OREGON METALLURGICAL CORP, S-3/A, 1996-08-05

OREGON METALLURGICAL CORP
S-3/A, 1996-08-05
ROLLING DRAWING & EXTRUDING OF NONFERROUS METALS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1996

REGISTRATION NO. 333-06905
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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OREGON METALLURGICAL CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
OREGON 0-1339 93-0448167
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) No.)
</TABLE>

530 34TH AVENUE, S.W. ALBANY, OREGON 97321
(541) 967-9000
(Address, including zip code, and telephone number, including
area code of registrant's principal executive offices)

CARLOS E. AGUIRRE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
530 34TH AVENUE, S.W.
ALBANY, OREGON 97321
(541) 967-9000

(Name, address, including zip code and telephone number, including zip code of
agent for service)
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COPIES TO:

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<S> <C>
CARMEN M. CALZACORTA GREGORY K. MILLER
GREGORY W. MALLORY MALU S. MERCADO
Schwabe, Williamson & Wyatt Latham & Watkins
1211 S.W. Fifth Avenue, Suites 505 Montgomery Street, Suite 1900
1600-1800
Portland, Oregon 97204-3795 San Francisco, California 94111-2562
(503) 222-9981 (telephone) (415) 391-0600 (telephone)
(503) 796-2900 (facsimile) (415) 395-8095 (facsimile)
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable following the effectiveness of this Registration
Statement.
------------------------

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>

SUBJECT TO COMPLETION
AUGUST 5, 1996

PROSPECTUS
3,500,000 SHARES LOGO

OREGON METALLURGICAL CORPORATION

COMMON STOCK
($1.00 PAR VALUE)

All of the shares of common stock, par value $1.00 per share (the "Common
Stock") of Oregon Metallurgical Corporation ("OREMET" or the "Company") offered
hereby, are being issued and sold by the Company.

The Common Stock is quoted on the Nasdaq National Market (the "Nasdaq") under
the symbol "OREM." On August 2, 1996, the last reported sale price of the Common
Stock on the Nasdaq was $25.00 per share.

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF COMMON STOCK
OFFERED HEREBY.

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

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<CAPTION>
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PROCEEDS
PRICE TO UNDERWRITING TO
PUBLIC DISCOUNT COMPANY(1)
<S> <C> <C> <C>
Per Share..................................... $ $ $
Total(2)...................................... $ $ $
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(1) Before deducting offering expenses payable by the Company, estimated to be
approximately $500,000.

(2) The Company has granted to the Underwriters a 30-day option to purchase up
to 525,000 additional shares of Common Stock at the Price to Public, less
the Underwriting Discount, solely to cover over-allotments, if any. If the
Underwriters exercise their option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."

The Common Stock is offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the shares of Common Stock will be made at the
office of Salomon Brothers Inc, Seven World Trade Center, New York, New York, or
through the facilities of The Depository Trust Company, on or about August ,
1996.

SALOMON BROTHERS INC

MERRILL LYNCH & CO.

PACIFIC CREST SECURITIES INC.

The date of this Prospectus is August , 1996.

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The information set forth in this Prospectus under the captions "Prospectus
Summary," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business" includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and is subject to the safe harbor created by that section.
Certain factors that could cause results to differ materially from those
projected in the forward-looking statements are set forth in "Risk Factors" and
"Business."

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following regional offices of the Commission: New York Regional Office, 7 World
Trade Center, New York, New York 10048 and Chicago Regional Office, 1400
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. In addition, the aforementioned material can also be inspected
at the offices of the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006. The Commission also maintains a site on
the World Wide Web at "http:www.sec.gov" that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.

The Company has filed with the Commission a registration statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement, copies of
which are available from the Public Reference Section of the Commission at
prescribed rates as described above. Statements contained herein concerning the
provisions of documents filed with, or incorporated by reference in, the
Registration Statement as exhibits are necessarily summaries of such provisions
and documents and each such statement is qualified in its entirety by reference
to the copy of the applicable document filed with the Commission.

OREMET-REGISTERED TRADEMARK- IS A REGISTERED TRADEMARK OF THE COMPANY.

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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION SET FORTH ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS
ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE CERTAIN RISKS AND
UNCERTAINTIES. ACTUAL RESULTS AND EVENTS MAY DIFFER SIGNIFICANTLY FROM THOSE
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH
RESULTS TO DIFFER INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER THE
HEADING "RISK FACTORS" HEREIN. AS USED IN THIS PROSPECTUS, THE TERM "OFFERING"
MEANS THE OFFERING OF THE COMMON STOCK MADE HEREBY AND THE TERMS "OREMET" OR
"COMPANY" MEAN OREGON METALLURGICAL CORPORATION AND ITS CONSOLIDATED
SUBSIDIARIES, TAKEN AS A WHOLE, UNLESS THE CONTEXT INDICATES OTHERWISE.

THE COMPANY

Oregon Metallurgical Corporation ("OREMET" or the "Company") is one of two
U.S. integrated producers and distributors of titanium sponge, ingot, mill
products and castings for use in the aerospace, industrial, golf and military
markets. The Company's 80% owned subsidiary, Titanium Industries, Inc. ("TI"),
operates full-line titanium metal service centers in the U.S., Canada, U.K. and
Germany and produces small diameter bar, weld wire and fine wire. Since 1993,
the Company has developed new market opportunities for titanium, expanded its
distribution network, increased its production capacity, and improved its
manufacturing efficiency. As a result, management believes that it is
well-positioned to capitalize on improving and emerging markets in the titanium
industry. In 1995, the Company reported net sales of $146.9 million, an
operating loss of $0.3 million and a net loss of $2.4 million. In the first six
months of 1996, the Company reported net sales of $110.1 million, operating
income of $14.5 million and net income of $8.5 million.

Titanium is one of the newest specialty metals, having first been
manufactured for commercial use in the 1950s. Titanium's unique combination of
corrosion resistance, elevated-temperature performance and high
strength-to-weight ratio makes it particularly desirable for use in commercial
and military aerospace applications in which these qualities are essential
design requirements. While aerospace applications have historically accounted
for a substantial portion of the worldwide demand for titanium, the number of
end-use markets for titanium has expanded substantially. Today, numerous
industrial uses for titanium exist, including chemical processing equipment,
industrial power plants, desalination plants and pollution control equipment.
Demand for titanium is also increasing in new uses such as medical implants,
golf clubheads, other sporting equipment, consumer products such as eyeglass
frames and watches, offshore oil and gas production installations, geothermal
facilities and automotive equipment.

The titanium industry suffered a downturn in the early 1990s, as a result of
a sharp decline in military aerospace consumption and a decline in commercial
aircraft build rates. Since 1995, the titanium industry's prospects have been
improving due to a resurgence in commercial aerospace demand, continuing
industrial demand, and the emergence of new uses for titanium, primarily golf
clubheads. The total 1995 U.S. industry mill product shipments, as reported by
the U.S. Department of the Interior U.S. Geological Survey (including its
predecessor agency, the U.S. Bureau of Mines, the "USGS"), were approximately 44
million pounds, an increase of 26% compared to 1994. Mill product shipments in
the first quarter of 1996 totaled approximately 12 million pounds which
represents an increase of 29% over the first quarter of 1995 as reported by the
USGS.

Beginning in 1995, demand for titanium significantly strengthened due
primarily to increased demand from the aerospace market. Historically,
commercial airlines have tended to place new aircraft orders when their
operating profits were improving. In 1995, the domestic commercial airline
industry reported significantly higher operating profits than the prior year,
and in the second half of 1995 aircraft manufacturers began to increase aircraft
build rates. As of March 31, 1996, the estimated firm order backlog for The
Boeing Company, McDonnell Douglas Corporation and Airbus Industries, as reported

3
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by THE AIRLINE MONITOR (an aerospace industry publication), was 1,987 planes
versus 1,699 planes on March 31, 1995, an increase of 17%. In addition, newer
wide body planes, such as the Boeing 777 and the Airbus A-330 and A-340, use
more titanium than narrow body planes.

The use of titanium in golf clubheads emerged in 1995 as a significant new
market for the titanium industry. The Company first began working with Japanese
golf club manufacturing companies in 1992 to develop drivers that used titanium
golf clubheads. Currently, most major golf club manufacturers, including
Callaway, Cleveland, Cobra, Lynx, Taylor Made, Titleist and Tommy Armour, are
marketing a titanium driver. Several of these major manufacturers are now
introducing titanium fairway woods, irons and putters. The Company sells
titanium mill products directly to golf clubhead casting companies who, in turn,
sell their products to major golf club manufacturers. In addition, the Company
works directly with golf club manufacturers in new product development projects.
The Company believes it is the market share leader and is supplying in excess of
50% of the titanium sold to the golf clubhead market. Based on current order
rates, management believes that U.S. mill product shipments to the golf market
will increase from 3.5 million pounds in 1995 to approximately 9 million pounds
in 1996.

The Company's twelve-month order backlog has increased to $141 million at
June 30, 1996 from $64 million at June 30, 1995. OREMET's order backlog is
comprised of firm purchase orders scheduled for delivery during the subsequent
twelve-month period. Beginning in the second half of 1995 and continuing to the
present, the Company has experienced a significant increase in requests for
quotations, as well as increased orders and higher prices on accepted orders. As
a result of the strong demand, the Company has been increasingly selective in
the new orders that it accepts. In addition, the Company delayed opening its
1997 order book until early June 1996 in order to better assess future raw
material costs. The Company estimates that of its sales (excluding sponge) in
1996, approximately 50% will be to the aerospace sector and approximately 20%
will be to the golf club industry. The Company anticipates that future aerospace
industry sales will vary from 40% to 60% of total net sales depending upon
demand and profitability.

- MAINTAIN LEADERSHIP IN NEW MARKET APPLICATIONS AND PRODUCTS

OREMET has developed many new and improved applications for titanium with
or for its customers. Sales for non-aerospace applications have increased
from $12.7 million in 1993 to $79.7 million in 1995. In addition to the
golf market, OREMET has established a major presence in new markets such as
armor for sale to the military and high purity sponge for the electronics
industry. For the aerospace industry, OREMET has developed a unique
production process for titanium aluminides. As a result of these efforts,
the Company has diversified its revenue base while maintaining the
flexibility to respond to changing market conditions.

- BENEFIT FROM VERTICAL INTEGRATION AND SCRAP HANDLING CAPABILITIES

OREMET is one of only two companies in North America which are vertically
integrated in the production of sponge and mill products. The Company is a
large producer of titanium sponge and a large purchaser and processor of
titanium scrap, two key materials used in the manufacture of mill products.
The ability to both produce and purchase sponge or scrap allows the Company
considerable flexibility in optimizing its mix of raw material purchases
and reduces the Company's exposure to raw material price fluctuations. As a
result of this flexibility, the Company is well positioned to control the
costs of producing titanium ingots and mill products.

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- EXPAND SERVICE CENTER BUSINESS

The Company's distribution strategy is to establish new titanium metal
service centers in growth markets throughout the world. The Company's and
TI's eight full-line titanium metal service centers located in the U.S.,
U.K., France, Germany and Canada significantly enhance OREMET's
distribution capabilities. Historically, TI's service centers have reported
results that are more stable and less cyclical than the Company's core
manufacturing business. These service centers also provide OREMET with
timely feedback from a wide range of customers which is useful in
determining new market applications and product development.

- INVEST IN A NEW ELECTRON BEAM FURNACE

The Company intends to use a portion of the net proceeds from the Offering
to build a 20 million pound capacity Electron Beam ("EB") furnace. In
addition to the increased melt capacity, the Company believes that the EB
furnace will replace some of its less efficient melting capacity, lower
production costs, improve flexibility in using various raw materials and
provide a broader range of products. The Company estimates that the EB
furnace will be operational during the first half of 1998.

- IMPROVE FINANCIAL FLEXIBILITY

Management seeks to improve the financial flexibility of the Company by
repaying outstanding indebtedness with net proceeds from the Offering.

The Company was incorporated in Oregon in 1955 and began operations in 1956.
The Company funded its growth internally and through investments by corporate
partners. In December 1987, the Company repurchased its Common Stock from its
major corporate partner and immediately sold shares of its Common Stock to the
newly created Oregon Metallurgical Corporation Employee Stock Ownership Plan
(the "ESOP"). Initially, the ESOP owned approximately 67% of the Company's
outstanding Common Stock. At June 30, 1996, the ESOP's ownership interest was
approximately 14%.

OREMET's executive offices and principal manufacturing facilities are
located at 530 34th Avenue, S.W., Albany, Oregon 97321, and its telephone number
is (541) 967-9000.

RISK FACTORS

See "Risk Factors" beginning on page 7 for a discussion of certain factors
that should be considered by prospective purchasers of the Common Stock.

THE OFFERING

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Common Stock offered.............. 3,500,000 Shares

Common Stock outstanding after the
Offering(1)...................... 14,917,002 Shares

Use of proceeds................... Investment of approximately $32 million in a new EB
furnace, repayment of approximately $27 million of
certain indebtedness, expansion of the Company's
distribution business by approximately $15 million and
the remainder for working capital and general corporate
purposes. See "Use of Proceeds."

Nasdaq National Market symbol..... OREM
</TABLE>

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(1) Excludes at July 30, 1996 approximately 252,000 shares issuable upon
exercise of stock options and approximately 261,000 shares issuable under
the Company's stock compensation plans and stock purchase warrant. Also,
excludes approximately 1,040,000 additional shares reserved for future
issuance under the Company's stock compensation plans. See "Management --
Stock Related Compensation Plans" and "Description of Capital Stock."

5
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SUMMARY SELECTED FINANCIAL DATA

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<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31,
------------------------------------------------ ----------------------------------
1991 1992(1) 1993 1994(2) 1995 1995 1996
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(IN THOUSANDS, EXCEPT EMPLOYEE AND (UNAUDITED)
PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales............................. $ 54,241 $56,785 $ 55,351 $ 71,166 $146,853 $ 65,963 $ 110,069
Income (loss) from operations(3)...... (8,498) (5,934 ) (6,179) (2,494) (256) 2,960 14,528
Income (loss) before cumulative effect
of changes in accounting
principles(1)........................ (4,685) (4,122 ) (4,098) (2,023) (2,415) 988 8,531
Income (loss) per common share before
cumulative effect of changes in
accounting principles................ (.44) (.38 ) (.38) (.18) (.22) .09 .75
Weighted average common shares and
equivalents outstanding.............. 10,603 10,754 10,839 11,001 11,219 11,132 11,418

BALANCE SHEET DATA:
Working capital....................... $ 39,291 $37,296 $ 36,467 $ 49,082 $ 63,769 $ 57,515 $ 82,713
Total assets.......................... 86,520 85,701 83,326 111,972 133,077 125,217 156,152
Long-term debt, including current
maturities........................... 8,250 8,100 4,750 17,177 27,362 23,006 33,353
Shareholders' equity.................. 68,436 68,402 67,065 67,282 65,887 68,392 79,888

OTHER OPERATING DATA:
EBITDA(4)............................. $ (4,306) $(1,352 ) $ (1,426) $ 1,882 $ 3,896 $ 5,071 $ 16,353
Cash flows provided by (used in):
Operating activities................ 961 7,454 841 (4,459) (10,969) (5,778) (4,746)
Investing activities................ (3,165) (11,201 ) (1,974) (2,680) (2,248) (1,162) (1,575)
Financing activities................ (3,592) 2,278 (921) 8,754 12,145 5,829 6,818
-------- -------- -------- -------- -------- ----------------- --------------
Total............................. (5,796) (1,469 ) (2,054) 1,615 (1,072) (1,111) 497
Product shipments (in pounds):
Ingot............................... 4,297 3,447 2,319 3,517 4,418 2,048 3,662
Mill products....................... 2,172 1,892 3,119 3,540 6,910 3,118 4,022
Product sales:
Aerospace........................... $ 39,596 $45,428 $ 42,620 $ 43,254 $ 67,148 $ 25,387 $ 43,240
Non-aerospace....................... 14,645 11,357 12,731 27,912 79,705 40,576 66,829
Active employees at period end........ 354 359 310 482 580 529 657
Order backlog at period end(5)........ $ 33,000 $28,000 $ 18,000 $ 44,000 $105,000 $ 64,000 $ 141,000
</TABLE>

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(1) The cumulative effect of changes in accounting principles reflects the
adoption in 1992 of Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," which resulted in the recognition of
$0.6 million, or $0.05 per share, of income. Simultaneously, the Company
adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" which resulted in the recognition of $0.7 million, or
$0.06 per share, of expense, net of tax benefits of $0.4 million. The
combined effect of adopting SFAS No.'s 109 and 106 was the recognition of
$69, or $0.01 per share, of additional expense.

(2) Includes Titanium Industries, Inc., after its acquisition by the Company on
September 20, 1994.

(3) Operating income (loss) includes restructuring and environmental charges of
$200 in 1992, $2,997 in 1993 and $240 in 1994. A provision for a loss on
long-term agreements of $4,417 was recorded in the fourth quarter of 1995.
See notes 6, 11 and 13 to the Company's Financial Statements.

(4) EBITDA represents income (loss) before cumulative effect of accounting
changes plus income taxes, interest expense, depreciation and amortization.
EBITDA is presented because it is a widely accepted financial indicator of
cash flow and the ability to service debt. EBITDA should not be considered
as an alternative to, or more meaningful than, operating income, net income
or cash flow as an indicator of the Company's performance. EBITDA has been
included because the Company uses it as one means of analyzing its ability
to service its debt, the Company's lenders use it for the purpose of
analyzing the Company's performance with respect to its credit agreements
and the Company understands that it is used by certain investors as one
measure of a company's historical ability to service its debt. Not all
companies calculate EBITDA in the same fashion and therefore EBITDA as
presented may not be comparable to other similiarly titled measures of other
companies.

(5) Order backlog is defined as firm purchase orders scheduled for delivery
during the subsequent twelve-month period (which are generally subject to
cancellation by the customer upon payment of specified charges).

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RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS,
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE RISK FACTORS SET FORTH BELOW
BEFORE MAKING AN INVESTMENT IN THE COMMON STOCK.

CYCLICALITY; DEPENDENCE ON AEROSPACE INDUSTRY

The aerospace industry, both the commercial and military sectors, has
traditionally consumed the majority of titanium products manufactured in the
United States. Sales to the aerospace industry accounted for approximately 46%
of the Company's sales in 1995, compared to 61% in 1994 and 77% in 1993.

The aerospace industry has been characterized by severe cyclicality, which
has had a significant impact on the sales and profitability of titanium
producers, including OREMET. The last cyclical peak for the titanium industry
occurred in the 1988-1990 period, when domestic industry mill product shipments
averaged over 50 million pounds per year. In 1991, U.S. titanium industry mill
product shipments declined by approximately 35% to 34 million pounds. This
decline was primarily due to lower demand resulting from a slump in commercial
aerospace and the curtailment or cancellation of military programs as the Cold
War ended. The Company has historically experienced a high level of order
cancellation and deferrals in periods of industry downturn. The cyclicality of
the commercial and military aerospace industry has had and may continue to have
a material adverse effect on the Company, its financial condition or its
prospects. See "Business -- Industry Overview" and "Business -- Products." In
1995, most major U.S. commercial airline carriers reported stronger operating
profits and, in the second half of 1995, aircraft manufacturers began to
increase aircraft build rates. The Company can give no assurance as to the
extent or duration of any recovery in the aerospace market or the extent to
which such recovery will result in increases in demand for titanium products.

UNCERTAINTY OF EMERGING GOLF MARKET

The Company believes that the market for golf clubheads has grown to be the
second largest consumer of titanium, after the commercial aerospace market. The
Company estimates that the use of titanium has grown from 1.5 million pounds in
1994 to approximately 9 million pounds in 1996. The market for the Company's
products sold to golf clubhead producers has only recently begun to emerge as a
significant component of the Company's net sales, and there can be no assurance
that demand for titanium products used in the golf industry or the Company's
products in particular, will continue or that this market will expand as the
Company anticipates. In addition, the Company's major competitors in the
titanium industry have recently begun to supply the golf clubhead market and
there is no assurance that the Company will be able to maintain its leading
market share. See "Business -- Industry Overview" and "Business -- Products."

HISTORY OF LOSSES

During the past five years, when the titanium industry was in a severe
downturn, the Company incurred net losses of $4.7 million, $4.2 million, $4.1
million, $2.0 million and $2.4 million in 1991, 1992, 1993, 1994 and 1995,
respectively. For the years 1993 through 1995, the Company's aggregate net
losses were $8.5 million, and the combined losses of the Company and the other
major titanium producers for whom data are publicly available (RMI Titanium
Company ("RMI"), IMI plc, and Titanium Metals Corporation) were $181.3 million.
Although the Company operated profitably in the first six months of 1996,
continuing profitable operations will depend on continued strength in orders
from the aerospace, golf and other markets, favorable pricing and the Company's
ability to control its raw material and other costs. See "Business -- The
Company," "Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Results of Operations."

HIGHLY COMPETITIVE INDUSTRY; SUBSTANTIAL EXCESS PRODUCTION CAPACITY

The titanium industry is highly competitive on a worldwide basis as a result
of many factors, particularly the presence of excess capacity, which has
intensified price competition for available

7
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business. Integrated and non-integrated producers of mill products are located
primarily in the U.S., Japan, Russia, Europe and China (the Company considers an
integrated producer one that produces at least titanium sponge and ingot). The
Company is one of two integrated producers in the U.S. and one of four in the
world. There are also a number of non-integrated producers that produce mill
products from purchased sponge, scrap or ingot. Furthermore, the Company
believes that approximately 50% of the world's titanium sponge production
capacity is located in the Former Soviet Union ("FSU"). This capacity was
developed to serve the needs of the Soviet military, principally the aerospace
and submarine services, both of which have been sharply curtailed. As a result,
significant unused production capacity, beyond that which is now supplying the
FSU's export markets (including sales to the Company), may exist in this region.

In the U.S. market, the increasing presence of non-U.S. participants has
become a significant competitive factor. Until 1993, imports of foreign titanium
products into the U.S. had not been significant due to relatively favorable
currency exchange rates, tariffs, and with respect to Japan and Russia, existing
and prior duties (including anti-dumping duties). However, imports of titanium
sponge, scrap, and other products, principally from the FSU, have increased in
recent years and have had a significant competitive impact on the U.S. titanium
industry. To the extent the Company has been able to take advantage of this
situation by purchasing such sponge, scrap or intermediate mill products for use
in its own operations during the last three years, the negative effect of these
imports on the Company has been somewhat diminished. Given the current political
and economic uncertainties in some of the countries of the FSU, there can be no
assurance that this supply of titanium products will continue to be available to
the Company without interruption or at attractive prices. See "Business -- Raw
Materials."

As the participation of non-U.S. companies increases, the competitive
environment for the Company may become more difficult, especially if existing
tariffs are eased and certain market participants are no longer subject to
anti-dumping duties. Currently, imports of titanium sponge, ingot and mill
products from countries that receive the most favored nation ("MFN") tariff rate
are subject to a 15% tariff. In addition to regular tariffs, imports of titanium
sponge from certain countries in the FSU (Russia, Kazakhstan and Ukraine) are
presently subject to anti-dumping duties of 84%. If these anti-dumping duties
are eased or removed with respect to imports from some of these countries,
substantial additional capacity could enter the market and if the demand for the
industry's products is less than its capacity, the profitability of the
industry, including the Company, could be adversely affected. See "Business --
Competition."

