S-4/A

As filed with the Securities and Exchange Commission on December 27, 2005

Registration No. 333-122826

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 1

to Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

HEXION U.S. FINANCE CORP.

(Exact name of registrant as specified in charter)

Delaware	2821	20-1362484
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

180 East Broad Street

Columbus, Ohio 43215

(614) 225-4000

HEXION NOVA SCOTIA FINANCE, ULC

(Exact name of registrant as specified in charter)

Nova Scotia, Canada	2821	None
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

180 East Broad Street

Columbus, Ohio 43215

(614) 225-4000

GUARANTORS LISTED ON SCHEDULE A HERETO

(Address, including zip code, and telephone number, including area code, of registrants’ principal executive offices)

Mark S. Antonvich, Esq.

Hexion U.S. Finance Corp.

180 East Broad Street

Columbus, Ohio 43215

(614) 225-4000

(Name, address, including zip code, and telephone number, including area code, of agent for service of process)

With a copy to:

William B. Kuesel, Esq.

O’Melveny & Myers LLP

7 Times Square

New York, New York 10036

(212) 326-2000

Approximate date of commencement of proposed sale to the public:    As soon as practicable after this Registration Statement becomes effective.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, 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, 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(d) 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.  ¨

CALCULATION OF REGISTRATION FEE

Title of each Class of Securities to be Registered	Amount to be Registered	Proposed Maximum Offering Price Per Note	Proposed Maximum Aggregate Offering Price(1)	Amount of Registration Fee(2)
Second-Priority Senior Secured Floating Rate Notes Due 2010	$150,000,000	100%	$150,000,000	$17,655.00
Guarantees of Second-Priority Senior Secured Floating Rate Notes Due 2010				(3)
9% Second-Priority Senior Secured Notes Due 2014	$325,000,000	100%	$325,000,000	$38,252.50
Guarantees of 9% Second-Priority Senior Secured Notes Due 2014				(3)

(1) The registration fee has been calculated pursuant to Rule 457(f)(2) under the Securities Act of 1933, as amended. The proposed maximum offering price is estimated solely for purpose of calculating the registration fee.

(2) Amount of $30,567.50 previously paid. Remainder of registration fee offset against the registration fee of $25,340.00 previously paid by Hexion Specialty Chemicals, Inc., our parent, in connection with Registration Statement on Form S-1 (No. 333-115266) filed on May 7, 2004 and withdrawn by Hexion Specialty Chemicals, Inc. on August 31, 2004 pursuant to Rule 457(p) of the Securities Act of 1933.

(3) Pursuant to Rule 457(n), no additional registration fee is payable with respect to the guarantees.

The registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrants 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 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

SCHEDULE A

Guarantor	State or Other Jurisdiction of Incorporation or Organization	Address of Registrants’ Principal Executive Offices	I.R.S. Employer Identification Number
Hexion Specialty Chemicals, Inc.	New Jersey	180 East Broad Street Columbus, Ohio 43215 (614) 225-4000	13-0511250
BDS Two, Inc.	Delaware	Plaza 273, Suite 211 56 West Main Street Newark, Delaware 19702 (302) 737-6466	52-1752422
Borden Chemical Investments, Inc.	Delaware	Plaza 273, Suite 211 56 West Main Street Newark, Delaware 19702 (302) 737-6466	51-0370359
Borden Chemical Foundry, Inc.	Delaware	180 East Broad Street Columbus, Ohio 43215 (614) 225-4000	31-1766429
HSC Capital Corporation	Delaware	1600 Smith St., 24th Floor Houston, TX 77002 (832) 366-2300	76-0660306
Lawter International Inc.	Delaware	1600 Smith St., 24th Floor Houston, TX 77002 (832) 366-2300	36-1370818
Borden Chemical International, Inc.	Delaware	56 West Main St., Newark, DE 19702 (302) 737-6466	20-2833048
Bakelite North America Holding Company	Delaware	180 East Broad Street Columbus, Ohio 43215 (614) 225-4000	36-4209280
Bakelite Epoxy Polymers Corporation	Delaware	180 East Broad Street Columbus, Ohio 43215 (614) 225-4000	26-0051749
Oilfield Technology Group, Inc.	Delaware	15115 Park Row, Ste. 110 Houston, TX 77084 (218) 646-2800	20-2873694
Hexion CI Holding Company (China) LLC	Delaware	180 E. Broad St., Columbus, OH 43215 (614) 225-4000	20-3907441

The information in this prospectus is not complete and may be changed. We may not complete the exchange offer and issue these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell securities and it is not soliciting an offer to buy these securities in any state where the offer is not permitted.

Subject to completion, dated December 27, 2005

PROSPECTUS

Offer to Exchange

$150,000,000 aggregate principal amount of the Registrants’ Second-Priority Senior Secured Floating Rate Notes Due 2010, which have been registered under the Securities Act of 1933 for $150,000,000 aggregate principal amount of the Registrants’ outstanding Second-Priority Senior Secured Floating Rate Notes Due 2010.

$325,000,000 aggregate principal amount of the Registrants’ 9% Second-Priority Senior Secured Notes Due 2014, which have been registered under the Securities Act of 1933 for $325,000,000 aggregate principal amount of the Registrants’ 9% Second-Priority Senior Secured Notes Due 2014.

We hereby offer, upon the terms and subject to the conditions set forth in this prospectus and the accompanying letter of transmittal (which together constitute the “exchange offer”), to exchange up to (i) $150,000,000 aggregate principal amount of our registered Second-Priority Senior Secured Floating Rate Notes Due 2010, which we refer to as the exchange floating rate notes, for a like principal amount of our outstanding Second-Priority Senior Secured Floating Rate Notes Due 2010, which we refer to as the old floating rate notes and (ii) $325,000,000 aggregate principal amount of our registered 9% Second-Priority Senior Secured Notes Due 2014, which we refer to as our exchange fixed rate notes, for a like principal amount of our outstanding 9% Second-Priority Senior Secured Notes Due 2014, which we refer to as our old fixed rate notes. We refer to the old floating rate notes and the old fixed rate notes collectively as the old notes. We refer to the exchange floating rate notes and the exchange fixed rate notes collectively as the exchange notes. We refer to the old notes and the exchange notes collectively as the notes. The terms of the exchange notes are identical to the terms of the old notes in all material respects, except for the elimination of some transfer restrictions, registration rights and additional interest provisions relating to the old notes.

We will exchange any and all old notes that are validly tendered and not validly withdrawn prior to 5:00 p.m., New York City time, on                     , 2006, unless extended.

We have not applied, and do not intend to apply, for listing the notes on any national securities exchange or automated quotation system.

Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. The letter of transmittal states that by so acknowledging and delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for old notes where such old notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that, for a period of 180 days after the consummation of the exchange offer, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See “Plan of Distribution.”

See “ Risk Factors” beginning on page 24 of this prospectus for a discussion of certain risks that you should consider before participating in this exchange offer.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is                     , 2005.

TABLE OF CONTENTS

	Page
SERVICE OF PROCESS AND ENFORCEABILITY OF CIVIL LIABILITIES	ii
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS	iii
EXCHANGE RATE DATA	iv
MARKET AND INDUSTRY DATA AND FORECASTS	v
PROSPECTUS SUMMARY	1
RISK FACTORS	24
THE EXCHANGE OFFER	46
USE OF PROCEEDS	56
CAPITALIZATION	57
UNAUDITED PRO FORMA FINANCIAL INFORMATION	58
SELECTED HISTORICAL FINANCIAL AND OTHER INFORMATION	65
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	67

	Page
BUSINESS	103
MANAGEMENT	125
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	137
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	139
DESCRIPTION OF SENIOR SECURED CREDIT FACILITIES AND OTHER INDEBTEDNESS	149
DESCRIPTION OF THE NOTES	160
CERTAIN TAX CONSEQUENCES	228
PLAN OF DISTRIBUTION	230
LEGAL MATTERS	231
EXPERTS	231
WHERE YOU CAN FIND MORE INFORMATION	232
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS	F-1

We have not authorized anyone to give you any information or to make any representations about us or the transactions we discuss in this prospectus other than those contained in this prospectus. If you are given any information or representations about these matters that is not discussed in this prospectus, you must not rely on that information. This prospectus is not an offer to sell or a solicitation of an offer to buy securities anywhere or to anyone where or to whom we are not permitted to offer or sell securities under applicable law. The delivery of this prospectus does not, under any circumstances, mean that there has not been a change in our affairs since the date of this prospectus. Subject to our obligation to amend or supplement this prospectus as required by law and the rules of the Securities and Exchange Commission, or the SEC, the information contained in this prospectus is correct only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of these securities.

The notes may not be offered or sold in or into the United Kingdom by means of any document except in circumstances that do not constitute an offer to the public within the meaning of the Public Offers of Securities Regulations 1995. All applicable provisions of the Financial Services and Markets Act 2000 must be complied with in respect of anything done in relation to the notes in, from or otherwise involving or having an effect in the United Kingdom.

The notes have not been and will not be qualified under the securities laws of any province or territory of Canada. The notes are not being offered or sold, directly or indirectly, in Canada or to or for the account of any resident of Canada in contravention of the securities laws of any province or territory thereof.

Until                     , 2005 (90 days after the date of this prospectus), all dealers effecting transactions in the exchange notes, whether or not participating in the exchange offer, may be required to deliver a prospectus.

i

SERVICE OF PROCESS AND ENFORCEABILITY OF CIVIL LIABILITIES

Hexion Nova Scotia Finance, ULC is a Nova Scotia unlimited liability company. Certain of its officers and directors may be residents of various jurisdictions outside the United States. In addition, all of Hexion Scotia Finance, ULC’s assets, which consist of advances to Hexion and its affiliates, are located outside the United States. Hexion Nova Scotia Finance, ULC has agreed, in accordance with the terms of the indenture under which the exchange notes will be issued, to accept service of process in any suit, action or proceeding with respect to the indenture, the notes or the security documents brought in any federal or state court located in New York City by an agent designated for such purpose, and to submit to the jurisdiction of such courts in connection with such suits, actions or proceedings. However, it may be difficult for holders of the notes to effect service within the United States upon directors, officers and experts who are not residents of the United States or to realize or enforce in the United States upon judgments of courts of the United States predicated upon civil liability under U.S. federal securities laws. We have been advised by our Canadian counsel that there is doubt as to the enforceability in Canada against Hexion Nova Scotia Finance, ULC or against its directors, officers and experts who are not residents of the United States, in original actions or in actions for enforcement of judgments of courts of the United States, of liabilities predicated solely upon U.S. federal securities laws.

ii

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This prospectus includes “forward-looking statements” that involve risks and uncertainties. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, business trends and other information that is not historical information and, in particular, appear under the headings “Prospectus Summary,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” When used in this prospectus, the words “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts,” “foresees,” “likely,” “may,” should,” “goal,” “target” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements are based upon information available to us on the date of this prospectus.

These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of our control, that could cause actual results to differ materially from the results discussed in the forward-looking statements, including, among other things, the matters discussed in this prospectus in the sections captioned” “Prospectus Summary,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Such factors may include:

• our ability to integrate Borden Chemical, Resolution Performance, Resolution Specialty and Bakelite and achieve cost savings;

• general economic and business conditions including those influenced by international and geopolitical events such as the wars in Iraq and Afghanistan and any future terrorist attacks;

• industry trends;

• the highly cyclical nature of the end-use markets in which we participate;

• raw material costs and availability;

• restrictions contained in our debt agreements;

• our substantial leverage, including the inability to generate the necessary amount of cash to service our existing debt and the incurrence of substantial indebtedness in the future;

• the possibility of liability for pollution and other damage that is not covered by insurance or that exceeds our insurance coverage;

• increased competition in the markets in which we operate;

• changes in demand for our products;

• the loss of any of our major customers;

• our dependence on a limited number of key executives who we may not be able to adequately replace if they leave our company;

• changes in, or the failure or inability to comply with, government regulations, agricultural policy and environmental, health and safety requirements;

• changes in pension fund investment performance, required pension contributions or assumptions relating to pension costs or expected return on plan assets;

• changes in business strategy, development plans or cost savings plans;

• the loss of any of our major suppliers or the bankruptcy or financial distress of our customers;

• the ability to attain and maintain any price increases for our products;

• foreign currency fluctuations and devaluations and political instability in our foreign markets;

• the loss of our intellectual property rights;

iii

• availability, terms and deployment of capital; and

• other factors over which we have little or no control, including events like hurricanes and other natural disasters, such as Hurricanes Katrina and Rita.

There may be other factors that could cause our actual results to differ materially from the results referred to in the forward-looking statements. We undertake no obligation to publicly update or revise forward-looking statements to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events, except as required by law.

EXCHANGE RATE DATA

The following table sets forth, for the periods and dates indicated, the average, high, low and end of period noon buying rates in the City of New York for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York. The noon buying rate on such dates differs from the rates used in the preparation of consolidated or combined financial statements as of such dates. No representation is made that Canadian dollar amounts have been, could have been or could be converted into U.S. dollars at the noon buying rate on such dates or any other dates. Such rates are set forth as U.S. dollars per Cdn$1.00 and are the inverse of rates quoted by the Federal Reserve Bank of New York for Canadian dollars per US$1.00. On December 20, 2005, the inverse of the noon buying rate was Cdn$1.00 equals US$0.8523.

Year Ended	Average(1)	High	Low	Period End
December 31, 2004	0.7702	0.8493	0.7158	0.8310
December 31, 2003	0.7186	0.7738	0.6349	0.7738
December 31, 2002	0.6368	0.6619	0.6200	0.6329
December 31, 2001	0.6444	0.6697	0.6241	0.6279
December 31, 2000	0.6725	0.6969	0.6410	0.6669
Month Ended	Average(2)	High	Low	Period End
November 30, 2005	0.8463	0.8579	0.8361	0.8569

(1) The average of the exchange rates on the last day of each month during the applicable year.

(2) The average of the exchange rates for all days during the applicable period.

Although the notes are denominated in U.S. dollars, any judgment enforcing the notes against Hexion Nova Scotia Finance, ULC in Canada would be denominated in Canadian dollars. In addition, any judgment enforcing the collateral in any jurisdiction outside the United States would likely be in the local currency.

iv

MARKET AND INDUSTRY DATA AND FORECASTS

This prospectus includes industry data that we obtained from periodic industry publications and internal company surveys. This prospectus includes market share and industry data that we prepared primarily based on management’s knowledge of the industry and industry data. Industry publications and surveys generally state that the information contained therein has been obtained from sources believed to be reliable.

Unless otherwise noted, statements as to our market share and market position relative to our competitors are approximated and based on management estimates using the above-mentioned latest-available third-party data and internal analysis and estimates. The global thermoset resins market is approximately $34 billion in annual sales. We based our market estimates on the $19 billion market for the product areas of the global thermoset resins market upon which we focus.

We determined our market share and market positions utilizing periodic industry publications. If we were unable to obtain relevant periodic industry publications, we based our estimates on our knowledge of the size of our markets, our sales in each of these markets and publicly available information regarding our competitors, as well as internal estimates of competitors’ sales based on discussion with our sales force and other industry participants.

Except as may otherwise be noted in this prospectus, all financial and other data for the year ended December 31, 2004 and the nine months ended September 30, 2004 and 2005 presented herein give pro forma effect to the Transactions (as defined in “Prospectus Summary—Hexion Specialty Chemicals, Inc.—The Prior and Current Transactions”) as if they each had occurred on January 1, 2004, and all financial and other data as of September 30, 2005 presented herein already reflect the Transactions.

v

PROSPECTUS SUMMARY

This summary highlights information about Hexion Specialty Chemicals, Inc. and the notes contained elsewhere in this prospectus. It is not complete and may not contain all the information that may be important to you. You should carefully read the entire prospectus before making an investment decision, especially the information presented under the heading “Risk Factors.” In this prospectus, except as otherwise indicated herein, or as the context may otherwise require (i) all references to “Borden Chemical” refer to Borden Chemical, Inc. and its subsidiaries prior to the Current Transactions (as defined in “—Hexion Specialty Chemicals, Inc.—The Prior and Current Transactions”), (ii) all references to “Issuers” refer to Hexion U.S. Finance Corp. and Hexion Nova Scotia Finance, ULC, the co-issuers of the notes, (iii) all references to “Resolution Performance” refer to Resolution Performance Products Inc. and its subsidiaries prior to the Current Transactions, provided that with respect to financial data, all references to “Resolution Performance” refer to Resolution Performance Products LLC, a wholly-owned operating subsidiary of Resolution Performance Products, Inc., and its subsidiaries, (iv) all references to “Resolution Specialty” refer to Resolution Specialty Materials Inc. and its subsidiaries prior to the Current Transactions and (v) all references to “Bakelite” refer to Bakelite Aktiengesellschaft and its subsidiaries prior to the Bakelite Transaction (as defined in “—Hexion Specialty Chemicals, Inc.—The Prior and Current Transactions”).

Overview

We are the world’s largest producer of thermosetting resins, or thermosets. Thermosets are a critical ingredient for virtually all paints, coatings, glues and other adhesives produced for consumer or industrial uses. We are focused on providing a broad array of thermosets and associated technologies, with leading market positions in all key markets served. Our breadth of related products provides us with significant advantages across our operations, technologies and commercial organizations, while our scale provides us with significant efficiencies in our fixed and variable cost structure, allowing us to compete effectively throughout the value chain. In areas where it is advantageous, we are able to internally produce strategic raw materials, providing us with a lower cost operating structure and security of supply. Our value-added, technical service-oriented business model enables us to effectively participate in high-end specialty markets, while our scale enables us to extract value from higher volume applications.

Thermosets are developed to meet the performance characteristics required for each specific end use product. The type of thermoset used and how it is formulated, applied and cured determines the key attributes, such as durability, gloss, heat resistance, adhesion or strength of the final product. Hexion has the broadest range of thermoset resin technologies, with world class research, applications development and technical service capabilities. The total global thermoset resins market is approximately $34 billion in annual sales and includes products such as polyurethanes, urea-formaldehyde, phenol-formaldehyde, unsaturated polyesters, epoxies and melamine-formaldehyde. The key product areas of the global thermoset resins market upon which we focus and in which we have leading market positions is approximately $19 billion in annual sales, which excludes polyurethanes, unsaturated polyesters and furans/other.

Our products are used in thousands of applications and are sold into diverse markets, such as forest products, architectural and industrial paints, packaging, consumer products and automotive coatings, as well as higher growth markets, such as composites, UV cured coatings and electrical laminates. As of September 30, 2005, we had 86 production and distribution sites globally, and produce many of our key products locally in North America, Latin America, Europe and Asia. Through our worldwide network of strategically located production facilities, we serve more than 5,000 customers in 96 countries. Our global customers include leading companies in their respective industries, such as 3M, BASF, Bayer, DuPont, GE, Halliburton, Honeywell, Owens Corning, PPG Industries, Sumitomo, Sun Chemicals, Valspar and Weyerhaeuser.

1

Hexion was formed on May 31, 2005 through the combination of Borden Chemical (including Bakelite), Resolution Performance and Resolution Specialty. We believe the consolidation of these entities will provide us with significant opportunities for growth through global product line management, as well as considerable opportunities to increase operational efficiencies, reduce fixed costs, optimize manufacturing assets and improve the efficiency of capital spending. In 2004 and for the nine months ended September 30, 2005, on a pro forma basis, we generated pro forma net sales of $4.1 billion and $3.6 billion, respectively. In 2004, 51% of our net sales were derived from sales to North America, 32% to Western Europe and 17% to Asia-Pacific, Latin America, Eastern Europe and other emerging markets. As of September 30, 2005, we had $2.4 billion principal amount of outstanding indebtedness and $0.2 billion of cash and equivalents.

Our Business

As of the closing of the Combinations on May 31, 2005, our thermosets are used in two primary applications: Adhesive & Structural and Coating. The table below illustrates each group’s net sales to external customers for the year ended December 31, 2004, as well as each group’s major product lines, major industry sectors served, major end-use markets and key differentiating characteristics.

	Adhesive & Structural	Coating
2004 Pro Forma Net Sales	$2.9 billion	$1.2 billion
Major Products	•   Formaldehyde based resins and intermediates •   Epoxy resins and intermediates •   Composite resins •   Phenolic encapsulated substrates •   Molding compounds	•   Epoxy resins •   Polyester resins •   Alkyd resins •   Acrylic resins •   Ink resins and additives •   Versatic acids and derivatives
Major Industry Sectors Served	•   Wood products and furniture •   Transportation and industrial •   Electrical equipment and appliances •   Electronic products •   Oil and gas field support •   Marine and recreational (boats, RVs) •   Chemical manufacturing	•   Home building and maintenance •   Transportation and industrial •   Electrical equipment and appliances •   Furniture •   Printing •   Chemical manufacturing
Major End-Use Markets	•   Plywood, particleboard, OSB, MDF •   Carbon and glass fiber composites •   Automotive friction materials •   Furniture •   Construction •   Electrical laminates •   Foundry •   Oil and gas field proppants	•   Decorative paints •   Auto coatings •   Marine and industrial coatings •   Construction and maintenance coatings •   Printing inks •   Specialty coatings
Key Characteristics of Resins	•   Strength •   Adhesion •   Resistance (heat, water, electricity)	•   Durability •   Gloss and color retention •   Resistance (water, UV, corrosion, temperature) •   Strength

2

Adhesive & Structural

Our Adhesive & Structural group is a leading global supplier of thermosets used in adhesive and structural applications. These products are used in a variety of end-markets including residential, commercial and industrial construction and repair/remodeling, furniture manufacture, automotive, oil and gas, chemicals and electronics. In 2004, our Adhesive & Structural group contributed approximately $2.9 billion to our net sales ($1.2 billion from our formaldehyde and forest product resins line and $1.7 billion from our epoxy and phenolic resins line). Our key products in the Adhesive & Structural group include:

• Formaldehyde Based Resins and Intermediates. We are the leading producer of formaldehyde based resins for the forest products industry in North America with a 44% market share by volume and also hold significant positions in Europe, Latin America and Australia. Our products are used in a wide range of applications in the construction, automotive, electronics, oil drilling and steel industries. We are also the world’s largest producer of specialty phenolic resins and formaldehyde. We internally consume approximately half of our formaldehyde production, giving us a significant competitive advantage.

• Epoxy Resins and Intermediates. We are the world’s largest supplier of epoxy resins. Epoxy resins comprise the fundamental building blocks of many types of materials, such as formulated composite resins and structural adhesives and are often used in the auto, aerospace and electronics industries due to their unparalleled strength and durability. We also provide complementary products such as epoxy modifiers, curing agents, reactive diluents and specialty liquids.

• Composite Resins. We are a leading producer of resins used in composites. Composites are a fast growing class of materials which are used in a wide variety of applications ranging from airframes and windmill blades to golf clubs. We supply epoxy resins to fabricators in the aerospace, sporting goods and pipe markets with a 44% market share in each of the United States and Europe. In addition to epoxy, we manufacture resins from unsaturated polyester (UPR), which are generally combined with fiberglass for applications ranging from boat hulls to bathroom fixtures.

• Phenolic Encapsulated Substrates. We are a leading producer of phenolic encapsulated sand and ceramic substrates used in oil field services and foundry applications. Our highly specialized compounds are designed to perform under extreme conditions, such as intense heat, high-stress and corrosive environments. In the oil field services industry we have a 45% global market share in resin encapsulated proppants, which are used to enhance oil and gas recovery rates and extend well life. We are also the leading producer by volume of foundry resins in North America with a 44% market share. Our foundry resin systems are used by major automotive and industrial companies for precision casting.

• Molding Compounds. We are the leading producer of molding compounds in Europe, with an estimated market share of 69%. We formulate and produce a wide range of phenolic, polyester and epoxy compounds used to manufacture components requiring heat stability, electrical insulation, fire resistance and durability.

Coating

We are a leading supplier of resins used in surface coating applications. Our coating products are used by customers in a variety of end-markets including architectural coatings, civil engineering, electronics, automotive and a wide variety of applications in the industrial and consumer markets. In 2004, our Coating group contributed approximately $1.2 billion to our net sales. Our key products in the Coating group include:

• Epoxy Resins. In addition to the adhesive uses mentioned previously, epoxy resins are used for a variety of high-end coating applications which require the superior strength and durability of epoxy. Examples include protective coating for industrial and domestic flooring, pipe, marine and construction applications, powder coatings and automotive coatings.

3

• Polyester Resins. We are a leading supplier of polyester coatings resins in North America with a market share of 10% and are also a major producer in Europe with a powder coatings market share of 10%. We provide custom polyester resins, both liquid and powder, to customers for use in industrial coatings requiring specific properties such as gloss and color retention, resistance to corrosion and flexibility. Polyester coatings are typically used in transportation, automotive, machinery, appliances and metal office furniture.

• Alkyd Resins. We share the leading position in alkyd resins in North America with a market share of 31% and are a major producer in Europe, specifically in Scandinavia and Italy. We provide alkyd resins to customers for use in the manufacture of professional grade paints and coatings. Our alkyd resins business shares an integrated production platform with our polyester resins business, which allows for flexible sourcing, plant balancing and economies of scale.

• Acrylic Resins. We are a supplier of acrylic resins (solvent and water-based) in North America and Europe. Acrylic resins are used for interior trim paints and exterior applications where weathering protection, color and gloss retention are critical. In addition, we produce a wide range of specialty acrylic resins for marine and maintenance paints and automotive topcoats. We are also a low cost producer of acrylic monomer, the key raw material for our acrylic resins. This ability to produce key raw materials gives us a competitive cost advantage relative to our competitors and ensures adequacy of supply.

• Ink Resins and Additives. We are the world’s largest producer of ink resins and associated products with a market share of 15%. Ink resins are used to apply ink to a variety of different substrates including paper, cardboard, metal foil and plastic. We are also a provider of formulated UV-cure coatings and inks. Our proprietary technology has enabled us to gain a leading position in the global fiber optic market.

• Versatic Acids and Derivatives. We are the world’s largest producer of versatic acids and derivatives, with a market share of 74%. Versatic acids and derivatives are specialty monomers which provide significant performance advantages to finished coatings, including superior adhesion, flexibility, ease of application and other high performance characteristics. Applications for versatic acids include decorative, automotive and protective coatings as well as other uses, such as pharmaceuticals and personal care products.

Competitive Strengths

We are one of the leading specialty chemical companies in the world based on the following competitive strengths:

World’s Largest Thermoset Resins Producer. We are the world’s largest producer of thermoset resins with leading positions across various end-markets and geographies. Our global scale and breadth of product line provide us with significant advantages over many of our competitors. We are first or second in market position by volume in our key product areas, which collectively represent more than 75% of our 2004 net sales.

Unique Selling Proposition. The majority of our customers require solutions that are tailored to their individual production needs and require a high degree of technical service and customized product formulations. Our diverse thermoset product offering allows us to leverage related technologies across geographies, customers and end-markets in order to provide a broad range of product and technical service solutions. As a result, we have cultivated stable, longstanding customer relationships.

Global Infrastructure. We believe our global scope and our ability to internally produce key raw materials give us an advantage compared with many of our smaller competitors. We believe that we are well positioned in higher growth regions and will continue to grow internationally.

4

Low Cost Position. Our low cost manufacturing position is the result of our 86 production and distribution sites strategically located throughout the world and our selectively integrated supply position in critical intermediate materials. Our ability to internally produce key raw materials provides us a significant cost advantage over our competitors. Furthermore, our large market position and scale in each of our key product markets provides us with significant purchasing and manufacturing efficiencies.

Well Positioned in Diverse End-Markets and Higher Growth Sectors. We have a diversified revenue and customer base in a variety of end-markets and geographies. Our products are used in a broad range of applications and are sold into stable markets, as well as higher growth markets.

Strong Free Cash Flow. We expect to generate strong free cash flow (cash flow from operating activities less anticipated capital expenditures) due to our size and position within the thermoset resins industry, and the industry leading cost structure we have in place. Additionally, we expect to realize significant synergies from the Current Transactions which should further improve free cash flow.

Strong Management Team. We believe that we have a world-class management team led by Craig O. Morrison, our President and Chief Executive Officer, and William H. Carter, our Chief Financial Officer. Marvin O. Schlanger, former Chief Executive Officer of Arco Chemical and Resolution Performance, is our Vice Chairman. Our management team has demonstrated expertise in growing our businesses organically, integrating acquisitions and executing significant cost cutting programs.

Strategy

We are focused on augmenting our growth, as well as increasing shareholder value, return on investment, cash flows and profitability. We believe we can achieve these related goals through the following strategies:

Utilize Our Integrated Platform Across Product Offerings. As the world’s largest producer of thermoset resins, we have an opportunity to provide our customers with a broad range of resins products on a global basis. We believe this provides us the opportunity to become a global, comprehensive solutions provider to our customers rather than simply offering a particular product, selling in a single geography or competing on price.

Develop and Market New Products. We will continue to expand our product offerings through internal innovation, joint research and development initiatives with our customers and research partnership formations. In 2004, on a pro forma basis, we incurred approximately $65 million in research and development expenses, which represented approximately 2% of our pro forma net sales during that period.

Expand Our Global Reach In Faster Growing Regions. We are focused on growing our business in the Asia-Pacific, Eastern Europe and Latin American markets, where the usage of our products is increasing. Furthermore, by combining sales and distribution infrastructures, we expect to accelerate the penetration of our high-end, value-added products into new markets.

Increase Margins Through Focus on Operational Excellence. We believe that through the combination of four stand-alone global resin companies, there will be opportunities to extract substantial cost savings in the near future. Management is currently targeting $250 million in synergies from the Current Transactions, of which $125 million of annual net cost savings have been specifically identified. Management has developed detailed implementation plans to achieve the $125 million of cost savings. We expect that approximately 60% of the $125 million near term cost savings will be achieved by the end of 2006 with the remainder expected to be achieved in the following year. We expect to incur a one-time cost of $75 million during the next two years in connection with implementing these synergies. Management has specifically identified a number of areas for savings and is actively pursuing key components of this strategy.

5

Pursue Targeted Add-On Acquisitions and Joint Ventures. The global thermoset resin industry is highly fragmented and is comprised of numerous small and mid-sized specialty companies focusing on niche markets, as well as small non-core divisions of large chemical conglomerates. As the largest company focused primarily on the thermoset resins space, we have a significant advantage in pursuing add-on acquisitions and joint ventures in areas that allow us to build upon our core strengths, expand our product, technology and geographic portfolio, and better serve our customers. We believe we can consummate a number of these acquisitions at relatively low valuations due to the scalability of our existing global operations.

Risk Factors

Despite our competitive strengths discussed elsewhere in this prospectus, investing in our notes involves substantial risk. In addition, our ability to execute our strategy is subject to certain risks. The risks described under the heading “Risk Factors” immediately following this summary may cause us not to realize the full benefits of our strengths or may cause us to be unable to successfully execute all or part of our strategy. You should carefully consider all the information in this prospectus, including matters set forth under the heading “Risk Factors.”

The Prior and Current Transactions

The Combinations. On May 31, 2005, Resolution Performance and Resolution Specialty were combined with and into Borden Chemical (the “Combinations”), all of which were controlled by Apollo Management, L.P. and its affiliates (“Apollo”). As of December 31, 2004, Apollo and its affiliated funds held approximately 98%, 72% and 95% of the then outstanding capital stock of Borden Chemical, Resolution Performance and Resolution Specialty, respectively. Upon the consummation of the Combinations, Borden Chemical changed its name to Hexion Specialty Chemicals, Inc. and BHI Acquisition LLC, Borden Chemical’s parent, changed its name to Hexion LLC.

The Borden Transaction. On August 12, 2004, BHI Investment, LLC, an affiliate of Apollo acquired all of the outstanding capital stock of Borden Holdings, Inc., for a total consideration of approximately $1.2 billion, including debt assumed (the “Borden Acquisition”). In addition, as part of the Borden Acquisition, all of the outstanding capital stock of Borden Chemical held by management was redeemed or otherwise cancelled. Immediately following the acquisition, BHI Investment, LLC reorganized the existing corporate structure so that Borden Chemical became directly owned by Hexion LLC (formerly known as BHI Acquisition LLC), a subsidiary of BHI Investment, LLC, and reorganized the ownership of Borden Chemical’s foreign subsidiaries. The acquisition of Borden Holdings, Inc. and the payment of transaction fees and expenses were financed by the net proceeds of the offerings by the Issuers of the old notes, and with certain equity contributions from Apollo. The Borden Acquisition, the related offering of the old notes and the related transactions are collectively referred to in this prospectus as (the “Borden Transaction”).

The Resolution Performance Transaction. On November 14, 2000, an affiliate of Apollo acquired control of Resolution Performance in a recapitalization transaction (the “Resolution Performance Transaction”). Prior to the recapitalization, Resolution Performance was a wholly owned subsidiary of the Royal Dutch/Shell Group of Companies (“Shell”).

The Resolution Specialty Transaction. On August 2, 2004, Resolution Specialty, an affiliate of Apollo, acquired the resins, inks and monomers division (the “Resolution Specialty Acquisition”) of Eastman Chemical Company (“Eastman”). The Resolution Specialty Acquisition and the related transactions are collectively referred to in this prospectus as the “Resolution Specialty Transaction.”

The Bakelite Transaction. On April 29, 2005, a subsidiary of Borden Chemical acquired Bakelite (the “Bakelite Acquisition”). Upon the consummation of the Bakelite Acquisition, Bakelite became an indirect, wholly-owned subsidiary of Hexion Specialty Chemicals Canada, Inc. (“Hexion Canada”). The Bakelite Acquisition was

6

financed through a combination of available cash and borrowings under a bridge loan facility, which was refinanced with the proceeds of our second-priority senior secured floating rate notes issued on May 20, 2005 (the “New Floating Rate Notes”) and borrowings under our new senior secured credit facilities (collectively, the “Bakelite Financing”). The Bakelite Acquisition, the repayment or assumption of certain of Bakelite’s debt in connection therewith and the Bakelite Financing are collectively referred to in this prospectus as the “Bakelite Transaction.”

We refer to the Borden Transaction, the Resolution Performance Transaction and the Resolution Specialty Transaction collectively as the “Prior Transactions.” We refer to the borrowings under our new senior secured credit facilities, the issuance of our Series A Preferred Stock and the application of the net proceeds therefrom to repay existing debt and pay a dividend on our common stock as described elsewhere in this prospectus, collectively, as the “Financings.” We refer to the old notes, the New Floating Rate Notes and the exchange notes as the “Second-Priority Senior Secured Notes.” We refer to the Combinations, the Financings and the Bakelite Transaction as the “Current Transactions.” We refer to the Prior Transactions and the Current Transactions, as the “Transactions.”

Ownership Structure

Hexion U.S. Finance Corp. is a Delaware corporation, which was incorporated on July 14, 2004. Hexion Nova Scotia Finance, ULC is a Nova Scotia unlimited liability company, which was organized on July 20, 2004. Hexion U.S. Finance Corp. and Hexion Nova Scotia Finance, ULC are both direct, wholly owned subsidiaries of Hexion. Hexion U.S. Finance Corp. and Hexion Nova Scotia Finance, ULC have no independent operations other than acting as finance companies for Hexion. The notes co-issued by Hexion U.S. Finance Corp. and Hexion Nova Scotia Finance, ULC are guaranteed by Hexion. Certain of Hexion’s non-operating domestic subsidiaries are also guarantors of the notes.

The following chart summarizes our corporate structure:

7

We are a New Jersey corporation, with predecessors dating back to 1899. Our principal executive offices are located at 180 East Broad Street, Columbus, Ohio 43215. Our telephone number is (614) 225-4000. We maintain a website at www.hexionchem.com where general information about our business is available. The information contained on our website is not a part of this prospectus.

RECENT DEVELOPMENTS

Acquisition of the Global Ink and Adhesive Resins Business of Akzo Nobel

On November 25, 2005, we agreed to acquire the global ink and adhesive resins business of Akzo Nobel. The business produces resins used to manufacture inks for commercial printing and packaging, digital inks for laser and photocopying printing, and pressure sensitive adhesives used in tape and labeling applications. The business generated 2004 sales of approximately €166 million, and includes 10 manufacturing facilities in Europe, North America, Argentina, Asia and New Zealand. Closing will occur upon the successful completion of normal governmental reviews and consultations with employee work’s councils. The acquisition will be funded through a combination of available cash and existing credit lines.

Acquisition of Decorative Coatings and Adhesives Business Unit of the Rhodia Group

On November 3, 2005, we agreed to acquire the decorative coatings and adhesives business unit of The Rhodia Group. The Rhodia business had 2004 sales of approximately €150 million, with 8 manufacturing facilities in Europe, Australia and Thailand. Closing will occur upon successful completion of normal governmental reviews and satisfaction of the other closing conditions. The acquisition will be funded through a combination of available cash and existing credit lines.

Proposed Initial Public Offering

We have filed a registration statement on Form S-1 in connection with the separate initial public offering of our common stock and our convertible perpetual preferred stock (the “IPO”). Our registration statement on Form S-1 is not yet effective and no shares of common stock or convertible perpetual preferred stock will be sold by us pursuant to such registration statement until such registration statement is declared effective. This prospectus is not an offer to sell shares of our common stock or convertible perpetual preferred stock and is not soliciting an offer to buy these securities.

8

Our Equity Sponsor

Apollo, our principal equity sponsor, is an affiliate of Apollo Management, L.P. Apollo Management, L.P. was founded in 1990 and is among the most active and successful private investment firms in the United States in terms of both number of investment transactions completed and aggregate dollars invested. Since its inception, Apollo Management, L.P. and affiliates have managed in excess of $14 billion in equity capital, in a wide variety of industries, both domestically and internationally. Companies owned or controlled by Apollo Management, L.P. and affiliates or in which Apollo Management L.P. and affiliates has a significant equity investment include, among others, AMC Entertainment, Inc., Educate, Inc., General Nutrition Centers, Inc., Nalco Company and UAP Holding Corp.

9

Summary of the Terms of the Exchange Offer

In connection with the closing of the Borden Transaction, we entered into a registration rights agreement with the initial purchasers of the old notes. Under the agreement, we agreed to deliver to you this prospectus and to consummate the exchange offer by June 8, 2005. Since we did not consummate the exchange offer by June 8, 2005 we have incurred additional interest expense pursuant to the registration rights agreement in the aggregate amount of approximately $1 million as of December 20, 2005. You are entitled to exchange in the exchange offer your old notes for exchange notes which are identical in all material respects to the old notes except that:

• the exchange notes have been registered under the Securities Act and will be freely tradable by persons who are not affiliated with us;

• the exchange notes are not entitled to registration rights which are applicable to the old notes under the registration rights agreement; and

• our obligation to pay additional interest on the old notes if the exchange offer is not consummated by June 8, 2005 does not apply to the exchange notes.

The exchange offer

Floating Rate Notes We are offering to exchange up to $150,000,000 aggregate principal amount of our registered Second-Priority Senior Secured Floating Rate Notes Due 2010, for a like principal amount of our Second-Priority Senior Secured Floating Rate Notes Due 2010, which were issued on August 12, 2004. Old floating rate notes may be exchanged only in integral multiples of $1,000.

Fixed Rate Notes We are offering to exchange up to $325,000,000 aggregate principal amount of our registered 9% Second-Priority Senior Secured Notes Due 2014, for a like principal amount of our 9% Second-Priority Senior Secured Notes Due 2014, which were issued on August 12, 2004. Old fixed rate notes may be exchanged only in integral multiples of $1,000.

Resales Based on an interpretation by the staff of the SEC set forth in no-action letters issued to third parties, we believe that the exchange notes issued pursuant to the exchange offer in exchange for old notes may be offered for resale, resold and otherwise transferred by you (unless you are our “affiliate” within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that you:

• are acquiring the exchange notes in the ordinary course of business; and

• have not engaged in, do not intend to engage in, and have no arrangement or understanding with any person or entity, including any of our affiliates, to participate in, a distribution of the exchange notes.

In addition, each participating broker-dealer that receives exchange notes for its own account pursuant to the exchange offer in exchange for old notes that were acquired as a result of market-making or other trading activity must also acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. For more information, see “Plan of distribution.”

10

Any holder of old notes, including any broker-dealer, who

• is our affiliate,

• does not acquire the exchange notes in the ordinary course of its business, or

• tenders in the exchange offer with the intention to participate, or for the purpose of participating, in a distribution of exchange notes,

cannot rely on the position of the staff of the Commission expressed in Exxon Capital Holdings Corporation, Morgan Stanley & Co., Incorporated or similar no-action letters and, in the absence of an exemption, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the resale of the exchange notes.

Expiration date; Withdrawal of tenders The exchange offer will expire at 5:00 p.m., New York City time, on                     , 2006, or such later date and time to which we extend it. We do not currently intend to extend the expiration date. A tender of old notes pursuant to the exchange offer may be withdrawn at any time prior to the expiration date. Any old notes not accepted for exchange for any reason will be returned without expense to the tendering holder promptly after the expiration or termination of the exchange offer.

Conditions to the exchange offer The exchange offer is subject to customary conditions, some of which we may waive. For more information, see “The Exchange Offer—Certain Conditions to the Exchange Offer.”

Procedures for tendering old notes If you wish to accept the exchange offer, you must complete, sign and date the accompanying letter of transmittal, or a copy of the letter of transmittal, according to the instructions contained in this prospectus and the letter of transmittal. You must also mail or otherwise deliver the letter of transmittal, or the copy, together with the old notes and any other required documents, to the exchange agent at the address set forth on the cover of the letter of transmittal. If you hold old notes through The Depository Trust Company (“DTC”) and wish to participate in the exchange offer, you must comply with the Automated Tender Offer Program procedures of DTC, by which you will agree to be bound by the letter of transmittal.

By signing or agreeing to be bound by the letter of transmittal, you will represent to us that, among other things:

• any exchange notes that you receive will be acquired in the ordinary course of your business;

• you have no arrangement or understanding with any person or entity, including any of our affiliates, to participate in the distribution of the exchange notes;

11

• if you are a broker-dealer that will receive exchange notes for your own account in exchange for old notes that were acquired as a result of market-making activities, that you will deliver a prospectus, as required by law, in connection with any resale of the exchange notes; and

• you are not our “affiliate” as defined in Rule 405 under the Securities Act, or, if you are an affiliate, you will comply with any applicable registration and prospectus delivery requirements of the Securities Act.

Guaranteed delivery procedures If you wish to tender your old notes and your old notes are not immediately available or you cannot deliver your old notes, the letter of transmittal or any other documents required by the letter of transmittal or comply with the applicable procedures under DTC’s Automated Tender Offer Program prior to the expiration date, you must tender your old notes according to the guaranteed delivery procedures set forth in this prospectus under “The Exchange Offer—Guaranteed Delivery Procedures.”

Effect on holders of old notes As a result of the making of, and upon acceptance for exchange of all validly tendered old notes pursuant to the terms of, the exchange offer, we will have fulfilled a covenant contained in the registration rights agreement and, accordingly, we will not be obligated to pay additional interest as described in the registration rights agreement. If you are a holder of old notes and do not tender your old notes in the exchange offer, you will continue to hold such old notes and you will be entitled to all the rights and limitations applicable to the old notes in the indenture, except for any rights under the registration rights agreement that by their terms terminate upon the consummation of the exchange offer.

Consequences of failure to exchange All untendered old notes will continue to be subject to the restrictions on transfer provided for in the old notes and in the indenture. In general, the old notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Other than in connection with the exchange offer, we do not currently anticipate that we will register the old notes under the Securities Act.

Certain tax consequences The exchange of old notes for exchange notes in the exchange offer should not be a taxable event for U.S. federal income tax purposes. For more information, see “Certain Tax Consequences.”

Use of proceeds We will not receive any cash proceeds from the issuance of the exchange notes in the exchange offer.

Exchange agent Wilmington Trust Company is the exchange agent for the exchange offer. The address and telephone number of the exchange agent are set forth in the section captioned “The Exchange Offer—Exchange Agent.”

12

Summary of the Terms of the Exchange Notes

The following summary highlights all material information contained elsewhere in this prospectus but does not contain all the information that you should consider before participating in the exchange offer. We urge you to read this entire prospectus, including the “Risk Factors” section and the consolidated financial statements and related notes.

Co-Issuers Hexion U.S. Finance Corp. and Hexion Nova Scotia Finance, ULC.

Exchange Notes Offered

Floating Rate Notes $150,000,000 aggregate principal amount of Second-Priority Senior Secured Floating Rate Notes Due 2010.

Fixed Rate Notes $325,000,000 aggregate principal amount of 9% Second-Priority Senior Secured Notes Due 2014.

Maturity Date

Floating Rate Notes The floating rate notes mature on July 15, 2010.

Fixed Rate Notes The fixed rate notes mature on July 15, 2014.

Interest

Floating Rate Notes The floating rate notes bear interest at a floating rate based on the London Interbank Rate payable quarterly in arrears, on January 15, April 15, July 15 and October 15 of each year.

Fixed Rate Notes The fixed rate notes bear interest at a rate per annum equal to 9%, payable semi-annually in arrears, on January 15 and July 15 of each year.

Guarantees The exchange notes, like the old notes, will be guaranteed, jointly and severally, on a senior secured basis, by Hexion and certain of its existing and future domestic subsidiaries that guarantee our obligations under our new senior secured credit facilities. See “Description of the Notes—Guarantees.”

Ranking The exchange notes, like the old notes, and the guarantees will be senior secured obligations. The exchange notes, like the old notes, and the guarantees will rank:

• equally with all of our and our guarantors’ existing and future senior indebtedness, including debt under our new senior secured credit facilities and the guarantees thereof;

• junior in priority as to collateral with respect to our and our guarantors’ obligations under our new senior secured credit facilities and any other future obligations secured by a first-priority lien on the collateral; and

• senior to all of our and our guarantors’ existing and future subordinated indebtedness.

13

The exchange notes will also be effectively junior to the liabilities of the non-guarantor subsidiaries, which includes HAI.

As of September 30, 2005:

• Hexion and its subsidiaries had approximately $2.4 billion aggregate principal amount of senior indebtedness (including the notes and the guarantees) outstanding;

• Hexion’s non-guarantor subsidiaries, including HAI, had approximately $357 million of total indebtedness, excluding intercompany liabilities of non-guarantor subsidiaries.

See “Description of the Notes—Ranking” and “Use of Proceeds.”

Optional Redemption

Floating Rate Notes We may redeem some or all of the floating rate notes at any time on or after July 15, 2006 at the respective redemption prices described in this prospectus, plus accrued and unpaid interest to the date of redemption.

In addition, on or before July 15, 2006, we may redeem up to 35% of the aggregate principal amount of the floating rate notes with the net proceeds of certain equity offerings.

We may also redeem all but not part of the floating rate notes if there are specified changes in the tax laws at a redemption price equal to 100% of the aggregate principal amount of the floating rate notes, plus accrued and unpaid interest to the date of redemption. See “Description of the Notes—Redemption for Changes in Withholding Taxes.”

Fixed Rate Notes We may redeem some or all of the fixed rate notes at any time prior to July 15, 2009 at a price equal to 100% of the principal amount thereof, plus the make-whole premium described in this prospectus, plus accrued and unpaid interest to the date of redemption.

We may redeem some or all of the fixed rate notes at any time on or after July 15, 2009 at the respective redemption prices described in this prospectus, plus accrued and unpaid interest to the date of redemption.

In addition, on or before July 15, 2007, we may redeem up to 35% of the aggregate principal amount of the fixed rate notes with the net proceeds of certain equity offerings.

We may also redeem all but not part of the fixed rate notes if there are specified changes in the tax laws at a redemption price equal to 100% of the aggregate principal amount of the fixed rate notes, plus accrued

14

and unpaid interest to the date of redemption. See “Description of the Notes—Redemption for Changes in Withholding Taxes.”

Change of Control If Hexion experiences a change of control, we are required to make an offer to repurchase the exchange notes at a price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of repurchase.

Collateral The exchange notes, like the old notes, and the guarantees will be secured by second-priority liens on:

• substantially all tangible and intangible assets of Hexion and each subsidiary guarantor (including, but not limited to, accounts receivable, inventory, general intangibles and proceeds of the foregoing), except for those assets excluded as collateral under our new senior secured credit facilities; and

• all of the capital stock of certain direct subsidiaries of Hexion and each subsidiary guarantor, other than the capital stock which is prohibited from being pledged pursuant to the indentures governing our other outstanding debentures, provided that no more than 65% of the capital stock of first-tier foreign subsidiaries will be required to be pledged.

Notwithstanding the foregoing, the initial collateral securing the exchange notes shall not include (A) any real estate or Principal Property (as such term is defined in the indentures governing our existing debentures and means generally any manufacturing or processing plant or warehouse owned or leased by us or any of our subsidiaries and located within the United States), (B) any property or assets owned by any of our foreign subsidiaries and (C) any assets which, if included in the collateral, would require our existing debentures to be ratably secured with the exchange notes pursuant to the terms of the indentures for such existing debentures (sometimes referred to in this prospectus as “excluded collateral”).

Intercreditor Agreement Pursuant to an amended and restated intercreditor agreement, the liens securing the notes, the New Floating Rate Notes and our 9 ¹/2% senior second secured notes due 2010 will be expressly second in priority to all liens that secure our new senior secured credit facilities, our 8% senior secured notes due 2009 and future indebtedness permitted to be incurred and secured by a first-priority lien in accordance with the terms of the indentures governing the notes and the New Floating Rate Notes. Pursuant to the amended and restated intercreditor agreement, the second-priority liens securing the notes and the other obligations secured by such second-priority liens may not be enforced at any time when the obligations secured by the first-priority lien are outstanding, subject to certain limited exceptions. Any release of all first-priority liens upon any collateral approved by holders of the first-priority liens shall also release the second-priority liens securing the notes and other obligations secured by such second-priority liens on the same collateral, subject to certain exceptions. The holders of the first-priority liens will receive all proceeds from any realization on the collateral until the obligations secured by the first-priority liens are paid in full. See “Description of the Notes—Security for the Notes.”

15

Restrictive Covenants The indenture governing the exchange notes contains covenants that, among other things, limit the ability of Hexion and certain of its subsidiaries, to:

• incur or guarantee additional indebtedness or issue preferred stock;

• grant liens on assets;

• pay dividends or make distributions to Hexion’s stockholders;

• repurchase or redeem capital stock or subordinated indebtedness;

• make investments or acquisitions;

• enter into sale/leaseback transactions;

• incur restrictions on the ability of Hexion’s subsidiaries to pay dividends or to make other payments to Hexion;

• enter into transactions with Hexion’s affiliates;

• merge or consolidate with other companies or transfer all or substantially all of Hexion’s assets; and

• transfer or sell assets.

These covenants are subject to a number of important limitations and exceptions as described under “Description of the Notes—Certain Covenants.”

16

Summary Historical and Pro Forma Financial and Other Data

The combination of Borden Chemical, Resolution Performance and Resolution Specialty has been treated, for accounting purposes, as a combination of entities under common control due to Apollo’s controlling interest in each of the companies. The audited consolidated financial statements presented herein reflect the results of operations of each company from the date such company was acquired by Apollo.

The following table summarizes certain historical and pro forma financial and other data for Hexion. The summary historical and pro forma financial and other data for Hexion as of December 31, 2003 and 2004, and for the years ended December 31, 2002, 2003 and 2004 have been derived from the audited consolidated financial statements of Hexion, included elsewhere in this prospectus. The summary historical and pro forma financial and other data for Hexion as of and for the nine months ended September 30, 2005, and the pro forma financial and other data for Hexion for the nine months ended September 30, 2004 have been derived from the unaudited consolidated financial statements of Hexion, included elsewhere in this prospectus, and include all adjustments that management considers necessary for a fair presentation of our financial position and results of operations as of the date and for the period indicated. Historical results for the nine months ended September 30, 2004 have not been included in this Summary Historical and Pro Forma Financial and Other Data as they only reflect the results of operations of Borden Chemical and Resolution Specialty for part of this period and are not considered to be indicative of the performance of Hexion. Results for the nine months ended September 30, 2005 are not necessarily indicative of the results that may be expected for the entire year. The financial data of Hexion for the year ended December 31, 2004 and the nine months ended September 30, 2005 include:

• the results of operations of Resolution Performance for the year ended December 31, 2004 and the nine months ended September 30, 2005, which reflect purchase accounting adjustments from the date of acquisition of Resolution Performance by Apollo on November 14, 2000;

• the results of operations of Borden Chemical for the period from August 12, 2004 to December 31, 2004 and the nine months ended September 30, 2005, on a historical basis (because Borden Chemical is a public reporting registrant as a result of public debt that was outstanding prior to the Borden Transaction and which debt remains outstanding, Borden Chemical has elected to present its financial statements from the date of its acquisition by Apollo on the historical basis of accounting permitted under the SEC’s public debt exemptions);

• the results of operations of Resolution Specialty for the period from August 2, 2004 to December 31, 2004 and the nine months ended September 30, 2005, which reflect purchase accounting adjustments from the date of acquisition of Resolution Specialty by Apollo on August 2, 2004; and

• the results of operations of Bakelite for the period from April 30, 2005 to September 30, 2005, which reflect purchase accounting adjustments from the date of the acquisition of Bakelite on April 29, 2005.

Accordingly, the results of operations of Hexion for periods prior to the Borden Chemical and Resolution Specialty acquisitions are not comparable to results for subsequent periods.

The summary unaudited pro forma financial data of Hexion gives effect, in the manner described under “Unaudited Pro Forma Financial Information,” to the Transactions. Our unaudited pro forma statements of operations for the year ended December 31, 2004 and the nine months ended September 30, 2004 and 2005 give pro forma effect to the Transactions (other than the Resolution Performance Transaction), as if they had each occurred on January 1, 2004 as described under “Unaudited Pro Forma Financial Information.” We have included pro forma data related to EBITDA and transaction related costs, impairments and unusual items included in EBITDA for the last twelve months ended September 30, 2005 (the “LTM Period”) as we are required to measure compliance with the financial covenants in certain of our indentures based on Adjusted EBITDA for the most recent four quarter period.

17

The pro forma adjustments relating to the Bakelite Transaction and the minority interest acquisitions of Resolution Performance and Resolution Specialty as part of the Combinations are based on preliminary estimates of the fair value of the consideration provided, estimates of the fair values of assets acquired and liabilities assumed and available information and assumptions. The final determination of fair value could result in changes to the pro forma adjustments and the pro forma data included herein.

The unaudited pro forma financial data for the year ended December 31, 2004, for the nine months ended September 30, 2004 and 2005 and for the LTM Period is presented for informational purposes only, and does not purport to represent what our results of operations would actually have been if the transactions had occurred on the dates indicated, nor does it purport to project our results of operations or financial condition that we may achieve in the future.

You should read this summary historical and pro forma financial and other data in conjunction with “Selected Historical Financial and Other Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Unaudited Pro Forma Financial Information,” together with all of the financial statements and related notes included elsewhere in this prospectus.

	Historical												Pro Forma
	Year ended December 31,									Nine Months Ended September 30, 2005			Year Ended December 31, 2004			Nine Months Ended September 30,
	2002			2003			2004									2004			2005
	(dollars in millions)
Statement of Operations
Net sales (1)	$	740		$	782		$	2,019		$	3,317		$	4,105		$	2,983		$	3,564
Cost of sales		601			714			1,785			2,831			3,569			2,603			3,030
Gross profit		139			68			234			486			536			380			534
Selling, general & administrative expense		82			81			163			290			388			299			317
Transaction related costs		—			—			56			34			65			56			34
Impairments		—			13			2			—			86			76			—
Other operating expense (income)		16			(3	)		4			(4	)		19			14			(3	)
Operating income (loss)		41			(23	)		9			166			(22	)		(65	)		186
Interest expense		65			77			118			152			221			166			166
Write-off of deferred financing fees		—			—			—			17			—			—			—
Other non-operating expense		—			—			4			14			6			2			14
Loss from continuing operations before income tax and minority interest		(24	)		(100	)		(113	)		(17	)		(249	)		(233	)		6
Income tax (benefit) expense		(10	)		(37	)		—			43			129			127			55
Loss from continuing operations before minority interest		(14	)		(63	)		(113	)		(60	)		(378	)		(360	)		(49	)
Minority interest in net (loss) income of consolidated subsidiaries		(3	)		(13	)		(8	)		3			1			1			4
Loss from continuing operations		(11	)		(50	)		(105	)		(63	)		(379	)		(361	)		(53	)
Loss from discontinued operations		—			—			—			10			—			—			—
Net loss	$	(11	)	$	(50	)	$	(105	)	$	(73	)	$	(379	)	$	(361	)	$	(53	)
Dividends on Series A Preferred Stock		—			—			—			18			51			38			43
Net loss available to common shareholders	$	(11	)	$	(50	)	$	(105	)	$	(91	)	$	(430	)	$	(399	)	$	(96	)
Cash Flow Data
Cash flows from (used in) operating activities	$	64		$	(43	)	$	(32	)	$	103			—			—			—
Cash flows (used in) from investing activities		(45	)		7			(20	)		(294	)		—			—			—
Cash flows (used in) from financing activities		(21	)		80			148			209			—			—			—
Depreciation and amortization (2)		47			58			86			111		$	149		$	110		$	121
Capital expenditures		48			18			57			63			122			81			69

18

	Historical									Pro Forma
	Year ended December 31,						Nine Months Ended September 30, 2005			Year Ended December 31, 2004		Nine Months Ended September 30,				LTM Period
	2002		2003		2004								2004		2005
	(dollars in millions)
Other Financial Data
EBITDA (3)	—		—		—			—		$	120	$	42	$	289	$	367
Transaction related costs and non-cash charges included in EBITDA (4)	—		—		—			—			151		134		54		71
Unusual items included in EBITDA (5)	—		—		—			—			89		82		25		32
Balance Sheet Data (at end of period)
Cash and equivalents	—	$	49	$	152		$	164			—		—		—		—
Working capital (6)	—		177		433			535			—		—		—		—
Total assets	—		1,191		2,696			3,197			—		—		—		—
Total debt	—		683		1,850			2,367			—		—		—		—
Total liabilities and minority interest	—		1,039		3,005			3,712			—		—		—		—
Redeemable preferred stock	—		—		—			352			—		—		—		—
Total common stock and other shareholders’ equity (deficit)	—		152		(309	)		(867	)		—		—		—		—

(1) Net sales included in the consolidated statement of operations for the year ended December 31, 2004 is comprised of:

	Year Ended December 31, 2004
	(dollars in millions)
Resolution Performance—For the year ended December 31, 2004	$	996
Borden—For the period from August 12, 2004 to December 31, 2004		702
Resolution Specialty—For the period from August 2, 2004 to December 31, 2004		325
Eliminations		(4	)
Total consolidated net sales for the year ended December 31, 2004	$	2,019

(2) Depreciation and amortization included in the pro forma statements of operations for the year ended December 31, 2004 and for the nine months ended September 30, 2004 and 2005 is comprised of:

	Year Ended December 31, 2004			Nine Months Ended September 30,
				2004			2005
	(dollars in millions)
Hexion—For the year ended December 31, 2004 and for the nine months ended September 30, 2004 and 2005	$	86		$	54		$	111
Borden—For the period from January 1, 2004 to August 11, 2004		30			30			—
Resolution Specialty—For the period from January 1, 2004 to August 1, 2004		4			4			—
Bakelite—For the year ended December 31, 2004, for the nine months ended September 30, 2004 and for the period from January 1, 2005 to April 29, 2005		33			25			11
Total pro forma adjustment		(4	)		(3	)		(1	)
Total pro forma depreciation and amortization expense for the year ended December 31, 2004 and for the nine months ended September 30, 2004 and 2005	$	149		$	110		$	121

(3) EBITDA is defined as net loss before interest, taxes, depreciation and amortization and is used by management as a performance measure for certain performance-based cash bonus plans and measuring triggering events of certain performance-based stock options. We have presented EBITDA on a pro forma basis since management plans on using EBITDA as a benchmark for developing its ongoing performance measures for its cash bonus plans and certain performance-based stock option plans. We feel that pro forma EBITDA is more representative of the performance of our future operations since it gives effect to our combined company whereas historical EBITDA gives effect to our acquisitions only as of the date we acquired such entity. We also believe that EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry. EBITDA is

19

not a recognized term under GAAP, should not be viewed in isolation and does not purport to be an alternative to net loss as an indicator of operating performance or cash flows from operating activities as a measure of liquidity. There are material limitations associated with making the adjustments to our earnings to calculate EBITDA and using this non-GAAP financial measure as compared to the most directly comparable U.S. GAAP financial measures. For instance, EBITDA does not include:

• interest expense, and because we have borrowed money in order to finance our operations, interest expense is a necessary element of our costs and ability to generate revenue;

• depreciation and amortization expense, and because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate revenue; and

• tax expense, and because the payment of taxes is part of our operations, tax expense is a necessary element of our costs and ability to operate.

Additionally, EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not consider certain cash requirements such as capital expenditures, contractual commitments, interest payments, tax payments and debt service requirements. Because not all companies use identical calculations, this presentation of EBITDA may not be comparable to other similarly titled measures for other companies. Also the amounts shown for EBITDA as presented herein differ from the amounts calculated under the definition of Adjusted EBITDA used in our debt instruments, which further adjust for certain cash and non-cash charges and is used to determine compliance with financial covenants and our ability to engage in certain activities such as incurring additional debt and making acquisitions.

The following table is a reconciliation of pro forma net loss to pro forma EBITDA for Hexion:

	Pro Forma
	Year Ended December 31, 2004			Nine Months Ended September 30,						LTM Period
				2004			2005
	(dollars in millions)
Pro forma net loss	$	(379	)	$	(361	)	$	(53	)	$	(71	)
Pro forma interest expense, net		221			166			166			221
Pro forma income tax expense		129			127			55			57
Pro forma depreciation and amortization		149			110			121			160
Pro forma EBITDA	$	120		$	42		$	289		$	367

(4) Transaction related costs and non-cash charges for Hexion are further detailed on the following table:

	Pro Forma
	Year Ended December 31, 2004		Nine Months Ended September 30,				LTM Period
			2004		2005
	(dollars in millions)
Transaction related costs (a)	$	65	$	56	$	34	$	43
Non-cash charges (b)		86		78		20		28
	$	151	$	134	$	54	$	71

(a) 2004 amounts represent costs related to the Borden Transaction and certain expenses related to terminated acquisition activities. 2005 amounts are costs related to the Current Transactions.

(b) Represents impairments of fixed assets, goodwill and intangible assets and non-cash stock compensation.

20

(5) Unusual items that do not relate to the core operations of Hexion are further detailed on the following table:

	Pro Forma
	Year Ended December 31, 2004		Nine Months Ended September 30,				LTM Period
			2004		2005
	(dollars in millions)
Legacy legal costs (a)	$	11	$	11	$	—	$	—
Legacy corporate expenses, net (b)		30		28		2		4
Plant closure and employee costs (c)		13		12		4		5
Business realignment expenses (d)		29		27		—		2
Business interruption and other (e)		6		4		19		21
Unusual items	$	89	$	82	$	25	$	32

(a) Legacy legal costs relate to legal proceedings primarily involving divested businesses of Borden Chemical.

(b) Corporate allocations of $38 and transition service fees of $4 charged to Resolution Specialty by its former parent in excess of estimated incremental costs to replace such services of $12 in 2004.

(c) Plant closure and non-recurring severance and other one time benefits paid to employees.

(d) Business realignment expenditures included in EBITDA for Hexion relate to the excess of historical costs over current business staffing levels, contractual commitments and current plant footprint and are comprised of:

	Year Ended December 31, 2004		LTM Period
	(dollars in millions)
Employee related costs	$	17	$	2
Non-employee related costs		12		—
	$	29	$	2

Employee related costs of $17 and $2 are comprised of (i) historical salaries and benefits of employees terminated in 2004 at Resolution Specialty, Borden Chemical and Bakelite and (ii) the excess cost of employee benefit programs prior to the revision of such plans in 2004 at Resolution Specialty and Borden Chemical.

