its respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement (except
for its or such Person's own gross negligence or willful misconduct) or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by the Borrower or of its Subsidiaries or any
of their respective officers contained in this Agreement, any other Credit
Document or in any certificate, report, statement or other document referred to
or provided for in, or received by the Administrative Agent under or in
connection with, this Agreement or any other Credit Document or for any failure
of the Borrower or any Subsidiary of the Borrower or any of their respective
officers to perform its obligations hereunder or thereunder. The Administrative
Agent shall not be under any obligation to any Lender to ascertain or to inquire
as to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement, or to inspect the properties, books or records of
the Borrower or any of its Subsidiaries. The Administrative Agent shall not be
responsible to any Lender for the effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of this Agreement or any Credit
Document or for any representations, warranties, recitals or statements made
herein or therein or made in any written or oral statement or in any financial
or other statements, instruments, reports, certificates or any other documents
in connection herewith or therewith furnished or made by the Administrative
Agent to the Lenders or by or on behalf of the Borrower or any of its
Subsidiaries to the Administrative Agent or any Lender or be required to
ascertain or inquire as to the performance or observance of any of the terms,
conditions, provisions, covenants or agreements contained herein or therein or
as to the use of the proceeds of the Loans or of the existence or possible
existence of any Default or Event of Default.

     11.4. RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent shall be
entitled to rely, and shall be fully protected in relying, upon any note,
writing, resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, facsimile transmission, telex or teletype message, statement, order or
other document or conversation believed by it, in good faith, to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons
and upon advice and statements of legal counsel (including, without limitation,
counsel to the Borrower or any of its Subsidiaries), independent accountants and
other experts selected by the Administrative Agent. The Administrative Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Credit Document unless it shall first receive such advice
or concurrence of the Required Lenders as it deems appropriate or it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Administrative Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
other Credit Documents in accordance with a request of the Required Lenders (or
all of the Lenders, or all of the Lenders (other than any Defaulting Lender), as
applicable, as to any matter which, pursuant to section 12.12, can only be
effectuated with the consent of all Lenders, or all Lenders (other than any
Defaulting Lender), as the case may be), and such request and any action taken
or failure to act pursuant thereto shall be binding upon all the Lenders.

     11.5. NOTICE OF DEFAULT. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice


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from a Lender or the Borrower referring to this Agreement, describing such
Default or Event of Default and stating that such notice is a "notice of
default". In the event that the Administrative Agent receives such a notice, the
Administrative Agent shall give prompt notice thereof to the Lenders. The
Administrative Agent shall take such action with respect to such Default or
Event of Default as shall be reasonably directed by the Required Lenders,
PROVIDED that unless and until the Administrative Agent shall have received such
directions, the Administrative Agent may (but shall not be obligated to) take
such action, or refrain from taking such action, with respect to such Default or
Event of Default as it shall deem advisable in the best interests of the
Lenders.

     11.6. NON-RELIANCE. Each Lender expressly acknowledges that neither the
Administrative Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates have made any representations or warranties to
it and that no act by the Administrative Agent hereinafter taken, including any
review of the affairs of the Borrower or any of its Subsidiaries, shall be
deemed to constitute any representation or warranty by the Administrative Agent
to any Lender. Each Lender represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent, or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
assets, operations, property, financial and other conditions, prospects and
creditworthiness of the Borrower and its Subsidiaries and made its own decision
to make its Loans hereunder and enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon the
Administrative Agent, or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement, and to make such investigation as it deems necessary to inform
itself as to the business, assets, operations, property, financial and other
conditions, prospects and creditworthiness of the Borrower and its Subsidiaries.
Except as expressly stated herein, the Administrative Agent shall not have any
duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, assets, property, financial and
other conditions, prospects or creditworthiness of the Borrower or any of its
Subsidiaries which may come into the possession of the Administrative Agent or
any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates.

     11.7. INDEMNIFICATION. The Lenders agree to indemnify the Administrative
Agent in its capacity as such ratably according to their respective Loans and
Percentages of the Unutilized Total Commitment, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, reasonable expenses or disbursements of any kind whatsoever which may at
any time (including, without limitation, at any time following the payment of
the Obligations) be imposed on, incurred by or asserted against the
Administrative Agent in its capacity as such in any way relating to or arising
out of this Agreement or any other Credit Document, or any documents
contemplated by or referred to herein or the transactions contemplated hereby or
any action taken or omitted to be taken by the Administrative Agent under or in
connection with any of the foregoing, but only to the extent that any of the
foregoing is not paid by the Borrower, PROVIDED that no Lender shall be liable
to the Administrative Agent for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements to the extent resulting from the Administrative
Agent's gross negligence or willful misconduct. If any indemnity furnished to
the Administrative Agent for any purpose shall, in the opinion of the
Administrative Agent, be insufficient or become impaired, the Administrative
Agent may call for additional indemnity and cease, or not commence, to do the
acts indemnified against until such additional indemnity is furnished. The
agreements in this section 11.7 shall survive the payment of all Obligations.

     11.8. THE ADMINISTRATIVE AGENT IN INDIVIDUAL CAPACITY. The Administrative
Agent and its Affiliates may make loans to, accept deposits from and generally
engage in any kind of business with the Borrower, its Subsidiaries and their
Affiliates as though not acting as Administrative Agent hereunder. With respect
to the Loans made by it and all Obligations owing to it, the Administrative
Agent shall have the same rights and powers under this Agreement as any Lender
and may exercise the same as though it were not the Administrative Agent, and
the terms "Lender" and "Lenders" shall include the Administrative Agent in its
individual capacity.

     11.9. SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may resign
as the Administrative Agent upon not less than 20 Business Days' notice to the
Lenders and the Borrower. The Administrative Agent may be removed as the
Administrative Agent for cause upon not less than 20 Business Days' notice to
the Administrative Agent and the Borrower from the Required Lenders. The
Required Lenders shall appoint from among the Lenders a successor Administrative
Agent for the Lenders, subject to prior approval by the Borrower if no Event of
Default has occurred and is continuing (such approval not to be unreasonably
withheld or delayed), whereupon such


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successor agent shall succeed to the rights, powers and duties of the
Administrative Agent, and the term "Administrative Agent" shall include such
successor agent effective upon its appointment, and the resigning or removed
Administrative Agent's rights, powers and duties as the Administrative Agent
shall be terminated, without any other or further act or deed on the part of
such former Administrative Agent or any of the parties to this Agreement. After
the retiring or removed Administrative Agent's resignation or removal hereunder
as the Administrative Agent, the provisions of this section 11 shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement.

     11.10. OTHER AGENTS. Any Lender identified herein as a Co-Agent,
Syndication Agent, Documentation Agent, Managing Agent, Manager, Lead Arranger,
Arranger or any other corresponding title, other than "Administrative Agent" or
"Collateral Agent", shall have no right, power, obligation, liability,
responsibility or duty under this Agreement or any other Credit Document except
those applicable to all Lenders as such and except as specifically provided
herein. Each Lender acknowledges that it has not relied, and will not rely, on
any Lender so identified in deciding to enter into this Agreement or in taking
or not taking any action hereunder.

     11.11. NO RELIANCE ON ADMINISTRATIVE AGENT'S CUSTOMER IDENTIFICATION
PROGRAM. Each Lender acknowledges and agrees that neither such Lender, nor any
of its Affiliates, participants or assignees, may rely on the Administrative
Agent to carry out such Lender's, Affiliate's, participant's or assignee's
customer identification program, or other obligations required or imposed under
or pursuant to the USA Patriot Act or the regulations thereunder, including the
regulations contained in 31 CFR 103.121 (as hereafter amended or replaced, the
"CIP Regulations"), or any other Anti-Terrorism Law, including any programs
involving any of the following items relating to or in connection with the
Borrower or any of its Subsidiaries, any of their respective Affiliates or
agents, the Loan Documents or the transactions hereunder: (a) any identity
verification procedures, (b) any record keeping, (c) any comparisons with
government lists, (d) any customer notices or (e) any other procedures required
under the CIP Regulations or such other laws.

     11.12. USA PATRIOT ACT. Each Lender or assignee or participant of a Lender
that is not organized under the laws of the United States of America or a state
thereof (and is not excepted from the certification requirement contained in
Section 313 of the USA Patriot Act and the applicable regulations because it is
both (a) an affiliate of a depository institution or foreign bank that maintains
a physical presence in the United States or foreign country, and (b) subject to
supervision by a banking authority regulating such affiliated depository
institution or foreign bank) shall deliver to the Administrative Agent the
certification, or, if applicable, recertification, certifying that such Lender
is not a "shell" and certifying to other matters as required by Section 313 of
the USA Patriot Act and the applicable regulations: (i) within 10 days after the
Closing Date, and (ii) at such other times as are required under the USA Patriot
Act.

SECTION 12. MISCELLANEOUS

     12.1. PAYMENT OF EXPENSES ETC. (a) Whether or not the transactions
contemplated hereby are consummated, the Borrower agrees to pay (or reimburse
the Administrative Agent, the Collateral Agent, the Syndication Agent, the Book
Running Manager, and the Lead Arranger for) all reasonable out-of-pocket costs
and expenses of the Administrative Agent, the Collateral Agent, the Syndication
Agent, the Book Running Manager, and the Lead Arranger in connection with the
negotiation, preparation, execution and delivery of the Credit Documents and the
documents and instruments referred to therein, including, without limitation,
the reasonable fees and disbursements of Jones Day, special counsel to the
Administrative Agent.

     (b) The Borrower agrees to pay (or reimburse the Lead Arranger, Book
Running Manager and Syndication Agent for) all reasonable out-of-pocket costs
and expenses of the Lead Arranger, Book Running Manager and Syndication Agent in
connection with the syndication prior to the Effective Date of the Commitments
of the other Lenders hereunder, including, without limitation, the reasonable
fees and disbursements of internal or special counsel for any of such Persons.

     (c) The Borrower agrees to pay (or reimburse the Administrative Agent, the
Lenders and their Affiliates for) all reasonable out-of-pocket costs and
expenses of the Administrative Agent, the Lenders and their Affiliates in
connection with any amendment, waiver or consent relating to any of the Credit
Documents which is


                                       74



requested by any Credit Party, including, without limitation, the reasonable
fees and disbursements of Jones Day, special counsel to the Administrative
Agent.

     (d) The Borrower agrees to pay (or reimburse the Administrative Agent, the
Lenders and their Affiliates for) all reasonable out-of-pocket costs and
expenses of the Administrative Agent, the Lenders and their Affiliates in
connection with the enforcement of any of the Credit Documents or the other
documents and instruments referred to therein, including, without limitation,
(i) the reasonable fees and disbursements of Jones Day, special counsel to the
Administrative Agent, and (ii) the reasonable fees and disbursements of any
individual counsel to any Lender (including allocated costs of internal
counsel).

     (e) Without limitation of the preceding section 12.1(d), in the event of
the bankruptcy, insolvency, rehabilitation or other similar proceeding in
respect of the Borrower or any of its Subsidiaries, the Borrower agrees to pay
all costs of collection and defense, including reasonable attorneys' fees in
connection therewith and in connection with any appellate proceeding or
post-judgment action involved therein, which shall be due and payable together
with all required service or use taxes.

     (f) The Borrower agrees to pay and hold the Administrative Agent, the
Collateral Agent and each of the Lenders harmless from and against any and all
present and future stamp and other similar taxes with respect to the foregoing
matters and save each such Agent and each of the Lenders harmless from and
against any and all liabilities with respect to or resulting from any delay or
omission (other than to the extent attributable to any such indemnified Person)
to pay such taxes.

     (g) The Borrower agrees to indemnify the Administrative Agent, the
Collateral Agent, the Lead Arranger, the Syndication Agent and the Book Running
Manager, each other Agent, each Lender, and their respective officers,
directors, trustees, employees, representatives, agents, investment advisors and
Affiliates (collectively, the "INDEMNITEES") from and hold each of them harmless
against any and all losses, liabilities, claims, damages or expenses reasonably
incurred by any of them as a result of, or arising out of, or in any way related
to, or by reason of

          (i) any investigation, litigation or other proceeding (whether or not
     any Lender is a party thereto) related to the entering into and/or
     performance of any Credit Document or the use of the proceeds of any Loans
     hereunder or the consummation of any transactions contemplated in any
     Credit Document, other than any such investigation, litigation or
     proceeding arising out of transactions solely between any of the Lenders or
     the Administrative Agent, transactions solely involving the assignment by a
     Lender of all or a portion of its Loans and Commitments, or the granting of
     participations therein, as provided in this Agreement, or arising solely
     out of any examination of a Lender by any regulatory or other governmental
     authority having jurisdiction over it, or

          (ii) the actual or alleged presence of Hazardous Materials in the air,
     surface water or groundwater or on the surface or subsurface of any Real
     Property owned, leased or at any time operated by the Borrower or any of
     its Subsidiaries, the release, generation, storage, transportation,
     handling or disposal of Hazardous Materials at any location, whether or not
     owned or operated by the Borrower or any of its Subsidiaries, if the
     Borrower or any such Subsidiary could have or is alleged to have any
     responsibility in respect thereof, the non-compliance of any such Real
     Property with foreign, federal, state and local laws, regulations and
     ordinances (including applicable permits thereunder) applicable thereto, or
     any Environmental Claim asserted against the Borrower or any of its
     Subsidiaries, in respect of any such Real Property,

including, in each case, without limitation, the reasonable documented fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding (but excluding any such losses, liabilities,
claims, damages or expenses to the extent incurred by reason of the gross
negligence or willful misconduct of the Person to be indemnified or of any other
Indemnitee who is such Person or an Affiliate of such Person). To the extent
that the undertaking to indemnify, pay or hold harmless any Person set forth in
the preceding sentence may be unenforceable because it is violative of any law
or public policy, the Borrower shall make the maximum contribution to the
payment and satisfaction of each of the indemnified liabilities which is
permissible under applicable law.