SIGNIFICANT INVESTMENT IN ELECTRON BEAM FURNACE

The Company intends to use a substantial portion (approximately $32 million)
of the net proceeds of the Offering to construct a new EB furnace to enhance its
melting capacity. The Company may experience design and start-up difficulties,
such as cost overruns, operational difficulties, and significant delays. Axel
Johnson Metals, Inc. ("AJM") is the only company which has successfully applied
the electron beam technology to titanium production in commercial quantities.
Although the President of the Company was actively involved in this technology
while he was employed by AJM, there can be no assurance that the Company can
successfully implement this technology into its operations without the
assistance of AJM or its 50% subsidiary, Titanium Hearth Technologies ("THT").
No such arrangement has been agreed upon and if either of their assistance does
not become available on an economic basis, the time required to bring the
additional capacity on-line, on a fully operational basis, may extend beyond the
eighteen-month period estimated by the Company and impair or eliminate any
benefit from the investment. In addition, if the Company implements new
technology, there is no assurance that such technology will work or will not
result in delays or difficulties. See "Business -- Electron Beam Furnace" and
"Business -- Products."

The Company may evaluate an investment in a joint venture as an alternative
to constructing an EB furnace. If the Company invests in a joint venture to
build an EB furnace, in addition to the risks

8
<PAGE>

described above, it may not have a controlling interest in such venture and its
employees may not operate the EB furnace. As a result, it may be unable to
influence future investment or strategic decisions relating to the EB furnace.
See "Business -- Electron Beam Furnace."

All North American EB furnaces producing titanium in commercial quantities
are owned by AJM and THT. The Company believes that these furnaces are running
at near capacity. In addition to the Company's plans to invest in EB furnace
technology, additional EB furnaces may be built and may result in excess
capacity. Such an event could have a material adverse effect on the Company, its
financial condition or its prospects.

DEPENDENCE ON ESSENTIAL MACHINERY AND EQUIPMENT

The Company's manufacturing processes are dependent on the reliable
operation of its machinery and equipment. The Company's sponge production and
ingot melting facilities have been operating at near practical capacity for the
last three quarters. The Company has certain critical pieces of machinery and
equipment which may require significant lead times to complete necessary repairs
or replacements and the functions of which may not be easily replaced by an
outside converter. Additionally, given the Company's belief that all other
titanium manufacturers are currently operating at or near production capacity,
there can be no assurance that the Company could locate an outside converter
that has sufficient available capacity to enable the Company to meet its
production demands in a timely manner, or that an agreement could be reached
with any such outside converter on commercially acceptable terms. Any such event
could result in a disruption in the Company's production or distribution which
could have a material adverse effect on the Company, its financial condition or
its prospects. Additionally, although the Company maintains business
interruption insurance to reduce the potential effect of any such loss, a
natural disaster or other catastrophic event occurring at its Albany
manufacturing facilities could have a material adverse effect on the Company,
its financial condition or its prospects. See "Business -- Products."

DEPENDENCE ON LIMITED SUPPLY OF TITANIUM TETRACHLORIDE

The Company purchases all of its titanium tetrachloride, the primary
ingredient in the manufacture of titanium sponge, from SCM Chemicals, Inc.
("SCM") under an exclusive long-term supply contract that expires in 2001.
Although SCM is now the only significant supplier to the Company of titanium
tetrachloride, the Company believes alternative sources of titanium
tetrachloride may be available, if needed, but at a potentially higher cost. Any
extended disruption in the supply from SCM could have a material adverse effect
on the Company's ability to produce titanium sponge and could have a material
adverse effect on the Company, its financial condition or its prospects. See
"Business -- Raw Materials."

DEPENDENCE ON OTHERS FOR CERTAIN RAW MATERIAL AND SERVICES

While the Company is one of seven major worldwide producers of titanium
sponge, a basic raw material in the production of titanium ingot and mill
products, under current market conditions it cannot supply all of its needs for
titanium sponge internally and is dependent, therefore, on third parties for a
portion of its titanium sponge needs. The Company estimates it will purchase
approximately 42% of its sponge requirements from third parties during 1996. The
Company obtains sponge from domestic and foreign producers of sponge, both on a
spot purchase basis and pursuant to short-term sponge contracts. There can be no
assurance that the Company will not experience interruptions in its sponge
supplies, which could have a material adverse effect on the Company, its
financial condition or its prospects. See "Business -- Raw Materials."

9
<PAGE>

party has given the other not less than six months' notice of its desire not to
renew such term. OREMET and other THT customers have received notice from THT
that it will not renew on the present terms, but that THT intends to negotiate
new supply contracts. Should a renewal of the THT service agreement not be
renegotiated on commercially acceptable terms, OREMET would attempt to obtain
these services from another competitor which has a cold hearth melting furnace.
OREMET believes that the loss of the services provided by THT would result in
production delays and have an adverse effect on the Company, its financial
condition or its prospects. See "Business -- Products."

ABILITY TO RECOVER RAW MATERIAL COST INCREASES

The Company is a major recycler of titanium scrap. Where possible, the
Company utilizes titanium scrap as a cost-effective alternative to titanium
sponge; both materials are used as primary ingredients in the manufacture of
ingots. Much of the titanium scrap which is purchased by the Company originates
from within the FSU. Additionally, the Company purchases low priced titanium
sponge from the FSU. Historically, the Company has sought to recover increases
in titanium scrap and sponge prices through price increases of its products. The
Company has recently added raw material surcharges in order to more directly
link changes in raw material costs to its contracts. Any increases in titanium
scrap and sponge prices which are not offset by increases in the Company's sales
price could have a material adverse effect on the Company, its financial
condition or its prospects. See "Business -- Raw Materials."

NO ASSURANCE OF NEW PRODUCT DEVELOPMENT

In an effort to lessen the titanium industry's dependence on the aerospace
industry and to increase participation in other markets, the Company, its
competitors and certain end-users of titanium are devoting significant efforts
and resources to developing new markets and applications for titanium, certain
of which are still in the preliminary stages. Developing these emerging
applications involves substantial risk and uncertainties due to the fact that
titanium must compete with less expensive materials in these potential
applications. There can be no assurance that the Company will be able to develop
new markets and applications for its products, or as to the time required for
such development, or as to the extent to which it will face competition in this
regard. If the Company is unable to develop these markets to a substantial
degree, management expects that the Company's business would be largely
dependent on the cyclical aerospace industry and the emerging golf market. See
"Business -- Markets."

ENVIRONMENTAL REGULATION

The risk of environmental contamination is ever-present in the Company's
operations. The Company uses and produces substantial quantities of substances,
chemicals and compounds that have been identified as hazardous or toxic under
federal, state and local environmental and worker safety and health laws and
regulations. In addition, at its Albany, Oregon facility, the Company uses
substantial quantities of titanium tetrachloride, which is classified as
extremely hazardous under federal environmental laws. The Company has used such
substances and compounds throughout its history and has undertaken some
remediation to alleviate concerns over past releases or disposal practices.
While the Company takes environmental, safety and health precautions appropriate
for the industry, the Company's operations pose an ongoing risk of accidental
releases of, and worker exposure to, hazardous or toxic substances. In addition,
the Company is subject to a wide range of government environmental requirements,
including the extensive regulation of air and water emissions and waste
management. Environmental regulation or its enforcement may become more
stringent in the future. The Company is also subject to certain consent orders
relating to environmental remedial action. There can be no assurance that the
Company will not face costs and liabilities as a result of environmental
regulation which could have a material adverse effect on the Company, its
financial condition or its prospects. See "Business -- Regulatory and
Environmental Matters."

LABOR; REOPENING OF LABOR CONTRACTS

As of June 30, 1996, all of the hourly production and maintenance workers
(approximately 390) at the Albany, Oregon and Frackville, Pennsylvania
manufacturing facilities of the Company were

10
<PAGE>

represented by labor unions. In August 1994, the Company and the union
representing the Albany, Oregon employees agreed upon a new labor contract which
will continue through July 2000. This contract can be reopened by either party
after three years to address economic issues. The contract covering the
Frackville, Pennsylvania employees was negotiated in September 1994 and will
continue for three years. There can be no assurance that the collective
bargaining agreement for the Company's Albany facility will not be reopened or
that the agreements entered into following the expiration of the existing
agreements will not have a material adverse effect on the Company, its financial
condition or its prospects. See "Business -- Employee Relations."

DILUTION

Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution of, and present shareholders will receive a substantial
increase in, the book value of their shares of Common Stock. After the sale of
the Common Stock offered hereby, authorized but unissued shares of Common Stock
may be issued as authorized from time to time by the Company's Board of
Directors without further action by its shareholders. See "Dilution."

ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS

Certain provisions of the Company's Articles of Incorporation, as restated
and amended, and Oregon law could discourage potential acquisition proposals and
could delay or prevent a change in control of OREMET. In the election of
directors, each shareholder has cumulative voting rights and is therefore
entitled to cast a number of votes equal to the number of shares held by the
shareholder multiplied by the number of directors to be elected. These votes may
all be cast for a single nominee or distributed in any proportion among any
number of nominees. See "Description of Capital Stock -- Voting" and
"Description of Capital Stock -- Certain Provisions of Oregon Law." The
Company's Articles of Incorporation provide that in the event that less than 25%
of the outstanding Common Stock of the Company is held by the ESOP and/or the
401(k) Plan, management's nominees to the Board of Directors must include (i)
one person selected by the union employees and (ii) one person selected by the
non-union employees of OREMET. Furthermore, certain provisions of Oregon law
regulate certain transactions between the Company and certain holders of Common
Stock.

VOLATILITY OF STOCK PRICE AND SHARES ELIGIBLE FOR FUTURE SALE

There have been periods of high volatility in the stock markets, which in
many cases were unrelated to the operating performance of, or announcements
concerning, the issuers of the affected stock. The Common Stock has recently
been traded at a high volume and the prices for the Common Stock have increased
significantly since the beginning of 1996. General market price declines, market
volatility and factors related to the general economy or the Company in the
future could adversely affect the price of the Common Stock. In addition, the
ESOP was recently amended to allow participants to diversify or withdraw a
greater percentage of Common Stock from their accounts from 40%, in 15% monthly
increments, up to a maximum of 85% as of July 30, 1996. As of June 30, 1996, the
ESOP trust held for its approximately 300 ESOP participants, 1,552,043 shares of
Common Stock, approximately 688,000 shares of which are available on or after
July 30, 1996 for withdrawal or diversification at the discretion of the
participant. See "Price Range of Common Stock and Dividend Policy."

11
<PAGE>
USE OF PROCEEDS

The net proceeds to the Company from the sale of the Common Stock being
offered hereby are estimated at approximately $82.6 million ($95.1 million if
the Underwriters' over-allotment option is exercised in full) based on the last
reported sale price of $25.00 per share of Common Stock on Nasdaq on August 2,
1996. The Company intends to use approximately $32 million for the construction,
equipment and facility costs for a new EB furnace and related upgrade of scrap
reprocessing facilities, approximately $27 million to repay all outstanding
indebtedness under the Company's U.S. credit facility and approximately $15
million for the expansion of the Company's distribution business through the
opening or acquisition of service centers in new markets. Any excess proceeds
are anticipated to be used for working capital and general corporate purposes.
In addition, the Company intends to seek acquisitions which would further expand
its business. Until applied for the foregoing purposes, net proceeds will be
invested in short-term investments.

The Company intends to construct a new 20 million pound capacity EB furnace.
The construction and production ramp-up periods are expected to take
approximately 18 months with the design phase commencing in third quarter 1996,
the procurement phase commencing in fourth quarter 1996 and construction
commencing in second quarter 1997. In addition to the increased melt capacity,
the Company believes that the EB furnace will replace some of its less efficient
melting capacity, lower production costs, improve flexibility in using various
types of raw materials and provide a broader range of products. As alternatives
to constructing a new EB furnace, the Company generally evaluated the
possibility of investing in a joint venture and/or partnering to obtain access
to EB technology. Although the Company intends to construct the EB furnace, the
Company may further evaluate an investment in a joint venture if financially
feasible. See "Business -- Electron Beam Furnace" and "Risk Factors."

Borrowings under the Company's U.S. credit facility bear interest at a
weighted average interest rate of 8.465% (as of June 30, 1996). The Company has
the option to borrow under this facility at either the bank's reference rate
plus 1.5% or LIBOR plus 2.5%. The facility matures in September 1997 and has
recently been amended to, among other things, increase the borrowing
availability under the facility to a maximum of $35 million and to increase the
annual capital expenditure limit. Upon completion of the Offering, the Company
intends to enter into a new $50 million U.S. credit facility.

12
<PAGE>

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company at June 30, 1996 and as adjusted for the sale by the Company of
3,500,000 shares of Common Stock (assuming no exercise of the Underwriters'
over-allotment option) and to reflect (i) receipt by the Company of the
estimated net proceeds from the Offering (assuming a public offering price of
$25.00 per share for the Common Stock and after deduction of estimated expenses
and underwriting discounts) and (ii) application of a portion of the estimated
net proceeds to repay borrowings as discussed herein under "Use of Proceeds."
This table should be read in conjunction with the Company's Consolidated
Financial Statements and the discussion under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" related thereto,
included elsewhere herein.

<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------
ACTUAL AS ADJUSTED(1)
----------- ---------------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Short-term debt (including current portion of long-term debt)................... $ 2,250 $ 2,250
----------- ---------------
Long-term debt (less current portion):
U.S. revolving credit agreement............................................... 26,121 --
Subordinated loan from Kamyr, Inc............................................. 3,850 3,850
Obligations under capital leases.............................................. 979 979
County Industrial Development Authority loan.................................. 153 153
----------- ---------------
Total long-term debt........................................................ 31,103 4,982
----------- ---------------
Total debt.................................................................. 33,353 7,232
----------- ---------------
Shareholders' equity:
Common stock, $1.00 par value; shares authorized, 25,000; shares issued and
outstanding, 11,417; 14,917 shares issued and outstanding as adjusted(2)..... 11,417 14,917
Additional paid-in capital.................................................... 43,409 122,534
Retained earnings............................................................. 25,076 25,076
Cumulative foreign currency translation adjustment............................ (14) (14)
----------- ---------------
Total shareholders' equity.................................................. 79,888 162,513
----------- ---------------
Total capitalization........................................................ $ 113,241 $ 169,745
----------- ---------------
----------- ---------------
</TABLE>

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

(1) If the Underwriters' over-allotment option is exercised in full, additional
paid-in capital, total shareholders' equity and total capitalization, as
adjusted, would be $134,478, $174,982 and $182,214, respectively.

(2) Does not include approximately 252 shares issuable upon exercise of stock
options and approximately 237 shares issuable pursuant to the Company's
stock compensation plans and the stock purchase warrant. Also, excludes
approximately 1,063 additional shares reserved for future issuance under
the Company's stock compensation plans. See "Management -- Stock Related
Compensation Plans" and "Description of Capital Stock."

13
<PAGE>
DILUTION

At June 30, 1996, the Company had net tangible book value of $78.7 million,
or $6.89 per share of Common Stock (based on 11,416,757 shares outstanding).
Assuming that the 3,500,000 shares of Common Stock offered hereby had been sold
at June 30, 1996 at a price of $25.00 per share (the last reported sale price of
the Common Stock on the Nasdaq on August 2, 1996), the Company's net tangible
book value would have been $161.3 million or $10.81 per share of Common Stock.
This represents an immediate dilution of $14.19 per share to new investors
purchasing Common Stock. Net tangible book value per share is determined by
dividing the difference between tangible assets and liabilities by the number of
shares of Common Stock outstanding. The following table illustrates the per
share dilution:

<TABLE>
<S> <C> <C>
Assumed public offering price per share ..................................... $ 25.00
Net tangible book value per share at June 30, 1996................ $ 6.89
Increase in net tangible book value per share after the Common
Stock offered hereby is sold..................................... 3.92
---------
Pro forma net tangible book value per share after the Common Stock
offered hereby is sold ..................................................... 10.81
---------
Dilution per share to new investors ......................................... $ 14.19
---------
---------
</TABLE>

If the Underwriters were to exercise in full their over-allotment option,
the Company's pro forma net tangible book value, assuming the sale of Common
Stock offered hereby, would have been $11.25 per share of Common Stock, which
would result in dilution to new investors of $13.75 per share.

The following table summarizes, on a pro forma basis as of June 30, 1996,
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid (before deducting the underwriting
discounts and estimated offering expenses), and the average price per share paid
by the existing shareholders and by the investors purchasing shares of Common
Stock in the Offering (based upon a public offering price of $25.00 per share):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ ------------------------ AVERAGE PRICE
PERCENT PERCENT PER SHARE
NUMBER ----------- AMOUNT ----------- --------------
----------- -----------
(000) (000)
<S> <C> <C> <C> <C> <C>
Existing shareholders....................... 11,417 76.5% $ 54,826 38.5% $ 4.80
New investors............................... 3,500 23.5% 87,500 61.5% $ 25.00
----------- ----- ----------- -----
Total................................... 14,917 100.0% $ 142,326 100.0%
----------- ----- ----------- -----
----------- ----- ----------- -----
</TABLE>

The foregoing tables assume no exercise of any outstanding stock options or
warrants to purchase Common Stock after June 30, 1996. As of June 30, 1996,
there were approximately 252,000 shares of Common Stock issuable under the
Company's stock option plan at a weighted average exercise price of $30.25 per
share, and 237,487 shares of Common Stock issuable pursuant to the Company's
stock compensation plans and the stock purchase warrant at a weighted average
exercise price of approximately $14.70 per share. The tables do not include
approximately 1,063,459 shares of Common Stock reserved for future issuance
under the Company's stock compensation plans. To the extent that these
outstanding options and warrants are exercised, the dilution would be $13.39 per
share to new investors. See "Management -- Stock Related Compensation Plans" and
note 10 to the Company's Consolidated Financial Statements.

14
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Common Stock is traded on the Nasdaq under the symbol "OREM." The
following table sets forth, for each of the quarterly periods indicated, the
high and low sale prices for the Common Stock as reported on the Nasdaq.

<TABLE>
<CAPTION>
YEAR HIGH LOW
- ------------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
1994
First Quarter............................................................... $ 6.750 $ 4.750
Second Quarter.............................................................. 6.375 4.375
Third Quarter............................................................... 6.250 5.250
Fourth Quarter.............................................................. 8.375 5.625
1995
First Quarter............................................................... $ 8.250 $ 6.000
Second Quarter.............................................................. 9.625 6.563
Third Quarter............................................................... 13.500 9.375
Fourth Quarter.............................................................. 12.500 9.125
1996
First Quarter............................................................... $ 22.125 $ 11.000
Second Quarter.............................................................. 35.000 17.625
Third Quarter (through August 2, 1996)...................................... 30.500 23.625
</TABLE>

On June 30, 1996 there were 11,416,757 shares of the Common Stock
outstanding, of which 1,552,043 shares (approximately 14% of the total
outstanding shares) were held of record by the Company's ESOP for the benefit of
its participants. As of June 30, 1996, there were 2,007 shareholders of record.

A recent last reported sale price of the Common Stock on the Nasdaq is set
forth on the cover page of this Prospectus.

The Company has not paid dividends on its Common Stock since 1991. The
declaration of dividends is at the discretion of the Board of Directors of the
Company. Under the terms of the Company's U.S. credit facility, annual cash
dividends are limited to the lesser of 50% of net income or $1.8 million per
year. Upon completion of the Offering, the Company intends to enter into a new
U.S. credit facility.

15
<PAGE>
SELECTED FINANCIAL DATA

The selected financial data for each of the years in the five-year period
ended December 31, 1995 have been derived from the audited consolidated
financial statements of the Company, and the selected financial data for the
six-month periods ended June 30, 1995 and 1996 have been derived from the
unaudited consolidated financial statements of the Company. The Company's
categories of sales, shipments and employee data have been derived from the
Company's reports. The Company uses a fiscal year ending on December 31 of each
year.

The following selected financial data should be read in conjunction with
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company (including in each case the notes thereto) included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED
DECEMBER 31, JUNE 30,
-------------------------------------------------- ------------------
1991 1992 1993 1994(1) 1995 1995 1996
------- -------- ------- -------- ------------ ------- ---------
(IN THOUSANDS, EXCEPT EMPLOYEE AND (UNAUDITED)
PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Sponge.......................................... $ 6,452 $ 22,412 $19,391 $ 12,360 $ 10,558 $ 4,175 $ 7,824
Ingot........................................... 20,686 14,955 9,963 14,992 22,315 9,629 21,652
Mill products................................... 17,221 13,268 19,860 22,752 46,839 19,870 38,340
Castings........................................ 6,480 4,890 4,473 6,442 7,225 3,009 4,682
Distribution.................................... -- -- -- 11,517 54,455 26,673 34,689
Other........................................... 3,402 1,260 1,664 3,103 5,461 2,607 2,882
------- -------- ------- -------- ------------ ------- ---------
Total net sales............................... 54,241 56,785 55,351 71,166 146,853 65,963 110,069
Cost of sales..................................... 57,432 57,352 52,636 64,527 131,002(2) 55,340 85,440
------- -------- ------- -------- ------------ ------- ---------
Gross profit (loss)............................. (3,191) (567) 2,715 6,639 15,851 10,623 24,629
Research, technical and product development
expenses......................................... 353 750 773 1,376 1,595 719 943
Selling, general and administrative expenses...... 4,954 4,417 5,124 7,517 14,512 6,944 9,158
Provisions for environmental costs(3)............. -- 200 970 240 -- -- --
Restructuring costs(4)............................ -- -- 2,027 -- -- -- --
------- -------- ------- -------- ------------ ------- ---------
Income (loss) from operations................... (8,498) (5,934) (6,179) (2,494) (256) 2,960 14,528
Interest income................................... 1,191 847 816 391 -- -- --
Interest expense.................................. (477) (689) (532) (606) (2,104) (1,040) (1,335)
Minority interests(1)............................. -- -- -- (29) (480) (218) (470)
------- -------- ------- -------- ------------ ------- ---------
Income (loss) before income taxes and cumulative
effect of changes in accounting principles..... (7,784) (5,776) (5,895) (2,738) (2,840) 1,702 12,723
Income tax benefit (expense)...................... 3,099 1,654 1,797 715 425(5) (714) (4,192)(5)
------- -------- ------- -------- ------------ ------- ---------
Income (loss) before cumulative effect of
changes in accounting principles............... (4,685) (4,122) (4,098) (2,023) (2,415) 988 8,531
Cumulative effect of changes in accounting
principles....................................... -- (69 (6) -- -- -- -- --
------- -------- ------- -------- ------------ ------- ---------
Net income (loss)............................... $(4,685) $ (4,191) $(4,098) $ (2,023) $ (2,415) $ 988 $ 8,531
------- -------- ------- -------- ------------ ------- ---------
------- -------- ------- -------- ------------ ------- ---------
Per common share:
Income (loss) before cumulative effect of
changes in accounting principles............... $ (.44) $ (.38) $ (.38) $ (.18) $ (.22) $ .09 $ .75
------- -------- ------- -------- ------------ ------- ---------
------- -------- ------- -------- ------------ ------- ---------
Weighted average common shares and equivalents
outstanding...................................... 10,603 10,754 10,839 11,001 11,219 11,132 11,418
</TABLE>

16
<PAGE>

OTHER OPERATING DATA:
EBITDA(7)......................................... $(4,306) $ (1,352) $(1,426) $ 1,882 $ 3,896 $ 5,071 $ 16,353
Cash flows provided by (used in):
Operating activities............................ 961 7,454 841 (4,459) (10,969) (5,778) (4,746)
Investing activities............................ (3,165) (11,201) (1,974) (2,680) (2,248) (1,162) (1,575)
Financing activities............................ (3,592) 2,278 (921) 8,754 12,145 5,829 6,818
------- -------- ------- -------- ------------ ------- ---------
Total......................................... (5,796) (1,469) (2,054) 1,615 (1,072) (1,111) 497
Product shipments (in pounds):
Ingot........................................... 4,297 3,447 2,319 3,517 4,418 2,048 3,662
Mill products................................... 2,172 1,892 3,119 3,540 6,910 3,118 4,022
Product sales:
Aerospace....................................... $39,596 $ 45,428 $42,620 $ 43,254 $ 67,148 $25,387 $ 43,240
Non-aerospace................................... 14,645 11,357 12,731 27,912 79,705 40,576 66,829
Active employees at period end.................... 354 359 310 482 580 529 657
Order backlog at period end(8).................... $33,000 $ 28,000 $18,000 $ 44,000 $ 105,000 $64,000 $ 141,000
</TABLE>

- ---------------
(1) Includes Titanium Industries, Inc., after its acquisition by the Company on
September 20, 1994. Minority interests represent the minority shareholder's
20% interest in the net income of TI.