Non-employee related costs of $12 are comprised primarily of (i) the excess distribution expense reflected in Resolution Specialty’s predecessor’s income statement reduced in 2004 at the time of the Resolution Specialty Transaction as a result of new agreements with vendors and (ii) costs related to closed sites included in the Resolution Specialty predecessor financial statements which were not acquired by Resolution Specialty.

(e) For the year ended December 31, 2004 amounts represent incremental expenses incurred as a result of a mechanical failure at a Brazilian formaldehyde plant. Hexion was reimbursed for this amount under its insurance policies in the second quarter of 2005 and management fees. In 2005, the amount includes mark to market losses of an exchange rate hedge relating to the Bakelite Acquisition of $11 and integration costs of $5 and management fees.

(6) Working capital is defined as current assets less current liabilities.

21

Senior Secured Credit Facilities

In connection with the closing of the Combinations on May 31, 2005, we entered into $775 of new senior secured credit facilities. Our new senior secured credit facilities provide for a six-year $225 revolving credit facility, subject to an earlier maturity date, under certain circumstances. In addition, our new senior secured credit facilities provide for a seven-year $500 term loan facility and a $50 synthetic letter of credit facility, each subject to an earlier maturity date, under certain circumstances. Upon entering into these senior secured credit facilities, we repaid $164 of indebtedness, which represented all amounts outstanding under the previously outstanding credit facilities of Borden Chemical, Resolution Performance and Resolution Specialty, and $250, which represented all amounts outstanding under our bridge loan facility. In addition, we repaid $53 of Resolution Specialty Senior Subordinated Notes. As of September 30, 2005, we had $2,367 principal amount of outstanding indebtedness, including amounts outstanding under the new senior secured credit facilities. See “Description of Certain Indebtedness—First-Priority Lien Obligations—Senior Secured Credit Facilities.”

Covenant Compliance

Certain covenants contained in the credit agreement governing our new senior secured credit facilities and the indentures governing the 8% Senior Secured Notes, 9 ¹/2% Senior Second Secured Notes and Second-Priority Senior Secured Notes (i) require the maintenance of defined Adjusted EBITDA to Fixed Charges and senior secured debt to Adjusted EBITDA ratios and (ii) restrict our ability to take certain actions such as incur additional debt or make acquisitions if we are unable to meet these ratios. The most restrictive of these covenants, the covenants to incur additional indebtedness and the ability to make future acquisitions, require an Adjusted EBITDA to Fixed Charges ratio (measured on a trailing four-quarter basis) of 2.25:1. Failure to comply with these covenants can result in limiting our long-term growth prospects by hindering our ability to incur future indebtedness or grow through acquisitions.

Fixed charges are defined as interest expense excluding the amortization or write-off of deferred financing costs. Adjusted EBITDA is defined as EBITDA further adjusted to exclude certain non-cash, non-recurring and realized or expected future cost savings directly related to prior acquisitions and the Combinations. We believe that the inclusion of the supplemental adjustments applied in calculating Adjusted EBITDA is appropriate to provide additional information to investors to demonstrate compliance with our financial covenants and assess our ability to incur additional indebtedness in the future. Adjusted EBITDA and Fixed Charges are not defined terms under GAAP. Adjusted EBITDA should not be considered an alternative to operating income or net income as a measure of operating results or an alternative to cash flows as a measure of liquidity. Fixed Charges should not be considered an alternative to interest expense.

See “Description of Certain Indebtedness” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” for further information on our indebtedness and covenants.

22

	Pro Forma
	Year Ended December 31, 2004		LTM Period
	(dollars in millions)
Pro Forma EBITDA (1)	$	120	$	367
Transaction related costs and non-cash charges (1)		151		71
Unusual items (1)		89		32
Effect of acquisitions (2)		4		1
Synergies from Current Transactions (3)		125		111
Pro Forma Adjusted EBITDA(4)	$	489	$	582
Pro Forma Fixed Charges	$	212	$	212
Ratio of Adjusted EBITDA to Fixed Charges		2.31		2.75

(1) See footnotes (3) - (5) on pages 19-21 for more information on EBITDA, transaction related costs and non-cash charges and unusual items.

(2) Represents the full year Adjusted EBITDA impact of a specialty coatings product line in the versatics market, acquired in November 2004 by Resolution Specialty.

(3) Represents $125 in estimated annual net cost synergies resulting from the Current Transactions. We expect that approximately 60% of the $125 near term cost savings will be achieved by the end of 2006 with the remainder expected to be achieved in the following year. In the first nine months of 2005, we realized $14 of the $125 of net cost synergies. We expect to incur a one-time cost of $75 during the next two years in connection with implementing these synergies. These estimated synergies include cost savings from rationalization of manufacturing facilities, removal of duplicative corporate and administrative functions, alignment of benefit plans and raw material purchasing initiatives. The estimated synergies by category are as follows:

	Year Ended December 31, 2004		LTM Period
Rationalization of manufacturing facilities	$	42	$	40
Overhead synergies		20		18
Raw material savings		63		53
	$	125	$	111

(4) We are required to have an Adjusted EBITDA to Fixed Charges ratio of greater than 2.25 to 1.0 to incur additional indebtedness under certain of our indentures. As of September 30, 2005, we were able to satisfy this covenant and incur additional indebtedness under our indentures.

23

RISK FACTORS

Investing in the exchange notes in this exchange offer involves a high degree of risk. You should carefully consider the risks described below before participating in the exchange offer. Any of the following risks could materially adversely affect our business, financial condition or results of operations and prospects, which in turn could adversely affect our ability to pay the notes. In such case, you may lose all or part of your original investment.

Risks Related to an Investment in the Notes

Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from making debt service payments on the notes.

We are a highly leveraged company. As of September 30, 2005, we had $2.4 billion of outstanding indebtedness. In fiscal 2006, our cash debt service is expected to be approximately $212 million based on current interest rates (excluding $26 million related to the maturity of current debt obligations and $13 million of Series A Preferred Stock accretion for one quarter), of which $149 million represents debt service on fixed-rate obligations. Our ability to generate sufficient cash flow from operations to make scheduled payments on our debt depends on a range of economic, competitive and business factors, many of which are outside our control. Our business may not generate sufficient cash flow from operations to meet our debt service and other obligations, and currently anticipated cost savings and operating improvements may not be realized on schedule, or at all. If we are unable to meet our expenses and debt service obligations, we may need to refinance all or a portion of our indebtedness on or before maturity, sell assets or raise equity. We may not be able to refinance any of our indebtedness, sell assets or raise equity on commercially reasonable terms or at all, which could cause us to default on our obligations and impair our liquidity.

Our substantial indebtedness could have important consequences for you, including the following:

• it may limit our ability to borrow money or sell stock for our working capital, capital expenditures, dividend payments, debt service requirements, strategic initiatives or other purposes;

• it may limit our flexibility in planning for, or reacting to, changes in our operations or business;

• it may increase the amount of our interest expense, because certain of our borrowings are at variable rates of interest, which if interest rates increase, could result in higher interest expense;

• we will be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;

• it may make us more vulnerable to downturns in our business or the economy;

• the debt service requirements of our other indebtedness could make it more difficult for us to make payments on the notes;

• a substantial portion of our cash flow from operations will be dedicated to the repayment of our indebtedness and will not be available for other purposes;

• it may restrict us from making strategic acquisitions, introducing new technologies or exploiting business opportunities;

• it may make it more difficult for us to satisfy our obligations with respect to our existing indebtedness; and

• it may limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds or dispose of assets.

24

Our variable-rate indebtedness subjects us to interest rate risk, which could cause our annual debt service obligations to increase significantly.

Certain of our indebtedness, including indebtedness under our floating rate notes and borrowings under our new senior secured credit facilities, are at variable rates of interest and expose us to interest rate risk. See “Description of Certain Indebtedness.” If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same. An increase of 1.0% in the interest rates payable on our variable rate indebtedness would increase our fiscal 2005 estimated debt service requirements by approximately $9 million. Accordingly, an increase in interest rates from current levels could cause our annual debt-service obligations to increase significantly.

Despite our substantial indebtedness we may still be able to incur significantly more debt. This could intensify the risks described above.

The terms of the indentures governing our notes, our new senior secured credit facilities and the instruments governing our other indebtedness and Series A Preferred Stock contain restrictions on our ability to incur additional indebtedness. These restrictions are subject to a number of important qualifications and exceptions and the indebtedness incurred in compliance with these restrictions could be substantial. Accordingly, we could incur significant additional indebtedness in the future. As of September 30, 2005, we had $221 million available for additional borrowing under our new senior secured credit facilities, including the subfacility for letters of credit, and the covenants under our debt agreements would allow us to borrow a significant amount of additional indebtedness. The more we become leveraged, the more we, and in turn our securityholders, become exposed to the risks described above under “—Our substantial indebtedness could impair our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from fulfilling our obligations under our existing or future indebtedness.”

We may not be able to generate sufficient cash to service all of our indebtedness, including the notes.

Our earnings were insufficient to cover our fixed charges by $89 million, $106 million and $39 million in 2003, 2004 and for the nine months ended September 30, 2005, respectively. Our ability to make payments on our indebtedness, including the notes, depends on our ability to generate cash in the future. Our cash debt service for 2006, is expected to be approximately $212 million based on current interest rates (excluding $26 million related to the maturity of current debt obligations and $13 million of Series A Preferred Stock accretion for one quarter). Accordingly, we will have to generate significant cash flows from operations to meet our debt service requirements. If we do not generate sufficient cash flow to meet our debt service and working capital requirements, we may need to seek additional financing or sell assets. This may make it more difficult for us to obtain financing on terms that are acceptable to us, or at all. Without this financing, we could be forced to sell assets to make up for any shortfall in our payment obligations under unfavorable circumstances. Furthermore, Apollo and its affiliates have no continuing obligation to provide us with debt or equity financing.

Our new senior secured credit facilities, the indenture governing the notes and the instruments governing our other indebtedness and preferred stock, limit our ability to sell assets and also restrict the use of proceeds from that sale. Moreover, our new senior secured credit facilities and certain other obligations are secured on a first-priority basis by certain of our assets, and the notes and certain other obligations are secured on a second-priority basis by substantially the same assets, other than assets of our foreign subsidiaries. We may not be able to sell assets quickly enough or for sufficient amounts to enable us to meet our obligations, including our obligations on the notes. Furthermore, a substantial portion of our assets are, and may continue to be, intangible assets. Therefore, it may be difficult for us to pay you in the event of an acceleration of the notes.

There may not be sufficient collateral to pay all or any of the notes.

Indebtedness under our new senior secured credit facilities, the interest rate protection and other hedging agreements and the overdraft facility permitted thereunder and our 8% senior secured notes due 2009, (referred

25

to in these Risk Factors as the “First-Priority Lien Obligations”) are secured by a first-priority lien on substantially all tangible and intangible assets of Hexion and each subsidiary guarantor, except for certain excluded collateral (such as our Principal Properties). The notes, the New Floating Rate Notes and our 9 ¹/2% senior second secured notes due 2010 are secured by a second-priority lien on only a portion of the assets that secure the First-Priority Lien Obligations. In the event of a bankruptcy, liquidation, dissolution, reorganization or similar proceeding against us or any future domestic subsidiary, the assets that are pledged as shared collateral securing the First-Priority Lien Obligations and the notes must be used first to pay the First-Priority Lien Obligations in full before making any payments on the notes, the New Floating Rate Notes or our 9 ¹/2% senior second secured notes due 2010, which are secured on an equal and ratable basis.

At September 30, 2005, we had outstanding $2.4 billion of senior indebtedness (including the notes and guarantees), and $662 million of First-Priority Lien Obligations, including $499 million of secured indebtedness under our new senior secured credit facilities. At September 30, 2005, borrowings of $221 million were unused and available under our new senior secured credit facilities, all of which would constitute First-Priority Lien Obligations if drawn. In addition to borrowings under our new senior secured credit facilities, the indenture governing the notes, the New Floating Rate Notes and the instrument governing our preferred stock allow a significant amount of other indebtedness and other obligations to be secured by a lien on the collateral securing the notes on a first-priority basis, and an unlimited amount of indebtedness secured by a lien on such collateral on an equal and ratable basis, provided that, in each case, such indebtedness or other obligation could be incurred under the debt incurrence covenants contained in the indenture governing the notes, the New Floating Rate Notes and the instrument governing our preferred stock. Any additional obligations secured by a lien on the collateral securing the notes (whether senior to or equal with the second-priority lien of the notes) will adversely affect the relative position of the holders of the notes with respect to the collateral securing the notes.

Many of our assets, such as certain assets owned by our foreign subsidiaries, are not part of the collateral securing the notes, but do secure some First-Priority Lien Obligations. In addition, our foreign subsidiaries will be permitted to incur substantial indebtedness in compliance with the covenants under our new senior secured credit facilities, the indenture governing the notes and the agreements governing our other indebtedness, most of which is permitted to be a First-Priority Lien Obligation. With respect to those assets that are not part of the collateral securing the notes but which secure other obligations, the notes will be effectively junior to these obligations to the extent of the value of such assets. There is no requirement that the holders of the First-Priority Lien Obligations first look to these excluded assets before foreclosing, selling or otherwise acting upon the collateral shared with the notes.

No appraisals of any collateral have been prepared in connection with the offering of the old notes. The value of the collateral at any time will depend on market and other economic conditions, including the availability of suitable buyers for the collateral. By their nature, some or all of the pledged assets may be illiquid and may have no readily ascertainable market value. The value of the assets pledged as collateral for the notes could be impaired in the future as a result of changing economic conditions, our failure to implement our business strategy, competition and other future trends. In the event of a foreclosure, liquidation, bankruptcy or similar proceeding, no assurance can be given that the proceeds from any sale or liquidation of the collateral will be sufficient to pay our obligations under the notes, in full or at all, after first satisfying our obligations in full under the First-Priority Lien Obligations and any other obligations secured by a priority lien on the collateral.

Accordingly, there may not be sufficient collateral to pay all or any of the amounts due on the notes. Any claim for the difference between the amount, if any, realized by holders of the notes from the sale of the collateral securing the notes and the obligations under the notes will rank equally in right of payment with all of our other unsecured unsubordinated indebtedness and other obligations, including trade payables.

Additional indebtedness was secured by the collateral securing the notes upon consummation of the Combinations.

Upon consummation of the Combinations, the holders of the notes share equally and ratably in the collateral with the holders of our other indebtedness secured by a second-priority lien, including $200 million of 9 ¹/2% senior second secured notes previously issued by Resolution Performance and the New Floating Rate Notes.

26

Although some of the collateral securing the notes previously issued by Resolution Performance will be added as collateral to secure the Second-Priority Senior Secured Notes, there can be no assurance that the collateral securing the notes will be sufficient to pay all or any of the amounts due on the notes and our other secured indebtedness, including the notes previously issued by Resolution Performance and the New Floating Rate Notes. At September 30, 2005, we had outstanding $2.4 billion of senior indebtedness (including the notes and the guarantees), and $662 million of First-Priority Lien Obligations, including $499 million of secured indebtedness under our new senior secured credit facilities. At September 30, 2005, borrowings of $221 million were unused and available under our new senior secured credit facilities, all of which would constitute First-Priority Lien Obligations if drawn.

Our new senior secured credit facilities and our 8% senior secured notes constitute First-Priority Lien Obligations under the indenture governing the notes. Accordingly, the notes will be effectively subordinated to these obligations to the extent of the collateral securing such obligations. We may incur additional First-Priority Lien Obligations in the future.

Holders of notes will not control decisions regarding collateral.

The holders of the First-Priority Lien Obligations control substantially all matters related to the collateral securing the First-Priority Lien Obligations, our 9 ¹/2% senior second secured notes due 2010 and the Second-Priority Senior Secured Notes. The holders of the First-Priority Lien Obligations may cause the collateral agent to dispose of, release or foreclose on, or take other actions with respect to the shared collateral with which holders of the notes may disagree or that may be contrary to the interests of holders of the notes. To the extent shared collateral is released from securing the First-Priority Lien Obligations, the second-priority liens securing the notes will also automatically be released. In addition, the security documents generally provide that, so long as the First-Priority Lien Obligations are in effect, the holders of the First-Priority Lien Obligations may change, waive, modify or vary the security documents without the consent of the holders of the notes, provided that any such change, waiver or modification does not materially adversely affect the rights of the holders of the notes and not the other secured creditors in a like or similar manner. Except under limited circumstances, if at any time the First-Priority Lien Obligations cease to be in effect, the second-priority liens securing the notes will also be released and the notes will become unsecured senior obligations. See “Description of the Notes—Security for the Notes.”

Furthermore, the security documents generally allow us and our subsidiaries to remain in possession of, retain exclusive control over, to freely operate, and to collect, invest and dispose of any income from, the collateral securing the notes. In addition, to the extent we sell any assets that constitute collateral, the proceeds from such sale will be subject to the second-priority lien securing the notes only to the extent such proceeds would otherwise constitute “collateral” securing the notes under the security documents. To the extent the proceeds from any such sale of collateral do not constitute “collateral” under the security documents, the pool of assets securing the notes would be reduced and the notes would not be secured by such proceeds. For instance, if we sell any of our domestic assets which constitute collateral securing the notes and, with the proceeds from such sale, purchase assets in Europe which we transfer to one of our foreign subsidiaries, the holders of the notes would not receive a security interest in the assets purchased in Europe and transferred to our foreign subsidiary because the pool of assets which constitutes collateral securing the notes under the security documents excludes assets owned by our foreign subsidiaries.

The capital stock securing the notes will automatically be released from the second-priority lien and no longer be deemed to be collateral to the extent the pledge of such capital stock would require the filing of separate financial statements for any of our subsidiaries (other than Hexion Canada) with the SEC. As a result of any such release, the notes could be secured by less collateral than our first-priority indebtedness and the other indebtedness secured on a second-priority basis to the extent such liens are not required to be similarly released.

The indenture governing the notes and the security documents provide that, to the extent that separate financial statements of any of our subsidiaries (other than Hexion Canada) would be required by the rules of the

27

SEC (or any other governmental agency) due to the fact that such subsidiary’s capital stock or other securities secure the notes, then such capital stock or other securities will automatically be deemed not to be part of the collateral securing the notes to the extent necessary to not be subject to such requirement. In such event, the security documents will be amended, without the consent of any holder of notes, to the extent necessary to release the second-priority liens on such capital stock or securities. As a result, holders of the notes could lose all or a portion of their security interest in the capital stock or other securities if any such rule becomes applicable. In addition, as a result of any such release, the notes could be secured by less collateral than our first-priority indebtedness and the other indebtedness secured on a second-priority basis to the extent such liens are not required to be similarly released.

Our ability to repay the notes depends upon the performance of Hexion and its subsidiaries and their ability to make payments or distributions.

The Issuers are finance subsidiaries of Hexion and do not have any material assets other than intercompany loans to Hexion and its subsidiaries. Therefore, the Issuers are entirely dependent on Hexion and its other subsidiaries for funds to satisfy their debt service requirements with respect to the notes.

A significant portion of Hexion’s assets are owned, and a significant percentage of Hexion’s net sales are earned, by its direct and indirect subsidiaries. Therefore, Hexion’s cash flows and its ability to service indebtedness, including its ability to transfer funds, directly or indirectly, to the Issuers or to honor its obligations under its guaranty of the notes, will be dependent upon cash dividends and distributions or other transfers from its subsidiaries. Payments to Hexion by its subsidiaries will be contingent upon the earnings of those subsidiaries.

Hexion’s subsidiaries are separate and distinct legal entities and, except for the Issuers and the existing and future subsidiaries that will guarantee the notes, they will not have any obligation, contingent or otherwise, to pay amounts due with respect to the notes or to make any funds available to pay those amounts, whether by dividend, distribution, loan or other payments. In addition, certain of our subsidiaries are subject to contractual limitations on their ability to pay dividends or otherwise distribute money to Hexion. If Hexion’s subsidiaries do not pay out dividends or make other distributions to Hexion, Hexion may not have sufficient cash to fulfill its obligations with respect to the notes.

The notes are effectively subordinated to all liabilities of our non-guarantor subsidiaries and structurally subordinated to claims of creditors of all of our foreign subsidiaries.

The notes are structurally subordinated to indebtedness and other liabilities of Hexion’s subsidiaries that are not the Issuers or guarantors of the notes. In the event of a bankruptcy, liquidation or reorganization of any of our non-guarantor subsidiaries, these non-guarantor subsidiaries will pay the holders of their debts, holders of preferred equity interests and their trade creditors before they will be able to distribute any of their assets to Hexion or the Issuers.

The notes are not guaranteed by any of Hexion’s non-U.S. subsidiaries. Our foreign subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due pursuant to the notes, or to make any funds available therefor, whether by dividends, loans, distributions or other payments. Any right that Hexion or the subsidiary guarantors have to receive any assets of any of the foreign subsidiaries upon the liquidation or reorganization of those subsidiaries, and the consequent rights of holders of notes to realize proceeds from the sale of any of those subsidiaries’ assets, will be effectively subordinated to the claims of those subsidiaries’ creditors, including trade creditors and holders of preferred equity interests of those subsidiaries.

Federal and state statutes allow courts, under specific circumstances, to void notes, guarantees and security interests and require note holders to return payments received.

The proceeds from the sale of the notes were applied to satisfy the purchase price in the Borden Transaction payable to Borden Chemical’s shareholders. Hexion and certain of its existing domestic subsidiaries guaranteed the notes and certain of its future domestic subsidiaries may guarantee the notes. In addition, the guarantees are

28

secured by certain collateral owned by the related guarantor. If any issuer or any guarantor becomes a debtor in a case under the United States Bankruptcy Code or encounters other financial difficulty, under federal or state fraudulent transfer law a court may void or otherwise decline to enforce the notes, the guaranty or the related security agreements, as the case may be. A court might do so if it found that when the applicable issuer issued the notes or the guarantor entered into its guaranty or, in some states, when payments became due under the notes, the guaranty or security agreements, such issuer or the guarantor received less than reasonably equivalent value or fair consideration and either:

• was or was rendered insolvent;

• was left with inadequate capital to conduct its business; or

• believed or reasonably should have believed that it would incur debts beyond its ability to pay.

The court might also void an issuance of notes, a guaranty or security agreements, without regard to the above factors, if the court found that the applicable issuer issued the notes or the guarantor entered into its guaranty or security agreements with actual intent to hinder, delay or defraud its creditors.

A court would likely find that an issuer or a guarantor did not receive reasonably equivalent value or fair consideration for the notes or its guaranty and security agreements, respectively, if the issuer or the guarantor did not substantially benefit directly or indirectly from the issuance of the notes. If a court were to void an issuance of notes, a guaranty or the related security agreements, you would no longer have a claim against the issuer or the guarantor or, in the case of the security agreements, a claim with respect to the related collateral. Sufficient funds to repay the notes may not be available from other sources, including the remaining issuers or guarantors, if any. In addition, the court might direct you to repay any amounts that you already received from the issuer or the guarantor or with respect to the collateral.

The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. In general, however, a court would consider an issuer or a guarantor insolvent if:

• the sum of its debts, including contingent and unliquidated liabilities, was greater than the fair saleable value of all of its assets;

• the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

• it could not pay its debts as they became due.

Each guaranty contains a provision intended to limit the guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guaranty to be a fraudulent transfer. This provision may not be effective to protect the guaranties from being voided under fraudulent transfer law, or may reduce or eliminate the guarantor’s obligation to an amount that effectively makes the guaranty worthless.

The terms of our new senior secured credit facilities and our existing indebtedness may restrict our current and future operations.

Our new senior secured credit facilities and our existing indebtedness contain, and any future indebtedness we incur would likely contain, a number of restrictive covenants that will impose significant operating and financial restrictions on our ability to, among other things:

• incur or guarantee additional debt;

• pay dividends and make other distributions to our shareholders;

• create or incur certain liens;

29

• make certain loans, acquisitions, capital expenditures or investments;

• engage in sales of assets and subsidiary stock;

• enter into sale/leaseback transactions;

• enter into transactions with affiliates;

• transfer all or substantially all of our assets or enter into merger or consolidation transactions; and

• make capital expenditures.

In addition, our new senior secured credit facilities require us to maintain a maximum senior secured bank leverage ratio. As a result of these covenants and this ratio, we are limited in the manner in which we conduct our business and we may be unable to engage in favorable business activities or finance future operations or capital needs. While we are currently in compliance with all of the terms of our outstanding indebtedness, including the financial covenants contained therein, a downturn in our business could cause us to fail to comply with the financial or other covenants in our new senior secured credit facilities.

A failure to comply with the covenants contained in our new senior secured credit facilities or our existing indebtedness could result in an event of default under the facilities or the existing agreements. In the event of any default under our new senior secured credit facilities or our other indebtedness, the lenders thereunder:

• will not be required to lend any additional amounts to us;

• could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be due and payable;

• require us to apply all of our available cash to repay these borrowings; or

• prevent us from making payments on the Series A Preferred Stock.

If the indebtedness under our new senior secured credit facilities or our other indebtedness were to be accelerated, our assets may not be sufficient to repay such indebtedness in full. See “Description of Certain Indebtedness.”

Rights of holders of notes in the collateral may be adversely affected by bankruptcy proceedings.

The right of the collateral agent to repossess and dispose of the collateral securing the notes upon acceleration is likely to be significantly impaired by federal bankruptcy law if bankruptcy proceedings are commenced by or against us prior to or possibly even after the collateral agent has repossessed and disposed of the collateral. Under the U.S. Bankruptcy Code, a secured creditor, such as the collateral agent, is prohibited from repossessing its security from a debtor in a bankruptcy case, or from disposing of security repossessed from a debtor, without bankruptcy court approval. Moreover, bankruptcy law permits the debtor to continue to retain and to use collateral, and the proceeds, products, rents or profits of the collateral, even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given “adequate protection.” The meaning of the term “adequate protection” may vary according to circumstances, but it is intended in general to protect the value of the secured creditor’s interest in the collateral and may include cash payments or the granting of additional security, if and at such time as the court in its discretion determines, for any diminution in the value of the collateral as a result of the stay of repossession or disposition or any use of the collateral by the debtor during the pendency of the bankruptcy case. In view of the broad discretionary powers of a bankruptcy court, it is impossible to predict how long payments under the notes could be delayed following commencement of a bankruptcy case, whether or when the collateral agent would repossess or dispose of the collateral, or whether or to what extent holders of the notes would be compensated for any delay in payment of loss of value of the collateral through the requirements of “adequate protection.” Furthermore, in the event the bankruptcy court determines that the value of the collateral is not sufficient to repay all amounts due on the notes, the holders of the notes would have “undersecured claims” as to the difference. Federal bankruptcy laws do not permit the payment or accrual of interest, costs and attorneys’ fees for “undersecured claims” during the debtor’s bankruptcy case.

30

Rights of holders of notes in the collateral may be adversely affected by the failure to perfect security interests in certain collateral acquired in the future.

The security interest in the collateral securing the notes includes domestic assets, both tangible and intangible, whether now owned or acquired or arising in the future. Applicable law requires that certain property and rights acquired after the grant of a general security interest can only be perfected at the time such property and rights are acquired and identified. There can be no assurance that the trustee or the collateral agent will monitor, or that we will inform the trustee or the collateral agent of, the future acquisition of property and rights that constitute collateral, and that the necessary action will be taken to properly perfect the security interest in such after-acquired collateral. Such failure may result in the loss of the security interest therein or the priority of the security interest in favor of the notes against third parties.

The Issuers may not be able to repurchase the notes upon a change of control.

Specific kinds of change of control events of Hexion will be an event of default under the indenture governing the notes unless the Issuers make an offer to repurchase all outstanding notes at 101% of their principal amount, plus accrued and unpaid interest or by exercising their right to redeem such notes, in each case within 30 days of such change of control event. Similar change of control offer requirements are applicable to notes including the original notes issued under certain of our other indentures. The Issuers will be dependent on Hexion and its subsidiaries for the funds necessary to cure the events of default caused by such change of control event. Hexion and its subsidiaries may not have sufficient financial resources to purchase all of the notes that are tendered upon a change of control offer or to redeem such notes. The occurrence of a change of control would also constitute an event of default under our new senior secured credit facilities and could constitute an event of default under our other indebtedness. Our bank lenders may have the right to prohibit any such purchase or redemption, in which event we will seek to obtain waivers from the required lenders under our new senior secured credit facilities and our other indebtedness, but may not be able to do so. See “Description of the Notes—Change of Control.”

If you do not properly tender your old notes, you will continue to hold unregistered old notes and be subject to the same limitations on your ability to transfer old notes.

We will only issue exchange notes in exchange for old notes that are timely received by the exchange agent together with all required documents, including a properly completed and signed letter of transmittal. Therefore, you should allow sufficient time to ensure timely delivery of the old notes and you should carefully follow the instructions on how to tender your old notes. Neither we nor the exchange agent are required to tell you of any defects or irregularities with respect to your tender of the old notes. If you are eligible to participate in the exchange offer and do not tender your old notes or if we do not accept your old notes because you did not tender your old notes properly, then, after we consummate the exchange offer, you will continue to hold old notes that are subject to the existing transfer restrictions and will no longer have any registration rights or be entitled to any additional interest with respect to the old notes. In addition:

• if you tender your old notes for the purpose of participating in a distribution of the exchange notes, you will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the exchange notes; and

• if you are a broker-dealer that receives exchange notes for your own account in exchange for old notes that you acquired as a result of market-making activities or any other trading activities, you will be required to acknowledge that you will deliver a prospectus in connection with any resale of those exchange notes.

We have agreed that, for a period of 180 days after the exchange offer is consummated, we will make this prospectus available to any broker-dealer for use in connection with any resales of the exchange notes.

After the exchange offer is consummated, if you continue to hold any old notes, you may have difficulty selling them because there will be fewer old notes outstanding.

31

An active trading market may not develop for the exchange notes, in which case the trading market liquidity and the market price quoted for the exchange notes could be adversely affected.

The exchange notes are a new issue of securities with no established trading market and will not be listed on any securities exchange or automated dealer quotation system. The liquidity of the trading market in the exchange notes, and the market price quoted for the exchange notes, may be adversely affected by changes in the overall market for high yield securities and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a result, you cannot be sure that an active trading market will develop for the exchange notes. In addition, if a large amount of old notes are not tendered or are tendered improperly, the limited amount of exchange notes that would be issued and outstanding after we consummate the exchange offer would reduce liquidity and could lower the market price of those exchange notes.

Risks Relating to Our Business

Borden Chemical, Resolution Performance, Resolution Specialty and Bakelite have a limited history of working together as a single company. Should we fail to integrate the operations of Borden Chemical, Resolution Performance, Resolution Specialty and Bakelite and achieve cost savings, our results of operations and profitability would be negatively impacted.

We may not be successful integrating Borden Chemical, Resolution Performance, Resolution Specialty and Bakelite, and the combined company may not perform as we expect or achieve the net cost savings we anticipate. A significant element of our business strategy is the improvement of our operating efficiencies and a reduction of our operating costs. Management is currently targeting $250 million in synergies from the Current Transactions of which $125 million of cost savings have been specifically identified by our management. We anticipate a one-time cost of $75 million in connection with implementing such cost savings. A variety of factors could cause us not to achieve the benefits of the cost savings plan, or could result in harm to our business. For example, certain of our European operations utilize IT systems with limited systems support. In the event we are not able to integrate these systems with our more advanced IT systems, our ability to efficiently operate in certain European countries could be diminished. In addition, although we are continuing to assess the impact of Hurricanes Katrina and Rita on our business, they, along with future hurricanes and natural disasters, may affect our ability to achieve our cost savings plan in the near term. Additional factors include:

• delays in the anticipated timing of activities related to our cost savings plan;

• higher than expected or unanticipated costs to implement the plan and to operate the business;

• inadequate resources to implement the plan and to operate the business;

• our inability to optimize manufacturing processes between the companies;

• our inability to obtain lower raw material prices;

• our inability to utilize new geographic distribution channels;

• our inability to reduce corporate and administrative expenses; and

• our inability to identify an additional $125 million of cost savings consistent with our synergy target.

As a result, we may not achieve our expected cost savings in the time anticipated, or at all. In such case, our results of operations and profitability would be negatively impaired.

The Current Transactions may prove disruptive and could result in the combined business failing to meet our expectations.

The process of integrating the operations of Borden Chemical, Resolution Performance, Resolution Specialty and Bakelite may require a disproportionate amount of resources and management attention. Our future operations and cash flows will depend largely upon our ability to operate Hexion efficiently, achieve the strategic

32

operating objectives for our business and realize significant cost savings and synergies. Our management team may encounter unforeseen difficulties in managing the integration of our four businesses. In order to successfully combine and operate our businesses, our management team will need to focus on realizing anticipated synergies and cost savings on a timely basis while maintaining the efficiency of our operations. Any substantial diversion of management attention or difficulties in operating the combined business could affect our sales and ability to achieve operational, financial and strategic objectives. For example, Bakelite’s original system of financial reporting was designed to comply with German GAAP, consistent with the GAAP applied in the financial statements of its former parent, and the records of its subsidiaries were kept in other local GAAP and then consolidated into its former parent’s financial statements. The conversion of Bakelite’s system of financial reporting from German and local GAAP to US GAAP is a complex process and has required substantial management resources in order to prepare the financial statements included in this prospectus. In the future, we expect to devote substantial management attention in order to implement financial reporting and other systems that will permit Bakelite to timely report its results on a US GAAP basis for inclusion in our consolidated financial statements. In addition, we anticipate the necessity to devote substantial management resources to continue the preparation of Resolution Performance’s and Resolution Specialty’s financial statements in a manner consistent with SEC rules and regulations.

Our historical and pro forma financial information may not reflect what our actual results of operations and financial condition would have been had we been a combined company for the periods presented and thus these results may not be indicative of our future operating performance.

The historical financial information included in this prospectus is constructed from the separate financial statements of Resolution Performance, Borden Chemical and Resolution Specialty for periods prior to the consummation of the Current Transactions. In addition, Bakelite has historically prepared its financial statements in accordance with German GAAP, which differs in certain respects from US GAAP. The Bakelite financial statement presentation included in this prospectus has been converted from the local GAAP of Bakelite and its subsidiaries to US GAAP. The pro forma financial information presented in this prospectus is based in part on certain assumptions regarding the Current Transactions that we believe are reasonable. Our assumptions may prove to be inaccurate over time. Accordingly, the historical and pro forma financial information included in this prospectus may not reflect what our results of operations and financial condition would have been had we been a combined entity during the periods presented, or what our results of operations and financial condition will be in the future.

Our limited operating history and the challenge of integrating previously independent businesses make evaluating our business and our future financial prospects difficult. Our potential for future business success and operating profitability must be considered in light of the risks, uncertainties, expenses and difficulties typically encountered by recently organized or combined companies.

Although EBITDA is derived from the financial statements (pro forma or historical, as the case may be) of Hexion, the calculation of Adjusted EBITDA contains a number of estimates and assumptions that may prove to be incorrect. For example, the synergies assume we can obtain improved raw materials pricing, the determination of legacy corporate expenses, net contains an estimate as to the cost of replacement services and business realignment expenses contains a number of assumptions as to excess costs. Although management of Hexion believes these estimates and assumptions are reasonable and correct and are consistent with the definition of Adjusted EBITDA in our indentures, investors should not place undue reliance upon Adjusted EBITDA as an indicator of current and future performance.

Demand for many of our products is cyclical and we may experience prolonged depressed market conditions for our products, which may decrease our net sales and operating margins.

Many of our products are used in industries that are cyclical in nature, such as the new home construction, automotive, oil and gas, chemicals and electronics industries. We sell our products to manufacturers in those

33

industries who incorporate them into their own products. Sales to the construction industry are driven by trends in commercial and residential construction, housing starts and trends in residential repair and remodeling. Consumer confidence, mortgage rates and income levels play a significant role in driving demand in the residential construction, repair and remodeling sector. A drop in consumer confidence or an increase in mortgage rates or unemployment could cause a slowdown in the construction industry, and in particular the residential construction, repair and remodeling industry. These and other similar adverse developments could cause a material decrease in our net sales and operating margins.

Downturns in one or more of the other businesses that use our products can adversely affect our net sales and operating margins. Many of our customers are in businesses that are cyclical in nature and sensitive to changes in general economic conditions. In 2002, sales of Borden Chemical’s oil field services products declined 29% as a result of reduced drilling activity. Demand for our products depends, in part, on general economic conditions, and a decline in economic conditions in the industries served by customers has, and may continue to have, a material adverse effect on our business. An economic downturn in one or more of the businesses or geographic regions in which we sell our products could cause a material decrease in our net sales and operating margins.

We rely significantly on raw materials in the production of our products and fluctuations in costs would increase our operating expenses.

Our manufacturing operations depend upon obtaining adequate supplies of our raw materials on a timely basis. The loss of a key source of supply or a delay in shipments could have an adverse effect on our business. In addition, several of our feedstocks at various facilities are transported through a pipeline from one supplier. If we were unable to receive these feedstock through these pipeline arrangements, we may not be able to obtain them from other suppliers at competitive prices or in a timely manner. During the past three years, the prices of these materials have been volatile. We are exposed to price risks associated with these raw material purchases. The availability and prices of raw materials may be subject to curtailment or change due to, among other things, new laws or regulations, suppliers’ allocations to other purchasers, interruptions in production by suppliers, changes in exchange rates, cost components of raw materials and worldwide price levels. In addition, although we are continuing to assess the impact of Hurricanes Katrina and Rita on the availability and prices of our raw materials, we may be subject to increasing raw material prices and fuel surcharges due to hurricanes and other natural disasters and the associated damage to our suppliers. During the third quarter of 2005, approximately $10 million in incremental expenses associated with the hurricanes negatively impacted our results. We believe our fourth quarter 2005 operating results will continue to be negatively impacted by incremental expenses of approximately $10 to $20 million. Our ability to manufacture products depends on our ability to obtain an adequate supply of raw materials in a timely manner. Furthermore, if the cost of raw materials increases significantly and we are unable to offset the increased costs with higher selling prices, our profitability will decline. From time to time, suppliers may extend lead times, limit supplies or increase prices due to capacity constraints or other factors. Although certain of our contracts include competitive price clauses that allow us to buy outside the contract if market pricing falls below contract pricing and other contracts have minimum-maximum monthly volume commitments that allow us to take advantage of spot pricing, we may not be able to purchase raw materials at market price. In addition, some of our customer contracts include selling price provisions that are indexed to publicly available indices for these commodity raw materials; however, we may not be able to immediately pass on raw material price increases to our customers, if at all. Due to differences in timing of the pricing mechanism trigger points between our sales and purchase contracts, there is often a “lead-lag” impact during which margins are negatively impacted for the short term in periods of rising raw material prices and positively impacted in periods of falling raw material prices. Raw material prices may not decrease from currently high levels or, if they do, we may not be able to capitalize on any such reductions in a timely manner, if at all.

Rising energy costs have previously increased our operating expenses and reduced net income and may in the future continue to do so, which could have a negative impact on our financial condition.

Natural gas is essential in our manufacturing processes, and its cost can vary widely and unpredictably. Our energy costs represented approximately 4% of our total cost of sales in 2004. Energy costs have risen significantly over the past several years due to the increase in the cost of oil and natural gas and the recent shortages of energy in various states, including those caused by Hurricanes Katrina and Rita. Our operating

34

expenses increased in 2005 and will continue to increase if these costs continue to rise or do not return to historical levels. Rising energy costs may also increase our raw material costs. If we cannot pass these costs through to our customers, our profitability may decline. In addition, rising energy costs also negatively impact our customers and the demand for our products. These risks will be exacerbated if our customers or production facilities are in locations experiencing severe energy shortages.

Environmental obligations and liabilities could have a substantial negative impact on our financial condition, cash flows and profitability.

Our operations involve the use, handling, processing, storage, transportation and disposal of hazardous materials and are subject to extensive environmental laws and regulations at the national, state, local and international level. Such environmental laws and regulations include those governing the discharge of pollutants into the air and water, the management and disposal of hazardous materials and wastes, the cleanup of contaminated sites and occupational health and safety. We have incurred, and will continue to incur, significant costs and capital expenditures in complying with these laws and regulations. In 2004, we incurred $16 million in capital expenditures to comply with environmental laws and regulations, and for other environmental improvements. In addition, violations of environmental laws or permits may result in restrictions being imposed on our operating activities or in our being subjected to substantial fines, penalties, criminal proceedings, third party property damage or personal injury claims or other costs. In addition, future developments or increasingly stringent regulation could require us to make additional unforeseen environmental expenditures. For example, the Louisville Metro Air Pollution control district has proposed new regulations that, if promulgated in their current form, could result in increased costs at our Louisville, Kentucky facility. In addition, potential air compliance issues at the Louisville facility could adversely affect our ability to achieve operational synergies in a timely fashion.

Even if we fully comply with environmental laws, we are subject to liability associated with hazardous substances in soil, groundwater and elsewhere at a number of sites. These include sites that we formerly owned or operated, and sites where hazardous wastes and other substances from our current and former facilities and operations have been treated, stored or disposed of, as well as sites that we currently own or operate. Depending upon the circumstances, our liability may be joint and several, meaning that we may be held responsible for more than our proportionate share, or even all, of the liability involved. Environmental conditions at such sites can lead to claims against us for personal injury or wrongful death, property damages, and natural resource damage, as well as to claims and obligations for the investigation and cleanup of environmental conditions. The extent of any such liabilities can be difficult to predict.

We have been notified that we are or may be responsible for environmental remediation at a number of sites in the United States, Europe and South America, and we are also undertaking a number of voluntary cleanups. We believe the most significant of these and the site that makes up approximately half of our remediation accrual is the site formerly owned by us in Geismar, Louisiana. As a result of former, current or future operations, there are likely to be additional environmental remediation or restoration liabilities or claims of personal injury by employees or members of the public due to exposure or alleged exposure to hazardous materials in connection with our operations, properties or products. We are aware of several sites, sold by us over 20 years ago, that may have significant site closure or remediation costs. Actual costs at these sites, as well as our share, if any, are unknown to us at this time. In addition, we have been served in two tort actions relating to one of these sites. If we fail to mount a successful defense against legal proceedings involving former sites, any significant finding of liability could have a negative impact on our financial condition, cash flows and profitability.

These environmental liabilities or obligations, or any that may arise or become known to us in the future, could have a material adverse effect on our financial condition, cash flows and profitability.

Because we manufacture and use materials that are known to be hazardous, we are subject to comprehensive product and manufacturing regulations, for which compliance can be costly and time consuming.

We produce hazardous chemicals that require care in handling and use and are subject to regulation by many U.S. and non-U.S. national, supra-national, state and local governmental authorities. In some circumstances, before we may sell some of our products these authorities must approve these products and our manufacturing

35

processes and facilities. As our facilities grow, we may become subject to additional regulation or higher compliance standards. We are also subject to ongoing reviews of our products and manufacturing processes. For example, formaldehyde is an extensively regulated chemical, which various public health agencies continue to evaluate. The International Agency for Research on Cancer, or IARC, has recently reclassified formaldehyde as “carcinogenic to humans,” a higher classification than previous IARC evaluations, based principally on a study conducted by the National Cancer Institute (NCI) linking formaldehyde exposure to nasopharyngeal cancer, a rare form of cancer in humans. IARC also concluded that there was strong but not sufficient evidence for a finding of a causal association between leukemia and occupational exposure to formaldehyde, although IARC could not identify a mechanism for leukemia induction. IARC’s monograph reporting this decision has not yet been published. It is possible that this reclassification will lead to further federal and state governmental review of existing regulations and may result in additional costly requirements. In addition, BPA, which is used as an intermediate at our Deer Park and Pernis manufacturing facilities and is also sold directly to third parties, is currently under evaluation as an “endocrine disrupter.” Endocrine disrupters are chemicals that have been alleged to interact with the endocrine systems of humans and wildlife and disrupt normal processes. Pursuant to EU regulation 793/93/EC, BPA producers are currently conducting an extensive toxicology testing program of the chemical. In addition, new legislation in Europe will take effect in 2005 and require that risk labels be used for BPA indicating “possible risk of impaired fertility.” In addition, the California legislature is considering a law that would prohibit the use of BPA in products intended for young children. In the event that BPA is further regulated, additional operating costs would likely be incurred to meet more stringent regulation of the chemical.

In order to obtain regulatory approval of certain new products, we must, among other things, demonstrate to the relevant authority that the product is safe for its intended uses and that we are capable of manufacturing the product in accordance with current regulations. The process of seeking approvals can be costly, time consuming and subject to unanticipated and significant delays. Approvals may not be granted to us on a timely basis, or at all. Any delay in obtaining, or any failure to obtain or maintain, these approvals would adversely affect our ability to introduce new products and to generate revenue from those products. New laws and regulations may be introduced in the future that could result in additional compliance costs, seizures, confiscation, recall or monetary fines, any of which could prevent or inhibit the development, distribution or sale of our products. For example, we produce resin-coated sand. Because sand consists primarily of crystalline silica, it creates the potential for silica exposure, which is a recognized health hazard. The Occupational Safety and Health Administration, or OSHA, proposed a comprehensive occupational health standard for crystalline silica to provide for lower permissible exposure limits, exposure monitoring, medical surveillance and worker training. This proposal is now in the so-called “pre-rule” stage. We may have to incur substantial additional costs over time to comply with any new OSHA regulations. In addition, the European Commission recently published a proposal, known as Registration, Evaluation and Authorization of Chemicals, or REACH, which would require manufacturers, importers and consumers of certain chemicals to register such chemicals and evaluate their potential impacts on human health and the environment. Based on the results of the evaluation, a newly created regulatory body would then determine if the chemical should be further tested, regulated, restricted or banned from use. If REACH is enacted in its current form, significant market restrictions could be imposed on the current and future uses of chemical products sold by us in the European Union. Because the timing and ultimate form of the potential REACH regulation is not yet known, we cannot accurately predict future compliance costs, which could be significant. If we fail to comply with applicable laws and regulations, we may be subject to civil remedies, including fines, injunctions, recalls or seizures, which would have an adverse effect on our financial condition, cash flows and profitability.

Because we manufacture and use materials that are known to be hazardous, our production facilities are subject to significant operating hazards which could cause personal injury and loss of life, severe damage to, or destruction of, property and equipment and environmental contamination.

We are dependent on the continued operation of our 86 production and distribution facilities. These facilities are subject to hazards associated with the manufacture, handling, storage and transportation of chemical materials and products, including pipeline leaks and ruptures, explosions, fires, inclement weather and natural disasters, mechanical failure, unscheduled downtime, labor difficulties, transportation interruptions, and environmental hazards, such as spills, discharges or releases of toxic or hazardous substances and gases, storage tank leaks and

36

remediation complications. These hazards can cause personal injury and loss of life, severe damage to, or destruction of, property and equipment and environmental contamination and other environmental damage and could have a material adverse effect on our financial condition. In addition, due to the nature of our business operations, we have been and may continue to be subject to scrutiny from environmental action groups. For example, currently there is an environmental group in the vicinity of our Louisville facility led by residents of the “Rubbertown” area, in which there are many chemical facilities, including our plant. As is typical for such groups, residents are claiming that the chemical facilities have caused health and property damage. In addition, in another state, we have been named as a defendant in two lawsuits involving one of our divested facilities that alleges residents living nearby suffered health issues as a result of exposure to chemicals used at that plant. In addition, a group has challenged the use of toluene di-isocyanate (“TDI”) at our Môlndal, Sweden facility. As a result, a court has ruled that TDI use under the current permit must be reduced. Although we are appealing the court’s ruling, a limit on TDI use would restrict certain operations at that facility. The activities by the environmental groups could result in additional litigation and damage to our reputation. We may incur losses beyond the limits of, or outside the coverage of, our insurance policies, in particular for liabilities associated with environmental cleanup that may arise out of such hazards. In addition, from time to time, various types of insurance for companies in the chemical industry, such as coverage for silica claims, have not been available on commercially acceptable terms, or, in some cases, have been unavailable. In the future, we may not be able to obtain coverage at current levels, and our premiums may increase significantly on coverage that we maintain.

We are subject to adverse claims from our customers and their employees as a result of the hazardous nature of our products.

We produce hazardous chemicals that require appropriate procedures and care to be used in handling them or using them to manufacture other products. As a result of the hazardous nature of some of the products we use and produce, we may face exposure relating to incidents involving our customers’ handling, storage and use of our products. On February 20, 2003, an explosion occurred at the facility of one of our customers, CTA Acoustics, Inc., which we refer to as CTA. Seven plant workers were killed and more than 40 workers were injured. There are six lawsuits in Laurel County, Kentucky, arising out of this incident, primarily seeking recovery for wrongful death, personal injury, emotional distress, loss of consortium, property damage and indemnity. On October 20, 2005, a settlement was reached with representatives of seven deceased plant workers and twelve seriously injured workers. Our proposed share of the settlement amount is expected to be covered by insurance. The property damage claim and suits by workers for emotional distress and minor injuries remain to be resolved. Although we believe that we have adequate insurance coverage to address any additional payments and/or legal fees in excess of $5 million involved in any single incident, we could be subject to additional significant judgments given the nature of this litigation. We have historically faced a substantial number of lawsuits, including class action lawsuits, claiming liability for death, injury or property damage caused by products we manufacture or those that contain our components. These lawsuits, and any future lawsuits, could result in substantial damage awards against us, which in turn could encourage additional lawsuits. The classification of formaldehyde as “carcinogenic to humans” by IARC could become the basis for an increase in product liability litigation, in addition to the two cases we currently face, alleging injury from formaldehyde exposure, particularly if there are further studies demonstrating a causal association with leukemia. In addition, in large part as a result of the bankruptcies of many producers of asbestos containing products, plaintiffs’ attorneys are increasing their focus on peripheral defendants, including us, and asserting that even products that contained a small amount of asbestos caused injury. Plaintiffs’ attorneys are also focusing on alleged harm caused by other products we have made or used, including silica-containing resin coated sands and vinyl chloride monomer, or VCM. While we cannot predict the outcome of pending suits and claims, we believe that we have adequate reserves to address currently pending litigation and adequate insurance to cover currently pending and foreseeable future claims. An unfavorable outcome in these litigation matters may cause our profitability, business, financial condition and reputation to decline.

Our substantial international operations subject us to risks not faced by domestic competitors, which include unfavorable political, regulatory, labor and tax conditions in other countries.

We have significant manufacturing operations outside the United States. In 2004, our net sales outside the United States represented approximately 57% of our total sales. We have 49 production and distribution facilities

37

located outside the United States, primarily concentrated in Australia, Brazil, Canada, China, Germany, Italy, Korea, Malaysia, the Netherlands and the United Kingdom. Accordingly, our business is subject to the differing legal, political, social and regulatory requirements and economic conditions of many jurisdictions. Risks are inherent in international operations, including, but not limited to, the following:

• difficulty in enforcing agreements through foreign legal systems;

• foreign customers may have longer payment cycles;

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

• fluctuations in exchange rates may affect product demand and may adversely affect the profitability in U.S. dollars of products and services provided by us in foreign markets where payment for our products and services is made in the local currency;

• increased costs of transportation or shipping;

• risk of nationalization of private enterprises;

• changes in general economic and political conditions in the countries in which we operate;

• unexpected adverse changes in foreign laws or regulatory requirements, including those with respect to environmental protection, export duties and quotas;

• difficulty with staffing and managing widespread operations; and

• required compliance with a variety of foreign laws and regulations.

In addition, intellectual property rights may be more difficult to enforce in foreign countries. We currently have joint ventures in China, where we license technology to our joint venture partners. We may not be able to adequately protect our intellectual property in China or elsewhere. Our business in emerging markets requires us to respond to rapid changes in market conditions in these countries. Our overall success as a global business depends, in part, upon our ability to succeed in differing legal, regulatory, economic, social and political conditions. We may not continue to succeed in developing and implementing policies and strategies that will be effective in each location where we do business. Furthermore, each of the foregoing risks is likely to take on increased significance as we implement our plans to expand our foreign operations.

Currency translation risk and currency transaction risk may negatively affect our net sales, cost of sales and operating margins and could result in exchange losses.

We conduct our business and incur costs in the local currency of most countries in which we operate. In 2004, our net sales outside the United States represented approximately 57% of our total sales. Accordingly, our results of operations are reported in the relevant local currency and then translated to U.S. dollars at the applicable currency exchange rate for inclusion in our financial statements. Changes in exchange rates between those foreign currencies and the U.S. dollar will affect our net sales, cost of sales and operating margins and could result in exchange losses. In addition to currency translation risks, we incur currency transaction risk whenever one of our operating subsidiaries enters into either a purchase or a sales transaction using a different currency from the currency in which it receives revenues. In an effort to mitigate the impact of exchange rate fluctuations we engage in exchange rate hedging activities. However, the hedging transactions we enter into may not be effective or could result in foreign exchange hedging loss. The impact of future exchange rate fluctuations on our results of operations cannot be accurately predicted. Given the volatility of exchange rates, we may not be able to effectively manage our currency transaction and/or translation risks, and any volatility in currency exchange rates may have an adverse effect on our financial condition, cash flows and profitability. Our currency translation risk will intensify as a result of Borden Chemical’s acquisition of Bakelite, all of whose material operations are outside the United States and generally transacted in foreign currencies.

We operate our business in countries that historically have been and may continue to be susceptible to recessions or currency devaluation, including Brazil and Malaysia. In addition, as we expand our business in

38

emerging markets, particularly China and Russia, the uncertain regulatory environment relating to currency policy in these countries could have a negative impact on our operations there.

Failure to develop new products will make us less competitive.

Our results of operations depend to a significant extent on our ability to expand our product offerings, and to continue to develop our production processes to be a competitive producer. We are committed to remaining a competitive producer and believe that our portfolio of new or re-engineered products is strong. However, we may not be able to continue to develop new products, re-engineer our existing products successfully or bring them to market in a timely manner. For example, our historical research and development efforts generally have focused on customer service, and we may be unsuccessful in shifting our focus to the type of research that will lead to significant new product development. In addition, some of our research and development scientists are located at our individual plants rather than at a research facility, which may impede their ability to share ideas and create new products. While we believe that the products, pricing and services we offer customers are competitive, we may not be able to continue to attract and retain customers to which to sell our products.

We face competition from other chemical companies, which could force us to lower our prices, thereby adversely affecting our operating margins, financial condition, cash flows and profitability.

The markets in which we operate are highly competitive, and this competition could harm our business, results of operations, cash flow and financial condition. Our competitors include major international producers as well as smaller regional competitors. We believe that the most significant competitive factor for our products is selling price and we may be forced to lower our selling price based on our competitors’ pricing decisions, thereby reducing our profitability. In addition, current and anticipated future consolidation among our competitors and customers may cause us to lose market share as well as put downward pressure on pricing. Furthermore, there is a trend in the chemical industry toward relocation of manufacturing facilities to lower-cost regions such as Asia. Such relocation may permit some of our competitors to lower their costs and improve their competitive position. Some of our competitors are larger, have greater financial resources and have less debt than we do. As a result, those competitors may be better able to withstand a change in conditions within our industry and throughout the economy as a whole. If we do not compete successfully, our business, operating margins, financial condition, cash flows and profitability could be adversely affected.

Competition from producers of materials that are substitutes for formaldehyde-based resins could lead to declines in our net sales attributable to these products.

We face competition from a number of products that are potential substitutes for formaldehyde-based resins. Currently, we estimate that formaldehyde-based resins make up most of the resins used as panelboard resins, wood and specialty adhesives and industrial resins. Decreases in the average selling price of formaldehyde may cause our profitability to decline. For example, competition among producers of foundry and specialty resins has led to erosion in certain product prices in the past. Our ability to maintain or increase our profitability will continue to be dependent, in large part, upon our ability to offset decreases in average selling prices by improving production efficiency or by shifting to higher margin chemical products. In addition, in some markets, non-formaldehyde based resins may be an alternative to our formaldehyde-based resins. Considerable growth in these substitutes for formaldehyde-based resins could adversely affect our market share, net sales and profit margins. Furthermore, the movement towards substitute products could be exacerbated as a result of the IARC recent reclassification of formaldehyde from a “probable human carcinogen” to “carcinogenic to humans” based on studies linking formaldehyde exposure to nasopharyngeal cancer, and a possible causal association between leukemia and occupational exposure to formaldehyde.

Acquisitions and joint ventures that we pursue may present unforeseen integration obstacles and costs, increase our leverage and negatively impact our performance.

We have made acquisitions of related businesses, and entered into joint ventures in the recent past and intend to selectively pursue acquisitions of, and joint ventures with, related businesses as one element of our growth

39

strategy. We are evaluating several potential tuck-in acquisitions and are in various stages of due diligence and negotiations with respect thereto. These transactions may not be consummated in the foreseeable future, if at all, and we may not consummate significant acquisitions in the future. We may, in the future, pursue acquisitions of a significantly larger scale than in the past. If such acquisitions are consummated, the risk factors we describe below, and for our business generally, may be intensified.

Our ability to implement our growth strategy is limited by covenants in our senior secured credit facilities and indentures, our financial resources, including available cash and borrowing capacity, and our ability to integrate or identify appropriate acquisition and joint venture candidates. Moreover, acquisitions of businesses may require us to assume or incur additional debt financing, resulting in additional leverage and complex debt structures.

The expense incurred in consummating acquisitions of related businesses, or our failure to integrate such businesses successfully into our existing businesses, could result in our incurring unanticipated expenses and losses. Furthermore, we may not be able to realize any anticipated benefits from acquisitions or joint ventures. The process of integrating acquired operations into our existing operations may result in unforeseen operating difficulties and may require significant financial resources that would otherwise be available for the ongoing development or expansion of existing operations. Some of the risks associated with our acquisition and joint venture strategy include:

• potential disruption of our ongoing business and distraction of management;

• unexpected loss of key employees or customers of the acquired company;

• conforming the acquired company’s standards, processes, procedures and controls with our operations;

• coordinating new product and process development;

• hiring additional management and other critical personnel; and

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

In addition, we may encounter unforeseen obstacles or costs in the integration of acquired businesses. For example, the preparation of the US GAAP financial statements for Bakelite required significant management resources. Also, the presence of one or more material liabilities of an acquired company that are unknown to us at the time of acquisition may have a material adverse effect on our business. Our acquisition and joint venture strategy may not be successfully received by customers, and we may not realize any anticipated benefits from acquisitions or joint ventures.

Our future success depends on our ability to retain our key employees.

We are dependent on the services of Craig O. Morrison, our President and Chief Executive Officer, William H. Carter, our Chief Financial Officer and other members of our senior management team, who collectively have 169 years of experience in the chemical and plastics industries, to remain competitive in our industry. The loss of Mr. Morrison or any other member of our senior management team could have an adverse effect on us. There is a risk that we will not be able to retain or replace these key employees. All of our current key employees are subject to employment conditions or arrangements that contain post employment non-competition provisions. However, these arrangements permit the employees to terminate their employment with little or no notice.

We may be required to expend greater time and expense than other companies in dealing with our employees, some of whom are unionized, represented by workers’ councils or are employed subject to local laws that are less favorable to employers than the laws of the United States.

As of December 31, 2004, approximately 40% of our employees were unionized or represented by workers’ councils. In addition, some of our employees are employed in countries in which employment laws provide greater bargaining or other rights to employees than the laws of the United States. Such favorable employment rights require us to expend greater time and expense in making changes to employees’ terms of employment or making staff reductions. For example, most of our employees in Europe are represented by workers’ councils which must approve any changes in conditions of employment, including salaries and benefits. “Protection

40

against dismissal” claims have been brought by certain of such workers’ councils in connection with Bakelite’s cost-saving initiatives. A significant dispute with our employees may divert management’s attention and otherwise hinder our ability to conduct our business and achieve planned cost savings.

We rely on patents and confidentiality agreements to protect our intellectual property. Our failure to protect our intellectual property rights could adversely affect our future performance and growth.

Protection of our proprietary processes, methods and compounds and other technology is important to our business. Failure to protect our existing intellectual property rights may result in the loss of valuable technologies or having to pay other companies for infringing on their intellectual property rights. We rely on patent, trade secret, trademark and copyright law as well as judicial enforcement to protect such technologies. A majority of our patents relate to the development of new products and processes for manufacturing and use thereof and expire at various times between 2005 and 2025. Some of our technologies are not covered by any patent or patent application. In addition, our patents could be challenged, invalidated, circumvented or rendered unenforceable. Furthermore, pending patent applications may not result in an issued patent, or if patents are issued to us, such patents may not provide meaningful protection against competitors or against competitive technologies.

Our production processes and products are specialized. However, we could face patent infringement claims from our competitors or others alleging that our processes or products infringe on their proprietary technology. If we were subject to an infringement suit, we may be required to change our processes or products or stop using certain technologies or producing the infringing product entirely. Even if we ultimately prevail in an infringement suit, the existence of the suit could cause our customers to seek other products that are not subject to infringement suits. Any infringement suit could result in significant legal costs and damages and impede our ability to produce key products, which could have a material adverse effect on our business, financial condition and results of operations.

In addition, effective patent, trademark, copyright and trade secret protection may be unavailable or limited in some foreign countries. In some countries we do not apply for patent, trademark or copyright protection. We also rely upon unpatented proprietary manufacturing expertise, continuing technological innovation and other trade secrets to develop and maintain our competitive position. While we generally enter into confidentiality agreements with our employees and third parties to protect our intellectual property, such confidentiality agreements are limited in duration and could be breached, and may not provide meaningful protection for our trade secrets or proprietary manufacturing expertise. Adequate remedies may not be available in the event of an unauthorized use or disclosure of our trade secrets and manufacturing expertise. In addition, others may obtain knowledge of our trade secrets through independent development or other access by legal means. The failure of our patents or confidentiality agreements to protect our processes, apparatuses, technology, trade secrets and proprietary manufacturing expertise, methods and compounds could have an adverse effect on our business by jeopardizing critical intellectual property.

If we are unable to access funds generated by our subsidiaries we may not be able to meet our financial obligations.

Because Hexion conducts many of its operations through its subsidiaries, Hexion depends on those entities for dividends, distributions and other payments to generate the funds necessary to meet its financial obligations. Legal and contractual restrictions in certain agreements governing current and future indebtedness of Hexion’s subsidiaries, as well as the financial condition and operating requirements of Hexion’s subsidiaries, may limit Hexion’s ability to obtain cash from its subsidiaries. All of Hexion’s subsidiaries are separate and independent legal entities and have no obligation whatsoever to pay any dividends, distributions or other payments to Hexion.

Significant changes in pension fund investment performance or assumptions relating to pension costs may increase the valuation of pension obligations, alter the funded status of pension plans and increase our pension costs.

Our funding policy for pension plans is to accumulate plan assets that, over the long run, will approximate the present value of projected benefit obligations. Our pension cost is materially affected by the discount rate

41

used to measure pension obligations, the level of plan assets available to fund those obligations at the measurement date and the expected long-term rate of return on plan assets. Significant changes in investment performance or a change in the portfolio mix of invested assets can result in corresponding increases and decreases in the valuation of plan assets, particularly equity securities, or in a change of the expected rate of return on plan assets. A change in the discount rate would result in a significant increase or decrease in the valuation of pension obligations, affecting the reported funded status of our pension plans as well as the net periodic pension cost in the following financial years. Similarly, changes in the expected return on plan assets assumption can result in significant changes in the net periodic pension cost of the following financial years.

A pension plan of Borden Chemical is currently underfunded and we may have to make significant cash payments to the plan and/or incur a liability to the Pension Benefit Guaranty Corporation. Termination by the Pension Benefit Guaranty Corporation would further increase our pension expense and could result in liens on material amounts of our assets.