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     12.2. RIGHT OF SETOFF. In addition to any rights now or hereafter granted
under applicable law or otherwise, and not by way of limitation of any such
rights, upon the occurrence and during the continuance of an Event of Default,
each Lender is hereby authorized at any time or from time to time, without
presentment, demand, protest or other notice of any kind to the Borrower or to
any other Person, any such notice being hereby expressly waived, to set off and
to appropriate and apply any and all deposits (general or special) and any other
Indebtedness at any time held or owing by such Lender (including, without
limitation, by branches, agencies and Affiliates of such Lender wherever
located) to or for the credit or the account of the Borrower against and on
account of the Obligations and liabilities of the Borrower to such Lender under
this Agreement or under any of the other Credit Documents, including, without
limitation, all interests in Obligations of the Borrower purchased by such
Lender pursuant to section 12.4(b), and all other claims of any nature or
description arising out of or connected with this Agreement or any other Credit
Document, irrespective of whether or not such Lender shall have made any demand
hereunder and although said Obligations, liabilities or claims, or any of them,
shall be contingent or unmatured. Each Lender agrees to promptly notify the
Borrower after any such set off and application, PROVIDED, HOWEVER, that the
failure to give such notice shall not affect the validity of such set off and
application.

     12.3. NOTICES. Except as otherwise expressly provided herein, all notices
and other communications provided for hereunder shall be in writing (including
telegraphic, telex, facsimile or electronic e-mail transmission or cable
communication) and mailed, telegraphed, telexed, transmitted, cabled or
delivered, if to the Borrower, at 1500 Key Tower, 127 Public Square, Cleveland,
Ohio 44114, attention: Chief Financial Officer (facsimile: (216) 781-0902); if
to any Lender at its address specified for such Lender on Annex I hereto or the
Assignment and Assumption pursuant to which it became a Lender hereunder; if to
the Administrative Agent, at its Notice Office; or at such other address as
shall be designated by any party in a written notice to the other parties
hereto. All such notices and communications shall be mailed, telegraphed,
telexed, transmitted via facsimile or electronic e-mail, cabled or sent by
overnight courier, and shall be effective when received.

     12.4. BENEFIT OF AGREEMENT. (A) SUCCESSORS AND ASSIGNS GENERALLY. This
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the parties hereto and their respective successors and assigns, PROVIDED that
the Borrower may not assign or transfer any of its rights or obligations
hereunder without the prior written consent of all the Lenders (other than any
Defaulting Lender) and PROVIDED, FURTHER, that no Lender may assign or otherwise
transfer any of its rights or obligations hereunder except (i) to an Eligible
Assignee in accordance with the provisions of paragraph (b) of this section,
(ii) by way of participation in accordance with the provisions of paragraph (d)
of this section or (iii) by way of pledge or assignment of a security interest
subject to the restrictions of paragraph (f) of this section (and any other
attempted assignment or transfer by any party hereto shall be null and void).
Nothing in this Agreement, expressed or implied, shall be construed to confer
upon any Person (other than the parties hereto, their respective successors and
assigns permitted hereby, Participants to the extent provided in paragraph (d)
of this section and, to the extent expressly contemplated hereby, the Related
Parties of each of the Administrative Agent and the Lenders) any legal or
equitable right, remedy or claim under or by reason of this Agreement.

     (B) ASSIGNMENTS. Any Lender may at any time assign to one or more Eligible
Assignees all or a portion of its rights and obligations under this Agreement
(including all or a portion of its Commitment and the Loans at the time owing to
it); provided that (i) except in the case of an assignment of the entire
remaining amount of the assigning Lender's Commitment and the Loans at the time
owing to it or in the case of an assignment to a Lender or an Affiliate of a
Lender, the aggregate amount of the Commitment (which for this purpose includes
Loans outstanding thereunder) or, if the applicable Commitment is not then in
effect, the principal outstanding balance of the Loan of the assigning Lender
subject to each such assignment (determined as of the date the Assignment and
Assumption with respect to such assignment is delivered to the Administrative
Agent or, if "Trade Date" is specified in the Assignment and Assumption, as of
the Trade Date) shall not be less than $5,000,000, unless each of the
Administrative Agent and, so long as no Default of Event of Default shall have
occurred and be continuing, the Borrower otherwise consent (each such consent of
the Administrative Agent and the Borrower not to be unreasonably withheld or
delayed); (ii) each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lender's rights and obligations under
this Agreement with respect to the Loan or the Commitment assigned; (iii) any
assignment must be approved by the Administrative Agent, and, in the case of an
assignment of a Revolving Commitment, the Letter of Credit Issuer, unless the
Person that is the proposed assignee is itself a Lender or an Affiliate of a
Lender; and (iv) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Assumption, together with a processing
and recordation fee of $3,500, and


                                       76



the Eligible Assignee, if it is not already a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire. Subject to acceptance and
recording thereof by the Administrative Agent pursuant to paragraph (c) of this
section, from and after the effective date specified in each Assignment and
Assumption, the Eligible Assignee thereunder shall be a party to this Agreement
and, to the extent of the interest assigned by such Assignment and Assumption,
have the rights and obligations of a Lender under this Agreement, and the
assigning Lender thereunder shall, to the extent of the interest assigned by
such Assignment and Assumption, be released from its obligations under this
Agreement (and, in the case of an Assignment and Assumption covering all of the
assigning Lender's rights and obligations under this Agreement, such Lender
shall cease to be a party hereto) but shall continue to be entitled to the
benefits of sections 2.9, 2.10, and 3.5, 5.4 and 12.1 with respect to facts and
circumstances occurring prior to the effective date of such assignment. Any
assignment or transfer by a Lender of rights or obligations under this Agreement
that does not comply with this paragraph shall be treated for purposes of this
Agreement as a sale by such Lender of a participation in such rights and
obligations in accordance with paragraph (d) of this Section.

     (C) REGISTER. The Administrative Agent, acting solely for this purpose as
an agent of the Borrower, shall maintain at one of its offices in Cleveland,
Ohio, a copy of each Assignment and Assumption delivered to it and the Lender
Register. The entries in the Lender Register shall be conclusive absent manifest
error, and the Borrower, the Administrative Agent and the Lenders may treat each
Person whose name is recorded in the Lender Register pursuant to the terms
hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding
notice to the contrary.

     (D) PARTICIPATIONS. Any Lender may at any time, without the consent of, or
notice to, the Borrower or the Administrative Agent, sell participations to any
Person (other than a natural person or the Borrower or any of the Borrower's
Affiliates or Subsidiaries) (each, a "Participant") in all or a portion of such
Lender's rights and/or obligations under this Agreement (including all or a
portion of its Commitment and/or the Loans owing to it); provided that (i) such
Lender's obligations under this Agreement shall remain unchanged, (ii) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations and (iii) the Borrower, the Administrative Agent
and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce this Agreement and to approve any amendment, modification or waiver of
any provision of this Agreement; provided that such agreement or instrument may
provide that such Lender will not, without the consent of the Participant, agree
to any amendment, modification or waiver which would (1) extend any date upon
which a scheduled mandatory and automatic reduction in any Commitment in which
such Participant is participating is scheduled to be made, (2) extend any date
upon which a reimbursement obligation in respect of a Letter of Credit or Unpaid
Drawing in which such Participant is participating is scheduled to be made, (3)
extend the final scheduled maturity of the Loans in which such Participant is
participating (it being understood that any waiver of the making of, or the
application of, any mandatory prepayment to such Loans shall not constitute an
extension of the final maturity date thereof), (4) reduce the rate or extend the
time of payment of interest or Fees on any such Loan or Commitment (except in
connection with a waiver of the applicability of any post-default increase in
interest rates), (5) reduce the principal amount of any such outstanding Loan,
(6) increase such Participant's participating interest in any Commitment over
the amount thereof then in effect, (7) release any Credit Party from its
obligations under the Subsidiary Guaranty, except in accordance with the
provisions of the Credit Documents, (8) release all or substantially all of the
Collateral, in each case except in accordance with the provisions of the Credit
Documents, or (9) consent to the assignment or transfer by the Borrower of any
of its rights and obligations under this Agreement. Subject to paragraph (e) of
this section, the Borrower agrees that each Participant shall be entitled to the
benefits of sections 2.9, 2.10, 3.5 and 5.4 to the same extent as if it were a
Lender and had acquired its interest by assignment pursuant to paragraph (b) of
this section. To the extent permitted by law, each Participant also shall be
entitled to the benefits of section 12.2 as though it were a Lender, provided
such Participant agrees to be subject to Section 12.6.

     (E) PAYMENTS, ETC. A Participant shall not be entitled to receive any
greater payment under sections 2.9 and 5.4 than the applicable Lender would have
been entitled to receive with respect to the participation sold to such
Participant, unless the sale of the participation to such Participant is made
with the Borrower's prior written consent. A Participant that would be a Foreign
Lender if it were a Lender shall not be entitled to the benefits of section 5.4
unless the Borrower is notified of the participation sold to such Participant
and such Participant agrees, for the benefit of the Borrower, to comply with
sections 5.4(b) and 12.4(g) as though it were a Lender.


                                       77



     (F) PLEDGES. Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender, including without limitation any pledge or
assignment to secure obligations to a Federal Reserve Bank; provided that no
such pledge or assignment shall release such Lender from any of its obligations
hereunder or substitute any such pledgee or assignee for such Lender as a party
hereto.

     (G) FOREIGN LENDERS. At the time of each assignment pursuant to section
12.4(b) to a Person which is not already a Lender hereunder and which is a
Foreign Lender, the respective assignee Lender shall provide to the Borrower and
the Administrative Agent the appropriate Internal Revenue Service Forms (and, if
applicable a Section 5.4(b)(ii) Certificate) described in section 5.4(b). To the
extent that an assignment of all or any portion of a Lender's Commitment and
related outstanding Obligations pursuant to this section 12.4(g) would, at the
time of such assignment, result in increased costs under section 2.9 from those
being charged by the respective assigning Lender prior to such assignment, then
the Borrower shall not be obligated to pay such increased costs (although the
Borrower shall be obligated to pay any other increased costs of the type
described above resulting from changes after the date of the respective
assignment).

     (H) NO SEC REGISTRATION OR BLUE SKY COMPLIANCE. Notwithstanding any other
provisions of this section 12.4, no transfer or assignment of the interests or
obligations of any Lender hereunder or any grant of participation therein shall
be permitted if such transfer, assignment or grant would require the Borrower to
file a registration statement with the SEC or to qualify the Loans under the
"Blue Sky" laws of any State.

     (I) REPRESENTATIONS OF LENDERS. Each Lender initially party to this
Agreement hereby represents, and each Person that became a Lender pursuant to an
assignment permitted by this section 12.4 will, upon its becoming party to this
Agreement, represent that it is a commercial lender, other financial institution
or other "accredited" investor (as defined in SEC Regulation D) which makes or
acquires loans in the ordinary course of its business and that it will make or
acquire Loans for its own account in the ordinary course of such business,
PROVIDED that subject to the preceding sections 12.4(b) and (d), the disposition
of any promissory notes or other evidences of or interests in Indebtedness held
by such Lender shall at all times be within its exclusive control.

     (J) GRANTS BY LENDERS TO SPVS. (i) Notwithstanding anything to the contrary
contained herein, any Lender (a "DESIGNATING LENDER") may grant to a special
purpose funding vehicle (an "SPV"), identified as such in writing from time to
time by the Designating Lender to the Administrative Agent, the Borrower and the
other Lenders, the option to provide to the Borrower all or any part of any Loan
that such Designating Lender would otherwise be obligated to make to the
Borrower pursuant to this Agreement; PROVIDED that (i) nothing herein shall
constitute a commitment by any SPV to make any Loan, (ii) if an SPV elects not
to exercise such option or otherwise fails to provide all or any part of such
Loan, the Designating Lender shall be obligated to make such Loan pursuant to
the terms hereof, and (iii) the Designating Lender shall remain liable for any
indemnity or other payment obligation with respect to its Commitment hereunder.
The making of a Loan by an SPV hereunder shall utilize the Commitment of the
Designating Lender to the same extent, and as if, such Loan were made by such
Designating Lender.

          (ii) As to any Loans or portion thereof made by it, each SPV shall
     have all the rights that a Lender making such Loans or portion thereof
     would have had under this Agreement; PROVIDED, HOWEVER, that each SPV shall
     have granted to its Designating Lender an irrevocable power of attorney, to
     deliver and receive all communications and notices under this Agreement
     (and any other Credit Documents) and to exercise on such SPV's behalf, all
     of such SPV's voting rights under this Agreement. No additional Note shall
     be required to evidence the Loans or portion thereof made by an SPV; and
     the related Designating Lender shall be deemed to hold its Note as agent
     for such SPV to the extent of the Loans or portion thereof funded by such
     SPV. In addition, any payments for the account of any SPV shall be paid to
     its Designating Lender as agent for such SPV.

          (iii) Each party hereto hereby agrees that no SPV shall be liable for
     any indemnity or payment under this Agreement for which a Lender would
     otherwise be liable. In furtherance of the foregoing, each party hereto
     hereby agrees (which agreement shall survive the termination of this
     Agreement) that, prior to the date that is one year and one day after the
     payment in full of all outstanding commercial paper or other senior
     indebtedness of any SPV, it will not institute against, or join any other
     Person in instituting against,


                                       78



     such SPV any bankruptcy, reorganization, arrangement, insolvency or
     liquidation proceedings under the laws of the United States or any State
     thereof.

          (iv) In addition, notwithstanding anything to the contrary contained
     in this section 12.4, any SPV may (A) with notice to, but without the prior
     written consent of, the Borrower and the Administrative Agent and without
     paying any processing fee therefor, assign all or a portion of its
     interests in any Loans to the Designating Lender or to any financial
     institutions providing liquidity and/or credit support to or for the
     account of such SPV to support the funding or maintenance of Loans and (B)
     disclose on a confidential basis any non-public information relating to its
     Loans to any rating agency, commercial paper dealer or provider of any
     surety, guarantee or credit or liquidity enhancements to such SPV. This
     section 12.4(j) may not be amended without the written consent of any
     Designating Lender affected thereby.

     12.5. NO WAIVER: REMEDIES CUMULATIVE. No failure or delay on the part of
the Administrative Agent or any Lender in exercising any right, power or
privilege hereunder or under any other Credit Document and no course of dealing
between the Borrower and the Administrative Agent or any Lender shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, power
or privilege hereunder or under any other Credit Document preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in similar
or other circumstances or constitute a waiver of the rights of the
Administrative Agent or the Lenders to any other or further action in any
circumstances without notice or demand. Without limiting the generality of the
foregoing, the making of a Loan or issuance of a Letter of Credit shall not be
construed as a waiver of any Default or Event of Default, regardless of whether
the Administrative Agent, any Lender or the Letter of Credit Issuer may have had
notice or knowledge of such Default or Event of Default at the time. The rights
and remedies herein expressly provided are cumulative and not exclusive of any
rights or remedies which the Administrative Agent or any Lender would otherwise
have.