(2) A provision for a loss on long-term agreements of $4,417 was recorded in the
fourth quarter of 1995. See note 6 to the Company's Consolidated Financial
Statements.

(3) See note 11 to the Company's Consolidated Financial Statements.

(4) See note 13 to the Company's Consolidated Financial Statements.

(5) The Company reported a provision for income taxes of $4.2 million, or an
effective tax rate of 32% (on income before income taxes and minority
interests) for the first six months of 1996. The difference between the
federal and state combined statutory tax rate of 39.5% and the effective tax
rate of 32% for the first six months of 1996 was primarily due to a change
in the Company's deferred tax asset valuation allowance, reflecting the
belief that it is more likely than not that the deferred tax assets will be
realized by the Company. The Company's 1995 effective tax benefit rate on
the net loss before income tax benefit and minority interests was 18%. The
Company's income tax rate varied from the normally expected statutory rate
because the valuation allowance was established for certain deferred tax
assets.

(6) The cumulative effect of changes in accounting principles reflects the
adoption of SFAS No. 109, "Accounting for Income Taxes," which resulted in
the recognition of $0.6 million, or $0.05 per share, of income.
Simultaneously, the Company adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" which resulted in the
recognition of $0.7 million, or $0.06 per share, of expense, net of tax
benefits of $0.4 million. The combined effect of adopting SFAS No.'s 109 and
106 was the recognition of $69, or $0.01 per share, of additional expense.

(7) EBITDA represents income (loss) before cumulative effect of accounting
changes plus income taxes, interest expense, depreciation and amortization.
EBITDA is presented because it is a widely accepted financial indicator of
cash flow and the ability to service debt. EBITDA should not be considered
as an alternative to, or more meaningful than, operating income, net income
or cash flow as an indicator of the Company's performance. EBITDA has been
included because the Company uses it as one means of analyzing its ability
to service its debt, the Company's lenders use it for the purpose of
analyzing the Company's performance with respect to its credit agreements
and the Company understands that it is used by certain investors as one
measure of a company's historical ability to service its debt. Not all
companies calculate EBITDA in the same fashion and therefore EBITDA as
presented may not be comparable to other similiarly titled measures of other
companies.

(8) Order backlog is defined as firm purchase orders scheduled for delivery
during the subsequent twelve-month period (which are generally subject to
cancellation by the customer upon payment of specified charges).

17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH "SELECTED
FINANCIAL DATA" AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO OF
THE COMPANY. THE FOLLOWING INFORMATION CONTAINS FORWARD-LOOKING STATEMENTS WHICH
INVOLVE CERTAIN RISKS AND UNCERTAINTIES. ACTUAL RESULTS AND EVENTS MAY DIFFER
SIGNIFICANTLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS
THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN "RISK FACTORS."

OVERVIEW

Historically, aerospace applications in both the commercial and military
sectors have accounted for a majority of U.S. titanium consumption. The
aerospace industry has been characterized by severe cyclicality, which has had a
significant impact on the sales and profitability of titanium producers,
including OREMET. The last cyclical peak for the titanium industry occurred in
the 1988-1990 period, when domestic industry mill product shipments averaged
over 50 million pounds per year. In 1991, U.S. titanium industry mill product
shipments declined by approximately 35% to 34 million pounds. This decline was
primarily due to lower demand resulting from a slump in commercial aerospace and
the curtailment or cancellation of military programs as the Cold War ended. Data
reported by the USGS indicate that industry shipments reached approximately 36
million pounds in 1993 but dropped to about 35 million pounds in 1994.

The USGS reported that in 1995, U.S. industry shipments of titanium mill
products increased by 26% over 1994 levels to 44 million pounds, and mill
product shipments in the first quarter of 1996 totaled approximately 12 million
pounds. The improvement in industry shipments was the result of an increase in
demand in the commercial aerospace market and the emergence of new uses of
titanium metal, primarily in golf clubheads. Reported orders for new commercial
aircraft have increased significantly, particularly for wide body planes such as
the Boeing 777, which use a greater percentage of titanium per plane than narrow
body aircraft. The Company believes that industry mill product shipments to the
commercial aerospace market increased by more than three million pounds to 20
million pounds in 1995. While shipments to the military industry have fallen
below delivery levels in the 1980s as a result of reduced defense budgets, this
decline has been offset by demand from new markets. The Company believes that in
1996, shipments to the golf market, which were 1.5 million pounds in 1994, will
be approximately 9 million pounds and be greater than shipments to the entire
military sector.

STRATEGY AND OUTLOOK

Beginning in 1993, several members of the Company's current executive
management team, including Carlos E. Aguirre, the President and Chief Executive
Officer, joined the Company from other companies within the titanium industry.
The new management implemented a plan to: (i) diversify the Company's revenue
base from a market, customer and product perspective, (ii) develop and establish
a major presence in new markets, (iii) expand the Company's distribution and
service center business and (iv) increase production levels while improving
product quality. Commercial aerospace-related sales represented approximately
46% of net sales in 1995, compared to approximately 61% of net sales in 1994.
International sales have increased from 14% of net sales in 1994 to 20% of net
sales in 1995. Sales for non-aerospace applications have increased from $27.9
million, 39% of total net sales, in 1994 to $79.7 million, 54% of total net
sales, in 1995.

The Company has devoted significant resources to develop its presence in new
markets. The Company believes it is the market leader in shipments to the golf
industry, with 1995 shipments of 1.8 million pounds and 1996 shipments
anticipated to be approximately 5 million pounds. New markets where the Company
has also established a major presence include armor for sale to the military and
high purity sponge for the electronics industry. The Company also developed a
process to produce titanium aluminide ingots, primarily for use by the aerospace
industry. In addition, the Company has instituted synchronized manufacturing
techniques and additional programs to improve cycle time and yield. The Company
intends to continue to focus on the following strategic objectives: (i) maintain

18
<PAGE>
leadership in new market applications and products, (ii) benefit from vertical
integration and scrap handling capabilities, (iii) expand its service center
business, (iv) invest in a new EB furnace and (v) improve financial flexibility.

On September 20, 1994, the Company completed the acquisition of TI for $13.5
million. TI operates full-line titanium metal service centers in the U.S.,
Canada, U.K. and Germany, and also produces small diameter titanium bars, weld
wire and fine wire. The acquisition was accounted for as a purchase, with the
results of TI included in the Company's financial statements from the
acquisition date. TI sells its products primarily to industrial markets and to a
lesser extent, the commercial aerospace market. Historically, TI's service
centers have reported results that are more stable and less cyclical than the
Company's core manufacturing business. The acquisition of TI has enhanced the
Company's revenue diversification and its ability to identify promising new
market opportunities.

OREMET has historically utilized large amounts of low cost scrap in its
melting operations. The Company believes that the ability to efficiently consume
different types of scrap will become increasingly important as the demand for
titanium increases. In order to meet this increased demand, the Company intends
to construct a new EB furnace which will also reduce production costs and
broaden its product range. The Company estimates that the EB furnace will be
operational during the first half of 1998. See "Business -- Electron Beam
Furnace" and "Risk Factors."

The Company's twelve-month order backlog has increased from $64 million as
of June 30, 1995 to $141 million as of June 30, 1996. OREMET's backlog is based
on firm purchase orders scheduled for delivery during the subsequent
twelve-month period. Beginning in the second half of 1995 and continuing to the
present, the Company has experienced a significant increase in requests for
quotations as well as increased orders and prices on accepted orders. The
increase in demand is primarily a result of the recovery in the commercial
aerospace market and the growth of the golf clubhead market. Because of the
strong demand, the Company has been increasingly selective in the new orders
that it accepts. In addition, the Company delayed opening its first quarter 1997
order book until early June 1996 in order to better assess future raw material
costs. The Company started accepting orders for second quarter 1997 beginning in
early July 1996.

The increase in demand for titanium products has resulted in higher prices
for certain raw materials used by the Company, including titanium scrap,
titanium sponge and alloying materials. During 1995, the Company's profitability
was negatively impacted by higher raw material costs and fixed price long-term
sales agreements with certain customers, primarily in the commercial aerospace
industry. The Company recorded a $4.4 million provision in the fourth quarter of
1995 to recognize anticipated losses on existing long-term agreements ("LTAs")
as a result of higher raw material costs. During the first six months of 1996,
the Company incurred losses of $0.6 million on certain of its LTAs, reducing its
accrual for future losses to $3.8 million at June 30, 1996. Starting with the
first quarter of 1996, the Company added raw material surcharges in order to
more directly link changes in raw material costs to its contracts. The Company
has also instituted price increases for certain of its long-term sales
agreements which were entered into prior to 1996. However, there can be no
assurance as to the Company's continuing ability to recover raw material cost
increases. The future profitability of the Company's fixed price LTAs is subject
to change based upon the Company's costs of production.

19
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth certain operating items of the Company's
consolidated results of operations as a percentage of net sales for each of the
years in the five-year period ended December 31, 1995, and for the six months
ended June 30, 1995 and 1996.

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
--------------------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit (loss)(1)......... (5.9) (1.0) 4.9 9.3 10.8 16.1 22.4
Income (loss) from
operations(1)................. (15.7) (10.4) (11.2) (3.5) (0.2) 4.5 13.2
Net income..................... (8.6)% (7.4)% (7.4)% (2.8)% (1.6)% 1.5% 7.8%
</TABLE>

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

(1) A provision for a loss on LTAs of $1.3 million and $4.4 million was recorded
in the second and fourth quarters of 1995, respectively. Gross profit and
income from operations, exclusive of this provision, as a percentage of net
sales would have been 13.8% and 2.8% in 1995, respectively, and 18.1% and
6.5% for the six months ended June 30, 1995, respectively.

QUARTERLY RESULTS OF OPERATIONS

The following table presents the Company's unaudited consolidated quarterly
financial data for fiscal years 1994 and 1995, and the first and second quarters
of 1996. Although the Company's business is not seasonal, growth rates of sales
have varied from quarter to quarter as a result of the purchase of TI in
September 1994, the timing of new products, industry cyclicality and general
U.S. and international economic conditions.

<TABLE>
<CAPTION>
1994 QUARTERS 1995 QUARTERS
-------------------------------------------- ------------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND (1) THIRD FOURTH (1)
--------- ----------- --------- --------- --------- ------------- --------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $ 13.3 $ 14.5 $ 17.0 $ 26.4 $ 30.8 $ 35.2 $ 41.2 $ 39.7
Gross profit................... 0.1 0.6 1.7 4.2 5.3 5.3 4.1 1.2
Income (loss) from
operations.................... (1.7) (0.9) (0.6) 0.7 1.6 1.4 0.1 (3.4)
Net income (loss).............. $ (1.1) $ (0.6) $ (0.4) $ 0.1 $ 0.5 $ 0.5 $ (0.4) $ (3.0)

<CAPTION>
1996 QUARTERS
----------------------
FIRST SECOND
--------- -----------

<S> <C> <C>
Net sales...................... $ 51.3 $ 58.8
Gross profit................... 10.4 14.2
Income (loss) from
operations.................... 5.5 9.0
Net income (loss).............. $ 3.3 $ 5.2
</TABLE>

- ------------------------
(1) During the second quarter of 1995, the Company reported a pre-tax charge to
income of $1.3 million to reflect the impact of projected conversion costs
on long-term agreements which were in excess of selling price. During the
fourth quarter of 1995, the Company reported a pre-tax charge to income of
$4.4 million to reflect the impact of increased raw material costs on
long-term agreements.

COMPARISON OF FIRST SIX MONTHS OF 1996 TO FIRST SIX MONTHS OF 1995

NET SALES. Net sales increased $44.1 million, or 67% to $110.1 million in
the first six months of 1996, compared to $66.0 million in 1995. The increase in
sales was primarily driven by increased demand and higher prices for both the
Company's manufactured and service center products. Of the $44.1 million net
sales increase, $18.5 million was the result of volume increases and $25.6
million from higher average selling prices.

TITANIUM SPONGE. During the first six months of 1996, the Company's
integrated sponge facility operated at near capacity, primarily supplying the
Company's internal demand for titanium sponge as well as sales to RMI under a
long-term titanium sponge conversion agreement. Sales of titanium sponge and
sponge conversion services increased 87% to $7.8 million from $4.2 million for
the first six months of 1996 compared to the first six months of 1995. Sponge
shipments increased 70% and the average sponge price per pound increased 10%.
The increase in the average price per pound can be attributed to sales of high
purity sponge, which the Company started commercially producing in limited
quantities

20
<PAGE>
in 1995. The Company projects that it will continue to operate its sponge
facility at near capacity with substantially all production being utilized for
internal consumption or for supply to RMI. The Company is presently
supplementing its sponge production with purchases from other producers.

INGOT. Sales of ingot increased 125% to $21.7 million for the first six
months of 1996 compared to $9.6 million for the first six months of 1995. Ingot
shipments increased 79% and the average ingot price per pound increased 26%. The
Company operated its melt facilities at near capacity during the first six
months of 1996 and expects to continue to do so for the remainder of 1996. The
Company produces ingot for both internal use in its mill products division and
for sale primarily to aerospace customers.

MILL PRODUCTS. The Company produces or contracts for outside production a
variety of mill products including: billet, bar, plate, sheet and engineered
parts. Mill product sales increased 93% to $38.3 million for the first six
months of 1996 compared to $19.9 million for the first six months of 1995.
Shipments of mill products increased 29% and the average price per pound
increased 50%. Sales to producers of aerospace components and golf clubheads are
responsible for a substantial portion of the growth in mill product sales.

CASTINGS. Sales of castings increased 56% to $4.7 million for the first six
months of 1996 compared to $3.0 million for the first six months of 1995. The
Company is operating at a higher production rate in 1996 and is expanding its
casting facilities.

DISTRIBUTION. The Company's service centers market a wide variety of mill
products including engineered parts that are manufactured by various producers.
During the first six months of 1996, sales of service center products increased
30% to $34.7 million compared to $26.7 million for the first six months of 1995.
The increase in sales was due to increased shipments and favorable pricing and
product mix.

COST OF SALES AND GROSS PROFIT. Cost of sales for the first six months of
1996 increased 54% to $85.4 million, compared to $55.3 million in the first six
months of 1995. The primary reason for the increase in cost of sales was
increased shipments. The Company's gross profit margin increased to 22.4% for
the first six months of 1996 from 16.1% for the first six months of 1995, as a
result of higher prices and improved production efficiencies.

RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES. Research, technical
and product development expenses ("RT&D") increased by $0.2 million for the
first six months of 1996 to $0.9 million from the comparable six month period of
1995. The main focus of RT&D is to develop enhanced production procedures,
provide customers with required technical support and develop new products and
markets. RT&D works jointly on projects with customers, research agencies and
universities.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses ("SG&A") increased $2.2 million, or 32%, for the first
six months of 1996 to $9.2 million from $6.9 million in the comparable six month
period of 1995. The increase is primarily a result of additional employees hired
to support the increase in operating activity. As a percentage of sales, SG&A
decreased to 8.3% in the first six months of 1996 from 10.5% in the first six
months of 1995.

INTEREST EXPENSE. Interest expense increased $0.3 million to $1.3 million
in the first six months of 1996 compared to the first six months of 1995,
resulting from an increase in borrowing needed to fund expanded operating
levels.

PROVISION FOR INCOME TAXES. The Company reported a provision for income
taxes of $4.2 million, or an effective tax rate of 32% (on income before income
taxes and minority interests) for the first six months of 1996 compared to $0.7
million, or an effective tax rate of 37% for the comparable period in 1995. The
difference between the federal and state combined statutory tax rate of 39.5%
and the effective tax rate of 32% for the first six months of 1996 is primarily
due to a change in the Company's deferred tax asset valuation allowance,
reflecting the belief that it is more likely than not that the deferred tax
assets will be realized by the Company.

21
<PAGE>

NET INCOME. The Company reported net income of $8.5 million, $0.75 per
share, for the first six months of 1996 compared to a net income of $1.0
million, $0.09 per share, for the comparable period in 1995.

COMPARISON OF 1995 AND 1994

NET SALES. Net sales increased $75.7 million, or 106% to $146.9 million in
1995, compared to $71.2 million in 1994. 1995 represented the first complete
year in which TI results were consolidated with the Company. On a pro forma
basis, as if TI had been included in results for all of 1994, the sales increase
in 1995 would have been 53%. The increase in sales was primarily driven by
increased demand and higher prices for both the Company's manufactured and
service center products. Of the $75.7 million net sales increase, $61.5 million
was the result of volume increases and $14.2 million from higher average selling
prices.

TITANIUM SPONGE. Sales of titanium sponge and sponge conversion services
decreased 15% to $10.6 million in 1995, compared to $12.4 million in 1994.
Sponge shipments decreased 18% and average sponge prices per pound increased.
Sales of titanium sponge have decreased due to greater internal consumption by
the Company. During the second half of 1995, the Company's integrated sponge
facility operated at near capacity, primarily supplying the Company's internal
demand for titanium sponge and sales to RMI under a long-term titanium sponge
conversion agreement.

INGOT. Sales of ingot increased 49% to $22.3 million in 1995, compared to
$15.0 million in 1994. Ingot shipments increased 26% and the average ingot price
per pound also increased 19%. The Company began operating its melt facilities at
near capacity during the second half of 1995. The increase of sales is primarily
due to higher demand from the aerospace industry.

MILL PRODUCTS. Mill product sales increased 106% to $46.8 million in 1995,
compared to $22.8 million in 1994. Shipments of mill products increased 95% and
the average price per pound increased 5%. During 1995, mill products sales
increased across all product lines. Sales to the casters of golf clubheads had a
favorable effect on 1995 mill product sales.

CASTINGS. Sales of castings increased 12% to $7.2 million in 1995, compared
to $6.4 million in 1994. During the fourth quarter of 1995, a significant
competitor of the Company discontinued its casting operations which had a
positive impact on casting orders and sales.

DISTRIBUTION. Sales of service center products were included for a full
year in 1995, compared to approximately three months in 1994. During 1995, the
increase in sales was due to increased shipments and favorable pricing and
product mix. The markets served by the Company's service centers, which were
entered by the Company with the acquisition of TI, displayed strong growth
during 1995.

COST OF SALES AND GROSS PROFIT. Cost of sales for 1995 increased 103% to
$131.0 million, compared to $64.5 million in 1994. TI's cost of sales were
included for a full year in 1995, compared to approximately three months in
1994. The primary reasons for the increase in cost of sales were increased
shipments coupled with rising raw material costs. The Company's gross profit
margin increased to 10.8% in 1995 from 9.3% in 1994.

The Company recorded a provision for loss on LTAs of $4.4 million in the
fourth quarter of 1995 to cover estimated losses on LTAs with certain aerospace
customers. The provision for losses on LTAs was charged to cost of sales. The
Company's most significant unfavorable LTA expires during the third quarter of
1997. In response to the changing market conditions, the Company has negotiated
more favorable terms on many of its LTAs and has instituted raw material
surcharges.

RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES. RT&D increased $0.2
million to $1.6 million compared to $1.4 million in 1994. RT&D salaries and
related expenses increased in 1995 compared to 1994, reflecting an increase in
technical personnel to support the Company's long-term commitments for research,
development of new products and improvements in operating processes.

22
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A increased $7.0 million,
or 93%, in 1995 to $14.5 million from $7.5 million in 1994. The inclusion of TI
for a full year in the Company's 1995 results is the primary reason for the
increase in the Company's SG&A. In response to an increased activity level, all
departments included in the SG&A category added personnel during 1995. However,
as a percentage of sales, SG&A decreased to 9.9% in 1995 from 10.6% in 1994.

INTEREST EXPENSE. Interest expense increased by $1.5 million to $2.1
million in 1995 compared to $0.6 million in 1994. The increase in interest
expense in 1995 compared to 1994 is the direct result of the purchase of TI in
September 1994 and increased borrowing required to support the Company's
increased operating levels.

INCOME TAX BENEFIT. The Company's 1995 effective tax rate on the net loss
before income tax benefit and minority interests was 18%. The Company's income
tax rate varied from the normally expected statutory rate due to differences
between book and tax income for which recognition of a deferred tax asset was
not considered appropriate.

NET LOSS. The Company reported a net loss of $2.4 million, $0.22 per share,
for 1995 compared to a net loss of $2.0 million, $0.18 per share, for 1994.

COMPARISON OF 1994 TO 1993

NET SALES. Net sales increased 29% to $71.2 million in 1994, compared to
$55.4 million in 1993. The Company's 1994 net sales include $11.5 million of
sales attributable to TI. Net sales of ingot, mill products and castings
increased 29% to $44.2 million in 1994 from $34.3 million in 1993. The expansion
in sales across the Company's primary product lines reflected a strengthening
general economy. The increase in revenue for these products was primarily the
result of increased shipments; average prices remained stable between the two
periods. Sales of titanium sponge and sponge conversion services decreased 36%
to $12.4 million in 1994. The decrease in sales and conversion of titanium
sponge was a direct result of competition from lower priced titanium sponge
available principally from the FSU.

COST OF SALES AND GROSS PROFIT. Cost of sales for 1994 increased 22.6% to
$64.5 million compared to $52.6 million in 1993. The change was primarily due to
the increase in volume. As a result, gross profit margin increased to 9.3% in
1994 from 4.9% in 1993.

RESTRUCTURING COSTS. During 1993 the Company recorded a non-recurring
provision for restructuring costs of $2.0 million as a result of severance
benefits to salaried employees. No additional restructuring charges were
incurred during 1994.

PROVISION FOR ESTIMATED ENVIRONMENTAL COSTS. In 1994, the Company recorded
a provision for estimated environmental costs of $0.2 million, compared to $1.0
million in 1993.

RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT EXPENSES. RT&D expenses
increased in 1994 to $1.4 million from $0.8 million in 1993 as a result of the
Company's increased emphasis on new product development and technical support.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A increased 47% in 1994 to
$7.5 million from $5.1 million in 1993. The addition of TI represented $1.7
million of the 1994 increase in SG&A. SG&A as a percentage of sales increased to
10.6% in 1994 from 9.3% in 1993.