On April 14, 2005, Borden Chemical notified the Pension Benefit Guaranty Corporation, or PBGC, that Borden Chemical’s defined benefit pension plan (the “Borden Plan”) was underfunded by approximately $104 million on a termination basis. IRS regulations require us to increase our contributions to the Borden Plan to reduce this underfunding. Based on current IRS regulations, we expect that our total minimum funding requirements for the five years ended in 2009 for the Borden Plan will be approximately $60 million. If the performance of the assets in the Borden Plan does not meet our expectations, if the PBGC requires additional contributions to the Borden Plan as a result of the Current Transactions, or if other actuarial assumptions are modified, our contributions for those years could be higher than we expect.

The need to make these cash contributions may reduce the cash available to meet our other obligations or to meet the needs of our business. In addition, the PBGC may terminate the Borden Plan under limited circumstances, including in the event the PBGC concludes that its risk may increase unreasonably if the Borden Plan continues. In the event the Borden Plan is terminated for any reason while it is underfunded, we could be required to make an immediate payment to the PBGC of all or a substantial portion of the Borden Plan’s underfunding, as calculated by the PBGC based on its own assumptions (which might result in a larger pension obligation than that based on the assumptions we have used to fund the Borden Plan), and the PBGC could assert a lien on material amounts of our assets.

In addition, in 2003, the IRS notified Borden Chemical that cash balance plans such as the Borden Plan may be required to be amended because of recent ERISA rulings that found cash balance plans to be discriminatory. The IRS indicated that the Borden Plan should continue to operate as currently designed until new guidance is available. Although the effect of any future guidance is not known, it is possible that such guidance may increase our obligations under the Borden Plan.

Because Hexion Nova Scotia Finance, ULC is not a U.S. company, it may be difficult for you to effect service of process on it or on its directors or to enforce any judgment you may receive against it from a U.S. court. In addition, any judgment against Hexion Nova Scotia Finance, ULC, obtained in Canada, would be in Canadian dollars exposing you to exchange rate risk.

Hexion Nova Scotia Finance, ULC is an unlimited liability company organized under the laws of Nova Scotia. Certain of its officers and directors may be residents of various jurisdictions outside the United States. All or a substantial portion of its assets may be located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon such persons or to enforce in United States courts judgments obtained against such persons in United States courts and predicated upon the civil liability provisions of the United States federal securities law. In addition, any judgment against Hexion Nova Scotia Finance, ULC, obtained in Canada, would be in Canadian dollars exposing you to exchange rate risk.

In addition, Hexion Nova Scotia Finance, ULC has been advised by its Nova Scotia counsel, that there is doubt as to (i) the enforceability, in original actions in Nova Scotia courts, of liabilities predicated solely upon the United States federal securities laws and (ii) the enforceability in Nova Scotia courts of judgments of United States courts obtained in actions predicated upon the civil liability provisions of the United States federal securities laws.

42

Our equity sponsor controls us and its interests may conflict with or differ from your interests as a noteholder.

Apollo beneficially owns approximately 91% of our common stock. In addition, representatives of Apollo have the ability to prevent any transaction that requires the approval of directors. As a result, Apollo has the ability to substantially influence all matters requiring shareholder approval, including the election of our directors and the approval of significant corporate transactions such as mergers, tender offers and the sale of all or substantially all of our assets. The interests of Apollo and its affiliates could conflict with or differ from your interests as a holder of our notes. For example, the concentration of ownership held by Apollo could delay, defer or prevent a change of control of our company or impede a merger, takeover or other business combination which you may otherwise view favorably. Apollo may also pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. A sale of a substantial number of shares of stock in the future by funds affiliated with our equity sponsor could cause our stock price to decline in the future.

We are a “controlled company” within the meaning of the New York Stock Exchange rules and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements.

Upon consummation of the proposed IPO, affiliates of Apollo will continue to control a majority of our outstanding common stock. As a result, we are a “controlled company” within the meaning of the New York Stock Exchange corporate governance standards. Under the New York Stock Exchange rules, a company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain New York Stock Exchange corporate governance requirements, including:

• the requirement that a majority of the board of directors consist of independent directors;

• the requirement that we have a nominating/corporate governance committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities;

• the requirement that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities; and

• the requirement for an annual performance evaluation of the nominating/corporate governance and compensation committees.

Following the proposed IPO, assuming the IPO occurs, we intend to utilize these exemptions. As a result, we will not have a majority of independent directors nor will our nominating/corporate governance and compensation committees consist entirely of independent directors. Accordingly, our board of directors oversight may not be as effective as companies that are subject to all of the New York Stock Exchange corporate governance requirements.

Our internal controls over financial reporting may not be effective and our independent auditors may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.

In the past, some of our internal controls over financial reporting have not been effective. Accordingly, following the Combinations, we have been evaluating, under the supervision and with the participation of our Disclosure Committee and management, the effectiveness of the design and operation of our internal disclosure

43

controls and procedures over financial reporting in order to allow management to report on, and our independent auditors to attest to, our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002 and rules and regulations of the SEC thereunder, which we refer to as Section 404. Prior to the Combinations, Borden Chemical and Resolution Performance had performed the system and process evaluation in an effort to comply with management certification and auditor attestation requirements of Section 404. However, prior to the Combinations Bakelite and Resolution Specialty were not required to meet these regulations. In the course of our ongoing Section 404 evaluation, we have identified areas of internal controls that need improvement for the former Bakelite and Resolution Specialty businesses, including the closing and consolidation procedures, and, in the case of Bakelite, procedures surrounding the conversion of the financial statements from local and German GAAP to US GAAP, and have enhanced processes and controls to try to address these issues.

As of December 31, 2004, Resolution Performance evaluated the effectiveness of the design and operation of its “disclosure controls and procedures” (“Disclosure Controls”). This evaluation (“Controls Evaluation”) was done under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer of Resolution Performance. Based upon the Controls Evaluation, Resolution Performance concluded that Resolution Performance’s Disclosure Controls were not effective as of December 31, 2004 at the reasonable assurance level, because of a material weakness regarding the valuation and completeness of Resolution Performance’s deferred income tax assets and liabilities (including the associated valuation allowance) and the income tax provision. Specifically, Resolution Performance did not have effective controls over the preparation and review of the valuation allowance and related deferred tax assets to ensure accuracy and completeness because it did not have accounting personnel with sufficient knowledge of generally accepted accounting principles related to income tax accounting and reporting. In light of this material weakness, Resolution Performance performed additional analysis and other post-closing analytic and recalculation procedures to ensure its consolidated financial statements were prepared in accordance with generally accepted accounting principles. Further, we believe that we have adequately remediated this material weakness and that this material weakness no longer exists within the scope of the larger Hexion entity.

As noted above, management has identified areas of internal controls that need improvement for the former Bakelite and Resolution Specialty businesses. For example, Bakelite’s original system of financial reporting was designed to comply with German GAAP; accordingly, Bakelite’s management determined that Bakelite did not have sufficient internal controls and resources relating to the preparation of US GAAP financial statements. In addition, as Resolution Specialty began the process of developing a stand-alone infrastructure, Resolution Specialty’s management determined that Resolution Specialty did not have sufficient internal controls and resources relating to the preparation of US GAAP financial statements. As a result of such determinations, the management of Bakelite and Resolution Specialty utilized additional outside advisors, as appropriate, to assess and to assist with the US GAAP closing and consolidation processes associated with preparing the financial statements included herein, including the conversion of local and German GAAP to US GAAP. While we have added additional resources to assist with the US GAAP closing and consolidation processes, for future reporting periods, such closing and consolidation processes may result in delays in reporting our results.

In order to improve our internal controls, we have changed and expanded the roles and responsibilities of key personnel and made changes to certain processes related to financial reporting. As part of the integration of Resolution Specialty and Resolution Performance, in the third quarter of 2005, we began the process of consolidating some of the transaction processing and general accounting activities of Resolution Specialty, and Resolution Performance to a lesser extent, into a common shared services transaction processing environment with the Corporate and North American activity related to the former Borden Chemical operation. Once fully implemented, this change to a shared services business model (for certain processes) is intended to further enhance our internal control over financial reporting and our operating efficiencies. We have also expanded the scope of the services of the international accounting firm that provides tax accounting and compliance services and support to include Resolution Performance, Resolution Specialty and Bakelite. Management has also added additional tax personnel to assist current personnel in monitoring the tax reporting process.

44

However, as the evaluation process is ongoing, we may identify additional conditions that may be categorized as areas of internal control that need improvement in the future. We cannot be certain as to the timing of completion of our evaluation, documentation, testing and any remediation actions or the impact of the same on our operations. If our remediation actions described above are insufficient and we are not able to obtain reports or institute controls on a timely basis, our controls may be considered ineffective for purposes of Section 404, our independent auditors may not be able to certify as to the effectiveness of our internal control over financial reporting and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. As a result, there could be a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements or our financial statements could change. In addition, we may be required to incur costs in improving our internal control system and the hiring of additional personnel. Any such action could negatively affect our results of operations.

45

THE EXCHANGE OFFER

Purpose and Effect of the Exchange Offer

We have entered into a registration rights agreement with the initial purchasers of the old notes, in which we agreed to file a registration statement relating to an offer to exchange the old notes for exchange notes. The registration statement of which this prospectus forms a part was filed in compliance with this obligation. We also agreed to use our commercially reasonable efforts to file the registration statement with the SEC and to cause it to become effective under the Securities Act. In addition, we agreed to use our commercially reasonable efforts to cause the exchange offer to be consummated on or before June 8, 2005. However, since the exchange offer was not consummated on or before June 8, 2005 we have incurred additional interest expense in the aggregate amount of approximately $1 million as of December 20, 2005. The exchange notes will have terms substantially identical to the old notes except that the exchange notes will not contain terms with respect to transfer restrictions and registration rights and additional interest payable for the failure to consummate the exchange offer by June 8, 2005. Old notes in an aggregate principal amount of $475,000,000 were issued on August 12, 2004.

Under the circumstances set forth below, we will use our commercially reasonable efforts to cause the SEC to declare effective a shelf registration statement with respect to the resale of the old notes and to keep the shelf registration statement effective for up to two years after the effective date of the shelf registration statement. These circumstances include:

• the exchange offer is not permitted by applicable law or SEC policy;

• prior to the consummation of the exchange offer, existing SEC interpretations are changed such that the debt securities received by the Holders in the exchange offer would not be transferable without restriction under the Securities Act;

• the exchange offer has not been consummated on or before June 8, 2005;

• if any initial purchaser so requests on or prior to the 60th day after consummation of the registered exchange offer with respect to the old notes not eligible to be exchanged for the exchange notes and held by it following the consummation of the exchange offer; or

• if any holder that participates in the exchange offer does not receive freely transferable exchange notes in exchange for tendered old notes and so requests on or prior to the 60th day after the consummation of the registered exchange offer.

Each holder of old notes that wishes to exchange such old notes for transferable exchange notes in the exchange offer will be required to make the following representations:

• any exchange notes to be received by it will be acquired in the ordinary course of its business;

• it has no arrangement or understanding with any person or entity, including any of our affiliates, to participate in the distribution (within the meaning of Securities Act) of the exchange notes in violation of the Securities Act;

• it is not our “affiliate,” as defined in Rule 405 under the Securities Act, or, if it is an affiliate, that it will comply with applicable registration and prospectus delivery requirements of the Securities Act; and

• if such holder is not a broker-dealer, that it is not engaged in, and does not intend to engage in, the distribution of the exchange notes and if such holder is a broker-dealer, that it will receive exchange notes for its own account in exchange for old notes that were acquired as a result of market-making activities or other trading activities and such holder will acknowledge that it will deliver a prospectus in connection with any resale of such old notes.

In addition, each broker-dealer that receives exchange notes for its own account in exchange for old notes, where such old notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. See “Plan of Distribution.”

46

Resale of Exchange Notes

Based on interpretations of the SEC staff set forth in no action letters issued to unrelated third parties, we believe that exchange notes issued in the exchange offer in exchange for old notes may be offered for resale, resold and otherwise transferred by any exchange note holder without compliance with the registration and prospectus delivery provisions of the Securities Act, if:

• such holder is not an “affiliate” of ours within the meaning of Rule 405 under the Securities Act;

• such exchange notes are acquired in the ordinary course of the holder’s business; and

• the holder does not intend to participate in the distribution of such exchange notes.

Any holder who tenders in the exchange offer with the intention of participating in any manner in a distribution of the exchange notes:

• cannot rely on the position of the staff of the SEC set forth in “Exxon Capital Holdings Corporation” or similar interpretive letters; and

• must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction.

If, as stated above, a holder cannot rely on the position of the staff of the SEC set forth in “Exxon Capital Holdings Corporation” or similar interpretive letters, any effective registration statement used in connection with a secondary resale transaction must contain the selling security holder information required by Item 507 of Regulation S-K under the Securities Act.

This prospectus may be used for an offer to resell, for the resale or for other retransfer of exchange notes only as specifically set forth in this prospectus. With regard to broker-dealers, only broker-dealers that acquired the old notes as a result of market-making activities or other trading activities may participate in the exchange offer. Each broker-dealer that receives exchange notes for its own account in exchange for old notes, where such old notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. Please read the section captioned “Plan of distribution” for more details regarding these procedures for the transfer of exchange notes. We have agreed that, for a period of 180 days after the exchange offer is consummated, we will make this prospectus available to any broker-dealer for use in connection with any resale of the exchange notes.

Terms of the Exchange Offer

Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, we will accept for exchange any old notes properly tendered and not withdrawn prior to the expiration date. We will issue $1,000 principal amount of exchange notes in exchange for each $1,000 principal amount of old notes surrendered under the exchange offer. Old notes may be tendered only in integral multiples of $1,000.

The form and terms of the exchange notes will be substantially identical to the form and terms of the old notes except the exchange notes will be registered under the Securities Act, will not bear legends restricting their transfer and will not provide for any additional interest upon our failure to fulfill our obligations under the registration rights agreement to file, and cause to become effective, a registration statement. The exchange notes will evidence the same debt as the old notes. The exchange Second-Priority Senior Secured Floating Rate Notes Due 2010 will be issued under and entitled to the benefits of the same indenture that authorized the issuance of the outstanding Second-Priority Senior Secured Floating Rate Notes Due 2010. The exchange 9% Second-Priority Senior Secured Notes Due 2014 will be issued under and entitled to the benefits of the same indenture that authorized the issuance of the outstanding 9% Second-Priority Senior Secured Notes Due 2014. Consequently, in each case, each series of notes will be treated as a single class of debt securities under the applicable indenture.

47

The exchange offer is not conditioned upon any minimum aggregate principal amount of old notes being tendered for exchange.

As of the date of this prospectus, $475,000,000 aggregate principal amount of the old notes are outstanding. This prospectus and the letter of transmittal are being sent to all registered holders of old notes. There will be no fixed record date for determining registered holders of old notes entitled to participate in the exchange offer.

We intend to conduct the exchange offer in accordance with the provisions of the registration rights agreement, the applicable requirements of the Securities Act and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations of the SEC. Old notes that are not tendered for exchange in the exchange offer will remain outstanding and continue to accrue interest and will be entitled to the rights and benefits such holders have under the indenture relating to the old notes.

We will be deemed to have accepted for exchange properly tendered old notes when we have given oral or written notice of the acceptance to the exchange agent. The exchange agent will act as agent for the tendering holders for the purposes of receiving the exchange notes from us and delivering exchange notes to such holders. Subject to the terms of the registration rights agreements, we expressly reserve the right to amend or terminate the exchange offer, and not to accept for exchange any old notes not previously accepted for exchange, upon the occurrence of any of the conditions specified below under the caption “—Certain Conditions to the Exchange Offer.”

Holders who tender old notes in the exchange offer will not be required to pay brokerage commissions or fees, or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of old notes. We will pay all charges and expenses, other than those transfer taxes described below, in connection with the exchange offer. It is important that you read the section labeled “—Fees and Expenses” below for more details regarding fees and expenses incurred in the exchange offer.

Expiration date; Extensions; Amendments

The exchange offer will expire at 5:00 p.m., New York City time on                     , 2006, unless we extend it in our sole discretion.

In order to extend the exchange offer, we will notify the exchange agent orally or in writing of any extension. We will notify in writing or by public announcement the registered holders of old notes of the extension no later than 9:00 a.m., New York City time, on the business day after the previously scheduled expiration date.

We reserve the right, in our sole discretion:

• to delay accepting for exchange any old notes;

• to extend the exchange offer or to terminate the exchange offer and to refuse to accept old notes not previously accepted if any of the conditions set forth below under “—Certain Conditions to the Exchange Offer” have not been satisfied, by giving oral or written notice of such delay, extension or termination to the exchange agent; or

• subject to the terms of the registration rights agreement, to amend the terms of the exchange offer in any manner.

Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice or public announcement thereof to the registered holders of old notes. If we amend the exchange offer in a manner that we determine to constitute a material change, we will promptly disclose such amendment in a manner reasonably calculated to inform the holders of old notes of such amendment. If we terminate this exchange offer as provided in this prospectus before accepting any old notes for

48

exchange or if we amend the terms of this exchange offer in a manner that constitutes a fundamental change in the information set forth in the registration statement of which this prospectus forms a part, we will promptly file a post-effective amendment to the registration statement of which this prospectus forms a part. In addition, we will in all events comply with our obligation to make prompt payment for all old notes properly tendered and accepted for exchange in the exchange offer.

Without limiting the manner in which we may choose to make public announcements of any delay in acceptance, extension, termination or amendment of the exchange offer, we shall have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by issuing a timely press release to a financial news service.

Certain Conditions to the Exchange Offer

Despite any other term of the exchange offer, we will not be required to accept for exchange, or exchange any exchange notes for, any old notes, and we may terminate the exchange offer as provided in this prospectus before accepting any old notes for exchange if in our reasonable judgment:

• the exchange notes to be received will not be tradable by the holder without restriction under the Securities Act or the Exchange Act, and without material restrictions under the blue sky or securities laws of substantially all of the states of the United States;

• the exchange offer, or the making of any exchange by a holder of old notes, would violate applicable law or any applicable interpretation of the staff of the SEC; or

• any action or proceeding has been instituted or threatened in any court or by or before any governmental agency with respect to the exchange offer that, in our judgment, would reasonably be expected to impair our ability to proceed with the exchange offer.

In addition, we will not be obligated to accept for exchange the old notes of any holder that has not made:

• the representations described under “—Purpose and Effect of the Exchange Offer”, “—Procedures for Tendering” and “Plan of Distribution”, and

• such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to make available to us an appropriate form for registration of the exchange notes under the Securities Act.

We expressly reserve the right, at any time or at various times on or prior to the scheduled expiration date of the exchange offer, to extend the period of time during which the exchange offer is open. Consequently, we may delay acceptance of any old notes by giving oral or written notice of such extension to the registered holders of the old notes. During any such extensions, all old notes previously tendered will remain subject to the exchange offer, and we may accept them for exchange unless they have been previously withdrawn. We will return any old notes that we do not accept for exchange for any reason without expense to their tendering holder promptly after the expiration or termination of the exchange offer.

We expressly reserve the right to amend or terminate the exchange offer on or prior to the scheduled expiration date of the exchange offer, and to reject for exchange any old notes not previously accepted for exchange, upon the occurrence of any of the conditions of the exchange offer specified above. We will give oral or written notice or public announcement of any extension, amendment, non-acceptance or termination to the registered holders of the old notes as promptly as practicable. In the case of any extension, such notice will be issued no later than 9:00 a.m., New York City time, on the business day after the previously scheduled expiration date.

These conditions are for our sole benefit and we may, in our sole discretion, assert them regardless of the circumstances that may give rise to them or waive them in whole or in part at any or at various times except that

49

all conditions to the exchange offer must be satisfied or waived by us prior to the expiration of the exchange offer. If we fail at any time to exercise any of the foregoing rights, that failure will not constitute a waiver of such right. Each such right will be deemed an ongoing right that we may assert at any time or at various times prior to the expiration of the exchange offer.

In addition, we will not accept for exchange any old notes tendered, and will not issue exchange notes in exchange for any such old notes, if at such time any stop order is threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture under the Trust Indenture Act of 1939, as amended.

Procedures for Tendering

Only a holder of old notes may tender such old notes in the exchange offer. To tender in the exchange offer, a holder must:

• complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal; have the signature on the letter of transmittal guaranteed if the letter of transmittal so requires; and mail or deliver such letter of transmittal or facsimile to the exchange agent prior to the expiration date; or

• comply with DTC’s Automated Tender Offer Program procedures described below.

In addition, either:

• the exchange agent must receive old notes along with the letter of transmittal; or

• the exchange agent must receive, prior to the expiration date, a timely confirmation of book-entry transfer of such old notes into the exchange agent’s account at DTC according to the procedures for book-entry transfer described below or a properly transmitted agent’s message; or

• the holder must comply with the guaranteed delivery procedures described below.

To be tendered effectively, the exchange agent must receive any physical delivery of the letter of transmittal and other required documents at the address set forth below under “—Exchange Agent” prior to the expiration date.

The tender by a holder that is not withdrawn prior to the expiration date will constitute an agreement between such holder and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal.

The method of delivery of old notes, the letter of transmittal and all other required documents to the exchange agent is at the holder’s election and risk. Rather than mail these items, we recommend that holders use an overnight or hand delivery service. In all cases, holders should allow sufficient time to assure delivery to the exchange agent before the expiration date. Holders should not send us the letter of transmittal or old notes. Holders may request their respective brokers, dealers, commercial banks, trust companies or other nominees to effect the above transactions for them.

Any beneficial owner whose old notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct it to tender on the owners’ behalf. If such beneficial owner wishes to tender on its own behalf, it must, prior to completing and executing the letter of transmittal and delivering its old notes, either:

• make appropriate arrangements to register ownership of the old notes in such owner’s name; or

• obtain a properly completed bond power from the registered holder of old notes.

The transfer of registered ownership may take considerable time and may not be completed prior to the expiration date.

50

Signatures on a letter of transmittal or a notice of withdrawal described below must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or another “eligible institution” within the meaning of Rule 17Ad-15 under the Exchange Act, unless the old notes tendered pursuant thereto are tendered:

• by a registered holder who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal; or

• for the account of an eligible institution.

If the letter of transmittal is signed by a person other than the registered holder of any old notes listed on the old notes, such old notes must be endorsed or accompanied by a properly completed bond power. The bond power must be signed by the registered holder as the registered holder’s name appears on the old notes and an eligible institution must guarantee the signature on the bond power.

If the letter of transmittal or any old notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing. Unless waived by us, they should also submit evidence satisfactory to us of their authority to deliver the letter of transmittal.

The exchange agent and DTC have confirmed that any financial institution that is a participant in DTC’s system may use DTC’s Automated Tender Offer Program to tender. Participants in the program may, instead of physically completing and signing the letter of transmittal and delivering it to the exchange agent, transmit their acceptance of the exchange offer electronically. They may do so by causing DTC to transfer the old notes to the exchange agent in accordance with its procedures for transfer. DTC will then send an agent’s message to the exchange agent. The term “agent’s message” means a message transmitted by DTC, received by the exchange agent and forming part of the book-entry confirmation, to the effect that:

• DTC has received an express acknowledgment from a participant in its Automated Tender Offer Program that is tendering old notes that are the subject of such book-entry confirmation;

• such participant has received and agrees to be bound by the terms of the letter of transmittal (or, in the case of an agent’s message relating to guaranteed delivery, that such participant has received and agrees to be bound by the applicable notice of guaranteed delivery); and

• the agreement may be enforced against such participant.

We will determine in our sole discretion all questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered old notes and withdrawal of tendered old notes. Our determination will be final and binding. We reserve the absolute right to reject any old notes not properly tendered or any old notes the acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to particular old notes. Our interpretation of the terms and conditions of the exchange offer (including the instructions in the letter of transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of old notes must be cured within such time as we shall determine. Although we intend to notify holders of defects or irregularities with respect to tenders of old notes, neither we, the exchange agent nor any other person will incur any liability for failure to give such notification. Tenders of old notes will not be deemed made until such defects or irregularities have been cured or waived. Any old notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned to the exchange agent without cost to the tendering holder, unless otherwise provided in the letter of transmittal, promptly following the expiration date.

In all cases, we will issue exchange notes for old notes that we have accepted for exchange under the exchange offer only after the exchange agent timely receives:

• old notes or a timely book-entry confirmation of such old notes into the exchange agent’s account at DTC; and

51

• a properly completed and duly executed letter of transmittal and all other required documents or a properly transmitted agent’s message.

By signing the letter of transmittal, each tendering holder of old notes will represent that, among other things:

• any exchange notes that the holder receives will be acquired in the ordinary course of its business;

• the holder has no arrangement or understanding with any person or entity, including any of our affiliates, to participate in the distribution of the exchange notes;

• if the holder is not a broker-dealer, that it is not engaged in and does not intend to engage in the distribution of the exchange notes;

• if the holder is a broker-dealer that will receive exchange notes for its own account in exchange for old notes that were acquired as a result of market-making activities, that it will deliver a prospectus, as required by law, in connection with any resale of such exchange notes; and

• the holder is not our “affiliate”, as defined in Rule 405 of the Securities Act, or, if it is an affiliate, that it will comply with applicable registration and prospectus delivery requirements of the Securities Act.

In addition, each broker-dealer that receives exchange notes for its own account in exchange for old notes, where such old notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. See “Plan of Distribution.”

Book-Entry Transfer

The exchange agent will make a request to establish an account with respect to the old notes at DTC for purposes of the exchange offer promptly after the date of this prospectus; and any financial institution participating in DTC’s system may make book-entry delivery of old notes by causing DTC to transfer such old notes into the exchange agent’s account at DTC in accordance with DTC’s procedures for transfer. Holders of old notes who are unable to deliver confirmation of the book-entry tender of their old notes into the exchange agent’s account at DTC or all other documents of transmittal to the exchange agent on or prior to the expiration date must tender their old notes according to the guaranteed delivery procedures described below.

Guaranteed Delivery Procedures

Holders wishing to tender their old notes but whose old notes are not immediately available or who cannot deliver their old notes, the letter of transmittal or any other required documents to the exchange agent or comply with the applicable procedures under DTC’s Automated Tender Offer Program prior to the expiration date may tender if:

• the tender is made through an eligible institution;

• prior to the expiration date, the exchange agent receives from such eligible institution either a properly completed and duly executed notice of guaranteed delivery by facsimile transmission, mail or hand delivery or a properly transmitted agent’s message and notice of guaranteed delivery:

• setting forth the name and address of the holder, the registered number(s) of such old notes and the principal amount of old notes tendered;

• stating that the tender is being made thereby; and

52

• guaranteeing that, within three (3) New York Stock Exchange trading days after the expiration date, the letter of transmittal or facsimile thereof together with the old notes or a book-entry confirmation, and any other documents required by the letter of transmittal will be deposited by the eligible institution with the exchange agent; and

• the exchange agent receives such properly completed and executed letter of transmittal or facsimile thereof, as well as all tendered old notes in proper form for transfer or a book-entry confirmation, and all other documents required by the letter of transmittal, within three (3) New York Stock Exchange trading days after the expiration date.

Upon request to the exchange agent, a notice of guaranteed delivery will be sent to holders who wish to tender their old notes according to the guaranteed delivery procedures set forth above.

Withdrawal of Tenders

Except as otherwise provided in this prospectus, holders of old notes may withdraw their tenders at any time prior to the expiration date.

For a withdrawal to be effective:

• the exchange agent must receive a written notice of withdrawal, which notice may be by telegram, telex, facsimile transmission or letter, at one of the addresses set forth below under “—Exchange Agent”; or

• holders must comply with the appropriate procedures of DTC’s Automated Tender Offer Program system.

Any such notice of withdrawal must:

• specify the name of the person who tendered the old notes to be withdrawn;

• identify the old notes to be withdrawn, including the principal amount of such old notes; and

• where certificates for old notes have been transmitted, specify the name in which such old notes were registered, if different from that of the withdrawing holder.

If certificates for old notes have been delivered or otherwise identified to the exchange agent, then, prior to the release of such certificates, the withdrawing holder must also submit:

• the serial numbers of the particular certificates to be withdrawn; and

• a signed notice of withdrawal with signatures guaranteed by an eligible institution unless such holder is an eligible institution.

If old notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn old notes and otherwise comply with the procedures of such facility. We will determine all questions as to the validity, form and eligibility, including time of receipt, of such notices, and our determination shall be final and binding on all parties. We will deem any old notes so withdrawn not to have been validly tendered for exchange for purposes of the exchange offer. Any old notes that have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of old notes tendered by book-entry transfer into the exchange agent’s account at DTC according to the procedures described above, such old notes will be credited to an account maintained with DTC for old notes) promptly after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn old notes may be retendered by following one of the procedures described under “—Procedures for Tendering” above at any time prior to the expiration date.

53

Exchange agent

Wilmington Trust Company has been appointed as exchange agent for the exchange offer. You should direct questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for the notice of guaranteed delivery to the exchange agent addressed as follows:

For Delivery by Hand, Overnight Delivery,	By Facsimile Transmission
Registered or Certified Mail:	(for eligible institutions only):
	(302) 636-4139
Wilmington Trust Company Corporate Capital Markets 1100 North Market Street Rodney Square North Wilmington, Delaware 19890-1626 Attention: Alisha Clendaniel	To Confirm by Telephone or for Information Call: (302) 636-6470

DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL.

Fees and Expenses

We will bear the expenses of soliciting tenders. The principal solicitation is being made by mail, however, we may make additional solicitations by telegraph, telephone or in person by our officers and regular employees and those of our affiliates.

We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to broker-dealers or others soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and reimburse it for its related reasonable out-of-pocket expenses.

Our expenses in connection with the exchange offer include:

• SEC registration fees;

• fees and expenses of the exchange agent and trustee;

• accounting and legal fees and printing costs; and

• related fees and expenses.

Transfer Taxes

We will pay all transfer taxes, if any, applicable to the exchange of old notes under the exchange offer. The tendering holder, however, will be required to pay any transfer taxes, whether imposed on the registered holder or any other person, if:

• certificates representing old notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered holder of old notes tendered;

• tendered old notes are registered in the name of any person other than the person signing the letter of transmittal; or

• a transfer tax is imposed for any reason other than the exchange of old notes under the exchange offer.

If satisfactory evidence of payment of such taxes is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed to that tendering holder.

54

Holders who tender their old notes for exchange will not be required to pay any transfer taxes. However, holders who instruct us to register exchange notes in the name of, or request that old notes not tendered or not accepted in the exchange offer be returned to, a person other than the registered tendering holder will be required to pay any applicable transfer tax.

Consequences of Failure to Exchange

Holders of old notes who do not exchange their old notes for exchange notes under the exchange offer, including as a result of failing to timely deliver old notes to the exchange agent, together with all required documentation, including a properly completed and signed letter of transmittal, will remain subject to the restrictions on transfer of such old notes:

• as set forth in the legend printed on the old notes as a consequence of the issuance of the old notes pursuant to the exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws; and

• otherwise as set forth in the offering memorandum distributed in connection with the private offering of the old notes.

In addition, you will no longer have any registration rights or be entitled to additional interest with respect to the old notes.

In general, you may not offer or sell the old notes unless they are registered under the Securities Act, or if the offer or sale is exempt from registration under the Securities Act and applicable state securities laws. Except as required by the registration rights agreement, we do not intend to register resales of the old notes under the Securities Act. Based on interpretations of the SEC staff, exchange notes issued pursuant to the exchange offer may be offered for resale, resold or otherwise transferred by their holders, other than any such holder that is our “affiliate” within the meaning of Rule 405 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the holders acquired the exchange notes in the ordinary course of the holders’ business and the holders have no arrangement or understanding with respect to the distribution of the exchange notes to be acquired in the exchange offer. Any holder who tenders in the exchange offer for the purpose of participating in a distribution of the exchange notes:

• could not rely on the applicable interpretations of the SEC; and

• must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction.

After the exchange offer is consummated, if you continue to hold any old notes, you may have difficulty selling them because there will be fewer old notes outstanding.

Accounting Treatment

We will record the exchange notes in our accounting records at the same carrying value as the old notes, as reflected in our accounting records on the date of exchange. Accordingly, we will not recognize any gain or loss for accounting purposes in connection with the exchange offer. We will expense the costs of the exchange offer.

Other

Participation in the exchange offer is voluntary, and you should carefully consider whether to accept. You are urged to consult your financial and tax advisors in making your own decision on what action to take.

We may in the future seek to acquire untendered old notes in the open market or privately negotiated transactions, through subsequent exchange offers or otherwise. We have no present plans to acquire any old notes that are not tendered in the exchange offer or to file a registration statement to permit resales of any untendered old notes.

55

USE OF PROCEEDS

We will not receive any cash proceeds from the issuance of the exchange notes. In consideration for issuing the exchange notes as contemplated in this prospectus, we will receive in exchange old notes in like principal amount, which will be cancelled and as such will not result in any increase in our indebtedness.

The net proceeds from the offering of the old notes, after deducting the initial purchasers’ fees and expenses of the offering, was $455.3 million. We used these proceeds and the proceeds from the Sponsors’ equity investment to fund the Borden Transaction and pay related fees and expenses.

The following table sets forth the sources and uses of funds in connection with the Borden Transaction.

Sources			Uses
Senior Secured Credit Facility(1)	$	—	Borden Acquisition Consideration(4)	$	608.7
Second-Priority Senior Secured Notes		475.0	Excess Cash		40.7
Assumed Net Debt(2)		456.1	Repurchases of Existing Debt(5)		61.5
Equity Contribution(3)		280.0	Assumed Net Debt(2)		456.1
			Transaction Fees and Expenses(6)		44.1
Total Sources	$	1,211.1	Total Uses	$	1,211.1

(1) As of September 30, 2004, our senior secured credit facility provided for borrowings of up to $175.0 million, subject to availability and less approximately $31.7 million of reserves for letters of credit which were outstanding as of September 30, 2004. In connection with the closing of the Combinations on May 31, 2005, we terminated the Borden Chemical senior secured credit facility and entered into $775 of new senior secured credit facilities. For a discussion of our new senior secured credit facilities see “Description of Senior Secured Credit Facilities and Other Indebtedness—Senior Secured Credit Facilities.”

(2) Assumed Net Debt represents existing debt at June 30, 2004 net of existing cash of $32.2 million at June 30, 2004.

(3) This equity contribution was made to our parent company.

(4) The net proceeds from the Borden Transaction to the shareholders of Borden Holdings at the time of the Borden Acquisition and management was approximately $608.7 million, including fees and other adjustments per the BHI Acquisition stock purchase agreement.

(5) We redeemed our 9 ¹/4% Debentures due 2019 at a premium equal to approximately $0.9 million, plus accrued and unpaid interest to the redemption date.

(6) Fees and expenses associated with the Borden Transaction, including placement and other financing fees, advisory fees and other transaction costs and professional fees. Approximately $19.7 million was capitalized on the balance sheet as deferred financing fees related to the notes and $2.7 million related to the amended senior secured credit facility.

56

CAPITALIZATION

The following table sets forth our cash and equivalents and our capitalization as of September 30, 2005 on an actual consolidated basis for Hexion. You should read this table in conjunction with “Selected Historical Financial and Other Information,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and all of the financial statements and the related notes included elsewhere in this prospectus.

	As of September 30, 2005
	(in millions)
Cash and equivalents	$	164
Debt:
Senior credit facilities (including current maturities)	$	499
Senior secured notes		966
Senior unsecured debentures		440
Senior subordinated notes		337
Industrial revenue bonds		34
Other debt and capital leases		45
Short-term debt		46
Total debt		2,367
Preferred Stock:
Series A Preferred Stock, par value $0.01 per share, liquidation preference $350 million actual: 60,000,000 shares authorized, 14,000,000 shares issued and outstanding		352
Common Stock and Other Shareholders’ Deficit:
Common stock, par value $0.01 per share: actual 300,000,000 shares authorized, 82,629,906 shares issued and outstanding		1
Paid-in capital		525
Treasury stock		(296	)
Accumulated other comprehensive loss		(39	)
Accumulated deficit		(1,058	)
Total common stock and other shareholders’ deficit		(867	)
Total capitalization	$	1,852

57

UNAUDITED PRO FORMA FINANCIAL INFORMATION

We derived the unaudited pro forma financial data set forth below by the application of the pro forma adjustments to the historical audited or unaudited consolidated financial statements of Hexion, appearing elsewhere in this prospectus. The audited consolidated statement of operations of Hexion for the year ended December 31, 2004 includes (1) Resolution Performance for the year ended December 31, 2004; (2) Resolution Specialty for the period from the date of acquisition by Apollo on August 2, 2004 through December 31, 2004; and (3) Borden Chemical for the period from the date of acquisition by Apollo on August 12, 2004 through December 31, 2004. The unaudited consolidated statement of operations of Hexion for the nine months ended September 30, 2005 includes Resolution Performance, Resolution Specialty and Borden Chemical for the nine months ended September 30, 2005 and Bakelite from the date of acquisition by Hexion on April 29, 2005 through September 30, 2005. The unaudited statement of operations of Hexion for the nine months ended September 30, 2004 includes (1) Resolution Performance for the nine months ended September 30, 2004; (2) Resolution Specialty for the period from the date of acquisition by Apollo on August 2, 2004 through September 30, 2004; and (3) Borden Chemical for the period from the date of the acquisition by Apollo on August 12, 2004 through September 30, 2004.

The unaudited pro forma statements of operations for the year ended December 31, 2004 and for the nine months ended September 30, 2004 and 2005, give pro forma effect to the Transactions (other than the Resolution Performance Transaction) as if they occurred on January 1, 2004.

The pro forma adjustments relating to the Bakelite Transaction and the minority interest acquisitions as part of the Combinations are based on preliminary estimates of the fair value of the consideration provided, estimates of the fair values of assets acquired and liabilities assumed and available information and assumptions. The final determination of fair value is dependent on the finalization of the working capital adjustment with the seller, and could result in changes to the pro forma adjustments and the pro forma data included herein.

The final purchase price allocations are also dependent on whether there are any post-closing adjustments on the finalization of asset and liability valuations. These final valuations will be based on the actual net tangible and intangible assets that existed as of the closing dates of the Bakelite Transaction and the Combinations. The Bakelite share purchase agreement provides for a working capital adjustment to the purchase price that was paid at closing, which has not yet been finalized. Any final adjustment may change the allocations of purchase price, which could affect the fair value assigned to the assets and liabilities and could result in a change to the unaudited pro forma financial information.

The unaudited pro forma financial information is presented for informational purposes only and does not purport to represent what our results of operations would actually have been if they had occurred on the date indicated nor do they purport to project our results of operations for any future period.

You should read our unaudited pro forma financial information and the accompanying notes in conjunction with all of the historical financial statements and related notes included in this prospectus and other financial information appearing elsewhere in this prospectus, including information contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

58

HEXION SPECIALTY CHEMICALS

Unaudited Pro Forma Statement of Operations

For the year ended December 31, 2004

(dollars in millions, except per share data)

	Actual												Combinations, Prior Transactions, Bakelite Transaction and Financings
				Preacquisition
							Resolution Specialty (2)
	Hexion			Borden (1)						Bakelite (3)			Adjustment (4)			Pro Forma
Net sales	$	2,019		$	984		$	440		$	699		$	(37	)(a)	$	4,105
Cost of sales		1,785			832			407			593			(48	)(a)		3,569
Gross profit		234			152			33			106			11			536
Selling, general & administrative expense		163			99			48			82			(4	)(b)		388
Transaction related costs		56			9			—			—			—			65
Impairments		2			—			64			20			—			86
Other operating expense		4			5			7			3			—			19
Operating income (loss)		9			39			(86	)		1			15			(22	)
Interest expense		118			31			5			4			63	(c)		221
Affiliated interest (income) expense, net		—			—			—			(1	)		1	(d)		—
Other non-operating expense		4			1			1			—			—			6
(Loss) income from continuing operations before income tax and minority interest		(113	)		7			(92	)		(2	)		(49	)		(249	)
Income tax expense (benefit)		—			143			1			1			(16	)(e)		129
Loss from continuing operations before minority interest		(113	)		(136	)		(93	)		(3	)		(33	)		(378	)
Minority interest in net income (loss) of consolidated subsidiaries		(8	)		1			—			—			8	(f)		1
Net loss before nonrecurring charges directly attributable to the transaction	$	(105	)		$(137)			$(93)		$	(3	)		(41	)		(379	)
Dividends on Series A Preferred Stock														51	(g)		51
Net loss available to common shareholders														(92	)		(430	)
Pro Forma loss per share (5)
Basic and Diluted																$	(5.20	)
Pro Forma weighted average number of common shares outstanding (5)
Basic and Diluted																	82,629,906

See Notes to Unaudited Pro Forma Statements of Operations

59

HEXION SPECIALTY CHEMICALS

Unaudited Pro Forma Statement of Operations

For the nine months ended September 30, 2005

(dollars in millions, except per share data)

	Actual						Combinations, Prior Transactions, Bakelite Transaction and Financings
				Preacquisition
	Hexion			Bakelite (3)			Adjustment (4)			Pro Forma
Net sales	$	3,317		$	261		$	(14	)(a)	$	3,564
Cost of sales		2,831			229			(30	)(a)		3,030
Gross profit		486			32			16			534
Selling, general & administrative expense		290			30			(3	)(b)		317
Transaction related costs		34			—			—			34
Other operating (income) expense		(4	)		1			—			(3	)
Operating income		166			1			19			186
Interest expense (income)		169			2			(5	)(c)		166
Other non-operating expense		14			—			—			14
(Loss) income from continuing operations before income tax and minority interest		(17	)		(1	)		24			6
Income tax expense		43			2			10	(e)		55
(Loss) income from continuing operations before minority interest		(60	)		(3	)		14			(49	)
Minority interest in net income of consolidated subsidiaries		3			—			1	(f)		4
(Loss) income from continuing operations		(63	)		(3	)		13			(53	)
Dividends on Series A Preferred Stock		18			—			25	(g)		43
Net loss available to common shareholders	$	(81	)	$	(3	)	$	(12	)	$	(96	)
Pro Forma loss per share (5)
Basic and Diluted										$	(1.16	)
Pro Forma weighted average number of common shares outstanding (5)
Basic and Diluted											82,629,906

See Notes to Unaudited Pro Forma Statements of Operations

60

HEXION SPECIALTY CHEMICALS

Unaudited Pro Forma Statement of Operations

For the nine months ended September 30, 2004

(dollars in millions, except per share data)

	Actual												Combinations, Prior Transactions, Bakelite Transaction and Financings
				Preacquisition
							Resolution Specialty (2)
	Hexion			Borden (1)						Bakelite (3)			Adjustment (4)			Pro Forma
Net sales	$	1,081		$	984		$	440		$	505		$	(27	)(a)	$	2,983
Cost of sales		968			832			407			433			(37	)(a)		2,603
Gross profit		113			152			33			72			10			380
Selling, general & administrative expense		98			99			48			57			(3	)(b)		299
Transaction related costs		47			9			—			—			—			56
Impairments		—			—			64			12			—			76
Other operating expense		—			5			7			2			—			14
Operating income (loss)		(32	)		39			(86	)		1			13			(65	)
Interest expense		73			31			5			3			5	4 (c)		166
Affiliated interest (income) expense, net		—			—			—			(1	)		1	(d)		—
Other non-operating expense		—			1			1			—			—			2
(Loss) income from continuing operations before income tax and minority interest		(105	)		7			(92	)		(1	)		(42	)		(233	)
Income tax (benefit) expense		(4	)		143			1			—			(13	)(e)		127
Loss from continuing operations before minority interest		(101	)		(136	)		(93	)		(1	)		(29	)		(360	)
Minority interest in net income (loss) of consolidated subsidiaries		(7	)		1			—			—			7	(f)		1
Net loss before nonrecurring charges directly attributable to the transaction	$	(94	)		$(137)			$(93)		$	(1	)		(36	)		(361	)
Dividends on Series A Preferred Stock														38	(g)		38
Net loss available to common shareholders													$	(74	)	$	(399	)
Pro Forma loss per share (5)
Basic and Diluted																$	(4.83	)
Pro Forma weighted average number of common shares outstanding (5)
Basic and Diluted																	82,629,906

See Notes to Unaudited Pro Forma Statements of Operations

61

Notes to Unaudited Pro Forma Statements of Operations

(1) The Borden Transaction occurred on August 12, 2004. The historical data with respect to Borden Chemical presented in the unaudited pro forma statement of operations for the year ended December 31, 2004 and nine months ended September 30, 2004 relates to the period from January 1, 2004 to August 11, 2004. From August 12, 2004, data with respect to Borden Chemical is included in the Hexion historical data.

(2) The Resolution Specialty Transaction occurred on August 2, 2004. The historical data with respect to the Resins, Inks and Monomers Business of Eastman Chemical Company, the predecessor to Resolution Specialty, presented in the unaudited pro forma statement of operations for the year ended December 31, 2004 and nine months ended September 30, 2004 relates to the period from January 1, 2004 to August 1, 2004. From August 2, 2004, data with respect to Resolution Specialty is included in the Hexion historical data.

(3) The Bakelite Transaction occurred on April 29, 2005. The historical data with respect to the Resins Business of the Bakelite Group, the predecessor to Bakelite, is presented in the unaudited pro forma statements of operations for the year ended December 31, 2004 and for the nine months ended September 30, 2005 and relates to the fiscal year ended December 31, 2004 and to the period from January 1, 2005 to April 29, 2005. From April 30, 2005, data with respect to Bakelite is included in the Hexion historical data. Historical data for the nine months ended September 30, 2004 relates to the period from January 1, 2004 to September 30, 2004. The historical combined statements of operations of Bakelite for the year ended December 31, 2004 and the nine months ended September 30, 2004 and four months ended April 29, 2005 have been translated into U.S. dollars at the average exchange rate for the related period of 1.2478 and 1.2243 and 1.3053 U.S. dollars to one euro, respectively. It should be noted that such translations should not be construed as representations that the U.S. dollar amounts actually represent such euro amounts, or could have been or will be converted into euros at the rate indicated or at all. The historical combined statements of operations of Bakelite are as follows:

	Year ended December 31, 2004			Nine months ended September 30, 2004			Four months ended April 29, 2005
Net sales	€	560		€	413		€	200
Cost of sales		475			354			176
Gross profit		85			59			24
Selling, general and administrative expense		66			46			23
Impairments		16			10			—
Other operating expense		2			2			1
Operating income		1			1			—
Interest expense		3			3			1
Affiliated interest expense, net		(1	)		(1	)		—
Income (loss) before income tax		(1	)		(1	)		(1	)
Income tax expense		1			—			1
Net income (loss)	€	(2	)	€	(1	)	€	(2	)

To conform the presentation of Bakelite’s statement of operations with Hexion’s for the year ended December 31, 2004, the nine months ended September 30, 2004 and the four months ended April 29, 2005, Bakelite’s distribution expenses of €15, €11 and €6, respectively, have been included in Cost of sales, and marketing expenses of €34, €26 and €12, respectively, have been included in Selling, general and administrative expense.

(4) Reflects the following adjustments:

(a) Elimination of intercompany activity resulted in the reduction of net sales and cost of sales. Additionally, cost of sales reflects the adjustments to depreciation and amortization expense

62

resulting from fair value adjustments to certain property and equipment and amortizable intangible assets, an adjustment to account for inventory on a first-in-first-out basis for both the pre- and post-acquisition periods of Resolution Specialty and an adjustment to reverse an amount which represents the write-up of inventory that was recorded as part of the purchase price allocations for Resolution Specialty in 2004, Bakelite in 2005 and minority interest exchanges in 2005, and subsequently expensed through cost of sales. These entries are summarized as follows:

	Year ended December 31, 2004			Nine months ended September 30,
				2004			2005
Sales
Elimination of intercompany activity	$	(37	)	$	(27	)	$	(14	)
Cost of Sales
Elimination of intercompany activity	$	(38	)	$	(27	)	$	(14	)
Inventory adjustment for first-in-first-out basis		(1	)		(1	)		—
Reverse expensing of inventory write-up		(9	)*		(9	)*		(16	)*
	$	(48	)	$	(37	)	$	(30	)

* Reflects elimination from cost of sales for the purchase accounting step-up that was expensed during the period for Resolution Performance, Resolution Specialty and Bakelite.

(b) Reflects the elimination of management fees and an adjustment to decrease amortization expense resulting from fair value adjustments to amortizable intangible assets.

(c) Represents the new debt issued and the effect of a full year of interest expense related to the debt outstanding as a result of the Prior Transactions and the Current Transactions:

	Year ended December 31, 2004			Nine months ended September 30,
				2004			2005
Second-priority senior secured notes	$	43		$	32		$	32
New Floating Rate Notes		15			11			11
New senior secured credit facilities		36			27			27
Amortization of debt issuance cost and debt premium or discount		8			6			6
Less historical interest		(39	)		(22	)		(81	)
Net adjustment to interest expense	$	63		$	54		$	(5	)

The interest rates in effect at December 20, 2005 were used to compute the pro forma adjustments to interest expense for newly issued variable rate debt, including that issued in the Borden Transaction. Each one-eighth point change in the assumed interest rates would result in a $1 change in annual interest expense.

(d) Affiliated debt and the associated interest income have been eliminated as part of the Bakelite Transaction.

(e) The appropriate statutory tax rates of the respective tax jurisdictions to which adjustments relate have been applied.

(f) Reflects the elimination of minority interests in Resolution Performance and Resolution Specialty resulting from the exchange of such interests as part of the Combination.

(g) Reflects the dividend accrual (including accretion) on the Series A Preferred Stock based on increasing dividend rates in effect for each period and the current LIBOR rate assuming the dividend will be paid by issuing additional shares of Series A Preferred Stock.

63

(5) Pro forma basic and diluted loss per common share are computed by dividing loss available to common stockholders by the weighted average number of common shares outstanding during the period. Since we had a net loss for the year ended December 31, 2004, and the nine months ended September 30, 2004 and 2005, shares issuable upon the exercise of employee stock options has an antidilutive effect. Therefore, the unaudited pro forma diluted loss per share is the same as the unaudited pro forma basic loss per share.

64

SELECTED HISTORICAL FINANCIAL AND OTHER INFORMATION

The combination of Borden Chemical, Resolution Performance and Resolution Specialty has been treated, for accounting purposes, as a combination of entities under common control due to Apollo’s controlling interest in each of the companies. The audited consolidated financial statements presented herein reflect the results of operations of each company from the date such company was acquired by Apollo.

The following table presents selected historical financial and other data of Hexion. The selected historical financial and other data of Hexion as of December 31, 2003 and 2004, and for the years ended December 31, 2002, 2003 and 2004 has been derived from the audited consolidated financial statements of Hexion, included elsewhere in this prospectus. The selected historical financial and other data of Hexion as of and for the nine months ended September 30, 2004 and 2005 have been derived from the unaudited condensed consolidated financial statements of Hexion, included elsewhere in this prospectus and include all adjustments that management considers necessary for a fair presentation of our financial position and results of operations as of the dates and for the periods indicated. Results for the nine months ended September 30, 2005 are not necessarily indicative of the results that may be expected for the entire year. The financial data of Hexion for the years ended December 31, 2000 and 2001 represent the operating results of Resolution Performance, not included herein, which reflect purchase accounting adjustments following the acquisition of Resolution Performance by Apollo on November 14, 2000. The financial data for Hexion for the year ended December 31, 2004, includes:

• the results of operations of Resolution Performance for the full year ended December 31, 2004, which reflect purchase accounting adjustments from the date of acquisition of Resolution Performance by Apollo on November 14, 2000;

• the results of operations of Borden Chemical for the period from August 12, 2004 to December 31, 2004, on a historical basis (because Borden Chemical is a public reporting registrant as a result of public debt that was outstanding prior to the Borden Transaction and which debt remains outstanding, Borden Chemical has elected to present its financial statements from the date of its acquisition by Apollo on the historical basis of accounting permitted under the SEC’s public debt exemptions); and

• the results of operations of Resolution Specialty for the period from August 2, 2004 to December 31, 2004 which reflect purchase accounting adjustments from the date of acquisition of Resolution Specialty by Apollo on August 2, 2004.

The consolidated balance sheet and statement of operations of Hexion as of and for the nine months ended September 30, 2004 and 2005, includes:

• the results of operations of Resolution Performance as of and for the nine months ended September 30, 2004 and 2005, which reflect purchase accounting adjustments from the date of acquisition of Resolution Performance by Apollo on November 14, 2000;

• the results of operations of Borden Chemical as of and for the nine months ended September 30, 2005 and for the period from the date of acquisition by Apollo on August 12, 2004 through September 30, 2004 on a historical basis (because Borden Chemical is a public reporting registrant as a result of public debt outstanding prior to the Borden Transaction and which debt remains outstanding, Borden Chemical has elected to present its financial statements from the date of its acquisition by Apollo on the historical basis of accounting permitted under the SEC’s public debt exemptions);

• the results of operations of Resolution Specialty as of and for the nine months ended September 30, 2005 and for the period from the date of the acquisition by Apollo on August 2, 2004 through September 30, 2004, which reflect purchase accounting adjustments from the date of acquisition of Resolution Specialty by Apollo on August 2, 2004; and

• the results of operations of Bakelite for the period from April 30, 2005 to September 30, 2005, which reflects purchase accounting adjustments from the date of the acquisition of Bakelite on April 29, 2005.

You should read this data in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and all the financial statements and the related notes included elsewhere in this prospectus.

65

	Predecessor		Successor
	10 months ended October 31, 2000		2 months ended December 31, 2000(1)			Year ended December 31,												Nine months ended September 30,
						2001			2002			2003			2004(2)			2004			2005(3)
			(dollars in millions)
Statement of Operations:
Net sales	$	797	$	152		$	863		$	740		$	782		$	2,019		$	1,081		$	3,317
Cost of sales		642		153			695			601			714			1,785			968			2,831
Gross profit (loss)		155		(1	)		168			139			68			234			113			486
Selling, general & administrative expense		75		22			90			82			81			163			98			290
Transaction related costs		—		—			—			—			—			56			47			34
Impairments		—		—			—			—			13			2			—			—
Other operating expense (income)		—		—			—			16			(3	)		4			—			(4	)
Operating income (loss)		80		(23	)		78			41			(23	)		9			(32	)		166
Interest expense		—		9			70			65			77			118			73			152
Write-off of deferred financing fees		—		—			—			—			—			—			—			17
Other non-operating expense (income)		6		(8	)		14			—			—			4			—			14
Income (loss) from continuing operations before income tax and minority interest		74		(24	)		(6	)		(24	)		(100	)		(113	)		(105	)		(17	)
Income tax expense (benefit)		27		(17	)		—			(10	)		(37	)		—			(4	)		43
Income (loss) from continuing operations before minority interest		47		(7	)		(6	)		(14	)		(63	)		(113	)		(101	)		(60	)
Minority interest in net income (loss) of consolidated subsidiaries		—		(1	)		(1	)		(3	)		(13	)		(8	)		(7	)		(3	)
Income (loss) from continuing operations		47		(6	)		(5	)		(11	)		(50	)		(105	)		(94	)		(63	)
Loss from discontinued operations		—		—			—			—			—			—			—			10
Net income (loss)	$	47	$	(6	)	$	(5	)	$	(11	)	$	(50	)	$	(105	)	$	(94	)	$	(73	)
Redeemable preferred stock accretion		—		—			—			—			—			—			—			18
Net income (loss) available to common shareholders	$	47	$	(6	)	$	(5	)	$	(11	)	$	(50	)	$	(105	)	$	(94	)	$	(91	)
Cash Flow Data:
Cash flows from (used in) operating activities									$	64		$	(43	)	$	(32	)	$	(77	)	$	103
Cash flows (used in) from investing activities										(45	)		7			(20	)		8			(294	)
Cash flows (used in) from financing activities										(21	)		80			148			126			209
Balance Sheet Data (at end of period):
Cash and equivalents			$	19		$	6		$	5		$	49		$	152		$	107		$	164
Working capital(4)				208			142			99			177			433			380			535
Total assets				1,225			1,101			1,179			1,191			2,696			2,486			3,197
Total long-term debt				674			581			567			675			1,834			1,805			2,306
Total net debt(5)				673			587			572			634			1,698			1,714			2,203
Total liabilities and minority interest				1,012			907			949			1,039			3,005			2,854			3,712
Redeemable preferred stock				—			—			—			—			—			—			352
Total common stock and other shareholders’ equity (deficit)				213			194			230			152			(309	)		(368	)		(867	)
Other Financial Data:
Ratio of earnings to fixed charges and preferred stock dividends(6)				—			—			—			—			—			—			—

⁽¹⁾ Data from date of acquisition by Apollo on November 14, 2000 through December 31, 2000.

⁽²⁾ Includes data for Resolution Specialty from August 2, 2004 and for Borden Chemical from August 12, 2004, their respective dates of acquisition by Apollo.

⁽³⁾ Includes data for Bakelite from its date of acquisition, April 30, 2005.

⁽⁴⁾ Working capital is defined as current assets less current liabilities.

⁽⁵⁾ Net debt is defined as long-term debt plus short-term debt less cash and equivalents.

⁽⁶⁾ Due to the net losses in the years 2000 to 2004 and for each of the nine month periods ended September 30, 2004 and 2005, the ratio of earnings to fixed charges and preferred stock dividends was less than 1. Our earnings were insufficient to cover fixed charges by $24, $6, $24, $100, $113, $105 and $17 for the 2 months ended December 31, 2000, the years ended December 31, 2001, 2002, 2003 and 2004 and each of the nine month periods ended September 30, 2004 and 2005, respectively. Our earnings were insufficient to cover fixed charges and preferred stock dividends by $249 for the year ended December 31, 2004 on a pro forma basis. The ratio of earnings to fixed charges and preferred stock dividends was 1.02 for the nine-month period ended September 30, 2005, on a pro forma basis.

66

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our historical consolidated financial statements covers periods before consummation of the exchange offer and the Current Transactions. Accordingly, the discussion and analysis of such periods does not reflect the significant impact these transactions have had and will have on the Company. See “Risk Factors,” “Unaudited Pro Forma Financial Information” and “—Liquidity and Capital Resources” for further discussion relating to the impact of these transactions on the Company. The following discussion should be read in conjunction with “Selected Historical Financial and Other Information” and all the financial statements and the related notes included elsewhere in this prospectus. All dollar amounts are in millions, except per share data or where otherwise indicated. In addition, the statements in the discussion and analysis regarding industry outlook, our expectations regarding the performance of our business, our liquidity and capital resources and the other non-historical statements in the discussion and analysis are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Risk Factors.” Our actual results may differ materially from those contained in or implied by the forward-looking statements. You should read the following discussion together with the sections entitled “Risk Factors,” “Unaudited Pro Forma Financial Information” and “Selected Historical Financial and Other Information.”

Overview

We are the world’s largest producer of thermosetting resins, or thermosets. Thermosets are a critical ingredient for virtually all paints, coatings, glues and other adhesives produced for consumer or industrial uses. We are focused on providing a broad array of thermosets and associated technologies, with leading market positions in all key markets served.

The total global thermoset resins market is approximately $34 billion in annual sales, of which our primary markets represent approximately $19 billion in annual sales.

Our products are used in thousands of applications and are sold into diverse markets, such as forest products, architectural and industrial paints, packaging, consumer products and automotive coatings, as well as higher growth markets, such as composites, UV cured coatings and electrical laminates. As of September 30, 2005, we had 86 production and distribution sites globally and produce many of our key products locally in North America, Latin America, Europe and Asia. Through our worldwide network of strategically located production facilities, we serve more than 5,000 customers in 96 countries. We believe our global scale provides us with significant advantages over many of our competitors. In areas where it is advantageous, we are able to internally produce strategic raw materials, providing us with a lower cost operating structure and security of supply. In other areas, where we can capitalize on our technical know-how and market presence to capture additional value, we are integrated downstream into product formulations. Our position in certain additives, complementary materials and services further enables us to leverage our core thermoset technologies and provide customers a broad range of product solutions. Our global customers include leading companies in their respective industries, such as 3M, BASF, Bayer, DuPont, GE, Halliburton, Honeywell, Owens Corning, PPG Industries, Sumitomo, Sun Chemicals, Valspar and Weyerhaeuser.

Industry Conditions. As is true for many industries, our results are impacted by the effect on our customers of economic upturns or downturns, as well as the impact on our own costs to produce, sell and deliver our products. Our customers use most of our products in their production processes; therefore, factors impacting their industries could significantly affect our results.

Major industry sectors served by us include industrial/marine, construction, consumer/durable goods, automotive, electronics, architectural, civil engineering, repair/remodeling, graphic arts and oil and gas field support. Key drivers for our business are general economic and industrial growth, housing starts, auto builds, furniture demand, active gas drilling rigs, print advertising demand and chemical intermediates sector operating conditions.

67

After a relatively flat demand for our epoxy resins in 2002 and 2003, demand for our epoxy resins in 2004 increased significantly and demand through the first three quarters of 2005 has continued to be strong. Similarly, the pricing environment for our epoxy resins was positively impacted by increased demand and lack of availability of raw materials in some segments of the market.

From 1997 to 2000, demand for bisphenol-A (“BPA”), a key precursor in the manufacture of epoxy resins, grew by approximately 13% per year driven primarily by the polycarbonate end-uses (electronics, computer, telecommunications and data equipment), whereas from 2000 to 2004, the average growth rate was approximately 6%. In 2004 there was a strong recovery in global BPA demand primarily driven by stronger production rates. Compared to 2003, the estimated demand growth has again approached 13%. More importantly, in the second half of 2004, the resulting tightness in supply and demand has allowed for margin expansion despite the fact that the prices for phenol (BPA’s key feedstock) have seen unprecedented increases in 2004. Global demand through the first three quarters of 2005 has continued to be strong, and Hexion is in the process of activating a previously idle reactor to help meet this demand.

Raw Material Costs. In 2004, raw material costs made up approximately 80% of our product costs. The primary raw materials that we use are phenol, methanol, urea, propylene, chlorine and acetone. During the past four years, the prices of these raw materials have been volatile. During the year ended December 31, 2004, prices of our major feedstocks increased significantly relative to 2003. High energy costs such as the increasing price of crude oil and related petrochemical products and the higher cost of natural gas have translated into significant increases in raw material costs. For example, in 2004 the average prices of phenol, methanol and urea increased by 48%, 7% and 19% respectively. To help mitigate this volatility, we have purchase and sale contracts with many of our vendors and customers with periodic price adjustment mechanisms. For example, in our North American forest products business, approximately 60% of our sales are to customers that have contracts that allow for the passing through of increases in raw material costs on average within 30 days. Due to differences in timing of the pricing mechanism trigger points between our sales and purchase contracts there is often a “lead-lag” impact during which margins are negatively impacted for the short term in periods of rising raw material prices and positively impacted in periods of falling raw material prices. In addition, the pass through of raw material price changes can result in significant variances in sales comparisons from year to year. In 2004, we had a favorable impact on sales as raw material price increases throughout 2003 and 2004 were passed through to customers. Since year-end 2004, the average index price of methanol decreased about 5% and phenol decreased 9%, while urea increased 11% in the first three quarters of 2005.

While methanol prices have come down from the peaks established in the second quarter of 2005, North American prices remain the highest in the world and will likely result in continued shifting of chemical demand to other regions of the globe. Methanol prices are forecasted to remain stable throughout the remainder of 2005.

Regulatory Environment. National and international laws regulate the production and marketing of chemical substances. Although almost every country has its own legal procedure for registration and import, laws and regulations in the European Union and the United States are most significant to our business, including the European inventory of existing commercial chemical substances, the European list of notified chemical substances, and the United States Toxic Substances Control Act inventory. Chemicals which are on one or more of the above lists can usually be registered and imported without additional testing in other countries, although additional administrative hurdles may exist.