     12.6. PAYMENTS PRO RATA; SHARING OF SETOFFS, ETC. (a) The Administrative
Agent agrees that promptly after its receipt of each payment from or on behalf
of the Borrower in respect of any Obligations, it shall distribute such payment
to the Lenders (other than any Lender that has expressly waived in writing its
right to receive its PRO RATA share thereof) PRO RATA based upon their
respective shares, if any, of the Obligations with respect to which such payment
was received. As to any such payment received by the Administrative Agent prior
to 1:00 P.M. (local time at the Payment Office) in funds which are immediately
available on such day, the Administrative Agent will use all reasonable efforts
to distribute such payment in immediately available funds on the same day to the
Lenders as aforesaid.

     (b) Each of the Lenders agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans or Fees, of a sum which with respect to the related sum or sums
received by other Lenders is in a greater proportion than the total of such
Obligation then owed and due to such Lender bears to the total of such
Obligation then owed and due to all of the Lenders immediately prior to such
receipt, THEN such Lender receiving such excess payment shall purchase for cash
without recourse or warranty from the other Lenders an interest in the
Obligations to such Lenders in such amount as shall result in a proportional
participation by all of the Lenders in such amount, PROVIDED that (i) if all or
any portion of such excess amount is thereafter recovered from such Lender, such
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, but without interest, and (ii) the provisions of this section
12.6(b) shall not be construed to apply to any payment made by the Borrower
pursuant to and in accordance with the express terms of this Agreement, or any
payment obtained by a Lender as consideration for the assignment of or sale of a
participation in any of its Loans or participations in Letters of Credit to any
assignee or Participant pursuant to section 12.4, other than to the Borrower or
any Subsidiary or Affiliate thereof (as to which the provisions of this section
12.6(b) shall apply). The Borrower consents to the foregoing and agrees, to the
extent it may effectively do so under applicable law, that any Lender acquiring
a participation pursuant to the foregoing arrangements may exercise against the
Borrower rights of set-off and counterclaim with respect to such participation
as fully as if such Lender were a direct creditor of the Borrower in the amount
of such participation.


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     (c) Notwithstanding anything to the contrary contained herein, the
provisions of the preceding sections 12.6(a) and (b) shall be subject to the
express provisions of this Agreement which require, or permit, differing
payments to be made to Lenders which are not Defaulting Lenders, as opposed to
Defaulting Lenders.

     (d) If any Lender shall fail to make any payment required to be made by it
to the Administrative Agent pursuant to section 2.4(b) or 3.4(c), then the
Administrative Agent may, in its discretion (notwithstanding any contrary
provision of this Agreement), apply any amounts thereafter received by the
Administrative Agent for the account of such Lender to satisfy such Lender's
obligations to the Administrative Agent under such sections until all such
unsatisfied obligations are fully paid.

     12.7. CALCULATIONS: COMPUTATIONS. (a) The financial statements to be
furnished to the Lenders pursuant hereto shall be made and prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as set forth in the notes thereto or as otherwise disclosed in writing
by the Borrower to the Lenders); PROVIDED, that if at any time the computations
determining compliance with section 9 utilize accounting principles different
from those utilized in the financial statements furnished to the Lenders, such
computations shall set forth in reasonable detail a description of the
differences and the effect upon such computations.

     (b) All computations of interest on Eurocurrency Loans and Prime Rate Loans
hereunder and all computations of Commitment Fees, Letter of Credit Fees and
other Fees hereunder shall be made on the actual number of days elapsed over a
year of 360 days.

     12.8. Governing Law; Submission to Jurisdiction; Venue; Waiver of Jury
Trial. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF OHIO, NOTWITHSTANDING
ITS CONFLICTS OF LAWS RULES. TO THE FULLEST EXTENT PERMITTED BY LAW, THE
BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT
THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF OHIO GOVERNS THIS AGREEMENT
OR ANY OF THE OTHER CREDIT DOCUMENTS. Any legal action or proceeding with
respect to this Agreement or any other Credit Document may be brought in the
Court of Common Pleas of Cuyahoga County, Ohio, or of the United States for the
Northern District of Ohio, and, by execution and delivery of this Agreement, the
Borrower hereby irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts. The
Borrower hereby further irrevocably consents to the service of process out of
any of the aforementioned courts in any such action or proceeding by the mailing
of copies thereof by registered or certified mail, postage prepaid, to the
Borrower at its address for notices pursuant to section 12.3, such service to
become effective 30 days after such mailing or at such earlier time as may be
provided under applicable law. Nothing herein shall affect the right of the
Administrative Agent or any Lender to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise proceed against
the Borrower in any other jurisdiction.

     (b) The Borrower hereby irrevocably waives any objection which it may now
or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Credit Document brought in the courts referred to in section 12.8(a) above and
hereby further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum.

     (c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS
(INCLUDING, WITHOUT LIMITATION, ANY AMENDMENTS, WAIVERS OR OTHER MODIFICATIONS
RELATING TO ANY OF THE FOREGOING), OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY. EACH PARTY HERETO HEREBY (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH
OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS PARAGRAPH.


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     12.9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same agreement. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Administrative Agent.

     12.10. EFFECTIVENESS; INTEGRATION. This Agreement shall become effective on
the date (the "EFFECTIVE DATE") on which the Borrower and each of the Lenders
shall have signed a copy hereof (whether the same or different copies), and each
shall have delivered the same to the Administrative Agent at the Notice Office
of the Administrative Agent or, in the case of the Lenders, shall have given to
the Administrative Agent telephonic (confirmed in writing), written telex or
facsimile transmission notice (actually received) at such office that the same
has been signed and mailed to it. This Agreement, the other Credit Documents and
any separate letter agreements with respect to fees payable to the
Administrative Agent and/or the Lead Arranger, for its own account and benefit
and/or for the account, benefit of, and distribution to, the Lenders, constitute
the entire contract among the parties relating to the subject matter hereof and
thereof and supersede any and all previous agreements and understandings, oral
or written, relating to the subject matter hereof or thereof.

     12.11. HEADINGS DESCRIPTIVE. The headings of the several sections and other
portions of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.

     12.12. AMENDMENT OR WAIVER. (a) Neither this Agreement nor any terms hereof
may be amended, changed, waived or otherwise modified UNLESS such amendment,
change, waiver or other modification is in writing and signed by the Borrower
and the Administrative Agent, and also signed (or consented to in writing) by
the Required Lenders, PROVIDED that

          (i) no change, waiver or other modification shall:

               (A) increase the Commitment of any Lender hereunder without the
          written consent of such Lender, or increase the Total Revolving
          Commitment without the consent of each Lender;

               (B) extend or postpone any Maturity Date provided for herein
          which is applicable to any Loan of any Lender, extend or postpone the
          expiration date of any Letter of Credit as to which such Lender is a
          LC Participant pursuant to section 12.4 beyond the latest expiration
          date for a Letter of Credit provided for herein, or extend or postpone
          any scheduled expiration or termination date provided for herein which
          is applicable to a Commitment of any Lender, without the written
          consent of such Lender;

               (C) reduce the principal amount of any Loan made by any Lender,
          or reduce the rate or extend the time of payment of, or excuse the
          payment of, interest thereon (other than as a result of waiving the
          applicability of any post-default increase in interest rates), without
          the written consent of such Lender;

               (D) reduce the amount of any Unpaid Drawing as to which any
          Lender is a LC Participant as provided in section 3.4, or reduce the
          rate or extend the time of payment or reimbursement thereof, or excuse
          the payment of, interest thereon (other than as a result of waiving
          the applicability of any post-default increase in interest rates),
          without the written consent of such Lender; or

               (E) reduce the rate or extend the time of payment of, or excuse
          the payment of, any Fees to which any Lender is entitled hereunder,
          without the written consent of such Lender; and

          (ii) no change, waiver or other modification termination shall,
     without the written consent of each Lender (other than a Defaulting Lender)
     affected thereby,


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               (A) release any Credit Party from the Subsidiary Guaranty, EXCEPT
          in connection with the sale or disposition of any Subsidiary or in
          connection with any other transaction permitted by section 9.2(d) or
          otherwise disposed of with the consent of the Required Lenders;

               (B) release all or substantially all of the Collateral, EXCEPT in
          connection with a sale or disposition thereof or in connection with
          any other transaction permitted by section 9.2(d) or any transaction
          consented to by the Required Lenders;

               (C) change the definition of the term "Change of Control" or any
          of the provisions of section 5.2(i) which are applicable upon a Change
          of Control;

               (D) amend, modify or waive any provision of this section 12.12,
          or section 10.3, 11.7, 12.6 or any other provision of any of the
          Credit Documents pursuant to which the consent or approval of all
          Lenders, or a number or specified percentage or other required
          grouping of Lenders, is by the terms of such provision explicitly
          required;

               (E) reduce the percentage specified in, or otherwise modify, the
          definition of Required Lenders; or

               (F) consent to the assignment or transfer by the Borrower of any
          of its rights and obligations under this Agreement.

Any waiver, consent, amendment or other modification with respect to this
Agreement given or made in accordance with this section 12.12 shall be binding
on the parties hereto and their successors and assigns, but shall be effective
only in the specific instance and for the specific purpose for which it was
given or made.

     (b) No provision of section 3 may be amended without the consent of (x) any
Letter of Credit Issuer adversely affected thereby or (y) the Administrative
Agent, respectively. No provision of this Agreement affecting only the Swing
Line Lender may be amended without the consent of the Swing Line Lender.

     (c) If, in connection with any proposed change, waiver, discharge or
termination of any of the provisions of this Agreement which requires the
consent of all the Lenders, and the consent of the Required Lenders is obtained
but the consent of one or more of such other Lenders whose consent is sought is
not obtained, then the Borrower shall have the right, so long as all
non-consenting Lenders whose individual consent is sought are treated as
described in either clauses (A) or (B) below, to either (A) replace each such
non-consenting Lender or Lenders with one or more replacement Lenders in
accordance with the provisions of section 2.11 so long as at the time of such
replacement, each such replacement Lender consents to the proposed change,
waiver, discharge or termination or (B) terminate each such non-consenting
Lender's Commitments and repay the outstanding Loans of each such non-consenting
Lender in accordance with section 2.11, provided that, unless the Commitments
that are terminated and the Loans that are repaid pursuant to preceding clause
(B) are immediately replaced in full at such time through the addition of new
Lenders or the increase of the Commitments and/or outstanding Loans of existing
Lenders (who in each case must specifically consent thereto), then in the case
of any action pursuant to preceding clause (B) each Lender (determined after
giving effect to the proposed action) shall specifically consent thereto,
PROVIDED FURTHER, that in any event the Borrower shall not have the right to
replace a Lender if, immediately after the termination of such Lender's
Commitment and the repayment of such Lender's Loans, the sum of (i) the
aggregate outstanding principal amount of Revolving Loans PLUS (ii) the
aggregate outstanding principal amount of Swing Line Loans PLUS (iii) the
aggregate amount of Letter of Credit Outstandings, EXCEEDS the Total Revolving
Commitment as then in effect.

     (d) Anything in this Agreement to the contrary notwithstanding, no waiver
or modification of any provision of this Agreement that has the effect (either
immediately or at some future time) of enabling the Borrower to satisfy a
condition precedent contained in section 6 to the making of a Loan under a
Facility shall be effective against any Lender with a Commitment under such
Facility, UNLESS the Required Lenders shall have consented in writing to such
waiver or modification.


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     (e) The Administrative Agent and the Collateral Agent will not enter into
any amendment, change, waiver, discharge or termination of any of the other
Credit Documents, EXCEPT as specifically provided therein or as authorized as
contemplated by a written request or consent of the Required Lenders (or all of
the Lenders, or all of the Lenders (other than any Defaulting Lender), as
applicable, as to any matter which, pursuant to this section 12.12, can only be
effectuated with the written consent of the Required Lenders, all Lenders, or
all Lenders (other than any Defaulting Lender), as the case may be).

     12.13. SURVIVAL OF INDEMNITIES. All indemnities set forth herein including,
without limitation, in section 2.9, 2.10, 3.5, 5.4, 11.7 or 12.1 shall survive
the execution and delivery of this Agreement and the making and repayment of
Loans.

     12.14. DOMICILE OF LOANS. Each Lender may transfer and carry its Loans at,
to or for the account of any branch office, subsidiary or affiliate of such
Lender, PROVIDED that the Borrower shall not be responsible for costs arising
under section 2.9 resulting from any such transfer (other than a transfer
pursuant to section 2.11) to the extent not otherwise applicable to such Lender
prior to such transfer.

     12.15. CONFIDENTIALITY. (a) Each of the Administrative Agent, each Letter
of Credit Issuer and the Lenders agrees to maintain the confidentiality of the
Confidential Information (as defined below), EXCEPT that Confidential
Information may be disclosed (1) to its and its Affiliates' directors, officers,
employees and agents, including accountants, legal counsel and other advisors
(it being understood that the Persons to whom such disclosure is made will be
informed of the confidential nature of such Confidential Information and
instructed to keep such Confidential Information confidential), (2) to any
direct or indirect contractual counterparty in any swap, hedge or similar
agreement (or to any such contractual counterparty's professional advisor, so
long as such contractual counterparty (or such professional advisor) agrees to
be bound by the provisions of this section 12.15, (3) to the extent requested by
any regulatory authority, (4) to the extent required by applicable laws or
regulations or by any subpoena or similar legal process, (5) to any other party
to this Agreement, (6) to any other creditor of the Borrower or any other Credit
Party which is a direct or intended beneficiary of any of the Credit Documents,
(7) in connection with the exercise of any remedies hereunder or under any of
the other Credit Documents, or any suit, action or proceeding relating to this
Agreement or any of the other Credit Documents or the enforcement of rights
hereunder or thereunder, (8) subject to an agreement containing provisions
substantially the same as those of this section 12.15, to any assignee of or
participant in, or any prospective assignee of or participant in, any of its
rights or obligations under this Agreement, (9) with the consent of the
Borrower, or (10) to the extent such Confidential Information (i) becomes
publicly available other than as a result of a breach of this section 12.15, or
(ii) becomes available to the Administrative Agent, any Letter of Credit Issuer
or any Lender on a nonconfidential basis from a source other than the Borrower.