INCOME TAX BENEFIT. The Company reported an income tax benefit of $0.7
million, or an effective tax rate of 26% for 1994, compared to a tax benefit of
$1.8 million, or an effective tax rate of 31% for 1993.

NET LOSS. The Company reported a net loss of $2.0 million, $0.18 per share,
for 1994 compared to a net loss of $4.1 million, $0.38 per share, for 1993.

LIQUIDITY AND CAPITAL RESOURCES

OVERVIEW

Net cash used in operating activities totaled $4.7 million for the first six
months of 1996, compared to $5.8 million for the comparable period of 1995.
Increases in sales and the sales backlog accounted for

23
<PAGE>

the increased levels of accounts receivable and inventory, which represented the
primary uses of cash for the six month period. Net cash used in operating
activities totaled $11.0 million in 1995 compared to $4.5 million for 1994.
Working capital increases required to support the sharp increase in operating
levels were responsible for the most significant portion of the cash used by the
Company's operating activities in 1995. The increase in the amount of cash flow
used in operating activities is a trend which began in the second quarter of
1994, consistent with the Company's experience of increasing sales, sales order
backlog and production.

During the first six months of 1996, the Company incurred $3.5 million in
expenses relating to its Stock Compensation Plans and Savings Plan. During 1995,
the Company incurred $2.7 million in expenses relating to its Stock Compensation
Plans and Savings Plan. Liabilities arising under these plans are satisfied by
issuing shares of the Common Stock. Increases in the average market value of the
Common Stock and in the number of eligible employees are the primary factors for
the 1996 increase. See "Management -- Stock Related Compensation Plans" and
notes 10 and 15 to the Company's Consolidated Financial Statements.

During the fourth quarter of 1995, the Company incurred a non-cash charge to
earnings of $4.4 million to establish a provision for anticipated future losses
on fixed price LTAs. See note 6 to the Company's Consolidated Financial
Statements.

Net cash used in investing activities totaled $1.6 million for the first six
months of 1996 compared to $1.2 million for the first six months of 1995. Net
cash used in investing activities totaled $2.2 million in 1995 compared to $2.7
million in 1994. The Company had additions to property, plant and equipment of
$1.5 million in the first six months of 1996 and $1.9 million in 1995 and 1994.

In 1994, the Company paid $8.2 million, net of cash received of $0.8
million, and issued debt to the seller in the amount of $4.5 million, for the
purchase of TI.

Net cash provided by financing activities totaled $6.8 million for the first
six months of 1996, compared to $5.8 million for the comparable period of 1995.
Net cash provided by financing activities totaled $12.1 million in 1995,
compared to $8.8 million in 1994. For the first six months of 1996, $6.2 million
was provided from net borrowings on the Company's credit agreements and book
overdraft. For 1995, $11.3 million was provided from net borrowings on the
Company's credit facilities and book overdraft, and $1.0 million from a capital
lease obligation.

REVIEW OF SIGNIFICANT WORKING CAPITAL ACCOUNTS.

INVENTORIES. Inventories increased by $15.3 million, or 23% during the
first six months of 1996 while they increased $17.0 million, or 35%, to $66.0
million at December 31, 1995, compared to $49.0 million at December 31, 1994. In
addition to an increase in finished goods inventory, increases in raw materials
and work-in-process have been made in support of higher production levels. In
response to a growing sales backlog, the Company is continuing to raise its
production levels. The Company is also experiencing higher raw material and
conversion costs, which have increased the cost of the Company's inventory.

ACCOUNTS RECEIVABLE. Accounts receivable increased by $8.8 million, or 34%
during the first six months of 1996, while they increased $5.5 million, or 27%,
to $25.9 million at December 31, 1995, compared to $20.4 million as of December
31, 1994. The increase in accounts receivable is consistent with the Company's
increase in sales volume.

BOOK OVERDRAFT. The Company had a book overdraft at June 30, 1996, December
31, 1995 and December 31, 1994 of $2.3 million, $2.0 million and $0.0 million,
respectively. The book overdraft represents Company checks which have been
disbursed and are in transit as of the end of the reporting period. When the
checks clear the Company's bank, they are funded by draws on the Company's U.S.
credit facility to the extent they are not funded by deposits.

24
<PAGE>

ACCOUNTS PAYABLE. Accounts payable at June 30, 1996 and December 31, 1995
were $16.8 million and $17.0 million, respectively, which are comparable to the
December 31, 1994 balance of $16.9 million.

ACCRUED PAYROLL AND EMPLOYEE BENEFITS. Accrued payroll and employee
benefits increased $2.4 million, or 35% during the first six months of 1996,
while they increased $3.7 million, or 126% to $6.7 million at December 31, 1995,
compared to $2.9 million at December 31, 1994. Accruals related to the Company's
cash bonus program, stock appreciation rights plan, Stock Compensation Plans and
Savings Plan account for a substantial portion of the increase.

CREDIT AGREEMENTS

The Company may borrow up to $35 million under the terms of a U.S. revolving
credit agreement with BankAmerica Business Credit, Inc. ("BABC"). The U.S.
credit agreement expires in September 1997. The balance outstanding under the
credit agreement as of June 30, 1996 was $26.1 million. As of June 30, 1996,
interest charged under the credit agreement was calculated based on BABC's
reference rate plus 1.5% or a borrowing option based on LIBOR plus 2.5%.

As of December 31, 1995, the Company was not in compliance with certain of
its financial covenants contained in its BABC credit agreement. The Company
obtained a written waiver from BABC on these matters. The U.S. credit agreement
was amended as of March 14, 1996 and May 1, 1996 to, among other things, modify
the debt to equity ratio covenant and certain other restrictive covenants and to
increase the line from $25 to $35 million. The amendments to the covenants were
needed for the Company to remain in compliance with certain financial covenants
in the U.S. credit agreement in light of increased working capital growth. Upon
completion of the Offering, the Company intends to seek a new $50 million U.S.
credit facility.

Titanium International Limited, a subsidiary of TI, has a short-term credit
facility with Midland Bank plc, in the U.K., permitting borrowings of
approximately L2.3 million ($3.6 million at current exchange rates). The U.K.
credit agreement is subject to renewal on December 31, 1996. The balance
outstanding under the U.K. credit agreement as of June 30, 1996 was $1.5 million
(at current exchange rates).

CAPITAL EXPENDITURES

The Company intends to use approximately $32 million of the net proceeds
from this Offering for the construction, equipment and facility costs for a new
EB furnace and related upgrade of scrap reprocessing facilities. The
construction and production ramp-up periods are expected to take approximately
18 months with approximately $4 million expended in 1996 (design and procurement
phases), $20 million in 1997 (construction phase) and approximately $8 million
in 1998 (testing phase). See "Business -- Electron Beam Furnace" and "Risk
Factors."

The Company also intends to use approximately $15 million of the net
proceeds from this Offering to establish or purchase additional service centers
in the Pacific Rim, Northeastern United States and Southern Europe by the end of
1997. Currently, no potential acquisitions have been identified.

The Company anticipates that capital expenditures during 1996, other than
those related to the EB furnace and the service center expansion, will
approximate $9 million which will be provided by internally generated funds or
credit facilities. Capital expenditures required to maintain compliance with
applicable environmental regulations are included in the Company's capital
expenditure plan to the extent that they can be determined. The Company has no
material open commitments which obligate it to make future capital expenditures.

INCOME TAXES

For financial and income tax reporting purposes the Company incurred net
losses for 1991 through 1994. The Company is unable to carry back any further
losses for federal or state tax refunds. In 1995, the Company reported a loss
for financial reporting purposes, but expects to report taxable income for

25
<PAGE>
both federal and state income tax reporting purposes. The Company anticipates
that it will be able to utilize federal and state net operating loss
carryforwards to offset 1995 taxable income, limiting the amount of taxes
actually payable to the taxing jurisdictions where it is subject.

The Company anticipates that in 1996 it will fully utilize its federal net
operating loss carryforwards of $3.5 million and will pay federal taxes on any
remaining balance of its federal taxable income. The Company has a State of
Oregon net operating loss carryforward of $30.0 million which will limit the
amount of state taxes paid in 1996. In addition, the Company pays minimal
franchise and income taxes in various states and foreign jurisdictions.

ADEQUACY OF LIQUIDITY AND CAPITAL RESOURCES

The Company's access to borrowing facilities, internally generated cash and
the net proceeds from the Offering are expected to be sufficient to support the
Company's operating needs and to finance its continued growth, capital
expenditures and repayment of long-term debt obligations.

NON-U.S. OPERATIONS AND MONETARY ASSETS

Approximately 9% of the Company's net sales for the first six months of 1996
and 11% of the Company's 1995 net sales were derived from its service centers in
the U.K. and France. Changes in the value of non-U.S. currencies relative to the
U.S. dollar cause fluctuations in U.S. dollar financial position and operating
results. The impact of currency fluctuations on the Company was not significant
in 1995 and the first six months of 1996.

IMPACT OF INFLATION

Inflation can be expected to have an effect on many of the Company's
operating costs and expenses. Due to worldwide competition in the titanium
industry, the Company may not be able to pass through such increased costs to
its customers.

CHANGES IN ACCOUNTING PRINCIPLES

The Company expects to elect the disclosure alternative prescribed by SFAS
No. 123, "Accounting for Stock-Based Compensation," and to account for
stock-based employee compensation with respect to the Common Stock in accordance
with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees," and its various interpretations. Under APB No. 25, no
compensation cost is generally recognized for fixed stock options in which the
exercise price is not less than the market price on the grant date. Under the
disclosure alternative SFAS No. 123, the Company will disclose, starting with
its 1996 fiscal year, its respective pro forma net income and earnings per share
as if the fair value based accounting method of SFAS No. 123 had been used to
account for stock-based compensation cost for all awards granted by the Company
after January 1, 1996. See note 15 to the Company's Consolidated Financial
Statements.

26
<PAGE>
BUSINESS

THE FOLLOWING INFORMATION CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE
CERTAIN RISKS AND UNCERTAINTIES. ACTUAL RESULTS AND EVENTS MAY DIFFER
SIGNIFICANTLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS
THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN "RISK FACTORS."

THE COMPANY

The Company is one of two U.S. integrated producers and distributors of
titanium sponge, ingot, mill products and castings for use in the aerospace,
industrial, golf and military markets. Since 1993, the Company has developed new
market opportunities for titanium, expanded its distribution network, increased
its production capacity, and improved its manufacturing efficiency. As a result,
management believes that it is well-positioned to capitalize on improving and
emerging markets in the titanium industry. In 1995, the Company reported net
sales of $146.9 million, an operating loss of $0.3 million and a net loss of
$2.4 million. During the first six months of 1996, the Company reported net
sales of $110.1 million, operating income of $14.5 million and net income of
$8.5 million.

On September 20, 1994, the Company completed the acquisition of the net
assets and subsidiaries of the Titanium Industries Distribution Group from
Kamyr, Inc. The acquired business is being operated under the name of Titanium
Industries, Inc., an 80% owned subsidiary of OREMET. TI operates full-line
titanium metal service centers in the U.S., U.K., Germany and Canada, and it
produces small diameter titanium bar, weld wire and fine wire. The acquisition
was accounted for as a purchase, with the results of TI included in the
Company's financial statements from the acquisition date.

The Company was incorporated in Oregon in 1955 and began operations in 1956.
The Company funded its growth internally and through investments by corporate
partners. In December 1987, the Company repurchased its Common Stock from its
major corporate partner and immediately sold shares of its Common Stock to the
ESOP. Initially, the ESOP owned approximately 67% of the Common Stock and at
June 30, 1996, the ESOP's ownership interest was approximately 14%.

INDUSTRY OVERVIEW

Titanium was first commercially produced in the 1950s. Titanium's superior
strength-to-weight ratio, stability at high temperatures and corrosion
resistance make it well suited for the aerospace and jet engine market.
Historically, approximately 70% to 80% of U.S. titanium consumption has been for
aerospace applications both in the commercial and military sectors.

The aerospace industry has historically been characterized by severe
cyclicality, which has had a significant impact on the sales and profitability
of titanium producers, including OREMET. The last peak in the titanium industry
cycle occurred in the 1988-1990 period when domestic industry mill product
shipments averaged over 50 million pounds per year. In 1991, U.S. titanium
industry shipments declined by approximately 35% to 34 million pounds. This
decline was primarily due to lower demand resulting from a slump in the
commercial aerospace industry and the curtailment or cancellation of military
programs resulting from the end of the Cold War. Data reported by the USGS
indicate that domestic industry mill product shipments increased by
approximately one million pounds per year in 1992 and 1993, while they dropped
to approximately 35 million pounds in 1994. Based on data of the USGS, U.S. mill
product industry shipments were approximately 44 million pounds in 1995. Mill
product shipments in the first quarter of 1996 totaled approximately 12 million
pounds which represents an increase of 29% over the first quarter 1995 as
reported by the USGS. The improvement in industry shipments is the result of
increased demand from the commercial aerospace industry and from the producers
of golf clubheads.

27
<PAGE>

March 31, 1995, an increase of 17%. Newer wide body planes, such as the Boeing
777 and the Airbus A-330 and A-340, use a higher percentage of titanium in their
airframes, engines and parts (as measured by total fly weight) than narrow body
planes. "Fly weight" is the empty weight of a finished aircraft with engines but
without fuel or passengers. The Boeing 777, for example, utilizes titanium for
approximately 9% of total fly weight, compared to between 2% and 3% on the older
737, 747 and 767 models. Firm backlog for the Boeing 777 as reported by The
Boeing Company was 246 as of June 30, 1996, compared to 162 as of June 30, 1995,
an increase of 52%.

The aerospace industry is expected to remain the largest source of demand
for titanium products. However, many opportunities exist in the non-aerospace
markets where the characteristics of titanium metal provide advantages over
competing materials, such as aluminum, nickel and stainless steel. Golf clubhead
manufacturers are using titanium because of its strength and low weight which
enables production of clubs with larger heads. Titanium's resistance to the
effects of atmospheric conditions and a variety of chemicals and acids make it
an attractive metal for marine and other industrial applications where corrosion
is of critical concern. As a result, titanium is used increasingly in pollution
control equipment, offshore oil installations, mining operations and waste
storage facilities. Its favorable strength-to-weight ratio and biocompatibility
also make it an increasingly popular metal for biomedical products such as
medical implants, and consumer products such as eyeglass frames and bicycles.

PRODUCTION PROCESS

Since it began operations in 1956, OREMET has been innovative in developing
process technologies for the production of titanium. The production of titanium
requires several raw materials, including titanium tetrachloride (a liquid
derivative of rutile ore, coke and chlorine gas), magnesium, titanium scrap and
master alloys, such as vanadium-aluminum. See "Business -- Raw Materials."

The flow of the Company's titanium production process is illustrated below.

OREMET TITANIUM PRODUCTION PROCESS

[GRAPH]

28
<PAGE>
PRODUCTS

Titanium products is the Company's single business segment. A full range of
titanium products is produced for applications in both the aerospace and
non-aerospace markets. The principal product forms are titanium sponge, titanium
ingots, titanium mill products and castings.

The amount of the Company's consolidated sales and the percentage of
consolidated sales represented by each class of product during the three years
ended December 31, 1995 and the six months ended June 30, 1995 and 1996, were as
follows:

<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
---------------------- ---------------------- ----------------------- ---------------------- ----------

<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales:
Sponge.............. $ 19,391 35% $ 12,360 18% $ 10,558 7% $ 4,175 6% $ 7,824
Ingot............... 9,963 18 14,992 21 22,315 15 9,629 15 21,652
Mill Products....... 19,860 36 22,752 32 46,839 32 19,870 30 38,340
Castings............ 4,473 8 6,442 9 7,225 5 3,009 5 4,682
Distribution........ -- -- 11,517 16 54,455 37 26,673 40 34,689
Other............... 1,664 3 3,103 4 5,461 4 2,607 4 2,882
--------- --- --------- --- ---------- --- --------- --- ----------
Total Net Sales... $ 55,351 100% $ 71,166 100% $ 146,853 100% $ 65,963 100% $ 110,069
--------- --- --------- --- ---------- --- --------- --- ----------
--------- --- --------- --- ---------- --- --------- --- ----------

<S> <C>

<S> <C>
Net Sales:
Sponge.............. 7%
Ingot............... 20
Mill Products....... 35
Castings............ 4
Distribution........ 32
Other............... 2
---
Total Net Sales... 100%
---
---
</TABLE>

SPONGE. Titanium sponge is the commercially pure, elemental form of
titanium metal. Titanium sponge is produced by OREMET at its facility in Albany,
Oregon by reducing titanium tetrachloride using magnesium as the reduction
agent. OREMET produces titanium sponge in 15,000 pound batches by using a
modified Kroll process developed by OREMET engineers. Titanium tetrachloride and
magnesium are combined in a horizontal retort and swept with heated helium in
one of the Company's eight sponge reduction furnaces, producing titanium sponge
and magnesium chloride. The magnesium chloride is separated electrolytically
into magnesium and chlorine in OREMET's magnesium recovery facility. The
recovered magnesium is recycled for use in the Company's titanium sponge
manufacturing facility. The chlorine by-product is sold, but does not produce
material revenues for the Company.

OREMET began producing titanium sponge for internal use in 1970 and began
selling it in 1987. The Company sells sponge principally to domestic
non-integrated titanium producers who use the sponge to produce ingot and mill
products. During 1995, the sponge plant operated at approximately 75% of its
practical annual capacity of 13.5 million pounds and since the second half of
1995 it has been operating at near capacity. See "Risk Factors."

The Company has a contract to supply titanium sponge and certain other
titanium products to RMI through 2003. Sales to RMI accounted for approximately
5%, 13% and 30% of OREMET's net sales in 1995, 1994 and 1993, respectively and
5% of net sales for the six months ended June 30, 1996. No other customer
accounted for more than 10% of OREMET's net sales in any of these periods.

INGOT. Titanium ingots are cylinders with a weight of up to 20,000 pounds
and a diameter of up to 36 inches. Titanium ingots are made by OREMET at its
facility in Albany, Oregon by melting sponge or titanium scrap, or a combination
of the two, with certain other elements to form titanium alloys. Prior to
melting, the materials are measured by a computerized weighing system to meet
customer specifications and compacted into briquettes that are welded together
to form an electrode. An electrode can also be formed by melting the materials
in the Company's plasma furnace, which allows the Company to combine a larger
percentage and more varied types of titanium scrap. An electrode is then melted
in one of the Company's vertical, water-cooled vacuum arc furnaces. Melting may
be repeated once or twice to produce standard and premium grades of titanium
ingot. The melting process is monitored through computer-operated sensors,
controls and video displays to maintain high levels of quality and consistency.
After melting, samples from finished ingots are analyzed in the Company's
laboratory to ensure proper chemical content and quality. Ingots are converted
in a forge, either by OREMET or by its customers, into semi-finished shapes and
then into finished mill products. The

29
<PAGE>

Company produces ingots in a variety of sizes and grades to meet the customer's
specifications. During 1995, the ingot plant operated at approximately 65% of
its estimated annual capacity of 22 million pounds and since the second half of
1995 it has been operating at near capacity. See "Business -- Electron Beam
Furnace" and "Risk Factors."

MILL PRODUCTS. Titanium mill products result from the forging, rolling,
drawing and/or extruding of titanium ingots or slabs. OREMET produces titanium
billet, bar, rod, wire, plate and sheet. OREMET sells its mill products to
manufacturers of aircraft, jet engines, vessels and piping for chemical plants,
prosthetic and orthopedic implants, armor, golf clubheads and other consumer
goods. OREMET produces mill products at its plants in Albany, Oregon and
Frackville, Pennsylvania. During 1995, the mill products facility in Albany,
Oregon operated at 50% of its estimated annual capacity of 15 million pounds and
is currently operating at approximately 65% of its capacity.

The Company is dependent on the services of outside processors to perform
certain important processing functions. For some of its products, OREMET is
dependent on the services provided by THT, an outside processor which is 50%
owned by one of the Company's principal competitors. THT owns and operates an EB
furnace which the Company utilizes for melting titanium slab, that is further
processed into titanium plate and sheet for non-aerospace applications, and
titanium electrodes for aerospace applications. OREMET has not experienced any
delays or problems associated with the competitor's ownership of THT. Other than
for those provided by THT, the services performed by the outside processors are
typically available from multiple sources. Services are provided by THT in
accordance with a three-year agreement ending December 31, 1996. This agreement
is renewed automatically for successive one-year terms unless either party has
given the other not less than six months' notice of its desire not to renew such
term. OREMET and other THT customers have received notice from THT that it will
not renew on present terms, but that it intends to negotiate new supply
contracts. Should the THT services agreement not be renewed, OREMET would
attempt to obtain these services from another competitor which has a cold hearth
melting furnace. In order to address its long-term melting requirements, the
Company intends to construct a new EB furnace. See "Business -- Electron Beam
Furnace" and "Risk Factors."

The Company maintains a process engineering staff which continually
evaluates and identifies potential improvements in the manufacturing process.
OREMET's quality control group tests products for compliance with customer
specifications, including detailed metallurgical and chemical analyses, sonic
tests and mechanical capability and property tests. The results of these tests
are certified for conformity to specifications and then recorded for future
traceability.

CASTINGS. In 1957, OREMET completed construction of a titanium and
zirconium casting foundry and began producing components in commercial
quantities. Since then, the foundry has continued to develop new technology and
make process improvements. OREMET produces titanium and zirconium castings for
customers primarily for the non-aerospace industry. Castings are made by melting
metal which is then poured under vacuum into graphite molds. Castings generally
weigh from one pound to 2,000 pounds. OREMET's castings are made at its Albany,
Oregon plant to customer specifications and are used in marine and other
industrial applications where corrosion is of critical concern. Titanium and
zirconium castings are used in a diversity of applications including offshore
oil production, chemical processing, mining, armor, aerospace, power generation,
pulp and paper manufacturing and marine products. Both titanium and zirconium
are recognized as cost-effective materials for construction because of their
light weight, excellent corrosion resistance, low maintenance, high quality and
long life cycle. As new applications for titanium continue to grow, the Company
expects the demand for castings to follow. To address this increasing demand,
the OREMET foundry is in the process of increasing its production capacity.

OTHER PRODUCTS. OREMET provides services to other titanium producers and
sells by-products of its titanium production process. Non-integrated producers
of titanium ingot and mill products contract

30
<PAGE>
with OREMET to melt sponge or titanium scrap into ingot or to convert ingot into
mill products. OREMET also sells titanium scrap for use as an alloy addition in
the production of other metals such as steel and aluminum.

ELECTRON BEAM FURNACE

The Company intends to expand its melting capabilities by constructing a new
EB furnace. This technology offers cost advantages over the existing production
practices and is required to meet the requirements of certain critical aerospace
applications. EB technology offers the advantage of directly casting
semi-finished shapes, thereby reducing the amount and cost of subsequent
conversion operations and processing required prior to shipping the completed
product. In addition, the EB technology will allow the use of different types
and greater amounts of scrap input materials, thus allowing for cost savings and
improved inventory utilization.