We are also subject to extensive regulation under the environmental and occupational health and safety laws by Federal, state and local governmental entities and foreign authorities, such as the European Union. These laws are designed to protect workers and the public from exposure to certain hazardous chemicals and dangerous work conditions, to protect natural resources and to limit discharges of hazardous substances to the environment from ongoing operations. They provide for substantial fines and potential criminal sanctions for violations. They also establish requirements to remediate contamination. The laws are complex, change frequently and have tended to become more stringent over time.

68

For example, statutes such as the Federal Comprehensive Environmental Response, Compensation, and Liability Act and comparable state and foreign laws impose strict, joint and several liability for investigating and remediating the consequences of spills and other releases of hazardous materials, substances and wastes at current and former facilities, and at third-party disposal sites. Therefore, notwithstanding our commitment to environmental management, we cannot assure you that environmental, health and safety liabilities will not be incurred in the future, nor that such liabilities will not result in a material adverse effect on our financial condition, results of operations or business reputation.

Certain chemicals have been alleged to interact with the endocrine systems of humans and wildlife and disrupt normal processes (i.e., endocrine disrupters). BPA, which is used as an intermediate at our Deer Park and Pernis manufacturing facilities and is also sold directly to third parties, is currently under evaluation as an “endocrine disrupter.” Pursuant to EU regulation 793/93/EC, BPA producers are currently conducting an extensive toxicology testing program of the chemical. In addition, new legislation in Europe will take effect in 2005 and require that risk labels be used for BPA indicating “possible risk of impaired fertility.” In the event that BPA is further regulated, additional operating costs would likely be incurred to meet more stringent regulation of the chemical.

Various government agencies are conducting formaldehyde health assessments and evaluating the need for additional regulations. Although formaldehyde has been heavily regulated for several years, further regulation of formaldehyde could follow over time. In 2004, the International Agency for Research on Cancer (“IARC”) reclassified formaldehyde as “carcinogenic to humans,” a higher classification than previous IARC evaluations based principally on a study linking formaldehyde exposure to nasopharyngeal cancer, a rare form of cancer in humans. IARC also concluded that there was strong evidence, but not sufficient evidence for a finding, of an association between leukemia and occupational exposure to formaldehyde, although IARC could not identify a mechanism for leukemia induction. We believe that our production facilities will be able to comply with any likely regulatory impact without any material impact on the business.

We support appropriate scientific research and risk-based policy decision-making, and we are working with industry groups, including the Formaldehyde Council, Inc., (“FCI”) to ensure that governmental assessments and regulations are based on sound scientific information. As a part of that effort, the FCI is currently funding additional health research to supplement the existing science database. Results from some of this work will be available in 2006. We have state of the art technology and credible stewardship programs and processes in place to provide compliant and cost-effective resin systems to our customers.

We also actively seek approvals from the U.S. Food and Drug Administration for certain specialty chemicals produced by us, principally where we believe that these specialty chemicals will or may be used by our customers in the manufacture of products that will come in direct or indirect contact with food.

Competitive Environment. The chemical industry has been historically competitive, and we expect this competitive environment to continue in the foreseeable future. We compete with companies of varying size, financial strength and availability of resources. Price, customer service and product performance are the primary areas in which we compete.

Impact of Hurricanes Katrina and Rita. During the third quarter of 2005, our operations in the Gulf Coast region of the United States were impacted by Hurricanes Katrina and Rita. Our Norco, LA and Deer Park, TX facilities incurred minimal damage from the hurricanes; however, the facilities were closed for 45 and 14 days after the hurricanes, respectively. These closures were due to repairs at the facilities that provide our facilities with utilities services. Our facilities in the Gulf Coast escaped significant damage from Hurricane Rita, and though our facilities in the region were shut down in anticipation of Hurricane Rita, none remained closed for repair after the storm.

Our third quarter results were significantly impacted by the hurricanes as well. Approximately $10 of incremental expenses associated with the hurricanes negatively impacted the quarter’s operating income. These incremental expenses included higher cost of key raw materials, plant downtime, supply chain and other logistical disruptions and dislocated employees. We believe our fourth quarter 2005 operating results will

69

continue to be negatively impacted by incremental expenses, of approximately $10-$20, directly related to the hurricanes.

Other Factors Impacting Our Results. Other pressures on our profit margins include rising utility costs and increasing employee benefit, general insurance and legal costs. We are taking a number of steps to control and/or mitigate the impact of these costs. In addition, we are continuing to analyze our business structure and consolidate plants and functions where we can realize significant cost savings and productivity gains. These consolidations have resulted in severance costs. Future consolidations, productivity initiatives and synergy strategies may include asset impairment charges and severance costs.

We believe that these factors will continue in the foreseeable future. These market dynamics will require us to continue to focus on productivity improvements and risk mitigation strategies to enhance and protect our margins.

Outlook

We have experienced an improvement in demand in the markets we serve and expect to see continued improvement in demand in 2006. Supply/demand fundamentals are expected to improve, both in industrialized and developing nations. We expect this trend to result in higher utilization rates for the resins industry, which in turn will lead to continued price increases. Furthermore, we feel that the formation of Hexion will lead to improved technical capabilities for the combined entities and an ability to service our customers better.

However, raw material volatility could continue through 2006 because of, among other things, political instability in the Middle East or supply disruptions elsewhere, including as a result of hurricanes and other natural disasters, such as Hurricanes Katrina and Rita. There can be no assurances that (i) any global recovery will continue during 2006, (ii) we will be able to realize margins we have historically achieved as feedstock costs decline or (iii) our feedstock costs will not rise faster than our product prices and, therefore, reduce our margins.

We believe we will be able to mitigate such volatility due to a number of factors: (i) our actions taken in 2005 to implement monthly or quarterly pricing mechanisms in many product lines will improve our ability to react to changing market conditions in 2006; (ii) the value-added nature of many of our product lines will allow us to continue to pass through additional feedstock price increases; and (iii) the roll-off of several long-term raw material contracts should have a step-change effect in lowering our feedstock costs.

There can be no assurances that (i) demand for our products will increase during 2006 or (ii) past or future price increases by us or our competitors will be accepted by our customers or that we will not lose any significant customers or volumes in the future as a result of these price increases.

We expect to generate increasing free cash flow (cash flow from operating activities less anticipated capital expenditures) in the future due to improving operating characteristics and the absence of one-time costs associated with the Current Transactions. Our products are generally less capital intensive to manufacture than many other products in the chemical industry and, as a result, we have low maintenance capital and moderate working capital requirements. Furthermore, due to our tax assets and other structuring considerations, we expect to have very low cash tax requirements for the foreseeable future. Additionally, we expect to realize in excess of $125 in annual net cost synergies from the Current Transactions, which should further improve free cash flow. We expect to incur one-time costs of approximately $75 during the next two years in connection with implementing these synergies. We expect that all of these factors will enable us to generate increased free cash flow, which we anticipate will be available to reduce indebtedness or for other strategic purposes.

Transactions

The Combinations. On May 31, 2005, Resolution Performance and Resolution Specialty were combined with and into Borden Chemical (the “Combinations”), all of which were controlled by Apollo Management, L.P. and its affiliates (“Apollo”). Upon the consummation of the Combinations, Borden Chemical changed its name to

70

Hexion Specialty Chemicals, Inc. and BHI Acquisition LLC, Borden Chemical’s parent, changed its name to Hexion LLC.

The Borden Transaction. On August 12, 2004, BHI Investment, LLC, an affiliate of Apollo acquired all of the outstanding capital stock of Borden Holdings, Inc., for a total consideration of approximately $1.2 billion, including debt assumed (the “Borden Acquisition”). In addition, as part of the Borden Acquisition, all of the outstanding capital stock of Borden Chemical held by management was redeemed or otherwise cancelled. Immediately following the acquisition, BHI Investment, LLC reorganized the existing corporate structure so that Borden Chemical became directly owned by Hexion LLC (formerly known as BHI Acquisition LLC), a subsidiary of BHI Investment, LLC, and reorganized the ownership of Borden Chemical’s foreign subsidiaries. The acquisition of Borden Holdings, Inc. and the payment of transaction fees and expenses were financed by the net proceeds of the offerings by the Issuers of the old notes, and with certain equity contributions from Apollo. The Borden Acquisition, the related offering of the old notes and the related transactions are collectively referred to in this prospectus as (the “Borden Transaction”).

The Resolution Performance Transaction. On November 14, 2000, an affiliate of Apollo acquired control of Resolution Performance in a recapitalization transaction (the “Resolution Performance Transaction”). Prior to the recapitalization, Resolution Performance was a wholly owned subsidiary of the Royal Dutch/Shell Group of Companies (“Shell”).

The Resolution Specialty Transaction. On August 2, 2004, Resolution Specialty, an affiliate of Apollo, acquired the resins, inks and monomers division (the “Resolution Specialty Acquisition”) of Eastman Chemical Company (“Eastman”). The Resolution Specialty Acquisition and the related transactions are collectively referred to in this prospectus as the “Resolution Specialty Transaction.”

The Bakelite Transaction. On April 29, 2005, a subsidiary of Borden Chemical acquired Bakelite (the “Bakelite Acquisition”). Upon the consummation of the Bakelite Acquisition, Bakelite became an indirect, wholly-owned subsidiary of Hexion Specialty Chemicals Canada, Inc. (“Hexion Canada”). The Bakelite Acquisition was financed through a combination of available cash and borrowings under a bridge loan facility, which was refinanced with the proceeds of our second-priority senior secured floating rate notes issued on May 20, 2005 (the “New Floating Rate Notes”) and borrowings under our new senior secured credit facilities (collectively the “Bakelite Financing”). The Bakelite Acquisition, the repayment or assumption of certain of Bakelite’s debt in connection therewith and the Bakelite Financing are collectively referred to in this prospectus as the “Bakelite Transaction.”

Critical Accounting Policies

In preparing our financial statements in conformity with US GAAP, we have to make estimates and assumptions about future events that affect the amounts of reported assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities in the financial statements and accompanying notes. Some of our accounting policies require the application of significant judgment by management in the selection of appropriate assumptions for determining these estimates. By their nature, these judgments are subject to an inherent degree of uncertainty; therefore, we cannot assure you that actual results will not differ significantly from estimated results. We base these judgments on our historical experience, management’s forecasts and other available information, as appropriate. Our significant accounting policies are more fully described in Note 2 to the audited Consolidated Financial Statements included elsewhere in this prospectus.

Our most critical accounting policies, which reflect significant management estimates and judgment in determining reported amounts in the audited Consolidated Financial Statements included elsewhere in this prospectus, are as follows:

Basis of Presentation. The Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries, in which minority shareholders hold no substantive participating rights, after elimination of intercompany accounts and transactions. The Company’s share of the net earnings of 20% to 50%

71

owned companies, which it has the ability to exercise significant influence over operating and financial policies, are included in income on an equity basis. Investments in the other companies are carried at cost.

Resolution Performance, Borden Chemical and Resolution Specialty are considered entities under the common control of Apollo as defined in EITF 02-5 “Definition of Common Control in Relation to FASB Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations.” As a result of the Combinations, the financial statements of these entities are presented retroactively on a consolidated basis in a manner similar to a pooling of interests, and include the results of operations of each business only from the date of acquisition by Apollo.

The financial data for Hexion for the nine months ended September 30, 2004 and years ended December 31, 2002 and 2003 include the results of operations of Resolution Performance only. The financial data for Hexion for the nine months ended September 30, 2005 and the year ended December 31, 2004, includes:

• the results of operations of Resolution Performance for the nine months ended September 30, 2005 and the full year ended December 31, 2004, respectively, which reflect purchase accounting adjustments from the date of acquisition of Resolution Performance by Apollo on November 14, 2000,

• the results of operations of Borden Chemical for the nine months ended September 30, 2005 and the period from August 12, 2004 to December 31, 2004, respectively, on a historical basis (because Borden Chemical is a public reporting registrant as a result of public debt that was outstanding prior to the Borden Transaction and which debt remains outstanding, Borden Chemical has elected to present its financial statements from the date of its acquisition by Apollo on the historical basis of accounting permitted under the SEC’s public debt exemptions),

• the results of operations of Resolution Specialty for the nine months ended September 30, 2005 and the period from August 2, 2004 to December 31, 2004, respectively, which reflect purchase accounting adjustments from the date of the acquisition of Resolution Specialty by Apollo on August 2, 2004, and

• the results of operations of Bakelite for the period from April 30, 2005 to September 30, 2005, which reflects purchase accounting adjustments from the date of the acquisition of Bakelite on April 29, 2005.

Accordingly, the results of operations of Hexion for periods prior to the Borden Chemical and Resolution Specialty acquisitions are not comparable to results for subsequent periods. In order to enhance comparability, management’s discussion and analysis of financial condition and results of operations includes additional supplemental data provided for the individual entities for the nine months ended September 30, 2004 and 2005 and for the years ended December 31, 2003 and 2004.

        Environmental Remediation and Restoration Liabilities. Accruals for environmental matters are recorded when we believe it is probable that a liability has been incurred and we can reasonably estimate the amount of the liability. Our accruals are established following the guidelines of Statement of Position 96-1, “Environmental Remediation Liabilities.” We have accrued approximately $41 and $39 at December 31, 2004 and September 30, 2005, respectively, for all probable environmental remediation and restoration liabilities, which is our best estimate of these liabilities. Based on currently available information and analysis, we believe that it is reasonably possible that the costs associated with such liabilities may fall within a range of $27 to $80. This estimate of the range of reasonably possible costs is less certain than the estimates upon which reserves are based, and in order to establish the upper limit of this range, we used assumptions that are less favorable to Hexion among the range of reasonably possible outcomes, but we did not assume we would bear full responsibility for all sites, to the exclusion of other potentially responsible parties (“PRPs”).

For environmental conditions that existed prior to the acquisition of Resolution Performance, environmental remediation liability is influenced by agreements associated with the transactions under the terms of which Shell generally will indemnify us for environmental damages associated with environmental conditions that occurred

72

or existed before the closing date of the acquisition, subject to certain limitations. In addition, for incidents occurring after the closing date of the acquisition, management believes that we maintain adequate insurance coverage, subject to deductibles, for environmental remediation activities.

For environmental conditions that existed prior to the acquisition of Resolution Specialty, the Resolution Specialty Transaction Agreement provides for a seller indemnification (“Eastman Indemnification”), under the terms of which Eastman agreed to indemnify Resolution Specialty and its affiliates for certain losses and associated expenses occurring within specified time periods. Items covered by the Eastman Indemnification include: (i) breaches by Eastman of its representations, warranties or covenants in the acquisition agreement; (ii) product liability claims brought against Resolution Specialty that relate to the manufacture, distribution, marketing or sale of any products by the predecessor business that were manufactured prior to August 2, 2004, the closing date, and sold within ninety (90) days following the closing date (except to the extent that such claims relate to the actions or negligent omissions of Resolution Specialty or any of its Affiliates following the closing date); and (iii) liabilities of Eastman or the predecessor business that were not assumed by Resolution Specialty in connection with its purchase of the predecessor business.

Factors influencing the possible range of costs for environmental remediation include:

• the success of the selected method of remediation / closure procedures;

• the development of new technology and improved procedures;

• the possibility of discovering additional contamination during monitoring / remediation process;

• the financial viability of other PRPs, if any, and their potential contributions;

• the time period required to complete the work, including variations in anticipated monitoring periods; and

• for projects in their early stages, the outcome of negotiations with governing regulatory agencies regarding plans for remediation.

Income Tax Assets and Liabilities. Deferred income taxes represent the tax effect of temporary differences between amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes. We currently have significant deferred tax assets resulting primarily from net operating loss carry forwards and deductible temporary differences, which will reduce taxable income in future periods. We provided a valuation allowance on future tax benefits for certain net operating losses. A valuation allowance is required when it is more likely than not that all or a portion of a deferred tax asset will not be realized. Forming a conclusion that a valuation allowance is not needed is difficult when there is negative evidence such as cumulative losses and losses in the most recent year.

In estimating accruals necessary for tax exposures, including estimating the outcome of audits by governing tax authorities, we apply the guidance of Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies,” as well as SFAS No. 109, “Accounting for Income Taxes.” These estimates require significant judgment and, in the case of audits by tax authorities, may often involve negotiated settlements.

Factors influencing the final determination of tax liabilities include:

• Future taxable income;

• Execution of business strategies; and

• Negotiations of tax settlements with taxing authorities.

We believe our reserves established for probable tax liabilities are appropriate at September 30, 2005.

73

Pension Assets, Liabilities and Costs. The amounts recognized in our financial statements related to pension benefit obligations are determined from actuarial valuations of our various plans. Inherent in these valuations are certain assumptions, including:

• Rate to use for discounting the liability (between 3.5%–6.75% for 2003 and between 2%–6% for 2004);

• Expected long-term rate of return on pension plan assets (between 8%–9% for 2003 and 2004);

• Rate of salary increases (between 2%–4% for 2003 and 2%–4.42% for 2004); and

• Mortality rate table (used 1983 GAM Table).

The most significant of these estimates is the expected long-term rate of return on pension plan assets. The actual return of our domestic pension plan assets in 2004 was approximately 8.6%. Future returns on plan assets are subject to the strength of the financial markets, which we cannot predict with any accuracy.

These assumptions are updated annually. Actual results that differ from our assumptions are accumulated and amortized over future periods; therefore, these variances affect our expenses and obligations recorded in future periods. Future pension expense and required contributions will also depend on future investment performance, changes in future discount rates and various other factors related to the population of participants in our pension plans.

Long-Lived Assets and Depreciation and Amortization. With respect to long-lived assets, key assumptions include the estimate of useful lives and the recoverability of carrying values of fixed assets, and other intangible assets. The recovery of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset, which is subject to considerable judgment. If the useful lives of the assets were found to be shorter than originally estimated, depreciation and amortization charges would be accelerated.

Impairment of Long-Lived Assets. As events warrant, but at least annually, the Company evaluates the recoverability of long-lived assets by assessing whether the carrying value can be recovered over their remaining useful lives through the expected future undiscounted operating cash flows of the underlying business. Any impairment loss required is determined by comparing the carrying value of the assets to operating cash flows on a discounted basis.

Results of Operations

	Nine Months Ended September 30, 2005
	Resolution Performance			Resolution Specialty		Borden Chemical (a)			Elim (b)			Total
Net Sales	$	936		$	678	$	1,745		$	(42	)	$	3,317
Gross Profit		150			82		257			(3	)		486
Operating Income		59			24		86			(3	)		166
(Loss) Income from Continuing Operations		(27	)		13		(46	)		(3	)		(63	)

(a) Includes the results from the Bakelite Acquisition for the period from April 30, 2005 through September 30, 2005.

(b) Entries to eliminate transactions between Resolution Performance, Resolution Specialty and Borden Chemical and the tax and other effects of the Combinations.

	Nine Months Ended September 30, 2004
	Resolution Performance			Resolution Specialty (a)			Borden Chemical (b)			Elim (c)			Total
Net sales	$	708		$	126		$	247		$	—		$	1,081
Gross profit		74			5			34			—			113
Operating income (loss)		7			(10	)		(29	)		—			(32	)
(Loss) Income from Continuing Operations		(24	)		(13	)		(49	)		(8	)		(94	)

74

(a) Represents results of Resolution Specialty since its acquisition by Apollo on August 2, 2004.

(b) Represents results of Borden Chemical since its acquisition by Apollo on August 12, 2004.

(c) Entries to eliminate transactions between Resolution Performance, Resolution Specialty and Borden Chemical and the tax and other effects of the Combinations.

	Year Ended December 31,						Year Ended December 31, 2004
	2002 (a)			2003 (a)			Resolution Performance			Resolution Specialty (b)			Borden Chemical (c)			Elim (d)			Total
Net Sales	$	740		$	782		$	996		$	325		$	702		$	(4	)	$	2,019
Gross Profit		139			68			112			25			97			—			234
Operating Income (Loss)		41			(23	)		21			(6	)		(6	)		—			9
Net Loss		(11	)		(50	)		(31	)		(17	)		(43	)		(14	)		(105	)

(a) Represents only the results of Resolution Performance because Resolution Specialty and Borden Chemical were not acquired until August 2, 2004 and August 12, 2004, respectively.

(b) Represents the results of operations of Resolution Specialty for the period from August 2, 2004 to December 31, 2004.

(c) Represents the results of operations of Borden Chemical for the period from August 12, 2004 to December 31, 2004.

(d) Entries to eliminate transactions between Resolution Performance, Resolution Specialty and Borden Chemical and the tax and other effects of the Combinations.

Comparison of Nine Months Ended September 30, 2005 to 2004 Results

Net Sales

Net sales increased in the first three quarters of 2005 by $2,236 to $3,317. The legacy Borden Chemical and Resolution Specialty businesses contributed $1,201 and $552, respectively, of incremental net sales in 2005, driven primarily by the Borden Transaction and the Resolution Specialty Transaction. The Bakelite Acquisition added net sales of $297 in 2005. The legacy Resolution Performance business net sales increased $228 or 32%. This increase in net sales is a result of increased average selling prices, favorable product mix and favorable currency translation, partially offset by a slight decrease in volume. Average selling prices increased from the prior year period due to an increased emphasis on pricing. Volumes decreased from the prior year period due to an increased emphasis on pricing improvement versus volume growth.

Gross Profit

Gross profit increased in the first three quarters of 2005 by $373 to $486. The Borden Transaction and the Resolution Specialty Transaction contributed $247 of incremental gross profit in 2005. The Bakelite Acquisition added gross profit of $36 in 2005. Excluding the incremental impact of these acquisitions, gross profit increased in the third quarter of 2005 by $90. The increase in average selling prices and favorable product mix discussed above more than offset higher prices for certain raw material feedstocks due to the increasing price of crude oil and related petrochemical products and the higher cost of natural gas.

Operating Income

Operating income increased in the first three quarters of 2005 by $198 to operating income of $166 compared to an operating loss of $32 in 2004. The Borden Transaction and the Resolution Specialty Transaction contributed $98, of incremental operating income in 2005. The Bakelite Acquisition added operating income of $6 in 2005. Excluding the incremental impact of these acquisitions, operating income increased by $94. The increase was primarily due to the increase in gross profits discussed above and a reduction in transaction related costs, partially offset by an increase in general and administrative expenses due to increases in stock based compensation expense and incentive compensation.

Loss From Continuing Operations

Loss from continuing operations improved in the first nine months of 2005 by $31 from a loss of $94 in 2004 to a loss of $63 in 2005. The operating income improvement of $198 was partially offset by an increase in

75

interest expense of $79, the write-off of deferred financing fees of $17, a realized loss on the settlement of a contingent forward contract related to the Bakelite Transaction of $11 and income tax expense in 2005 compared to an income tax benefit in 2004.

Comparison of 2004 to 2003 Results

Net Sales

In 2004 total net sales increased by $1,237 to $2,019. The increase in net sales is primarily a result of the impact of the Borden Transaction and Resolution Specialty Transaction and of higher average prices and volumes. Excluding the impact of the acquisitions, net sales increased $214, or 27%. Increases in average prices contributed $157 of this increase and was primarily attributable to price increases on certain products and the impact of a weaker dollar on our Euro-denominated sales. Average prices increased by 18% from the prior year period; 13% when excluding the impact of a weaker dollar on our Euro-denominated sales. Overall volumes increased by 7% from the prior year period primarily due to stronger demand.

Gross Profit

Gross profit increased in 2004 by $166 to $234. The increase in gross profit is a result of the impact of the Borden Transaction and Resolution Specialty Transaction and higher pricing and volumes. Excluding the impact of the acquisitions, gross profit increased $44, or 65%. The increase in selling prices discussed above was significantly offset by higher prices for feedstocks and the higher cost of natural gas. The $44 increase in gross profit consists primarily of the net impact of higher selling prices of $27 and of higher volumes of $17.

Operating Income

Operating income increased by $32 to $9 in 2004 from an operating loss of $23 in 2003. Excluding the adverse impact of transaction related costs associated with the Borden Transaction and the Resolution Specialty Transaction, operating income increased $44, reflecting increased gross profit partially offset by increased selling, general and administrative expenses, research and development costs and the impact of foreign currency translation. These cost increases were the result of additional marketing and sales activity related to the volume increase and product safety studies undertaken in conjunction with various industry groups.

Net Loss

Net loss increased by $55 to $105 in 2004. The increase in net loss is primarily a result of $56 of costs associated with the Borden Transaction and the Resolution Specialty Transaction, higher interest expense, reduced income from an equity investment and an increase in income tax expense, partially offset by increased operating income.

Comparison of 2003 to 2002 Results

Net Sales

In 2003 total net sales increased by $42, or 6%, to $782 compared to 2002. The increase in net sales is a result of increased average prices, partially offset by lower volumes. The increase in average prices was primarily attributable to the impact of a weaker dollar on our Euro-denominated sales and, to a lesser extent, due to modest price increases on certain products. Overall average prices increased by 10% from the prior year, however, excluding the impact of a weaker dollar on our Euro-denominated sales, overall average prices were flat. Overall volumes decreased by 3% from the prior year as a result of soft demand.

Gross Profit

Gross profit declined in 2003 by $71 to $68. The decrease in gross profit is largely driven by higher prices for feedstocks due to the increasing price of crude oil and related petrochemical products and the higher cost of

76

natural gas. Also contributing to the decline is the decrease in overall volumes. Gross profit was positively impacted by a $9 decrease in other manufacturing costs resulting from a cost reduction program instituted in the beginning of 2003.

Operating Income

Operating income decreased by $64, to a $23 loss. The decrease was primarily due to the decrease in gross profit discussed above and goodwill impairments of $13. These amounts were partially offset by lower selling, general and administrative expense and research and development costs as well as the absence of $6 of restructuring charges and $8 of transition costs incurred in 2002. The 2003 cost reduction program drove the lower costs. The transition activities for 2002 consisted of one-time transition expenses related to stand-alone IT and accounting systems.

Net Loss

Net loss increased by $39 to $50 in 2003. The increase was due primarily to the decrease in operating income and increase in interest expense, partially offset by a $3 gain on sale of a portion of a joint venture interest and increased income tax benefit primarily related to an increase in our deferred tax assets. The increase in interest expense of $12 resulted from a $7 write-off of deferred financing costs related to the prepayments, refinancing and credit agreement amendment as well as higher average outstanding debt balances and interest rates.

Non-Operating Expenses and Income Tax Expense

Non-operating expense

	Year Ended December 31,						Nine Months Ended September 30,
	2002		2003		2004		2004		2005
Interest expense	$	65	$	77	$	118	$	73	$	152
Write-off of deferred financing fees		—		—		—		—		17
Other non-operating expense, net		—		—		4		—		14
	$	65	$	77	$	122	$	73	$	183

Our total non-operating expenses, net, increased $110 in the first nine months of 2005 compared to the first nine months of 2004. Interest expense increased $79 over 2004 due to higher interest rates and higher debt levels resulting from the Borden Transaction, Resolution Specialty Transaction and Bakelite Acquisition. In the second quarter of 2005, we wrote off deferred financing fees of $17. Of this amount, $6 was related to the Bakelite Acquisition bridge financing arrangement, and $11 related to the early termination of the Resolution Performance, Resolution Specialty and Borden Chemical credit facilities. Included in other non-operating expense in 2005 was $11 of foreign exchange losses on the settlement of a contingent forward contract held by us relating to the Bakelite Transaction and an unrealized loss of $10 related to a U.S. dollar denominated term loan on a Dutch subsidiary’s books.

Our total non-operating expenses increased $45 in 2004 as compared to 2003. Interest expense increased $41 over 2003 due to higher average debt balances and interest rates resulting from our issuance of the old floating rate notes and the old fixed rate notes in August 2004 as part of the Borden Transaction and Resolution Specialty Transaction (see “—Liquidity and Capital Resources”), the April 2003 issuance of $200 of 9 ¹/2% Senior Second Secured Notes due 2010 and the refinancing of the credit agreement in the second and fourth quarters of 2003.

Interest expense, net, increased by $12, or 18%, to $77 in 2003 compared to 2002. The increase is primarily due to a $7 write-off of deferred financing costs related to the prepayments, refinancing and credit agreement amendment. In addition, the increase is also due to higher average outstanding debt balances and higher average interest rates.

77

Income tax (benefit) expense

	Year Ended December 31,								Nine Months Ended September 30,
	2002			2003			2004		2004			2005
Income tax (benefit) expense	$	(10	)	$	(37	)	$	0	$	(4	)	$	43
Effective tax rate		N/M			N/M			N/M		N/M			N/M

Income tax expense for the nine-month period ending September 30, 2005 primarily reflects the impact of taxes on income in non-U.S. jurisdictions, the impact of a cumulative translation adjustment on the settlement of an intercompany loan that had been previously treated as permanently invested and the adjustment of an income tax reserve in the Netherlands. The Company has increased its valuation allowances in various tax jurisdictions, including the U.S., related primarily to net operating losses that may not be realized.

The 2004 income tax expense for the nine month period reflects a Federal income tax benefit computed at the Federal statutory rate, offset by changes in valuation allowances in various taxing jurisdictions related primarily to net operating losses that, may or may not be realized.

The consolidated tax expense for the year ended December 31, 2004 reflects a Federal income tax benefit of $40, computed at the Federal statutory tax rate, offset by a provision of $61 for taxes associated with the unrepatriated earnings of Borden Chemical’s foreign subsidiaries based on management’s decision that after the Borden Transaction the foreign earnings could no longer be considered permanently reinvested. This additional provision allowed Borden Chemical to release $33 of previously provided valuation reserves against its deferred tax assets. The provision also reflects a $17 write-off of net operating losses, offset by a benefit of $10 relating to a change in enacted tax rate.

The 2002 and 2003 consolidated tax rates reflect a Federal income tax benefit computed at the Federal statutory tax rate.

Tax Legislation. In 2004, the American Jobs Creation Act of 2004 was signed into law. This Act effectively phases out benefits from the utilization of foreign sales corporations, reduces the number of foreign tax credit limitation categories, creates a temporary incentive for U.S. companies to repatriate foreign earnings at a significantly reduced effective U.S. tax rate and domestically provides a number of revenue enhancing and reducing provisions in the taxation of corporations. Our management does not anticipate a material impact on the Company as a result of this legislation.

Supplemental Historical Data

Hexion is comprised of the businesses of Resolution Performance, Borden Chemical, Resolution Specialty and Bakelite. The results of each of these four businesses are discussed below. The supplemental information presented includes the combination of predecessor and successor financial statements for the individual entities that were the predecessors to the combined company, Hexion, and provides what management believes is a meaningful way of analyzing the results of the combined companies on a comparable period basis.

Resolution Performance
	Year Ended December 31,					Nine Months Ended September 30,
	2003			2004		2004		2005
	(dollars in millions)
Net sales	$	782		$	996	$	708	$	936
Operating income (loss)		(23	)		21		7		59
Depreciation and amortization		58			62		47		52
Transaction related costs(a)		—			—		—		7
Non-cash charges(b)		13			—		—		1
Unusual items(c)		—			—		—		18

78

(a) Transaction related costs of $7 primarily represent $3 of audit and consulting costs and $4 for the settlement of a contract incurred in connection with the Combinations.

(b) Non-cash charges represents impairment of goodwill in 2003 and $1 of non-cash stock compensation for the nine months ended September 30, 2005.

(c) Unusual items includes $8 of legal costs, $8 of inventory purchase accounting step-up and $2 of other unusual items.

Comparison of Nine Months Ended September 30, 2005 to 2004 Results

Net Sales

Net sales increased by $228, or 32%, to $936 compared to the prior year comparable period. This increase in net sales is a result of increased average prices, partially offset by decreased volume. Average prices increased by 35% from the prior year period. Overall volume decreased by 2% from the prior year period due to an increased emphasis by management on pricing versus volume. The $228 increase in net sales consists of a $230 increase in prices, an $11 positive foreign exchange impact partially offset by a $13 decrease in volumes.

Operating Income

Operating income increased by $52 to $59 in the three quarters of 2005 compared to 2004. The improvement was driven by the increase in average selling prices discussed above. The increased selling prices more than offset higher prices for feedstocks due to the increasing price of crude oil and related petrochemical products and natural gas and the incurrence of $18 of unusual items and $7 of transaction related costs. Nonrecurring transaction related costs consisted of $3 of audit and consulting costs and $4 related to a settlement of contract incurred in connection with the Combinations. The income statement impact was based on the inventory purchase accounting step-up of $8 and legal costs of $8 incurred in the prosecution of a legal matter were the principal unusual items incurred during the first nine months of 2005. In addition, Hurricanes Katrina and Rita negatively impacted results by $6. The impact was principally related to costs associated with shutting down and restarting plants and higher utility and raw material costs.

Comparison of 2004 to 2003 Results

Net Sales

Net sales increased by $214, or 27%, to $996 for the year ended December 31, 2004. The increase in net sales is a result of higher average prices and volumes. The increase in average prices was primarily attributable to price increases on certain products and the impact of a weaker dollar on our Euro-denominated sales. Overall average prices increased by 18% from the prior year period; however, excluding the impact of a weaker dollar on our Euro-denominated sales, overall average prices increased 13%. Overall volumes increased by 7% from the prior year period primarily due to stronger demand. The $214 increase in net sales consists of a $157, or approximately 73%, increase in prices and a $57, or approximately 27%, increase in volume.

Total net sales in the U.S. increased by $82, or 23%, to $431 for the year ended December 31, 2004. Of the increase in U.S. revenues, $33, or approximately 40%, was due to price increases and $49, or approximately 60%, was due to volume increases. Overall average prices increased by 10% from the prior year period. Overall volumes increased by 14% from the prior year period primarily due to stronger demand.

Total net sales in Europe increased by $133, or 31%, to $563 for the year ended December 31, 2004. Of the increase in Europe net sales, $101, or approximately 76%, was due to price increases and $32, or approximately 24%, was due to volume increases. Overall average prices increased by 22% from the prior year period; however, excluding the impact of a weaker dollar on our Euro-denominated sales, overall average prices increased 10%. Overall volumes increased by 7% from the prior year period primarily due to stronger demand.

Operating Income

Operating income increased by $44 to $21 for the year ended December 31, 2004. The increase was primarily due to higher selling prices across all major product lines and the absence of a $13 impairment charge

79

taken in 2003. Also contributing to the increase was higher overall volumes in 2004. Partially offsetting these improvements were increased cost of feedstocks due to the increasing price of crude oil and related petrochemical products.

Borden Chemical
	Year Ended December 31,				Nine Months Ended September 30,
	2003		2004		2004		2005
	(dollars in millions)
Net sales	$	1,435	$	1,686	$	1,231	$	1,448
Operating income		66		33		10		83
Depreciation and amortization		47		50		37		37
Transaction related costs (a)		—		56		53		20
Non-cash charges (b)		3		2		1		7
Unusual items (c)		34		25		24		(2	)

(a) Transaction related costs represents $56 and $53 of costs relating to the acquisition of Borden Chemical by Apollo for the year ended December 31, 2004 and the nine months ended September 30, 2004, respectively. Transaction related costs of $20 in 2005 relate to the Combinations.

(b) Consists of non-cash stock compensation costs.

(c) Unusual items of $34, $25, $24 and $(2) in 2003 and 2004, and the nine months ended September 30, 2004 and 2005, respectively, primarily relates to:

	Year ended December 31,				Nine Months Ended September 30,
	2003		2004		2004		2005
Legacy legal costs related to divested business	$	6	$	11	$	11		—
Plant closure and non-recurring severance other one-time benefits paid to employees		5		4		3	$	3
Business realignment expense due to plant closure costs and headcount reductions		20		6		5		—
Incremental costs (recoveries) incurred as a result of mechanical failure at Brazilian formaldehyde plant, reimbursed under its insurance policies in the second quarter 2005		—		3		2		(3	)
Various other unusual or non-recurring items		3		1		3		(2	)

Comparison of Nine Months Ended September 30, 2005 to 2004 Results

Net Sales

Net sales increased $217 or 18% for the first nine months of 2005 compared to 2004 driven by increased pricing mix and the favorable impact of foreign currency translation. Pricing, excluding the impact of foreign currency translation contributed 81% of the increase driven by the pass through of raw material price increases and favorable product mix. Volume was essentially flat as increases in oilfield products, specialty resins, the North American foundry business and Asia Pacific were offset by decreased formaldehyde volume. Favorable currency translation due to the weakening of the dollar against the Brazilian Real, English Pound Sterling and the Canadian Dollar contributed 19% of the increase. Oilfield volumes were above prior year due to increased US and Canadian drilling activity. The formaldehyde volume decrease was principally due to decreased demand driven by hurricane related customer outages. Foundry volumes were up due to increased demand in the non-automotive segment.

Operating Income

        Operating income increased $73 million to $83 in the nine month period ended September 30, 2005 due to the increased pricing and volume improvements discussed above as well as the positive impact of $3 of insurance proceeds received related to the 2004 Brazilian business interruption claim settlement, the absence of $53 of costs related to the sale of Borden Chemical to Apollo and $8 of plant closure and business realignment

80

expenses. These improvements more than offset the impact of higher raw material prices in 2005 and increased expenses related to non-cash stock compensation costs of $7 and transaction costs related to the mergers of $20. In addition, Hurricanes Katrina and Rita negatively impacted results by $4.

Comparison of 2004 to 2003 Results

Net Sales

In 2004, net sales increased by $251, or 17%, to $1,686 for the year ended December 31, 2004. The pass through of raw material price increases and favorable product mix contributed approximately 39% of the increase. Volume increases in Forest Products, Performance Resins, Latin America and Europe accounted for approximately 38% of the increase. The improved volume in Forest Products was due to increased end-use consumption resulting from the continued strong housing market, increased demand for flooring on the resin side of the business and higher demand in the general chemical sector for formaldehyde. Improved volumes for oilfield products, foundry and industrial resins drove Performance Resin volume improvement. Volume improvements in Latin America were due to increased demand driven by increased exports of wood products. European volume increases were driven by increased demand for formaldehyde and performance resins. Favorable currency translation contributed approximately 19% of the net sales improvement and 4% was due to the impact of acquisitions.

Operating Income

Operating income decreased by $33 to $33 for the year ended December 31, 2004. The decrease is primarily due to transaction costs of $56 related to the Borden Chemical Transaction incurred in 2004. These costs more than offset the positive impact of higher volumes, favorable product mix, purchasing productivity, favorable currency translation and a reduction in corporate expenses related to the full year impact of the 2003 business realignment program. In 2003, Borden Chemical made two acquisitions which contributed $2 of operating income in 2004 and incurred $34 of unusual costs related primarily to plant closure and business realignment.

Resolution Specialty
	Year Ended December 31,						Nine Months Ended September 30,
	2003			2004 (a)			2004 (b)		2005
	(dollars in millions)
Net sales	$	678		$	765		566		$	678
Operating income (loss)		(555	)		(92	)	(96	)		24
Depreciation and amortization		24			8		5			11
Transaction related costs		—			5		3			7
Impairment and other non-cash charges		473			64		64			2
Unusual items		79			71		66			8

(a) The results for the year ended December 31, 2004 for Resolution Specialty include results for the period from January 1, 2004 through August 1, 2004, which is the period prior to the Resolution Specialty Transaction, along with the period from August 2, 2004 through December 31, 2004 following the Resolution Specialty Transaction.

(b) The results for the nine months ended September 30, 2004 include results for the period prior to Apollo’s acquisition of Resolution Specialty.

Comparison of Nine Months Ended September 30, 2005 to 2004 Results

Net Sales

Net sales increased by $112 or 20% in the first nine months of 2005 compared to 2004. Average prices increased 15%, due mostly to improved resin prices and an improved product mix. Also contributing to the increase in sales was a 5% growth in volumes as well as a positive impact of foreign currency translation.

81

Operating Income

Operating income improved $120 to $24 due to the increase in sales and the absence of $64 of impairment charges taken in connection with the Resolution Specialty Transaction. Also included in 2004 operating income are $66 of unusual costs consisting primarily of corporate allocations and charges by Resolution Specialty’s former owner of approximately $28, restructuring and business realignment costs of $18 and approximately $9 of employee benefit costs which we do not expect to incur as a result of our purchase of Resolution Specialty from Eastman. The nine months ended September 30, 2005 include $7 of transaction costs related to a settlement of a contract in connection with the Combinations. In November 2004 Resolution Specialty purchased a specialty coatings product line that will have an annual incremental impact of $4 of operating income, the year to date portion of which is included in the 2005 results but is not included in 2003 and 2004 results.

Comparison of 2004 to 2003 Results

Net Sales

In 2004, net sales increased by $87, or 13%, to $765 for the year ended December 31, 2004. Overall average price increases contributed approximately 65% of the increase, due mostly to increased raw material pass-throughs and a strong improvement in global acrylic demand. Overall volume increases accounted for approximately 35% of the growth, primarily due to heavier coatings demand associated with the general economic recovery. Growth was seen across all major technologies, including alkyds, polyesters, acrylics and ink resins.

Operating Loss

Operating loss improved $463 to a loss of $92 for the year ended December 31, 2004. This improvement was driven by a reduction in impairment charges of $409 and improved pricing and mix strategies, partially offset by increases in raw material costs. Operating loss was also improved due to the realization of several fixed cost reduction initiatives enacted in late 2003 and early 2004. Management expects to see further cost improvements in 2005 due to the realization of cost improvements associated with Apollo’s acquisition of the business in August 2004. The 2003 impairment charge was the result of reorganization of the operating structure and change in business strategy for Resolution Specialty. The 2003 and 2004 results were negatively impacted by $79 and $71 of unusual costs consisting primarily of corporate allocations charged by Resolution Specialty’s former owner of $64 and $30 and plant closure and business realignment expenses of $8 and $29, respectively. Also included in the 2004 unusual items was a $10 charge related to the inventory purchase accounting step-up. In addition, 2004 operating income included $5 of transaction costs related to the Resolution Specialty Transaction and a failed acquisition bid.

The Bakelite financial information presented herein is converted from euros to dollars at the applicable average rate for the respective period.

Bakelite (a)
	Year Ended December 31,					Nine Months Ended September 30,
	2003			2004		2004		2005 (a)
	(dollars in millions)
Net sales	$	588		$	699	$	505	$	558
Operating income (loss)		(37	)		1		1		4
Depreciation and amortization		41			33		25		21
Transaction related costs		—			—		—		—
Non-cash charges (b)		24			20		13		—
Unusual items (c)		2			1		1		7

(a) The results for 2005 for Bakelite include results for the period from January 1, 2005 through April 29, 2005, which is the period prior to the Bakelite Transaction, along with the period from April 30, 2005 to September 30, 2005 following the Bakelite Transaction.

(b) Consists of impairment charges.

(c) For the nine months ended September 30, 2005, represents the expensing of $7 related to the inventory purchase accounting step-up.

82

Comparison of Nine Months Ended September 30, 2005 to 2004 Results

Net sales

Net sales increased by $53 million or 11% in the first nine months of 2005 compared to 2004. Changes in foreign exchange rates accounted for 30% of the increase, while in constant dollar terms, net sales increased 7% compared to the prior year driven by strong growth and pricing in epoxies which more than offset declines in volumes in molding compounds.

Operating income

Operating income increased by $3 in the first nine months of 2005 compared to 2004 due primarily to the sales increases and the absence of $13 of impairment charges incurred in the first nine months of 2004. Operating income in 2005 was adversely impacted by $7 of expense related to the inventory purchase accounting step-up.

Comparison of 2004 to 2003 Results

Net Sales

In 2004, net sales increased by $111, or 19%, to $699 for the year ended December 31, 2004. Changes in foreign exchange rates accounted for approximately 54% of the increase, while in constant-currency terms, net sales increased 9% compared to prior year. Overall average price increases contributed approximately 60% of the increase (in constant-currency terms). Overall volume increases accounted for approximately 40% of the increase (in constant-currency terms), driven by strong growth in epoxies of 12%.

Operating Income (loss)

Operating income improved $38 to $1 for the year ended December 31, 2004. This increase is primarily due to reductions in cost structure and overhead. Also contributing to the increase were price improvements. Partially offsetting these improvements were increased cost of feedstocks due to the increasing price of crude oil and related petrochemical products. Bakelite incurred impairment charges of $24 and $20 in 2003 and 2004, respectively. The 2003 impairment related primarily to the sale of non-core operations in Italy. The 2004 impairments were related to the sale of certain businesses and a deterioration of market conditions in Italy related to its phenolic resin business.

Cash Flows

Cash provided by (used in):
	Year Ended December 31,									Nine Months Ended September 30,
	2002			2003			2004			2004			2005
Operating activities	$	64		$	(43	)	$	(32	)	$	(77	)	$	103
Investing activities		(45	)		7			(20	)		8			(294	)
Financing activities		(21	)		80			148			126			209
Effect of exchange rates on cash flow		—			1			7			1			(6	)
Net change in cash and equivalents	$	(2	)	$	45		$	103		$	58		$	12

Operating Activities

In the nine months ended September 30, 2005, net operating activities generated cash of $103. Cash generated from earnings after adjusting for non-cash expenses of $69 was partially offset by net trading working capital outflows of $33. Inventory reduction programs in the Resolution Performance businesses and lower raw material prices since June 2005 drove the $61 inventory improvement and the $93 negative payable impact.

83

Our nine months ended September 30, 2004 operating activities used cash of $77 due primarily to net trading capital outflows, as a result of an increase in accounts receivable and inventories, and a cash loss after adjusting for non-cash expenses of $59.

In 2004, we used net cash for operating activities of $32. Resolution Performance used cash of $39, Borden Chemical used cash of $4 and Resolution Specialty generated cash of $11.

Higher sales at Resolution Performance resulted in an increase in accounts receivable and inventory balances of $47 and $49, respectively. These uses of working capital were partially offset by an increase in accounts payable of $59 due to increased raw material purchases.

Borden Chemical used cash of $4, as $46 of costs associated with the Borden Transaction more than offset other operating income and working capital improvements. Accounts receivable for Borden Chemical remained relatively flat, despite increased sales, due to enhanced collection efforts in December 2004. Accounts payable generated $47 of working capital due mainly to improved cash management procedures.

Working capital for Resolution Specialty remained flat, as an increase in accounts receivable was offset by a decrease in inventories and an increase in accounts payable. Resolution Specialty generated operating cash flows of $11, mainly due to an increase in other liabilities.

Our 2003 operating activities used cash of $43. This includes cash used by operations of $34 and by net trading capital (accounts receivable, inventory and accounts payable) of $27. Our negative cash flow in net trading capital resulted from increasing raw material costs in 2003.

Our 2002 operating activities provided cash of $64 in 2002. This includes cash generated by operations of $21 and by net trading capital of $30.

Investing Activities

Our investing activities used cash of $294 in the nine months ended September 30, 2005. We used $234 for the acquisitions of the Bakelite and Pacific Epoxy businesses and $63 for capital expenditures, primarily for plant expansions and improvements.

Our investing activities in the nine months ended September 30, 2004 generated cash of $8. We spent $29 for capital expenditures primarily for property, plant and equipment and improvements related to the Resolution Performance business. We paid $152 relating to the Resolution Specialty Acquisition, net of cash acquired, and received $185 relating to cash held by Borden Chemical at the time of the Borden Acquisition.

Our 2004 net investing activities used cash of $20. We used cash of $57 for capital expenditures primarily for plant expansions, SAP implementation at Resolution Specialty and other improvements. We paid $152 relating to Resolution Specialty acquisition activity, net of cash acquired, and received $185 relating to cash held by Borden Chemical at the time it became a member of the combined group.

Our 2003 net investing activities provided cash of $7. We spent $18 for capital expenditures, primarily for plant expansions and improvements. We realized proceeds of $23 on the sale of forty percent of the outstanding shares in Japan Epoxy Resins Co., Ltd to Resolution Performance joint venture partner, Mitsubishi Chemical Company.

Our 2002 cash outflow from investing activities of $45 primarily consisted of expenditures for property, plant and equipment of $48, offset by proceeds from the sale of non-productive assets of $2.

84

Financing Activities

Our financing activities provided cash of $209 for the nine months ended September 30, 2005. Net cash generated by financing activities was primarily due to long-term debt borrowings of $1,194 consisting of the $150 senior secured notes and the $500 term loan under the Hexion Credit Facility (see “—Liquidity and Capital Resources”). These borrowings were partially offset by net debt repayments and debt financing fees paid of $788 related to the replaced Resolution Performance and Resolution Specialty credit facilities. We paid a dividend of $523, which was funded through net the proceeds received from the issuance of preferred stock of $334 and from amounts borrowed under the Hexion Credit Facility. We also made payments of $8 for costs related to our proposed IPO.

Our financing activities provided cash of $126 for the nine months ended September 30, 2004. Net cash generated by financing activities was primarily due to the issuance of debt related to the Resolution Specialty Transaction of $121 partially offset by net debt repayments by Resolution Performance and Borden Chemical of $55. We received proceeds of $60 from the issuance of common stock related to the Resolution Specialty Transaction.

Our financing activities in 2004 provided cash of $148. Net cash generated by financing activities was primarily due to the issuance of debt related to the Resolution Specialty Transaction of $121, offset by net debt repayments by Resolution Performance and Borden Chemical of $23. We received proceeds of $60 from the issuance of common stock related to the Resolution Specialty Transaction.

Our 2003 financing activities provided cash of $80. This amount includes net debt borrowing of $103, offset by the payment of a constructive distribution related to certain pension costs to Shell on behalf of Resolution Performance.

Our 2002 financing activities used cash of $21, which primarily represents net repayments on our long-term debt of $24.

Liquidity and Capital Resources

Our primary source of liquidity is cash flow generated from operations. We also have availability under our senior secured credit facilities (see below), subject to certain conditions. Our primary liquidity requirements are debt service, working capital requirements, contractual obligations and capital expenditures.

We are a highly leveraged company. Our liquidity requirements are significant, primarily due to our debt service requirements. At September 30, 2005, we had $2,367 principal amount of outstanding indebtedness, of which over $800 constituted floating rate debt and the remainder constituted fixed rate indebtedness, and $164 of cash and equivalents.

Effective October 11, 2005, we entered into a $289 interest rate swap agreement structured for a non-U.S. subsidiary’s $290 U.S. dollar denominated term loan. The swap agreement’s Euro to U.S. exchange rate is $1.2038. Under this agreement, we pay a variable rate equal to the Euro LIBOR plus 271 basis points. We receive a variable rate equal to the U.S. Dollar LIBOR plus 250 basis points. The amount we receive under this agreement is equal to our non-U.S. subsidiary’s interest rate on its $290 term loan.

In connection with the Current Transactions, we have declared but not yet paid a dividend of $27 to our shareholder, which is expected to be paid in the second quarter of 2007 and is classified in Other long-term liabilities. In connection with the proposed IPO, we may offer convertible perpetual preferred stock which will pay quarterly dividends, when, as and if declared by the board of directors.

On November 3, 2005, we signed a definitive agreement to purchase the decorative coatings and adhesives business unit of The Rhodia Group. The Rhodia business had 2004 sales of approximately €150, with

85

8 manufacturing facilities in Europe, Australia and Thailand. Closing will occur upon successful completion of normal governmental reviews and satisfaction of the other closing conditions. The acquisition will be funded through a combination of available cash and existing credit lines.

Senior Credit Facilities

In May 2005, we entered into new senior secured credit facilities and replaced and repaid various credit facilities and debt. The $775 new senior secured credit facilities have a $225 revolving credit facility, a $500 term loan facility and a $50 synthetic letter of credit facility (“LOC”). Repayment of 1% total per annum of the term loan and synthetic letter of credit facilities must be made (in the case of the term loan facility, quarterly, and in the case of the synthetic letter of credit facility, annually) with the balance payable upon the final maturity date. Further, we may be required to make additional repayments on the term loan beginning in the second quarter of 2007 if we generate excess cash flow, as defined in the agreement.

The interest rates with respect to loans to Hexion under our new senior secured credit facilities are based on, at our option, (a) adjusted LIBOR plus 2.50% or (b) the higher of (i) JPMorgan Chase Bank, N.A.’s (JPMCB) prime rate or (ii) the Federal Funds Rate plus 0.5%, in each case plus 1.00%.

The interest rates with respect to loans to the Canadian subsidiary borrower under our new senior secured credit facilities are based on (a) for loans made in dollars, at our option, (1) adjusted LIBOR plus 2.50% or (2) the higher of (i) JPMCB’s reference rate for U.S. dollar-denominated loans made in Canada and (ii) the Federal Funds Rate plus 0.5%, in each case plus 1.00% or (b) for loans made in Canadian Dollars, at our option, (1) a Canadian Bankers’ Acceptances rate (depending on the lender, either the average bankers’ acceptance rate quoted on the Reuters CDOR page or the lesser of such average plus 0.10% and the average bankers’ acceptance rate quoted to JPMCB by certain reference banks) plus 2.50% or (2) the higher of (i) JPMCB’s Toronto Branch’s prime rate and (ii) the average bankers’ acceptance rate quoted on the Reuters CDOR page plus  ¹/2 of 1%, in each case plus 1.00%.

The interest rates with respect to loans to the U.K. subsidiary borrowers under our new senior secured credit facilities are based on (a) for loans made in dollars, at our option, adjusted LIBOR plus 2.50% or the rate quoted by JPMCB as its base rate for such loans plus 1.00%, (b) for loans made in Sterling, at our option, adjusted LIBOR plus 2.50% or the rate quoted by JPMCB as its base rate for such loans plus 1.00% or (c) for loans made in euros, at our option, EURO LIBOR plus 2.50% or the rate quoted by JPMCB as its base rate for such loans plus 1.00%.

The interest rates with respect to loans to the Dutch and German subsidiary borrowers under our new senior secured credit facilities are based on, at our option, EURO LIBOR plus 2.50% or the rate quoted by JPMCB as its base rate for such loans, plus 1.00%.

Our new senior secured credit facilities are secured by substantially all the assets of (i) prior to an initial public offering of our common stock, Hexion LLC, which will consist of a perfected first-priority pledge of all our capital stock and (ii) at all times, us and the subsidiary guarantors, including but not limited to: (a) a first- priority pledge, subject to certain exceptions, of all capital stock held by us or any subsidiary guarantor (which pledge, with respect to obligations in respect of the U.S. borrowings secured by a pledge of the stock of any first-tier foreign subsidiary, shall be limited to 100% of the non-voting stock (if any) and 65% of the voting stock of such foreign subsidiary) and (b) perfected first-priority security interests in, and mortgages in, substantially all tangible and intangible assets of us and each subsidiary guarantor.

Notwithstanding the foregoing, (i) assets of foreign subsidiary guarantors only secure obligations in respect of the foreign borrowings, (ii) the collateral does not include (A) any real estate, fixtures or equipment of us or any of our subsidiaries located within the United States (except for assets that our board of directors determines do not constitute principal property under the indentures for our debentures due 2016, 2021 and 2023) and

86

(B) any evidence of indebtedness for borrowed money of certain subsidiaries held by us or our subsidiaries and (iii) the collateral is subject to certain other exceptions.

The credit agreement contains, among other provisions, restrictive covenants regarding indebtedness, payments and distributions, mergers and acquisitions, asset sales, affiliate transactions, capital expenditures and the maintenance of certain financial ratios. Payment of borrowings under our new senior secured credit facilities may be accelerated if there is an event of default. Events of default include the failure to pay principal and interest when due, a material breach of representation or warranty, covenant defaults, events of bankruptcy and a change of control.

At September 30, 2005, we had no outstanding borrowings under the revolving credit facility and $54 outstanding LOCs and had additional borrowing capacity of $221.

At September 30, 2005, we were in compliance with the covenants and restrictions in all credit facilities.

In the second quarter of 2005, we wrote off deferred financing costs of $17. Of this amount, $6 was related to the Bakelite Acquisition bridge financing arrangement, and $11 related to the early termination of the Resolution Performance, Resolution Specialty and Borden Chemical credit facilities. This expense is included in Write-off of deferred financing fees on the Consolidated Statements of Operations.

The following descriptions of the Resolution Performance Credit Facility, the Resolution Specialty Credit Facility and the Borden Credit Facilities describe the principal and certain other credit facilities of Resolution Performance, Resolution Specialty and Borden Chemical, respectively, prior to the Combinations. In connection with the Combinations, we repaid all amounts outstanding under the Resolution Performance Credit Agreement, the Resolution Specialty Credit Agreement and the Amended Borden Chemical Credit Facility described below, and terminated such agreements.

Resolution Performance Credit Facility

In 2000, RPP Inc., Resolution Performance, Resolution Performance Products Capital Corporation (“RPP Capital Corporation”) and Resolution Nederland B.V., “Other Resolution Performance Borrowers” entered into a $600 credit agreement (“the Resolution Performance Credit Agreement”) with a syndicate of financial institutions. The Resolution Performance Credit Agreement provided for a six-year $75 revolving credit facility, the euro equivalent of which was also available, to be used for, among other things, working capital and general corporate purposes of Resolution Performance and its subsidiaries, including without limitation, certain permitted acquisitions. The revolving credit facility also included a sub-limit for letters of credit (“LOCs”) in an amount not to exceed $50. At December 31, 2004, Resolution Performance had $28 of outstanding borrowings under the revolving credit facility and $2 in outstanding LOCs. At December 31, 2004, Resolution Performance had additional borrowing capacity under the Resolution Performance Credit Agreement of $45.

In January 2005, Resolution Performance entered into a new credit agreement to refinance the credit agreement that was in existence at December 31, 2004. See Note 7 of the audited Consolidated Financial Statements for more information on the new credit agreement.

Resolution Specialty Credit Facility

In 2004, Resolution Specialty and one of its subsidiaries entered into a $155 credit agreement (“Resolution Specialty Credit Agreement”) with a syndicate of financial institutions. The Resolution Specialty Credit Agreement provided for term loans (“Term Loans”) totaling $125 and revolving facility loans and LOCs (“Revolving Facility Loans”) of up to $30, subject to certain restrictions.

The Revolving Facility Loans provided for a five-year $30 revolving credit facility due August 2, 2009 to be used for working capital, general corporate purposes and acquisitions. Borrowings under the Revolving Facility Loans were subject to a maximum permitted amount based on a formula for interest rate determination purposes,

87

loans under the Resolution Specialty Credit Agreement were defined as either ABR (alternative base rate) Loans or Eurocurrency Loans and were tied to the prime rate, Base CD rate or Federal Funds Rate for ABR Loans or adjusted LIBOR for Eurocurrency Loans. Incremental interest rates ranging from 1.75% to 3.00% were applied to these interest rates based on the type of loan, currency, time period and Resolution Specialty’s consolidated leverage ratio. Commitment fees under the Revolving Facility Loans were payable quarterly at an annual rate of 0.5% on the available unused commitment. LOCs were subject to participation, fronting and issuing bank fees. As of December 31, 2004, Resolution Specialty had $1 in outstanding in LOCs, none of which had been drawn against.

Resolution Specialty borrowed the full amount of $125 under the Term Loans to partially fund the acquisition and for working capital and other corporate purposes. The Term Loans were payable in quarterly principal installments through June 30, 2010, with a balloon payment of $118 on the term facility maturity date of August 2, 2010.

The Resolution Specialty Credit Agreement contained, among other provisions, restrictive covenants regarding indebtedness, payments and distributions, mergers and acquisitions, asset sales, affiliate transactions, capital expenditures and the maintenance of certain financial ratios. Payment of borrowings under the Resolution Specialty Credit Agreement may have been accelerated in the event of a default. Events of default included the failure to pay principal and interest when due, a material breach of representation or warranty, covenant defaults, events of bankruptcy and a change of control.

Resolution Specialty’s obligations under the Resolution Specialty Credit Agreement were guaranteed, on a joint and several basis, by Resolution Specialty and each of Resolution Specialty’s domestic subsidiaries. The Resolution Specialty Credit Agreement was secured by substantially all current and future assets of Resolution Specialty, including a pledge of the equity in its domestic subsidiaries and 65% of the equity of its “first tier” foreign subsidiaries, totaling $394.

Borden Chemical Credit Facilities

Borden Chemical entered into a three-year asset based revolving credit facility in the third quarter of 2002, which provided for a maximum borrowing of $175, including LOCs. Borden Chemical amended its three-year asset based revolving credit facility (the “Amended Borden Chemical Credit Facility”) on August 12, 2004 as part of the Borden Transaction. The Amended Borden Chemical Credit Facility was a five-year asset based revolving credit facility with the same borrowing capacity as our three-year asset based revolving credit facility.

The Amended Borden Chemical Credit Facility was secured with inventory and accounts receivable in the U.S., Canada and the U.K., a portion of property and equipment in Canada and the U.K. and the stock of certain subsidiaries. At December 31, 2004, the net book value of the collateral securing the Amended Borden Chemical Credit Facility, excluding the stock of foreign subsidiaries, was approximately $266. Maximum borrowing allowable under the Amended Borden Chemical Credit Facility was calculated monthly (quarterly, if availability was greater than $100) and was based upon specific percentages of eligible accounts receivable, inventory and fixed assets. The Amended Borden Chemical Credit Facility contained restrictions on dividends, capital expenditures ($38 from August 12, 2004 to December 31, 2004; $75 in 2005) and payment of management fees ($3 per year or 2% of Segment EBITDA). It also included a minimum trailing twelve-month fixed charge coverage ratio of 1.1 to 1.0 if aggregate availability was less than $50. The trailing twelve-month fixed charge coverage ratio requirement did not apply when aggregate availability exceeded $50. At December 31, 2004, the maximum borrowing allowable under the Amended Borden Chemical Credit Facility was approximately $175, of which approximately $128, after outstanding LOCs and other draws, was unused and available. As a result, Borden Chemical had no fixed charge coverage ratio requirements at the end of 2004.

Under the terms of the Amended Borden Chemical Credit Facility, Borden Chemical had the ability to borrow funds at either the prime rate plus an applicable margin (“the prime rate option”) or at LIBOR plus an

88

applicable margin. Borden Chemical had to designate which option it chose at the time of the borrowing. At the time of termination, the applicable margin for any prime rate borrowing was 50 basis points and for any LIBOR borrowing is 200 basis points. For LOCs issued under the Amended Borden Chemical Credit Facility, Borden Chemical paid a per annum fee equal to the LIBOR applicable margin, or 2.00%, plus a fronting fee of 0.125%. In addition, Borden Chemical paid a 0.375% per annum fee on the amount of the revolving loan commitment less any borrowings or outstanding LOCs. Borden Chemical incurred commitment fees of $0.2 in the period from August 12, 2004 to December 31, 2004, related to the Amended Borden Chemical Credit Facility.

Borden Chemical’s Australian subsidiary entered into a five-year secured credit facility in the fourth quarter of 2003 (the “Australian Facility”), which provides for a maximum borrowing of AUD$20, or approximately $16. At December 31, 2004, outstanding debt under this facility was $11, of which $7 is classified as long-term. In addition, there was approximately $3 of short-term debt under the facility. The Australian Facility provided the funding for the Fentak acquisition made in the fourth quarter of 2003 and is secured by liens against substantially all of the assets of the Australian business including the stock of the Australian subsidiaries. At December 31, 2004, the net book value of the collateral securing the Australian Facility was approximately $30. In addition, Borden Chemical pledged the stock of the Australian subsidiaries as collateral for borrowing under the Australian Facility. This facility includes a fixed rate facility used for the acquisition, as well as a revolver. At December 31, 2004, $8 was outstanding under the fixed rate facility at an interest rate of 6.4%. The Australian Facility contains restrictions relative to the Australian businesses on dividends, the sale of assets and additional borrowings. The Australian Facility also contains financial covenants applying to the Australian subsidiaries including current ratio, interest coverage, debt service coverage and leverage. The fixed portion of the Australian Facility requires minimum quarterly principal reductions totaling AUD$0.5 (approximately $0.4). The Australian Facility requires semi-annual principal reductions based on a portion of excess cash as defined in the agreement. At September 30, 2005, the maximum borrowing allowable under the Australian Facility was AUD$15 (approximately $11), of which about AUD$3 (approximately $2), after outstanding LOCs and other draws, was unused and available.