     (b) For the purposes of this section 12.15, "CONFIDENTIAL INFORMATION"
means all information received from the Borrower relating to the Borrower or its
business, other than any such information that is available to the
Administrative Agent, any Letter of Credit Issuer or any Lender on a
nonconfidential basis prior to disclosure by the Borrower; PROVIDED that, in the
case of information received from the Borrower after the date hereof, such
information is clearly identified at the time of delivery as confidential.

     (c) Any Person required to maintain the confidentiality of Confidential
Information as provided in this section 12.15 shall be considered to have
complied with its obligation to do so if such Person has exercised the same
degree of care to maintain the confidentiality of such Confidential Information
as such Person would accord to its own confidential information. The Borrower
hereby agrees that the failure of the Administrative Agent, any Letter of Credit
Issuer or any Lender to comply with the provisions of this section 12.15 shall
not relieve the Borrower, or any other Credit Party, of any of its obligations
under this Agreement or any of the other Credit Documents.

     12.16. LENDER REGISTER. The Borrower hereby designates the Administrative
Agent to serve as its agent, solely for purposes of this section 12.16, to
maintain a register (the "LENDER REGISTER") on or in which it will record the
names and addresses of the Lenders, and the Commitments from time to time of
each of the Lenders, the Loans made to the Borrower by each of the Lenders and
each repayment and prepayment in respect of the principal amount of such Loans
of each such Lender. Failure to make any such recordation, or (absent manifest
error) any error in such recordation, shall not affect the Borrower's
obligations in respect of such Loans. With respect to any Lender, the transfer
of the Commitment of such Lender and the rights to the principal of, and
interest on, any Loan


                                       83



made pursuant to such Commitment shall not be effective until such transfer is
recorded on the Lender Register maintained by the Administrative Agent with
respect to ownership of such Commitment and Loans and prior to such recordation
all amounts owing to the transferor with respect to such Commitment and Loans
shall remain owing to the transferor. The registration of assignment or transfer
of all or part of any Commitments and Loans shall be recorded by the
Administrative Agent on the Lender Register only upon the acceptance by the
Administrative Agent of a properly executed and delivered Assignment and
Assumption pursuant to section 12.4(b). The Borrower agrees to indemnify the
Administrative Agent from and against any and all losses, claims, damages and
liabilities of whatsoever nature which may be imposed on, asserted against or
incurred by the Administrative Agent in performing its duties under this section
12.16, except to the extent attributable to the gross negligence or willful
misconduct of the Administrative Agent. The Lender Register shall be available
for inspection by the Borrower or any Lender at any reasonable time and from
time to time upon reasonable prior notice.

     12.17. LIMITATIONS ON LIABILITY OF THE LETTER OF CREDIT ISSUERS. The
Borrower assumes all risks of the acts or omissions of any beneficiary or
transferee of any Letter of Credit with respect to its use of such Letters of
Credit. Neither any Letter of Credit Issuer nor any of its officers or directors
shall be liable or responsible for: (a) the use which may be made of any Letter
of Credit or any acts or omissions of any beneficiary or transferee in
connection therewith; (b) the validity, sufficiency or genuineness of documents,
or of any endorsement thereon, even if such documents should prove to be in any
or all respects invalid, insufficient, fraudulent or forged; (c) payment by a
Letter of Credit Issuer against presentation of documents that do not comply
with the terms of a Letter of Credit, including failure of any documents to bear
any reference or adequate reference to such Letter of Credit; or (d) any other
circumstances whatsoever in making or failing to make payment under any Letter
of Credit, except that the Borrower (or a Subsidiary which is the account party
in respect of the Letter of Credit in question) shall have a claim against a
Letter of Credit Issuer, and a Letter of Credit Issuer shall be liable to the
Borrower (or such Subsidiary), to the extent of any direct, but not
consequential, damages suffered by the Borrower (or such Subsidiary) which the
Borrower (or such Subsidiary) proves were caused by (i) such Letter of Credit
Issuer's willful misconduct or gross negligence in determining whether documents
presented under a Letter of Credit comply with the terms of such Letter of
Credit or (ii) such Letter of Credit Issuer's willful failure to make lawful
payment under any Letter of Credit after the presentation to it of documentation
strictly complying with the terms and conditions of such Letter of Credit. In
furtherance and not in limitation of the foregoing, a Letter of Credit Issuer
may accept documents that appear on their face to be in order, without
responsibility for further investigation.

     12.18. GENERAL LIMITATION OF LIABILITY. No claim may be made by the
Borrower, any Lender, the Administrative Agent, any Letter of Credit Issuer or
any other Person against the Administrative Agent, any Letter of Credit Issuer,
or any other Lender or the Affiliates, directors, officers, employees, attorneys
or agents of any of them for any damages other than actual compensatory damages
in respect of any claim for breach of contract or any other theory of liability
arising out of or related to the transactions contemplated by this Agreement or
any of the other Credit Documents, or any act, omission or event occurring in
connection therewith; and the Borrower, each Lender, the Administrative Agent
and each Letter of Credit Issuer hereby, to the fullest extent permitted under
applicable law, waives, releases and agrees not to sue or counterclaim upon any
such claim for any special, consequential or punitive damages, whether or not
accrued and whether or not known or suspected to exist in its favor.

     12.19. NO DUTY. All attorneys, accountants, appraisers, consultants and
other professional persons (including the firms or other entities on behalf of
which any such Person may act) retained by the Administrative Agent or any
Lender with respect to the transactions contemplated by the Credit Documents
shall have the right to act exclusively in the interest of the Administrative
Agent or such Lender, as the case may be, and shall have no duty of disclosure,
duty of loyalty, duty of care, or other duty or obligation of any type or nature
whatsoever to the Borrower, to any of its Subsidiaries, or to any other Person,
with respect to any matters within the scope of such representation or related
to their activities in connection with such representation. The Borrower agrees,
on behalf of itself and its Subsidiaries, not to assert any claim or
counterclaim against any such persons with regard to such matters, all such
claims and counterclaims, now existing or hereafter arising, whether known or
unknown, foreseen or unforeseeable, being hereby waived, released and forever
discharged.

     12.20. LENDERS AND AGENT NOT FIDUCIARY TO BORROWER, ETC. The relationship
among the Borrower and its Subsidiaries, on the one hand, and the Administrative
Agent, each Letter of Credit Issuer and the Lenders, on the other hand, is
solely that of debtor and creditor, and the Administrative Agent, each Letter of
Credit Issuer and


                                       84



the Lenders have no fiduciary or other special relationship with the Borrower
and its Subsidiaries, and no term or provision of any Credit Document, no course
of dealing, no written or oral communication, or other action, shall be
construed so as to deem such relationship to be other than that of debtor and
creditor.

     12.21. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties herein shall survive the making of Loans and the issuance of Letters
of Credit hereunder, the execution and delivery of this Agreement, the Notes and
the other documents the forms of which are attached as Exhibits hereto, the
issue and delivery of the Notes, any disposition thereof by any holder thereof,
and any investigation made by the Administrative Agent or any Lender or any
other holder of any of the Notes or on its behalf. All statements contained in
any certificate or other document delivered to the Administrative Agent or any
Lender or any holder of any Notes by or on behalf of the Borrower or of its
Subsidiaries pursuant hereto or otherwise specifically for use in connection
with the transactions contemplated hereby shall constitute representations and
warranties by the Borrower hereunder, made as of the respective dates specified
therein or, if no date is specified, as of the respective dates furnished to the
Administrative Agent or any Lender.

     12.22. SEVERABILITY. Any provision of this Agreement held to be invalid,
illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability
without affecting the validity, legality and enforceability of the remaining
provisions hereof; and the invalidity of a particular provision in a particular
jurisdiction shall not invalidate such provision in any other jurisdiction.

     12.23. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given
independent effect so that if a particular action, event, condition or
circumstance is not permitted by any of such covenants, the fact that it would
be permitted by an exception to, or would otherwise be within the limitations or
restrictions of, another covenant, shall not avoid the occurrence of a Default
or an Event of Default if such action is taken or event, condition or
circumstance exists.

     12.24. JUDGMENT CURRENCY. (a) The Credit Parties' obligations hereunder and
under the other Credit Documents to make payments in Dollars or Alternative
Currency, as the case may be, shall not be discharged or satisfied by any tender
or recovery pursuant to any judgment expressed in or converted into any currency
other than Dollars or Alternative Currency, as the case may be, except to the
extent that such tender or recovery results in the effective receipt by the
Administrative Agent or the applicable Lender of the full amount of Dollars or
Alternative Currency, as the case may be, expressed to be payable to the
Administrative Agent or such Lender under this Agreement or the other Credit
Documents. If, for the purpose of obtaining or enforcing judgment against any
Credit Party in any court or in any jurisdiction, it becomes necessary to
convert into or from any currency other than Dollars or Alternative Currency, as
the case may be, (such other currency being hereinafter referred to as the
"JUDGMENT CURRENCY") an amount due in Dollars, the conversion shall be made at
the equivalent thereof in Dollars or Alternative Currency, as the case may be,
determined as of the Business Day immediately preceding the day on which the
judgment is given (such Business Day being hereinafter referred to as the
"JUDGMENT CURRENCY CONVERSION DATE").

     (b) If there is a change in the rate of exchange prevailing between the
Judgment Currency Conversion Date and the date of actual payment of the amount
due, the Borrowers covenant and agree to pay, or cause to be paid, such
additional amounts, if any (but in any event not a lesser amount) as may be
necessary to ensure that the amount paid in the Judgment Currency, when
converted at the rate of exchange prevailing on the date of payment, will
produce the amount of Dollars which could have been purchased with the amount of
Judgment Currency stipulated in the judgment or judicial award at the rate of
exchange prevailing on the Judgment Currency Conversion Date.

     (c) For purposes of determining the equivalent in Dollars or Alternative
Currency, as the case may be, for this section, such amount shall include any
premium and costs payable in connection with the conversion into or from the
Judgment Currency.

     12.25. INTEREST RATE LIMITATION. Notwithstanding anything herein to the
contrary, if at any time the interest rate applicable to any Loan, together with
all fees, charges and other amounts which are treated as interest on such Loan
under applicable law (collectively the "CHARGES"), shall exceed the maximum
lawful rate (the


                                       85



"MAXIMUM RATE") which may be contracted for, charged, taken, received or
reserved by the Lender holding such Loan in accordance with applicable law, the
rate of interest payable in respect of such Loan hereunder, together with all
Charges payable in respect thereof, shall be limited to the Maximum Rate and, to
the extent lawful, the interest and Charges that would have been payable in
respect of such Loan but were not payable as a result of the operation of this
section shall be cumulated and the interest and Charges payable to such Lender
in respect of other Loans or periods shall be increased (but not above the
Maximum Rate therefor) until such cumulated amount, together with interest
thereon at the Prime Rate to the date of repayment, shall have been received by
such Lender.

     12.26. USA PATRIOT ACT. Each Lender subject to the USA Patriot Act hereby
notifies the Borrower that pursuant to the requirements of the USA Patriot Act,
it is required to obtain, verify and record information that identifies the
Borrower, which information includes the name and address of the Borrower and
other information that will allow such Lender to identify the Borrower in
accordance with the USA Patriot Act.

                [The balance of this page is intentionally blank;
                      the next pages are signature pages.]


                                       86



     IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Agreement to be duly executed and delivered as of the date first above
written.


OM GROUP, INC.                          NATIONAL CITY BANK,
                                           INDIVIDUALLY AS A LENDER, THE SWING
                                           LINE LENDER, THE LETTER OF CREDIT
                                           ISSUER, AND IN ITS CAPACITY AS THE
                                           ADMINISTRATIVE AGENT AND THE
                                           COLLATERAL AGENT, AND THE ARRANGER


BY:
    ---------------------------------
NAME:
      -------------------------------
TITLE:
       ------------------------------


                                        BY:
                                            ---------------------------------
                                        NAME:
                                              -------------------------------
                                        TITLE:
                                               ------------------------------



KEYBANK NATIONAL ASSOCIATION,
   AS A LENDER


BY:
    ---------------------------------
NAME:
      -------------------------------
TITLE:
       ------------------------------

                                 SIGNATURE PAGE
                                     TO THE
                                CREDIT AGREEMENT
                               FOR OM GROUP, INC.



JPMORGAN CHASE BANK, N.A.,
   AS A LENDER


BY:
    ---------------------------------
NAME:
      -------------------------------
TITLE:
       ------------------------------

                                 SIGNATURE PAGE
                                     TO THE
                                CREDIT AGREEMENT
                               FOR OM GROUP, INC.