The Company estimates that the cost to construct an EB furnace facility with
an annual melting capacity of 20 million pounds, together with a related
expansion of the existing scrap processing facility, will total approximately
$32 million. The Company is currently working with engineers and equipment
suppliers on the design of the EB furnace. The Company estimates that the
facility will be in operation during the first half of 1998 and will be capable
of producing 5 million pounds in 1998, 11 million pounds in 1999 and at near
capacity in 2000. The Company expects that the EB furnace will replace some of
the Company's less efficient existing melting capacity. The Company anticipates
that it will have an immediate need for a substantial portion of the production
of the EB furnace and that it will be able to obtain long-term commitments from
others for the furnace capacity which is not utilized by the Company. As
alternatives to constructing a new EB furnace, the Company generally evaluated
the possibility of investing in a joint venture and/or partnering to obtain
access to EB technology. Although the Company intends to construct the EB
furnace, the Company may further evaluate an investment in a joint venture if
financially feasible. See "Risk Factors" and "Use of Proceeds."

RAW MATERIALS

The primary raw materials used by the Company are titanium tetrachloride,
magnesium, titanium scrap and certain combinations of primary metals that form
master alloys. Titanium tetrachloride and magnesium are the principal materials
used in the production of titanium sponge. The principal materials used in the
production of titanium ingot are sponge, titanium scrap and alloying elements.

OREMET purchases its titanium tetrachloride requirements from SCM under a
long-term contract that expires in 2001. While the Company believes it could
obtain commercial quantities of sufficiently pure titanium tetrachloride from
other sources, any extended disruption in the supply from SCM could have a
material adverse effect on OREMET's ability to produce titanium sponge.
Magnesium is generally available from a number of suppliers.

Titanium scrap is typically available from many sources. The availability of
attractively priced titanium scrap varies due to the fluctuations in the size of
the titanium market from year to year and due to demands from other industries,
such as steel, where it is consumed in the melting process. Certain of the
primary metal compounds used to form master alloys are produced by a limited
number of suppliers. During January 1996, in response to rapidly increasing
scrap costs, the Company added raw material surcharges to its product prices to
offset the higher costs it was experiencing.

31
<PAGE>

When available at attractive prices, the Company has purchased titanium
sponge and scrap from countries in the FSU. Continued availability of these
materials at attractive prices cannot be assured due to the uncertainties
concerning the manufacturing capabilities of the FSU titanium producers and the
potential for political and economic instability within the FSU.

MARKETS

AEROSPACE. The Company sells its titanium products to non-integrated
producers and fabricators which process the material for use by the aerospace
industry. While the percentage of its sales to the aerospace industry accounted
for approximately 46% in 1995, compared to 61% in 1994 and 77% in 1993,
aggregate sales to the aerospace industry increased from $42.6 million in 1993
to $67.1 million in 1995. The Company has also expanded its capability to
include more complex alloys and mill products used by the aerospace industry.
The Company anticipates that future aerospace industry sales will vary from 40%
to 60% of total net sales depending upon demand and profitability. For the first
six months of 1996 aerospace related sales represented 39% of net sales. The
Company's main route of supply is to provide products to numerous forging
houses, machine shops and other mill product producers who in turn supply
components to the major air frame and jet engine manufacturers. Since 1994 the
Company has been supplying products direct to Airbus Industries for the
fabrication of engine pylons. OREMET's commercial aerospace product sales are
dependent upon the production rates of major airplane manufacturers both as a
direct and as an indirect supplier.

GOLF. The titanium golf clubhead market evolved in 1988 when a few
investment casting houses started producing clubheads for export to markets in
the Far East. At the same time, some companies in Japan started to produce
clubheads by casting and forging. By 1993, the technology and manufacturing
processes were well developed and major U.S. club producers became interested in
producing heads with a larger hitting surface. Since 1993, most of the major
golf club manufacturers have started their own lines of titanium head drivers.
The Company estimates that the use of titanium has grown from 1.5 million pounds
in 1994 to approximately 9 million pounds in 1996. Golf club manufacturers are
now starting to produce titanium fairway woods, irons and putters. The Company
has excellent relationships with the major golf clubhead casting companies. The
Company believes it is the market share leader and is supplying in excess of 50%
of the titanium sold to the golf market.

ARMOR. Titanium has been studied by the defense industry as a ballistic
protection material. In the mid 1970s, titanium was designed into the A-10
military airplane to provide protection for the pilots performing close-in
ground support missions. As a result of the deficiencies with aluminum
protection systems experienced during the Faulkland's War, titanium was studied
as a replacement material for protecting strategic areas aboard naval fighting
ships.

In order to deploy forces more rapidly, certain military forces turned to
titanium to reduce the weight of vehicles while assuring good ballistic
protection. Since 1992, hatch covers on the Bradley fighting vehicle have been
made with titanium. In 1994 and 1995, OREMET supplied over 300,000 pounds of
titanium plate for ballistic protection on a new French aircraft carrier, the
CHARLES DEGAULLE. OREMET is supplying titanium parts for construction of the
Swedish Leopard II tank and the U.S. M1A2 tank. Military engineers continue to
search for other armor applications that can take advantage of titanium's light
weight and ballistic protection characteristics. Research efforts for armor
applications continue to be a high priority for OREMET. The Company believes
that titanium usage on tanks and on various types of personnel carriers will
increase.

MARKETING, DISTRIBUTION AND SERVICE CENTERS

OREMET markets primarily to manufacturers of titanium metal end products.
The Company also sells its products to non-integrated titanium producers,
regional value-added distributors and other mill product consumers. The majority
of sales are made through the Company's internal sales force. OREMET also uses
independent sales representatives for the sale of products outside of North
America.

Shipments to customers may be made directly from one of the Company's mills
in Albany, Oregon or Frackville, Pennsylvania; from an outside processor; or
from one of the Company's service centers in

32
<PAGE>

North America and Europe. The Company's service centers maintain a large
inventory of titanium mill products available for rapid delivery to points
around the globe. A complete line of first stage processing equipment is
available and outside machining can be arranged by the service centers to meet
the needs of their customers.

For nearly 25 years, TI, including its predecessor company, has been
supplying and developing titanium applications for industrial and commercial
customers. TI maintains a network of service centers established to satisfy the
titanium needs of the non-aerospace industry. TI opened its first service center
during 1972 in Fairfield, New Jersey. In response to the increasing demands of
its customers and in order to provide improved response times, TI established
additional service centers throughout North America. In 1988, TI established a
service center in Birmingham, U.K. and in 1992, expanded its position in the
European market by acquiring an existing service center distribution business,
also in Birmingham. During the first quarter of 1996, TI opened a service center
in Dusseldorf, Germany. To support the increasing demands for titanium in
diverse commercial, consumer, aerospace and industrial markets, the Company
intends to continue to expand its distribution business geographically. In
addition to pursuing growth opportunities through the establishment of
additional service centers, TI intends to grow through acquisitions of existing
service centers and through the expansion of its participation in the aerospace
market. The Company estimates that approximately 25% of TI's shipments are to
the aerospace market, primarily in Europe. TI is currently evaluating service
center opportunities in the Pacific Rim, Southern Europe and the Northeastern
United States.

The Company and TI maintain titanium sales offices and service centers
(which also include sales personnel) in the following locations:

<TABLE>
<CAPTION>
LOCATION ESTABLISHED FUNCTION
------------------------ ------------- -----------------
<S> <C> <C> <C>
United States Albany, OR 1956 Sales Office
Parsippany, NJ 1972 Service Center
Chicago, IL 1986 Service Center
Jacksonville, FL 1986 Service Center
Los Angeles, CA 1987 Service Center
Dallas, TX 1989 Sales Office
Pittsburgh, PA 1994 Sales Office
Canada Montreal, Quebec 1973 Service Center
Vancouver, B.C. 1989 Sales Office
Europe Birmingham, U.K. 1988 Service Center
Paris, France 1994 Service Center
Dusseldorf, Germany 1996 Service Center
</TABLE>

INTERNATIONAL AND EXPORT SALES

International and export sales, primarily in Europe and Asia, totaled
approximately 20%, 14% and 13% of OREMET's net sales in 1995, 1994 and 1993,
respectively. In May 1994, OREMET signed a three-year contract with
Aerospatiale, Societe Nationale Industrielle for engine pylon parts for the
Airbus aircraft, and in the second half of 1994 began supplying product under
the contract. The acquisition of TI provided the Company with a service center
located in the U.K. with an established operation. In 1996, TI opened a service
center in Germany. The Company intends to utilize these facilities to meet its
customers' needs in Europe. See note 12 to the Company's Consolidated Financial
Statements.

BACKLOG

The Company's twelve-month sales order backlog was $141 million at June 30,
1996, compared to $64 million at June 30, 1995 and $29 million at June 30, 1994.
OREMET produces titanium ingot, mill products and castings in response to
specific customer orders. Production times vary among products and can be
several months or more. The Company includes in its backlog only those firm
purchase

33
<PAGE>
orders scheduled for delivery during the subsequent twelve-month period (which
are generally subject to cancellation by the customer). The Company has
historically experienced a high level of order cancellations and deferrals in
periods of industry downturn.

<TABLE>
<CAPTION>
TWELVE-MONTH SALES ORDER BACKLOG
AS OF THE QUARTER ENDED
------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ----------- ----------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1996............................................. $ 134 $ 141 -- --
1995............................................. 48 64 $ 65 $ 105
1994............................................. 28 29 37 44
1993............................................. 27 25 19 18
</TABLE>

During the second half of 1995 and continuing into 1996, the Company has
experienced a significant increase in the volume of incoming orders at increased
prices. The Company delayed opening its first quarter 1997 order book until
early June 1996 in order to better assess future raw material costs. The Company
started accepting orders for second quarter 1997 beginning in early July 1996.
The increase in demand has been driven primarily by the recovery in the
commercial aerospace market and the emergence of the golf clubhead market. As
capacity utilization in the titanium industry continues to grow and lead times
lengthen, the Company expects prices on new orders to continue to strengthen.

COMPETITION

Although OREMET's sales are predominately to the domestic market, the
titanium industry is competitive on a worldwide basis. OREMET's principal
competitors are other integrated and non-integrated producers of titanium
located primarily in the U.S., Europe, Japan, China and the FSU. In each of the
Company's major product lines, OREMET competes primarily on the basis of price,
quality, delivery time and customer service. The principal methods of
competition in the titanium industry and for all of the Company's products are
product quality and qualifications to supply products. Many of the Company's
products (sponge, ingot, mill products and castings) are qualified for both
aerospace and non-aerospace applications. The Company competes by maintaining
strict quality standards. In addition, as one of two integrated producers in the
U.S., the Company is positioned to control quality and the costs of producing
sponge, ingot, mill products, and castings.

Availability of material and lead time to produce are competitive factors
with respect to mill products and castings and distribution sales. The Company
maintains an inventory of finished and intermediate inventory to meet customers
delivery requirements. The Company also works on cycle time reduction to be more
responsive to customer needs. In addition, the Company provides engineered
products to customer specifications.

The Company estimates that its share of U.S. sponge capacity is
approximately 30% and that its share of world capacity is about 5%. While
approximately 20% of the world's sponge production capacity is located within
the U.S., up to one half is located within the FSU. After the end of the Cold
War, sponge produced in the FSU became available and has been imported into the
U.S. at low prices in increasing quantities. USGS estimates that approximately
11 million pounds of sponge annually were imported into the U.S. from the FSU
during 1994 and 1995, approximately 350% higher than the amount imported during
1993 and representing about 25% of the 1995 consumption by U.S. producers.

The titanium producers in the FSU are currently working with several U.S.
companies to have their "new production" sponge qualified for use in critical
aerospace applications. Currently, FSU sponge is subject to import tariffs of
15% and anti-dumping duties of 84%. A review of the anti-dumping duty by the
U.S. Department of Commerce is pending for the periods after August 1, 1993. An
elimination or reduction of the anti-dumping duties on sponge from the FSU could
result in additional imports of their product which in turn could reduce the
demand for sponge produced by the Company.

While the FSU producers have not been significant participants in the U.S.
market for mill products, it is believed that they have the largest titanium
mill products production capacity in the world. Imports of

34
<PAGE>
titanium ingot from the FSU totaled just under two million pounds during 1995.
While this is an increase of almost 250% from the quantity imported from the FSU
in 1994, it represents less than 5% of the estimated 1995 production of the U.S.
producers. Continued expansion into the U.S. market by FSU producers could
materially affect the operations of the Company. See "Risk Factors."

EMPLOYEE RELATIONS

As of June 30, 1996, the Company employed 657 employees, of which 54 were
employed outside of the U.S. All of the hourly production and maintenance
workers (approximately 390) at the Albany, Oregon and Frackville, Pennsylvania
manufacturing facilities are represented by labor unions. In August 1994, the
Company and the union representing the Albany, Oregon employees agreed upon a
new labor contract which will continue through July 2000. This contract can be
re-opened after three years to address economic issues. The contract covering
the Frackville, Pennsylvania employees was negotiated in September 1994, and
will continue for three years. Since 1974, the Company has not experienced a
strike or labor disruption. OREMET considers its relations with its employees
and the union to be good.

RESEARCH, TECHNICAL AND PRODUCT DEVELOPMENT

OREMET's RT&D efforts are focused on improving production processes and
developing new applications and markets for titanium. Production process
improvements have included improving sponge production efficiencies, making
technical improvements to scrap processes, revising vacuum arc melting
techniques, enhancing forging practices and improving overall yield. In
addition, the Company strives to reduce costs by shortening cycle times, by
implementing synchronous manufacturing principles and by eliminating product
rejections.

OREMET's focus on product development has resulted in the development of
high purity sponge for use by the electronics industry, consistent production of
titanium aluminides for aerospace applications and new alloys for armor and golf
applications.

In order to keep abreast of new developments, the Company maintains contact
with university and research facilities, as well as with major end users of
titanium products. These groups assess new applications for titanium and the
need for new or alternative alloys and titanium compositions. OREMET then
develops alloy systems, processes and procedures for the manufacture of new
products.

JOINT VENTURES

OREMET is involved in several joint ventures which, like its RT&D efforts,
utilize shared investment as a means to access technology or capabilities.

OREMET is a 50% partner with Precision Castparts Corporation in a joint
venture which owns a plasma furnace operated by OREMET in Albany, Oregon. The
plasma furnace produces remelt electrodes for both parties' consumption. The
venture started in 1983 and is producing in excess of 2 million pounds of
electrode per year.

OREMET is a 33% member in MZI, L.L.C., which owns an advanced ultrasonic
inspection system for testing of certain aerospace products. The other members
are Titanium Metals Corporation and Teledyne Allvac. This venture is in its
second year of operations and has inspected 2.5 million pounds of product.

REGULATORY AND ENVIRONMENTAL MATTERS

The Company is subject to federal, state and local statutes and regulations
concerning environmental matters and land use. Although the Company believes it
is in material compliance with these laws, they are frequently modified to be
more restrictive and it is impossible to predict accurately the future effect
that changes in these laws may have on the Company.

Like other titanium producers, the Company generates certain waste materials
and emissions, including materials for which disposal or emission requires
compliance with environmental protection laws. The Company conducts its
operations at industrial sites where hazardous materials have been managed for
many years in connection with its operations, including periods before careful

35
<PAGE>
management of these materials was required or generally believed to be
necessary. Consequently, the Company is subject to various environmental laws
that impose compliance obligations and can create liability for historical
releases of hazardous substances.

The Company entered into a consent order in August 1994 with the Oregon
Department of Environmental Quality pursuant to which the Company is conducting
an investigation of hazardous substances in portions of the soil and groundwater
at its plant site in Albany, Oregon. The Company anticipates that its
investigation will result in a determination that at least some remedial action
is necessary, for which an accrual has been made. A neighboring property owner
also is investigating groundwater contamination at its property that has
migrated to OREMET's property and for which OREMET may have legal claims to
recover a portion of its investigation costs.

In February 1995, the Oregon Department of Environmental Quality modified
OREMET's waste water discharge permit. The new permit imposes more stringent
discharge limits according to a specified schedule. OREMET has identified
several feasible alternatives for meeting the new limits, the most expensive of
which would require capital expenditures of approximately $700,000. OREMET is
working with the Department to explore less expensive alternatives.

In connection with the preparation of its application for a new federal
operating permit under Title V of the 1990 Clean Air Act Amendment, the Company
discovered that some of its air emissions may have been greater than previously
recognized. The Company has voluntarily reported these facts to the Oregon
Department of Environmental Quality. To resolve these issues, the Company has
agreed to undertake an evaluation of its emissions that could result in
requirements to install additional pollution control equipment. At this point,
the Company is unable to determine whether additional controls will be required,
but the Company does not believe the cost of such additional controls would have
a material effect on its capital expenditures, earnings or competitive position.

Although no claims have been filed against the Company related to the above
matters, it has completed engineering studies with regards to these
environmental matters. As a result of these studies, which are ongoing, the
Company made provisions for environmental expenses of $0, $240,000 and $970,000
in 1995, 1994 and 1993, respectively, of which approximately $909,000 remains as
of June 30, 1996. These amounts are in addition to recurring environmental costs
which are expensed as incurred and are included in cost of sales. At the present
time, management cannot reasonably predict when these environmental issues will
be resolved. See "Risk Factors."

Commencing in 1991, the Pennsylvania Department of Environmental Regulation
and the Environmental Protection Agency ("EPA") have performed periodic site
inspections, including soil and water sampling, at TI's site in Frackville,
Pennsylvania, in connection with a regional groundwater investigation of the
Frackville, Pennsylvania area. While this investigation is ongoing, the Company
has not been informed by either agency of any pending or potentially required
actions which may arise from this investigation.

In conjunction with the Company's purchase of TI, Kamyr, Inc. (the seller)
has agreed to undertake specified clean-up activities. In addition, Kamyr, Inc.
has agreed to a limited indemnification of the Company in the event damages
arise that result from conditions which were not in compliance with
environmental laws and regulations as they existed at the time OREMET purchased
TI.

FACILITIES AND PROPERTIES

The Company's principal executive office and production facilities are
located in Albany, Oregon on 210 acres of property owned (in fee without any
major encumbrances) by the Company. The Company occupies approximately 461,000
square feet in six buildings and uses approximately 65 acres on the site. The
facilities include plants for the production of titanium sponge, ingot, mill
products and castings. The Company also maintains separate facilities for
recovering magnesium and processing titanium scrap. TI's executive offices are
located in Fairfield, New Jersey and it owns (in fee without any major
encumbrances) and operates a production facility in Frackville, Pennsylvania.
The Company believes that the plants are adequate and suitable in conjunction
with the Company's access to outside

36
<PAGE>

processing vendors, for its current operating needs. Other than the facility in
Birmingham, U.K., the service centers and sales offices which the Company
utilizes are leased. See "Business -- Products" for a discussion of productive
capacity and extent of utilization.

LEGAL PROCEEDINGS

From time to time, the Company is involved in legal proceedings which arise
in the normal course of business. The Company is not currently involved as a
defendant in any pending legal proceedings where the outcome, if determined
adversely, could have a material adverse effect on the business or results of
operations of the Company.

37
<PAGE>
MANAGEMENT

The following table sets forth, as of August 1, 1996, certain information
regarding the Company's directors and executive officers.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------ --- --------------------------------------------------------
<S> <C> <C>
Carlos E. Aguirre 52 Director; President and Chief Executive Officer
Gilbert E. Bezar 66 Director
Thomas B. Boklund 57 Director
Roger V. Carter 66 Director
Nicholas P. Collins 63 Director
Howard T. Cusic 71 Director; Chairman of the Board
David H. Leonard 49 Director
James S. Paddock 55 Director; Vice President of the Company; President,
Chief Executive Officer and Chief Operating Officer of
Titanium Industries, Inc.
James R. Pate 51 Director
J. P. Byrne 44 Vice President, Manufacturing and Engineering
David G. Floyd 53 Vice President, Commercial
Dennis P. Kelly 49 Vice President, Finance; Chief Financial Officer;
Treasurer
Steven H. Reichman 53 Vice President, Technology and Corporate Development
Orval N. Thompson 81 Secretary and General Counsel
</TABLE>

ADDITIONAL INFORMATION CONCERNING DIRECTORS AND OFFICERS

Carlos E. Aguirre, Ph.D., the President and Chief Executive Officer of the
Company, has been a director since June 1993. Mr. Aguirre served as President of
Axel Johnson Metals, Inc. from 1982 to 1993. Prior to that, Mr. Aguirre was the
Vice President of Technology at Ingersoll-Johnson Steel Corporation from 1979 to
1982. Mr. Aguirre obtained a Ph.D. in Metallurgy and Material Sciences from
Carnegie Mellon University. In 1995, Mr. Aguirre was appointed President of the
International Titanium Association, the principal organization of titanium
producers and users dedicated to developing new applications and uses for
titanium.

Gilbert E. Bezar has been a director of the Company since 1983. He was Vice
President, Administration of Armco Inc.'s Strategic Metals Group from 1981 to
1985. He held the similar position with Owens-Corning Fiberglas Corporation from
1985 until his retirement in 1988.

Thomas B. Boklund has been a director of the Company since April 1996. He
has been employed by Oregon Steel Mills, Inc., since 1973 and was President and
Chief Executive Officer from 1982 to 1992, and, since 1992, Chief Executive
Officer and Chairman of the Board. Mr. Boklund is also a director of Paragon
Trade Brands, Inc., and a Trustee of the William G. Gilmore Foundation.

Roger V. Carter, selected for nomination by the salaried employees, has been
a director of the Company since 1990. He has been an independent metals
technology consulting engineer since 1986. He was employed by the Boeing Company
from 1954 and served as Chief Metallurgist and Manager of Metals Technology at
the time of his retirement in 1986.

Nicholas P. Collins, selected for nomination by the salaried employees, has
been a director of the Company since 1990. He is the Vice Chairman of ESCO
Corporation, a steel technology company, where he has been employed since 1957.

38
<PAGE>
Howard T. Cusic has been a director of the Company since 1980 and is
Chairman of the Board of Directors. He retired as Senior Vice President of
Owens-Corning Fiberglas Corporation in 1989 and was Group Vice President for
Armco Inc. from 1981 to 1985. From 1973 to 1985, he was also President of HITCO,
which was a wholly owned subsidiary of Owens-Corning Fiberglas Corporation, from
September 1985 to January 1987.

David H. Leonard, selected for nomination by the hourly employees, has been
a director of the Company since 1989. He has been a partner of the Salem, Oregon
law firm of Churchill, Leonard, Brown, Lodine and Hendrie since 1976.

James S. Paddock became a director in September 1994. Since September 1994,
he has been a Vice President of the Company and President, Chief Executive
Officer and Chief Operating Officer of TI. From 1986 to 1994 Mr. Paddock was the
President, Chief Executive Officer and Chief Operating Officer of the
predecessor company to TI.

James R. Pate, selected for nomination by the hourly employees, has been a
director of the Company since 1989. He was Manager, Business Services, Oregon
Department of Corrections from 1990 to 1993, and is currently the Financial
Services Manager, Vocational Rehabilitation Division, Oregon Department of Human
Resources.

J. P. Byrne has been Vice President, Manufacturing and Engineering, since
March 1995. Mr. Byrne was President of Byrne & Associates, a business consulting
company, in 1994. Mr. Byrne was President and Chief Executive Officer of TiLine,
Inc., and its successor company, IMI Titanium, Inc., from 1986 to 1994. Mr.
Byrne has a BS in Metallurgy from Drexel University and an MBA from the
University of Oregon.

David G. Floyd has been Vice President, Commercial, since July 1991. Mr.
Floyd was Managing Director, International Sales for RMI Titanium Company from
1984 to 1991 and held various positions in RMI's sales organization between 1977
and 1984.