Additional international credit facilities provide availability totaling approximately $118 as of September 30, 2005. Of this amount, approximately $53 was available to fund working capital needs and capital expenditures at September 30, 2005. These credit facilities have various expiration dates ranging from 2006 through 2008. While these facilities are primarily unsecured, portions of the lines are secured by equipment. At September 30, 2005, the net book value of collateral securing a portion of these facilities was approximately $15. Borden Chemical guarantees up to $7 of the debt of one of its Brazilian subsidiaries, included in these facilities.

HAI entered into a three-year asset based revolving credit facility in 2004, which provides for a maximum borrowing of $15 (the “HAI Facility”). Maximum borrowing allowable under the HAI Facility is based upon specific percentages of eligible accounts receivable and inventory and is secured with inventory, accounts receivable and property and equipment of HAI. At December 31, 2004, the net book value of collateral securing the HAI Facility was approximately $34. The HAI Facility provides up to $2 for LOCs. The HAI Facility contains restrictions relative to HAI on dividends, affiliate transactions, minimum availability ($2 in 2005), additional debt and capital expenditures ($2 in 2005). In addition, HAI is required to maintain a minimum trailing twelve- month debt coverage ratio of 1.5 to 1.0 and a monthly debt to tangible capital ratio of less than 2.5 to 1.0. At December 31, 2004, borrowing allowable under the HAI Facility was approximately $14, of which approximately $12 was unused and available, after the minimum availability requirement. At September 30, 2005, borrowings allowable under the HAI Facility was $14 of which $12 was unused and available, after the minimal availability requirement.

At September 30, 2005, we were in compliance with the covenants and restrictions in all credit facilities.

89

Senior Secured Notes

In 2003, Resolution Performance and RPP Capital Corporation issued $140 aggregate principal amount of 8% Senior Secured Notes due 2009 in a private offering. Hexion assumed the obligations of Resolution Performance under the 8% Senior Secured Notes in connection with the consummation of the Combinations. The $140 of 8% Senior Secured Notes are senior secured obligations ranking equal in right of payment to all of our existing and future senior debt and senior in right of payment with all existing and future subordinated indebtedness. The 8% Senior Secured Notes are secured by a second-priority lien subject to permitted liens, on all of the domestic assets (subject to certain exceptions) that secure obligations under our new senior secured credit facilities and a portion of the capital stock of direct and indirect domestic subsidiaries and direct foreign subsidiaries. Interest is payable semi-annually in cash on December 15 and June 15, beginning June 15, 2004. The proceeds from the offering were used to repay borrowings and for general corporate purposes, including working capital. The 8% Senior Secured Notes mature on December 15, 2009 and may be redeemed in whole at any time or in part from time to time, on and after December 15, 2006, at the specified redemption prices set forth under the related indenture.

In 2003, Resolution Performance and RPP Capital Corporation issued $200 aggregate principal amount of 9 ¹/2% Senior Second Secured Notes due 2010 in private offerings. Hexion assumed the obligations of Resolution Performance under the 9 ¹/2% Senior Second Secured Notes in connection with the consummation of the Combinations. The 9 ½% Senior Second Secured Notes were subsequently exchanged for registered notes in a registered exchange offer. The $200 of 9 ¹/2% Senior Second Secured Notes are senior secured obligations ranking equal in right of payment to all of Hexion’s existing and future senior debt and senior in right of payment with all existing and future subordinated indebtedness. The 9 ¹/2% Senior Second Secured Notes are secured by a second-priority lien, subject to permitted liens, on all of our domestic assets (subject to certain exceptions) that secure obligations under our new senior secured credit facilities and a portion of the capital stock of direct and indirect domestic subsidiaries and direct foreign subsidiaries. Interest is payable semi-annually in cash on April 15 and October 15, beginning October 15, 2003. The proceeds from the offering were used to repay borrowings and for general corporate purposes, including working capital. The 9 ¹/2% Senior Second Secured Notes mature on April 15, 2010 and may be redeemed in whole at any time or in part from time to time, on and after April 15, 2006, at the specified redemption prices set forth under the related indenture.

As discussed in Note 3 of the audited Consolidated Financial Statements and elsewhere in this prospectus, in conjunction with the Borden Transaction, Borden Chemical formed two wholly owned finance subsidiaries that borrowed a total of $475 through a private debt offering. Of the debt, $325 is second-priority senior secured notes due 2014 (the “old fixed rate notes”), which bear an interest rate of 9%. The remaining $150 of debt is second-priority senior secured floating rate notes due 2010 (the “old floating rate notes”). On February 14, 2005, Borden Chemical filed the initial registration statement with respect to these notes.

The old floating rate notes and old fixed rate notes and guarantees rank equally with all of Hexion’s and the guarantor’s existing and future senior indebtedness, including debt under Borden Chemical’s new senior secured credit facilities and the guarantees thereof. The old floating rate notes and old fixed rate notes remained obligations of Hexion after consummation of the Combinations. The old floating rate notes and old fixed rate notes are effectively subordinated to such senior secured credit facilities, our 8% Senior Secured Notes and any other future obligations secured by a first-priority lien (as defined in the indentures governing such notes) on the collateral to the extent of the value of the collateral securing such obligations. The old floating rate notes and old fixed rate notes will rank senior to all of Hexion’s and its guarantors’ existing and future subordinated indebtedness, except as described in the preceding sentence. The old floating rate notes and old fixed rate notes are also effectively subordinated to the liabilities of the non-guarantor subsidiaries, which includes HAI.

Interest on the old floating rate notes will be paid each January 15, April 15, July 15 and October 15. Interest on the old floating rate notes accrues at an annual rate, reset quarterly, equal to LIBOR plus 475 basis points. At December 31, 2004, the interest rate on the old floating rate notes was 6.82%. The notes mature July

90

15, 2010. These notes may be redeemed at any time on or after July 15, 2006 at the applicable redemption price set forth in the indenture for the notes. In addition, up to 35% of these notes may be redeemed prior to July 15, 2006 with cash proceeds from certain equity offerings at the applicable redemption price set forth in the indenture for the notes. The old floating rate notes may also be redeemed upon certain changes in tax laws or upon a change in control. There is no sinking fund for the old floating rate notes.

Interest on the old fixed rate notes will be paid each January 15 and July 15. The notes mature July 15, 2014. These notes may be redeemed at any time on or after July 15, 2009 at the applicable redemption price set forth in the indenture for the notes. In addition, up to 35% of these notes may be redeemed prior to July 15, 2007 with cash proceeds from certain equity offerings at the applicable redemption price set forth in the indenture for the notes. Prior to July 15, 2009, the old fixed rate notes may be redeemed at a price equal to 100% of the principal amount plus accrued interest plus the “make-whole” premium as defined in the indenture for the notes. The old fixed rate notes may also be redeemed upon certain changes in tax laws or upon a change in control. There is no sinking fund for the old fixed rate notes.

In May 2005, our two wholly owned finance subsidiaries issued $150 Second-Priority Senior Secured Floating Rate Notes due 2010 (the “New Floating Rate Notes”). The New Floating Rate Notes have substantially the same covenants and events of default as the old floating rate notes. The New Floating Rate Notes were issued at a price of 98.846%. Interest on the New Floating Rate Notes accrues at a rate per annum, reset quarterly, equal to LIBOR plus 5.50% and is payable on January 15, April 15, July 15 and October 15, commencing on July 15, 2005. These notes may be redeemed at any time on or after July 15, 2006 at the applicable redemption price set forth in the indenture for the notes. In addition, up to 35% of these notes may be redeemed prior to July 15, 2006 with cash proceeds from certain equity offerings at the applicable redemption price set forth in the indenture for the notes. The New Floating Rate Notes are collateralized by a second-priority security interest in the same collateral as the remaining $150 of our Second-Priority Senior Secured Floating Rate Notes, our 9% Second Priority Senior Secured Notes and our 9 ¹/2% Senior Second Secured Notes which are all second in priority (subject to Permitted Liens) to our new senior secured credit facilities.

Following the Combinations, the Company, certain of our U.S. subsidiaries and Hexion U.S. Finance Corp. (formerly known as Borden U.S. Finance) have guaranteed the senior secured debt previously issued by Resolution Performance.

Debentures

In 2000, $328 aggregate principal amount of 13 ¹/2% Senior Subordinated Notes due 2010 were issued in private offerings by Resolution Performance and RPP Capital Corporation. Hexion assumed the obligations of Resolution Performance under the 13 ¹/2% Senior Subordinated Notes in connection with the consummation of the Combinations. These notes were subsequently exchanged for registered notes. The $328 of 13 ¹/2% Senior Subordinated Notes are senior subordinated unsecured obligations ranking junior in right of payment to all of existing and future senior debt and all liabilities of subsidiaries that do not guarantee the notes. The proceeds from the issuance of $200 of the 13 ¹/2% Senior Subordinated Notes in November 2000 were used to finance in part the recapitalization and related transaction costs and expenses. Interest on the 13 ¹/2% Senior Subordinated Notes is payable semi-annually in cash on each May 15 and November 15. The 13 ¹/2% Senior Subordinated Notes mature on November 15, 2010 and may be redeemed in whole at any time or in part from time to time, on and after November 15, 2005, at the specified redemption prices set forth under the related indenture.

As discussed in Note 3 of the audited Consolidated Financial Statements, in connection with the Resolution Specialty Transaction, Resolution Specialty executed a Senior Subordinated Note Purchase Agreement (“Seller Note Financing”) with Eastman on August 2, 2004, which provided for the sale of $50 aggregate principal amount of Senior Subordinated Notes of Resolution Specialty to Eastman due and payable in 2011. Such notes were delivered to Eastman as partial consideration of the Resolution Specialty Transaction. Interest was payable at a base rate equal to the seven year Treasury plus additional basis points ranging from 350 to 550, payable semi-annually on February 1 and August 1. The Seller Note Financing provided for payments-in-kind, whereby Resolution Specialty

91

was permitted to pay interest in either dollars or Notes until the third anniversary. The Seller Note Financing was subordinate to the Credit Agreement, and contained restrictive covenants which could trigger acceleration of repayment in the event of default absent a waiver. Such restrictive covenants included, among other provisions, restrictions on payments and distributions, mergers and acquisitions and transactions with affiliates. We repaid the Senior Subordinated Notes of Resolution Specialty on May 31, 2005 in connection with the consummation of the Combinations.

The 9 ¹/5% debentures due in 2021, the 7 ⁷/8% debentures due in 2023 and the 8 ³/8% sinking fund debentures due in 2016 were outstanding prior to the Borden Transaction. These debentures are senior obligations of Hexion and rank equally with all of Hexion’s existing and future senior indebtedness. However, because these debentures are unsecured, they are effectively subordinated to Hexion’s senior secured indebtedness, including the new senior secured credit facilities, the 8% Senior Secured Notes, the 9 ¹/2% Senior Second Secured Notes, the old floating rate notes, the old fixed rate notes and the New Floating Rate Notes.

Other Borrowings

In addition, the Company finances certain insurance premiums. Short-term borrowings under this arrangement include $6 at December 31, 2004 and $8 at December 31, 2003.

The $34 Parish of Ascension Industrial Revenue Bonds (IRBs) are related to the purchase, construction and installation of air and water pollution control facilities that are no longer owned by Borden Chemical. The tax-exempt status of the IRBs is based upon their being no change in the use of the facilities, as defined by the Internal Revenue Code. Borden Chemical continues to monitor the use of the facilities by the current owner. If a change in use were to occur, Borden Chemical could be required to take remedial action, including redeeming all of the bonds.

As discussed in Note 3 to the audited Consolidated Financial Statements, on October 6, 2004, we entered into an agreement to acquire Bakelite Aktiengesellschaft (“Bakelite”). We consummated the Bakelite Acquisition on April 29, 2005. We financed the acquisition through a combination of debt and cash. We believe we will continue to have adequate cash available from operations and our new senior secured credit facilities for the remainder of 2005.

Series A Preferred Stock

In May 2005, in connection with the Combinations, Hexion Escrow Corp., which merged with the Company upon consummation of the Combinations, offered 14 million shares of Series A Floating Rate Preferred Stock, which we refer to as the Series A Preferred Stock, par value $0.01 per share, and liquidation preference of $25 per share. The Series A Preferred Stock accumulate cumulative preferential dividends from the issue date at an initial rate of LIBOR plus 8.0%, compounded semi-annually. Prior to November 2005, the Company has the option to redeem all or a portion of the Series A Preferred Stock at 100% of the aggregate liquidation value plus accrued and unpaid dividends. The Company expects to use the proceeds from the proposed IPO to redeem the Series A Preferred Stock. The net proceeds from the Series A Preferred Stock were used to pay a dividend to the Company’s parent.

Capital Expenditures

We plan to spend approximately $100 on capital expenditures in 2005 and approximately $110 annually thereafter. These amounts were determined through the budget process of each individual company. Consideration was given to future product demand projections, existing plant capacity and external customer trends. Of the $110 anticipated future capital expenditures, based on our historical experience we expect approximately $65 will be used for maintenance and environmental projects. We expect the remaining $45 will be used to expand plant capacity as necessary to meet expected demand. We plan to fund capital expenditures through operations and, if necessary, through available lines of credit. We have no material firm commitments relating to these anticipated capital expenditures at September 30, 2005.

92

Contractual Obligations

The following table presents our contractual cash obligations as adjusted for the Transactions. Our actual contractual cash obligations consist of legal commitments at December 31, 2004, requiring us to make fixed or determinable cash payments, regardless of the contractual requirements of the vendor to provide future goods or services. This table does not include information on our recurring purchases of materials for use in production, as our raw materials purchase contracts do not meet this definition because they do not require fixed or minimum quantities. Contracts with cancellation clauses are not included, unless such cancellation would result in major disruption to our business. For example, we have contracts for information technology support that are cancelable, but this support is essential to the operation of our business and administrative functions; therefore, amounts payable under these contracts are included.

Our long-term debt, capital lease obligations and related interest expense on fixed rate debt are reported as of September 30, 2005, due to significant changes in our obligations during the second quarter of 2005. We do not believe our other obligations disclosed in this table have changed materially since December 31, 2004.

	Payments Due By Year
Contractual Obligations	2005		2006		2007		2008		2009		2010 and beyond		Total
Long-term debt, including current maturities (a)	$	40	$	25	$	15	$	15	$	179	$	2,081	$	2,355
Operating leases		26		22		19		17		12		39		135
Unconditional purchase obligations (b)		444		251		195		164		339		—		1,393
Redeemable preferred stock		—		5		—		—		—		1,081		1,086
Interest expense on fixed rate debt (c)		145		146		146		145		145		627		1,354
Capital lease obligations (d)		—		1		1		1		1		8		12
Total	$	655	$	450	$	376	$	342	$	676	$	3,836	$	6,335

(a) Amounts include the new financing of $648, repayment of existing debt of $212, purchase price adjustments of $8 and assumed debt of $56. Current maturities at September 30, 2005 were $60.

(b) Unconditional purchase obligations are comprised of the fixed or minimum amounts of goods and/or services under long-term contracts and assumes that certain contracts are terminated in accordance with their terms after giving the requisite notice which is generally two to three years for most of these contracts; however, under certain circumstances, some of these minimum commitment term periods could be further reduced which would significantly decrease these contractual obligations. This table excludes payments relating to income tax, pension and OPEB benefits and environmental obligations due to the fact that, at this time, we cannot determine either the timing or the amounts of payments for all periods beyond 2004 for certain of these liabilities. See Notes 9, 10, 11 and 14 to the audited Consolidated Financial Statements and the following discussions on our environmental, pension, OPEB and income tax liabilities, respectively, for more information on these obligations.

(c) This table excludes interest expense for debt instruments and our Series A Preferred Stock each with variable interest rates, including the new senior secured credit facilities, the old floating rate notes and the New Floating Rate Notes. For the year ended December 31, 2004 and the nine months ended September 30, 2005, this expense was approximately $9 and $39, respectively.

(d) Current maturities at September 30, 2005 were $1.

Our current projections for future contributions for the domestic Borden Chemical pension plans range from approximately $7 to $22, with a total funding requirement for the five years ended in 2009 of $60. The assumptions used by Borden Chemical’s actuaries in calculating these projections included an 8% annual return on assets for the years 2005 – 2009 and the continuation of current law and plan provisions.

Based on current regulations, our total minimum funding requirement for the five years ended in 2009 for Borden’s international funded pension plans will be approximately $3. Resolution Performance plans to make a

93

$12 contribution to its Netherlands pension plan in 2005. These amounts do not include benefit payments to be made under unfunded pension plans, such as the pension plans maintained by Bakelite.

Our projected future benefit payments for our postretirement plans range from approximately $2 to $3, with total benefit payments for the five years ended in 2009 of approximately $11 and $6 for the years ended 2010 and beyond.

We estimate we will pay cash taxes totaling approximately $15 in 2005 for state, local and international liabilities.

We expect other environmental expenditures for 2005 – 2009 to total approximately $20.

In 2003, Borden Chemical amended its medical benefit plan such that, as a result, the postretirement medical benefits were reduced by approximately $88. Borden Chemical’s unrecognized prior service cost was adjusted for the impact of the amendment, and the adjustment is being amortized over the estimated remaining years of service of approximately nine years (2003 – 2012). In 2004, Borden Chemical again amended its retiree medical benefit plan to reduce subsidies to retirees effective January 1, 2005, and eliminate remaining subsidies effective January 1, 2006, except in certain cases where contractual obligations exist. As a result of this amendment, Borden Chemical’s liability related to providing postretirement medical benefits was further reduced by $8 in 2004. Borden Chemical’s unrecognized prior service cost has been adjusted to reflect this amendment. The primary benefit from these amendments was a reduction of future annual cash outlays related to post-employment benefits by approximately $12 annually, as compared to the cash outlays anticipated under the pre-amended retiree medical benefit plan.

We maintain three stock option plans for our employees: the RPP 2000 Stock Option Plan (which we refer to as the RPP plan), the RSM 2004 Stock Option Plan (which we refer to as the RSM plan) and the BHI Acquisition 2004 Stock Incentive Plan (which we refer to as the 2004 incentive plan). In addition to these option plans, we maintain a stock-based deferred compensation plan. The fair market value of the options granted under the option plans and deferred common stock units granted under the stock-based deferred compensation plan was determined contemporaneously at the date of grant based upon the fair market value of the underlying stock at the date of grant. The options and deferred common stock units granted under the RSM plan and the 2004 incentive plan were granted contemporaneously with the acquisition of Resolution Specialty and Borden Chemical by Apollo in August 2004 and the fair market value of those options and deferred common stock units is equal to the acquisition price paid by Apollo. Substantially all of the options granted under the RPP plan were granted contemporaneously with the acquisition of Resolution Performance by Apollo in November 2000 and the fair market value of those options is equal to the acquisition price paid by Apollo. In 2004, a limited number of options were issued to a new employee under the RPP plan at fair market value as determined by the Board of Directors of Resolution Performance.

At September 30, 2005, on an as converted basis, there were approximately 4,136,854 options outstanding under all of our employee and director option plans, which include the Resolution Performance 2000 Non-Employee Directors Option Plan and approximately 1,008,011 deferred common stock units under the deferred compensation plan. All outstanding share awards at September 30, 2005 are denominated in Hexion LLC shares.

As a result of modifications associated with the Combinations to the RPP plan, the RSM plan, the 2004 incentive plan and the deferred compensation plan, we recognized a compensation charge of $10 for the nine months ended September 30, 2005, which is included in selling, general & administrative expense. The total compensation cost to be recognized under such plans was $30 based on an estimated fair value per share of $17.52. We expect to recognize the additional compensation expense of $20 over the vesting period of the underlying stock based awards. These awards are expected to vest over the next seven years.

On May 11, 2005, BHI Acquisition issued options to purchase 84,424 membership units to the Company’s non-management directors. These options have a ten-year life with immediate vesting and exercise upon an IPO.

94

Upon the consummation of an IPO, we will recognize expense of $1, which represents the fair value of the options at the date of grant as determined by the Black-Sholes pricing model.

Subsequent to the Combinations on May 31, 2005, the estimated fair value per share of the Company has increased from $17.52 as a result of the identification of additional synergy opportunities resulting from the Combinations, continued improved operating results and increased market share in certain business segments.

We expect to have adequate liquidity to fund working capital requirements, contractual obligations and capital expenditures over the remainder of the term of our credit facilities with cash received from operations and amounts available under credit facilities.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of September 30, 2005.

Covenant Compliance

Certain covenants contained in the credit agreement governing our new senior secured credit facilities and the indentures governing the 8% Senior Secured Notes, 9 ¹/2% Senior Second Secured Notes and Second-Priority Senior Secured Notes (i) require the maintenance of defined Adjusted EBITDA to Fixed Charges and senior secured debt to Adjusted EBITDA ratios and (ii) restrict our ability to take certain actions such as incur additional debt or make acquisitions if we are unable to meet these ratios. The most restrictive of these covenants, the covenants to incur additional indebtedness and the ability to make future acquisitions, require an Adjusted EBITDA to Fixed Charges ratio (measured on a trailing four-quarter basis) of 2.25:1. Failure to comply with these covenants can result in limiting our long-term growth prospects by hindering our ability to incur future indebtedness or grow through acquisitions.

Fixed charges are defined as interest expense excluding the amortization or write-off of deferred financing costs. Adjusted EBITDA is defined as EBITDA further adjusted to exclude certain non-cash, non-recurring and realized or expected future cost savings directly related to prior acquisitions and the Combinations. We believe that the inclusion of the supplemental adjustments applied in calculating Adjusted EBITDA is appropriate to provide additional information to investors to demonstrate compliance with our financial covenants and assess our ability to incur additional indebtedness in the future. Adjusted EBITDA and Fixed Charges are not defined terms under GAAP. Adjusted EBITDA should not be considered an alternative to operating income or net income as a measure of operating results or an alternative to cash flows as a measure of liquidity. Fixed Charges should not be considered an alternative to interest expense. Because we are highly leveraged, we believe that the inclusion of supplementary adjustments to EBITDA applied in presenting Adjusted EBITDA are appropriate to provide additional information to investors to demonstrate compliance with our financing covenants. As of September 30, 2005, we were in compliance with all financial covenants contained in the indentures governing the notes and all our credit facilities.

95

Reconciliation of Pro Forma Net Loss to Pro Forma Adjusted EBITDA

	Year Ended December 31, 2004			LTM Period
Pro forma net loss before nonrecurring charges directly attributable to the transaction	$	(379	)	$	(71	)
Pro forma interest expense, net		221			221
Pro forma income tax expense (benefit)		129			57
Pro forma depreciation and amortization		149			160
Pro forma EBITDA		120			367
Transaction related costs and non-cash charges (1)		151			71
Unusual items (2)		89			32
Effect of acquisitions (3)		4			1
Synergies from Current Transactions (4)		125			111
Pro forma Adjusted EBITDA(5)	$	489		$	582
Pro forma Fixed Charges	$	212		$	212
Ratio of Adjusted EBITDA to Fixed Charges		2.31			2.75
(1)    Transaction related costs (a)	$	65		$	43
Non-cash charges (b)		86			28
	$	151		$	71

(a) 2004 amounts represent costs related to the Borden Transaction and certain expenses related to terminated acquisition activities. 2005 amounts are costs related to the Current Transactions.

(b) Represents impairments of fixed assets, goodwill and intangible assets and non-cash stock compensation.

(2) Unusual items that do not relate to the core operations of Hexion are further detailed on the following table:

	Pro Forma
	Year Ended December 31, 2004		LTM Period
	(unaudited)
	(dollars in millions)
Legacy legal costs (a)	$	11	$	—
Legacy corporate expenses, net (b)		30		4
Plant closure and employee costs (c)		13		5
Business realignment expenses (d)		29		2
Business interruption and other (e)		6		21
Unusual items	$	89	$	32

(a) Legacy legal costs relate to legal proceedings primarily involving divested businesses of Borden Chemical.

(b) Corporate allocations of $38 and transition service fees of $4 charged to Resolution Specialty by its former parent, in excess of estimated incremental costs to replace such services of $12 in 2004.

(c) Plant closure and non-recurring severance and other one time benefits paid to employees.

(d) Business realignment expenditures included in EBITDA for Hexion relate to the excess of historical costs over current business staffing levels, contractual commitments and current plant footprint and are comprised of:

	Year Ended December 31, 2004
	(dollars in millions)
Employee related costs	$	17
Non-employee related costs		12
	$	29

96

Employee related costs of $17 are comprised of (i) historical salaries and benefits of employees terminated in 2004 at Resolution Specialty, Borden Chemical and Bakelite and (ii) the excess cost of employee benefit programs prior to the revision of such plans in 2004 at Resolution Specialty and Borden Chemical.

Non-employee related costs of $12 are comprised primarily of (i) the excess of distribution expense reflected in Resolution Specialty’s predecessor’s income statement reduced in 2004 at the time of the Resolution Specialty Transaction as a result of new agreements with vendors and (ii) costs related to closed sites included in the Resolution Specialty predecessor financial statements which were not acquired by Resolution Specialty.

(e) For the year ended December 31, 2004 amounts represent incremental expenses incurred as a result of a mechanical failure at a Brazilian formaldehyde plant. Hexion was reimbursed for this amount under its insurance policies in the second quarter of 2005 and management fees. In 2005, the amount includes mark to market losses of an exchange rate hedge relating to the Bakelite Acquisition of $11 and integration costs of $5 and management fees of $2.

(3) Represents the full year EBITDA impact of a specialty coatings product line in the versatics market, acquired in November 2004 by Resolution Specialty.

(4) Represents $125 in estimated annual net cost synergies resulting from the Current Transactions. We expect that approximately 60% of the $125 near term cost savings will be achieved by the end of 2006 with the remainder expected to be achieved the following year. In the first nine months of 2005, we realized $14 of the $125 of net cost synergies. We expect to incur a one-time cost of $75 during the next two years in connection with implementing these synergies. These estimated synergies include cost savings from rationalization of manufacturing facilities, removal of duplicative corporate and administrative functions, alignment of benefit plans and raw material purchasing initiatives. The estimated synergies by category are as follows:

	Year Ended December 31, 2004		LTM Period
Rationalization of manufacturing facilities	$	42	$	40
Overhead synergies		20		18
Raw material savings		63		53
	$	125	$	111

(5) We are required to have an Adjusted EBITDA to fixed charge ratio of greater than 2.25 to 1.0 to incur additional indebtedness under certain of our indentures. As of September 30, 2005, we were able to satisfy this covenant and incur additional indebtedness under our indentures.

Quantitative and Qualitative Disclosures About Market Risk

Risk Management. We use various financial instruments, including some derivatives, to help us hedge our foreign currency exchange risk. We also use raw material purchasing contracts and pricing contracts with customers to mitigate commodity price risks. These contracts generally do not contain minimum purchase requirements.

Foreign Exchange Risk. Our international operations accounted for approximately 49% of our sales in 2004 and 55% in 2003. As a result, we have exposure to foreign exchange risk on transactions potentially denominated in many foreign currencies. These transactions include foreign currency denominated imports and exports of raw materials and finished goods (both intercompany and third party) and loan repayments. In all cases, the functional currency is the business unit’s local currency.

It is our policy to reduce foreign currency cash flow exposure due to exchange rate fluctuations by hedging firmly committed foreign currency transactions wherever economically feasible. Our use of forward and option contracts is designed to protect our cash flows against unfavorable movements in exchange rates, to the extent of the amount under contract. We do not attempt to hedge foreign currency exposure in a manner that would entirely eliminate the effect of changes in foreign currency exchange rates on net income and cash flow. We do not speculate in foreign currency nor do we hedge the foreign currency translation of our international businesses to the

97

U.S. dollar for purposes of consolidating our financial results or other foreign currency net asset or liability positions. The counter-parties to our forward contracts are financial institutions with investment grade credit ratings.

Our foreign exchange risk is also mitigated because we operate in many foreign countries, reducing the concentration of risk in any one currency. In addition, our foreign operations have limited imports and exports, reducing the potential impact of foreign currency exchange rate fluctuations. With other factors being equal, such as the performance of individual foreign economies, an average 10% foreign exchange increase or decrease in any one country would not materially impact our operating results or cash flow. However, an average 10% foreign exchange increase or decrease in all countries may materially impact our operating results.

As required by current accounting standards, our Consolidated Statements of Operations includes any gains and losses arising from forward and option contracts.

The following table summarizes forward currency, option and commodity contracts outstanding as of December 31, 2004.

	2004
	Average Days To Maturity	Average Contract Rate	Notional Amount	Fair Value Gain (Loss)
Foreign Exchange:
Currency to sell for U.S. Dollars
Canadian Dollars—Put options purchased	183	1.3200	36	$	—
Canadian Dollars—Call options sold	183	1.2300	36		(2	)
Currency to sell for CDN Dollars
British Pound—Forward currency contracts	31	2.3255	42		1
Currency to sell for Euros
U.S. Dollars—Deal contingent forward	90	1.3430	235		2
Commodity Future Contracts:
Natural gas futures			3		—

Interest Rate Risk. The interest rates on most of our debt agreements are fixed. A 10% increase or decrease in the interest rates of the variable debt agreements would be immaterial to our net income. The fair value of our publicly held debt is based on the price at which the bonds are traded or quoted at December 31, 2003 and 2004. All other debt fair values are determined from quoted market interest rates at December 31, 2003 and 2004.

Following is a summary of our outstanding debt as of December 31, 2003 and 2004 (see Note 7 to the audited Consolidated Financial Statements for additional information on our debt):

	2003						2004
Year	Debt		Weighted Average Interest Rate		Fair Value		Debt		Weighted Average Interest Rate		Fair Value
2004	$	8	11.0	%	$	8
2005		1	11.1	%		1	$	17	9.1	%	$	17
2006		1	11.1	%		1		4	9.1	%		4
2007		1	11.1	%		1		4	9.1	%		4
2008		1	11.1	%		1		5	9.1	%		5
2009		1	11.1	%		1		175	9.1	%		187
2010 and beyond		670	11.1	%		627		1,645	9.2	%		1,683
	$	683			$	640	$	1,850			$	1,900

98

We do not use derivative financial instruments in our investment portfolios. We place any cash equivalent investments in instruments that meet the credit quality standards established within our investment policies, which also limit the exposure to any one issue. At December 31, 2004, we had $72 invested, at average rates of 2%, primarily in a prime money market account, a guaranteed investment certificate and time deposits with maturity periods of 30 days or less. At December 31, 2003, we had no material investments in cash equivalent instruments. Due to the short maturity of our cash equivalents, the carrying value on these investments approximates fair value and our interest rate risk is not significant. A 10% increase or decrease in interest returns on invested cash would not have a material effect on our net income and cash flows at December 31, 2003 and 2004.

Commodity Risk. We are exposed to price risks associated with raw material purchases, most significantly with methanol, phenol and urea. For our commodity raw materials, we have purchase contracts, with periodic price adjustment provisions. In 2004, our suppliers were committed under these contracts to provide 100% of our estimated methanol requirements. Commitments with our phenol and urea suppliers provide up to 100% of our estimated requirements and also provide the flexibility to purchase a certain percentage of our needs in the spot market, when favorable to us. We expect these arrangements for raw materials to continue throughout 2005. Our commodity risk also is moderated through our selected use of customer contracts with selling price provisions that are indexed to publicly available indices for these commodity raw materials. Our board of directors approves all commodity futures contracts that we enter based on delegations of authority.

Resolution Performance entered into contractual agreements with Shell and other third parties for the purchase of feedstocks. The terms of the agreements vary from three to ten years, extendable at Resolution Performance’s request and cancelable by either party as provided for in the respective agreements. Feedstock prices are based on market prices less negotiated volume discounts or cost input formulas. Resolution Performance relies on long-term supply agreements with Shell and other key suppliers for most of their raw material supply. The loss of a key source of supply or a delay in shipments could have an adverse effect on business. Should any of Resolution Performance’s suppliers fail to deliver or should any of the key long-term supply contracts be canceled, Resolution Performance would be forced to purchase raw materials in the open market, and no assurances can be given that Resolution Performance would be able to make these purchases or make them at prices that would allow Resolution Performance to remain competitive. Some raw materials are provided by one supplier and Resolution Performance could incur significant time and expense if Resolution Performance had to replace the supplier. In addition, several of the feedstocks at various facilities are transported through a pipeline from one supplier. If Resolution Performance were unable to receive these feedstocks through these pipeline arrangements, Resolution Performance may not be able to obtain them from other suppliers at competitive prices or in a timely manner.

Resolution Specialty and Eastman have entered into four supply agreements relating to approximately 60 raw materials, which are currently produced by Eastman and consumed by the business. Total annual purchases of these products are approximately $30. Resolution Specialty believes that these are arm’s length contracts with terms generally available in the market. Substantially all of these products are commercially available from other suppliers. The length of the contracts vary from 6 months to 5 years, are generally market-based pricing, and contain various provisions for competitive release by Resolution Specialty.

Natural gas is essential in our manufacturing processes, and its cost can vary widely and unpredictably. In order to control our costs for natural gas, we hedge a portion of our natural gas purchases for all of our legacy Borden Chemical North American operations by entering into futures contracts for natural gas. The contracts are settled for cash each month based on the closing market price on the last day the contract trades on the New York Mercantile Exchange. During 2003, we entered into futures contracts for natural gas usage through June 2004, and in 2004 we entered into additional futures contracts through December 2005. Our commitments settled under these contracts totaled $2 in 2004. At December 31, 2004, we had future commitments under these contracts of $3. We recognize gains and losses on commodity futures contracts each month as gas is used. Our future commitments are marked to market on a quarterly basis. We recorded losses of less than a million at December 31, 2004, related to future commitments under our natural gas futures contracts.

99

Other Matters. Our operations are subject to the usual hazards associated with chemical manufacturing and the related storage and transportation of feedstocks, products and wastes, including, but not limited to, combustion, inclement weather and natural disasters, mechanical failure, unscheduled downtime, transportation interruptions, chemical spills, discharges or releases of toxic or hazardous substances or gases and other environmental risks. These potential hazards could cause personal injury or loss of life, severe damage to or destruction of property and equipment and environmental damage and could result in suspension of our operations and the imposition of civil or criminal penalties. We have significant operational management systems, preventive procedures and protective safeguards to minimize the risk of an incident and to ensure the safe continuous operation of our facilities. In addition, we maintain property, business interruption and casualty insurance that we believe is in accordance with customary industry practices, but we are not fully insured against all potential hazards incidental to our business.

Due to the nature of our business and the current litigious climate, product liability litigation, including class action lawsuits claiming liability for death, injury or property damage caused by our products, or by other manufacturers’ products that include our components, is inherent to our business but historically has been immaterial. However, our current product liability claims, and any future lawsuits, could result in damage awards against us, which in turn could encourage additional litigation.

Recently Issued Accounting Standards

In May 2004, the Financial Accounting Standards Board, or FASB, issued Staff Position SFAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” This Position provides guidance on the accounting, disclosure, effective date, and transition requirements related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. FASB Staff Position SFAS 106-2 is effective for interim or annual periods beginning after June 15, 2004. The Company did not experience a material impact from this statement on its financial condition or results of operations.

In November 2004, the FASB issued Statement of Financial Accounting Standard, or SFAS, No. 151, “Inventory Costs.” The statement amends Accounting Research Bulletin, or ARB, No. 43, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. ARB No. 43 previously stated that these costs must be “so abnormal as to require treatment as current-period charges.” SFAS No. 151 requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this statement requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. The statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005, with earlier application permitted for fiscal years beginning after the issue date of the statement. We are currently evaluating the impact that this statement will have on our financial condition and results of operations.

In December 2004, the FASB revised its SFAS No. 123 (“SFAS No. 123R”), “Accounting for Stock Based Compensation.” The revision establishes standards for the accounting of transactions in which an entity exchanges its equity instruments for goods or services, particularly transactions in which an entity obtains employee services in share-based payment transactions. The revised statement requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is to be recognized over the period during which the employee is required to provide service in exchange for the award. Changes in fair value during the requisite service period are to be recognized as compensation cost over that period. In addition, the revised statement amends SFAS No. 95, “Statement of Cash Flows,” to require that excess tax benefits be reported as a financing cash flow rather than as a reduction of taxes paid. The provisions of the revised statement are effective for financial statements of the non-public companies issued for the first annual reporting period beginning after December 15, 2005, with early adoption encouraged. The Securities and Exchange Commission announced the adoption of a new rule that amends the compliance dates for Financial Accounting Standards Board’s Statement of Financial Accounting

100

Standards No. 123 (revised 2004), Share-Based Payment (Statement No. 123R). The Commission’s new rule allows companies to implement Statement No. 123R at the beginning of their next fiscal year, instead of the next reporting period, that begins after June 15, 2005. The Company adopted Statement No. 123R as of January 1, 2005 on a prospective basis. The adoption of SFAS No. 123R had no initial impact on our financial condition and results of operations.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets – An Amendment of APB Opinion No. 29.” Accounting Principles Board (“APB”) Opinion No. 29, “Accounting For Nonmonetary Transactions,” is based on the opinion that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. SFAS No. 153 amends Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets whose results are not expected to significantly change the future cash flows of the entity. This statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005 and is not expected to have any impact on the Company’s current financial condition or results of operations.

In December 2004, the FASB issued two FASB Staff Positions, or FSP, that provide accounting guidance on how companies should account for the effects of the American Jobs Creation Act of 2004 that was signed into law on October 22, 2004. FSP FAS 109-1, “Application of FASB Statement No. 109, “Accounting for Income Taxes”, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004”, states that the manufacturers’ deduction provided for under this legislation should be accounted for as a special deduction instead of a tax rate change. FSP FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004”, allows a company additional time to evaluate the effects of the legislation on any plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109, “Accounting for Income Taxes”. These FSPs may affect how a company accounts for deferred income taxes. These FSPs are effective upon issuance. These FSPs did not have a material impact on our financial condition and results of operations.

In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations”, an interpretation of FASB Statement No. 143. This Interpretation clarifies that the term “conditional asset retirement obligation” as used in FASB No. 143, “Accounting for Asset Retirement Obligations”, refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation, when incurred, if the fair value of the liability can be reasonably estimated. The Interpretation is effective for the Company no later than the end of the fiscal year ending on December 31, 2005. The Company does not expect this interpretation to have a material effect on its financial condition or results of operations.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3”. SFAS No. 154 replaces APB Opinion No. 20, “Accounting Changes,” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”, and changes the requirements for the accounting for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 154 is effective for fiscal years beginning after December 15, 2005. The Company will adopt SFAS No. 154 as of the effective date. However, it is not expected to have a material effect on our financial condition or results of operations.

In June 2005, the FASB staff issued FASB Staff Position 143-1, Accounting for Electronic Equipment Waste Obligations (FSP 143-1), to address the accounting for obligations associated with the Directive 2002/96/EC on Waste Electrical and Electronic Equipment (the “Directive”) adopted by the European Union. The Directive effectively obligates a commercial user to incur costs associated with the retirement of a specified

101

asset that qualifies as historical waste equipment. The commercial user should apply the provisions of SFAS 143 and FIN 47 discussed above. FSP 143-1 shall be applied the later of the first reporting period ending after June 8, 2005 or the date of the adoption of the law by the applicable EU-member country. We adopted the FSP at certain of our European operations where applicable legislation was adopted. The impact of the adoption on the consolidated financial statements was not significant.

102

BUSINESS

Overview

We are the world’s largest producer of thermosetting resins, or thermosets. Thermosets are a critical ingredient for virtually all paints, coatings, glues and other adhesives produced for consumer or industrial uses. We are focused on providing a broad array of thermosets and associated technologies, with leading market positions in all key markets served. Our breadth of related products provides us with significant advantages across our operations, technologies and commercial service organizations, while our scale provides us with significant efficiencies in our fixed and variable cost structure allowing us to compete effectively throughout the value chain. Our value-added, technical service-oriented business model enables us to effectively participate in high-end specialty markets, while our scale enables us to extract value from higher volume applications.

Thermosets are developed to meet the performance characteristics required for each specific end use product. The type of thermoset used and how it is formulated, applied and cured determine the key attributes such as durability, gloss, heat resistance, adhesion or strength of the final product. Hexion has the broadest range of thermoset resin technologies, with world class research, applications development and technical service capabilities. Our thermosets are sold under a variety of well-recognized brand names including Borden^® (phenolic and amino resins), Epikote^® (epoxy resins), Epikure^® (epoxy curatives), Bakelite (phenolic and epoxy resins), Lawter^™ (inks) and Cardura^® (high-end automotive coatings). The total global thermoset resins market is approximately $34 billion in annual sales and includes products such as polyurethanes, urea-formaldehyde, phenol-formaldehyde, unsaturated polyesters, epoxies and melamine-formaldehyde. The key product areas of the global thermoset resins market upon which we focus and in which we have leading market positions is approximately $19 billion in annual sales, which excludes polyurethanes, unsaturated polyesters and furans/other.

Our products are used in thousands of applications and are sold into diverse markets, such as forest products, architectural and industrial paints, packaging, consumer products and automotive coatings, as well as higher growth markets, such as composites, UV cured coatings and electrical laminates. We have a history of product innovation and success in introducing new products to new markets. Our product innovation is evidenced by more than 1,000 patents, a majority of which relate to the development of new products and processes for manufacturing. More specifically, in 2003, Borden Chemical developed and began marketing XRT^®, a patent pending family of proppants made for the oil field products end-market, which generated approximately $14 million in net sales in 2004. In 2004, Resolution Specialty developed and began conducting customer trials with Archemis, a resin used to formulate quick-dry alkyd paint. Resolution Performance is currently developing a family of customized resins tailored for the high-end lamination market.

As of September 30, 2005, we had 86 production and distribution sites globally, and produce many of our key products locally in North America, Latin America, Europe and Asia. Through our worldwide network of strategically located production facilities, we serve more than 5,000 customers in 96 countries. We believe our global scale provides us with significant advantages over many of our competitors. In areas where it is advantageous, we are able to internally produce strategic raw materials, providing us a lower cost operating structure and security of supply. In other areas, where we can capitalize on our technical know-how and market presence to capture additional value, we are integrated downstream into product formulations. Our position in certain additives, complementary materials and services further enables us to leverage our core thermoset technologies and provide customers a broad range of product solutions. As a result of our focus on innovation and the high level of technical service that results from our “Total Systems Approach,” we have cultivated long-standing customer relationships. Our global customers include leading companies in their respective industries, such as 3M, BASF, Bayer, DuPont, GE, Halliburton, Honeywell, Owens Corning, PPG Industries, Sumitomo, Sun Chemicals, Valspar and Weyerhaeuser.

Hexion was formed on May 31, 2005 through the combination of Borden Chemical (including Bakelite), Resolution Performance and Resolution Specialty. We believe the consolidation of these entities will provide us with significant opportunities for growth through global product line management, as well as considerable

103

opportunities to increase operational efficiencies, reduce fixed costs, optimize manufacturing assets and improve the efficiency of capital spending. In 2004 and for the nine months ended September 30, 2005, on a pro forma basis, we generated pro forma net sales of $4.1 billion and $3.6 billion, respectively. In 2004, 51% of our net sales were derived from sales to North America, 32% to Western Europe and 17% to Asia-Pacific, Latin America, Eastern Europe and other emerging markets. As of September 30, 2005, we had $2.4 billion principal amount of outstanding indebtedness and $0.2 billion of cash and equivalents.

Industry

The thermoset resins industry is an approximately $34 billion market in annual sales. Thermoset resins include materials such as phenolic resins, epoxy resins, polyester resins, acrylic resins, alkyd resins and urethane resins. Thermoset resins are used for a wide variety of applications due to their superior adhesion and bonding properties, as well as their heat resistance, protective and aesthetic characteristics, compared to other materials. The key product areas of the global thermoset resins market upon which we focus and in which we have leading market positions have an estimated $19 billion in annual sales. The thermoset resin market has grown at an estimated annual rate of over 4% by volume during the past five years. We expect that certain segments of the thermoset resin industry, including composites and UV resins, will grow at substantially faster rates.

Thermosets are sold into the global coatings, composites and adhesives markets, which have combined annual sales of over $100 billion. Thermoset resins are generally considered specialty chemical products because they are principally sold on the basis of performance, technical support, product innovation and customer service. Although the thermoset resins market has undergone consolidation in recent years, the thermoset resins market remains fragmented with many small and medium sized companies providing a relatively high level of customization and service to the end markets and with any small non-core divisions of large chemical conglomerates. The principal factors contributing to success in the specialty chemicals market are (1) consistent delivery of high-quality products, (2) favorable process economics, (3) the ability to provide value to customers through both product attributes and strong technical service and (4) a presence in large and growing markets. We believe Hexion is the third largest North American based specialty chemicals company.

Competitive Strengths

We are one of the leading specialty chemical companies in the world based on the following competitive strengths:

World’s Largest Thermoset Resins Producer. We are the world’s largest producer of thermoset resins with leading positions across various end-markets and geographies. Our global scale and breadth of product line provide us with significant advantages over many of our competitors. The following table illustrates our market position by volume in our key product areas, which collectively represent more than 75% of our 2004 net sales:

Key Product	Market Position
Forest Product Resins	#1 Globally
Formaldehyde	#1 Globally
Phenolic Resins	#1 Globally
Epoxy Resins	#1 Globally
Foundry Resins	#1 in North America
Oil Field Resins	#2 Globally
Composite Resins (epoxy-based)	#1 in Europe, #2 in North America
Molding Compounds	#1 in Europe
Ink Resins	#1 Globally
Alkyd Resins	Co-leader in North America
Versatic Acids and Derivatives	#1 Globally

104

Unique Selling Proposition. The majority of our customers require solutions that are tailored to their individual production needs and require a high degree of technical service and customized product formulations. Our diverse thermoset product offering allows us to leverage related technologies across geographies, customers and end-markets in order to provide a broad range of product and technical service solutions. As a result of our focus on developing innovative products with a high level of technical service and our “Total Systems Approach,” whereby we sell multiple components of a coating or adhesive resin system, we have cultivated stable, longstanding customer relationships. Our top ten customers have been using our products and services for an average of 21 years.

Global Infrastructure. We develop, manufacture and sell our products around the world. We believe our global scope and our ability to internally produce key raw materials give us an advantage compared with many of our smaller competitors. We believe that we are well positioned in higher growth regions and will continue to grow internationally by expanding our product sales to our multi-national customers and by entering new markets. We also have opportunities to increase sales of products by introducing them to new geographies; for example, we plan to introduce several resin products developed for the European market to our customer base in North America. We have a significant presence in the two fastest growing regions in the coating and adhesives industries, with 16 plants currently operating in Asia-Pacific and Latin America.

Low Cost Position. We support our leading global market presence with our strategically located, low cost manufacturing presence. Our low cost position is the result of our 86 production and distribution sites located throughout the world and our selectively integrated supply position in critical intermediate materials. We consume large amounts of our internally produced formaldehyde, BPA and ECH, and our polyester and alkyd resins businesses share an integrated production platform with each other. The ability to internally produce key raw materials provides us a significant cost advantage over our competitors, allowing us to eliminate certain finishing steps, reduce logistical costs, ensure reliable long-term supply of critical raw materials and improve our production scheduling and capacity utilization rates. Furthermore, our large market position and scale in each of our key product markets provides us with significant purchasing and manufacturing efficiencies. We are North America’s lowest cost producer of formaldehyde and formaldehyde-based resins. In addition, we operate two of the three largest epoxy resins manufacturing facilities in the world, including the world’s only continuous-flow manufacturing process facility.

Well Positioned in Diverse End-Markets and Higher Growth Sectors. We have a diversified revenue and customer base in a variety of end-markets and geographies. Our products are used in a broad range of applications and are sold into stable markets such as those for forest products, architectural coatings, industrial coatings and automotive coatings, as well as higher growth markets such as composites, UV resins and electrical laminates. We have a strong position in products such as composites which benefit from favorable product substitution demand dynamics as they replace traditional materials (i.e., wood and metal) in aerospace, automotive, recreational and sporting goods applications. In addition, no single customer accounted for more than 3% of our total annual sales in 2004. Our pro forma net sales by end-market for 2004 are illustrated below:

105

Strong Free Cash Flow. We expect to generate strong free cash flow (cash flow from operating activities less anticipated capital expenditures) due to our favorable operating characteristics and the nature of the industry in which we operate. This strength is due in large part to our size and position within the thermoset resins industry, and the industry leading cost structure we have in place. Our products are generally less capital intensive to manufacture than many other products in the chemical industry and, as a result, we have relatively low maintenance capital and working capital requirements. Furthermore, due to our tax assets and other structuring considerations, we expect to have very low cash tax requirements for the foreseeable future. Additionally, management is currently targeting $250 million in synergies from the Current Transactions, of which $125 million of annual net cost savings have been specifically identified, which should further improve free cash flow. Our plan indicates that our $250 million synergy target will consist of approximately 40% in purchasing savings, 20% in manufacturing efficiencies, 15% in selling, general and administrative expense savings and 25% in new product development and global product line management. Management has developed detailed implementation plans to achieve the $125 million of cost savings. We expect that approximately 60% of the $125 million near term cost savings will be achieved by the end of 2006 with the remainder expected to be achieved in the following year. We expect to incur a one-time cost of $75 million during the next two years in connection with implementing these synergies. We expect that all of these factors will enable us to generate strong free cash flow, which we anticipate will be available to reduce indebtedness or for other strategic purposes.

Strong Management Team. We believe that we have a world-class management team led by Craig O. Morrison, our President and Chief Executive Officer, and William H. Carter, our Chief Financial Officer. Our divisional management teams are comprised of experienced managers from Borden Chemical, Resolution Performance, Resolution Specialty and Bakelite. Marvin O. Schlanger, former Chief Executive Officer of Arco Chemical and Resolution Performance, with over 30 years of chemical industry experience is our Vice Chairman. Our management team has demonstrated expertise in growing our businesses organically, integrating acquisitions and executing significant cost cutting programs.

106

Strategy

We are focused on augmenting our growth, as well as increasing shareholder value, return on investment, cash flows and profitability. We believe we can achieve these related goals through the following strategies:

Utilize Our Integrated Platform Across Product Offerings. As the world’s largest producer of thermoset resins, we have an opportunity to provide our customers with a broad range of resins products on a global basis. We believe this provides us the opportunity to become a global, comprehensive solutions provider to our customers rather than simply offering a particular product, selling in a single geography or competing on price. We will also be able to offer a more diverse product line to all of our customers, utilizing the existing product lines of each of our acquired businesses. We believe we have substantial opportunities through global product line management to capitalize on these capabilities in order to increase our sales volumes and margins. Examples of the opportunity to utilize our integrated platform include:

• We produce many value-added, innovative products developed by Bakelite for the European market which we plan to introduce to our broader customer base.

• We expect to expand the sales of our versatic acid coatings product line, which has historically been nearly exclusively a European product, into the Americas by utilizing Resolution Specialty’s existing coatings sales force.

• We expect to capitalize on Borden Chemical’s strength in forest product resins by expanding such product offerings into Bakelite’s European markets, including Russia’s wood products market, the largest market in the world.

• We are a leading resins supplier to many of the world’s largest coatings companies, allowing us to accelerate new and specialty product development for our customers, thereby further strengthening our relationships and enhancing our ability to retain and grow customers based on attributes other than price.

Develop and Market New Products. We will continue to expand our product offerings through internal innovation, joint research and development initiatives with our customers and research partnership formations. In 2004, on a pro forma basis, we incurred approximately $65 million in research and development expenses, which represented approximately 2% of our pro forma net sales during that period. We will continue to implement a systematic approach to new product development and have identified promising new technologies that have begun to yield significant results. Examples of new products and product development initiatives include:

• In 2003, Borden Chemical developed and began marketing XRT^®, a family of proppants made for the oil field products end-market, which generated approximately $14 million in net sales in 2004.

• Both Borden Chemical and Resolution Specialty have increased their investments in UV light-curable products for the display, ink jet and electronics products markets.

• Borden Chemical and Resolution Performance have increased their investments in specialty epoxidized phenolic products for the electronics market.

• Resolution Performance is developing a family of customized resins tailored for the high-end electrical lamination market. This family of products is expected to generate approximately $8 to $10 million in annual net sales by 2007.

• In 2004, Resolution Specialty developed and began conducting customer trials with Archemis, a resin used to formulate quick-dry alkyd paint. These coatings will be targeted for the contractors market where the quick dry properties allow two coats of paint to be applied in one work shift. It is expected to generate approximately $5 to $10 million in annual net sales by 2007.

107

Expand Our Global Reach In Faster Growing Regions. We will continue to grow internationally by expanding our product sales to our multi-national customers outside of North America and Western Europe, and by entering new international markets. Specifically, we are focused on growing our business in the Asia-Pacific, Eastern Europe and Latin American markets, where the usage of our products is increasing. Furthermore, by combining sales and distribution infrastructures, we expect to accelerate the penetration of our high-end, value-added products into new markets, thus further leveraging our research and applications efforts. Some examples of our increased presence in developing regions are as follows:

• Our twelve plants in Asia-Pacific represent most of our key product lines, give us a critical mass to serve those markets and provide a platform for continued expansion in that region.

• We have significant operations in Eastern Europe through Resolution Specialty and Bakelite, and expect to leverage this footprint to increase our business in Russia and Eastern Europe.

• We have expanded Borden Chemical’s Latin American presence over the past four years, growing its net sales by over 34% from 2001 to 2004, and expect to continue growing in this region.

Increase Margins Through Focus On Operational Excellence. We believe that through the combination of four standalone global resin companies, there will be opportunities to extract substantial cost savings in the near future. Management is currently targeting $250 million in synergies from the Current Transactions, of which $125 million of cost savings have been specifically identified. Management has developed detailed implementation plans to achieve the $125 million of annual net cost savings. We expect that approximately 60% of the $125 million near term cost will be achieved by the end of 2006 with the remainder expected to be achieved in the following year. We expect to incur a one-time cost of $75 million during the next two years in connection with implementing these synergies. Management has specifically identified a number of areas for savings and is actively pursuing key components of this strategy. Primary components are as follows:

• Manufacturing rationalization and optimization across the entire facility footprint.

• Reduction of fixed cost structure through the elimination of overhead redundancies.

• Raw material and other purchasing savings.

• Streamlined logistics processes.

• More efficient management of capital spending.

• Rollout of Borden Chemical’s Six Sigma management approach, and other operational best practices, throughout the organization.

In addition, each of our companies have significant experience in implementing cost reduction and working capital management programs, including ongoing programs at each of the companies.

Pursue Targeted Add-On Acquisitions and Joint Ventures. The global thermoset resin industry is highly fragmented and is comprised of numerous small and mid-sized specialty companies focusing on niche markets, as well as small non-core divisions of large chemical conglomerates. As the largest company focused primarily on the thermoset resins space, we have a significant advantage in pursuing add-on acquisitions and joint ventures in areas that allow us to build upon our core strengths, expand our product, technology and geographic portfolio, and better serve our customers. We believe we can consummate a number of these acquisitions at relatively low valuations due to the scalability of our existing global operations. Some examples of these opportunities include:

• Resolution Specialty recently acquired a specialty coatings product line in the versatics market.

• We are currently evaluating and pursuing several potential tuck-in acquisitions which, if consummated, should provide Hexion with product line extensions. We expect these acquisitions to be accretive in leveraging Hexion’s manufacturing footprint and existing corporate infrastructure.

• We are also pursuing various joint ventures to expand our geographic footprint.

108

Our History

Business Realignment and Corporate Reorganization. We have undertaken numerous plant consolidations and other business realignment initiatives. These initiatives are designed to improve efficiency and to focus resources on our core strengths. The associated business realignment charges consist primarily of employee severance, plant consolidation and related environmental remediation costs and asset impairment expense. Following is a brief overview of our significant business realignment activities since 2001.

In 2001, Borden Chemical completed a significant capital restructuring to eliminate future required annual preferred dividend payments and recorded $126 million of business realignment and impairment charges related primarily to the closures of its melamine crystal business, which we refer to as Melamine, and two forest products plants in the United States, realignment of its workforce organization, reorganization of its corporate headquarters and the discontinuation of a plant construction project. The largest component of the 2001 charge is a $98 million impairment of Melamine fixed assets, goodwill and spare parts. This impairment was the result of Borden Chemical’s strategic decision late in 2001 to sell or close Melamine and to enter into a long-term contractual arrangement with a supplier for its future melamine crystal needs.

In June 2003, we initiated our 2003 realignment designed to reduce operating expenses and increase organizational efficiency. To achieve these goals, we reduced our workforce, streamlined processes, consolidated manufacturing processes and reduced general and administrative expenses.

On May 31, 2005, Borden Chemical combined with Resolution Performance and Resolution Specialty. Upon the consummation of the Combinations, Borden Chemical changed its name to Hexion Specialty Chemicals, Inc. and BHI Acquisition LLC, Borden Chemical’s parent, changed its name to Hexion LLC.

We have begun and will continue to integrate the four predecessor companies including considering opportunities to consolidate our manufacturing plants, leverage our raw material purchasing power, cross-sell to our broader customer base and implement programs to continue to lower our operating and overhead expenses. We have also consolidated the management teams and centralized corporate functions of the four companies under the leadership of the current Hexion management team.

Acquisitions and Divestitures. We are a New Jersey corporation with predecessors dating back to 1899. The following is a summary of acquisitions and divestitures we made in the past five years.

In 2000, we acquired the formaldehyde and certain other assets from Borden Chemicals and Plastics Operating Limited Partnership, or BCPOLP, which was one of our affiliates, and acquired East Central Wax, a wax emulsions producer for the forest products business.

In 2001, we merged our foundry resins and coatings businesses with similar businesses of Delta-HA, Inc., or Delta, to form HA-International, or HAI, in which, at the time of its formation, we had a 75% economic interest. The Limited Liability Agreement of HAI provides Delta the right to purchase between 3% and 5% (up to a maximum of 25%) of additional economic interest in HAI each year beginning in 2004. Pursuant to this provision, in 2004, Delta purchased an additional 5% interest, thereby reducing our economic interest to 70%. In March 2005, Delta purchased an additional 5% interest, which reduced our economic interest to 65%.

Also in 2001, through a series of transactions with affiliates, Borden Chemical sold its Elmer’s consumer adhesives business for total proceeds of $94 million.

In the fourth quarter of 2003, we acquired Fentak in Australia and Malaysia, a producer of specialty chemical products for engineered wood, laminating and paper impregnation markets. We also acquired the business and technology assets of SEACO, a domestic producer of specialty adhesives. We undertook these tuck-in acquisitions to expand our existing product lines.

109

On November 14, 2000, an affiliate of Apollo acquired control of Resolution Performance in a recapitalization transaction. Prior to the recapitalization, Resolution Performance was a wholly owned subsidiary of Shell. Resolution Performance is a worldwide manufacturer and developer of epoxy resins and also a leading global manufacturer of versatic acids and derivatives.

On August 2, 2004, Resolution Specialty, an affiliate of Apollo, acquired the resins, inks and monomers division of Eastman. Resolution Specialty is a producer of coating resins, inks, composite polymers, textile chemicals and acrylic monomers with facilities in the U.S., Europe and China.

On August 12, 2004, an affiliate of Apollo acquired all of the outstanding capital stock of Borden Chemical, Inc. On April 29, 2005, Borden Chemical acquired Bakelite. Bakelite is a leading European producer of thermosets, with headquarters in Germany and significant production facilities in Germany, Italy and Spain. Bakelite was Europe’s largest producer of phenolic resins, the largest formulator of epoxy composite resins and one of the world’s largest producers of molding compounds.

Products

As of the closing of the Combinations on May 31, 2005, our thermosets are used in two primary applications: Adhesive & Structural and Coating. Within each major group we operate is a diverse range of specialty chemical applications. Our primary product lines within the Adhesive & Structural group include forest products resins, specialty phenolic resins, formaldehyde, epoxy resins, composite resins, phenolic encapsulated substrates and molding compounds. Our primary product lines within the Coating group include epoxy resins, polyester resins, alkyd resins, acrylic resins, ink resins and versatic acids and derivatives.

Adhesive & Structural

Formaldehyde Based Resins and Intermediates

We are the leading producer of formaldehyde based resins for the forest products industry in North America with a 44% market share by volume and also hold significant positions in Europe, Latin America and Australia. Our products are used in a wide range of applications in the construction, automotive, electronics and steel industries. We are also the world’s largest producer of specialty phenolic resins, which are used in applications that require extreme heat resistance and strength, such as automotive brake pads, foundry materials and oil field applications. In addition, we are the world’s largest producer of formaldehyde, a key building block chemical used in the manufacture of thousands of products. We internally consume approximately half of our formaldehyde production, giving us a significant competitive advantage versus our non-integrated competitors.

Products	Key Applications
Forest Products Resins
Engineered Wood Resins	Softwood and hardwood plywood, OSB, laminated veneer lumber, strand lumber and wood fiber resins such as particleboard and medium density fiberboard
Special Wood Adhesives	Laminated beams, structural and nonstructural fingerjoints, wood composite I-beams, cabinets, doors, windows, furniture, mold and millwork and paper laminations
Wax Emulsions	Sizing agent for composite reinforcement products

110

Products	Key Applications
Specialty Phenolic Resins
Composites and Electronic Resins	Aircraft components, brakes, ballistic applications, industrial grating, pipe, jet engine components, electrical laminates, computer chip encasement and photolithography
Automotive PF Resins	Acoustical insulation, engine filters, friction materials, interior components, molded electrical parts and assemblies
Construction PF Resins, UF Resins, Ketone Formaldehyde and Melamine Colloid	Decorative laminates, fiberglass insulation, floral foam, lamp cement for light bulbs, molded appliance and electrical parts, molding compounds, sandpaper, fiberglass mat, laminates, coatings, crosslinker for thermoplastic emulsions and specialty wet strength paper
Formaldehyde Applications
Formaldehyde	Herbicides and fungicides, fabric softeners, sulphur scavengers for oil and gas production, urea formaldehyde, melamine formaldehyde, phenol formaldehyde, MDI and other catalysts

Epoxy Resins and Intermediates

We are the world’s largest supplier of epoxy resins. Epoxy resins comprise the fundamental building blocks of many types of materials, such as formulated composite resins and structural adhesives. Epoxy resins are often used in the auto, aerospace and electronics industries due to their unparalleled strength and durability. We also provide the industry with a variety of complementary products such as epoxy modifiers, curing agents, reactive diluents and specialty liquids. We are also a major producer of bisphenol-A (BPA) and epichlorohydrin (ECH), key precursors in the manufacture of epoxy resins. We internally consume the majority of our BPA and virtually all of our ECH, giving us a significant competitive advantage versus our non-integrated competitors.

Products	Key Applications
Composites	Automotive (structural interior), sports (ski, snowboard), boat construction, aerospace, wind energy and industrial applications
Civil Engineering	Bridge and canal construction, concrete enhancement and corrosion protection
Electrical Casting	Generators and bushings, transformers, medium-and high-voltage switch gear components, post insulators, capacitors and automotive ignition coils
Adhesives	Automotive: hem flange adhesives and panel reinforcement in car components
	Construction: ceramic tiles, chemical dowels and marble
	Aerospace: metal and composite laminates
	Electronics: chip adhesives, solder masks and electronic inks
Electrical Laminates	Industrial laminates: unclad sheets, tube and molding, impregnation of paper, cotton and glass filament and printed circuit boards

111

Composite Resins

We are a leading producer of resins used in composites. Composites are a fast growing class of materials which are used in a wide variety of applications ranging from airframes and windmill blades to golf clubs. We supply epoxy resins to fabricators in the aerospace, sporting goods and pipe markets with a 44% market share in each of the United States and Europe. Our leadership position in epoxy resins, along with our technology and service expertise, enables us to selectively forward integrate into custom formulations for specialty composites, such as turbine blades used in the wind energy market. In addition to epoxy, we manufacture resins from unsaturated polyester (UPR), which are generally combined with fiberglass to produce cost-effective finished structural parts for applications ranging from boat hulls to recreational vehicles to bathroom fixtures.