                                     ANNEX I

                    INFORMATION AS TO LENDERS AND COMMITMENTS



       NAME OF LENDER           REVOLVING COMMITMENT
       --------------           --------------------
                             
National City Bank                  $ 40,000,000
Swing Line Commitment:              $ 15,000,000
KeyBank National Association        $ 30,000,000
JPMorgan Chase Bank, N.A.           $ 30,000,000
                                    ------------
TOTAL                               $100,000,000
                                    ============




                                    ANNEX II

                         INFORMATION AS TO SUBSIDIARIES



                                                            Percentage of Outstanding
                                                         Stock or Other Equity Interest
                                                            Owned (Indicating whether
                        Type of     Jurisdiction Where      owned by the Borrower of
Name of Subsidiary   Organization        Organized           a specified Subsidiary)
- ------------------   ------------   ------------------   ------------------------------
                                                





                                    ANNEX III

                      DESCRIPTION OF EXISTING INDEBTEDNESS



                                    ANNEX IV

                          DESCRIPTION OF EXISTING LIENS



                                     ANNEX V

       DESCRIPTION OF EXISTING ADVANCES, LOANS, INVESTMENTS AND GUARANTEES



                                    ANNEX VI

              DESCRIPTION OF LETTERS OF CREDIT DEEMED ISSUED UNDER

                              THE CREDIT AGREEMENT



                                    ANNEX VII

                            EXISTING HEDGE AGREEMENTS

JP Morgan Chase Bank, N.A. (as successor to Bank One) & OM Group, Inc.
Interest rate swap
Trade date 8/1/03
Notional amount $50MM of 9.25% 12/15/11 bond
MTM $1.2 million
Maturity date 12/15/11 (includes put option at end of year five)
Reverse swap where JPMorgan pays 9.25% and receives 6M LIBOR + 4.10% in arrears

JPMorgan Chase Bank, N.A. (as successor to Bank One) & OM Group, Inc.
Interest rate swap option
Trade date 11/14/03
Notional amount $50MM of 9.25% 12/15/11 bond
MTM $500 thousand
Maturity date 12/15/11
Reverse swap where JPMorgan pays 9.25% and receives 6M LIBOR + 4.3925% in
arrears


                                   EXHIBIT A-1

                                 REVOLVING NOTE

$____________                                                    Cleveland, Ohio
                                                                  ________, 20__

     FOR VALUE RECEIVED, the undersigned OM GROUP, INC., a Delaware corporation
(herein, together with its successors and assigns, the "BORROWER"), hereby
promises to pay to the order of _______________________ (the "LENDER"), in
lawful money of the United States of America, provided that Revolving loans
denominated in Alternative Currency shall be payable in such Alternative
Currency, and in immediately available funds, at the Payment Office (such term
and certain other terms used herein without definition shall have the meanings
ascribed thereto in the Credit Agreement referred to below) of the
Administrative Agent, the principal sum of ________________ DOLLARS AND ____
CENTS ($___) (or the equivalent thereof in Alternative Currency) or, if less,
the then unpaid principal amount of all Revolving Loans made by the Lender (or
any of its predecessors in interest with respect hereto) to the Borrower
pursuant to the Credit Agreement, on the Maturity Date.

     The Borrower promises also to pay interest in like currency and funds at
the Payment Office on the unpaid principal amount of each Revolving Loan made by
the Lender from the date of such Revolving Loan until paid at the rates and at
the times provided in section 2.7 of the Credit Agreement.

     This Revolving Note is one of the Revolving Notes referred to in the Credit
Agreement, dated as of December 20, 2005, among the Borrower, the financial
institutions from time to time party thereto (including the Lender), and
National City Bank, as Administrative Agent (as from time to time in effect, the
"CREDIT AGREEMENT"), and is entitled to the benefits thereof and of the other
Credit Documents. As provided in the Credit Agreement, this Revolving Note is
subject to mandatory prepayment prior to the Maturity Date, in whole or in part.

     In case an Event of Default shall occur and be continuing, the principal of
and accrued interest on this Revolving Note may be declared to be due and
payable in the manner and with the effect provided in the Credit Agreement.

     The Borrower hereby waives presentment, demand, protest or notice of any
kind in connection with this Revolving Note. No failure to exercise, or delay in
exercising, any rights hereunder on the part of the holder hereof shall operate
as a waiver of any such rights.

     THE BORROWER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THE CREDIT
AGREEMENT AND THIS REVOLVING NOTE, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY. THE BORROWER (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF
ANY OTHER PARTY TO THE CREDIT AGREEMENT HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT THE OTHER PARTIES TO THE CREDIT
AGREEMENT HAVE BEEN INDUCED TO ENTER INTO THE CREDIT AGREEMENT BY, AMONG OTHER
THINGS, THE WAIVERS AND CERTIFICATIONS IN THIS PARAGRAPH.

     THIS REVOLVING NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED
BY THE LAW OF THE STATE OF OHIO.

                                        OM GROUP, INC.


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------



                         LOANS AND PAYMENTS OF PRINCIPAL



                                        AMOUNT
                                          OF
  DATE     AMOUNT   TYPE              PRINCIPAL     UNPAID
   OF        OF      OF    INTEREST    PAID OR    PRINCIPAL   MADE
NOTATION    LOAN    LOAN    PERIOD     PREPAID     BALANCE     BY
- --------   ------   ----   --------   ---------   ---------   ----
                                            





                                   EXHIBIT A-2

                                 SWING LINE NOTE

$____________                                                    Cleveland, Ohio
                                                                  ________, 20__

     FOR VALUE RECEIVED, the undersigned OM GROUP, INC., a Delaware corporation
(herein, together with its successors and assigns, the "BORROWER"), hereby
promises to pay to the order of _______________________ (the "LENDER"), in
lawful money of the United States of America and in immediately available funds,
at the Payment Office (such term and certain other terms used herein without
definition shall have the meanings ascribed thereto in the Credit Agreement
referred to below) of the Administrative Agent, the principal sum of
________________ DOLLARS AND ____ CENTS ($___) or, if less, the then unpaid
principal amount of all Swing Line Loans made by the Lender (or any of its
predecessors in interest with respect hereto) to the Borrower pursuant to the
Credit Agreement. The Borrower will pay the principal amount of any Swing Line
Loan on the maturity date specified therefor in the Notice of Borrowing relating
thereto, which maturity date shall in no event be more than one Business Day
following the date such Swing Line Loan was made.

     The Borrower promises also to pay interest in like currency and funds at
the Payment Office on the unpaid principal amount of each Swing Line Loan made
by the Lender from the date of such Swing Line Loan until paid at the rates and
at the times provided in section 2.7 of the Credit Agreement.

     This Swing Line Note is one of the Swing Line Notes referred to in the
Credit Agreement, dated as of December 20, 2005, among the Borrower, the
financial institutions from time to time party thereto (including the Lender),
and National City Bank, as Administrative Agent (as from time to time in effect,
the "CREDIT AGREEMENT"), and is entitled to the benefits thereof and of the
other Credit Documents. As provided in the Credit Agreement, this Swing Line
Note is subject to mandatory prepayment prior to the maturity date of any Swing
Line Loan or the Maturity Date, in whole or in part.

     In case an Event of Default shall occur and be continuing, the principal of
and accrued interest on this Swing Line Note may be declared to be due and
payable in the manner and with the effect provided in the Credit Agreement.

     The Borrower hereby waives presentment, demand, protest or notice of any
kind in connection with this Swing Line Note. No failure to exercise, or delay
in exercising, any rights hereunder on the part of the holder hereof shall
operate as a waiver of any such rights.

     THE BORROWER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THE CREDIT
AGREEMENT AND THIS SWING LINE NOTE, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY. THE BORROWER (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF
ANY OTHER PARTY TO THE CREDIT AGREEMENT HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT THE OTHER PARTIES TO THE CREDIT
AGREEMENT HAVE BEEN INDUCED TO ENTER INTO THE CREDIT AGREEMENT BY, AMONG OTHER
THINGS, THE WAIVERS AND CERTIFICATIONS IN THIS PARAGRAPH.

     THIS SWING LINE NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED
BY THE LAW OF THE STATE OF OHIO.

                                        OM GROUP, INC.




                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------



                         LOANS AND PAYMENTS OF PRINCIPAL



                       TYPE                  AMOUNT
                        OF                     OF
  DATE     AMOUNT   LOAN / OR              PRINCIPAL     UNPAID
   OF        OF      INTEREST               PAID OR    PRINCIPAL   MADE
NOTATION    LOAN       RATE     MATURITY    PREPAID     BALANCE     BY
- --------   ------   ---------   --------   ---------   ---------   ----
                                                 




                                   EXHIBIT B-1

                               NOTICE OF BORROWING

                                                     [Date]

National City Bank,
   as Administrative Agent for the Lenders party
   to the Credit Agreement referred to below
1900 East Ninth Street
Cleveland, Ohio 44114

     Attention: Agency Services Group

          RE:  NOTICE OF BORROWING UNDER THE CREDIT AGREEMENT,
               DATED AS OF DECEMBER 20, 2005

Ladies and Gentlemen:

     The undersigned, OM Group, Inc. (the "BORROWER"), refers to the Credit
Agreement, dated as of December 20, 2005 (as amended, restated, amended and
restated, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT", the terms defined therein being used herein as therein defined),
among the Borrower, the financial institutions from time to time party thereto
(the "LENDERS"), and National City Bank, as Administrative Agent for such
Lenders, and hereby gives you notice, irrevocably, pursuant to section 2.3(a) of
the Credit Agreement, that the undersigned hereby requests one or more
Borrowings under the Credit Agreement, and in that connection sets forth in the
schedule attached hereto the information relating to each such Borrowing
(collectively the "PROPOSED BORROWING") as required by section 2.3(a) of the
Credit Agreement.

     The undersigned hereby specifies that the Proposed Borrowing will consist
of Loans as indicated in the schedule attached hereto.

     The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the date of the Proposed Borrowing:

          (A) the representations and warranties of the Credit Parties contained
     in the Credit Agreement and the other Credit Documents are and will be true
     and correct in all material respects, before and after giving effect to the
     Proposed Borrowing and to the application of the proceeds thereof, as
     though made on such date, except to the extent that such representations
     and warranties expressly relate to an earlier specified date, in which case
     such representations and warranties were true and correct in all material
     respects as of the date when made; and



          (B) no Default or Event of Default has occurred and is continuing, or
     would result from such Proposed Borrowing or from the application of the
     proceeds thereof.

                                        Very truly yours,

                                        OM GROUP, INC.


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------



                               BORROWING SCHEDULE

PROPOSED BORROWING #1:



                                                                                         INTEREST PERIOD
 BUSINESS DAY                                                                             AND CURRENCY
      OF                                                                AGGREGATE         IF LOANS ARE
   PROPOSED                                       TYPE OF                 AMOUNT          EUROCURRENCY
  BORROWING           FACILITY                     LOANS                 OF LOANS             LOANS
- -------------   -------------------   -------------------------------   ---------   ------------------------
                                                                        
                Revolving Facility    Prime Rate Loans                              One Month

                                      Eurocurrency Loans                            Two Months

______, 20___   Swing Line Facility                                     $________

                                      Money Market Rate Loans with an               Three Months
                [Circle one of        interest rate of ___% and a
                above]                maturity of one Business Day                  Six Months

                                      [Circle and/or                                [Circle one of
                                      complete one of                               above]
                                      above]
                                                                                    Dollars

                                                                                    Alternative Currency

                                                                                    [Circle one of above]




PROPOSED BORROWING #2:



                                                                                         INTEREST PERIOD
 BUSINESS DAY                                                                             AND CURRENCY
      OF                                                                AGGREGATE         IF LOANS ARE
   PROPOSED                                       TYPE OF                 AMOUNT          EUROCURRENCY
  BORROWING           FACILITY                     LOANS                 OF LOANS             LOANS
- -------------   -------------------   -------------------------------   ---------   ------------------------
                                                                        
                Revolving Facility    Prime Rate Loans                              One Month

                                      Eurocurrency Loans                            Two Months

______, 20___   Swing Line Facility                                     $________

                                      Money Market Rate Loans with an               Three Months
                [Circle one of        interest rate of ___% and a
                above]                maturity of one Business Day                  Six Months

                                      [Circle and/or                                [Circle one of
                                      complete one of                               above]
                                      above]
                                                                                    Dollars

                                                                                    Alternative Currency

                                                                                    [Circle one of above]




PROPOSED BORROWING #3:



                                                                                         INTEREST PERIOD
 BUSINESS DAY                                                                             AND CURRENCY
      OF                                                                AGGREGATE         IF LOANS ARE
   PROPOSED                                       TYPE OF                 AMOUNT          EUROCURRENCY
  BORROWING           FACILITY                     LOANS                 OF LOANS             LOANS
- -------------   -------------------   -------------------------------   ---------   ------------------------
                                                                        
                Revolving Facility    Prime Rate Loans                              One Month

                                      Eurocurrency Loans                            Two Months

______, 20___   Swing Line Facility                                     $________

                                      Money Market Rate Loans with an               Three Months
                [Circle one of        interest rate of ___% and a
                above]                maturity of one Business Day                  Six Months

                                      [Circle and/or complete one of                [Circle one of
                                      above]                                        above]

                                                                                    Dollars

                                                                                    Alternative Currency

                                                                                    [Circle one of above]




PROPOSED BORROWING #4:



                                                                                         INTEREST PERIOD
 BUSINESS DAY                                                                             AND CURRENCY
      OF                                                                AGGREGATE         IF LOANS ARE
   PROPOSED                                       TYPE OF                 AMOUNT          EUROCURRENCY
  BORROWING           FACILITY                     LOANS                 OF LOANS             LOANS
- -------------   -------------------   -------------------------------   ---------   ------------------------
                                                                        
                Revolving Facility    Prime Rate Loans                              One Month

                                      Eurocurrency Loans                            Two Months

______, 20___   Swing Line Facility                                     $________

                                      Money Market Rate Loans with an               Three Months
                [Circle one of        interest rate of ___% and a
                above]                maturity of one Business Day                  Six Months

                                      [Circle and/or complete one of                [Circle one of
                                      above]                                        above]

                                                                                    Dollars

                                                                                    Alternative Currency

                                                                                    [Circle one of above]




                                   EXHIBIT B-2

                              NOTICE OF CONVERSION

                                                     [Date]

National City Bank,
   as Administrative Agent for the Lenders party
   to the Credit Agreement referred to below
1900 East Ninth Street
Cleveland, Ohio 44114

     Attention: Agency Services Group

          RE:  NOTICE OF CONVERSION OF LOANS OF ONE TYPE
               INTO ANOTHER TYPE, PURSUANT TO THE CREDIT AGREEMENT,
               DATED AS OF DECEMBER 20, 2005

Ladies and Gentlemen:

     The undersigned, OM Group, Inc. (the "BORROWER"), refers to the Credit
Agreement, dated as of December 20, 2005 (as amended, restated, amended and
restated, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT", the terms defined therein being used herein as therein defined),
among the Borrower, the financial institutions from time to time party thereto
(the "LENDERS"), and National City Bank, as Administrative Agent for such
Lenders, and hereby gives you notice, irrevocably, pursuant to section 2.6 of
the Credit Agreement, that the undersigned hereby requests one or more
Conversions of Loans, outstanding pursuant to a Borrowing under a Facility,
consisting of one Type of Loan, into Loans under the same Facility of another
Type, pursuant to section 2.6 of the Credit Agreement, and in that connection
sets forth in the schedule attached hereto the information relating to each such
Conversion.

                                        Very truly yours,

                                        [OM GROUP, INC.]