Dennis P. Kelly, CPA, was appointed Vice President, Finance, Chief Financial
Officer and Treasurer of the Company in October 1993. Mr. Kelly was the Vice
President Finance, Chief Financial Officer and Treasurer of Titanium Metals
Corporation from 1985 to 1993.

Steven H. Reichman has been Vice President, Technology and Corporate
Development since November 1993. Mr. Reichman was Director of R & D at
Wyman-Gordon Company from 1983 to 1993. Mr. Reichman has a MS in Metallurgy from
Polytechnic Institute of New York.

Orval N. Thompson has been Secretary and General Counsel for the Company
since 1956 and was Treasurer until April 1988. Mr. Thompson has been a director
of the Company from April 1988 until September 1994, and for various periods
since the Company was incorporated. Mr. Thompson is of counsel to the law firm
of Weatherford, Thompson, Quick & Ashenfelter, P.C., of Albany, Oregon.

STOCK RELATED COMPENSATION PLANS

STOCK COMPENSATION PLANS. The Company established separate stock
compensation plans for the salaried and hourly employees, as groups, during 1995
where all employees, except executive officers, receive one share of Common
Stock for each $100 of compensation earned ("Stock Compensation Plans").
Executive officers of the Company are paid the cash equivalent in lieu of Common
Stock. In June 1996, the plans were amended effective April 1, 1996, such that
when the value of the Common Stock exceeds $20 per share, a partial share
entitlement of Common Stock equal to $20 will be earned for each $100 of
compensation earned.

ESOP AND EXCESS BENEFIT PLANS. The ESOP is a stock ownership plan qualified
under Section 401(a) of the Internal Revenue Code and the trust holding all the
assets of the ESOP is exempt from taxation under Section 501(a) of the Internal
Revenue Code. The Amended and Restated Excess Benefit Plan ("Excess Benefit
Plan") is an unfunded plan for participants whose allocations under the

39
<PAGE>

ESOP have been reduced as a result of limitations under federal tax law. At June
30, 1996, the ESOP trust held 1,552,043 shares (approximately 14%) of the Common
Stock and approximately 41,100 shares were issuable under the Excess Benefit
Plan.

On December 11, 1987, the ESOP acquired 6,267,281 shares of common stock
from the Company for $17 million ($2.71 per share), which funds were loaned to
the ESOP by the Company ("ESOP Loan"). All other shares of common stock of the
Company owned by the ESOP were received through annual contributions by the
Company. In adopting the ESOP and related Excess Benefit Plan, the Board of
Directors stated its belief that participation of employees in the growth and
profits of the Company through the ESOP would be a benefit to the Company.

The ESOP Loan has been repaid in full and no further shares will be
contributed by the Company to the ESOP. All shares under the ESOP and Excess
Benefit Plan were allocated to individual participants' accounts as of the end
of 1994. Participants in the ESOP have the right to direct the ESOP trustee to
vote shares of Common Stock allocated to their individual accounts in any matter
put to a shareholder vote. A participant is entitled to a distribution of all
assets held in his or her ESOP account upon the termination of employment with
the Company.

The ESOP was amended on May 20, 1996 to increase the percentage of shares
held in the ESOP whose participants may withdraw or diversify into approved
investment funds. Prior to the amendment the maximum percentage of shares which
a participant could withdraw or diversify from that participant's ESOP account
was 40%. The amendment increased the maximum percentage of shares which may be
withdrawn or diversified in 15% monthly increments, up to a maximum of 85% as of
July 30, 1996. The amendment has not been approved by the Internal Revenue
Service. Of the 1,552,043 shares of Common Stock held in the ESOP Trust as of
June 30, 1996, approximately 688,000 shares are available on or after July 30,
1996 for withdrawal or diversification at the discretion of the participant.

In addition, effective June 11, 1996, certain eligible employees of OREMET
were each granted options to buy 500 shares of Common Stock at the fair market
value at the date of grant. Such options vest 100% on the fourth anniversary of
the grant. The total number of shares subject to options is 252,000.

SAVINGS PLAN. Effective January 1, 1995, the Company adopted a Savings Plan
containing salary reduction features in which executive officers participate.
The Company contributes one share of Common Stock for each day that an employee
works. In June 1996, the Savings Plan was amended effective April 1, 1996 such
that when the value of the Common Stock exceeds $32 per share, a partial
entitlement of Common Stock equal to $32 will be contributed. As part of such
plan, the Company also makes a matching contribution based on the employee's
contribution and the profitability of the Company. In no event will such match
exceed 3% of an employee's compensation.

LONG-TERM INCENTIVE PROGRAM. The Company adopted a Long Term Incentive
Compensation Stock Appreciation Rights Plan ("SAR Plan") in December of 1995
under which stock appreciation rights ("SARs") may be awarded to certain key
executive officers and senior managers. In December 1995, 166,500 SARs were
granted at the fair market price at the date of grant, of which 96,000 were
granted to named executive officers. Grants will be awarded periodically to
executive officers of the Company as determined by the Board of Directors other
than interested directors. The SARs vest as follows: less than second
anniversary of grant ("anniversary"), 0%; second anniversary, 50%; third
anniversary, 75%; and fourth anniversary, 100%. The SARs also fully vest upon
the death or disability of the participant, or upon a change in control of
OREMET. SARs will be forfeited if the participant is terminated for "cause" (as
defined in the SAR Plan). The SARs are payable only in cash, and the employee
receives the difference between the market value of Common Stock on the date of
exercise, less the grant price. The SAR Plan will expire in 2005 unless extended
by the Board of Directors.

40
<PAGE>
DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, $1.00 par value per share. As of June 30, 1996, there were
11,416,757 shares of Common Stock outstanding, excluding 1,180,946 shares of
Common Stock reserved for issuance under various employee benefit plans, 252,000
shares issuable upon exercise of stock options and 120,000 shares issuable upon
exercise of the stock purchase warrant. Holders of Common Stock have no
preemptive rights or rights to convert their shares of Common Stock into any
other securities. The Common Stock is not subject to redemption. In the event of
a liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to receive pro rata all assets of the Company remaining after
payment of debts and liquidation preferences. All of the shares of Common Stock
issued and outstanding as of the date of this Prospectus are, and the shares of
Common Stock offered hereby will be, fully paid and nonassessable.

Holders of Common Stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors of the Company out of funds
legally available for the payment of dividends.

VOTING

Each holder of shares of Common Stock is entitled to one vote for each share
upon all matters presented to shareholders except as provided in Section 60.807
of the Oregon Business Corporation Act ("OBCA"). In the election of directors,
the shareholders have cumulative voting rights and are therefore entitled to
cast a number of votes equal to the number of shares held by such shareholder
multiplied by the number of directors to be elected. These votes may all be cast
for a single nominee or distributed in any proportion among any number of
nominees.

The Articles of Incorporation of the Company, as amended, provide that, if
less than 25% of the Company's outstanding stock is held by defined contribution
employee benefit plans which are qualified under Internal Revenue Code Section
401(a), two of the nine members of the Board of Directors shall be nominated as
follows: one shall be nominated by the Company's employees affiliated with the
United Steelworkers of America, Local 7150 and one shall be nominated by the
Company's employees who are not affiliated with the Union, not employed by TI
and not employed outside the U.S. An amendment to the Articles of Incorporation
must be approved by a majority of the votes entitled to be cast on the
amendment.

CERTAIN PROVISIONS OF OREGON LAW

The Company is subject to certain provisions of Oregon law that may
discourage or render more difficult an unsolicited takeover of OREMET.
Generally, Section 60.835 of the OBCA prohibits a publicly held Oregon
corporation from engaging in a "business combination" with an "interested
shareholder" for a period of three years after the date of the transaction in
which the person became an interested shareholder, unless (i) prior to such
date, the board of directors of the corporation approved either the business
combination or the transactions which resulted in a shareholder becoming an
interested shareholder, (ii) upon consummation of the transaction which resulted
in the shareholder becoming an interested shareholder, the interested
shareholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned by (A) persons
who are directors and also officers and (B) employee share plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer
or (iii) on or subsequent to the date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
shareholders, and not by written consent, by the affirmative vote of at least
66 2/3 percent of the outstanding voting stock which is not owned by the
interested shareholder. A "business combination" includes mergers, asset sales
and other transactions resulting in financial benefit to the interested
shareholder. An "interested shareholder" is, in general, a person (other than
the corporation and any direct or indirect majority-owned subsidiary of the

41
<PAGE>
corporation) who together with affiliates and associates owns (or within three
years, did own if the person is an affiliate or associate of the corporation)
15% or more of the corporation's outstanding voting stock. See "Risk Factors."

Another provision of Oregon law restricts voting rights with respect to
certain shares acquired in an acquisition that causes the voting power of the
acquiring person to exceed certain levels. As permitted by Oregon law, however,
the Company has elected not to be subject to these provisions.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is First Interstate
Bank of Oregon, N.A.

42
<PAGE>
UNDERWRITING

Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") among the Company and each of the underwriters
named below (the "Underwriters"), for whom Salomon Brothers Inc, Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Pacific Crest Securities Inc. are acting
as representatives (the "Representatives"), the Company has agreed to sell to
each of the Underwriters and each such Underwriter has severally agreed to
purchase from the Company the number of shares of Common Stock set forth
opposite its name in the table below:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- -----------
<S> <C>
Salomon Brothers Inc.............................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...........................................................
Pacific Crest Securities Inc.....................................................
-----------
Total........................................................................ 3,500,000
-----------
-----------
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
to purchase the shares of Common Stock listed above are subject to certain
conditions set forth therein. The Underwriters are committed to purchase all of
the shares of Common Stock offered by this Prospectus (other than those covered
by the over-allotment option described below), if any are purchased. In the
event of default by any Underwriter, the Underwriting Agreement provides that,
in certain circumstances, the purchase commitments of the non-defaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.

The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock offered hereby to the public at
the public offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a discount not in excess of $ per share of
Common Stock. The Underwriters may allow, and such dealers may reallow, a
discount not in excess of $ per share of Common Stock on sales to certain
other dealers. After the Offering, the public offering price and such discounts
may be changed.

The Company has granted the Underwriters an option to purchase an aggregate
of up to an additional 525,000 shares of Common Stock at the public offering
price less the aggregate underwriting discount, solely to cover over-allotments.
To the extent such option is exercised, each Underwriter will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares of Common Stock as the percentage it was obligated to
purchase pursuant to the Underwriting Agreement.

The Underwriting Agreement provides that the Company will indemnify the
several Underwriters against certain liabilities under the Securities Act, or
contribute to payments the Underwriters may be required to make in respect
thereof.

The Company has agreed that, without the prior written consent of Salomon
Brothers Inc, it will not, directly or indirectly, offer to sell, contract to
sell, sell or otherwise dispose of, or announce the offering of, any shares of
Common Stock or securities convertible into or exchangeable or exercisable for
shares of Common Stock (except the shares sold to the Underwriters pursuant to
the over-allotment option) for a period of 180 days after the date of the
Underwriting Agreement, except the Company may issue shares under the Savings
Plan, Excess Benefit Plan, the Stock Compensation Plans and the warrant. Certain
senior executive officers of the Company and the directors have agreed not to
offer, sell or otherwise dispose of, any shares of Common Stock for a period of
90 days following the date of this Prospectus without the prior consent of
Salomon Brothers Inc. Salomon Brothers Inc currently does not intend to release
any securities subject to such lock-up agreements, but may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to such lock-up agreements.

The Underwriters have informed the Company that they do not intend to
confirm sales of Common Stock for any customer's account over which they
exercise discretionary authority without the prior written approval of such
customer.

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<PAGE>
LEGAL MATTERS

Certain legal matters in connection with the shares of Common Stock offered
hereby will be passed upon for the Company by Schwabe, Williamson & Wyatt, P.C.,
Portland, Oregon. Latham & Watkins, San Francisco, California will act as
counsel for the Underwriters. Latham & Watkins will rely upon the opinion of
Schwabe, Williamson & Wyatt, P.C., as to certain matters of Oregon law.

EXPERTS

The consolidated balance sheets as of December 31, 1995 and 1994 and the
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1995, incorporated by
reference in this Prospectus, have been included herein in reliance on the
report of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents heretofore filed by the Company with the Commission
(file no. 0-1339) are incorporated by reference herein:

(a) Annual Report on Form 10-K for the year ended December 31, 1995.

(b) Quarterly Report on Form 10-Q for the period ended March 31, 1996.

(d) Proxy Statement dated March 15, 1996 for its 1996 Annual Meeting of
Shareholders.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Offering made hereby shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of the filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.

The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus has been delivered, on
written or oral request, a copy of any and all of the documents incorporated in
this Prospectus by reference, other than exhibits to such documents not
specifically incorporated by reference therein. Requests for such copies should
be directed to Oregon Metallurgical Corporation, at its principal executive
offices located at 530 34th Avenue, S.W., Albany, Oregon 97321, Attention:
Dennis P. Kelly, Vice President, Finance (telephone: (541) 967-9000).

44
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
Report of Independent Accountants.................................................................. F-2
Consolidated Statements of Operations for the years ended December 31, 1993, 1994 and 1995, and for
the six months ended June 30, 1995 and 1996 (unaudited)........................................... F-3
Consolidated Balance Sheets as of December 31, 1994 and 1995, and as of June 30, 1996
(unaudited)....................................................................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31, 1993, 1994 and
1995, and for the six months ended June 30, 1996 (unaudited)...................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995, and for
the six months ended June 30, 1995 and 1996 (unaudited)........................................... F-6
Notes to Consolidated Financial Statements......................................................... F-7 to F-20
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
OREGON METALLURGICAL CORPORATION

We have audited the accompanying consolidated balance sheets of Oregon
Metallurgical Corporation and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Oregon
Metallurgical Corporation and subsidiaries as of December 31, 1995 and 1994, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.

COOPERS & LYBRAND L.L.P.

Eugene, Oregon
February 16, 1996, except for the
second paragraph of Note 8, as to
which the date is March 1, 1996

F-2
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------- ----------------------
1993 1994 1995 1995 1996
--------- --------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................................... $ 55,351 $ 71,166 $ 146,853 $ 65,963 $ 110,069
Cost of sales, including a provision for future
losses on long-term agreements of $4,417 in 1995
(See Note 6)....................................... 52,636 64,527 131,002 55,340 85,440
--------- --------- ----------- --------- -----------
Gross profit.................................... 2,715 6,639 15,851 10,623 24,629
Research, technical and product development
expenses........................................... 773 1,376 1,595 719 943
Selling, general and administrative expenses........ 5,124 7,517 14,512 6,944 9,158
Provisions for estimated environmental costs 970 240 -- -- --
Restructuring cost.................................. 2,027 -- -- -- --
--------- --------- ----------- --------- -----------
Income (loss) from operations................... (6,179) (2,494) (256) 2,960 14,528
Interest income..................................... 816 391 -- -- --
Interest expense.................................... (532) (606) (2,104) (1,040) (1,335)
Minority interests.................................. -- (29) (480) (218) (470)
--------- --------- ----------- --------- -----------
Income (loss) before income tax benefit
(expense)...................................... (5,895) (2,738) (2,840) 1,702 12,723
Income tax benefit (expense)........................ 1,797 715 425 (714) (4,192)
--------- --------- ----------- --------- -----------
Net income (loss)............................... $ (4,098) $ (2,023) $ (2,415) $ 988 $ 8,531
--------- --------- ----------- --------- -----------
--------- --------- ----------- --------- -----------
Net income (loss) per share......................... $ (0.38) $ (0.18) $ (0.22) $ 0.09 $ 0.75
--------- --------- ----------- --------- -----------
--------- --------- ----------- --------- -----------
Weighted average common shares and equivalents
outstanding........................................ 10,839 11,001 11,219 11,132 11,418
--------- --------- ----------- --------- -----------
--------- --------- ----------- --------- -----------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Current assets:
Cash and cash equivalents............................................... $ 1,636 $ 572 $ 1,071
Accounts receivable, less allowance for doubtful accounts of $858,
$1,257 and $1,907...................................................... 20,444 25,894 34,697
Inventories............................................................. 49,023 66,010 81,297
Prepayments and other current assets.................................... 1,352 689 601
Deferred tax assets..................................................... 517 3,242 2,536
----------- ----------- -----------
Total current assets.................................................. 72,972 96,407 120,202
Property, plant and equipment, net........................................ 37,520 35,138 34,512
Other assets, net......................................................... 1,480 1,532 1,438
----------- ----------- -----------
TOTAL ASSETS........................................................ $ 111,972 $ 133,077 $ 156,152
----------- ----------- -----------
----------- ----------- -----------

LIABILITIES
Current liabilities:
Current portion of long-term debt....................................... $ 13 $ 616 $ 2,250
Book overdraft.......................................................... -- 2,014 2,331
Accounts payable........................................................ 16,860 16,973 16,829
Accrued payroll and employee benefits................................... 2,944 6,659 9,016
Accrued loss on long-term agreements.................................... -- 2,781 2,781
Other accrued expenses.................................................. 4,073 3,595 4,282
----------- ----------- -----------
Total current liabilities............................................. 23,890 32,638 37,489
Long-term debt, less current portion...................................... 17,164 26,746 31,103
Deferred tax liabilities.................................................. 1,098 3,149 3,433
Deferred compensation payable............................................. 881 678 243
Accrued postretirement benefit............................................ 1,457 1,563 1,638
Accrued loss on long-term agreements, less current portion................ -- 1,636 1,059
Minority interests........................................................ 200 780 1,299
----------- ----------- -----------
Total liabilities..................................................... 44,690 67,190 76,264
----------- ----------- -----------
Commitments and contingencies (Note 11)

SHAREHOLDERS' EQUITY
Common stock, $1.00 par value; shares authorized, 25,000; shares issued
and outstanding; 1994 -- 10,893; 1995 -- 11,018; 1996 -- 11,417.......... 10,893 11,018 11,417
Additional paid-in capital................................................ 37,445 38,340 43,409
Retained earnings......................................................... 18,960 16,545 25,076
Cumulative foreign currency translation adjustment........................ (16) (16) (14)
----------- ----------- -----------
Total shareholders' equity............................................ 67,282 65,887 79,888
----------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......................... $ 111,972 $ 133,077 $ 156,152
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)

<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON STOCK ADDITIONAL CURRENCY NOTE
-------------------- PAID-IN RETAINED TRANSLATION RECEIVABLE
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT ESOP TOTAL
--------- --------- ----------- --------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1992............ 10,827 $ 10,827 $ 37,149 $ 25,081 $ -- $ (4,655) $ 68,402
Repayment of loan by ESOP.............. -- -- -- -- -- 2,429 2,429
Issuance of common stock for:
Employee benefits.................... 8 8 59 -- -- -- 67
Restructuring cost................... 53 53 212 -- -- -- 265
Net loss............................... -- -- -- (4,098) -- -- (4,098)
--------- --------- ----------- --------- --- ----------- ---------
Balances, December 31, 1993............ 10,888 10,888 37,420 20,983 -- (2,226) 67,065
Repayment of loan by ESOP.............. -- -- -- -- -- 2,226 2,226
Issuance of common stock for employee
benefits.............................. 5 5 25 -- -- -- 30
Currency translation adjustment........ -- -- -- -- (16) -- (16)
Net loss............................... -- -- -- (2,023) -- -- (2,023)
--------- --------- ----------- --------- --- ----------- ---------
Balances, December 31, 1994............ 10,893 10,893 37,445 18,960 (16) -- 67,282
Issuance of common stock for employee
benefits.............................. 125 125 895 -- -- -- 1,020
Net loss............................... -- -- -- (2,415) -- -- (2,415)
--------- --------- ----------- --------- --- ----------- ---------
Balances, December 31, 1995............ 11,018 11,018 38,340 16,545 (16) -- 65,887
Issuance of common stock for employee
benefits (unaudited).................. 319 319 3,136 -- -- -- 3,455
Exercise of stock purchase warrant
(unaudited)........................... 80 80 430 -- -- -- 510
Tax benefits on issuance of common
stock for employee benefits
(unaudited)........................... -- -- 1,503 -- -- -- 1,503
Currency translation adjustment
(unaudited)........................... -- -- -- -- 2 -- 2
Net income (unaudited)................. -- -- -- 8,531 -- -- 8,531
--------- --------- ----------- --------- --- ----------- ---------
Balances, June 30, 1996 (unaudited).... 11,417 $ 11,417 $ 43,409 $ 25,076 $ (14) $ -- $ 79,888
--------- --------- ----------- --------- --- ----------- ---------
--------- --------- ----------- --------- --- ----------- ---------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE
DECEMBER 31, 30,
----------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)........................................ $ (4,098) $ (2,023) $ (2,415) $ 988 $ 8,531
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization.......................... 3,937 4,014 4,632 2,329 2,295
Loss on disposition of assets.......................... 1,000 -- -- -- --
Deferred income tax expense (benefit).................. (403) (1,434) (674) 559 990
Employee benefits paid or payable in common stock...... -- 125 2,666 1,107 3,490
Provision for loss on long-term agreements............. -- -- 4,417 1,300 (577)
Minority interests..................................... -- 29 480 218 470
Changes in current assets and liabilities, net of
effects of acquisition of a business:
Accounts receivable.................................. (3,141) (4,158) (5,450) (6,108) (8,803)
Inventories.......................................... (930) (12,209) (16,987) (11,253) (15,287)
Prepayments and other current assets................. 1,174 1,107 663 714 88
Accounts payable..................................... 1,161 7,198 113 2,766 (144)
Accrued payroll and employee benefits................ 211 1,577 2,153 1,025 2,003
Other accrued expenses............................... 1,204 920 (478) 623 2,190
Other.................................................. 726 395 (89) (46) 8
---------- ---------- ----------- ---------- ----------
Net cash provided by (used in) operating activities........ 841 (4,459) (10,969) (5,778) (4,746)
---------- ---------- ----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of a business, net of cash acquired.......... -- (8,223) -- -- --
Additions to property, plant and equipment............... (1,244) (1,929) (1,914) (733) (1,535)
Short-term investments -- purchased...................... (15,651) (1,228) -- -- --
Short-term investments -- redeemed....................... 14,856 8,811 -- -- --
Other.................................................... 65 (111) (334) (429) (40)
---------- ---------- ----------- ---------- ----------
Net cash used in investing activities...................... (1,974) (2,680) (2,248) (1,162) (1,575)
---------- ---------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from revolving credit agreements................ -- 40,361 107,049 58,439 103,865
Payments on revolving credit agreements.................. -- (27,865) (97,800) (52,604) (97,980)
Capitalized loan fees and acquisition costs.............. -- (1,260) (54) -- --
Proceeds from long-term debt............................. -- -- 990 -- 177
Payments of long-term debt............................... (3,350) (4,754) (54) (6) (71)
Book overdraft........................................... -- -- 2,014 -- 317
Proceeds from note receivable -- ESOP.................... 2,429 2,226 -- -- --
Proceeds from exercise of stock purchase warrant......... -- -- -- -- 510
Other.................................................... -- 46 -- -- --
---------- ---------- ----------- ---------- ----------
Net cash provided by (used in) financing activities........ (921) 8,754 12,145 5,829 6,818
---------- ---------- ----------- ---------- ----------
Effect of exchange rates on cash and cash equivalents...... -- (16) 8 1 2
---------- ---------- ----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents....... (2,054) 1,599 (1,064) (1,110) 499
Cash and cash equivalents, beginning of period............. 2,091 37 1,636 1,636 572
---------- ---------- ----------- ---------- ----------
Cash and cash equivalents, end of period................... $ 37 $ 1,636 $ 572 $ 526 $ 1,071
---------- ---------- ----------- ---------- ----------
---------- ---------- ----------- ---------- ----------
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

OPERATIONS -- Oregon Metallurgical Corporation ("OREMET") and subsidiaries
(the "Company") is one of two U.S. integrated producers and distributors of
titanium sponge, ingot, mill products and castings for use in the aerospace,
industrial, golf and military markets. Titanium Industries, Inc. ("TI"), an 80%
owned subsidiary, operates full-line titanium metal service centers in the U.S.,
Canada, U.K. and Germany and produces small diameter bar, weld wire and fine
wire. As of December 31, 1995 and June 30, 1996, the Company is owned 35% and
14%, respectively, by the Oregon Metallurgical Corporation Employee Stock
Ownership Plan (the "ESOP").