Products	Key Applications
Reinforced-Epoxy unsaturated polyester and vinyl ester resins	Marine, transportation, construction, consumer products, recreational vehicles, spas, bath and shower surrounds
Non-reinforced-unsaturated polyester and vinyl ester resins	Cultured marble, construction, gel coat and surface coating and automotive putty

Phenolic Encapsulated Substrates

We are a leading producer of phenolic encapsulated sand and ceramic substrates used in oil field services and foundry applications. Our highly specialized compounds are designed to perform under extreme conditions, such as intense heat, high-stress and corrosive environments, that characterize the oil and gas drilling and foundry industries. In the oil field services industry we have a 45% global market share in resin encapsulated proppants, which are used to enhance oil and gas recovery rates and extend well life. We are also the leading producer by volume of foundry resins in North America with a 44% market share. Our foundry resin systems are used by major automotive and industrial companies for precision casting of engine blocks, transmissions, brake and drive train components. In addition to encapsulated substrates, our foundry resins business provides phenolic resin systems and ancillary products used to produce finished metal castings.

Products	Key Applications
Oil Field Service Applications
XRT® Resin Systems	Patent pending resin technology for extreme flowback and fracture conductivity conditions for ceramics, bauxite and premium sands
Curable Resin-Coated Sand, AcFrac® SB Excel, Black Plus CR 4000	Systems that increase strength and control proppant flowback on medium grand sand systems
Precured Resin-Coated Sand PR 6000	System to gently enhance crush resistance and high flow capacities with all grades of sand proppants
Foundry Applications
Refractory Coatings	General purpose products for ferrous and nonferrous applications
Resins-SigmaCure®, SigmaSet®, Super Set®, ALpHASET®, BETASET® and Plastiflake®	A comprehensive selection of synthetic resins for bonding sand cores and molds in a variety of applications including phenolic urethane cold box resins, phenolic urethane nobake resins, furan and phenolic acid curing resins, ester cured phenolic nobake resins, methyl formate cured phenolic cold box resins and phenolic resins for shell process

112

Molding Compounds

We are the leading producer of molding compounds in Europe, with an estimated market share of 69%. We formulate and produce a wide range of phenolic, polyester and epoxy compounds used to manufacture components requiring heat stability, electrical insulation, fire resistance and durability. Applications range from automotive underhood components to appliance knobs and cookware handles.

Products	Key Applications
Phenolic, Epoxy, Vinylester	Automotive ashtrays and under hood components, heat resistant knobs and bases, switches and breaker components and pot handles
Long Fiber Reinforced MC	High load, dimensionally stable automotive underhood parts and commutators
PBT, PET, PC, PC-ABS, PA6 and PA66	Connectors, switches, bobbins, wheel covers, power tool internal components and bodies

Coating

Epoxy Resins

In addition to the adhesive uses mentioned previously, epoxy resins are used for a variety of high-end coating applications which require the superior strength and durability of epoxy. Examples include protective coating for industrial and domestic flooring, pipe, marine and construction applications, powder coatings and automotive coatings. Where advantageous, we leverage our resin and additives position to supply custom resins for specialty coatings formulators.

Products	Key Applications
Electrocoat (LER, SER, BPA)	Automotive, general industry (heating radiators), white goods
Powder Coatings (SER, Performance Products)	White goods (appliances), pipes (oil and gas transportation), general industry (heating radiators, all types of metal objects) and automotive (interior parts and small components)
Heat Cured Coatings (LER, SER)	Metal packaging, coil coated steel for construction and general industry
Floor Coatings (LER, Solutions, Performance Products)	Chemically resistant, antistatic and heavy duty flooring in hospitals, chemical industry, electronics workshops, retail areas and warehouses
Ambient Cured Coatings (LER, SER, Solutions, Performance Products)	Marine (new build and maintenance), shipping containers and large steel structures (bridges, pipes, plants and offshore equipment)
Waterborne Coatings	Replacing solvent-borne products in both heat cured and ambient cured applications

Polyester Resins

We are a leading supplier of polyester coatings resins in North America with a market share of 10% and are also a major producer in Europe with a powder coatings market share of 10%. We provide custom polyester resins, both liquid and powder, to customers for use in industrial coatings requiring specific properties such as gloss and color retention, resistance to corrosion and flexibility. Polyester coatings are typically used in transportation, automotive, machinery, appliances and metal office furniture. Our polyester resins business shares an integrated production platform with our alkyd business, which allows for flexible sourcing, plant balancing and economies of scale.

113

Products	Key Applications
Powder Polyesters	Outdoor durable systems for architectural window frames, facades and transport; indoor systems for domestic appliances and general industrial applications
Liquid Polyesters and polyester dispersions	Automotive, coil and exterior can coating applications

Alkyd Resins

We share the leading position in alkyd resins in North America with a market share of 31% and are a major producer in Europe, specifically in Scandinavia and Italy. We provide alkyd resins to customers for use in the manufacture of professional grade paints and coatings. Alkyd resins are formulated and engineered according to customer specifications, and can be modified with other raw materials to improve performance. Applications include industrial coatings (e.g., protective coatings used on machinery, metal coil, equipment, tools and furniture), special purpose coatings (e.g., highway-striping paints, automotive refinish coatings and industrial maintenance coatings) and decorative paints (e.g., house paint and deck stains). Our alkyd resins business shares an integrated production platform with our polyester resins business, which allows for flexible sourcing, plant balancing and economies of scale.

Products	Key Applications
Alkyd and Alkyd Emulsions	Architectural Markets: Exterior enamels, interior semi-gloss and trim, interior/exterior stains and wood primers
	Industrial Markets: Metal primers, general metal, transportation, machinery and equipment, industrial maintenance and marine, metal container and wood furniture
Alkyd Copolymer	Architectural Markets: Stain blocking primer, sanding sealers and aerosol
	Industrial Markets: Machinery and equipment, transportation, general metal and drywall coating
Urethane Modified	Architectural Markets: Clear varnishes (DIY) and floor coatings
	Industrial Markets: Wood coatings
Silicone Alkyd	Industrial Markets: Industrial maintenance and marine and heat resistance coatings

Acrylic Resins

We are a supplier of acrylic resins (solvent and water-based) in North America and Europe. Acrylic resins are used for interior trim paints and exterior applications where weathering protection, color and gloss retention are critical. In addition, we produce a wide range of specialty acrylic resins for marine and maintenance paints and automotive topcoats. We are also a low cost producer of acrylic monomer, the key raw material for our acrylic resins. This ability to internally produce key raw materials gives us a competitive cost advantage relative to our competitors and ensures adequacy of supply.

114

Products	Key Applications
Acrylic Dispersions	Architectural Markets: Interior semi-gloss & high gloss, interior and exterior paints, stains and sealers, drywall primer, masonry coatings and general purpose
	Industrial Markets: Automotive OEM, packaging, general metal, wood, plastic coatings, traffic marking paint, industrial maintenance and transportation, adhesives and textiles
Solutions Acrylics	Architectural Markets: Aerosol, masonry and tile sealer
	Industrial Markets: Transportation, packaging, aerosol, automotive OEM, appliance, industrial maintenance and marine and road marking

Ink Resins and Additives

We are the world’s largest producer of ink resins and associated products, with a market share of 15%. Ink resins are used to apply ink to a variety of different substrates including paper, cardboard, metal foil and plastic. We provide resins, liquid components and additives, sold primarily under the globally recognized Lawter^™ brand name to customers formulating inks for a variety of substrates and printing processes. Our products offer such performance enhancements as durability, printability, substrate application, drying speed and security. Typical end use applications include brochures, newspapers, magazines, food packages, beverage cans and flexible packaging. We are also a provider of formulated UV-cure coatings and inks. Our proprietary technology has enabled us to gain a leading position in the global fiber optic market.

Products	Key Applications
Resins	Graphic arts, commercial, publication and packaging
Vehicles and waxes	Sheet-fed, heatset, gloss and wetting vehicles and wax products
Liquid Inks	Polymer films, paper and corrugated boards

Versatic Acids and Derivatives

We are the world’s largest producer of versatic acids and derivatives, with a market share of 74%. Versatic acids and derivatives are specialty monomers which provide significant performance advantages to finished coatings, including superior adhesion, flexibility, ease of application and other high performance characteristics. The products include basic versatic acids and derivatives sold under the Versatic, VeoVa^® and Cardura^® names. Applications for versatic acids include decorative, automotive and protective coatings as well as other uses, such as pharmaceuticals and personal care products. We manufacture versatic acids and derivatives using our integrated manufacturing sites and our internally produced ECH.

Products	Key Applications
Cardura	Automotive repair/refinishing, automotive OEM and industrial coating
Versatic	Chemical building block, peroxides, pharmaceuticals and agrochemicals
VeoVa	Architectural coatings and construction

115

Marketing and Distribution

We market an extensive product line to meet a wide variety of customer needs. We focus on customers who are, or have the potential to be, leaders in their industries and have growth objectives which support our own growth objectives. In addition, we focus on customers who value our “Total Systems Approach”. This package includes high-quality, reliable products backed by local sales support and technical expertise offered at an attractive price. An important component of our strategy is to leverage our broad product capabilities to win high-end specialty business from our customers. In the coatings industry, for example, after having established our position as a reliable supplier of high-quality basic resins to our customers, we have leveraged our relationship to understand and develop solutions for customer needs in higher-end products such as performance resins, curing agents and modifiers. As a result of this strategy, we are able to become a supplier-of-choice for our key customers.

Products are sold to industrial users throughout the world through our direct sales force to larger customers and through third-party distributors to serve our smaller customers more cost effectively. Our direct sales force, customer service and support network consists of 295 employees in the Americas, 241 employees in Europe/Africa/Middle East and 48 employees in Asia-Pacific. Our customer service and support network is organized into key regional customer service centers. We have global account teams that focus on coordination for major global customers, including technical service, supply and commercial terms. Furthermore, where operational and regulatory factors vary meaningfully from country to country, we organize locally.

Competition

We compete with a variety of companies, including large global chemical companies and small specialty chemical companies, in each of our product lines. In addition, we face competition from a number of products that are potential substitutes for formaldehyde-based resins. The principal factors of competition in our industry include technical service, breadth of product offering, product innovation, and price. Some of our competitors are larger, have great financial resources and have less debt than we do and may, as a result, be better able to withstand changes in conditions throughout our industry relating to pricing or otherwise and the economy as a whole. We are able to compete with smaller niche specialty chemical companies due to our significant investment in research and development and our customer service model which provides for on-site value added technical service for our customers. In addition, our size and scale provides us significant efficiencies in our cost structure.

We believe that no single company competes with us across all of our existing product lines. The following charts sets forth our principal competitors by product application.

Adhesive & Structural

Product Line	Principal Competitors
Forest Products Resins	Dynea International, Georgia-Pacific and Kronospan
Specialty Phenolic Resins	Dynea International, Occidental Petroleum, Schenectady, Ashland and PA Resins
Formaldehyde	Dynea International and Georgia-Pacific
Epoxy Resins and Intermediates	Huntsman, Dow Chemical, Nan Ya, Chang Chun Polymers and Thai Epoxy

116

Coating

Product Line	Principal Competitors
Composite Resins	Huntsman, Dow Chemical, Ashland, AOC, Reichhold and CCP/Atofina
Phenolic Encapsulated Substrates	Ashland, Technisand, Hultenes Albertus, Carbo Ceramics, Santrol, Dynea International, FAR and Sumitomo
Molding Compounds	Dynea International, FAR and Sumitomo
Epoxy Resins	Dow Chemical, Huntsman, Nan Ya, Leuna and Kuk-do
Polyester Resins	DSM, Cytec, Cray Valley/CCP, Reichhold, Nuplex and EPS (owned by Valspar)
Alkyd Resins	Reichhold, CCP/Atofina/Cray Valley, DSM, Nuplex and EPS (owned by Valspar)
Acrylic Resins	Rohm & Haas, BASF, Dow Chemical, Cognis and DSM (Neoresins)
Ink Resins and Additives	Mead Westvaco, Akzo Nobel, Arizona, Resinall, Arakawa and Harima
Versatic Acids and Derivatives	ExxonMobil and Tianjin Shield

Raw Materials

We purchase thousands of types of raw materials for the production of our products. The primary raw materials in our production processes are methanol, phenol, urea, chlorine and propylene. In 2004, on a pro forma basis, we purchased approximately $3 billion of raw materials, and the largest raw material represented 28% of our total raw material purchasing expenditures in 2004 on a pro forma basis. The majority of raw materials used in the manufacturing of our products are available from more than one source and are readily available in the open market. We use long-term purchase agreements for our primary and certain other raw materials to ensure availability of adequate supplies. These agreements generally have periodic price adjustment mechanisms and do not have minimum annual purchase requirements. Those smaller quantity materials that are single sourced generally have long-term supply contracts as a basis to guarantee a maximum of supply reliability. Prices for our main feedstocks are generally driven by underlying petrochemical benchmark prices and energy costs. These raw materials are subject to price fluctuations. Although we seek to offset increases in raw material prices with increases in our product prices, we may not always be able to do so, and there may be periods when such product price increases lag behind raw material price increases.

117

Customers

In 2004, on a pro forma basis, our largest customer accounted for 3% of our net sales and our top ten customers accounted for 15% of our net sales. Neither our business nor any of our reporting segments depend on any single customer or a particular group of customers, the loss of which would have a material adverse effect on such a reporting group. Our primary customers consist of manufacturers, and the demand for our products is generally not seasonal.

Patents and Trademarks

We own, license or have rights to over 1,000 patents, over 1,500 trademarks and various patent and trademark applications and technology licenses in our reporting groups around the world, which are held for use or currently used in our operations. Our most significant trademarks are Borden^®, RESOLUTION^®, EPIKOTE^® Resins, EPON^® Resins, EPIKURE^® Curing Agents, EPI-REZ^® Waterborne Resins, Aquamac^®, Duramac^®, Polymac^®, Acrylimac^®, HELOXY^® Modifiers, CARDURA^® Glycidyl Ester, VEOVA^® Monomers, VERSATIC acids, Lawter^™, McWhorter^® and Ernst Jaeger^®. We use Borden^® in our operations and license the trademark to third parties for use on non-chemical products. A majority of our patents relate to the development of new products and processes for manufacturing and use thereof and will expire at various times between 2005 and 2025. We renew our trademarks on a regular basis. Bakelite owns numerous foreign registrations of the trademark Bakelite, which it uses in its operations and has licensed to a limited number of third parties on a non-exclusive basis. Bakelite uses the Bakelite trademark in marketing epoxy resin products in the United States. No individual patent or trademark is considered to be material; however, our overall portfolios of patents and trademarks are valuable assets.

Environmental Regulations

Our operations involve the use, handling, processing, storage, transportation and disposal of hazardous materials and are subject to extensive environmental regulation at the federal, state and international level and are exposed to the risk of claims for environmental remediation or restoration. Our production facilities require operating permits that are subject to renewal or modification. Violations of environmental laws or permits may result in restrictions being imposed on operating activities, substantial fines, penalties, damages or other costs. In addition, statutes such as the federal Comprehensive Environmental Response, Compensation, and Liability Act and comparable state and foreign laws impose strict, joint and several liability for investigating and remediating the consequences of spills and other releases of hazardous materials, substances and wastes at current and former facilities, and at third-party disposal sites. Other laws permit individuals to seek recovery of damages for alleged personal injury or property damage due to exposure to hazardous substances and conditions at our facilities or to hazardous substances otherwise owned, sold or controlled by us. Therefore, notwithstanding our commitment to environmental management, environmental, health and safety liabilities may be incurred in the future, and such liabilities may result in a material adverse effect on our business, financial condition, results of operations or cash flows.

Accruals for environmental matters are recorded in accordance with the guidelines of the AICPA Statement of Position 96-1, “Environmental Remediation Liabilities,” when it is probable that a liability has been incurred and the amount of the liability can be estimated. Although our environmental policies and practices are designed to ensure compliance with international, federal and state laws and environmental regulations, future developments and increasingly stringent regulation could require us to make additional unforeseen environmental expenditures. In addition, our former operations, including our ink, wall coverings, film, phosphate mining and processing, thermoplastics, food and dairy operations, may give rise to claims relating to our period of ownership. We cannot assure you that, as a result of former, current or future operations, there will not be some future impact on us relating to new regulations or additional environmental remediation or restoration liabilities.

We have adopted and implemented health, safety and environmental policies, which include systems and procedures governing environmental emissions, waste generation, process safety management, handling, storage

118

and disposal of hazardous substances, worker health and safety requirements, emergency planning and response, and product stewardship. We anticipate incurring future costs for capital improvements and general compliance under environmental laws, including costs to acquire, maintain and repair pollution control equipment. In 2004, we incurred related capital expenditures of $16 million. In 2003, Borden Chemical, Resolution Performance, Resolution Specialty and Bakelite incurred related capital expenditures of $5 million, $6 million, $5 million and $6 million, respectively. In 2002, Borden Chemical, Resolution Performance, Resolution Specialty and Bakelite incurred related capital expenditures of $4 million, $10 million, $7 million and $6 million, respectively. We estimate that $30 million will be spent for capital expenditures in 2005 for environmental controls at our facilities. This estimate is based on current regulations and other requirements, but it is possible that material capital expenditures in addition to those currently anticipated could be required if regulations or other requirements change.

Industry Regulatory Matters

The production and marketing of chemical substances are regulated by national and international laws. Although almost every country has its own legal procedure for registration and import, laws and regulations in the European Union, the United States and China are most significant to our business, including the European inventory of existing commercial chemical substances, the European list of notified chemical substances and the United States Toxic Substances Control Act inventory. Chemicals which are on one or more of the above lists can usually be registered and imported without additional testing in other countries, although additional administrative hurdles may exist.

We also actively seek approvals from the U.S. Food and Drug Administration for certain specialty chemicals produced by us, principally where we believe that these specialty chemicals will or may be used by our customers in the manufacture of products that will come in direct or indirect contact with food.

Research and Development

Our research and development activities are aimed at developing and enhancing products, processes, applications and technologies to maintain our position as the world’s largest producer of thermoset resins. We focus on:

• developing new or improved applications based on our existing product line and identified customer needs;

• developing new resin products and applications for customers in order to improve their competitive advantage and profitability;

• providing premier technical service for customers of specialty products;

• providing technical support for manufacturing locations and assisting in plant optimization;

• ensuring that our products are manufactured in accordance with our global environmental, health and safety policies and objectives;

• developing lower cost manufacturing processes globally; and

• expanding production capacity.

In 2004, our research and development and technical services expenses were $65 million. In 2003, the research and development and technical service expenses of Borden Chemical, Resolution Performance, Resolution Specialty and Bakelite were $18 million, $16 million, $29 million and $14 million, respectively. In 2002, the research and development and technical service expenses of Borden Chemical, Resolution Performance, Resolution Specialty and Bakelite were $20 million, $20 million, $26 million and $11 million, respectively. Development and marketing of new products are carried out by our reporting groups and are

119

integrated with quality control for existing product lines. We emphasize a customer driven, “systems and solutions” approach in discovering new applications and processes and providing excellent customer service through our technical staff. Through regular direct contact with our key customers, our research and development personnel can become aware of evolving customer needs in advance and can anticipate their requirements in planning customer programs. We also focus on on-going improvement of plant yields, fixed costs and capacity. These continuous integrated streams are characterized by exceptional product consistency, low cost economics and high quality resin that is valued by the customer for demanding applications. We estimate that this process provides us with a sustainable cost advantage over conventional batch technology, which is the traditional method of manufacturing certain resins.

We have approximately 552 scientists and technicians worldwide. We conduct research and development activities primarily at our facilities located in Pernis, the Netherlands; Houston, Texas; Louvain-la-Neuve, Belgium; Carpentersville, Illinois; Pleasant Prairie, Wisconsin; Roebuck, South Carolina; Sant’ Albano, Italy; Kallo, Belgium; Tianjin, China; Louisville, Kentucky; Springfield, Oregon; Barry, South Wales and Duisburg, Germany. Our research and development facilities include a broad range of synthesis, testing and formulating equipment, and small scale versions of customer manufacturing processes for applications development and demonstration. In addition, we have an agreement with a not-for-profit research center to assist in certain research projects and new product development initiatives.

Legal Proceedings

Environmental Proceedings. We have recorded liabilities of approximately $41 million relating to 63 locations at December 31, 2004 for all probable environmental remediation, indemnification and restoration liabilities. At December 31, 2004, Borden Chemical and Resolution Specialty recorded liabilities of approximately $38 million and $3 million, respectively, relating to 55 locations (in the case of Borden Chemical) and 8 locations (in the case of Resolution Specialty) for all probable environmental remediation, indemnification and restoration liabilities. These locations include existing and former manufacturing locations, as well as third-party disposal or Superfund sites where we have been named a potentially responsible party. At December 31, 2004, Resolution Performance did not record any liabilities for probable environmental remediation indemnification and restoration liabilities.

The Sokolov, Czech Republic facility has soil and groundwater contamination which pre-dates privatization and acquisition of the facility by Eastman in 2000. The investigation phase of a site remediation project is underway, directed by a steering committee which includes the Company, the National Property Fund and local regulators. The National Property Fund has provided its written commitment to reimburse all site investigation and remediation costs up to approximately $73 million, and has been reimbursing all costs to date. The current estimate for known site remediation is $16 million, but may increase following additional site investigation.

On August 8, 2005, Governo Do Parana and the Environmental Institution of Paraná IAP, an environmental agency of the Brazilian government, provided Borden Quimica Industrias, our Brazilian subsidiary, with notice of a potential fine of up to $5.4 million in connection with alleged environmental damages to the Port of Paranagua caused in November 2004 by an oil spill by a shipping vessel carrying methanol purchased by Hexion. The investigation is ongoing and no final determination has been made with respect to damages or the liability of our Brazilian subsidiary. We are disputing this claim.

We have entered into environmental indemnification agreements with each of the sellers in the Bakelite Transaction, Resolution Performance Transaction and Resolution Specialty Transaction. Under the Bakelite environmental indemnification agreement, the sellers have agreed to indemnify us for certain pre-existing environmental liabilities, including those related to our facility in Duisburg, Germany. Under the Resolution Performance environmental indemnification agreement, Shell will generally remain liable for pre-existing environmental conditions at facilities that were transferred to us in connection with the Resolution Performance Transaction and, under the Resolution Specialty environmental indemnification agreement, Eastman generally

120

will remain liable for pre-existing unknown environmental conditions at facilities that were transferred to us in connection with the Resolution Specialty Transaction, as well as the pre-existing known environmental conditions at the Roebuck, South Carolina facility. The indemnities under each of these agreements are subject to certain exceptions and limitations. In addition, our claims under each of the environmental indemnity agreements are subject to deductibles, ranging from $0.1 million for the Resolution Specialty agreement to € 2 million for certain claims under the Bakelite agreement, and indemnity caps, ranging from $10 million for certain liabilities under the Resolution Performance agreement to € 275 million for certain liabilities under the Bakelite agreement.

Other Legal Proceedings. We are involved in various product liability, commercial and employment litigation, personal injury, property damage and other legal proceedings which are considered to be in the ordinary course of our business. In large part, as a result of the bankruptcies of many asbestos producers, plaintiff’s attorneys are increasing their focus on peripheral defendants, including us, and asserting that even products that contained a small amount of asbestos caused injury. Plaintiffs are also focusing on alleged harm caused by other products we have made or used, including those containing silica and vinyl chloride monomer. We believe we have adequate reserves and insurance to cover currently pending and foreseeable future claims.

We have reserved approximately $21 million at December 31, 2004 relating to all non-environmental legal matters for legal defense and settlement costs that we believe are probable and estimable at this time. At December 31, 2004, Borden Chemical and Resolution Specialty reserved approximately $20 million and $1 million, respectively, relating to all non-environmental legal matters for legal defense and settlement costs which were believed to be probable and estimable at this time.

Manufacturing and Facilities

As of September 30, 2005, we operated 37 domestic production, manufacturing and distribution facilities in 20 states. In addition, we operated 49 foreign production, manufacturing and distribution facilities primarily in Australia, Brazil, Canada, China, Germany, Italy, Malaysia, the Netherlands, Spain and the United Kingdom. Our production and manufacturing facilities are generally well-maintained and effectively utilized. We believe our production and manufacturing facilities are adequate to operate our business.

The majority of our facilities are used for the production of thermosetting resins, and most of our facilities produce more than one type of thermoset resin. The resins produced vary by site, but include all of our technologies: amino resins (urea and melamine), phenolic resins, epoxy resins, alkyd resins, polyester resins, acrylic resins, urethane resins, ink resins, composite resins, powder resins, versatic derivatives and U/V resins. These facilities typically utilize batch technology, and range in size from small sites with a limited number of reactors to larger, core sites with dozens of reactors. One exception to this is the epoxy plant in Deer Park, Texas, the only “continuous” process epoxy resins plant in the world which provides us with a cost advantage over conventional technology.

In addition, we have the ability to internally produce key intermediate materials such as formaldehyde, BPA, ECH, versatic acid, acrylic acid and gum rosin. This provides us with a competitive cost advantage relative to our competitors and facilitates our adequacy of supply. These facilities are usually co-located with the thermoset resin facilities they serve, and the process technology utilized in the production process is generally more complicated. These intermediate materials facilities are often much larger than a typical resins plant, in order to capture the benefits of manufacturing efficiency and scale; as a result, these facilities typically also have the ability to sell material not used internally to third parties.

121

Our executive and administrative offices, production, manufacturing and distribution facilities at September 30, 2005 are shown in the following table:

Location	Function	Nature of Ownership
Domestic
Alexandria, LA	Manufacturing	Owned
Argo, IL*	Manufacturing	Owned
Aurora, IL	Manufacturing	Owned
Baytown, TX	Manufacturing	Owned
Bellevue, WA	Executive and Administration	Leased
Brady, TX	Manufacturing	Owned
Carpentersville, IL	Manufacturing	Owned
Cincinnati, OH	Manufacturing	Owned
Columbus, GA	Manufacturing	Owned
Columbus, OH	Executive and Administration	Leased
Deer Park, TX*	Manufacturing	Owned
Demopolis, AL	Manufacturing	Owned
Diboll, TX	Manufacturing	Owned
Dutchtown, LA	Storage Terminal	Owned
Ennis, TX	Manufacturing	Owned
Fayetteville, NC	Manufacturing	Owned
Forest Park, GA	Manufacturing	Owned
Fremont, CA	Manufacturing	Owned
Geismar, LA	Manufacturing	Owned
Gonzales, LA	Manufacturing	Owned
High Point, NC	Manufacturing	Owned
Hope, AR	Manufacturing	Owned
Houston, TX	Executive and Administration	Leased
Houston, TX	Laboratory	Leased
LaGrande, OR	Manufacturing	Owned
Lakeland, FL	Manufacturing	Owned
La Vergne, TN	Manufacturing	Owned
Louisville, KY	Manufacturing	Owned
Louisville, KY	Executive and Administration	Leased
Lynwood, CA	Manufacturing	Owned
Missoula, MT	Manufacturing	Owned
Moreau, NY	Manufacturing	Owned
Morganton, NC	Manufacturing	Owned
Mt. Jewett, PA	Manufacturing	Owned
Norco, LA*	Manufacturing	Owned
Oregon, IL	Manufacturing	Owned
Pleasant Prairie, WI	Manufacturing	Owned
Portland, OR	Manufacturing	Owned
Roebuck, SC	Manufacturing	Owned
Sheboygan, WI	Manufacturing	Owned
Springfield, OR	Manufacturing	Owned
Toledo, OH	Manufacturing	Owned
Virginia, MN	Manufacturing	Owned
Westmont, IL	Executive and Administrative	Leased

122

Location	Function	Nature of Ownership
International
Brisbane, Queensland, Australia	Manufacturing	Owned
Laverton North, Victoria, Australia	Manufacturing	Owned
Somersby, New South Wales, Australia	Manufacturing	Owned
Kallo, Belgium	Manufacturing	Leased
Louvain-la-Neuve, Belgium	Laboratory	Leased
Boituva, Brazil	Manufacturing	Owned
Cotia, Brazil	Manufacturing	Owned
Curitiba, Brazil	Manufacturing	Owned
Edmonton, AB, Canada	Manufacturing	Owned
Laval, PQ, Canada	Manufacturing	Owned
St. Romuald, PQ, Canada	Manufacturing	Owned
Vancouver, BC, Canada	Manufacturing	Owned
Yumbo, Colombia	Manufacturing	Owned
Sokolov, Czech Republic	Manufacturing	Owned
Pardubice, Czech Republic	Manufacturing	Owned
Kitee, Finland	Manufacturing	Owned
Rouen, France	Distribution	Owned
Iserlohn-Letmathe, Germany	Manufacturing	Owned/Leased
Duisburg-Meiderich, Germany	Manufacturing	Owned/Leased
Frielendorf, Germany	Manufacturing	Owned
Hamburg, Germany	Manufacturing	Owned
Stuttgart, Germany	Manufacturing	Leased
Wesseling, Germany*†	Manufacturing	Owned
Codogno, Italy	Manufacturing	Owned
Cola’ di Lazise, Italy	Manufacturing	Leased
Pieveottoville, Italy	Manufacturing	Owned
Sant’ Albano, Italy	Manufacturing	Leased
Solbiate-Olona, Italy	Manufacturing	Owned
Soragna, Italy	Manufacturing	Owned
Onsan, Korea*	Manufacturing	Owned
Kedah, Malaysia	Manufacturing	Owned
Kuantan, Malaysia	Manufacturing	Owned
Prai, Malaysia	Manufacturing	Owned
Hoogvliet, The Netherlands	Executive and Administrative	Leased
Moerdijk, The Netherlands*†	Manufacturing	Owned
Pernis, The Netherlands*	Manufacturing	Owned
Rotterdam, The Netherlands	Manufacturing	Owned
Funing, People’s Republic of China	Manufacturing	Owned
Heyuan, People’s Republic of China	Manufacturing	Owned
Nanping, People’s Republic of China	Manufacturing	Owned
Shanghai, People’s Republic of China	Executive, Administration and Manufacturing	Leased
Tianjin, People’s Republic of China	Manufacturing	Owned
Barbastro, Spain	Manufacturing	Owned
Hernani, Spain	Manufacturing	Owned
Salcedo, Spain	Manufacturing	Owned
Molndal, Sweden	Manufacturing	Owned

123

Location	Function	Nature of Ownership
Barry, South Wales, United Kingdom	Manufacturing	Owned
Chandlers Ford, England, United Kingdom	Manufacturing	Owned
Cowie, Scotland, United Kingdom	Manufacturing	Owned
Peterlee, England, United Kingdom	Manufacturing	Owned
Stanlow, England, United Kingdom*†	Manufacturing	Owned

* All of the assets at these facilities are owned. The land is occupied pursuant to a ground lease.

† These facilities are partly operated by Shell or its affiliates on our behalf pursuant to contractual arrangements and operations which will shift to us in 2005 (with the exception of Stanlow, England, United Kingdom).

Employees

At December 31, 2004, we had approximately 6,900 employees. Approximately 40% of our employees are members of a labor union or represented by workers’ councils. Our facility located in Demopolis, Alabama, employs approximately 20 members of the United Food and Commercial Workers Union International, and they are all subject to a collective bargaining agreement. HAI’s facility, located in Aurora, Illinois, employs approximately 9 members of the United Auto Workers union, all of whom are subject to a collective bargaining agreement in force through May 15, 2009. Hexion Canada employs approximately 15 members of the Communications, Energy & Paperworks Union of Canada at its facility in British Columbia, Canada who are subject to a collective bargaining agreement, which continues in force until October 31, 2007. Borden Chemical UK Limited employs approximately 87 union employees at our Barry, Cowie and Chandlers Ford locations in the United Kingdom and 25 union employees at our facility in Rouen, France. Borden Chemical Australia PTY LTD, employs approximately 50 union employees at multiple locations throughout Australia. There is a collective bargaining agreement in force for the Laverton North Plant. Borden Quimica Industria e Comercio Ltda., employs approximately 35 union employees at two locations in Brazil and Alba Adesivos e Comercio Ltda. employs approximately six union employees in Boituva, Brazil. There are collective bargaining agreements in place for each of these Brazilian subsidiaries. Bakelite AG employs approximately 775 union employees at its four facilities in Germany. Bakelite Italia S.p.A. and Taro Plast S.p.A. employ approximately 110 union employees at locations in Italy. Bakelite Ibérica, Bakelite OY and Bakelite Korea employ 81 union employees in Spain, 37 union employees in Finland and 29 union employees in Korea, respectively. Approximately 74 employees at our Deer Park, Texas plant are subject to a collective bargaining agreement which expires in September 2006. Approximately 57 employees at our Norco, Louisiana plant are subject to a collective bargaining agreement which expires on October 30, 2007. Approximately 78 employees at our Pleasant Prairie, Wisconsin plant are subject to a collective bargaining agreement that expires in April 2007. Approximately 40 employees at our Lynwood, California plant are subject to a collective bargaining agreement that expires in July 2007. Approximately 211 employees at our plant are in Pernis, Netherlands subject to a collective bargaining agreement which expired in October 2004 and is currently under negotiation. Approximately 23 of the employees at our plant in Barbastro, Spain are subject to a collective bargaining agreement that expires in December 2006. Approximately 135 employees at our plant in Kallo, Belgium are subject to a collective bargaining agreement which expired December 2004 and is currently under negotiation. Approximately 514 employees at our plant in Sokolov, Czech Republic are subject to a collective agreement that expires in March 2009. Approximately 176 employees in our Cola’ di Lazise and Sant’ Albano, Italy sites are covered by a collective bargaining agreement that expires in December 2005. Approximately 55 employees at our plant in Molndal, Sweden are covered by a collective bargaining agreement that expires in March 2007. Most of our European employees are represented by works councils. Relationships with our union and non-union employees are generally satisfactory.

124

MANAGEMENT

Directors and Executive Officers

Set forth below are the names, ages and current positions of our executive officers and directors.

Name	Age	Position
Craig O. Morrison	50	Director, Chairman, President and Chief Executive Officer
William H. Carter	52	Director, Executive Vice President and Chief Financial Officer
Marvin O. Schlanger	57	Director, Vice Chairman
Joseph P. Bevilaqua	50	Executive Vice President, President—Formaldehyde and Forest Products Resins
Jeffrey M. Nodland	50	Executive Vice President, President—Coatings and Inks
Layle K. Smith	50	Executive Vice President, President—Epoxy and Phenolic Resins
Mark S. Antonvich	45	Executive Vice President and General Counsel
Sarah R. Coffin	52	Executive Vice President, President—Performance Products
Nathan E. Fisher	39	Executive Vice President—Procurement
Kevin W. McGuire	45	Executive Vice President—Chief Information Officer
Richard L. Monty	57	Executive Vice President—Environmental Health and Safety
Raymond H. Glaser	45	Vice President—Strategy & Development
Nipesh Shah	30	Vice President—Six Sigma
George F. Knight	48	Senior Vice President—Finance and Treasurer
Nigel D. T. Andrews	58	Director Nominee
David C. House	55	Director Nominee
Joshua Harris	40	Director
Scott M. Kleinman	32	Director
Robert V. Seminara	33	Director
Jordan C. Zaken	30	Director

Craig O. Morrison was elected President and Chief Executive Officer effective March 25, 2002 and Chairman of the Board of Directors on June 29, 2005. Prior to joining our Company, he served as President and General Manager of Alcan Packaging’s Pharmaceutical and Cosmetic Packaging business from 1999 to 2002. From 1993 to 1998 he was President and General Manager for Van Leer Containers, Inc. Prior to joining Van Leer Containers, Mr. Morrison served in a number of management position with General Electric’s Plastics division from March 1990 to November 1993, and as a consultant with Bain and Company from 1987 to 1990. He is a member of the Executive and Environmental Health and Safety Committees of the Board of Directors.

William H. Carter was elected Executive Vice President and Chief Financial Officer effective April 3, 1995 and a director November 20, 2001. Throughout his tenure with us, Mr. Carter has been instrumental in the restructuring of our holdings, including serving as a director and interim President and Chief Executive Officer of a former subsidiary, BCP Management, from January to June 2000. Prior to joining our Company in 1995, Mr. Carter was a partner with Price Waterhouse LLP, which he joined in 1975. In addition, Mr. Carter was a director of BCP Management, Inc. and WKI, both of which filed a voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code in 2002. He is a member of the Environmental Health and Safety Committee of the Board of Directors.

Marvin O. Schlanger was elected Director and Vice Chairman of the Board of Directors of the Company on June 29, 2005. Mr. Schlanger served as Chairman and Chief Executive Officer of Resolution Performance and RPP Capital Corporation since March 2, 2001 until the closing of the Combinations and previously served as President of Resolution Performance and RPP Capital Corporation until July 2001. Since October 1998, Mr. Schlanger has been a principal in the firm of Cherry Hill Chemical Investments, LLC, which provides

125

management services and capital to the chemical and allied industries. From 1999 to 2000, he also served as interim president of OneChem, Ltd. From 1988 to October 1998, Mr. Schlanger held various positions with ARCO Chemical Company, serving most recently as President and Chief Executive Officer from May 1998 to October 1998 and as Executive Vice President and Chief Operating Officer from 1994 to May 1998. Mr. Schlanger is also a director of UGI Corporation and, prior to the Combinations, he was a director and Chairman of the Board of RPP Capital and Resolution Speciality Materials, Inc. He is a member of the Environmental Health and Safety Committee of the Board of Directors.

Joseph P. Bevilaqua is an Executive Vice President and President of Formaldehyde and Forest Products Resins, a position he has held since January 2004. Mr. Bevilaqua joined the Company in April 2002 as Vice President—Corporate Strategy and Development. From February 2000 to March 2002, he was the Vice President and General Manager of Alcan’s global plastics packaging business. Prior to Alcan, Mr Bevilaqua served in leadership positions with companies such as General Electric, Woodbridge Foam Corporation and Russell-Stanley Corporation.

Jeffrey M. Nodland was appointed Executive Vice President and President of Coatings and Inks on the closing of the Combinations. Mr. Nodland has been serving as President and Chief Operating Officer of Resolution Specialty Materials since the company’s inception in August 2004. Previously, Mr. Nodland was President and Chief Operating Officer of Resolution Performance and RPP Capital Corporation from July 2001 until July 2004. Prior thereto since 2000, Mr. Nodland was Vice President and General Manager, Coatings, Ink, Textiles and Composites for Eastman Chemical Company. From 1994 to 2000, he served in various management capacities including President and Chief Executive Officer of McWhorter Technologies, Inc. Prior thereto since 1977, Mr. Nodland held various positions at The Valspar Corporation, serving most recently as President of the McWhorter division.

Layle K. Smith was appointed Executive Vice President and President of Epoxy and Phenolic Resins of the Company on the closing of the Combinations. Mr. Smith has been serving as President and Chief Operating Officer of Resolution Performance and RPP Capital Corporation since September 2004. Previously, Mr. Smith was Chief Executive Officer and Director for NxtPhase Corporation from February 2002 to February 2004. From 1998 to November, 2001, he served in several roles at Ballard Power Systems including President and Chief Operating Officer and Board Member. Prior to September 1998, Mr. Smith held various positions at The Dow Chemical Company serving most recently as Business Vice President—Specialty Chemicals.

Mark S. Antonvich was appointed an Executive Vice President and General Counsel of the Company on the closing of the Combinations. Mr. Antonvich has been serving as the Senior Vice President, General Counsel and Corporate Secretary of Resolution Performance and RPP Capital Corporation since January 1, 2004. Previously, Mr. Antonvich was the Vice President and General Counsel of Resolution Performance from May 8, 2001 to December 31, 2003. From August 2000 to May 2001, he was Senior Counsel for EGEP Inc., where he was responsible for international oil and gas transactions and providing legal support to operating assets in India. From 1995 to 2000, Mr. Antonvich represented Magma Copper Company and BHP Minerals in Tucson, Arizona and Houston, Texas, most recently serving as Senior Corporate Counsel, advising those companies on international mineral acquisitions and divestments, commercial and general corporate matters, operational and environmental issues related to mining and mineral processing activities, and complex litigation. From 1987 to 1995, he was in private practice in the Washington, D.C. area, following graduation from the Georgetown University Law Center.

Sarah R. Coffin was appointed Executive Vice President and President of Performance Products effective February 14, 2005 to oversee our oilfield, foundry, electronics and wood products industries, including operations in the Asia-Pacific region. Prior to joining the Company, she was employed by Seaman Corporation where she had the position of Vice President Sales and Marketing from May 31, 2004 to February 2005. From August, 2002 to March, 2003, Ms. Coffin was Senior Vice President Global Sourcing, Human Resources and Information Technology of Noveon, Inc., a global producer of performance polymer systems and adhesives.

126

From 1998 to 2002, she was Group President Specialty Plastics and Polymer Additives, Senior Vice President and General Manager Performance Coatings with BF Goodrich Performance Materials Company/Noveon, Inc. She is a director of SPX Corporation.

Nathan E. Fisher was appointed Executive Vice President—Global Procurement in June 2005. Mr. Fisher served the Company as Director of Global Procurement and then Vice President, Global Procurement from July 2003 to June 2005. From March 2003 to June 2003, he was Director, Strategic Raw Materials. Prior to joining the Company, from January 2000 to February 2003, Mr. Fisher was Global Chemicals Procurement Manager for Eastman Chemical Company.

Kevin W. McGuire is Vice President—Chief Information Officer. Prior to joining the Company, from July 2000 to June 2002, he served as Chief Operating Officer of Brainbench, Inc. From May 1997 to July 2000 he was Senior Director of Information Technology and Process Automation for Union Carbide Corporation.

Richard L. Monty was appointed Executive Vice President—Environmental Health & Safety effective January 26, 2004. Prior to joining the Company, he was employed by Huntsman Corporation from July 1992 to January 2004 in various Environmental Health and Safety positions, ultimately serving as Director, Global Environmental Health & Safety from 2001 to January 2004.

Raymond H. Glaser was appointed Vice President—Strategy & Development in August 2002. Prior to joining the Company, he served as Director of Business Development for W.R. Grace & Co. from October 1999 to August 2002. Prior to that, he worked in several capacities from May 1996 to October 1999 for Allied Signal’s Performance Polymers division, including as Director of New Ventures.

Nipesh Shah was appointed Vice President—Six Sigma in November 2004. Prior to joining the Company, Mr. Shah was Vice President of Six Sigma Plus for Honeywell Security Group, from March 2002 to July 2004. From August 1999 to February 2002 he served as Six Sigma Plus Leader/Master Black Belt at Avery Dennison, Inc.

George F. Knight joined the Company in 1997. From 1999-2001 he served as Vice President of Finance for Borden Foods Corporation, an affiliate of the Company. In 2001, he re-joined the Company and was appointed Vice President—Finance and Treasurer of the Company in July 2002. He was promoted to Senior Vice President in June 2005.

Nigel D.T. Andrews is expected to be elected as a director of the Company upon consummation of the proposed IPO. Since his retirement in 2000, he was managing director of Internet Capital Group from 2000 to 2001 and is currently a venture partner of Internet Capital Group. He served as executive vice president of GE Capital from 1993 to 2000 and prior to that, as vice president and general manager of GE Plastics Americas, and as vice president for corporate business development reporting to the chairman. Mr. Andrews is also a director of Chemtura Corporation, Old Mutual plc, and a trustee of the Victory Funds, an affiliate of KeyBanc Capital Markets, a division of McDonald Investments Inc.

David C. House is expected to be elected as a director of the Company upon consummation of the proposed IPO. He currently serves as Advisor to the Chairman for American Express Company. From June 2000 to July 2005, Mr. House served as group president, Global Network and Establishment Services and Travelers Cheque and Prepaid Services Group for American Express. From 1995 to 2000, Mr. House was president of the Establishment Services Group of American Express in the U.S.

Joshua J. Harris was elected a director of the Company on August 12, 2004. Mr. Harris is a founding Senior Partner at Apollo and has served as an officer of certain affiliates of Apollo since 1990. Prior to that time, Mr. Harris was a member of the Mergers and Acquisitions Department of Drexel Burnham Lambert

127

Incorporated. Mr. Harris is also a director of GNC Corporation, Nalco Holdings, Pacer International, Inc., Quality Distribution Inc. and UAP Holding Corp. Prior to the Combinations, Mr. Harris was a director of Resolution Performance Products LLC and Resolution Specialty Materials, Inc. He is a member of the Executive Committee and Chair of the Compensation Committee of the Board of Directors.

Scott M. Kleinman was elected a director of the Company on August 12, 2004. Mr. Kleinman is a Partner at Apollo, where he has worked since February 1996. Prior to that time, Mr. Kleinman was employed by Smith Barney Inc. in its Investment Banking division. Prior to the Combinations, Mr. Kleinman was also a director of Resolution Performance Products LLC and Resolution Specialty Materials, Inc. He is a member of the Audit and Environmental Health and Safety Committees of the Board of Directors.

Robert V. Seminara was elected a director of the Company on August 12, 2004. Mr. Seminara is a Partner at Apollo and has served as an officer of certain affiliates of Apollo since January 2003. From June 1996 to January 2003, Mr. Seminara served as an officer in the private equity investment group at Evercore Partners LLC, where he held the title Managing Director. He is a member of the Executive and Compensation Committee and is Chair of the Audit Committee of the Board of Directors.

Jordan C. Zaken was elected a director of the Company on June 29, 2005. Mr. Zaken is a Partner at Apollo, where he has worked since 1999. Prior to that time, Mr. Zaken was employed by Goldman, Sachs & Co. in its Mergers and Acquisitions Department. He is a member of the Environmental Health and Safety Committee of the Board of Directors.

Compensation of Directors

Non-employee directors are paid an annual retainer of $40,000, paid quarterly after each fiscal quarter of service, and a fee of $1,000 per board meeting and each committee meeting attended, and 50% of such amounts for board meetings attended via teleconference. We also plan to pay them a fee for acting as committee chair and to grant stock options and/or restricted stock awards under our benefit plans.

Committees of the Board of Directors

The Board of Directors has an executive committee, compensation committee, audit committee and environmental health and safety committee. The executive committee may exercise all powers expressly reserved to the Board of Directors under New Jersey law. The members of the executive committee are Messrs. Morrison, Harris and Seminara. The compensation committee reviews and makes recommendations regarding the compensation of our directors, officers and other employees and on our compensation policies, strategies, plans and programs, including, but not limited to, any long and short-term incentive plans, deferred compensation plans, stock option or equity award plans and change in control or other severance plans. The members of the compensation committee are Messrs. Harris and Seminara. Our Audit Committee recommends the firm to be appointed as independent accountants to audit financial statements and to perform services related to the audit, reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of the internal accounting procedures, considers the effect of such procedures on the accountants’ independence and establishes policies for business values, ethics and employee relations. The Audit Committee consists of Messrs. Kleinman and Seminara, both of whom are “audit committee financial experts” as such term is defined in Item 401(h) of Regulation S-K. The environmental health and safety committee oversees the environmental health and safety compliance program, monitors our environmental health and safety performance statistics, oversees compliance with environmental health and safety indemnifications, and recommends the general budget for environmental health and safety capital spending. The members of our environmental health and safety committee are Messrs. Morrison, Carter, Schlanger, Kleinman and Zaken.

Code of Ethics

We have a Code of Business Ethics that applies to all associates, including our Chief Executive Officer and senior financial officers. These standards are designed to deter wrongdoing and to promote the honest and ethical conduct of all employees. Excerpts from the Code of Business Ethics, which address the subject areas covered by the SEC’s rules, are posted on our website: www.hexionchem.com under “About Us.” Any substantive

128

amendment to, or waiver from, any provision of the Code of Business Ethics with respect to any senior executive or financial officer shall be posted on this website. The information contained on our website is not part of this prospectus.

Executive Compensation

Summary Compensation Table

The following table sets forth information with respect to compensation earned by our Chief Executive Officer and our four next most highly compensated executive officers, whom we refer to as our named executive officers, for the period indicated.

Names and Principal Position	Annual Compensation							Long-Term Compensation					All Other Compensation(1) ($)
	Year	Salary ($)		Bonus ($)		All Other Annual Compensation ($)		Awards				Payouts
								Restricted Stock Award(s) ($)		Securities Underlying Options (#)		LTIP Payouts ($)
Craig O. Morrison	2004	659,230		774,030		—		—		603,028	(7)	—	3,098,294
President and Chief Executive Officer	2003	524,230		320,000		—		—		—		—	39,173
	2002	375,000		300,000		—		2,380,952	(2)	1,386,667	(2)	—	54,076
William H. Carter	2004	567,277		407,161		—		—		482,442	(7)	—	3,016,446
Executive Vice President and Chief Financial Officer	2003	525,300		627,100	(4)	—		—		480,000	(6)	—	56,584
	2002	506,154	(3)	670,363	(4)	—		—		—		—	825,449
Joseph P. Bevilaqua	2004	347,899		230,296		—		—		201,009	(7)	—	1,548,216
Executive Vice President	2003	266,456		126,717		—		—		—		—	15,719
	2002	182,692		56,250		50,085		1,190,475	(2)	105,333	(2)	—	61,016
Judith A. Sonnett	2004	274,249		136,721		—		—		—		—	616,096
Vice President Human Resources	2003	240,056		73,819		43,907	(5)	—		131,250	(6)	—	10,000
	2002	225,698		69,924		—		—		—		—	14,590
C.H. Morton	2004	275,000		155,080		—		—		225,108	(7)	—	388,020
Vice President Manufacturing

(1) All Other Compensation includes matching company contributions to our Retirement Savings Plan and our executive supplemental benefit plans. For 2004 these matching contributions were: Mr. Morrison $40,728; Mr. Carter $43,358; Mr. Bevilaqua $19,434; Ms. Sonnett $10,250; and Mr. Morton $7,606. For Messrs. Morrison and Bevilaqua, their amounts also include payments of $3,057,566 and $1,528,782, respectively, for the cancellation of their restricted stock at the time of the Borden Transaction. Of these payments, Messrs. Morrison and Bevilaqua received cash payments of $1,557,566 and $1,028,781, respectively, and the balance of the payments was credited in the form of deferred shares under the deferred compensation plan described below. In addition, for Mr. Carter, Ms. Sonnett and Mr. Morton, the amounts shown include one-time sale bonuses of $2,573,088, $605,846 and $350,202, respectively, paid at the time of the Borden Transaction. Portions of the sale bonuses paid to Messrs. Carter and Morton were credited in the form of deferred shares under the deferred compensation plan. For Mr. Carter, the amount also includes the final installment ($400,000) of his retention bonus. The amount shown for Mr. Morton includes $30,212 for reimbursed moving expenses.

(2) In 2002, in connection with their commencing employment with us, Messrs. Morrison and Bevilaqua were granted (i) options to purchase 210,667 and 105,333 shares of common stock of Borden Chemical, respectively, each of which were granted with an exercise price of $2.25 per share and generally vest ratably over five years, and (ii) 1,058,201 and 529,100 shares of restricted common stock, respectively, that were scheduled to vest after three years of employment. In addition, Mr. Morrison was granted performance options to purchase 1,176,000 shares of common stock with an exercise price of $2.25 per share. In connection with the Borden Transaction, these options were settled in cash, and the restricted shares were cancelled in exchange for both cash and deferred shares as described in footnote (1) above.

(3) 100% of Mr. Carter’s 2002 salary was paid by Borden Capital, our affiliate, funded by fees paid by Borden Chemical.

(4) A portion of the bonus payments made in 2002 and 2003 to Mr. Carter, $417,263 and $380,000, respectively, relate to installments paid for a one-time retention bonus and were paid by affiliates funded by fees paid by Borden Chemical.

(5) Reimbursement for payment of taxes.

(6) In connection with the Borden Transaction, these options were settled in cash.

(7) Represents options to purchase BHI Acquisition Corp. common stock. For Mr. Morton the amount includes options to purchase 131,250 shares of Borden Chemical’s common stock granted to him in February 2004, which were subsequently exercised at the time of the Borden Transaction.

129

Option/SAR Grants in Last Fiscal Year

The following table sets forth options for shares of our common stock granted to each of our named executive officers during fiscal year 2004.

	Individual Grants
Name	Number of Securities Underlying Options/ SAR’s Granted		Percent of Total Options Granted To Employees In Fiscal Year		Exercise Or Base Price ($/per share)	Expiration Date	Grant Date Present Value(3)
Craig O. Morrison	603,028	(1)	23.93	%(2)	$6.22	8/12/14	$	609,862
William H. Carter	482,422	(1)	19.14	%(2)	$6.22	8/12/14	$	487,991
Joseph P. Bevilaqua	201,009	(1)	7.97	%(2)	$6.22	8/12/14	$	203,287
Judith A. Sonnett	—		—		—	—		N/A
C.H. Morton	93,858	(1)	3.72	%(2)	$6.22	8/12/14	$	94,941

(1) Options granted by BHI Acquisition Corp. in fiscal year 2004 following the Borden Transaction.

(2) Percent of total options granted by BHI Acquisition Corp in fiscal year 2004.

(3) The fair value of each option grant is estimated on the date of grant using the minimum value method and the Black-Scholes options pricing model with a risk-free weighted average interest rate of 3.55%, dividend rate of 0.0% and expected life of five years.

Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values

The following table provides information on options exercised in 2004 by each of our named executive officers and the value of their unexercised options at December 31, 2004.

Name	Shares Acquired on Exercise (#)(1)	Value Realized ($)	Number Of Securities Underlying Unexercised Options/SARs At Fiscal Year End		Value Of Unexercised In-The-Money Options/SARs At Fiscal Year End ($)
			Exercisable	Unexercisable(2)	Exercisable(3)	Unexercisable(3)
C.O. Morrison	644,297	886,634	—	603,028	—	—
W.H. Carter	223,026	426,912	—	482,422	—	—
J.P. Bevilaqua	48,942	67,350	—	201,009	—	—
J.A. Sonnett	60,984	116,734	—	—	—	—
C.H. Morton	60,984	116,734	—	93,858	—	—

(1) Represents options for shares of Borden Chemical which were exercised in connection with the Borden Transaction.

(2) Represents options for shares of stock in Borden Chemical’s parent, BHI Acquisition Corp.

(3) There is no established trading market for the stock of BHI Acquisition Corp., but, based on its estimated fair value at December 31, 2004, no options have been designated to be in-the-money. The estimated market value was calculated based on the formula as defined in the Borden Chemical Investor Rights Agreement.

In 1999, 2003 and 2004, members of our management team were granted options to purchase shares of Borden Chemical common stock under the Amended and Restated 1996 Stock Purchase and Option Plan for Key Employees, which we refer to as the 1996 Equity Plan. As part of the Borden Transaction, the 1996 Equity Plan was terminated and the holders of the options outstanding under the 1996 Equity Plan became entitled to receive an aggregate cash amount equal to approximately $3.9 million. As of December 31, 2004, no options remained outstanding under the 1996 Equity Plan.

Messrs. Seminara, Kleinman and Harris currently hold options covering 28,141 shares, 86,748 shares and 86,748 shares, respectively, of our common stock. The options were granted for their services as directors on the boards of Resolution Performance, Resolution Specialty and/or Borden Chemical. The stock options will become fully vested upon the earlier of a termination of service in connection with the Combinations or the consummation of the IPO and will be automatically exercised upon the consummation of the IPO.

130

2005 Management Incentive Plan

Hexion maintains a 2005 management incentive plan (which we refer to as the management incentive plan). Under the management incentive plan, participants earn cash bonus compensation based upon the achievement of certain individual performance goals and Hexion’s achievement of certain financial measures. Each participant’s target award is based on a percentage of base salary. For our named executive officers and other senior managers, bonuses are paid under the plan only if at least 90% of the specified target level of EBITDA (as this term is defined in the management incentive plan) is achieved. If the individual performance goals are met and at least 90% of the EBITDA target is achieved, bonuses for these senior managers range from 66% of the target award up to a maximum of 200% of the target award based on the actual EBITDA level achieved.

Long-Term Value Creation Reward Program

On July 28, 2005, our compensation committee approved the Long-Term Value Creation Reward Program (which we refer to as the reward program) for certain executive officers and key managers. The reward program has two components—a cash bonus component and a stock appreciation right (SAR) component. Certain participants will only receive SARs. The cash bonus awards and the SARs will vest in one-third installments over a three-year period. An individual who is granted a cash-bonus award under the reward program will have a maximum aggregate bonus opportunity of 40% or 50% of the individual’s current annualized base salary rate. One hundred percent of the individual’s cash bonus opportunity will be paid if the individual remains continuously employed by us for the three-year vesting period. The SARs will be granted with a base price equal to the price of a share of our common stock in the proposed IPO. Individuals who are granted SARs will, at the end of the three-year vesting period, receive a cash payment for each vested SAR equal to the amount (if any) that the then current market price of our common stock (based on the average market price for the preceding ten trading days) exceeds the base price of the SAR. Subject to final approval of the terms of awards under the reward program by the committee, it is expected that any portion of the cash bonus opportunity and any SARs that have not vested as of the date an individual’s employment terminates for any reason (including the individual’s death or disability) will be cancelled. Any portion of the cash bonus opportunity and any SARs that have vested as of the date the individual’s employment terminates will be paid at the end of the three-year vesting period (although payment of vested awards may be made earlier in the case of an individual’s death to his or her estate), except that if the individual’s employment is terminated by us for cause (as defined in the reward program), the individual’s entire cash bonus opportunity and all of his or her SARs, whether or not vested, will be immediately cancelled, and no payment will be made.

Judy Sonnett is eligible to participate in the reward program. It is expected that Ms. Sonnett will be granted a cash bonus opportunity of $70,000 and an award of 5,600 SARs. None of our other named executive officers are eligible to participate in the reward program. In addition to the SARs granted to Ms. Sonnett, it is expected that approximately 13,939 SARs will be granted to executive officers who are not named executive officers and that approximately 116,159 SARs will be granted to non-executive employees. Each of the awards described in this paragraph will be effective only upon the consummation of the proposed IPO.

Hexion LLC 2004 Deferred Compensation Plan

In connection with the Borden Transaction, Hexion LLC adopted the 2004 deferred compensation plan, which we refer to as the deferred compensation plan, for the benefit of certain of our executives. As described above, these executives became entitled to payment of either a sale bonus or proceeds in respect of cancelled restricted stock pursuant to the Borden Transaction. Individual deferred compensation accounts were created for these executives under the deferred compensation plan, and a portion of these payments were credited to these accounts in the form of deferred shares of common stock. The deferred compensation plan was assumed by us in connection with the Combinations, and each deferred share represents the right to receive one share of Hexion common stock on the applicable payment date. At the discretion of the administrator of the plan, certain distributions of deferred shares may be made in cash. Participants do not have any voting rights with respect to their deferred shares held under the plan. The deferred compensation plan is an unfunded plan.

131

As of September 30, 2005, approximately 1.0 million deferred shares were outstanding under the deferred compensation plan, of which approximately 0.7 million deferred shares were vested and approximately 0.6 million deferred shares remained subject to forfeiture (as described below). As of September 30, 2005, the accounts of our named executive officers have been credited with the number of deferred shares of common stock as set forth opposite such executive’s name below.

Name	Deferred Shares of Common Stock
Craig O. Morrison	241,211
William H. Carter	192,969
Joseph P. Bevilaqua	80,404
Judith A. Sonnett	—
C. H. Morton	37,543

Under the deferred compensation plan, if Hexion pays a dividend or other distribution on its common stock, it will contemporaneously pay a cash bonus to each executive holding deferred shares. Such cash bonus amount with respect to any such dividend payment will be equal to the applicable per share dividend paid on the common stock multiplied by the number of deferred shares that such executive’s deferred compensation account is credited with as of the record date for such dividend payment (or the payment date if there is no record date). The number and kind of deferred shares subject to awards granted under the deferred compensation plan will be subject to adjustment in the event of reorganizations, mergers, combinations, recapitalizations, stock splits, stock dividends or other similar events that change the number or kind of shares outstanding, and extraordinary dividends or distributions of property to the stockholders.

The deferred compensation plan prohibits the assignment of the deferred shares except upon an executive’s death. For those executives who held units of restricted stock that were cancelled in connection with the Borden Transaction, the plan provides for the forfeiture of the executive’s deferred shares upon such executive’s termination for cause or voluntary resignation (other than for good reason) at any time prior to December 31, 2005.

Hexion LLC 2004 Stock Incentive Plan

In connection with the Borden Transaction, Hexion LLC adopted a stock incentive plan for the benefit of certain employees, which we refer to as the 2004 incentive plan. The 2004 incentive plan and outstanding awards thereunder were assumed by us in connection with the Combinations. The purpose of the 2004 incentive plan is to further our growth and success, to enable our employees, directors and consultants to acquire shares of our common stock, thereby increasing their personal interest in our growth and success, and to provide a means of rewarding outstanding performance by such persons. The 2004 incentive plan provides for the issuance of non-qualified stock options and rights to purchase shares of common stock. The 2004 incentive plan is administered by our compensation committee.

As of September 30, 2005, 2,519,978 shares were subject to awards granted under the plan (of which 2,435,554 shares were granted to employees). Awards granted under the 2004 incentive plan may not be assigned or transferred, except upon the participant’s death. The 2004 incentive plan will terminate ten years after its adoption and no awards may be granted under the plan thereafter. The number and kind of securities issuable under the 2004 incentive plan or subject to awards granted under the 2004 incentive plan, as well as the exercise or purchase prices of awards, will be subject to adjustment in the event of reorganizations, mergers, combinations, recapitalizations, stock splits, stock dividends or other similar events that change the number or kind of shares outstanding, and extraordinary dividends or distributions of property to the stockholders.

The employees participating in the 2004 incentive plan receive stock options under the 2004 stock incentive plan pursuant to individual stock option agreements, the terms and conditions of which will be substantially identical. Each agreement provides for the issuance of two tranches of options to purchase our common stock.

132

The Tranche A Options will vest 20% on each of the first five anniversaries of the grant date or, to the extent not yet vested, on the first anniversary of the closing of a sale of Hexion. Following a sale of Hexion, upon exercise of each Tranche A Option, the optionee will receive the same consideration per share as is received by Apollo in connection with such sale. All of the Tranche B Options will vest in whole or in part upon the earlier to occur of the eighth anniversary of the grant date or the date occurring six months after the date on which a sale of Hexion has been completed in the event certain financial milestones are met. Following a sale of Hexion in which such financial milestones are met, upon exercise of each Tranche B Option, the optionee will receive the same consideration per share as is received by Apollo in connection with such sale. Of the awards outstanding under the 2004 incentive plan as of September 30, 2005, 1,222,469 shares were subject to Tranche A Options and 1,213,083 shares were subject to Tranche B Options. In the event that we, or our successor, terminate a participant’s employment without cause (or the participant resigns under certain circumstances) at any time within a specified period following the sale, the participant’s options under the 2004 incentive plan may become vested and exercisable as of the date of the termination. For purposes of the 2004 incentive plan, a “sale of Hexion” generally means a sale of Hexion to one or more independent third parties, pursuant to which such party or parties acquire capital stock possessing the voting power to elect a majority of our board of directors, or a sale of all or substantially all of our assets. Furthermore, upon a realization event, we may, but are not obligated to, purchase each outstanding vested 2004 incentive plan option for an amount equal to the amount per share received in respect of the shares sold in such transaction constituting the realization event less the exercise price of the option. For purposes of the 2004 incentive plan, a “realization event” generally means a sale of Hexion as described above or any transaction or series of related transactions in which Apollo sells at least 50% of its interest in Hexion. Options granted under the 2004 incentive plan generally have a term of ten years.