                                        By:
                                            ------------------------------------
                                        Name:
                                              ----------------------------------
                                        Title:
                                               ---------------------------------



                               CONVERSION SCHEDULE

PROPOSED CONVERSION #1
   [OF THE LOANS DESCRIBED IN THE FIRST TABLE BELOW
   INTO THE LOANS DESCRIBED IN THE SECOND TABLE BELOW]



                                     AGGREGATE     INTEREST PERIOD
                                       AMOUNT       IF LOANS ARE
DATE OF LOANS      TYPE OF LOANS      OF LOANS   EUROCURRENCY LOANS
- -------------   ------------------   ---------   ------------------
                                        
                                                 One Month

 ____, 20__     Prime Rate Loans

                                     $________   Two Months

                Eurocurrency Loans               Three Months

                [Circle one of                   Six Months
                Above]
                                                 [Circle one of
                                                 above]




                                     AGGREGATE     INTEREST PERIOD
                                       AMOUNT       IF LOANS ARE
DATE OF LOANS      TYPE OF LOANS      OF LOANS   EUROCURRENCY LOANS
- -------------   ------------------   ---------   ------------------
                                        
                                                 One Month

 ____, 20__     Prime Rate Loans

                                     $________   Two Months

                Eurocurrency Loans               Three Months

                [Circle one of                   Six Months
                Above]
                                                 [Circle one of
                                                 above]




PROPOSED CONVERSION #2
   [OF THE LOANS DESCRIBED IN THE FIRST TABLE BELOW
   INTO THE LOANS DESCRIBED IN THE SECOND TABLE BELOW]



                                     AGGREGATE     INTEREST PERIOD
                                       AMOUNT       IF LOANS ARE
DATE OF LOANS      TYPE OF LOANS      OF LOANS   EUROCURRENCY LOANS
- -------------   ------------------   ---------   ------------------
                                        
                                                 One Month

 ____, 20__     Prime Rate Loans

                                     $________   Two Months

                Eurocurrency Loans               Three Months

                [Circle one of                   Six Months
                Above]
                                                 [Circle one of
                                                 above]




                                     AGGREGATE     INTEREST PERIOD
                                       AMOUNT       IF LOANS ARE
DATE OF LOANS      TYPE OF LOANS      OF LOANS   EUROCURRENCY LOANS
- -------------   ------------------   ---------   ------------------
                                        
                                                 One Month

 ____, 20__     Prime Rate Loans

                                     $________   Two Months

                Eurocurrency Loans               Three Months

                [Circle one of                   Six Months
                Above]
                                                 [Circle one of
                                                 above]



                                   EXHIBIT B-3

                            LETTER OF CREDIT REQUEST

No. ______________(1)

                                                             Dated __________(2)

National City Bank,
   as Administrative Agent for the Lenders party
   to the Credit Agreement referred to below
1900 East Ninth Street
Cleveland, Ohio 44114

   Attention: International Department/ Letter of Credit Operations

Ladies and Gentlemen:

     The undersigned, OM Group, Inc. (the "BORROWER"), refers to the Credit
Agreement, dated as of December 20, 2005 (as amended, restated, amended and
restated, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT", the capitalized terms defined therein being used herein as therein
defined), among the Borrower, the financial institutions from time to time party
thereto (the "LENDERS"), and National City Bank, as Administrative Agent for
such Lenders.

     The undersigned hereby requests that ________________, as a Letter of
Credit Issuer, issue a Letter of Credit on __________, 20___ (the "DATE OF
ISSUANCE") in the aggregate amount of [U.S.$______] [amount in Alternative
Currency] for the account of ____________________.

     The beneficiary of the requested Letter of Credit will be
____________________,(3) and such Letter of Credit will be in support of
____________________ (4) and will have a stated termination date of
____________.(5)

     The undersigned hereby certifies that after giving effect to the requested
issuance of the Letter of Credit:

          (i)  $_________ principal amount of Revolving Loans will be
               outstanding; and

          (ii) the Letter of Credit Outstandings will be $___________.

     The undersigned hereby certifies that the following statements are true on
the date hereof, and will be true on the Date of Issuance:

- ----------
(1)  Letter of Request Number.

(2)  Date of Letter of Request (at least five Business Days prior to the Date of
     Issuance or such lesser number as may be agreed by the relevant Letter of
     Credit Issuer).

(3)  Insert name and address of beneficiary.

(4)  Insert description of the supported obligations, name of agreement and/or
     the commercial transaction to which this Letter of Credit Request relates.

(5)  Insert last date upon which drafts may be presented (which may not be
     beyond the 15th Business Day next preceding the Revolving Maturity Date).



          (A) the representations and warranties of the Credit Parties contained
     in the Credit Agreement and the other Credit Documents are and will be true
     and correct in all material respects, before and after giving effect to the
     Proposed Borrowing and to the application of the proceeds thereof, as
     though made on such date, except to the extent that such representations
     and warranties expressly relate to an earlier specified date, in which case
     such representations and warranties were true and correct in all material
     respects as of the date when made; and

          (B) no Default or Event of Default has occurred and is continuing, or
     would result after giving effect to the issuance of the Letter of Credit
     requested hereby.

     Copies of all documentation with respect to the supported transaction are
attached hereto.

                                        Very truly yours,

                                        OM GROUP, INC.


                                        By:
                                            ------------------------------------
                                        Title:
                                               ---------------------------------



                                    EXHIBIT C

                                   ----------

                                     FORM OF
                            ASSIGNMENT AND ASSUMPTION

                                   ----------



                            ASSIGNMENT AND ASSUMPTION

     This Assignment and Assumption (the "Assignment and Assumption") is dated
as of the Effective Date set forth below and is entered into by and between
[Insert name of Assignor] (the "Assignor") and [Insert name of Assignee] (the
"Assignee"). Capitalized terms used but not defined herein shall have the
meanings given to them in the Credit Agreement identified below (as amended, the
"Credit Agreement"), receipt of a copy of which is hereby acknowledged by the
Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto
are hereby agreed to and incorporated herein by reference and made a part of
this Assignment and Assumption as if set forth herein in full.

     For an agreed consideration, the Assignor hereby irrevocably sells and
assigns to the Assignee, and the Assignee hereby irrevocably purchases and
assumes from the Assignor, subject to and in accordance with the Standard Terms
and Conditions and the Credit Agreement, as of the Effective Date inserted by
the Administrative Agent as contemplated below (i) all of the Assignor's rights
and obligations in its capacity as a Lender under the Credit Agreement and any
other documents or instruments delivered pursuant thereto to the extent related
to the amount and percentage interest identified below of all of such
outstanding rights and obligations of the Assignor under the respective
facilities identified below (including without limitation any letters of credit,
guarantees, and swingline loans included in such facilities) and (ii) to the
extent permitted to be assigned under applicable law, all claims, suits, causes
of action and any other right of the Assignor (in its capacity as a Lender)
against any Person, whether known or unknown, arising under or in connection
with the Credit Agreement, any other documents or instruments delivered pursuant
thereto or the loan transactions governed thereby or in any way based on or
related to any of the foregoing, including, but not limited to, contract claims,
tort claims, malpractice claims, statutory claims and all other claims at law or
in equity related to the rights and obligations sold and assigned pursuant to
clause (i) above (the rights and obligations sold and assigned pursuant to
clauses (i) and (ii) above being referred to herein collectively as, the
"Assigned Interest"). Such sale and assignment is without recourse to the
Assignor and, except as expressly provided in this Assignment and Assumption,
without representation or warranty by the Assignor.

1. Assignor:               ______________________________

2. Assignee:               ______________________________
                           [and is an Affiliate]

3. Borrower(s):            OM Group, Inc.

4. Administrative Agent:   National City Bank, as the administrative agent under
                           the Credit Agreement

5. Credit Agreement:       The Credit Agreement dated as of December 20, 2005
                           among OM Group, Inc. and the Lenders parties thereto,
                           National City Bank, as Administrative Agent, and the
                           other agents parties thereto

6. Assigned Interest:



                     Aggregate Amount of
                       Commitment/Loans    Amount of Commitment/   Percentage Assigned of
Facility Assigned      for all Lenders*        Loans Assigned*       Commitment/Loans(6)
- -----------------    -------------------   ---------------------   ----------------------
                                                          
Revolving Facility            $                      $                        %
                              $                      $                        %
                              $                      $                        %


[7. Trade Date:            ______________](7)

- ----------
*    Amount to be adjusted by the counterparties to take into account any
     payments or prepayments made between the Trade Date and the Effective Date.

(6)  Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans
     of all Lenders thereunder.

(7)  To be completed if the Assignor and the Assignee intend that the minimum
     assignment amount is to be determined as of the Trade Date.



Effective Date: _____________ ___, 20___ [TO BE INSERTED BY ADMINISTRATIVE AGENT
AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER
THEREFOR.]

The terms set forth in this Assignment and Assumption are hereby agreed to:

                                        ASSIGNOR
                                        [NAME OF ASSIGNOR]


                                        By:
                                            ------------------------------------
                                        Title:
                                               ---------------------------------


                                        ASSIGNEE
                                        [NAME OF ASSIGNEE]


                                        By:
                                            ------------------------------------
                                        Title:
                                               ---------------------------------

[Consented to and] Accepted:

NATIONAL CITY BANK, as
Administrative Agent


By
   ----------------------------------
Title:
       ------------------------------

[Consented to:]

[NAME OF RELEVANT PARTY]


By
   ----------------------------------
Title:
       ------------------------------



                                                                         ANNEX 1

                        STANDARD TERMS AND CONDITIONS FOR
                            ASSIGNMENT AND ASSUMPTION

          1. Representations and Warranties.

          1.1 Assignor. The Assignor (a) represents and warrants that (i) it is
the legal and beneficial owner of the Assigned Interest, (ii) the Assigned
Interest is free and clear of any lien, encumbrance or other adverse claim and
(iii) it has full power and authority, and has taken all action necessary, to
execute and deliver this Assignment and Assumption and to consummate the
transactions contemplated hereby; and (b) assumes no responsibility with respect
to (i) any statements, warranties or representations made in or in connection
with the Credit Agreement or any other Credit Document, (ii) the execution,
legality, validity, enforceability, genuineness, sufficiency or value of the
Credit Documents or any collateral thereunder, (iii) the financial condition of
the Borrower, any of its Subsidiaries or Affiliates or any other Person
obligated in respect of any Credit Document or (iv) the performance or
observance by the Borrower, any of its Subsidiaries or Affiliates or any other
Person of any of their respective obligations under any Credit Document.

          1.2. Assignee. The Assignee (a) represents and warrants that (i) it
has full power and authority, and has taken all action necessary, to execute and
deliver this Assignment and Assumption and to consummate the transactions
contemplated hereby and to become a Lender under the Credit Agreement, (ii) it
meets all requirements of an Eligible Assignee under the Credit Agreement
(subject to receipt of such consents as may be required under the Credit
Agreement), (iii) from and after the Effective Date, it shall be bound by the
provisions of the Credit Agreement as a Lender thereunder and, to the extent of
the Assigned Interest, shall have the obligations of a Lender thereunder, (iv)
it has received a copy of the Credit Agreement, together with copies of the most
recent financial statements delivered pursuant to Section 8.1(a) thereof, as
applicable, and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Assumption and to purchase the Assigned Interest on the basis of
which it has made such analysis and decision independently and without reliance
on the Administrative Agent or any other Lender, and (v) if it is not a United
States person (as such term is detailed in section 7701(a)(30) of the Code for
federal income tax purposes, attached to the Assignment and Assumption is any
documentation required to be delivered by it pursuant to the terms of the Credit
Agreement, duly completed and executed by the Assignee; and (b) agrees that (i)
it will, independently and without reliance on the Administrative Agent, the
Assignor or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Credit Documents, and (ii) it will perform
in accordance with their terms all of the obligations which by the terms of the
Credit Documents are required to be performed by it as a Lender.

          2. Payments. From and after the Effective Date, the Administrative
Agent shall make all payments in respect of the Assigned Interest (including
payments of principal, interest, fees and other amounts) to the Assignor for
amounts which have accrued to but excluding the Effective Date and to the
Assignee for amounts which have accrued from and after the Effective Date.

          3. General Provisions. This Assignment and Assumption shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
successors and assigns. This Assignment and Assumption may be executed in any
number of counterparts, which together shall constitute one instrument. Delivery
of an executed counterpart of a signature page of this Assignment and Assumption
by telecopy shall be effective as delivery of a manually executed counterpart of
this Assignment and Assumption. This Assignment and Assumption shall be governed
by, and construed in accordance with, the law of the State of Ohio, without
regard to its conflicts of laws principles.



                                    EXHIBIT H

                         SECTION 5.4(B)(II) CERTIFICATE

     Reference is hereby made to the Credit Agreement, dated as of December 20,
2005, among OM Group, Inc., the financial institutions party thereto from time
to time, and National City Bank, as Administrative Agent (the "CREDIT
AGREEMENT"). Pursuant to the provisions of section 5.4(b)(ii) of the Credit
Agreement, the undersigned hereby certifies that it is not a "bank" as such term
is used in section 881(c)(3)(A) of the Internal Revenue Code of 1986, as
amended.