In September 1994, the Company completed the acquisition of the net
operating assets and subsidiaries of Titanium Industries Distribution Group from
Kamyr, Inc. The acquisition cost of approximately $13,502 was funded by $5,000
in cash, $4,002 of bank financing and $4,500 of seller financing. The
acquisition of TI was accounted for as a purchase, with its results included in
the Company's financial statements from the acquisition date.

BASIS OF CONSOLIDATION -- The consolidated financial statements include the
accounts of OREMET, TI and another wholly-owned subsidiary. All material
intercompany accounts and transactions are eliminated in consolidation.

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

CASH AND CASH EQUIVALENTS -- The Company classifies all cash on deposit with
banks and all highly liquid debt investments purchased with a maturity of 90
days or less as cash and cash equivalents.

CONCENTRATIONS OF CREDIT RISK -- Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash
and cash equivalents and trade receivables. The Company places its cash and cash
equivalents with high credit quality financial institutions and limits the
amount of credit exposure at any one financial institution. At times, temporary
cash investments may be in excess of the Federal Deposit Insurance Corporation
insurance limit. Management believes that risk of loss on the Company's trade
receivables is significantly reduced by ongoing credit evaluations of customers'
financial condition. Generally, the Company does not require collateral.

INVENTORIES -- Inventories are carried at the lower of cost or market. Cost
is determined using the weighted average cost method. Inventory costs generally
include material, labor cost and manufacturing overhead.

PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are recorded
at historical cost. Depreciation is provided using the straight-line method over
the estimated useful lives of the assets for financial reporting purposes; and,
accelerated methods are used for income tax reporting purposes. The cost and
accumulated depreciation applicable to assets retired are removed from the
accounts and the gain or loss on disposition is recognized in the statement of
operations.

EXCESS OF COST OVER NET ASSETS ACQUIRED -- The excess of cost over the fair
value of net assets acquired of TI of $857 is included in other assets and is
being amortized on a straight-line basis over 15 years. Accumulated amortization
was $70 and $13 in 1995 and 1994, respectively.

INCOME TAXES -- The Company uses the liability method to record deferred tax
assets and liabilities based on the difference between the financial reporting
and tax bases of assets and liabilities.

F-7
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

FORWARD FOREIGN EXCHANGE CONTRACTS -- The Company may enter into forward
foreign exchange contracts as a hedge against fluctuations relating to net
foreign currency transactions and commitments denominated in foreign currencies.
Gains and losses on forward contracts are deferred and offset against foreign
exchange gains or losses on the underlying hedged items.

FOREIGN CURRENCY TRANSLATION -- The Company's foreign subsidiaries' accounts
are measured using local currency as the functional currency. Assets and
liabilities are translated at the exchange rate in effect at year end. Revenues
and expenses are translated at the average rate of exchange prevailing during
the year. Translation adjustments arising from differences in exchange rates
from period to period are included in the cumulative adjustment account in
shareholders' equity, net of related deferred income taxes.

NET INCOME (LOSS) PER SHARE -- Net income (loss) per share is based on the
weighted average number of shares of common stock and common stock equivalents
outstanding. Common stock equivalents consist of stock options, warrants and
amounts due to be settled in shares pursuant to OREMET's benefit plans. Common
stock equivalents are computed using the treasury stock method.

REVENUE RECOGNITION -- Revenues from the sale of commercial products are
primarily recognized upon shipment. Revenues from long-term, fixed price
agreements are recognized as the product is shipped. Estimated losses at
completion of agreements are recognized and charged to income in the period such
losses are estimated.

ACCOUNTING STANDARDS PRONOUNCEMENTS -- For the year ended December 31, 1995,
the Company has adopted Statement of Financial Accounting Standards ("SFAS")
Board No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." The Standard requires that long-lived
assets and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount on an asset may not be recoverable. The adoption of
SFAS No. 121 had no effect on the Company's financial position or results of
operations.

The Company expects to elect the disclosure alternative proscribed by SFAS
No. 123, "Accounting for Stock-Based Compensation," and account for the
Company's stock-based employee compensation in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees" and its various interpretations. Under APB No. 25, no compensation
cost is generally recognized for fixed stock options in which the exercise price
is not less than the market price of the Common Stock on the grant date. Under
the disclosure alternative of SFAS No. 123, the Company will disclose, starting
with its 1996 fiscal year, its respective pro forma net income and earnings per
share as if the fair value based accounting method of SFAS No. 123 had been used
to account for stock-based compensation cost for all awards granted by the
Company after January 1, 1996.

RECLASSIFICATIONS -- Certain amounts in the 1993, 1994 and 1995 financial
statements have been reclassified to conform with the current year's
presentation. The reclassifications do not affect previously reported results of
operations or cash flows.

F-8
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)

UNAUDITED INTERIM FINANCIAL INFORMATION -- The consolidated balance sheet at
June 30, 1996, the consolidated statement of operations and cash flows for the
six-month interim periods ended June 30, 1995 and 1996, and the consolidated
statement of shareholders' equity for the six-month interim period ended June
30, 1996 have been prepared by the Company without audit. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the interim financial information have been made.
The results of operations for interim periods are not necessarily indicative of
the operating results of a full year or of future years.

2. ADDITIONAL STATEMENT OF CASH FLOWS INFORMATION:
The Company's noncash investing and financing activities and cash payments
for interest and income taxes are as follows:

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Cash paid (received) for:
Interest........................................ $ 523 $ 614 $ 2,253 $ 1,040 $ 1,330
Income taxes (refunds, net of payments)......... (2,817) (1,327) 9 20 1,175
Noncash investing and financing activities:
Acquisition of business, net of cash acquired:
Working capital, other than cash.............. $ (9,630)
Property, plant and equipment................. (3,278)
Long-term debt assumed........................ 185
Note payable issued to seller................. 4,500
---------
$ (8,223)
---------
---------
Issuance of common stock for employee benefits
including related tax benefits................. $ 67 $ 30 $ 1,020 $ 36 $ 4,958
</TABLE>

3. INVENTORIES:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Finished goods..................................................... $ 14,656 $ 18,141 $ 21,118
Work-in-progress................................................... 15,288 19,837 26,053
Raw materials...................................................... 19,079 28,032 34,126
--------- --------- -----------
Total.......................................................... $ 49,023 $ 66,010 $ 81,297
--------- --------- -----------
--------- --------- -----------
</TABLE>

F-9
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)

4. PROPERTY, PLANT AND EQUIPMENT:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Land............................................................... $ 1,189 $ 1,189 $ 1,189
Buildings and improvements......................................... 11,087 11,455 11,455
Machinery and equipment............................................ 39,940 42,248 42,592
Integrated sponge facility......................................... 45,309 45,641 45,660
Construction in progress........................................... 1,976 846 1,966
--------- --------- -----------
99,501 101,379 102,862
Less accumulated depreciation...................................... 61,981 66,241 68,350
--------- --------- -----------
$ 37,520 $ 35,138 $ 34,512
--------- --------- -----------
--------- --------- -----------
</TABLE>

5. OTHER ACCRUED EXPENSES:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Accrual for estimated environmental costs............................ $ 1,150 $ 909 $ 909
Sales returns and allowances......................................... 1,050 607 1,041
Income taxes payable................................................. 755 478 1,245
Other................................................................ 1,118 1,601 1,087
--------- --------- -----------
$ 4,073 $ 3,595 $ 4,282
--------- --------- -----------
--------- --------- -----------
</TABLE>

6. PROVISION FOR LOSS ON LONG-TERM AGREEMENTS:

The Company has historically entered into long-term agreements ("LTAs") with
certain customers, primarily in the aerospace industry. The LTAs typically
obligate the Company to sell the product at a fixed price for a two or
three-year period. As a result of projected raw materials and processing costs
being higher than anticipated when the LTAs were executed, the Company recorded
a provision for loss on LTAs of $1,300 during the six months ended June 30, 1995
and $5,717 during the year ended December 31, 1995, of which $4,417 and $3,840
remains outstanding at December 31, 1995 and June 30, 1996, respectively.

7. INCOME TAXES:
The income tax provision (benefit) consists of the following:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED
DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Current provision (benefit):
Federal............................................ $ (1,583) $ 422 $ (372) $ 21 $ 2,634
State.............................................. 18 80 155 78 430
Foreign............................................ -- -- 466 56 138
Deferred provision (benefit)......................... (232) (1,217) (674) 559 990
--------- --------- --------- --------- ---------
Total tax provision (benefit).................... $ (1,797) $ (715) $ (425) $ 714 $ 4,192
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

F-10
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)

7. INCOME TAXES: (CONTINUED)
The differences between the Company's income tax provision (benefit) and the
federal income tax provision (benefit) at statutory rates are as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED
DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Federal provision (benefit) at statutory rates......... $ (2,004) $ (931) $ (966) $ 579 $ 4,453
State tax provision (benefit).......................... (389) (179) (193) 77 579
Change in valuation allowance.......................... 597 216 1,138 -- (901)
Alternative minimum tax limitation..................... 212 -- 21 21 --
Adjustment of prior-year tax accrual................... -- -- (264) -- --
Other.................................................. (213) 179 (161) 37 61
--------- --------- --------- --------- ---------
Total.............................................. $ (1,797) $ (715) $ (425) $ 714 $ 4,192
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

At December 31, 1995, the Company has net operating loss carryforwards for
federal and state income tax purposes, which may be used to offset future
taxable income. These operating loss carryforwards expire as follows:

<TABLE>
<CAPTION>
YEAR FEDERAL STATE
- ---------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
2006.............................................................................. $ -- $ 12,241
2007.............................................................................. -- 8,593
2008.............................................................................. 667 6,917
2009.............................................................................. 2,838 2,288
--------- ---------
$ 3,505 $ 30,039
--------- ---------
--------- ---------
</TABLE>

At December 31, 1995, the Company also had federal alternative minimum tax
("AMT") and state credit carryforwards of $717 and $151, respectively, which may
be utilized to offset regular income taxes payable in future years. The AMT has
an indefinite carryforward period. The state credits expire in 1996 and 1997.

F-11
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)

7. INCOME TAXES: (CONTINUED)
The components of the deferred taxes are as follows:

<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Deferred tax assets:
Tax loss and credit carryforwards............................................ $ 3,881 $ 4,089
Pension, retirement and other employment related items....................... 1,722 1,715
Allowance for doubtful accounts.............................................. 346 455
Safe harbor lease............................................................ 296 215
Environmental accrual........................................................ 467 350
Capitalized inventory costs.................................................. 619 281
Provision for losses on long-term agreements................................. -- 1,627
Other........................................................................ 345 871
Less valuation allowance..................................................... (1,810) (2,948)
--------- ---------
5,866 6,655
Deferred tax liabilities:
Accumulated depreciation and amortization.................................... 6,421 6,562
Other........................................................................ 26 --
--------- ---------
6,447 6,562
--------- ---------
Net deferred tax assets (liabilities)...................................... $ (581) $ 93
--------- ---------
--------- ---------
Balance sheet classification:
Current deferred tax assets.................................................. $ 517 $ 3,242
Long-term deferred tax liabilities........................................... (1,098) (3,149)
--------- ---------
Net deferred tax assets (liabilities)...................................... $ (581) $ 93
--------- ---------
--------- ---------
</TABLE>

The Company has recorded a valuation allowance with respect to certain
deferred tax assets as a result of the uncertainty of their future realization.
Realization is dependent on generating sufficient taxable income prior to
expiration of net operating loss carryforwards and the reversal of certain
deferred tax credits. The amount of the deferred tax assets considered
realizable, however, could be increased in the near term if estimates of future
taxable income during the carryforward period are increased.

The Company's lower effective tax rate for the six months ended June 30,
1996 is largely due to an adjustment to the deferred tax valuation allowance to
reflect the belief that it is more likely than not that the deferred tax assets
will be realized.

8. LONG-TERM DEBT:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
U.S. revolving credit agreement.................................... $ 12,496 $ 21,228 $ 26,121
U.K. based credit facility......................................... -- 517 1,509
Subordinated loan from Kamyr, Inc.................................. 4,500 4,500 4,500
Obligations under capital leases (see Note 11) and other........... 181 1,117 1,223
--------- --------- -----------
17,177 27,362 33,353
Less current maturities............................................ 13 616 2,250
--------- --------- -----------
$ 17,164 $ 26,746 $ 31,103
--------- --------- -----------
--------- --------- -----------
</TABLE>

F-12
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)

8. LONG-TERM DEBT: (CONTINUED)

U.S. REVOLVING CREDIT AGREEMENT -- The Company may borrow up to $28,000
under the terms of a revolving credit agreement with a U.S. bank at an interest
rate of prime (8.5% at December 31, 1995 and 8.25% at June 30, 1996) plus 1.5%,
or LIBOR (6.43% at December 31, 1995 and 5.938% at June 30, 1996) plus 2.5%. The
Company has exercised the LIBOR option. Borrowings under the agreement are
collateralized by accounts receivable, inventories and other intangible assets,
including the Company's stock in TI. The Company must pay a nonuse fee of .5%
annually on the unused portion of the commitment. The credit agreement matures
in September 1997 and can be renewed for one-year periods with the consent of
both parties. The credit agreement contains restrictive covenants with regard to
various financial ratios and imposes limitations on capital expenditures and
dividends. Annual cash dividends are limited to the lesser of fifty percent
(50%) of net income or $1.8 million. See Note 15.

As of December 31, 1995, the Company was not in compliance with certain
covenants principally relating to interest coverage and minimum net worth
requirements. On March 1, 1996, the Company obtained a written waiver from the
lender with respect to the violations which existed at December 31, 1995. The
Company was in compliance with its covenants at June 30, 1996 and believes that
it will be in compliance with its financial covenants in the future.

U.K. BASED CREDIT FACILITY -- On January 19, 1996, Titanium International
Limited ("TIL"), a wholly-owned subsidiary of TI, amended its credit facility
with Midland Bank plc. The facility provides for a credit facility of
approximately $2,300, a foreign exchange facility for $900 and other guarantees
of approximately $450. Aggregate borrowings which include parent loans cannot
exceed TIL's shareholders' equity less intangible assets. The credit facility is
collateralized by the assets of TIL only. Interest is to be charged at the rate
of 1.5% over Midland Bank's base rate on amounts borrowed up to $1,500 and 2%
over Midland Bank's base rate on amounts borrowed in excess of $1,500. The
credit facility has financial covenants pertaining to net worth and prepayment
of a loan to TI. The Bank has the option of terminating the availability of
credit at its discretion and the facility is subject to review on December 31,
1996.

SUBORDINATED LOAN FROM KAMYR, INC. -- On September 19, 1994, as part of the
Company's acquisition of TI, TI entered into a subordinated debt agreement with
the seller, Kamyr, Inc., for $4,500, interest at 8%, payable quarterly. The
initial principal payment of $300 is due March 1997, with additional quarterly
installments of $350 through March 2000. The subordinated debt agreement
includes covenants relative to shareholders' equity, the maximum amount of
senior debt, financial ratios and restrictions on dividends, new borrowings and
guarantees and liens. The loan is collateralized by a second lien on the
accounts receivable, inventories, and general intangibles of TI.

Aggregate contractual maturities of long-term debt approximate the following
at December 31, 1995:

<TABLE>
<S> <C>
1996...................................................... $ 616
1997...................................................... 22,683
1998...................................................... 1,512
1999...................................................... 1,518
2000...................................................... 491
Thereafter................................................ 542
---------
$ 27,362
---------
---------
</TABLE>

F-13
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)

9. STOCK PURCHASE WARRANTS:
At December 31, 1995, warrants to purchase 200 thousand shares of Common
Stock were outstanding in connection with the Company's acquisition of TI (see
Note 15). The warrants were issued at fair market value and are exercisable at
$6.375 per share, expiring in September 2004. The warrant holder is the
president of TI, who is also an officer and director of the Company.

10. EMPLOYEE BENEFIT PLANS:

PENSION PLANS -- OREMET has pension plans covering its eligible hourly and
salaried employees. The cost of these plans was $1,274, $1,287, $1,581 for the
years ended 1993, 1994, and 1995, and $561 and $812 for the six months ended
June 30, 1995 and 1996, respectively. OREMET's hourly employees are covered by a
union pension plan, the contributions for which are based on a fixed rate per
hour established under a negotiated union contract.

Salaried employees who have completed at least one year of service and have
reached age 21 are covered by the defined benefit pension plan. The benefits
under this plan are based on years of service and an employee's final average
earnings. The plan's assets consist of interest-bearing obligations and equities
(principally listed securities). The following table sets forth the amounts
recognized in the Company's financial statements for the salaried plan:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Pension costs for the year:
Service cost............................................................ $ 565 $ 522 $ 474
Interest cost........................................................... 779 859 981
Actual return on plan assets............................................ (717) (250) (2,252)
Net amortization of deferral............................................ 119 (397) 1,571
--------- --------- ---------
Net pension cost...................................................... $ 746 $ 734 $ 774
--------- --------- ---------
--------- --------- ---------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Plan assets at fair value..................................................... $ 9,863 $ 12,246
--------- ---------
Actuarial value of benefits based on employment service to date and present
pay levels:
Vested...................................................................... 7,976 10,036
Nonvested................................................................... 300 528
--------- ---------
Accumulated benefit obligation................................................ 8,276 10,564
Additional amounts related to projected compensation increases................ 2,550 4,443
--------- ---------
Projected benefit obligation.................................................. 10,826 15,007
--------- ---------
Projected benefit obligation in excess of plan assets....................... (963) (2,761)
Unrecognized net obligation................................................... 276 237
Unrecognized prior service cost............................................... 182 255
Unrecognized net loss from experience different from actuarial assumptions.... 76 1,874
--------- ---------
Prepaid pension cost (pension liability).................................. $ (429) $ (395)
--------- ---------
--------- ---------
</TABLE>

F-14
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)

10. EMPLOYEE BENEFIT PLANS: (CONTINUED)
Assumptions utilized to measure net pension cost and the projected benefit
obligation are as follows:

<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Weighted average discount rate......................................... 6.75% 8.50% 7.25%
Rate of compensation increase.......................................... 4.50 4.50 4.50
Long-term rate of return on plan assets................................ 8.00 8.00 8.00
</TABLE>

Primarily as a result of the change in the weighted average discount rate to
7.25% in 1995 from 8.50% in 1994, the Projected Benefit Obligation ("PBO") as of
December 31, 1995 increased $4,181 to $15,007, compared to the 1994 PBO of
$10,826. Similarly, the decrease in the weighted average discount rate was the
principal reason for the increase in the unrecognized net loss to $1,874 at
December 31, 1995, as compared to the unrecognized net loss of $76 at December
31, 1994. The increase in the unrecognized net loss was partially offset by the
returns on plan assets which were more than the assumed 8.0%.

The decrease in the PBO and unrecognized net loss at December 31, 1994
compared to 1993 was the result of the increase in the weighted average discount
rate to 8.5% in 1994 from 6.75% in 1993.

During 1993, the Company restructured its workforce, resulting in the
termination of a significant number of employees. The termination resulted in a
partial curtailment of the salaried pension plan and increased the restructuring
cost by $151.

POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS -- The Company accrues the
cost of postretirement benefits other than pensions during the period of
employment of the salaried employees. The following table sets forth the plan's
status, reconciled with the amount shown in the Company's balance sheets, as of
December 31:

<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees...................................................................... $ 638 $ 611
Fully eligible active plan participants....................................... 140 121
Other active plan participants................................................ 770 1,190
--------- ---------
1,548 1,922
Unrecognized net loss from experience different from actuarial assumptions...... (91) (359)
--------- ---------
Accrued postretirement benefit cost............................................. $ 1,457 $ 1,563
--------- ---------
--------- ---------
</TABLE>

The components of net periodic postretirement benefit costs are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost, benefits attributed to employee service during the year.......... $ 97 $ 96 $ 89
Interest cost on accumulated postretirement benefit obligation................. 123 118 119
Net amortization and deferrals................................................. 15 15 --
--------- --------- ---------
Net periodic postretirement benefit cost....................................... $ 235 $ 229 $ 208
--------- --------- ---------
--------- --------- ---------
</TABLE>

F-15
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)

10. EMPLOYEE BENEFIT PLANS: (CONTINUED)
For measurement purposes, a 9% annual increase in the per capita cost of
postretirement medical benefits was assumed for 1995; the rate is assumed to
decrease gradually to 6% for 2001 and remain at that level thereafter. The
health care cost trend rate assumption has a significant affect on the amounts
reported. To illustrate, increasing the assumed health care cost trend rates by
one percentage point in each year would increase the accumulated postretirement
benefit obligation as of December 31, 1995 by $250, and the aggregate of the
service and interest cost components of net periodic postretirement cost for the
year then ended by $36.

The discount rate used in determining the accumulated postretirement benefit
obligation was 7.25%, 8.5% and 7.0% for 1995, 1994 and 1993, respectively. The
changes in the unrecognized net loss reflect the changes in the discount rate.

During 1993, the Company restructured its workforce, resulting in the
termination of a significant number of employees. The terminations resulted in a
partial curtailment of the postretirement benefit plan and decreased the
unrecognized loss component of the postretirement benefit liability by $210.

DEFINED CONTRIBUTION PLANS -- Beginning in 1995, OREMET implemented a
domestic 401(k) retirement savings plan for the benefit of both union and
salaried employees. Under the provisions of the plan, OREMET will contribute one
share of Common Stock for each day worked, or approximately 260 shares a year
for a full-time employee as defined by the plan (see Note 15). OREMET will also
contribute a matching contribution based on the profitability of the Company.
The matching contribution is limited to 3% of the participant's compensation.
OREMET's costs under the plan totaled $1,041 in 1995 and $431 and $1,642 for the
six months ended June 30, 1995 and 1996. No shares of the Common Stock were
issued under the plan in 1995. As of December 31, 1995, approximately 110
thousand shares are issuable pursuant to the OREMET savings plan.

TI sponsors a domestic 401(k) retirement savings plan. Under the provisions
of the plan, participants may contribute a percentage of their compensation not
to exceed 12%. TI matches the participants' contributions up to 3%. Participants
are fully vested with regard to TI's contributions and earnings thereon after
one (1) year of service. TI's contributions to the plan were approximately $64
in 1995 and $21 in 1994.