Other Assumed Plans

In addition to the deferred compensation plan and the 2004 incentive plan, we assumed the following plans and the outstanding awards thereunder in connection with the Combinations: the Resolution Performance 2000 Stock Option Plan (which we refer to as the Resolution Performance option plan), the Resolution Performance 2000 Non-Employee Directors Option Plan (which we refer to as the Resolution Performance director plan), the Resolution Performance Restricted Unit Plan (which we refer to as the Resolution Performance unit plan) and the Resolution Specialty 2004 Stock Option Plan (which we refer to as the Resolution Specialty plan).

The Resolution Performance option plan provides that non-qualified or incentive stock options may be granted under the plan. As of September 30, 2005, 549,091 shares were subject to awards granted under the Resolution Performance option plan. The Resolution Performance director plan provides for the grant of non-qualified stock options to non-employee directors of Resolution Performance Inc. As of September 30, 2005, 96,941 shares were subject to awards granted under the Resolution Performance director plan. The Resolution Specialty plan provides that only non-qualified stock options may be granted under the plan. As of September 30, 2005, 970,844 shares were subject to awards granted under the Resolution Specialty plan (of which 635,578 shares were granted to employees).

These plans are administered by our board of directors or its compensation committee. The number and kind of securities subject to options granted under these plans will be subject to adjustment in the event of reorganizations, mergers, combinations, recapitalizations, stock splits, stock dividends or other similar events that change the number or kind of shares outstanding, and extraordinary dividends or distributions of property to the stockholders. No options granted under these plans may be assigned or transferred, except upon the participant’s death. Each of the plans will terminate on the tenth anniversary of its adoption. Options granted under any of these plans generally have an eight-year term. Each of the Resolution Specialty plan, the Resolution Performance option plan and the Resolution Performance director plan permits the committee to reduce the exercise price of outstanding stock options granted under that plan.

Mr. Schlanger is the sole participant in the Resolution Performance unit plan. As of September 30, 2005, Mr. Schlanger held 191,276 stock units under the Resolution Performance unit plan. These stock units will be

133

distributed in an equivalent number of shares of Hexion common stock upon the earliest to occur of a termination of Mr. Schlanger’s employment, a change in control event or January 1, 2009. Mr. Schlanger’s rights under the Resolution Performance unit plan are fully vested and nonforfeitable. The Resolution Performance unit plan is administered by our board of directors or its compensation committee. The number and kind of securities will be subject to adjustment in the event of reorganizations, mergers, combinations, recapitalizations, stock splits, stock dividends or other similar events that change the number or kind of shares outstanding, and extraordinary dividends or distributions of property to the stockholders. The stock units may not be assigned or transferred except in the event of Mr. Schlanger’s death.

Employment Arrangements

In connection with the Borden Transaction, Borden Chemical entered into employment agreements with Craig O. Morrison, Joseph P. Bevilaqua and William H. Carter. Under the terms of each of these employment agreements, the executive has agreed not to disclose any confidential information concerning our business. In addition, the executive has agreed not to solicit or hire any of our employees or solicit any of our customers, suppliers, licensees or other business relations until one year after he ceases to receive any payments under the agreement. Furthermore, the executive has agreed not to engage in any business competing with our business or products anywhere in the world where we are doing business until after he ceases to receive any payments pursuant to the agreement (or in certain circumstances, the first anniversary of such date).

Mr. Morrison’s employment agreement provides for an annual base salary of $661,500 and a target management incentive plan bonus of 100% of base salary. The agreement also provides for a perquisite payment in the amount of $40,000 annually, usual and customary health and pension benefits and a grant of 603,028 stock options at an exercise price of $6.22 per share. Mr. Morrison will be entitled to eighteen months’ severance based on his monthly base salary in the event of termination of employment by us for reasons other than for cause, death or disability or a resignation by Mr. Morrison for good reason.

Mr. Bevilaqua’s employment agreement provides for an annual base salary of $341,250 and a target management incentive plan bonus of 60% of base salary. The agreement also provides for a perquisite payment in the amount of $30,000 annually, usual and customary health and pension benefits and a grant of 201,009 stock options at an exercise price of $6.22 per share. Mr. Bevilaqua will be entitled to twelve months’ severance based on his monthly base salary in the event of termination of employment by us for reasons other than for cause, death or disability or a resignation by Mr. Bevilaqua for good reason.

Mr. Carter’s employment agreement provides for an annual base salary of $546,312 and a target management incentive plan bonus of 65% of base salary. The agreement also provides for a perquisite payment in the amount of $30,000 annually, usual and customary health and pension plan benefits and a grant of 482,422 stock options at an exercise price of $6.22 per share. Mr. Carter will be entitled to twenty-four months’ severance based on his monthly base salary in the event of termination of employment by us for reasons other than for cause, death or disability or a resignation by Mr. Carter for good reason.

We have an employment arrangement with Mr. Morton which entitles him to participate in our management perquisite program and management incentive plan and provides the usual and customary health, pension and other benefits. Mr. Morton is paid a base salary of $280,500 and participates in our management incentive plan with a target bonus of 50% of base salary. In addition, in connection with the Borden Transaction, Mr. Morton was granted the right to participate in the deferred compensation plan and 2004 incentive plan and is entitled to twelve months’ of base salary in the event of termination of employment without cause.

Ms. Sonnett entered into an arrangement with Borden Chemical in November 2004 to relinquish her role as Vice President – Human Resources in 2005 and become Vice President—People and Organization, working on a part-time basis. Ms. Sonnett is paid a base salary of $175,000 and participates in our management incentive plan with a target bonus of 30% of base salary. In addition, Ms. Sonnett will be provided with twelve months of severance pay if we terminate her employment without cause.

134

We have an employment arrangement with Ms. Coffin which entitles her to participate in our management perquisite program and management equity purchase program and provides that we will provide the usual and customary health, pension and other benefits and certain relocation benefits. Ms. Coffin is paid a base salary of $250,000 and participates in our management incentive plan with a target bonus of 50% of base salary.

In connection with the Combinations, we entered into employment agreements with Mr. Schlanger, Mr. Smith and Mr. Antonvich and a separate consulting agreement with Mr. Schlanger. We also assumed an employment agreement between Resolution Specialty and Mr. Nodland. Under the terms of each of these employment agreements and the consulting agreement, the executive has agreed not to disclose any confidential information concerning our business. In addition, pursuant to the terms of each of these employment agreements, the executive has agreed not to solicit or hire any of our employees (and, in the case of Mr. Antonvich, solicit any of our customers, suppliers, licensees or other business relations) until one year after he ceases to receive any payments under the agreement (or in certain circumstances, the first anniversary of such date). Under the terms of Mr. Schlanger’s consulting agreement, Mr. Schlanger has agreed not to solicit or hire any of our employees or solicit any of our customers until 24 months after termination of his consulting engagement. Furthermore, under the terms of each of these employment agreements, the executive has agreed not to engage in any business that is in competition with our business until after he ceases to receive any payments pursuant to the agreement (or in certain circumstances, the first anniversary of such date).

Mr. Schlanger’s employment agreement is effective from the closing of the Combinations through December 31, 2005 and provides for an annual base salary of $400,000 and a target bonus with respect to the 2005 fiscal year of 75% of base salary. The agreement also provides for Mr. Schlanger to be paid a quarterly bonus of $62,500 on each of July 1, 2005 and October 1, 2005 and to be provided with usual and customary health and pension benefits. Both the target bonus and the quarterly bonus are conditioned on Mr. Schlanger being employed by us on the applicable payment date. Mr. Schlanger will be entitled to twelve months’ severance based on his annual salary in the event of termination of employment by us before December 31, 2005 for reasons other than for cause, death or disability or in the event of a resignation by Mr. Schlanger for good reason.

We have also entered into a consulting agreement with Mr. Schlanger for the three-year period commencing January 1, 2006. The agreement provides for Mr. Schlanger (i) to be paid a monthly consulting fee of $12,500, (ii) to be paid or reimbursed for his costs to maintain health insurance coverage for himself and his dependents that is similar to the coverage we provided during his employment and (iii) to continue to be eligible to vest in options during the consulting period as he would have during his employment.

Mr. Smith’s employment agreement provides for an annual base salary of $400,000 and a target bonus of 50% of base salary. The agreement also provides that we will provide usual and customary health and pension benefits. Mr. Smith will be entitled to twelve months’ severance based on his annual salary in the event of termination of employment by us for reasons other than for cause, death or disability or in the event of a resignation by Mr. Smith for good reason.

Mr. Antonvich’s employment agreement provides for an annual base salary of $325,000 and an annual bonus opportunity (which for 2005 is set at a target bonus of 50% of base salary). The agreement also provides that we will provide usual and customary health and pension benefits and pay or reimburse Mr. Antonvich for temporary furnished housing in Columbus, Ohio and for certain travel benefits. Mr. Antonvich will be entitled to two years’ severance based on his annual salary and continued medical and dental coverage for himself and his family members in the event of termination of employment by us for reasons other than for cause, death or disability or in the event of a resignation by Mr. Antonvich for good reason.

Mr. Nodland’s employment agreement provides for an annual base salary of $300,000 and a target bonus of 50% of base salary. The agreement also provides that we will provide usual and customary health and pension benefits. Mr. Nodland will be entitled to severance (based on his highest base salary during the term of the

135

agreement for the longer of 12 months following the date of termination or until December 14, 2006) and continued medical coverage for himself and his family members in the event of termination of employment by us for reasons other than for cause or in the event of a resignation by Mr. Nodland for good reason.

We expect to enter into additional employment agreements with our executives from time to time.

Retirement Benefits

Our Employees Retirement Income Plan, or ERIP, for eligible employees was amended as of January 1, 1987 to provide benefit credits equal to 3% of earnings to the extent that such credit does not exceed the Social Security wage base for the year plus 6% of eligible earnings in excess of the wage base. Earnings include annual incentive awards paid currently, but exclude any long-term incentive awards. Benefits for service through December 31, 1986 are based on the plan formula then in effect and have been converted to opening balances under the plan. Both opening balances and benefit credits receive interest credits at one-year Treasury bill rates until the participant commences receiving benefit payments. For the year 2004, the interest rate as determined in accordance with the plan language was 1.35%. Benefits vest after completion of five years of employment for employees hired on or after July 1, 1990.

The pension benefit for certain employees represented by collective bargaining agreements is calculated using a formula based on the number of years of credited service multiplied by the fixed benefit multiplier amount established in the union contract. Some employees, such as employees of Resolution Specialty, Resolution Performance and employees outside the United States, are covered by other retirement plans.

The total projected annual benefits payable under the formulas of the ERIP at age 65 without regard to the limits on benefits imposed under Sections 415 and 401(a)(17) of the Internal Revenue Code and recognizing supplemental pensions, as described below, are as follows for the named executive officers as of 2004: Craig O. Morrison, $84,468; William H. Carter, $123,520; Joseph P. Bevilaqua, $42,017; Judith A. Sonnett, $36,292; and C. H. Morton, $23,527.

In addition to the ERIP, all eligible full-time employees are offered participation in the Retirement Savings Plan, which is a defined contribution plan. This plan allows pre-tax contributions from 1% to 15% of eligible earnings for highly compensated employees and 25% for all other employees. Employees are eligible to receive matching contributions from the Company ranging from 50% to 100% on contributions of up to 5% of eligible earnings. Employees who were hired prior to January 1, 1987 and have at least 120 months of service are eligible to receive company matching contributions on contributions of up to 7% of eligible earnings. Additional company contributions may be made if we achieve specified annual financial measures established at the beginning of the plan year.

The Executive Supplemental Pension Plan provides for supplemental pension benefits above the limits imposed by Sections 401(a)(17) and 415 of the Internal Revenue Code and for pension benefits with respect to any deferred compensation not considered under the ERIP, in each case, using the same formula as the ERIP. The amounts of the projected annual benefits shown above for the named executive officers under the ERIP include these supplemental pension benefits. The supplemental plan also provides an opportunity for employees whose compensation exceeds the limit under Section 401(a)(17) of the Internal Revenue Code to voluntarily elect to defer compensation, and also provides other employees with an opportunity to elect a “make-up benefit” for the benefits limited under Section 415 of the Internal Revenue Code as it relates to defined contribution plans, in each case, using the same formula as the Retirement Savings Plan. The supplemental plan benefits are unfunded and paid from our general assets.

136

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the beneficial ownership of Hexion common stock, as of September 30, 2005, and shows the number of shares and percentage owned by:

• each person known to beneficially own more than 5% of the common stock of Hexion;

• each of Hexion’s named executive officers;

• each member of and nominee for the Board of Directors of Hexion;

• each person or entity owning interests in Hexion LLC other than current or former employees; and

• all of the executive officers and members of the Board of Directors of Hexion as a group.

Hexion owns 100% of the common stock of the Issuers. Hexion LLC owns 100% of our outstanding common stock. Apollo, other investors and certain members of our management own their interests in our common stock set forth below through their ownership of Hexion LLC. Apollo has sole voting power and investment power with respect to the shares of the Company owned by Hexion LLC. Hexion LLC acquired its shares in the transactions described under “Prospectus Summary—The Prior and Current Transactions.” Additional information with respect to Hexion LLC and its material relationship with us is provided under the caption “Certain Relationships and Related Party Transactions.” Leon D. Black and John J. Hannan are the directors and executive officers of entities which have dispositive voting or investment control over the other entities or funds affiliated with Apollo that control Hexion LLC. Although Messrs. Black and Hannan may each be deemed a beneficial owner of shares of Hexion beneficially owned by Apollo, each such person disclaims beneficial ownership of such shares.

The amounts and percentages of common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed a beneficial owner of securities as to which he has no economic interest. Except as otherwise indicated in the footnotes below, each of the beneficial owners has, to our knowledge, sole voting and investment power with respect to the indicated shares of common stock.

	Number and Percent of Shares Beneficially Owned
	Number	Percent
Apollo Management, L.P.(1)	75,154,789	91.0	%
JPMorgan Chase Bank as trustee for First Plaza Group Trust(2)	1,721,483	2.1	%
Goldman, Sachs & Co.(3)	1,721,483	2.1	%
Shell Oil Company(4)	1,434,569	1.7	%
Robert Seminara(1)(5)	28,141	*
Scott Kleinman(1)(5)	86,748	*
Joshua Harris(1)(5)	86,748	*
Jordan Zaken(1)	—	*
Marvin O. Schlanger(6)	433,161	*
Craig O. Morrison(7)	60,303	*
William H. Carter(8)	48,242	*
Nigel D. T. Andrews	—	*
David C. House	—	*
Joseph P. Bevilaqua(9)	20,101	*
Judith A. Sonnett	—	*
C.H. Morton(10)	9,386	*
All Directors and Executive Officers as a group (19 persons)(11)	1,179,481	1.4	%

137

* less than 1%

(1) Represents the ownership interest in the Company indirectly attributable to Apollo through Apollo’s ownership of Hexion LLC. The address of each of Apollo Investment Fund IV, L.P., Apollo Investment Fund V. L.P., and Apollo is c/o Apollo Management, L.P., 9 West 57th Street, New York, New York 10019.

(2) Represents the ownership interest in the Company indirectly attributable to First Plaza Group Trust through First Plaza Group Trust’s ownership of Hexion LLC. First Plaza Group Trust is a New York trust containing assets of certain employee benefit plans of General Motors, its subsidiaries and unrelated employers. The principal address of First Plaza Group is 767 Fifth Avenue, New York, New York 10153.

(3) Represents the ownership interest in the Company indirectly attributable to funds affiliated with Goldman, Sachs & Co. and its affiliates through their ownership of Hexion LLC. The principal address of Goldman, Sachs & Co. is 85 Broad Street, New York, New York 10004.

(4) Represents the ownership interest in the Company indirectly attributable to Shell Oil Company through Shell Oil Company’s ownership of Hexion LLC. The address of Shell Oil Company is 910 Louisiana Street, One Shell Plaza, Houston Texas 77252.

(5) Although each of Messrs. Harris, Kleinman and Seminara may be deemed a beneficial owner of shares of Hexion beneficially owned by Apollo due to his status as a partner or senior partner of Apollo, each such person disclaims beneficial ownership of any such shares. For Messrs. Harris and Kleinman, includes 86,748 shares of common stock issuable upon the exercise of options granted to each of Messrs. Harris and Kleinman that were vested as of the date hereof. For Mr. Seminara, includes 28,141 shares of common stock issuable upon the exercise of options granted to Mr. Seminara that were vested as of the date hereof. The address of Messrs. Harris, Kleinman and Seminara is c/o Apollo Management, L.P., 9 West 57^th Street, New York, New York 10019.

(6) Does not include unvested options to purchase 179,149 shares of common stock issued to Mr. Schlanger and 191,276 restricted stock units issued to Mr. Schlanger. The unvested options are subject to time and performance vesting conditions. The restricted stock units represent a conditional right to receive 191,276 shares of common stock of Hexion upon the occurrence of certain events. The address of Mr. Schlanger is c/o Hexion Specialty Chemicals, Inc., 180 East Broad Street, Columbus, Ohio 43215.

(7) Does not include 542,725 shares of common stock issuable upon the exercise of options granted to Mr. Morrison (such options are subject to time and performance vesting conditions) and 241,211 deferred common stock units credited to Mr. Morrison’s account. The address of Mr. Morrison is c/o Hexion Specialty Chemicals, Inc., 180 East Broad Street, Columbus, Ohio 43215.

(8) Does not include 434,180 shares of common stock issuable upon the exercise of options granted to Mr. Carter (such options are subject to time and performance vesting conditions) and 192,969 deferred common stock units credited to Mr. Carter’s account. The address of Mr. Carter is c/o Hexion Specialty Chemicals, Inc., 180 East Broad Street, Columbus, Ohio 43215.

(9) Does not include 180,908 shares of common stock issuable upon the exercise of options granted to Mr. Bevilaqua (such options are subject to time and performance vesting conditions) and 80,404 deferred common stock units credited to Mr. Bevilaqua’s account. The address of Mr. Bevilaqua is c/o Hexion Specialty Chemicals, Inc., 180 East Broad Street, Columbus, Ohio 43215.

(10) Does not include 84,472 shares of common stock issuable upon the exercise of options granted to Mr. Morton (such options are subject to time and performance vesting conditions) and 37,543 deferred common stock units credited to Mr. Morton’s account. The address of Mr. Morton is c/o Hexion Specialty Chemicals, Inc., 180 East Broad Street, Columbus, Ohio 43215.

(11) Includes 592,709 shares of common stock issuable upon the exercise of options granted to our directors and executive officers that were vested as of the date hereof. Does not include options to purchase 1,926,523 shares of common stock, 191,256 shares issued to Mr. Schlanger under the Resolution Performance unit plan and 552,127 deferred common stock units.

138

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Combinations

Transaction Agreement

As of April 22, 2005, Borden Chemical entered into a transaction agreement with affiliates of Resolution Performance and Resolution Specialty pursuant to which Borden Chemical agreed to combine with Resolution Performance and Resolution Specialty. Borden Chemical, Resolution Performance and Resolution Specialty are each controlled by Apollo. In connection with the consummation of the Combinations on May 31, 2005, Borden Chemical changed its name to Hexion Specialty Chemicals, Inc.

Investor Rights Agreement

On May 31, 2005, we entered into an investor rights agreement with Hexion LLC, our parent, and certain other parties (the “Investor Rights Agreement”), which governs certain aspects of our relationship with our security holders and replaces the investor rights agreements between us, Resolution Performance and Resolution Specialty, respectively, and Apollo, described below. The Investor Rights Agreement, among other things, provides for the following:

• restricts the ability of certain security holders to transfer, assign, sell, gift, pledge, hypothecate or encumber, or otherwise dispose of, our common stock or of all or part of the voting power associated with the common stock, including precluding employee-holders of common stock from selling any shares within 12 months of a qualified public offering;

• allows us to repurchase all or any portion of our common stock held by our employees upon the termination of their employment with us or our affiliates;

• contains a provision that any meeting of our shareholders and in any action by written consent of our shareholders, Hexion LLC will have the ability to vote the shares of our employee-holders of common stock; and

• permits those holders of our common stock to include their shares in a registration statement filed by us with respect to an offering of common stock (i) in connection with the exercise of any demand rights by Hexion LLC or (ii) in connection with exercise of “piggyback” registration rights by Hexion LLC.

This “piggyback” right is subject to customary cutback provisions, and furthermore, those employee-holders of our common stock will be subject to customary lock-up provisions in connection with their participation in any such offering.

The Investor Rights Agreement prohibits those of our employees or the employees of our affiliates who are parties to the agreement from soliciting or hiring any of our other employees or soliciting any of our customers, suppliers, licensees or other business relations until one year after they cease to receive any payments from us or any of our affiliates. Furthermore, the Investor Rights Agreement prohibits those employees from competing with our business or products anywhere in the world where we are doing business until they cease to receive any payments from us or our affiliates (or, in certain cases, until the first anniversary of the date on which they cease to receive payments).

The Investor Rights Agreement terminates with respect to all rights or obligations related to our common stock upon the earliest to occur of our dissolution, the sale of all or substantially all of our assets to a person or group other than Apollo and its affiliates and the transfer to a person or group other than Apollo and its affiliates of a number of shares of common stock having the power to elect a majority of our board of directors.

139

Registration Rights Agreement

On May 31, 2005, we entered into a registration rights agreement with Hexion LLC pursuant to which Hexion LLC has certain demand registration rights with respect to our common stock. Under this agreement, we agreed to assume the fees and expenses associated with registration. The registration rights agreement also contains customary provisions with respect to registration proceedings, underwritten offerings and indemnity and contribution rights.

Borden Chemical Amended and Restated Management Consulting Agreement

On May 31, 2005, we entered into an amended and restated management consulting agreement with Apollo (the “Amended Management Consulting Agreement”). The terms of the Amended Management Consulting Agreement are identical to those of the previous management consulting agreement between Borden Chemical and Apollo, described below, except that the Amended Management Consulting Agreement provides that upon termination of the Amended Management Consulting Agreement in connection with a sale of the company or an initial public offering, we will pay Apollo a lump-sum amount equal to the net present value of the remaining annual management fees owing and payable by us until the expiration of the Amended Management Consulting Agreement determined using an applicable discount rate. In connection with the consummation of the proposed IPO, the Amended Management Consulting Agreement will terminate, and we will pay Apollo a lump-sum amount equal to $10 million. In addition, in connection with the consummation of the proposed IPO, we will pay Apollo $10 million for its structuring and advisory services relating to the proposed IPO.

Resolution Performance Management Services Termination Agreement

On May 31, 2005, Resolution Performance entered into a management services termination agreement with Apollo (the “Resolution Performance Management Termination Agreement”). The Resolution Performance Management Termination Agreement provided that immediately prior to the closing of the Combinations, Apollo and Resolution Performance would be released from any and all obligations and liabilities to provide management services and pay fees under the Resolution Performance management agreement, dated as of November 14, 2000, as amended, and the Resolution Performance management agreement would have no further force and effect. In consideration of the termination, Resolution Performance paid Apollo a termination fee of $4.4 million.

Resolution Specialty—Termination of Resolution Specialty Management Consulting Agreement

The Resolution Specialty Management Consulting Agreement (as described below) was terminated in connection with the Combinations. The amount required to terminate the Resolution Specialty Management Consulting Agreement was determined by discounting the remaining annual payments under the agreement from the date of termination until the expiration of the then-current term at an annual discount rate equal to the Resolution Specialty’s then-current rate of interest on its revolving credit facility. Resolution Specialty paid Apollo a fee equal to $6.75 million on May 31, 2005, representing the amount required to terminate the Resolution Specialty Management Agreement with Apollo.

The annual management fees payable to Apollo under each of the management consulting agreements were determined through arms’-length negotiations between each of the relevant companies and Apollo, and were based on the understanding of Apollo and each relevant company of the fair value for such services, based in part on market conditions and what similarly-situated companies have paid for similar services.

Certain Relationships and Related Party Transactions Prior to the Combinations

Investor Rights Agreement

On August 12, 2004, all employees who own deferred stock and stock options of BHI Acquisition Corp., our parent and the predecessor to Hexion LLC, entered into an investor rights agreement with Apollo and BHI

140

Acquisition Corp., which governs certain aspects of BHI Acquisition Corp.’s relationship with its security holders. The investor rights agreement, among other things, provides for the following:

• allows security holders to join, and allows Apollo and its affiliates to require security holders to join, in any sale or transfer of shares of common stock to any third party prior to a qualified public offering of common stock, following which (when aggregated with all prior such sales or transfers) Apollo and its affiliates shall have disposed of at least 10% of the number of shares of common stock that Apollo and its affiliates owned as of the closing date of the Borden Transaction; provided that Apollo may dispose of up to 25% of such number of shares of common stock during the first twelve months after consummation of the Borden Acquisition without triggering these co-sale rights;

• restricts the ability of security holders, other than Apollo and its affiliates, to transfer, assign, sell, gift, pledge, hypothecate or encumber, or otherwise dispose of, common stock or of all or part of the voting power associated with common stock;

• allows the Company and Apollo to repurchase all or any portion of the common stock held by employees of the Company upon the termination of their employment with the Company;

• allows an employee of the Company to force the Company to acquire all (but not less than all) of the shares of common stock held by the employee upon the termination of their employment with the Company for certain specified reasons; and

• contains a provision that at any meeting of the BHI Acquisition Corp. stockholders and in any action by written consent of BHI Acquisition Corp.’s stockholders, Apollo will have the ability to vote the shares of common stock.

The investor rights agreement prohibits Borden Chemical’s employees who are parties to the agreement from soliciting or hiring any of its employees or soliciting any of its customers, suppliers, licensees or other business relations until one year after they cease to receive any payments from Borden Chemical or its affiliates. Furthermore, the investor rights agreement prohibits Borden Chemical’s employees from competing with its business or products anywhere in the world where Borden Chemical is doing business until they cease to receive any payments from Borden Chemical or its affiliates (or, in certain cases, until the first anniversary of the date on which they cease to receive payments).

This investor rights agreement has been amended and restated by the investor rights agreement described under “—Combinations.”

Registration Rights Agreement

On August 12, 2004, Apollo and its affiliates entered into a registration rights agreement with BHI Acquisition Corp. pursuant to which Apollo and its affiliates have certain demand and Apollo, its affiliates and all employees who receive deferred stock and stock options will have certain incidental registration rights with respect to BHI Acquisition Corp.’s common stock. Under this agreement, BHI Acquisition Corp. agreed to assume the fees and expenses associated with registration. The registration rights agreement also contains customary provisions with respect to registration proceedings, underwritten offerings and indemnity and contribution rights.

This registration rights agreement allows employees holding common stock to include their shares in a registration statement filed by the Company with respect to an offering of common stock (i) in connection with the exercise of any demand rights by Apollo and its affiliates, or (ii) in connection with which Apollo and its affiliates exercise “piggyback” registration rights.

This registration rights agreement has been amended and restated by the registration rights agreement described under “—Combinations.”

141

Transaction Fee and Management Consulting Agreements

On August, 12, 2004, in connection with the Borden Transaction, Borden Chemical entered into a transaction fee agreement with Apollo and its affiliates for the provision of certain structuring and advisory services. Upon closing of the Borden Transaction, Borden Chemical paid $10 million of aggregate transaction and advisory fees under this agreement, and reimbursed expenses of $0.8 million. In addition, Borden Chemical and Apollo entered into a management consulting agreement. The management consulting agreement allows Apollo and its affiliates to provide certain advisory services to Borden Chemical for a seven year period, with an automatic extension of the term for a one year period beginning on the fourth anniversary of the commencement of the agreement and at the end of each year thereafter, unless notice to the contrary is given by either party. The agreement, as later supplemented and amended, provides for an annual fee equal to the greater of $3 million and 2% of Adjusted EBITDA, as defined in the indentures governing Borden Chemical’s notes. In addition, Borden Chemical is also required to pay Apollo a transaction fee if Borden Chemical engages in any merger, acquisition or similar transaction unless Borden Chemical and Apollo are unable to mutually agree upon the terms of Apollo’s engagement, in which case, Borden Chemical will be able to retain another special advisor. In the fourth quarter of 2004, Borden Chemical paid $975,000 of fees pursuant to the management consulting agreement. Borden Chemical paid Apollo annual fees of $2.5 million in the first quarter of 2005 pursuant to the agreement. Upon closing of the Bakelite Transaction in the second quarter of 2005, Borden Chemical paid a transaction fee equal to $3.7 million pursuant to the management consulting agreement. Under the management consulting agreement, Borden Chemical has also agreed to indemnify Apollo and its affiliates and their directors, officers and representatives for potential losses relating to the services contemplated under this agreement.

The management consulting agreement has been amended and restated by the Amended Management Consulting Agreement described under “—Combinations.”

Certain Relationships and Related Party Transactions Prior to the Borden Transaction

Financing and Investing Arrangements

Borden Chemical had a borrowing arrangement with BW Holdings, LLC (“BWHLLC”), a former affiliate, evidenced by a demand promissory note bearing interest at a variable rate, which terminated upon the completion of the Borden Acquisition. Interest expense under the BWHLLC arrangement totaled $138,000 for the period prior to the Borden Transaction.

In 2003, Borden Chemical, along with its subsidiary HAI, had similar arrangements with Borden Foods Holdings Corporation (“Foods”), a former affiliate, evidenced by demand promissory notes bearing interest at variable rates. The loans were reported as loans payable to affiliates on the Condensed Consolidated Balance Sheets and totaled approximately $18 million at December 31, 2003. Of the total loans outstanding, HAI owed $6 million at December 31, 2003. Interest rates on these loans ranged from 1.0% to 4.75%. In early 2004, Borden Chemical entered into the arrangement with BWHLLC described above and terminated its affiliated borrowing relationship with Foods. In early 2004, HAI obtained a $20 million credit facility with an external bank and terminated its affiliated borrowing relationship with Foods. Interest expense under the Foods arrangement totaled $0.5 million for the period of 2004 prior to the termination of this arrangement.

In addition, Borden Chemical held a note receivable in an aggregate principal amount of approximately $405 million and accrued interest of $156 million as of December 31, 2004 from BHI Acquisition Corp., which has been accounted for as a reduction of equity. Borden Chemical accrued interest quarterly on the note receivable in paid-in capital. Historically, Borden Holdings, Inc. funded the interest due on the note through common stock dividends that Borden Holdings, Inc. paid to them, however, Borden Holdings, Inc. had neither received quarterly interest nor declared an associated dividend since October 15, 2001. In connection with the Combinations, the note (including accrued interest of $176 to the date of the Combinations) was reclassified to paid-in capital.

Borden Chemical also had net affiliate interest income relating to other affiliates of $0.5 million for the year ended December 31, 2001.

142

Administrative Service, Management, Consulting Arrangements

Commencing in 2003, Borden Chemical assumed certain management, consulting and board services previously provided to it by Borden Capital, Inc., or Capital, as described below, while other such services were assumed by KKR. During the year ended December 31, 2003, Borden Chemical recorded $3 million for the fixed fee due to KKR under this arrangement. During 2002, Capital provided to Borden Chemical management, consulting and board services, and Borden Chemical provided certain administrative services to Capital. Capital charged Borden Chemical an annual fee of $9 million, payable quarterly in arrears, which represented the net amount of the cost of Capital’s services less Borden Chemical’s fee for providing administrative services to Capital. During 2002, Borden Holdings, Inc. made a decision to cease the operations of Capital by the end of the first quarter of 2003. Borden Chemical’s services arrangements with KKR were terminated in connection with the consummation of the Borden Acquisition.

Borden Chemical has provided certain administrative services to BW Holdings, LLC and other affiliates under service agreements, which commenced on January 1, 2003 and were renewable annually. During the year ended December 31, 2003, Borden Chemical charged BW Holdings, LLC $0.5 million for such services based on actual costs and time incurred. Borden Holdings, Inc.’s services arrangements with BW Holdings, LLC and such other affiliates were terminated in connection with the consummation of the Borden Acquisition.

Borden Chemical provided administrative services to Foods under an annual service agreement. Fees received for these services were based on actual costs and time incurred and totaled $0.05 million for the year ended December 31, 2003. In addition, Borden Chemical paid certain costs on behalf of Foods and was reimbursed by Foods for 100% of these costs.

With respect to the above-described agreements, the fees charged were determined based upon factors including the nature of the services provided, total compensation and benefits of the employees involved in providing the services, the estimated percentage of time required to perform the services, the knowledge, expertise, experience and availability of the employees and the value of the services performed to the parties involved.

The agreement with Foods terminates upon the liquidation of all the Foods companies.

Other Transactions and Arrangements

Capital contributions to Borden Chemical from Borden Holdings, Inc. and Foods totaled $26 million for the year ended December 31, 2003.

In 2001, Borden Chemical merged its foundry resins and coatings businesses with similar businesses of Delta to form HAI, in which, at the time of its formation, Borden Chemical had a 75% economic interest. The Limited Liability Agreement of HAI provides Delta the right to purchase between 3% and 5% of additional economic interest in HAI each year beginning in 2004. Pursuant to this provision, in 2004, Delta purchased an additional 5% interest, and another 5% in March 2005, thereby reducing Borden Chemical’s economic interest to 70% and 65% at December 31, 2004 and September 30, 2005, respectively. Delta’s purchase price of the interest was based on the enterprise value of HAI determined by applying a contractually agreed upon multiple to EBITDA, as defined in the agreement. Delta is limited to acquiring a maximum of 15% of additional interest in HAI under this arrangement.

In the first quarter of 2005, the Company received a payment of $7.5 million on behalf of BHI Acquisition from KKR for adjustments made to the purchase price of the Company in the Apollo Transaction.

From time to time, Borden Chemical sold finished goods to certain Apollo affiliates. These sales totaled $3 million (of which $2 million were sales to Resolution Performance) from the date of the Borden Transaction

143

through December 31, 2004. Accounts receivable from these affiliates totaled $2.3 million at December 31, 2004, of which $1.8 million was receivable from Resolution Performance. The foregoing transactions were on terms that were at least as favorable as the terms Borden Chemical could have obtained from an unaffiliated third party at the time of such transactions.

Resolution Performance Products LLC

Agreements in Connection with the Resolution Performance Transaction

Apollo Management Agreement

On November 14, 2000, Resolution Performance entered into a management consulting agreement with Apollo Management IV, L.P. Under the terms of the management consulting agreement, Resolution Performance retained Apollo Management to provide management consulting and financial advisory services to Resolution Performance and pay Apollo Management an annual management fee of $1 million for providing those services. In particular, Apollo Management will provide at Resolution Performance’s request consulting and advisory services relating to proposed financial transactions, acquisitions and other senior management matters relating to Resolution Performance’s business. In addition, as consideration for arranging the recapitalization and the related financing thereof, Resolution Performance paid Apollo Management a fee of $5 million on November 14, 2000.

Resolution Performance was also required to pay Apollo Management a transaction fee if Resolution Performance engaged in any merger, acquisition or similar transaction unless Resolution Performance and Apollo Management were unable to mutually agree upon the terms of Apollo Management’s engagement, in which case Resolution Performance would have been able to retain another special advisor. Since Apollo Management beneficially owned approximately 91% of Resolution Performance and a majority of the members of Resolution Performance’s Board of Managers were affiliated with Apollo, it had the power, through its representatives and equity ownership, to approve on Resolution Performance’s behalf and set the terms of Apollo Management’s engagement, even if the independent members of the Board of Managers were opposed. However, the members of the Board of Managers of Resolution Performance who are affiliated with Apollo Management are aware that they have fiduciary obligations to Resolution Performance, not Apollo, and Resolution Performance expects that each member of its Board of Managers will comply with his fiduciary duties under Delaware law. The management consulting agreement has an initial ten-year term and, commencing on November 14, 2005 and at the end of each year thereafter, will automatically extend for an additional year unless notice to the contrary is given by either party at least thirty, but no more than sixty, days prior to the end of any such year commencing on November 14, 2005.

On March 15, 2002, the terms of the management consulting agreement were amended to reduce the annual management fee payable to Apollo from $1 million to $0.75 million. In addition, Resolution Performance agreed to pay Apollo Management an advisory fee of approximately $1 million (i) immediately prior to a sale of Resolution Performance Products Inc., or Resolution Performance Inc., for cash, (ii) when Apollo Investment Fund IV, L.P., Apollo Overseas Partners IV, L.P., or any investment fund managed by Apollo Management or any of its affiliates sells at least 50% of the shares of common stock of Resolution Performance Inc. that they acquired and at least 50% in the aggregate of their investment in securities of Resolution Performance Inc. made on or after November 14, 2000 or (iii) at such time as Apollo Management and its affiliates cease to own in the aggregate at least 50% of the outstanding shares of common stock of Resolution Performance Inc. on a fully diluted basis.

Effective January 1, 2003, the terms of the management consulting agreement were amended to waive payment of the annual management fee to Apollo during 2003 only; provided, that if, during any twelve month period ending on the last day of any fiscal quarter during 2003 or 2004, Resolution Performance and its subsidiaries’ consolidated adjusted earnings before interest, taxes, depreciation and amortization (as determined in accordance with Resolution Performance’s historical practices) was $116 million or more, Resolution Performance shall pay to Apollo (i) the quarterly installments of the annual management fee for the remainder of 2003 and thereafter and (ii) 125% of the amount of the quarterly installments of the annual management fee

144

which were waived during 2003. It is expected that the management consulting agreement will be amended to extend the period for achieving such from December 31, 2004 to December 31, 2005, to the extent permitted by the Resolution Performance credit agreement and indentures.

This agreement was terminated in connection with the Combinations. See “—Combinations.”

Shareholders’ Agreement

On November 14, 2000, Resolution Performance, entered into a shareholders’ agreement with RPP Holdings LLC, an affiliate of Apollo, and Shell which governed certain aspects of the relationship among Resolution Performance, RPP Holdings and Shell. The shareholders’ agreement contained, among other matters:

• restrictions on the transfer of shares of common stock by Shell;

• preemptive rights granted to Shell to purchase equity securities issued by Resolution Performance to RPP Holdings or its affiliates in the amounts required to maintain Shell’s percentage ownership;

• agreement by Shell to consent to the sale of more than 50% of the equity securities of Resolution Performance or substantially all of its assets to a third party if such sale is approved by the Board of Directors of Resolution Performance, and to sell its shares of common stock if so required;

• rights of Shell to participate in certain transfers of common stock by RPP Holdings other than to an affiliate;

• rights of Shell to receive financial information; and

• prohibitions on transactions between Resolution Performance and its affiliates, subject to certain exceptions.

The shareholders’ agreement terminates upon the earlier of a sale of Resolution Performance and the consummation of a public equity offering that raises net proceeds of at least $100 million.

Investor Rights Agreement

On November 14, 2000, Resolution Performance entered into an investor rights agreement with RPP Holdings and members of management who own stock, options and/or junior subordinated notes of Resolution Performance which governs certain aspects of the relationship among Resolution Performance, RPP Holdings and the management holders. The investor rights agreement contains, among other matters:

• restrictions on the transfer of shares of common stock, options and junior subordinated notes by the management holders;

• rights of Resolution Performance and RPP Holdings to purchase common stock and junior subordinated notes in the event of certain permitted transfers by the management holders;

• agreement by the management holders to consent to the sale of more than 50% of the equity securities of Resolution Performance or substantially all of its assets to a third party and to sell their shares of common stock if so required;

• rights of the management holders to participate in certain transfers of common stock and junior subordinated notes by RPP Holdings other than to an affiliate;

• repurchase rights of Resolution Performance and RPP Holdings in the event of termination of employment of the management holders; and

• restrictions on sales of common stock and junior subordinated notes by the management holders in the event of an initial public offering.

The investor rights agreement terminates upon the earlier of a sale of Resolution Performance or approval by holders holding a majority of the common stock of Resolution Performance and the vote of the common stock of Resolution Performance owned by RPP Holdings.

This agreement was amended and restated by the Investor Rights Agreement described under “—Combinations.”

145

Shell Registration Rights Agreement

On November 14, 2000, Resolution Performance entered into a registration rights agreement with Shell pursuant to which Shell had incidental registration rights to include its Resolution Performance common stock in the same or concurrent registration statement filed by Resolution Performance for the registration of Resolution Performance common stock under the Securities Act. Resolution Performance would have bore all expenses, other than selling expenses, incurred in the registration process. The registration rights agreement also contained customary provisions with respect to registration procedures, underwritten offerings and indemnification and contribution rights.

This agreement was terminated in connection with the Combinations.

Resolution Performance Holdings Registration Rights Agreement

On November 14, 2000, Resolution Performance entered into a registration rights agreement with RPP Holdings pursuant to which RPP Holdings had demand and incidental registration rights. As a result, at RPP Holdings’ request, Resolution Performance was obliged to prepare and file a registration statement covering the securities so requested to be registered by RPP Holdings. In addition, should Resolution Performance propose to register any of its common stock for sale to the public, RPP Holdings had the right to include its Resolution Performance common stock in the same or concurrent registration statement filed by Resolution Performance for the registration of Resolution Performance common stock under the Securities Act. Resolution Performance would have bore all expenses, other than selling expenses, incurred in the registration process. The registration rights agreement also contained customary provisions with respect to registration procedures, underwritten offerings and indemnification and contribution rights.

This agreement has been amended and restated by the Investor Rights Agreement described under “—Combinations” and is no longer in effect.

Management Promissory Notes and Other Indebtedness

From June to September 2001, Resolution Performance made loans to new employees to finance in part their purchase of Resolution Performance Inc.’s common stock and Resolution Performance Inc. junior subordinated notes, including:

Mark Antonvich—$100,000 loaned to finance in part his purchase of 600 shares of Resolution Performance stock and $140,000 principal amount of Resolution Performance junior subordinated notes; and

Jeffrey M. Nodland—$250,000 loaned to finance in part his purchase of 545.4545 shares of Resolution Performance stock and $350,000 principal amount of Resolution Performance junior subordinated notes.

As of May 31, 2005, the principal amount and accrued interest on the loan to Mr. Antonvich was $36,118 and the principal amount and accrued interest on the loan to Mr. Nodland was $147,715. Interest payable on each promissory note accrues at an annual rate of 10.75%.

Other Payments or Dividends to Affiliates

Resolution Performance paid approximately $5 million and $4 million related to certain freight costs to Quality Distribution, an affiliate of Apollo, for the year ended December 31, 2003 and 2002, respectively. Resolution Performance believes the amounts paid to Quality Distribution were fair and at arm’s length terms.

During 2003, Resolution Performance paid approximately $4 million to Shell on behalf of Resolution Performance, of which $2 million was previously accrued, for certain pension costs in accordance with the

146

Master Sales Agreement and related ancillary agreements. During 2001, Resolution Performance paid $0.6 million for legal and external audit services rendered in the ordinary course of business on behalf of Resolution Performance for legal and external audit services rendered in the ordinary course of business.

During 2003 and 2002, Resolution Performance made payments to Cherry Hill Chemical Investments LLC, an affiliate of Mr. Schlanger, in the amount of $0.1 million each year for administrative support and office space used by Mr. Schlanger and other employees of Resolution Performance. The foregoing transactions were on terms at least as favorable as the terms Resolution Performance could have obtained from an unaffiliated third party at the times of such transactions.

Ongoing Relationship with Shell

In connection with the recapitalization, Resolution Performance, and Shell or their respective affiliates entered into several additional agreements providing for the continuation or transfer and transition of certain aspects of Resolution Performance’s business operations. These agreements were the result of arm’s-length negotiations in connection with the recapitalization, and Resolution Performance believes they are on terms at least as favorable to Resolution Performance as those it could have obtained from unaffiliated third parties at that time. As several of Resolution Performance’s operations are located within or adjacent to sites occupied by Shell’s refinery business and its chemical business many of the agreements provide for Resolution Performance and Shell to supply to each other certain site services, utilities, materials and facilities, or “SUMF” items. The other agreements include ground leases, human resources agreements, environmental indemnity agreements, and intellectual property transfer and license agreements. The terms of these agreements vary widely. For example, certain SUMF items are provided to us by Shell pursuant to SUMF agreements, which have terms ranging from less than five years, for items which we believe we can easily obtain from other third-parties, to twenty years with renewal terms, for items such as the provision of utilities. Similarly, the initial term of our supply agreements with Shell vary from three to ten years. As our supply agreements with Shell expire upon completion of their terms or otherwise, we are uncertain as to the terms upon which we may renew these supply agreements either with Shell or a third party and therefore the duration and level of payments that will be made to Shell pursuant to the supply agreements in the future are not determinable at this time.

For the year ended December 31, 2004, 2003 and 2002 Resolution Performance paid Shell approximately $325 million, $289 million and $327 million, respectively, under the various agreements described above, net of payments made by Shell to us.

Resolution Specialty

Agreements in Connection with Resolution Specialty Transaction

Participation Agreement

All employees and directors that own common stock of Resolution Specialty executed a Participation Agreement with Resolution Specialty Materials Holdings LLC, or Resolution Specialty Holdings, an affiliate of Apollo, pursuant to which they purchased common stock of Resolution Specialty (the “Participation Agreement”).

Investor Rights Agreement

Resolution Specialty entered into an investor rights agreement with Resolution Specialty Holdings, and each of the officers and employees of Resolution Specialty and members of management who own common stock or options of Resolution Specialty, which governs certain aspects of the relationship among Resolution Specialty, Resolution Specialty Holdings and the management holders (the “Investor Rights Agreement”). The Investor Rights Agreement contains, among other matters:

• restrictions on the transfer of shares of common stock and options by the management holders;

147

• rights of Resolution Specialty and Resolution Specialty Holdings to purchase common stock in the event of certain permitted transfers by the management holders;

• agreement by the management holders to consent to the sale of more than 50% of the equity securities of Resolution Specialty or substantially all of its assets to a third party and to sell their shares of common stock if so required;

• rights of the management holders to participate in certain transfers of common stock by Resolution Specialty Holdings other than to an affiliate;

• repurchase rights of Resolution Specialty and Resolution Specialty Holdings in the event of termination of employment of the management holders; and

• restrictions on sales of common stock by the management holders in the event of an initial public offering.

This agreement has been amended and restated by the Investor Rights Agreement described under “—Combinations” and is no longer in effect.

Registration Rights Agreement

Resolution Specialty entered into a registration rights agreement with Resolution Specialty Holdings pursuant to which Resolution Specialty Holdings has demand and incidental registration rights. As a result, at Resolution Specialty Holdings’ request, Resolution Specialty will be obliged to prepare and file a registration statement covering the securities so requested to be registered by Resolution Specialty Holdings. In addition, should Resolution Specialty propose to register any of its common stock for sale to the public, Resolution Specialty Holdings will have the right to include its common stock in the same or concurrent registration statement filed by Resolution Specialty for the registration of the common stock under the Securities Act. Resolution Specialty will bear all expenses, other than selling expenses, incurred in the registration process. The registration rights agreement also contains customary provisions with respect to registration procedures, underwritten offerings and indemnification and contribution rights.

This agreement was terminated in connection with the Combinations. See “—Combinations.”

Apollo Management Agreement

As of April 1, 2005, Resolution Specialty entered into a management consulting agreement with Apollo (the “Resolution Specialty Management Consulting Agreement”). The Resolution Specialty Management Consulting Agreement provides that Apollo and its affiliates will provide certain advisory services to Resolution Specialty for a ten year period, with an automatic extension of the term for a one year period beginning on the fourth anniversary of the commencement of the agreement and at the end of each year thereafter, unless notice to the contrary is given, provided, however, that the agreement shall automatically terminate upon the sale of the company or an initial public offering of Resolution Specialty’s equity securities meeting certain criteria. Upon termination of the Resolution Specialty Management Consulting Agreement in connection with a sale of the company or an initial public offering, Resolution Specialty shall pay Apollo a lump-sum amount equal to the net present value of the remaining annual management fees owing and payable by Resolution Specialty until the expiration of the Resolution Specialty Management Consulting Agreement determined using an applicable discount rate. The Resolution Specialty Management Consulting Agreement provides a quarterly fee to Apollo equal to $250,000. In addition, Resolution Specialty is also required to pay Apollo a transaction fee if Resolution Specialty engages in any merger (other than the Combinations), acquisition or similar transaction unless Resolution Specialty and Apollo are unable to mutually agree upon the terms of Apollo’s engagement, in which case, Resolution Specialty will be able to retain another special advisor. Under the Resolution Specialty Management Consulting Agreement, Resolution Specialty has also agreed to indemnify Apollo and its affiliates and their directors, officers and representatives for potential losses relating to the services contemplated under this agreement.

This agreement was terminated in connection with the Combinations. See “—Combinations.”

148

DESCRIPTION OF SENIOR SECURED CREDIT FACILITIES AND OTHER INDEBTEDNESS

In connection with the Combinations, Hexion assumed all the outstanding indebtedness of Resolution Performance as described below. To the extent such indebtedness is secured, the assets of Hexion and its subsidiaries secure such indebtedness as described below. After giving effect to the Combinations, Hexion has the following secured indebtedness outstanding:

• the new senior secured credit facilities;

• the 8% Senior Secured Notes;

• the 9 ¹/2% Senior Second Secured Notes; and

• the old notes, the New Floating Rates Notes and the exchange notes, collectively the “Second-Priority Senior Secured Notes.”

Each of the foregoing are secured by separate collateral agreements with substantially identical terms and covering substantially identical collateral subject to exceptions for foreign collateral pledged in favor of lenders under the senior secured credit facilities. In addition, HA-International, LLC and non-U.S. subsidiaries in countries including Australia, Brazil, Italy, Finland and Korea have various secured credit facilities and other arrangements with lenders.

First-Priority Lien Obligations

Senior Secured Credit Facilities

In connection with the Combinations, we entered into new senior secured credit facilities upon the terms described below. Bakelite will enter into the credit agreement governing our new senior credit facilities upon approval of such facilities by its supervisory board. At the closing of the Combinations, we repaid all amounts outstanding under the Borden Chemical Credit Agreement, Resolution Performance Credit Agreement and Resolution Specialty Credit Agreement and terminated the Borden Chemical Credit Agreement, Resolution Performance Credit Agreement and Resolution Specialty Credit Agreement. After giving effect to the closing of the Combinations, the new senior secured credit facilities and the international credit facilities described below are our only outstanding credit facilities.

General

In connection with the Combinations, we, Hexion LLC, Hexion Canada, Borden Chemical UK Limited, Borden Chemical GB Limited and Resolution Europe B.V. entered into $775 million new senior secured credit facilities with J.P. Morgan Securities Inc., Credit Suisse and Citigroup Global Markets Inc. as joint bookrunners and joint lead arrangers, JPMorgan Chase Bank, N.A. (“JPMCB”), as administrative agent and collateral agent, Citicorp North America, Inc., as syndication agent, and Credit Suisse, as documentation agent, and other lenders. The key terms of our new senior secured credit facilities are described below.

Our new senior secured credit facilities provide for a six-year, subject to adjustment as described below, $225 million revolving credit facility, which includes:

• revolving credit subfacilities for Hexion Canada, as the Canadian subsidiary borrower, Borden Chemical UK Limited and Borden Chemical GB Limited, as the U.K. subsidiary borrowers, Resolution Europe B.V., as the Dutch subsidiary borrower, and, upon Bakelite’s entry into the credit agreement, Bakelite, as the German subsidiary borrower;

• a letter of credit subfacility of at least $100 million to be made available for our account and the accounts of our Canadian, U.K., Dutch and, upon Bakelite’s entry into the credit agreement, German, subsidiary borrowers; and

• a $30 million swingline loan subfacility to be made available for our account and the accounts of the U.K., Dutch and German, subsidiary borrowers.

149

We, and our Canadian, U.K. and Dutch subsidiary borrowers used our revolving credit facility to finance a portion of the transactions contemplated by the Combinations, including, without limitation, the dividends and repayment of indebtedness contemplated thereby, and we will use our revolving credit facility for, among other things, our and our respective subsidiaries’ working capital and other general corporate purposes, including, without limitation, effecting permitted acquisitions and investments.

Our new senior secured credit facilities also provide for a seven-year, subject to adjustment as described below, $500 million term loan facility. We used our term loan facility to finance a portion of the transactions contemplated by the Combinations, including, without limitation, the dividends and repayment of indebtedness in connection therewith. An aggregate principal amount of $290 million of the term loan facility was made available to the Dutch subsidiary borrower, $100 million of which was used to repay our bridge loan facility.

Our new senior secured credit facilities also provide for a seven-year, subject to adjustment as described below, $50 million synthetic letter of credit facility under which $50 million has been deposited by lenders with JPMorgan Chase Bank, N.A. to be used to fund any drawn letters of credit under the facility. This facility is available for letters of credit for our account.

Our senior secured credit facilities are subject to early maturity on any date that greater than $200 million in the aggregate principal amount of certain of our and our subsidiaries’ indebtedness will mature within 91 days of such date.

Our new senior secured credit facilities also permit us to obtain up to an additional $200 million of credit facilities (the “additional credit facilities”) from lenders reasonably satisfactory to the administrative agent and us, without the consent of the existing lenders under our new senior secured credit facilities.

Scheduled Amortization Payments and Mandatory Prepayments

Our term loan facility and our synthetic letter of credit facility, under the new senior secured credit facilities, provide for quarterly and annual amortization payments, respectively, in each case totaling 1% per annum, with the balance payable upon the final maturity date.

In addition, our new senior secured credit facilities require us to prepay outstanding term loans, with:

• 100% of the net cash proceeds of asset sales and dispositions in excess of $5 million per asset sale or disposition, excluding all such asset sales or dispositions in any fiscal year until the net cash proceeds exceed $10 million for all such asset sales or dispositions;

• if our senior secured bank leverage ratio is greater than 1.5:1.0 and our consolidated leverage ratio is greater than 3.5:1.0, 50% of our excess cash flow, beginning with the first full fiscal year after May 31, 2005;

• if our senior secured bank leverage ratio is greater than 1.5:1.0, 100% of the net cash proceeds received from issuances of debt after May 31, 2005, subject to exclusions with respect to debt that we and our subsidiaries may incur under the negative covenants.

Voluntary Prepayments and Reduction and Termination of Commitments

We may voluntarily prepay loans and permanently reduce the loan commitments or return synthetic letter of credit deposits under our new senior secured credit facilities at any time without premium or penalty, subject to the payment of customary LIBOR or EURO LIBOR breakage costs, if any. The revolving loan commitment and the synthetic letter of credit facility commitment may not be reduced to less than the outstanding balance of loans (in the case of the revolving loan commitment) and letter of credit obligations under such commitment on the

150

date of such reduction. In addition, we may terminate our new senior secured credit facilities without paying a premium or penalty upon prior written notice, and, in some cases, we may revoke such notice. Upon termination, we will be required to repay all obligations outstanding under our new senior secured credit facilities and to satisfy all outstanding letter of credit obligations.

Interest and Applicable Margins

The interest rates with respect to loans to Hexion under our new senior secured credit facilities are based on, at our option, (a) adjusted LIBOR plus 2.50% or (b) the higher of (i) JPMCB’s prime rate and (ii) the Federal Funds Rate plus 0.5%, in each case plus 1.00%.

The interest rates with respect to loans to the Canadian subsidiary borrower under our new senior secured credit facilities are based on (a) for loans made in dollars, at our option, (1) adjusted LIBOR plus 2.50% or (2) the higher of (i) JPMCB’s reference rate for U.S. dollar-denominated loans made in Canada and (ii) the Federal Funds Rate plus 0.5%, in each case plus 1.00% or (b) for loans made in Canadian Dollars, at our option, (1) a Canadian Bankers’ Acceptances rate (depending on the lender, either the average bankers’ acceptance rate quoted on the Reuters CDOR page or the lesser of such average plus 0.10% and the average bankers’ acceptance rate quoted to JPMCB by certain reference banks) plus 2.50% or (2) the higher of (i) JPMCB’s Toronto Branch’s prime rate and (ii) the average bankers’ acceptance rate quoted on the Reuters CDOR page plus  ¹/2 of 1%, in each case plus 1.00%.

The interest rates with respect to loans to the U.K. subsidiary borrowers under our new senior secured credit facilities are based on (a) for loans made in dollars, at our option, adjusted LIBOR plus 2.50% or the rate quoted by JPMCB as its base rate for such loans plus 1.00%, (b) for loans made in Sterling, at our option, adjusted LIBOR plus 2.50% or the rate quoted by JPMCB as its base rate for such loans plus 1.00% or (c) for loans made in euros, at our option, EURO LIBOR plus 2.50% or the rate quoted by JPMCB as its base rate for such loans plus 1.00%.

The interest rates with respect to loans to the Dutch and German subsidiary borrowers under our new senior secured credit facilities are based on, at our option, EURO LIBOR plus 2.50% or the rate quoted by JPMCB as its base rate for such loans, plus 1.00%.

These applicable margins are, with respect to loans under our revolving credit facility, subject to prospective reduction on a quarterly basis if we reduce our consolidated leverage ratio. Following and during the continuance of an event of default, overdue amounts owing under our new senior secured credit facilities will bear interest at a rate per annum equal to the rate otherwise applicable thereto plus an additional 2.0%.

We will have the option of requesting that loans be made as LIBOR or EURO LIBOR loans, converting any part of outstanding base rate loans (other than swingline loans) to LIBOR or EURO LIBOR loans and converting any outstanding LIBOR or EURO LIBOR loan to a base rate loan, subject to the payment of LIBOR or EURO LIBOR breakage costs. With respect to LIBOR or EURO LIBOR loans, interest is payable in arrears at the end of each applicable interest period, but in any event at least every 3 months. With respect to base rate loans, interest is payable on the last business day of each fiscal quarter. In each case, calculations of interest are based on a 360-day year (or 365 or 366 days, as the case may be, in the case of loans based on the agent’s prime or base rate, loans denominated in U.K. sterling and loans based on the Canadian banker’s acceptance rate) and actual days elapsed.

Guarantees and Collateral

Our obligations under our new senior secured credit facilities and under any interest rate protection or other hedging arrangements entered into with a lender or any affiliate thereof and under cash management lines of credit with a lender, any affiliate thereof or certain other financial institutions are guaranteed (i) prior to the

151

initial public offering of our common stock, by our immediate parent, Hexion LLC (the successor by conversion to BHI Acquisition Corp.), and (ii) at all times, by each of our existing and subsequently acquired or organized material domestic subsidiaries, excluding HA-International, LLC. All obligations of the foreign subsidiary borrowers are guaranteed (i) prior to the initial public offering of our common stock, by Hexion LLC and (ii) at all times, by us, the U.S. subsidiary guarantors, the foreign subsidiary borrowers and our and their respective material subsidiaries in the United States, the U.K., Germany, the Netherlands and Canada (excluding subsidiaries in the U.K., Germany and the U.S. that are unrestricted subsidiaries) and Resolution lberica Performance Products S.A.

Our new senior secured credit facilities are secured by substantially all the assets of (i) prior to the initial public offering of our common stock, Hexion LLC, which will consist of a perfected first-priority pledge of all our capital stock and (ii) at all times, us and the subsidiary guarantors, including but not limited to: (a) a first-priority pledge of substantially all capital stock held by us or any subsidiary guarantor (which pledge, with respect to obligations in respect of the U.S. borrowings secured by a pledge of the stock of any first-tier foreign subsidiary, shall be limited to 100% of the non-voting stock (if any) and 65% of the voting stock of such foreign subsidiary) and (b) perfected first-priority security interests in, and mortgages in, substantially all tangible and intangible assets of us and each subsidiary guarantor.

Notwithstanding the foregoing, (i) assets of foreign subsidiary guarantors only secure obligations in respect of the foreign borrowings and (ii) the collateral does not include (A) any real estate, fixtures or equipment of us or any of our subsidiaries located within the United States (except for assets that our board of directors determines do not constitute principal property under the indentures for our debentures due 2016, 2021 and 2023) and (B) any evidence of indebtedness for borrowed money of certain subsidiaries held by us or our subsidiaries.

Covenants

Our new senior secured credit facilities contain financial, affirmative and negative covenants that we believe are usual and customary for a senior secured credit agreement. The negative covenants in the new senior secured credit facilities include, among other things, limitations (none of which are absolute) on our ability to:

• declare dividends and make other distributions;

• redeem or repurchase our capital stock;

• prepay, redeem or repurchase certain of our subordinated indebtedness;

• make loans or investments (including acquisitions);

• incur additional indebtedness, except that we may incur indebtedness (other than first-lien indebtedness) so long as our total leverage ratio is not greater than 5.0:1.0;

• grant liens so long as our senior secured bank leverage ratio is not greater than 1.5:1.0 and certain other limitations are complied with;

• enter into sale-leaseback transactions;

• modify the terms of subordinated debt or other material agreements;

• change our fiscal year;

• restrict dividends from our subsidiaries or restrict liens;

• enter into new lines of business;

• recapitalize, merge, consolidate or enter into acquisitions;

• sell our assets; and

• enter into transactions with our affiliates.

152

In addition, our new senior secured credit facilities require us to maintain the following financial covenants:

• a maximum senior secured bank leverage ratio; and

• a maximum capital expenditure limitation.

Events of Default

Events of default under our new senior secured credit facilities include, without limitation, nonpayment, misrepresentations, breach of covenants, insolvency, bankruptcy, certain judgments, change of control (as defined in the credit agreement governing our new senior secured credit facilities) and cross-defaults.

International Credit Facilities

We also have international credit facilities that provide liquidity to our local businesses in local currencies, in countries including Australia, Brazil, Finland, Italy and Korea. As of September 30, 2005, our international facilities provided availability totaling approximately $118 million, based on exchange rates as of such date, of which $53 million is available.

In connection with the Bakelite Transaction, we assumed $61 million of international credit facilities, primarily in Finland, Italy and Korea. The assumption of this debt reduced the Bakelite Acquisition cash purchase price dollar-for-dollar.

8% Senior Secured Notes

General

In connection with the Combinations, we assumed the 8% Senior Secured Notes issued by Resolution Performance. On December 22, 2003, Resolution Performance issued $140 million aggregate principal amount of 8% Senior Secured Notes. The 8% Senior Secured Notes are senior secured obligations ranking equal in right of payment with all of Hexion’s existing and future senior debt and senior in right of payment with all of Hexion’s existing and future subordinated indebtedness. The 8% Senior Secured Notes will be secured by a lien, subject to permitted liens, on all of Hexion’s domestic assets (subject to certain exceptions) that secure its obligations under the new senior secured credit facilities and a portion of the capital stock of its direct and indirect domestic subsidiaries and direct foreign subsidiaries. Hexion’s obligations under the 8% Senior Secured Notes and its obligations under the Second-Priority Senior Secured Notes and the 9 ¹/2% Senior Second Secured Notes (described below) are secured by liens on the same collateral. By virtue of the lien priority, the 8% Senior Secured Notes are effectively senior to the obligations under the Second-Priority Senior Secured Notes and the 9 ¹/2% Senior Second Secured Notes to the extent of the value of the collateral securing such notes and effectively subordinated to the obligations under our new senior secured credit facilities. Interest on the 8% Senior Secured Notes is payable semi-annually in cash on December 15 and June 15, beginning June 15, 2004. The 8% Senior Secured Notes mature on December 15, 2009. As of September 30, 2005, the total amount of principal and accrued interest outstanding under the 8% Senior Secured Notes was $143 million.

Optional Redemption

Hexion has the right to redeem the 8% Senior Secured Notes in whole or in part from time to time on and after December 15, 2006 at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the twelve-month period commencing on December 15 of the year set forth below, plus, in each case, accrued and unpaid interest if any, to the date of redemption:

Year	Percentage
2006	104	%
2007	102	%
2008 and thereafter	100	%

153

Covenants

The indenture governing the 8% Senior Secured Notes contain covenants that restrict Hexion’s ability and the ability of its restricted subsidiaries to:

• incur more indebtedness, including guarantees;

• create liens;

• pay dividends and make distributions in respect of its capital stock;

• enter into agreements that restrict its subsidiaries’ ability to pay dividends or make distributions;

• redeem or repurchase our capital stock;

• make investments or other restricted payments;

• sell assets;

• issue or sell stock of restricted subsidiaries;

• enter into transactions with affiliates;

• merge or consolidate; and

• incur certain indebtedness.