                                        [NAME OF LENDER]


                                        By:
                                            ------------------------------------
                                        Title:
                                               ---------------------------------

Dated:
       ------------------------------



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

                                  $100,000,000
                           REVOLVING CREDIT AGREEMENT

                                   DATED AS OF
                                DECEMBER 20, 2005

                                      AMONG

                                 OM GROUP, INC.
                                 AS THE BORROWER

                     THE LENDING INSTITUTIONS NAMED THEREIN
                                   AS LENDERS

                               NATIONAL CITY BANK
        AS A LENDER, THE SWING LINE LENDER, THE LETTER OF CREDIT ISSUER,
                 THE ADMINISTRATIVE AGENT, THE COLLATERAL AGENT,
                 THE LEAD ARRANGER, AND THE BOOK RUNNING MANAGER

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



                                TABLE OF CONTENTS



                                                                            PAGE
                                                                            ----
                                                                         
SECTION 1.  DEFINITIONS AND TERMS........................................     1

   1.1.     Certain Defined Terms........................................     1
   1.2.     Computation of Time Periods..................................    20
   1.3.     Accounting Terms.............................................    20
   1.4.     Terms Generally..............................................    20
   1.5.     Currency Equivalents.........................................    21
   1.6.     Pro Forma Calculations.......................................    21

SECTION 2.  AMOUNT AND TERMS OF LOANS....................................    21

   2.1.     Commitments for Loans........................................    21
   2.2.     Minimum Borrowing Amounts, etc.; Pro Rata Borrowings.........    23
   2.3.     Procedures for Borrowing and Disbursement of Funds...........    23
   2.4.     Refunding of, or Participation in, Swing Line Loans..........    25
   2.5.     Notes; Loan Accounts  (a)  Forms of Notes....................    26
   2.6.     Voluntary Conversions of Revolving Loans Denominated in
               Dollars...................................................    27
   2.7.     Interest.....................................................    28
   2.8.     Selection and Continuation of Interest Periods...............    30
   2.9.     Increased Costs, Illegality, etc.............................    31
   2.10.    Breakage Compensation........................................    32

SECTION 3.  LETTERS OF CREDIT............................................    34

   3.1.     Letters of Credit............................................    34
   3.2.     Letter of Credit Requests: Notices of Issuance...............    34
   3.3.     Agreement to Repay Letter of Credit Drawings.................    35
   3.4.     Letter of Credit Participations..............................    35
   3.5.     Increased Costs..............................................    37
   3.6.     Guaranty of  Letter of Credit Obligations of Other Letter of
               Credit Obligors...........................................    38

SECTION 4.  FEES; COMMITMENTS............................................    39

   4.1.     Fees.........................................................    39
   4.2.     Voluntary Termination/Reduction of Commitments...............    40
   4.3.     Mandatory Adjustments of Commitments, etc....................    40

SECTION 5.  PAYMENTS.....................................................    41

   5.1.     Voluntary Prepayments........................................    41
   5.2.     Scheduled Repayments and Mandatory Prepayments...............    42
   5.3.     Method and Place of Payment..................................    44
   5.4.     Net Payments.................................................    44

SECTION 6.  CONDITIONS PRECEDENT.........................................    46



                                      -i-


                                TABLE OF CONTENTS
                                   (continued)



                                                                            PAGE
                                                                            ----
                                                                         
   6.1.     Conditions Precedent at Closing Date.........................    46
   6.2.     Conditions Precedent to All Credit Events....................    48

SECTION 7.  REPRESENTATIONS AND WARRANTIES...............................    48

   7.1.     Corporate Status, etc........................................    48
   7.2.     Subsidiaries.................................................    48
   7.3.     Corporate Power and Authority, etc...........................    49
   7.4.     No Violation.................................................    49
   7.5.     Governmental Approvals.......................................    49
   7.6.     Litigation...................................................    49
   7.7.     Use of Proceeds; Margin Regulations..........................    49
   7.8.     Financial Statements, etc....................................    49
   7.9.     No Material Adverse Change...................................    50
   7.10.    Tax Returns and Payments.....................................    50
   7.11.    Title to Properties, etc.....................................    50
   7.12.    Lawful Operations, etc.......................................    50
   7.13.    Environmental Matters........................................    50
   7.14.    Compliance with ERISA........................................    51
   7.15.    Intellectual Property, etc...................................    51
   7.16.    Investment Company Act, etc..................................    51
   7.17.    Existing Indebtedness........................................    51
   7.18.    Burdensome Contracts; Labor Relations........................    52
   7.19.    Security Interests...........................................    52
   7.20.    Public Notes Indenture.......................................    52
   7.21.    True and Complete Disclosure.................................    52
   7.22.    Anti-Terrorism Law Compliance................................    52

SECTION 8.  AFFIRMATIVE COVENANTS........................................    53

   8.1.     Reporting Requirements.......................................    53
   8.2.     Books, Records and Inspections...............................    55
   8.3.     Insurance....................................................    55
   8.4.     Payment of Taxes and Claims..................................    56
   8.5.     Corporate Franchises.........................................    56
   8.6.     Maintenance of Properties....................................    56
   8.7.     Compliance with Statutes, etc................................    56
   8.8.     Compliance with Environmental Laws...........................    57
   8.9.     Fiscal Years, Fiscal Quarters................................    57



                                      -ii-


                                TABLE OF CONTENTS
                                   (continued)



                                                                            PAGE
                                                                            ----
                                                                         
   8.10.    Hedge Agreements, etc........................................    58
   8.11.    Certain Subsidiaries to Join in Subsidiary Guaranty..........    58
   8.12.    Additional Security; Further Assurances......................    58
   8.13.    Casualty and Condemnation....................................    60
   8.14.    Landlord/Mortgagee Waivers; Bailee Letters...................    61
   8.15.    Most Favored Covenant Status.................................    61
   8.16.    Senior Debt..................................................    61

SECTION 9.  NEGATIVE COVENANTS...........................................    61

   9.1.     Changes in Business..........................................    61
   9.2.     Consolidation, Merger, Acquisitions, Asset Sales, etc........    61
   9.3.     Liens........................................................    63
   9.4.     Indebtedness.................................................    64
   9.5.     Advances, Investments, Loans and Guaranty Obligations........    65
   9.6.     Dividends and Other Restricted Payments......................    66
   9.7.     Consolidated Leverage Ratio..................................    66
   9.8.     Cash Flow Coverage Ratio.....................................    67
   9.9.     Limitation on Certain Restrictive Agreements.................    67
   9.10.    Prepayments and Refinancings of Other Debt, etc..............    67
   9.11.    Transactions with Affiliates.................................    68
   9.12.    Plan Terminations, Minimum Funding, etc......................    68
   9.13.    Amendments to Material Agreements............................    68
   9.14.    Anti-Terrorism Laws..........................................    68

SECTION 10. EVENTS OF DEFAULT............................................    68

   10.1.    Events of Default............................................    68
   10.2.    Acceleration, etc............................................    70
   10.3.    Application of Liquidation Proceeds..........................    71

SECTION 11. THE ADMINISTRATIVE AGENT.....................................    71

   11.1.    Appointment..................................................    71
   11.2.    Delegation of Duties.........................................    72
   11.3.    Exculpatory Provisions.......................................    72
   11.4.    Reliance by Administrative Agent.............................    72
   11.5.    Notice of Default............................................    72
   11.6.    Non-Reliance.................................................    73
   11.7.    Indemnification..............................................    73
   11.8.    The Administrative Agent in Individual Capacity..............    73



                                     -iii-


                                TABLE OF CONTENTS
                                   (continued)



                                                                            PAGE
                                                                            ----
                                                                         
   11.9.    Successor Administrative Agent...............................    73
   11.10.   Other Agents.................................................    74
   11.11.   No Reliance on Administrative Agent's Customer Identification
               Program...................................................    74
   11.12.   USA Patriot Act..............................................    74

SECTION 12. MISCELLANEOUS................................................    74

   12.1.    Payment of Expenses etc......................................    74
   12.2.    Right of Setoff..............................................    76
   12.3.    Notices......................................................    76
   12.4.    Benefit of Agreement.........................................    76
   12.5.    No Waiver: Remedies Cumulative...............................    79
   12.6.    Payments Pro Rata; Sharing of Setoffs, etc...................    79
   12.7.    Calculations: Computations...................................    80
   12.8.    Governing Law; Submission to Jurisdiction; Venue; Waiver of
               Jury Trial................................................    80
   12.9.    Counterparts.................................................    81
   12.10.   Effectiveness; Integration...................................    81
   12.11.   Headings Descriptive.........................................    81
   12.12.   Amendment or Waiver..........................................    81
   12.13.   Survival of Indemnities......................................    83
   12.14.   Domicile of Loans............................................    83
   12.15.   Confidentiality..............................................    83
   12.16.   Lender Register..............................................    83
   12.17.   Limitations on Liability of the Letter of Credit Issuers.....    84
   12.18.   General Limitation of Liability..............................    84
   12.19.   No Duty......................................................    84
   12.20.   Lenders and Agent Not Fiduciary to Borrower, etc.............    84
   12.21.   Survival of Representations and Warranties...................    85
   12.22.   Severability.................................................    85
   12.23.   Independence of Covenants....................................    85
   12.24.   Judgment Currency............................................    85
   12.25.   Interest Rate Limitation.....................................    85
   12.26.   USA Patriot Act..............................................    86



                                      -iv-



ANNEX I     - INFORMATION AS TO LENDERS
ANNEX II    - INFORMATION AS TO SUBSIDIARIES
ANNEX III   - DESCRIPTION OF EXISTING INDEBTEDNESS
ANNEX IV    - DESCRIPTION OF EXISTING LIENS
ANNEX V     - DESCRIPTION OF EXISTING ADVANCES, LOANS,
              INVESTMENTS AND GUARANTEES
ANNEX VI    - DESCRIPTION OF LETTERS OF CREDIT DEEMED
              ISSUED UNDER THE CREDIT AGREEMENT
ANNEX VII   - EXISTING HEDGE AGREEMENTS

EXHIBIT A-1 - FORM OF REVOLVING NOTE
EXHIBIT A-2 - FORM OF SWING LINE NOTE

EXHIBIT B-1 - FORM OF NOTICE OF BORROWING
EXHIBIT B-2 - FORM OF NOTICE OF CONVERSION
EXHIBIT B-3 - FORM OF LETTER OF CREDIT REQUEST

EXHIBIT C   - FORM OF ASSIGNMENT AND ASSUMPTION

EXHIBIT D-1 - FORM OF COLLATERAL ASSIGNMENT OF PATENTS
EXHIBIT D-2 - FORM OF COLLATERAL ASSIGNMENT OF TRADEMARKS

EXHIBIT E   - FORM OF PLEDGE AGREEMENT

EXHIBIT F   - FORM OF SECURITY AGREEMENT

EXHIBIT G   - FORM OF SUBSIDIARY GUARANTEE

EXHIBIT H   - FORM OF SECTION 5.4(B)(II) CERTIFICATE

EX-10.46

Exhibit 10.46

November 14, 2005

Partners in Success
17897 Lake Road
Lakewood, OH 44107
Attn: Kenneth Haber

Dear Ken:

I am pleased to offer you the engagement with our Company as defined below. As you well know, we have tremendous challenges ahead as we grow the business and set clear expectations and standards for our organization. I am excited about the contribution I know you will make to our performance.

The following confirms the terms of this engagement:

1.	Your services will be provided to OMG as a consultant through the organization known as Partners in Success, of which you are a principal. You will be engaged as the Interim Chief Financial Officer of the Company reporting to me. As the Interim Chief Financial Officer you will also be a member of our Executive Committee and will have as your key areas of responsibility the essential functions as set forth on the position description attached hereto.
2.	The term of this engagement is November 14, 2005 to June 30, 2006, subject to any mutually agreed extension.
3.	OMG will pay a weekly consulting fee to Partners in Success of $6,730 (“Weekly Fee”) for your full time services. We agree that you may meet your obligations to provide consulting services as you committed to organizations other than OMG prior to the term of this engagement. It is our understanding that these commitments would not exceed on average one day per week through December 31, 2005, and that there are no commitments thereafter. In the event that this engagement is terminated without cause prior to June 30, 2006, the Company shall pay to Partners in Success the Weekly Fee through September 30, 2006. For the purposes hereof, “cause” shall mean (i) the willful and continued failure by you to perform your duties under this engagement, or (ii) illegal conduct or gross

Partners in Success
November 14, 2005
Page 2

	misconduct by you that is injurious to the Company, its operations or its reputation.
4.	All services performed by you in this engagement shall be performed in a professional manner and in keeping with the highest ethical standards. In addition, you shall be subject to and shall adhere to all of the operational policies, rules and regulations established by the Company for its employees’ conduct.
5.	All information about the Company furnished by or on behalf of the Company to you or developed by you in connection with this engagement is “Proprietary Information”. Proprietary Information does not include, however, information which (a) is or becomes generally available to the public other than as a result of a disclosure by you of Proprietary Information, (b) was available to you on a non-confidential basis prior to its disclosure to you by the Company, or (c) becomes available to you on a non-confidential basis after its disclosure to you by the Company from a person who is not bound by an obligation of confidentiality with the Company regarding such Proprietary Information. You agree not to use Proprietary Information for any purpose other than in connection with this engagement and to only disclose the Proprietary Information to others within the Company with a need to know such information in connection with their duties. At the end of the engagement you shall return or destroy (as requested by the Company) all Proprietary Information in your possession or under your control and in whatever form.
6.	You will be acting at all times as an independent contractor. You are not an employee of the Company or any of its affiliated entities. You shall not make any claim of right, privilege or benefit that would accrue to an employee under law. You have no authority to bind the Company unless specifically authorized to do so by either the Board of Directors (or any Committee thereof) or the Chief Executive Officer.
7.	You will be reimbursed for your reasonable and necessary out of pocket expenses incurred by you in the furtherance of this engagement and in keeping with your position as Interim Chief Financial Officer and the expense reimbursement policy of the Company.
8.	The Company intends to commence an executive search for a permanent Chief Financial Officer. You will cooperate with the Company in that search. The Company shall provide you with the opportunity to be considered for the permanent position of Chief Financial Officer. In the event you are offered the permanent position of Chief Financial Officer, this Agreement shall be null and void and of no further force and effect.

Partners in Success
November 14, 2005
Page 3

Please confirm your agreement to accept this engagement by returning one copy of this letter; you may retain one copy for your records. We look forward to working with you.

Sincerely,

Joseph Scaminace
Chief Executive Officer

Agreed to as of this 14th day of November, 2005

                                                                                                    
Kenneth Haber
Partners in Success

EX-10.47

                                                                Exhibit 10.47

                            [LETTERHEAD OF OMG GROUP]

January 27, 2006

Mr. Daniel K. Lewis
356 Cheshire Road
Hudson, OH 44236

Dear Dan:

I am pleased to offer you the position of Vice President, Human Resources,
reporting to me. You will be a member of our Executive Committee and responsible
for the oversight and management of all human resources operations and
activities of the Company. We have tremendous challenges ahead as we grow the
business and set clear expectations and standards for our organization. I am
excited about the contribution I know you will make to our performance.

The following confirms the terms of our offer:

     1.   First year base salary of $265,000, with an annual salary and
          performance review in February each year thereafter starting in 2007.