TIL sponsors a defined contribution pension plan for all employees over the
age of 25 with one (1) year of service. Under the plan, participants may
contribute between 17.5% to 40% of base pay depending upon their age.
Participants are fully vested and TIL matches between 2% and 14% of the
employee's base pay, depending upon employee age and as long as the employee's
contributions are at least 2%. TIL's contributions for 1995 and 1994 were
approximately $51 and $19, respectively.

THE ESOP -- In 1987, the Company established The Oregon Metallurgical
Corporation Employee Stock Ownership Plan ("ESOP"), an employee stock ownership
plan covering substantially all employees of OREMET. The ESOP borrowed $17
million from the Company to purchase approximately 6.3 million shares of Common
Stock.

The loan obligation of the ESOP is considered unearned employee benefit
expense and, as such, is recorded as a reduction of shareholders' equity. Both
the loan obligation and the unearned benefit expense have been reduced by loan
repayments made by the ESOP. In December 1994, the note receivable from the ESOP
was fully repaid. As of December 31, 1995, the ESOP owned approximately 3.9
million shares or 35% of the outstanding Common Stock. All of the Common Stock
held in the ESOP has been allocated to OREMET employees. The Company made no
contribution to the ESOP in 1995. The ESOP contribution expense totaled $2,382
and $2,755 in 1994 and 1993, respectively.

F-16
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)

10. EMPLOYEE BENEFIT PLANS: (CONTINUED)

EXCESS BENEFIT PLAN ("EBP") -- OREMET maintains an unfunded EBP for
participants whose allocations of Common Stock to the ESOP are reduced as a
result of limitations imposed under federal income tax law. The Company made no
contributions to the EBP in 1995. EBP costs were $332 and $259 in 1994 and 1993,
respectively. As of December 31, 1995, the Company had recorded a liability to
the EBP for 115 thousand shares of stock.

STOCK COMPENSATION PLANS -- Beginning in 1995, OREMET implemented stock
compensation plans for the benefit of both its union and salaried employees.
Eligible employees earn one share of the Common Stock for every one hundred
dollars earned in salaries and wages. Stock Compensation Plan costs were $1,750
in 1995 and $676 and $1,762 for the six months ended June 30, 1995 and 1996,
respectively (see Note 15). During 1995, approximately 107 thousand shares were
issued, and as of December 31, 1995 another 62 thousand are issuable under the
union and salaried stock compensation plans.

STOCK APPRECIATION RIGHTS ("SARS") -- In December of 1995, the Company
established an incentive SARs plan. At the discretion of the Board of Directors,
SARs may be granted to officers and other key employees. Upon exercise of a SAR,
the holder is entitled to receive cash equal to the amount by which the market
value of the Common Stock on the exercise date exceeds the market value of the
Common Stock on the date of grant. The SARs become fully exercisable over a
four-year vesting period measured from the date of grant; no SARs are vested as
of December 31, 1995. The Board of Directors awarded 166.5 thousand SARs, with a
grant price of $10.25 per share, on December 14, 1995 (fair market value at date
of award). The SARs plan will expire in 2005 unless extended by the Board of
Directors. Total SARs compensation expense for the six months ended June 30,
1996 was $708.

11. COMMITMENTS AND CONTINGENCIES:

OPERATING LEASES -- Minimum annual rental commitments at December 31, 1995,
under noncancelable capital leases and operating leases, principally for
facilities, and equipment are payable as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1996........................................................................... $ 148 $ 802
1997........................................................................... 148 617
1998........................................................................... 148 403
1999........................................................................... 148 368
2000........................................................................... 148 235
Thereafter..................................................................... 499 203
--------- -----------
Total minimum lease payments................................................... $ 1,239 $ 2,628
-----------
-----------
Less amounts representing interest............................................. 289
---------
Present value of net minimum payments.......................................... 950
Current portion................................................................ 85
---------
Long-term capitalized lease obligations (included in long-term debt)........... $ 865
---------
---------
</TABLE>

Total rental costs were $951, $533 and $421 in 1995, 1994 and 1993,
respectively.

OTHER -- At the time of the acquisition of TI, OREMET entered into an
agreement with the minority shareholder to acquire the remaining 20% interest of
TI, based upon a formula related to the book value of TI, in annual increments
of at least 15% no earlier than 1999 and no later than 2004.

F-17
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)

11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)

ENVIRONMENTAL MATTERS -- The Company is subject to federal, state and local
statutes and regulations concerning environmental matters and land use. Although
the Company believes it is in material compliance with these laws, they are
frequently modified to be more restrictive and it is impossible to predict
accurately the future effect that changes in these laws may have on the Company.

Like all titanium producers, the Company generates certain waste materials
and emissions, including materials for which disposal or emission requires
compliance with environmental protection laws. The Company conducts its
operations at industrial sites where hazardous materials have been managed for
many years in connection with its operations, including periods before careful
management of these materials was generally believed to be necessary or
required. Consequently, the Company is subject to various environmental laws
that impose compliance obligations and can create liability for historical
releases of hazardous substances.

The Company has entered into a consent order with the Oregon Department of
Environmental Quality pursuant to which the Company is conducting an
investigation of hazardous substances in portions of the soil and groundwater at
its plant site. The Company anticipates that its investigation will result in a
determination that at least some remedial action is necessary for which an
accrual has been made. A neighboring property owner also is investigating
groundwater contamination at its property that has migrated to OREMET's property
and for which OREMET may have legal claims to recover a portion of its
investigation costs.

In February 1995, the Oregon Department of Environmental Quality modified
OREMET's waste water discharge permit. The new permit imposes more stringent
discharge limits according to a specified schedule. OREMET has identified
several feasible alternatives for meeting the new limits, the most expensive of
which would require capital expenditures of approximately $700. OREMET is
working with the Department to explore less expensive alternatives.

Although no claims have been filed against the Company related to the above
matters, the Company has completed various engineering studies with regards to
the items. As a result of these studies, which are ongoing, the Company made
provisions for environmental expenses of $0, $240 and $970 in 1995, 1994 and
1993, respectively, of which an accrued liability of $909 remains at December
31, 1995 and June 30, 1996. These amounts are in addition to recurring
environmental costs which are expensed as incurred and are included in cost of
sales. At the present time, management cannot reasonably predict when these
environmental issues will be resolved.

F-18
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)

11. COMMITMENTS AND CONTINGENCIES: (CONTINUED)

LEGAL PROCEEDINGS -- From time to time, the Company is involved in legal
proceedings which arise in the normal course of business. The Company is not
currently involved as a defendant in any legal proceedings where the outcome, if
determined adversely, could have a material effect on the business or results of
operations of the Company.

12. MAJOR CUSTOMERS AND BUSINESS SEGMENTS:
The Company has a contract to supply titanium sponge and certain other
titanium products to RMI Titanium Company ("RMI") through 2003. Sales to RMI
accounted for approximately 5%, 13% and 30% of the Company's net sales in 1995,
1994 and 1993, respectively.

The Company's operations are conducted primarily in one business segment,
the production and marketing of titanium metal and related products. In May
1994, OREMET signed a three-year contract with Aerospatiale Societe Nationale
Industrielle for engine pylon parts for the Airbus aircraft, and in the second
half of 1994 began supplying product under the contract. The acquisition of TI
provided the Company with a service center located in the U.K. with an
established operation. In 1996, TI opened a service center in Germany. The
Company intends to utilize these facilities to meet its customers' needs in
Europe.

The Company's foreign operations (principally in Europe) are summarized as
follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues -- unaffiliated customers.............. $ -- $ 4,123 $ 18,882 $ 10,323 $ 14,119
Operating profits............................... -- 219 1,370 382 1,361
Identifiable assets at year end................. $ -- $ 10,685 $ 11,509 $ 11,793 $ 13,695
</TABLE>

Export sales from the Company's United States operations (primarily to
Europe and Asia) approximated $11 million, $6 million and $7 million, for the
years ended December 31, 1995, 1994 and 1993, respectively. No individual
foreign region had sales in excess of 10% of total sales during 1995, 1994 or
1993.

13. RESTRUCTURING COST:
In 1993, the Company recorded a provision for restructuring of $2,027 which
includes nonrecurring costs of severance pay and benefits of $1,027, incurred
and substantially all paid in the third and fourth quarters of 1993, and a
write-down, in the fourth quarter of 1993, of construction in progress of $1,000
related to a curtailed expansion of the Titanium Sponge Reduction Plant and the
related Magnesium Recovery Facility. The downsizing and restructuring were done
to reduce fixed costs and to write-off the nonrecoverable portion of funds spent
to increase sponge production capacity.

14. FINANCIAL INSTRUMENTS:

FOREIGN CURRENCY CONTRACTS -- The Company enters into forward foreign
exchange contracts to hedge foreign currency transactions on a continuing basis
for periods consistent with its committed exposures. The Company does not enter
into foreign currency contracts for trading or speculative purposes. This
hedging minimizes the impact of foreign exchange rate movements on the Company's

F-19
<PAGE>
OREGON METALLURGICAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)

14. FINANCIAL INSTRUMENTS: (CONTINUED)
operating results. The Company's foreign exchange contracts do not subject the
Company's results of operations to risk due to exchange rate movements because
gains and losses on these contracts generally offset losses and gains on the
assets and liabilities being hedged.

At December 31, 1995 and 1994, and June 30, 1996, the Company had notional
principal amounts of approximately $490, $1,813 and $1,957, respectively, in
contracts to buy U.S. dollars in the future, with maturities of less than eight
months. Net foreign currency transaction gains occurring in 1995 and 1994 were
approximately $121 and $48, respectively, which have been included in cost of
goods sold.

OTHER FINANCIAL INSTRUMENTS -- At December 31, 1995 and 1994, the carrying
value of financial instruments classified as current assets or liabilities
approximated their fair values, based on the short-term maturities of these
instruments. Fair value is determined based on future cash flows, discounted at
market interest rates, and other appropriate valuation methodologies. At
December 31, 1995 and 1994, the fair value of long-term debt with fixed interest
terms approximated carrying value. Both periods include long-term borrowing with
variable interest terms, for which the carrying value approximated market. The
fair value of debt is determined by obtaining quotes from financial
institutions.

Exposure to market risk on foreign currency contracts results from
fluctuations in currency rates during the periods the contracts are outstanding.
The counterparties to foreign currency exchange contracts are major financial
institutions. Credit loss from counterparty nonperformance is not anticipated.

15. UNAUDITED INTERIM FINANCIAL INFORMATION:

In May 1996, warrants to purchase 80 thousand shares of Common Stock were
exercised by an officer and director of the Company (see Note 9).

In May 1996, the Company approved an amendment to its revolving credit
facility increasing its borrowing base to $35 million.

In June 1996, OREMET amended certain of its employee benefit plans such that
(a) when the value of the Common Stock exceeds twenty dollars per share, a
partial share entitlement up to twenty dollars will be paid in stock for every
one hundred dollars of compensation paid to the employee; and (b) under the
401(k) retirement savings plan the Company contributes to eligible participants
one share of Common Stock for each day worked; the contribution to the 401(k)
plan was amended, such that when the value of the Common Stock exceeded thirty
two dollars, a partial entitlement up to thirty two dollars of Common Stock will
be contributed. Both amendments are effective April 1, 1996.

In addition, effective June 11, 1996, certain eligible employees of OREMET
were each granted options to buy five hundred shares of Common Stock at the fair
market value at the date of grant for an approximate 252 thousand shares of
Common Stock. Such options vest 100% on the fourth anniversary and expire on the
tenth anniversary of the grant.

F-20
<PAGE>

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information............................. 2
Prospectus Summary................................ 3
Risk Factors...................................... 7
Use of Proceeds................................... 12
Capitalization.................................... 13
Dilution.......................................... 14
Price Range of Common Stock and Dividend Policy... 15
Selected Financial Data........................... 16
Management's Discussion and Analysis of Financial
Condition and Results of Operations............. 18
Business.......................................... 27
Management........................................ 38
Description of Capital Stock...................... 41
Underwriting...................................... 43
Legal Matters..................................... 44
Experts........................................... 44
Incorporation of Certain Documents by Reference... 44
Index to Consolidated Financial Statements........ F-1
</TABLE>

3,500,000 SHARES

OREGON
METALLURGICAL
CORPORATION

COMMON STOCK
($1.00 PAR VALUE)

LOGO

SALOMON BROTHERS INC

MERRILL LYNCH & CO.

PACIFIC CREST SECURITIES INC.

PROSPECTUS

DATED AUGUST , 1996

<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Registrant in connection with
the sale of the Common Stock being registered. All amounts are estimates except
the Registration Fee and Nasdaq filing fee.

<TABLE>
<S> <C>
Registration Fee.................................................. $ 39,643
NASD filing fee and expenses, including legal fees................ 15,000
Nasdaq filing fee................................................. 17,500
Blue Sky fees and expenses, including legal fees.................. 5,000
Accounting fees and expenses...................................... 100,000
Legal fees and expenses........................................... 100,000
Transfer agent and registrar fees................................. 5,000
Printing and engraving............................................ 150,000
Miscellaneous..................................................... 67,857
---------
Total......................................................... $ 500,000
---------
---------
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Oregon Business Corporation Act (the "OBCA") permits a corporation to
include in its articles of incorporation a provision limiting or eliminating
personal liability of a director to the corporation and its shareholders for
monetary damages for conduct as a director, except for (a) any breach of the
director's duty of loyalty to the corporation or its shareholders; (b) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (c) any unlawful distribution; and (d) any transaction from
which the director derived an improper personal benefit. The OBCA permits
indemnification of officers and directors of the Registrant under certain
conditions and subject to certain limitations. Section 60.411 of the OBCA also
provides that a corporation has the power to purchase and maintain insurance on
behalf of an individual against any liability asserted against or incurred by
the individual who is or was a director, officer, employee or agent of the
corporation or who, while a director, officer, employee or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, even if the corporation had no power to indemnify the individual
against such liability under the provisions of Sections 60.391 or 60.394.

Article VII of the Articles of Incorporation, as restated and amended, of
the Registrant provides as follows:

A. The Corporation shall have the power to indemnify to the fullest
extent not prohibited by law any person who is made or threatened to be made
a party to, witness in, or otherwise involved in, any action, suit or
proceeding, whether civil, criminal, administrative, investigative,
legislative, formal or informal, internal or external or otherwise
(including an action, suit or proceeding by or in the right of the
Corporation) by reason of the fact that the person is or was a director,
officer, employee or agent of the Corporation or a fiduciary within the
meaning of the Employee Retirement Income Security Act of 1974 with respect
to any employee benefit plan of the Corporation, or serves or served at the
request of the Corporation as a director, officer, employee or agent or as a
fiduciary of an employee benefit plan, or another corporation, partnership,
joint venture, trust, or other enterprise. Any indemnification provided
pursuant to this Article shall not be exclusive of any rights to which the
persons indemnified may otherwise be entitled under any articles of
incorporation, bylaw, agreement, statute, policy of insurance, vote of
shareholders or Board of Directors, or otherwise, which exists at or
subsequent to the time such person incurs or becomes subject to such
liability and expense.

B. To the fullest extent not prohibited by law, no director of the
Corporation shall be personally liable to the Corporation or its
shareholders for monetary damages for conduct as a director. No

II-1
<PAGE>
amendment or repeal of this Article, nor the adoption of any provision of
these Articles of Incorporation inconsistent with this Article, nor a change
in the law, shall adversely affect any right or protection that is based
upon this Paragraph B and pertains to conduct that occurred prior to the
time of such amendment, repeal, adoption or change. No change in the law
shall reduce or eliminate the rights and protections set forth in this
Paragraph B unless the change in the law specifically requires such
reduction or elimination. If the Oregon Business Corporation Act is amended
after this Article becomes effective to authorize corporate action further
eliminating or limiting the personal liability of directors of the
Corporation, then the liability of directors of the Corporation shall be
eliminated or limited to the fullest extent not prohibited by the Oregon
Business Corporation Act as so amended.

Article XXVIII of the Registrant's Bylaws provides for indemnification of
the Registrant's officers and directors to the fullest extent not prohibited by
law. Article XXVIII, Section 8 of the Registrant's Bylaws provides that
Registrant may purchase insurance on behalf of any person required or permitted
to be indemnified pursuant to Article XXVIII upon approval by the Board of
Directors of Registrant.

Messrs. Bezar, Cusic, Pate, Leonard, Carter and Collins have entered into
indemnity agreements with the Company relating to their positions as directors
of the Company. The agreements provide generally that the Company will indemnify
the party thereto for liability arising from third-party proceedings, for
proceedings by or in the right of the Company and otherwise to the fullest
extent not prohibited by law, subject to certain exclusions.

The Company maintains liability insurance for directors and officers of the
Company acting within their legally defined capacities. The insurance coverage
is on a "claims made" basis.

ITEM 16. EXHIBITS

<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement*
4.1 Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993)
4.2 Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994)
4.3 Amendment to Restated Articles of Incorporation (incorporated by reference to Exhibit
3.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1995)
5.1 Opinion of Schwabe, Williamson & Wyatt, P.C.*
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants**
23.2 Consent of Schwabe, Williamson & Wyatt, P.C. (included in Exhibit 5.1)*
24.1 Power of Attorney of certain directors and officers of the Registrant (included on page
II-4 of the Registration Statement on Form S-3, 333-06905)
24.2 Power of Attorney of James S. Paddock**
24.3 Power of Attorney of Gilbert E. Bezar**
</TABLE>

- ------------
*To be filed by amendment

**Filed herewith

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

II-2
<PAGE>
ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, as amended (the "Securities Act"), the information omitted from the
form of prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of the time it was
declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended, (the "Exchange Act") (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the Offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-3
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment to the registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Albany,
State of Oregon, as of August 2, 1996.

OREGON METALLURGICAL CORPORATION

By: /s/ CARLOS E. AGUIRRE

-----------------------------------
Carlos E. Aguirre,
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this amendment
to the registration statement has been signed by the following persons in the
following capacities effective on August 2, 1996.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- --------------------------------------

<C> <S>
/s/ CARLOS E.
AGUIRRE President and Chief Executive Officer
- ---------------------------------------- (Principal Executive Officer) and
(Carlos E. Aguirre) Director

/s/ Dennis P. Kelly Vice President, Finance and Treasurer
- ---------------------------------------- (Principal Financial Officer and
(Dennis P. Kelly) Principal Accounting Officer)

/s/ HOWARD T.
CUSIC*
- ---------------------------------------- Chairman, Board of Directors
(Howard T. Cusic)

/s/ GILBERT E.
BEZAR*
- ---------------------------------------- Director
(Gilbert E. Bezar)

/s/ THOMAS B.
BOKLUND*
- ---------------------------------------- Director
(Thomas B. Boklund)

/s/ ROGER V.
CARTER*
- ---------------------------------------- Director
(Roger V. Carter)

/s/ NICHOLAS P.
COLLINS*
- ---------------------------------------- Director
(Nicholas P. Collins)

/s/ DAVID H.
LEONARD*
- ---------------------------------------- Director
(David H. Leonard)

/s/ JAMES S.
PADDOCK*
- ---------------------------------------- Director
(James S. Paddock)

/s/ JAMES R.
PATE*
- ---------------------------------------- Director
(James R. Pate)

*By: /s/ DENNIS P.
KELLY
- ---------------------------------------
Dennis P. Kelly, Attorney-in Fact
</TABLE>

II-4
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED PAGE
EXHIBIT NO. EXHIBIT NUMBER
- ----------- --------------------------------------------------------------------------------------------- -----------------

<C> <S> <C>
1.1 Form of Underwriting Agreement*..............................................................
4.1 Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1993)................
4.2 Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994)...........................................
4.3 Amendment to Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to
the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995)..........
5.1 Opinion of Schwabe, Williamson & Wyatt, P.C.*................................................
23.1 Consent of Coopers & Lybrand L.L.P., independent accountants**...............................
23.2 Consent of Schwabe, Williamson & Wyatt, P.C. (included in Exhibit 5.1)*......................
24.1 Power of Attorney of certain directors and officers of the Registrant (included on page II-4
of the Registration Statement on Form S-3, 333-06905)........................................
24.2 Power of Attorney of James S. Paddock**......................................................
24.3 Power of Attorney of Gilbert E. Bezar**......................................................
</TABLE>

- ------------
*To be filed by amendment

**Filed herewith

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion or incorporation by reference in this Amendment
No. 2 to Registration Statement on Form S-3 (Registration No. 333-06905) of our
reports, dated February 16, 1996, except for the second paragraph of Note 8, as
to which the date is March 1, 1996, on our audits of the consolidated financial
statements and financial statement schedule of Oregon Metallurgical Corporation.
We also consent to the reference to our firm under the caption "Experts."

Coopers & Lybrand L.L.P.

Eugene, Oregon
August 2, 1996

<PAGE>

EXHIBIT 24.2

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereto duly authorized
in the City of Albany, State of Oregon, on June ___, 1996.

OREGON METALLURGICAL CORPORATION

By:
-------------------------------------
Carlos E. Aguirre, President and
Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Carlos E. Aguirre and Dennis P.
Kelly, and each of them (with full power to each of them to act alone), his true
and lawful attorneys-in-fact and agents for him and on his behalf and in his
name, place and stead, and in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration statement
and any registration statement for the same offering that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933 (and any
amendments thereto), and to file the same, with exhibits and any and all other
documents filed with respect thereto, with the Securities and Exchange
Commission (or any other governmental or regulatory authority), granting unto
said attorneys, and each of them, full power and authority to do and to perform
each and every act and thing requisite and necessary to be done in and about the
premises in order to effectuate the same as fully to all intents and purposes as
he himself might or could do if personally present, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them may
lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
registration has been signed by the following persons in the following
capacities effective on June 26, 1996.

Signature Title

President and chief Executive Officer
- ----------------------------------- (Principal Executive Officer) and
(Carlos E. Aguirre) Director

Vice President, Finance and Treasurer
- ----------------------------------- (Principal Financial Officer and
(Dennis P. Kelly) Principal Accounting Officer)

Chairman, Board of Directors
- -----------------------------------
(Howard T. Cusic)

- ----------------------------------- Director
(Gilbert E. Bezar)

- ----------------------------------- Director
(Thomas B. Boklund)

- ----------------------------------- Director
(Roger V. Carter)

- ----------------------------------- Director
(Nicholas P. Collins)

- ----------------------------------- Director
(David H. Leonard)

/s/ James S. Paddock
- ----------------------------------- Director
(James S. Paddock)

- ----------------------------------- Director
(James R. Pate)

<PAGE>

EXHIBIT 24.3

SIGNATURES

OREGON METALLURGICAL CORPORATION

By:
-------------------------------------
Carlos E. Aguirre, President and
Chief Executive Officer

POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, this
registration has been signed by the following persons in the following
capacities effective on June 26, 1996.

Signature Title

President and chief Executive Officer
- ----------------------------------- (Principal Executive Officer) and
(Carlos E. Aguirre) Director

Vice President, Finance and Treasurer
- ----------------------------------- (Principal Financial Officer and
(Dennis P. Kelly) Principal Accounting Officer)

Chairman, Board of Directors
- -----------------------------------
(Howard T. Cusic)

/s/ Gilbert E. Bezar
- ----------------------------------- Director
(Gilbert E. Bezar)

- ----------------------------------- Director
(Thomas B. Boklund)

- ----------------------------------- Director
(Roger V. Carter)

- ----------------------------------- Director
(Nicholas P. Collins)

- ----------------------------------- Director
(David H. Leonard)

- ----------------------------------- Director
(James S. Paddock)

- ----------------------------------- Director
(James R. Pate)