     2.   Your start date will be February 20, 2006, or as soon thereafter as
          reasonably possible.

     3.   You will participate in our key management short term incentive plan
          under which you will be eligible to receive an annual cash bonus for
          each fiscal year of the company ending during your employment. Under
          the program, the Compensation Committee in consultation with me awards
          bonuses based on individual performance and Company results. The
          target amount of your bonus is 50% of your base salary and is based on
          the level of achievement of established performance goals. Your bonus
          will be paid in accordance with the company's practices for senior
          executives and is typically payable in February of each year. It is
          our understanding that you are expecting to receive a $100,000 bonus
          from Goodyear Tire and Rubber Company, your current employer, for your
          performance in 2005 (the "Expected Bonus"). In the event and to the
          extent that Goodyear does not pay any or all of the Expected Bonus to
          you, OM Group, Inc. will pay you an amount equal to the difference.

     4.   In addition to your salary and bonus, you will be compensated for the
          loss of your pension which is scheduled to vest in May of 2006. In
          consideration for joining OM Group, Inc. prior to that pension vesting
          date, the Company will pay you $62,500 on your start date (as set
          forth above) and $62,500 on February 20, 2007, so long as you are
          still employed by the Company on that date. The Company shall award
          you stock options to purchase 20,000 shares of the Company's common
          stock. Options are priced on the date of grant and will vest 33 1/3%
          per year for each full year of your continuous employment commencing
          on the first anniversary of the date of grant. The date of grant will
          be your start date. Thereafter stock options are typically granted in
          February of each year and you will be eligible to receive additional
          grants (starting in February 2007) in accordance with the Company's
          practices for senior executives.



     5.   You will be eligible to participate in all of the Company's executive
          compensation plans, including any management incentive plans, life
          insurance plans, deferred compensation plans, supplemental retirement
          plans and equity plans, in which senior executives of the Company
          participates.


     6.   We will provide you with a car allowance in the amount of $1,500 per
          month. This allowance is intended to cover all costs, which include
          but are not limited to the purchase or lease price of a vehicle,
          insurance, registration, maintenance, taxes, etc. The allowance will
          be included in your paycheck on the first pay period of each month.

     7.   You are eligible for four (4) weeks of paid vacation and five (5)
          personal days of paid time off immediately.

     8.   You are eligible for participation in the Company's employee benefit
          and welfare plans, including the Company's Profit Sharing and
          Retirement Savings Plan (and any other plans providing for retirement
          benefits), medical, dental, vision, hospitalization, life or
          disability insurance and flexible spending. Enclosed are the
          highlights of our benefit plans.

     9.   You will be reimbursed, in the event and to the extent not otherwise
          paid by your current employer, for your personal travel from Brussels,
          Belgium to Cleveland, Ohio and the move of any incidentals in
          connection therewith up to $10,000.

     10.  We will pay for indoor parking for you at the Company's headquarters.

     11.  We will enter into an agreement relative to change of control with you
          within seven (7) days of your start date. The agreement will be in the
          form approved for all other similarly situated senior executives.

     12.  Within thirty (30) days of your start date, we will enter into an
          agreement relative to severance (one year base and bonus at target) in
          the event of (i) your termination without cause, or (ii) your
          departure from the company as a result of a material change in your
          reporting structure. This severance agreement will be for a term of
          three (3) years and may be renewed at the discretion of the
          Compensation Committee.

Please confirm your agreement to accept this position by returning one copy of
this letter; you may retain one copy for your records. We look forward to your
start date and to working with you.

Sincerely,

Joseph Scaminace
Chief Executive Officer

Agreed to this 30th day of January, 2006

/s/ Daniel K. Lewis
- ----------------------------
Daniel K. Lewis

EX-12

                                                                               .
                                                                               .
                                                                               .

                                                                      Exhibit 12

Computation of Ratio of Earnings to Fixed Charges
(all amounts except ratios are shown in millions)



                                                                  Year Ended December 31,
                                                      ----------------------------------------------
                                                       2005      2004      2003      2002      2001
                                                      ------    ------    ------    -------   ------
                                                                               
Income (loss) from continuing operations before
  income taxes and minority interest                  $ 30.9    $162.3    $(42.7)   $(132.5)  $(14.2)

Less:  Equity in earnings of 50%-or-less owned
  companies                                             (3.2)     (4.5)     (1.1)     (0.5)      0.2

Add:  Fixed charges net of capitalized interest         42.9      39.8      41.1      39.7      35.1

Add: Amortization expense of previously capitalized
   interest                                              1.4       1.4       1.3       1.1       0.4
                                                      ------    ------    ------    -------   ------

Total earnings                                          72.0     199.0      (1.4)    (92.2)     21.5

Fixed charges                                           42.9      39.8      41.5      42.3      40.0

Ratio of earnings to fixed charges                       1.7       5.0       (a)       (a)       (a)


- ----------

(a)   - Earnings were inadequate to cover fixed charges by $42.9 million, $134.5
      million, and $18.5 million in 2003, 2002 and 2001, respectively.

EX-21

                                                                               .
                                                                               .
                                                                               .
                                                                     Exhibit 21




NAME OF SUBSIDIARY                                              JURISDICTION OF ORGANIZATION
- ---------------------------------------------------------       --------------------------------
                                                            
Fidelity Chemical Products Malaysia SDN.BHD                     Malaysia
OM Holdings, Inc.                                               Delaware
OMG Americas, Inc.                                              Ohio
OMG Asia-Pacific Co., Ltd.                                      Taiwan
OMG Belleville, Limited                                         Canada
OMG Europe GmbH                                                 Germany
OMG Fidelity, Inc.                                              Delaware
OMG Finland Oy                                                  Finland
OMG Harjavalta Chemicals Holding BV                             Netherlands
OMG Harjavalta Nickel Oy                                        Finland
OMG Japan, Inc.                                                 Japan
OMG Jett, Inc.                                                  Ohio
OMG Kokkola Chemicals Holding BV                                Netherlands
OMG Kokkola Chemicals Oy                                        Finland
OMG Chemicals Pte, Ltd.                                         Singapore
OMG Thailand Co., Ltd.                                          Thailand
OMG Vasset, S.A.                                                France
Harko CV                                                        Netherlands
Groupement Pour Le Traitement Du teril De Lubumbashi (55%)      Jersey
Societe De Traitement du Terril De Lubumbashi (55%)             Democratic Republic of Congo
OMG Cawse Pty Ltd.                                              Australia
OMG U.K. Limited                                                United Kingdom
OMG KG Holdings, Inc.                                           Delaware

EX-23

                                                                      Exhibit 23


            Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration
Statements of our reports dated February 27, 2006, with respect to the
consolidated financial statements and schedule of OM Group, Inc. and
subsidiaries, management's assessment of the effectiveness of internal control
over financial reporting, and the effectiveness of internal control over
financial reporting of OM Group, Inc. and subsidiaries included in the Annual
Report (Form 10-K) for the year ended December 31, 2005:



Registration
  Statement                      Description                      Filing Date
  ---------                      -----------                      -----------
                                                          
33-74674         OM Group, Inc. Long Term Incentive             January 27, 1995
                 Compensation Plan -- Form S-8 Registration
                 Statement -- 1,015,625 Shares

333-07529        OMG Americas, Inc. Employees' Profit           July 3, 1996
                 Sharing Plan -- Form S-8 Registration
                 Statement -- 250,000 Shares

333-07531        OM Group, Inc. Non-Employee Directors'         July 3, 1996
                 Equity Compensation Plan -- Form S-8
                 Registration Statement -- 250,000 Shares

333-47230        OM Group, Inc. 1998 Long-Term Incentive        October 3, 2000
                 Compensation Plan -- Form S-8 Registration
                 Statement -- 2,000,000 Shares

333-65852        OM Group, Inc. 1998 Long-Term Incentive        July 25, 2001
                 Compensation Plan -- Form S-8 Registration
                 Statement -- 2,000,000 Shares



                                            /s/ Ernst & Young LLP

Cleveland, Ohio
March 6, 2006

EX-24

                                                                      Exhibit 24


                                POWER OF ATTORNEY

      The undersigned director of OM Group, Inc. (the "Company"), a Delaware
corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Company's fiscal
year ended December 31, 2005, hereby constitutes and appoints JOSEPH M.
SCAMINACE, with full power of substitution and resubstitution, as attorney to
sign for the undersigned and in his or her name, place and stead, as director of
said Company, said Annual Report and any and all amendments and exhibits
thereto, and any and all applications and documents to be filed with the
Securities and Exchange Commission pertaining to such Annual Report, with full
power and authority to do and perform any and all acts and things whatsoever
requisite, necessary or advisable to be done in the premises, as fully and for
all intents and purposes as the undersigned could do if personally present,
hereby approving the acts of said attorney and any such substitute.

      IN WITNESS WHEREOF, this Power of Attorney has been signed this 5th day of
March, 2006.


                                                  /s/ Richard W. Blackburn
                                                  ------------------------------
                                                  Richard W. Blackburn

                                POWER OF ATTORNEY

      The undersigned director of OM Group, Inc. (the "Company"), a Delaware
corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Company's fiscal
year ended December 31, 2005, hereby constitutes and appoints JOSEPH M.
SCAMINACE, with full power of substitution and resubstitution, as attorney to
sign for the undersigned and in his or her name, place and stead, as director of
said Company, said Annual Report and any and all amendments and exhibits
thereto, and any and all applications and documents to be filed with the
Securities and Exchange Commission pertaining to such Annual Report, with full
power and authority to do and perform any and all acts and things whatsoever
requisite, necessary or advisable to be done in the premises, as fully and for
all intents and purposes as the undersigned could do if personally present,
hereby approving the acts of said attorney and any such substitute.

      IN WITNESS WHEREOF, this Power of Attorney has been signed this 3rd day of
March, 2006.

                                                  /s/ Steven J. Demetriou
                                                  ------------------------------
                                                  Steven J. Demetriou

                                POWER OF ATTORNEY

      The undersigned director of OM Group, Inc. (the "Company"), a Delaware
corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Company's fiscal
year ended December 31, 2005, hereby constitutes and appoints JOSEPH M.
SCAMINACE, with full power of substitution and resubstitution, as attorney to
sign for the undersigned and in his or her name, place and stead, as director of
said Company, said Annual Report and any and all amendments and exhibits
thereto, and any and all applications and documents to be filed with the
Securities and Exchange Commission pertaining to such Annual Report, with full
power and authority to do and perform any and all acts and things whatsoever
requisite, necessary or advisable to be done in the premises, as fully and for
all intents and purposes as the undersigned could do if personally present,
hereby approving the acts of said attorney and any such substitute.

      IN WITNESS WHEREOF, this Power of Attorney has been signed this 2nd day of
March, 2006.


                                                  /s/ Katharine L. Plourde
                                                  ------------------------------
                                                  Katharine L. Plourde

                                POWER OF ATTORNEY

      The undersigned director of OM Group, Inc. (the "Company"), a Delaware
corporation, which anticipates filing with the Securities and Exchange
Commission, Washington, D.C., under the provisions of the Securities Exchange
Act of 1934, as amended, an Annual Report on Form 10-K for the Company's fiscal
year ended December 31, 2005, hereby constitutes and appoints JOSEPH M.
SCAMINACE, with full power of substitution and resubstitution, as attorney to
sign for the undersigned and in his or her name, place and stead, as director of
said Company, said Annual Report and any and all amendments and exhibits
thereto, and any and all applications and documents to be filed with the
Securities and Exchange Commission pertaining to such Annual Report, with full
power and authority to do and perform any and all acts and things whatsoever
requisite, necessary or advisable to be done in the premises, as fully and for
all intents and purposes as the undersigned could do if personally present,
hereby approving the acts of said attorney and any such substitute.

      IN WITNESS WHEREOF, this Power of Attorney has been signed this 6th day of
March, 2006.


                                                  /s/ William J. Reidy
                                                  ------------------------------
                                                  William J. Reidy

EX-31.1

                                                                    Exhibit 31.1


                                  CERTIFICATION

I, Joseph M. Scaminace, certify that:

      1.    I have reviewed this report on Form 10-K of OM Group, Inc.;

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

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

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

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

            b)    designed such internal control over financial reporting, or
                  caused such internal control over financial reporting to be
                  designed under our supervision, to provide reasonable
                  assurance regarding the reliability of financial reporting and
                  the preparation of financial statements for external purposes
                  in accordance with generally accepted accounting principles;

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

            d)    disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter that has
                  materially affected, or is reasonably likely to materially
                  affect the registrant's internal control over financial
                  reporting; and

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

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

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


Date: March 9, 2006
                                                  /s/ Joseph M. Scaminace
                                                  -------------------------
                                                  Joseph M. Scaminace
                                                  Chairman of the Board and
                                                  Chief Executive Officer

EX-31.2

                                                                    Exhibit 31.2


                                  CERTIFICATION

I, Kenneth Haber, certify that:

      1.    I have reviewed this report on Form 10-K of OM Group, Inc.;

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

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

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

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

            b)    designed such internal control over financial reporting, or
                  caused such internal control over financial reporting to be
                  designed under our supervision, to provide reasonable
                  assurance regarding the reliability of financial reporting and
                  the preparation of financial statements for external purposes
                  in accordance with generally accepted accounting principles;

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

            d)    disclosed in this report any change in the registrant's
                  internal control over financial reporting that occurred during
                  the registrant's most recent fiscal quarter that has
                  materially affected, or is reasonably likely to materially
                  affect the registrant's internal control over financial
                  reporting; and

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

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

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


Date: March 9, 2006
                                                 /s/ Kenneth Haber
                                                 -------------------------------
                                                 Kenneth Haber
                                                 Chief Financial Officer

EX-32

                                                                      Exhibit 32


      CERTIFICATION PURSUANT TO 18 U.S.C. SEC. 1350, AS ADOPTED PURSUANT TO
                   SEC. 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the filing with the Securities and Exchange Commission of the
Annual Report on Form 10-K of OM Group, Inc. (the "Company") for the year ended
December 31, 2005 (the "Report"), each of the undersigned officers of the
Company certifies, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec.
906 of the Sarbanes-Oxley Act of 2002, that:

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

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


Dated: March 9, 2006

                                                 /s/ Joseph M. Scaminace
                                                 -------------------------------
                                                 Joseph M. Scaminace
                                                 Chairman of the Board and
                                                 Chief Executive Officer


                                                 /s/ Kenneth Haber
                                                 -------------------------------
                                                 Kenneth Haber
                                                 Chief Financial Officer