In addition, the 8% Senior Secured Notes specify events of default including failure to pay principal and interest on the 8% Senior Secured Notes, a failure to comply with covenants and certain bankruptcy, insolvency or reorganization events with respect to Hexion.

Other Second-Priority Indebtedness

New Floating Rate Notes

On May 20, 2005, we issued $150 million aggregate principal amount of New Floating Rate Notes with, except as described below, substantially identical terms to the old floating rate notes described under “Description of the Notes”. The New Floating Rate Notes are not fungible with the old floating rate notes described below.

The New Floating Rate Notes bear interest at LIBOR plus 5.50%. We will pay interest on the New Floating Rate Notes semiannually on each January 15, April 15, July 15, October 15 commencing on July 15, 2005.

9 ¹/2% Senior Second Secured Notes

General

In connection with the Combinations, we assumed the 9 ¹/2% Senior Second Secured Notes issued by Resolution Performance. Resolution Performance issued $200 million aggregate principal amount of 9 ¹/2% Senior Second Secured Notes due 2010. Resolution Performance issued $175 million of 9 ¹/2% Senior Second Secured Notes on April 9, 2003 and an additional $25 million of 9 ¹/2% Senior Second Secured Notes on May 22, 2003. These notes are treated as a single class of securities under the existing indenture. The 9 ¹/2% Senior Second Secured Notes are senior secured obligations ranking equal in right of payment to all of Hexion’s existing and future senior debt and senior in right of payment with all of its existing and future subordinated indebtedness. The 9 ¹/2% Senior Second Secured Notes are secured by a second priority lien, subject to permitted liens, on all of Hexion’s domestic assets (subject to certain exceptions) that secure its obligations under the new senior secured credit facilities and a portion of the capital stock of Hexion’s direct and indirect domestic subsidiaries and direct foreign subsidiaries. The liens securing the 9 ¹/2% Senior Second Secured Notes will be equal in priority to, and cover the same collateral as, the liens securing the old fixed rate notes, the old floating rate notes and the

154

New Floating Rate Notes. By virtue of the lien priority, the 9 ¹/2% Senior Second Secured Notes are effectively subordinated to the obligations under our new senior secured credit facilities and our 8% Senior Secured Notes to the extent of the value of the collateral securing such obligations. The liens securing the 9 ¹/2% Senior Second Secured Notes will be equal in priority to, and cover the same collateral as, the liens securing our Second-Priority Senior Secured Notes. Interest is payable semi-annually in cash on April 15 and October 15, beginning October 15, 2003. The 9 ¹/2% Senior Second Secured Notes mature on April 15, 2010. As of September 30, 2005, the total amount of principal and accrued interest outstanding under the 9 ¹/2% Senior Second Secured Notes was $209 million.

Optional Redemption

Hexion has the right to redeem the 9 ¹/2% Senior Second Secured Notes in whole or in part from time to time on and after April 15, 2006 at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the twelve-month period commencing on April 15 of the year set forth below, plus, in each case, accrued and unpaid interest if any, to the date of redemption:

Year	Percentage
2006	104.750	%
2007	103.167	%
2008	101.583	%
2009 and thereafter	100.000	%

Covenants

The indenture governing the 9 ¹/2% Senior Second Secured Notes contains covenants that restrict Hexion’s ability and the ability of its restricted subsidiaries to:

• incur more indebtedness, including guarantees;

• create liens;

• pay dividends and make distributions in respect of its capital stock;

• enter into agreements that restrict its subsidiaries’ ability to pay dividends or make distributions;

• redeem or repurchase its capital stock;

• make investments or other restricted payments;

• sell assets;

• issue or sell stock of restricted subsidiaries;

• enter into transactions with affiliates; and

• merge or consolidate.

In addition, the 9 ¹/2% Senior Second Secured Notes specify events of default including failure to pay principal and interest on the 9 ¹/2% Senior Second Secured Notes, a failure to comply with covenants and certain bankruptcy, insolvency or reorganization events with respect to Hexion.

Unsecured Indebtedness

Industrial Revenue Bonds

General

The Industrial Revenue Bonds, or IRBs, consist of a $34 million Parish of Ascension, State of Louisiana Pollution Control Revenue Refunding Bond issued in connection with the funding of certain environmental

155

compliance equipment at one of Hexion’s former facilities. The IRBs are due on December 1, 2009 and are tax exempt for as long as the equipment can be used for its original environmental compliance purpose.

Guaranty

Hexion’s obligations under the IRBs are unconditionally guaranteed by Hexion and its U.K. and Canadian subsidiaries. The guarantee of the U.K. subsidiaries is limited to $30 million for each U.K. subsidiary.

Rankings

The IRBs rank equally in right of payment with all of Hexion’s existing and future senior indebtedness and rank senior in right of payment to all of its existing and future subordinated indebtedness. The IRBs have no underlying assets to secure the payment of principal or interest related thereto.

Interest Rates

The IRBs bear interest at an annual rate of 10% and are intended to be tax exempt to the holder.

Optional Redemption

None.

Mandatory Redemption

The IRBs are subject to mandatory redemption at face amount plus accrued interest through the date of redemption, 180 days after a determination by a court as to a loss in tax exemption of the IRBs.

Change of Control

The change of control provisions with respect to the IRB guarantees are the same as the 8 ³/8% Debentures, except certain provisions also apply to the guarantors of the IRBs.

In addition, in the event of both (a) a Designated Event (as defined below) and (b) a Rating Decline (as defined below), each holder has the right to require Hexion to purchase such holder’s IRBs at 100% of the principal amount thereof, plus accrued interest.

“Designated Event” means (i) a person becomes the beneficial owner of more than 30% of Hexion’s voting stock, (ii) during any period of two consecutive years, continuing directors cease to constitute a majority, (iii) consolidation, merger or transfer or lease of all or substantially all of its assets and its voting stock is changed into or exchanged for cash securities or other property, except for transaction with subsidiaries or involving exchange of Hexion’s voting stock as consideration in the acquisition of another business without change of its outstanding voting stock into or for cash, securities or other property, (iv) Hexion acquires 30% or more of its voting stock within any 12-month period, or (v) any distribution and the sum of the fair market value of such distribution, plus the fair market value of all other such distributions occurring during the preceding 12-month period, is at least 30% of the fair market value of Hexion’s voting stock.

“Rating Decline” shall be deemed to have occurred if on any date within the 90-day period following public notice of the occurrence of a Designated Event, in the event the IRBs are (i) investment grade, the rating falls below investment grade, or (ii) below investment grade, falls at least one full rating category. The 90-day period would be extended so long as the IRBs were under publicly announced consideration for possible downgrade by a rating agency, if applicable.

156

Covenants

The IRB guarantees are subject to substantially the same covenants described above with respect to the 8 ³/8% Debentures. There are also other covenants applicable to the guarantors, including restrictions with respect to mergers, consolidations and conveyances of all or substantially all of their assets, and limitations on the payment of intercompany obligations upon an event of default with respect to the guarantees. The IRB guarantees restrict the foreign guarantors from entering into guarantees of the debts or obligations of other entities.

Events of Default

The IRBs and the related guarantees specify events of default including failure to pay principal and interest on the IRBs, a failure to comply with covenants, subject to a 30-day grace period in certain instances, certain bankruptcy events, loss of tax exempt status and certain cross defaults.

Senior Unsecured Debentures

General

Borden Chemical has sold, on four occasions, senior unsecured debentures, which are referred to collectively as the Debentures, each with separate maturity dates and interest rates. Borden Chemical redeemed its 9 ¹/4% Debentures concurrently with the closing of the Borden Acquisition. The following table sets forth certain information about the Debentures that remain outstanding:

Rate	Maturity Date	Original Face Value		Outstanding as of December 31, 2004		Sinking Fund Requirements
7 7/8%	February 15, 2023	$	250,000,000	$	246,782,000	None
8 3/8%	April 15, 2016		200,000,000		78,000,000	2007 to 2015 $20 million per year(1)
9 2/10%	March 15, 2021		200,000,000		114,800,000	None

⁽¹⁾ Previous buybacks of Borden Chemical’s Debentures will allow us to fulfill our sinking fund requirements through 2013 for its 8 ³/8% Debentures.

Rankings

The Debentures rank equally in right of payment with all of Hexion’s existing and future senior indebtedness and rank senior in right of payment to all of Hexion’s existing and future subordinated indebtedness. These Debentures are not secured and, as such, have no underlying assets to secure the payment of principal or interest.

Optional Redemption

The 8 ³/8% Debentures may not be redeemed prior to April 15, 2006. Thereafter the 8 ³/8% Debentures may be redeemed at par, plus accrued and unpaid interest. The 9 ²/10% Debentures and the 7 ⁷/8% Debentures are not redeemable prior to their respective maturity dates.

Mandatory Redemption

Except as described above in “—General,” Hexion is not required to make mandatory redemption or sinking fund payments with respect to the Debentures.

Change of Control

In the event of a Change in Control (as defined below), a holder has the right to require us to buy such holder’s 8 ³/8% Debentures at 100% of their principal amount, plus accrued and unpaid interest.

157

“Change in Control” shall be deemed to have occurred at such time as any person is or becomes the beneficial owner of shares of Hexion’s stock entitling such person to exercise 20% or more of the total voting power of all classes of Hexion’s stock entitled to vote in elections of directors; provided, however, that a Change in Control shall not be deemed to have occurred if such event is approved by a majority of the continuing directors (as defined in the prospectus related to the 8 ³/8% Debentures).

The 9 ²/10% Debentures and the 7 ⁷/8% Debentures do not contain provisions relating to a Change in Control.

Covenants

Under the terms of the indentures governing the Debentures, Hexion is subject to covenants that, among other things, restrict its ability to create liens on its assets, incur debt at its subsidiaries or enter into sale leaseback transactions.

Events of Default

The Debentures specify events of default including failure to pay principal and interest on the Debentures, a failure to comply with covenants, subject to a 90-day grace period in certain instances, and certain bankruptcy, insolvency or reorganization events with respect to us.

Senior Subordinated Indebtedness

13 ¹/2% Senior Subordinated Notes

General

Resolution Performance issued $328 million aggregate principal amount of 13 ¹/2% Senior Subordinated Notes due 2010. Resolution Performance issued $200 million aggregate principal amount of Senior Subordinated Notes on November 14, 2000 to finance in part the recapitalization transaction. Resolution Performance subsequently issued $75 million and $53 million aggregate principal amount of Senior Subordinated Notes on November 14, 2001 and December 18, 2002, respectively. The proceeds of both these subsequent issuances were used to prepay then-outstanding loans under Resolution Performance’s credit agreement. The $328 million of 13 ¹/2% Senior Subordinated Notes and are treated as a single class of securities under the 13 ¹/2% Senior Subordinated Notes indenture.

Ranking

The 13 ¹/2% Senior Subordinated Notes are senior subordinated unsecured obligations ranking junior in right of payment to all of Hexion’s existing and future senior debt and all liabilities of Hexion’s subsidiaries that do not guarantee those notes. In the event of liquidation, bankruptcy, insolvency or similar events, holders of senior debt, such as the lenders under our new senior secured credit facilities, and holders of the 8% Senior Secured Notes, the Second Priority Senior Secured Notes, the 9 ¹/2% Senior Second Secured Notes, are entitled to receive payment in full in cash or cash equivalents before holders of the 13 ¹/2% Senior Subordinated Notes are entitled to receive any payments. No payments may be made on the 13 ¹/2% Senior Subordinated Notes if the issuers of such notes default on the payment of senior debt, and payments on the 13 ¹/2% Senior Subordinated Notes may be blocked for up to 180 days if the issuers of such notes default on the senior debt in some other way until such default is cured or waived. Interest on the 13 ¹/2% Senior Subordinated Notes is payable at the rate of 13 ¹/2% per annum and is payable semi-annually in cash on each May 15 and November 15. The Senior Subordinated Notes will mature on November 15, 2010. As of September 30, 2005, the total amount of principal and accrued interest outstanding under the 13 ¹/2% Senior Subordinated Notes was $345.

158

Optional Redemption

Hexion has the right to redeem the 13 ¹/2% Senior Subordinated Notes in whole or in part from time to time on and after November 15, 2005 at the following redemption prices (expressed as percentages of the principal amount) if redeemed during the twelve-month period commencing on November 15 of the year set forth below, plus, in each case, accrued and unpaid interest if any, to the date of redemption:

Year	Percentage
2005	106.750	%
2006	104.500	%
2007	102.250	%
2008 and thereafter	100.000	%

Covenants

The indenture governing the 13 ¹/2% Senior Subordinated Notes contain covenants that restrict Hexion’s ability and the ability of its restricted subsidiaries to:

• incur more indebtedness, including guarantees;

• create liens;

• pay dividends and make distributions in respect of its capital stock;

• enter into agreements that restrict its subsidiaries’ ability to pay dividends or make distributions;

• redeem or repurchase its capital stock;

• make investments or other restricted payments;

• sell assets;

• issue or sell stock of restricted subsidiaries:

• enter into transactions with affiliates;

• merge or consolidate; and

• incur senior subordinated indebtedness.

In addition, the indenture governing the 13 ¹/2% Senior Subordinated Notes contain events of defaults that are substantially similar to those that are contained in the indentures governing the Second-Priority Senior Secured Notes.

159

DESCRIPTION OF THE NOTES

The old Notes were, and the Exchange Notes will be, issued under an Indenture (the “Indenture”) among Hexion U.S. Finance Corp., Hexion Nova Scotia Finance, ULC, Hexion, certain of Hexion’s subsidiaries and Wilmington Trust Company, as trustee (in such capacity, the “Trustee”).

Unless the context otherwise requires, references herein to the Notes include the Fixed Rate Notes and the Floating Rate Notes. However, the Fixed Rate Notes and the Floating Rate Notes are two separate series of Notes under the Indenture for purposes of, among other things, payments of principal and interest, rescinding certain Events of Default and consenting to certain amendments to the Indenture and the Notes. Copies of the Indenture may be obtained from Hexion upon request, when available.

On May 20, 2005, we issued $150 million aggregate principal amount of New Floating Rate Notes with, except as described under “Description of Senior Secured Credit Facilities and Other Indebtedness—Other Second-Priority Indebtedness—New Floating Rate Notes,” substantially identical terms to the Floating Rate Notes described below. The New Floating Rate Notes are not fungible with the Floating Rate Notes described below.

The following summary of certain provisions of the Indenture and the Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Indenture and the Registration Rights Agreement, including the definitions of certain terms therein and those terms made a part of the Indenture by the TIA. We urge you to read the Indenture and the Registration Rights Agreement because they, not this description, define your rights as holders of the Notes. Capitalized terms used in this “Description of the Notes” section and not otherwise defined have the meanings set forth under “—Certain Definitions.” As used in this “Description of the Notes” section, “we,” “us” and “our” refers to Hexion Specialty Chemicals, Inc. and its subsidiaries (or in the case of “—Additional Amounts,” the Issuers and the Guarantors; “Redemption for Changes in Withholding Tax” and “—Registered Exchange Offer; Registration Rights,” the Issuers), “Hexion” refers only to Hexion Specialty Chemicals, Inc. and not to any of its subsidiaries and the “Issuers” refers to the U.S. Issuer and the Canadian Issuer, two newly formed finance subsidiaries of Hexion. The U.S. Issuer is a Delaware corporation. The Canadian Issuer is a Nova Scotia unlimited liability company. Neither Issuer has any material assets other than advances to Hexion and its affiliates.

Brief Description of the Notes

The old Notes are, and the Exchange Notes will be:

• the joint and several obligations of the Issuers;

• senior obligations of the Issuers;

• secured by a second-priority lien in the Collateral;

• guaranteed on a senior secured basis by Hexion and each Subsidiary of Hexion that is a Guarantor; and

• subject to registration with the SEC pursuant to the Registration Rights Agreement.

Principal, Maturity and Interest

Floating Rate Notes

The Issuers will issue the exchange Floating Rate Notes in an aggregate principal amount up to $150 million. The exchange Floating Rate Notes will be issued only in fully registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. No service charge will be made for any registration of transfer or exchange of the exchange Floating Rate Notes, but in certain circumstances the Issuers may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection therewith. The Floating Rate Notes will mature on July 15, 2010.

160

The Issuers may issue additional Floating Rate Notes from time to time after this offering. Any offering of additional Floating Rate Notes is subject to the covenant described below under the caption “—Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock.” The Floating Rate Notes, the exchange Floating Rate Notes and the additional Floating Rate Notes, if any, will be treated as a series of Notes for purposes of the Indenture. Holders of additional Floating Rate Notes actually issued will share equally and ratably in the Collateral. Unless the context otherwise requires, for all purposes of the Indenture and this “Description of the Notes,” references to the Floating Rate Notes include any additional Floating Rate Notes actually issued.

Interest on the Floating Rate Notes and the exchange Floating Rate Notes will accrue at a rate per annum, reset quarterly, equal to LIBOR plus 4.75%, as determined by the calculation agent (the “Calculation Agent”), which shall initially be the Floating Rate Trustee. The Issuers will pay interest on overdue principal at 1% per annum in excess of the above rate and will pay interest on overdue installments of interest at such higher rate to the extent lawful. Interest on the Floating Rate Notes and the exchange Floating Rate Notes will be payable quarterly in arrears on January 15, April 15, July 15 and October 15, commencing on October 15, 2004. The Issuers will make each interest payment to the Holders of record of the Floating Rate Notes on the immediately preceding January 1, April 1, July 1 and October 1. Interest on the Floating Rate Notes and the exchange Floating Rate Notes will accrue from the Issue Date.

The amount of interest for each day that the Floating Rate Notes and the exchange Floating Rate Notes are outstanding (the “Daily Interest Amount”) will be calculated by dividing the interest rate in effect for such day by 360 and multiplying the result by the principal amount of the Floating Rate Notes and the exchange Floating Rate Notes. The amount of interest to be paid on the Floating Rate Notes and the exchange Floating Rate Notes for each Interest Period will be calculated by adding the Daily Interest Amounts for each day in the Interest Period.

All percentages resulting from any of the above calculations will be rounded, if necessary, to the nearest one hundred thousandth of a percentage point, with five one-millionths of a percentage point being rounded upwards (e.g., 9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)) and all dollar amounts used in or resulting from such calculations will be rounded to the nearest cent (with one-half cent being rounded upwards).

The interest rate on the Floating Rate Notes and the exchange Floating Rate Notes will in no event be higher than the maximum rate permitted by New York law as the same may be modified by United States law of general application.

The Calculation Agent will, upon the request of any Holder of Floating Rate Notes or exchange Floating Rate Notes, provide the interest rate then in effect with respect to the Floating Rate Notes and the exchange Floating Rate Notes. All calculations made by the Calculation Agent in the absence of manifest error will be conclusive for all purposes and binding on the Issuers, the Guarantors and the holders of the Floating Rate Notes and the exchange Floating Rate Notes.

The Issuers will pay interest on overdue principal at 1% per annum in excess of the Daily Interest Amount and will pay interest on overdue installments at such higher rate to the extent lawful. Additional interest may accrue on the Floating Rate Notes in certain circumstances pursuant to the Registration Rights Agreement. See “—Registered Exchange Offer; Registration Rights.”

Fixed Rate Notes

The Issuers will issue the exchange Fixed Rate Notes in an aggregate principal amount up to $325 million. The exchange Fixed Rate Notes will be issued only in fully registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. No service charge will be made for any registration of transfer or exchange of the Fixed Rate Notes and the exchange Fixed Rate Notes, but in certain circumstances the Issuers may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection therewith. The Fixed Rate Notes and the exchange Fixed Rate Notes will mature on July 15, 2014.

161

The Issuers may issue additional Fixed Rate Notes from time to time after this offering. Any offering of additional Fixed Rate Notes is subject to the covenant described below under the caption “—Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock.” The Fixed Rate Notes, the exchange Fixed Rate Notes and the additional Fixed Rate Notes, if any, will be treated as a series of Notes for purposes of the Indenture. Holders of additional Fixed Rate Notes and the exchange Fixed Rate Notes actually issued will share equally and ratably in the Collateral. Unless the context otherwise requires, for all purposes of the Indenture and this “Description of the Notes,” references to the Fixed Rate Notes include any additional Fixed Rate Notes actually issued.

Interest on the Fixed Rate Notes will accrue at the rate of 9% per annum and will be payable semiannually in arrears on January 15 and July 15, commencing on January 15, 2005. The Issuers will make each interest payment to the Holders of record of the Fixed Rate Notes on the immediately preceding January 1 and July 1. The Issuers will pay interest on overdue principal at 1% per annum in excess of the above rate and will pay interest on overdue installments of interest at such higher rate to the extent lawful.

Interest on the Fixed Rate Notes and the exchange Fixed Rate Notes will accrue from the Issue Date. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.

Additional interest may accrue on the Fixed Rate Notes in certain circumstances pursuant to the Registration Rights Agreement. See “—Registered Exchange Offer; Registration Rights.”

Optional Redemption

Floating Rate Notes

On and after July 15, 2006, the Issuers may redeem the Floating Rate Notes at their option, in whole at any time or in part from time to time, upon not less than 30 nor more than 60 days’ prior notice mailed by first-class mail to each holder’s registered address, at the following redemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest and additional interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on July 15 of the years set forth below:

Period	Redemption Price
2006	102.00	%
2007	101.00	%
2008 and thereafter	100.00	%

Notwithstanding the foregoing, at any time and from time to time on or prior to July 15, 2006, the Issuers may redeem, upon not less than 30 nor more than 60 days’ prior notice mailed by first-class mail to each holder’s registered address, in the aggregate up to 35% of the original aggregate principal amount of the Floating Rate Notes (which includes additional Floating Rate Notes, if any) with the net cash proceeds of one or more Equity Offerings (1) by Hexion or (2) by any direct or indirect parent of Hexion to the extent the net cash proceeds thereof are contributed to the common equity capital of Hexion or used to purchase Capital Stock (other than Disqualified Stock) of Hexion from it, at a redemption price (expressed as a percentage of principal amount thereof) of 100% plus a premium equal to the interest rate per annum on the Floating Rate Notes applicable on the date on which notice of redemption is given, plus accrued and unpaid interest and additional interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that at least 65% of the aggregate principal amount of the Floating Rate Notes (which includes additional Floating Rate Notes, if any), remains outstanding after each such redemption; provided further, however, that such redemption shall occur within 90 days after the date on which any such Equity Offering is consummated and otherwise in accordance with the procedures set forth in the Indenture.

162

Fixed Rate Notes

On and after July 15, 2009, the Issuers may redeem the Fixed Rate Notes at their option, in whole at any time or in part from time to time, upon not less than 30 nor more than 60 days’ prior notice mailed by first-class mail to each holder’s registered address, at the following redemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest and additional interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), if redeemed during the 12-month period commencing on July 15 of the years set forth below:

Period	Redemption Price
2009	104.50	%
2010	103.00	%
2011	101.50	%
2012 and thereafter	100.00	%

In addition, prior to July 15, 2009, the Issuers may redeem the Fixed Rate Notes at their option, in whole at any time or in part from time to time, upon not less than 30 nor more than 60 days’ prior notice mailed by first-class mail to each holder’s registered address, at a redemption price equal to 100% of the principal amount of the Fixed Rate Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest and additional interest, if any, to the applicable redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date).

Notwithstanding the foregoing, at any time and from time to time on or prior to July 15, 2007, the Issuers may redeem, upon not less than 30 nor more than 60 days’ prior notice mailed by first-class mail to each holder’s registered address, in the aggregate up to 35% of the original aggregate principal amount of the Fixed Rate Notes (which includes additional Fixed Rate Notes, if any) with the net cash proceeds of one or more Equity Offerings (1) by Hexion or (2) by any direct or indirect parent of Hexion, to the extent the net cash proceeds thereof are contributed to the common equity capital of Hexion or used to purchase Capital Stock (other than Disqualified Stock) of Hexion from it, at a redemption price (expressed as a percentage of principal amount thereof) of 109% plus accrued and unpaid interest and additional interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that at least 65% of the aggregate principal amount of the Fixed Rate Notes (which includes additional Fixed Rate Notes, if any), remains outstanding after each such redemption; provided further, however, that such redemption shall occur within 90 days after the date on which any such Equity Offering is consummated and otherwise in accordance with the procedures set forth in the Indenture.

Escrow of Proceeds; Special Mandatory Redemption

The Indenture provides that if the Issue Date were to occur prior to the Acquisition Date, the gross proceeds of the offering of the old Notes would be placed in escrow pending consummation of the other components of the Borden Transaction. The Notes would be subject to a special mandatory redemption in the event the other components of the Borden Transaction were not consummated on or prior to September 30, 2004 or the Stock Purchase Agreement was terminated in accordance with its terms at any time prior thereto. The Issue date and the Acquisition Date both occurred on August 12, 2005, and therefore the proceeds of the offering of the old Notes were not placed in escrow as set forth above.

Selection

In the case of any partial redemption of the Floating Rate Notes or the Fixed Rate Notes, selection of the Floating Rate Notes or the Fixed Rate Notes, as the case may be, for redemption will be made by the Trustee on a pro rata basis to the extent practicable; provided, however, that no Notes of $1,000 or less shall be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption relating to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed

163

portion thereof will be issued in the name of the holder thereof upon cancellation of the original Note. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption so long as the Issuers have deposited with the Paying Agent funds sufficient to pay the principal of, plus accrued and unpaid interest and additional interest (if any) on, the Notes to be redeemed.

Mandatory Redemption; Offers to Purchase; Open Market Purchases

Except as described above under the caption “—Escrow of Proceeds; Special Mandatory Redemption,” the Issuers are not required to make any mandatory redemption or sinking fund payments with respect to the Notes. However, under certain circumstances, the Issuers may be required to offer to purchase Notes as described under the captions “—Change of Control” and “—Certain Covenants—Asset Sales.” We may at any time and from time to time purchase Notes in the open market or otherwise.

Additional Amounts

We are required to make all our payments under or with respect to the Notes free and clear of and without withholding or deduction for or on account of any present or future tax, duty, levy, impost, assessment or other governmental charge (including penalties, interest and other liabilities related thereto) (hereinafter “Taxes”) imposed or levied by or on behalf of the government of Canada or any political subdivision or any authority or agency therein or thereof having power to tax, or within any other jurisdiction in which we are organized or are otherwise resident for tax purposes or any jurisdiction from or through which payment is made (each a “Relevant Taxing Jurisdiction”), unless we are required to withhold or deduct Taxes by law or by the interpretation or administration thereof.

If we are so required to withhold or deduct any amount for or on account of Taxes imposed by a Relevant Taxing Jurisdiction from any payment made under or with respect to the Notes, we will be required to pay such additional amounts (“Additional Amounts”) as may be necessary so that the net amount received by you (including Additional Amounts) after such withholding or deduction will not be less than the amount you would have received if such Taxes had not been withheld or deducted; provided, however, that the foregoing obligation to pay Additional Amounts does not apply to (1) any Taxes that would not have been so imposed but for the existence of any present or former connection between the relevant holder and the Relevant Taxing Jurisdiction (other than the mere receipt of such payment or the ownership or holding outside of Canada of such Note); (2) any estate, inheritance, gift, sales, excise, transfer, personal property tax or similar tax, assessment or governmental charge; (3) any Taxes imposed or withheld by reason of the failure to comply by the holder of a Note, or, if different, the beneficial owner of the interest payable on a Note with a timely request of the Issuer addressed to such holder or beneficial owner to provide information, documents or other evidence concerning the nationality, residence, identity or connection with a Relevant Taxing Jurisdiction that is required or imposed by a statute, treaty, regulation or administrative practice of such Relevant Taxing Jurisdiction as a precondition to exemption from all or part of such Tax nor will we pay Additional Amounts (a) if the payment could have been made without such deduction or withholding if the beneficiary of the payment had presented the Note for payment within 30 days after the date on which such payment or such Note became due and payable or the date on which payment thereof is duly provided for, whichever is later (except to the extent that the holder would have been entitled to Additional Amounts had the Note been presented on the last day of such 30-day period), or (b) with respect to any payment of principal of (or premium, if any, on) or interest on such Note to any holder who is a fiduciary or partnership or any person other than the sole beneficial owner of such payment, to the extent that a beneficiary or settler with respect to such fiduciary, a member of such a partnership or the beneficial owner of such payment would not have been entitled to the Additional Amounts had such beneficiary, settlor, member or beneficial owner been the actual holder of such Note.

Upon request, we will provide the Trustee with official receipts or other documentation satisfactory to the Trustee evidencing the payment of the Taxes with respect to which Additional Amounts are paid.

164

Whenever in the Indenture there is mentioned, in any context:

(1) the payment of principal;

(2) purchase prices in connection with a purchase of Notes;

(3) interest; or

(4) any other amount payable on or with respect to any of the Notes,

such reference shall be deemed to include payment of Additional Amounts as described under this heading to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof.

We will pay any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies that arise in any jurisdiction from the execution, delivery, enforcement or registration of the Notes, the Indenture, the Security Documents, the Intercreditor Agreement or any other document or instrument in relation thereof, or the receipt of any payments with respect to the Notes, excluding such taxes, charges or similar levies imposed by any jurisdiction outside of Canada, the jurisdiction of incorporation of any successor of the Canadian Issuer or any jurisdiction in which a paying agent is located, and we will agree to indemnify the Holders for any such taxes paid by such Holders.

The obligations described under this heading will survive any termination, defeasance or discharge of the Indenture and will apply mutatis mutandis to any jurisdiction in which any successor Person to the Canadian Issuer is organized or any political subdivision or taxing authority or agency thereof or therein.

For a discussion of Canadian withholding taxes applicable to payments under or with respect to the Notes, see “Certain Tax Consequences.”

Redemption for Changes in Withholding Taxes

We are entitled to redeem the Floating Rate Notes and/or the Fixed Rate Notes, at our option, at any time as a whole but not in part, upon not less than 30 nor more than 60 days’ notice, at 100% of the principal amount thereof, plus accrued and unpaid interest (if any) to the date of redemption (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), in the event we have become or would become obligated to pay, on the next date on which any amount would be payable with respect to such Notes, any Additional Amounts as a result of:

(1) a change in or an amendment to the laws (including any regulations promulgated thereunder) of Canada (or any political subdivision or taxing authority thereof or therein); or

(2) any change in or amendment to any official position regarding the application or interpretation of such laws or regulations,

which change or amendment is announced or becomes effective on or after the date of the Offering Circular and we cannot avoid such obligation by taking reasonable measures available to us.

Before we publish or mail notice of redemption of the Notes as described above, we will deliver to the Trustee an Officers’ Certificate to the effect that we cannot avoid our obligation to pay Additional Amounts by taking reasonable measures available to us. We will also deliver an opinion of independent legal counsel of recognized standing stating that we would be obligated to pay Additional Amounts as a result of a change in tax laws or regulations or the application or interpretation of such laws or regulations.

Ranking

The indebtedness evidenced by the old Notes and the Guarantees is and the Exchange Notes and the related Guarantees will be senior Indebtedness of the Issuers or the applicable Guarantor, as the case may be, ranks and

165

will rank pari passu in right of payment with all existing and future senior Indebtedness of the Issuers and the Guarantors, as the case may be, has and will have the benefit of the second-priority security interest in the Collateral as described under “—Security for the Notes” and is and will be senior in right of payment to all existing and future Subordinated Indebtedness of the Issuers and the Guarantors, as the case may be. Pursuant to the Security Documents and the Intercreditor Agreement, the security interests securing the old Notes and the Guarantees are and the Exchange Notes and the related Guarantees will be second in priority (subject to Permitted Liens, including exceptions described under the caption “—Security for the Notes”) to all security interests at any time granted to secure First-Priority Lien Obligations.

At September 30, 2005,

(1) Hexion and its Subsidiaries had $2.4 billion aggregate principal amount of senior Indebtedness (including the Notes and the Guarantees) outstanding (excluding unused commitments); and

(2) Hexion’s Subsidiaries that are not Guarantors had total Indebtedness of approximately $357 million (excluding intercompany liabilities of Subsidiaries that are not Guarantors).

Although the Indenture contains limitations on the amount of additional Indebtedness which Hexion and its Subsidiaries may Incur, under certain circumstances the amount of such Indebtedness could be substantial and, subject to certain limitations, such Indebtedness may be Secured Indebtedness constituting a First-Priority Lien Obligation. See “—Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock” and “—Liens.”

A significant portion of the operations of Hexion are conducted through its Subsidiaries. Unless the Subsidiary is a Guarantor or one of the Issuers, claims of creditors of such Subsidiaries, including trade creditors, and claims of preferred stockholders (if any) of such Subsidiaries generally will have priority with respect to the assets and earnings of such Subsidiaries over the claims of creditors of Hexion, including holders of the old Notes and the Exchange Notes. The old Notes are and the Exchange Notes will be effectively subordinated to holders of indebtedness and other creditors (including trade creditors) and preferred stockholders (if any) of Subsidiaries of Hexion that are not Guarantors or one of the Issuers. Although the Indenture will limit the Incurrence of Indebtedness by and the issuance of Disqualified Stock and Preferred Stock of certain of Hexion’s Subsidiaries, such limitation is subject to a number of significant qualifications. See “—Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock.”

Security for the Notes

The old Notes and the Guarantees are and the Exchange Notes and the related Guarantees will be secured by second-priority security interests (subject to Permitted Liens) in the Collateral and the Floating Rate Notes and the Fixed Rate Notes will share in the benefit of such security interest based on the respective amounts of the Obligations thereunder. The Collateral consists of (i) 100% of the Capital Stock of certain existing and certain future Domestic Subsidiaries of Hexion that are owned directly by Hexion or any Guarantor (subject to the limitations described in the next paragraph and “—Limitations on Stock Collateral”), (ii) 65% of the Capital Stock of all existing and certain future Foreign Subsidiaries of Hexion that are owned directly by Hexion or any Guarantor (subject to the limitations described in the next paragraph and “—Limitations on Stock Collateral”) and (iii) substantially all of the other property and assets, in each case, that are held by Hexion or any of the Subsidiary Guarantors, to the extent that such assets secure the First-Priority Lien Obligations and to the extent that a second-priority security interest is able to be granted or perfected therein.

In addition to the limitations described below under “—Limitations on Stock Collateral”, the initial Collateral does not include (i) any property or assets owned by any Foreign Subsidiaries, (ii) any real estate or Principal Property, (iii) any assets which, if included in the Collateral, would require the Existing Debentures to be ratably secured with the Notes pursuant to the terms of the indentures for the Existing Debentures and (iv)

166

proceeds and products from any and all of the foregoing excluded assets described in clauses (i) through (iv), unless such proceeds and products would otherwise constitute Collateral. Except for property and assets of Foreign Subsidiaries, the foregoing excluded property and assets do not secure the First-Priority Lien Obligations. The security interests securing the old Notes are and the Exchange Notes will be second in priority to any and all security interests at any time granted to secure the First-Priority Lien Obligations and will also be subject to all other Permitted Liens. The First-Priority Lien Obligations include Secured Bank Indebtedness and related obligations, as well as certain hedging obligations and certain other obligations in respect of cash management services. The Person holding such First-Priority Lien Obligations may have rights and remedies with respect to the property subject to such Liens that, if exercised, could adversely affect the value of the Collateral or the ability of the Intercreditor Agent to realize or foreclose on the Collateral on behalf of holders of the Notes.

The Issuers, Hexion and the Subsidiary Guarantors are and will be able to incur additional indebtedness in the future which could share in the Collateral, including additional First-Priority Lien Obligations and additional indebtedness which would be secured on a second-priority basis with the Notes. The amount of such First-Priority Lien Obligations are and will be limited by the covenant disclosed under “—Certain Covenants—Liens,” and the amount of all such additional indebtedness will be limited by the covenant described under “—Certain Covenants—Limitation on Incurrence of Indebtedness and Issuances of Disqualified Stock and Preferred Stock.” Under certain circumstances the amount of such First-Priority Lien Obligations and additional indebtedness could be significant.

Limitations on Stock Collateral

The Capital Stock and securities of a Subsidiary of Hexion (other than the Hexion Canada Entities) that are owned by Hexion or any Guarantor constitute Collateral only to the extent that such Capital Stock and securities can secure the Notes without Rule 3-10 or Rule 3-16 of Regulation S-X under the Securities Act (or any other law, rule or regulation) requiring separate financial statements of such Subsidiary to be filed with the SEC (or any other governmental agency). In the event that Rule 3-10 or Rule 3-16 of Regulation S-X under the Securities Act requires or is amended, modified or interpreted by the SEC to require (or is replaced with another rule or regulation, or any other law, rule or regulation is adopted, which would require) the filing with the SEC (or any other governmental agency) of separate financial statements of any Subsidiary (other than the Hexion Canada Entities) due to the fact that such Subsidiary’s Capital Stock and securities secure the Notes, then the Capital Stock and securities of such Subsidiary shall automatically be deemed not to be part of the Collateral (but only to the extent necessary to not be subject to such requirement). In such event, the Security Documents may be amended or modified, without the consent of any Holder of Notes, to the extent necessary to release the second-priority security interests on the shares of Capital Stock and securities that are so deemed to no longer constitute part of the Collateral.

In the event that Rule 3-10 or Rule 3-16 of Regulation S-X under the Securities Act is amended, modified or interpreted by the SEC to permit (or is replaced with another rule or regulation, or any other law, rule or regulations adopted, which would permit) such Subsidiary’s Capital Stock and securities to secure the Notes in excess of the amount then pledged without the filing with the SEC (or any other governmental agency) of separate financial statements of such Subsidiary, then the Capital Stock and securities of such Subsidiary shall automatically be deemed to be a part of the Collateral (but only to the extent necessary to not be subject to any such financial statement requirement). In such event, the Security Documents may be amended or modified, without the consent of any holder of Notes, to the extent necessary to subject to the Liens under the Security Documents such additional Capital Stock and securities.

In accordance with the limitations set forth in the two immediately preceding paragraphs, as of the Acquisition Date, other than with respect to Hexion Canada whose shares of Capital Stock became a part of the Collateral without regard to such limits described above, the Collateral includes shares of Capital Stock of the Subsidiaries only to the extent that the applicable value of such Capital Stock (on a Subsidiary-by-Subsidiary

167

basis) is less than 20% of the aggregate principal amount of the Notes outstanding. Following the Issue Date, however, the portion of the Capital Stock of Subsidiaries constituting Collateral may decrease or increase as described above.

After-Acquired Collateral

From and after August 12, 2004 and subject to certain limitations and exceptions, if Hexion or any Guarantor creates any additional security interest upon any property or asset to secure any First-Priority Lien Obligations (which include Obligations in respect of the Credit Agreement), it must concurrently grant a second-priority security interest (subject to Permitted Liens, including the first-priority lien that secures obligations in respect of the First-Priority Lien Obligations) upon such property as security for the old Notes and the Exchange Notes. Also, if granting a security interest in such property requires the consent of a third party, Hexion will use commercially reasonable efforts to obtain such consent with respect to the second-priority security interest for the benefit of the Trustee on behalf of the holders of the Notes. If such third party does not consent to the granting of the second-priority security interest after the use of such commercially reasonable efforts, the applicable entity will not be required to provide such security interest.

Security Documents and Intercreditor Agreement

The Issuers, the Guarantors and the Trustee entered into one or more Security Documents defining the terms of the security interests that secure the Notes and the Guarantees of the Notes. These security interests secure the payment and performance when due of all of the Obligations of the Issuers and the Guarantors under the Notes, the Indenture, the Guarantees and the Security Documents, as provided in the Security Documents. The Company and the Guarantors agreed to use their commercially reasonable efforts to complete on or prior to the Acquisition Date all filings and other similar actions required in connection with the perfection of such security interests. If they are not able to complete such actions on or prior to the Acquisition Date, they agreed to use their commercially reasonable efforts to complete such actions as soon as reasonably practicable after such date.

The Trustee and the Intercreditor Agent entered into the Intercreditor Agreement, which may be amended from time to time to add other parties holding Other Second-Lien Obligations and other First-Priority Lien Obligations permitted to be incurred under the Indenture. The Intercreditor Agent is initially the administrative agent under the Credit Agreement. Pursuant to the terms of the Intercreditor Agreement, at any time at which First-Priority Lien Obligations are outstanding (whether incurred prior to, on or after the Issue Date), the Intercreditor Agent will determine the time and method by which the security interests in the Collateral will be enforced. The Trustee will not be permitted to enforce the security interests even if any Event of Default under the Indenture has occurred and the Notes have been accelerated except (a) in any insolvency or liquidation proceeding, as necessary to file a claim or statement of interest with respect to such Notes or (b) as necessary to take any action in order to create, prove, preserve, perfect or protect (but not enforce) its rights in the second-priority Liens. See “Risk Factors—Risks Related to an Investment in the Notes—Holders of notes will not control decisions regarding collateral.” At any time at which all First-Priority Lien Obligations have been discharged in full, the Trustee in accordance with the provisions of the Indenture and the Security Documents will distribute all cash proceeds (after payment of the costs of enforcement and collateral administration) of the Collateral received by it under the Security Documents for the ratable benefit of the holders of the Notes. The proceeds from the sale of the Collateral remaining after the satisfaction of all First-Priority Lien Obligations may not be sufficient to satisfy the obligations owed to the holders of the Notes. By its nature some or all of the Collateral is and will be illiquid and may have no readily ascertainable market value. Accordingly, the Collateral may not be able to be sold in a short period of time, if salable. See “Risk Factors—Risks Related to an Investment in the Notes—There may not be sufficient collateral to pay all or any of the notes.”

In addition, the Security Documents and the Intercreditor Agreement provide that, so long as there are First-Priority Lien Obligations outstanding (whether incurred prior to, on or after the Issue Date), (1) the holders of First-Priority Lien Obligations may direct the Intercreditor Agent to take actions with respect to the Collateral

168

(including the release of Collateral and the manner of realization) without the consent of the holders of the Notes, (2) Hexion and the Subsidiary Guarantors may require the Trustee to agree to modify the Security Documents or the Intercreditor Agreement, without the consent of the Trustee and the holders of the Notes, to secure additional extensions of credit and add additional secured creditors so long as such modifications do not expressly violate the provisions of the Credit Agreement or the Indenture and (3) the holders of the First-Priority Lien Obligations may change, waive, modify or vary the security documents without the consent of the holders of the notes, provided that any such change, waiver or modification does not materially adversely affect the rights of the holders of the notes and not the other secured creditors in a like or similar manner. Any provider of additional extensions of credit shall be entitled to rely on the determination of an Officer that such modifications do not expressly violate the provisions of the Credit Agreement or the Indenture if such determination is set forth in an Officer’s Certificate delivered to such provider; provided, however, that such determination will not affect whether or not Hexion has complied with its undertakings in the Indenture, the Security Documents or the Intercreditor Agreement. See “Risk Factors—Risks Related to an Investment in the Notes—Holders of notes will not control decisions regarding Collateral.”

Subject to the terms of the Security Documents, the Issuers and the Guarantors have the right to remain in possession and retain exclusive control of the Collateral securing the Notes (other than any cash, securities, obligations and Cash Equivalents constituting part of the Collateral and deposited with the Intercreditor Agent in accordance with the provisions of the Security Documents and other than as set forth in the Security Documents), to freely operate the Collateral and to collect, invest and dispose of any income therefrom.

See “Risk Factors—Risks Related to an Investment in the Notes—Rights of holders of notes in the collateral may be adversely affected by bankruptcy proceedings.”

Release of Collateral

The Issuers and the Guarantors are entitled to the releases of property and other assets included in the Collateral from the Liens securing the Notes under any one or more of the following circumstances:

(1) if all other Liens on such property or assets securing First-Priority Lien Obligations (including all commitments and letters of credit thereunder) are released and there are no outstanding Receivables Financings (or commitments therefor); provided, however, that it (x) the Issuers or any Guarantor subsequently incurs First-Priority Lien Obligations that are secured by liens on property or assets of the Issuers or any Guarantor of the type constituting the Collateral and the related Liens are incurred in reliance on clause (8) of the definition of Permitted Liens or (y) Hexion or any of its Restricted Subsidiaries subsequently enter into any Receivables Financing, then Hexion and its Restricted Subsidiaries will be required to reinstitute the security arrangements with respect to the Collateral in favor of the Notes, which, in the case of any such subsequent First-Priority Lien Obligations, will be second priority Liens on the Collateral securing such First-Priority Lien Obligations to the same extent provided by the Security Documents and on the terms and conditions of the security documents relating to such First-Priority Lien Obligations, with the second-priority Lien held either by the administrative agent, collateral agent or other representative for such First-Priority Lien Obligations or by a collateral agent or other representative designated by Hexion to hold the second-priority Liens for the benefit of the Holders of the Notes and subject to an intercreditor agreement that provides the administrative agent or collateral agent substantially the same rights and powers as afforded under the Intercreditor Agreement;

(2) to enable us to consummate the disposition of such property or assets to the extent not prohibited under the covenant described under “—Certain Covenants—Asset Sales;”

(3) in the case of a Guarantor that is released from its Guarantee with respect to the Notes, the release of the property and assets of such Guarantor; or

(4) as described under “—Amendments and Waivers” below.

169

If an Event of Default under the Indenture exists on the date on which the First-Priority Lien Obligations are repaid in full and terminated (including all commitments and letters of credit thereunder), the second-priority Liens on the Collateral securing the Notes will not be released, except to the extent the Collateral or any portion thereof was disposed of in order to repay the First-Priority Lien Obligations secured by the Collateral, and thereafter the Trustee (acting at the direction of the holders of a majority of outstanding principal amount of the Notes) will have the right to direct the Intercreditor Agent to foreclose upon the Collateral (but in such event, the Liens on the Collateral securing the Notes will be released when such Event of Default and all other Events of Default under the Indenture cease to exist).

The second-priority security interests in all Collateral securing the Notes also will be released upon (i) payment in full of the principal of, together with accrued and unpaid interest (including additional interest, if any) on, the Notes and all other Obligations under the Indenture, the Guarantees under the Indenture and the Security Documents that are due and payable at or prior to the time such principal, together with accrued and unpaid interest (including additional interest, if any), are paid or (ii) a legal defeasance or covenant defeasance under the Indenture as described below under “—Defeasance;” provided, however, that, in the case of this clause (ii), no Floating Rate Notes are then outstanding.

Guarantees

Hexion and each direct and indirect Restricted Subsidiary of Hexion that was a Domestic Subsidiary on the Acquisition Date and that guarantees the obligations of Hexion under the Credit Agreement jointly and severally irrevocably and unconditionally guarantee on a senior basis the performance and punctual payment when due, whether at Stated Maturity, by acceleration or otherwise, of all obligations of the Issuers under the Indenture, the old Notes and the Exchange Notes, whether for payment of principal of, premium, if any, or interest or additional interest on the old Notes and the Exchange Notes, expenses, indemnification or otherwise (all such obligations guaranteed by such Guarantors being herein called the “Guaranteed Obligations”). The Guaranteed Obligations of all Guarantors is secured by second-priority security interests (subject to Permitted Liens) in the Collateral owned by such Guarantor. Such Guarantors agreed to pay, in addition to the amount stated above, any and all expenses (including reasonable counsel fees and expenses) incurred by the Trustee or the holders in enforcing any rights under the Guarantees.

Each Guarantee is limited to an amount not to exceed the maximum amount that can be guaranteed by the applicable Guarantor without rendering such Guarantee, as it relates to such Guarantor, voidable under applicable laws relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally. See “Risk Factors—Risks Related to an Investment in the Notes—Federal and state statutes allow courts, under specific circumstances, to void guarantees and require note holders to return payments received from guarantors.” After the Acquisition Date, Hexion will cause certain domestic Subsidiaries that Incur or guarantee certain Indebtedness or that issue certain shares of Disqualified Stock or Preferred Stock to execute and deliver to the Trustee supplemental indentures pursuant to which such Restricted Subsidiary will guarantee payment of the Notes on the same basis. See “—Certain Covenants—Future Guarantors.”

Each Guarantee is a continuing guarantee and, subject to the next succeeding paragraph, shall:

(1) remain in full force and effect until payment in full of all the Guaranteed Obligations;

(2) be binding upon each such Guarantor and its successors; and

(3) inure to the benefit of and be enforceable by the Trustee, the holders of the Notes and their successors, transferees and assigns.

A Guarantee of a Restricted Subsidiary will be automatically released upon:

(a) the sale, disposition or other transfer (including through merger or consolidation) of the Capital Stock (including any sale, disposition or other transfer following which the applicable Guarantor is no

170

longer a Restricted Subsidiary), or all or substantially all the assets, of the applicable Guarantor if such sale, disposition or other transfer is made in compliance with the Indenture, in each case other than to Hexion or a Subsidiary of Hexion; provided, however, that such Guarantor is released from its guarantees, if any, of, and all pledges and security, if any, granted in connection with, the Credit Agreement and any other Indebtedness of Hexion or any Restricted Subsidiary of Hexion;

(b) Hexion designating such Guarantor to be an Unrestricted Subsidiary in accordance with the provisions set forth under “—Certain Covenants—Limitation on Restricted Payments” and the definition of “Unrestricted Subsidiary;”

(c) the release or discharge of all guarantees by such Restricted Subsidiary and the repayment of all Indebtedness and retirement of all Disqualified Stock of such Restricted Subsidiary which, if Incurred by such Restricted Subsidiary, would require such Restricted Subsidiary to guarantee the Notes under the covenant described under “—Certain Covenants—Future Guarantors;” and

(d) our exercise of our legal defeasance option or covenant defeasance option as described under “—Defeasance” with respect to the Fixed Rate Notes; provided, however, that no Floating Rate Notes are then outstanding, or if our obligations under the Indenture are discharged in accordance with the terms of the Indenture; and

(e) such Restricted Subsidiary ceasing to be a Subsidiary as a result of any foreclosure of any pledge or security interest in favor of First-Priority Lien Obligations, subject to, in each case, the application of the proceeds of such foreclosure in the manner described under “—Security for the Notes—Release of Collateral.”

Book-Entry, Delivery and Form

General

Except as set forth below, the Exchange Notes will initially be issued in the form of one or more fully registered notes in global form without coupons (a “Global Note”). Each Global Note shall be deposited with the Trustee, as custodian for, and registered in the name of DTC or a nominee thereof. The old Notes to the extent validly tendered and accepted and directed by their holders in their letters of transmittal, will be exchanged through book-entry electronic transfer for the global note.

Except as set forth below, the Global Note may be transferred, in whole but not in part, solely to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Note may not be exchanged for notes in certificated form except in the limited circumstances described below.

Depository Procedures

The following description of the operations and procedures of DTC is provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them. We take no responsibility for these operations and procedures and urge investors to contact the system or their participants directly to discuss these matters.

DTC has advised us that DTC is a limited-purpose trust company organized under the laws of the State of New York, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participating organizations (collectively, the “participants”) and to facilitate the clearance and settlement of transactions in those securities between participants through electronic book-entry changes in accounts of its participants. The participants include securities brokers and dealers (including the initial purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to DTC’s system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or

171

maintain a custodial relationship with a participant, either directly or indirectly (collectively, the “indirect participants”). Persons who are not participants may beneficially own securities held by or on behalf of DTC only through the participants or the indirect participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the participants and indirect participants.

DTC has also advised us that, pursuant to procedures established by it:

(1) upon issuance of the Global Notes, DTC will credit the principal amount of Notes of the individual beneficial interests represented by the Global Note to the respective accounts of persons who have accounts with such depositary; and

(2) ownership of these interests in the Global Note will be shown on, and the transfer of ownership of these interests will be effected only through, records maintained by DTC (with respect to the participants) or by the participants and the indirect participants (with respect to other owners of beneficial interests in the Global Note).

Investors in the Global Note who are participants in DTC’s system may hold their interests therein directly through DTC. Investors in the Global Note who are not participants may hold their interests therein indirectly through organizations which are participants in such system. All interests in the Global Note may be subject to the procedures and requirements of DTC. The laws of some states require that certain Persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in the Global Note to such Persons will be limited to that extent. Because DTC can act only on behalf of participants, which in turn act on behalf of indirect participants, the ability of a Person having beneficial interests in the Global Note to pledge such interests to Persons that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests.

Except as described below, owners of an interest in the Global Note will not have Notes registered in their names, will not receive physical delivery of Notes in certificated form and will not be considered the registered owners or “holders” thereof under the Indenture for any purpose.

Payments in respect of the principal of, and interest and premium and additional interest, if any, on the Global Note registered in the name of DTC or its nominee will be payable to DTC in its capacity as the registered holder under the Indenture. Under the terms of the Indenture, the Issuers and the Trustee will treat the Persons in whose names the Notes, including the Global Note, are registered as the owners of the Notes for the purpose of receiving payments and for all other purposes. Consequently, neither the Issuers, the Trustee nor any agent of the Issuers or the Trustee has or will have any responsibility or liability for:

(1) any aspect of DTC’s records or any participant’s or indirect participant’s records relating to or payments made on account of beneficial ownership interests in the Global Note or for maintaining, supervising or reviewing any of DTC’s records or any participant’s or indirect participant’s records relating to the beneficial ownership interests in the Global Notes; or

(2) any other matter relating to the actions and practices of DTC or any of its participants or indirect participants.

DTC has advised us that its current practice, upon receipt of any payment in respect of securities such as the Notes (including principal and interest), is to credit the accounts of the relevant participants with the payment on the payment date unless DTC has reason to believe it will not receive payment on such payment date. Each relevant participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of the relevant security as shown on the records of DTC. Payments by the participants and the indirect participants to the beneficial owners of Notes will be governed by standing instructions and customary practices and will be the responsibility of the participants or the indirect participants and will not be the

172

responsibility of DTC, the Trustee or the Issuers. Neither the Issuers nor the Trustee will be liable for any delay by DTC or any of its participants in identifying the beneficial owners of the Notes, and the Issuers and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes.

Transfers between participants in DTC will be effected in accordance with DTC’s procedures, and will be settled in same-day funds.

DTC has advised the Issuers that it will take any action permitted to be taken by a holder of Notes only at the direction of one or more participants to whose account DTC has credited the interests in the Global Notes and only in respect of such portion of the aggregate principal amount of the Notes as to which such participant or participants has or have given such direction. However, if there is an Event of Default under the Notes, DTC reserves the right to exchange the Global Note for legended Notes in certificated form, and to distribute such Notes to its participants.

Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the Global Note among participants, it is under no obligation to perform such procedures, and such procedures may be discontinued or changed at any time. Neither the Issuers nor the Trustee nor any of their respective agents will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations.

Exchange of the Global Note for Certificated Notes

The Global Note is exchangeable for Certificated Notes if:

(1) DTC (A) notifies the Issuers that it is unwilling or unable to continue as depositary for the Global Notes or (B) has ceased to be a clearing agency registered under the Exchange Act and, in each case, a successor depositary is not appointed;

(2) Hexion, at its option, notifies the Trustee in writing that it elects to cause the issuance of the Certificated Notes; or

(3) there has occurred and is continuing a Default with respect to the Notes.

In addition, beneficial interests in the Global Note may be exchanged for Certificated Notes upon prior written notice given to the Trustee by or on behalf of DTC in accordance with the Indenture. In all cases, Certificated Notes delivered in exchange for the Global Note or beneficial interests in the Global Note will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures) and will bear the applicable restrictive legend referred to in “Transfer Restrictions,” unless that legend is not required by applicable law.

Exchange of Certificated Notes for Global Notes

Certificated Notes may not be exchanged for beneficial interests in the Global Note unless the transferor first delivers to the Trustee a written certificate (in the form provided in the Indenture) to the effect that such transfer will comply with the appropriate transfer restrictions applicable to such Notes. See “Transfer Restrictions.”

Same Day Settlement and Payment

The Issuers will make payments in respect of the Notes represented by the Global Note (including principal, premium, if any, interest and additional interest, if any) by wire transfer of immediately available funds to the accounts specified by the Global Note holder. The Issuers will make all payments of principal, interest and premium and additional interest, if any, with respect to Certificated Notes by wire transfer of immediately

173

available funds to the accounts specified by the holders of the Certificated Notes or, if no such account is specified, by mailing a check to each such holder’s registered address. The Notes represented by the Global Note are expected to be eligible to trade in the PORTAL market and to trade in DTC’s Same-Day Funds Settlement System, and any permitted secondary market trading activity in such Notes will, therefore, be required by DTC to be settled in immediately available funds. The Issuers expect that secondary trading in any Certificated Notes will also be settled in immediately available funds.

Registered Exchange Offer; Registration Rights

The following description is a summary of the material provisions of the Registration Rights Agreement. It does not restate that agreement in its entirety. We urge you to read the proposed form of Registration Rights Agreement in its entirety because it, and not this description, defines your registration rights as holders of the Notes.

The Issuers, the Guarantors and the Initial Purchasers entered into the Registration Rights Agreement on August 12, 2004. Pursuant to the Registration Rights Agreement, the Issuers and the Guarantors agreed to file with the SEC the Exchange Offer Registration Statement (as defined in the Registration Rights Agreement) on the appropriate form under the Securities Act with respect to the exchange Floating Rate Notes and exchange Fixed Rate Notes. Upon the effectiveness of the Exchange Offer Registration Statement of which this prospectus forms a part, the Issuers will offer to the holders of Transfer Restricted Securities pursuant to the Exchange Offer (as defined in the Registration Rights Agreement) who are able to make certain representations the opportunity to exchange their Transfer Restricted Securities for the relevant exchange Notes.

We agreed pursuant to the Registration Rights Agreement that we will, subject to certain exceptions,

(1) prepare and use commercially reasonable efforts to file a registration statement (the “Exchange Offer Registration Statement”) with the SEC with respect to a registered offer (the “Registered Exchange Offer”) to exchange the old Notes of each series for new Notes of the same series of the Issuers (the “Exchange Notes”) having terms substantially identical in all material respects to the old Notes being exchanged (except that the Exchange Notes will not contain terms with respect to transfer restrictions);

(2) use commercially reasonable efforts to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act;

(3) as soon as practicable after the effectiveness of the Exchange Offer Registration Statement (the “Effectiveness Date”), offer the Exchange Notes of each series in exchange for surrender of the old Notes of the relevant series; and

(4) keep the Registered Exchange Offer open for not less than 20 business days (or longer if required by applicable law) after the date notice of the Registered Exchange Offer is mailed to the holders of the old Notes.

For each old Note validly tendered to us and not withdrawn pursuant to the Registered Exchange Offer, we will issue to the holder of such old Note an Exchange Note of the relevant series having a principal amount equal to that of the surrendered Note. Interest on each Exchange Note will accrue from the last interest payment date on which interest was paid on the old Note surrendered in exchange therefor, or, if no interest has been paid on such Note, from the Issue Date.

Under existing SEC interpretations, the Exchange Notes will be freely transferable by holders other than our affiliates after the Registered Exchange Offer without further registration under the Securities Act if the holder of the Exchange Notes represents to us in the Registered Exchange Offer that it is acquiring the Exchange Notes in the ordinary course of its business, that it has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes and that it is not an affiliate of the Issuers, as such terms are interpreted by the SEC; provided, however, that broker dealers (“Participating Broker Dealers”) receiving Exchange Notes in

174

the Registered Exchange Offer will have a prospectus delivery requirement with respect to resales of such Exchange Notes. The SEC has taken the position that Participating Broker Dealers may fulfill their prospectus delivery requirements with respect to Exchange Notes (other than a resale of an unsold allotment from the original sale of the Notes) with the prospectus contained in the Exchange Offer Registration Statement.

Under the Registration Rights Agreement, the Issuers are required to allow Participating Broker Dealers and other persons, if any, with similar prospectus delivery requirements to use the prospectus contained in the Exchange Offer Registration Statement in connection with the resale of such Exchange Notes for 180 days following the effective date of such Exchange Offer Registration Statement (or such shorter period during which Participating Broker-Dealers are required by law to deliver such prospectus).

A Holder of old Notes (other than certain specified holders) who wishes to exchange such old Notes for Exchange Notes in the Registered Exchange Offer will be required to represent that any Exchange Notes to be received by it will be acquired in the ordinary course of its business and that at the time of the commencement of the Registered Exchange Offer it has no arrangement or understanding with any person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes and that it is not an “affiliate” of the Issuers, as defined in Rule 405 of the Securities Act, or if it is an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable.

In the event that with respect to either or both of the Floating Rate Notes or the Fixed Rate Notes, as the case may be:

(1) applicable interpretations of the staff of the SEC do not permit us to effect such a Registered Exchange Offer;

(2) for any other reason we do not consummate the Registered Exchange Offer by June 8, 2005;

(3) an Initial Purchaser shall notify us on or before the 60th day following consummation of the Registered Exchange Offer that old Notes held by it are not eligible to be exchanged for Exchange Notes in the Registered Exchange Offer; or

(4) certain holders are prohibited by law or SEC policy from participating in the Registered Exchange Offer or may not resell the Exchange Notes acquired by them in the Registered Exchange Offer to the public without delivering a prospectus and such holders notify us in writing on or before the 60th day following consummation of the Registered Exchange Offer,

then, we will with respect to either or both of the Floating Rate Notes or the Fixed Rate Notes, as the case may be, subject to certain exceptions and pursuant to the Registration Rights Agreement,

(1) (A) in the case of clause (1) above, use commercially reasonable efforts to cause a shelf registration statement (the “Shelf Registration Statement”) with the SEC covering resales of the old Notes or the Exchange Notes, as the case may be, to be declared effective under the Securities Act on or prior to June 8, 2005 and (B) in the case of clause (2), (3) or (4) above, use commercially reasonable efforts to cause the Shelf Registration Statement to be declared effective under the Securities Act on or prior to the 60th day after the date on which the Shelf Registration Statement is required to be filed; and

(2) keep the Shelf Registration Statement effective until the earliest of (A) the time when the old Notes covered by the Shelf Registration Statement can be sold pursuant to Rule 144 without any limitations under clauses (c), (e), (f) and (h) of Rule 144, (B) two years from the Acquisition Date and (C) the date on which all Notes registered thereunder are disposed of in accordance therewith.

If pursuant to the Registration Rights Agreement, a Shelf Registration Statement is filed, we will, among other things, provide to each holder for whom such Shelf Registration Statement was filed copies of the prospectus which is a part of the Shelf Registration Statement, notify each such holder when the Shelf Registration Statement has become effective and take certain other actions as are required to permit unrestricted

175

resales of the old Notes or the Exchange Notes, as the case may be. A holder selling such old Notes or Exchange Notes pursuant to the Shelf Registration Statement generally would be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Registration Rights Agreement that are applicable to such holder (including certain indemnification obligations).

We may require each holder requesting to be named as a selling security holder to furnish to us such information regarding the holder and the distribution of the old Notes or Exchange Notes by the holder as we may from time to time reasonably require for the inclusion of the holder in the Shelf Registration Statement, including requiring the holder to properly complete and execute such selling security holder notice and questionnaires, and any amendments or supplements thereto, as we may reasonably deem necessary or appropriate. We may refuse to name any holder as a selling security holder that fails to provide us with such information.

We will pay additional cash interest on the old Notes and Exchange Notes, subject to certain exceptions and pursuant to the Registration Rights Agreement,

(1) if the Issuers fail to file the Exchange Offer Registration Statement or a Shelf Registration Statement with the SEC on or prior to February 8, 2005;

(2) if the Exchange Offer is not consummated on or before June 8, 2005,

(3) if obligated to file a Shelf Registration Statement pursuant to clause 2(A) above, a Shelf Registration Statement is not declared effective by the SEC on or prior to June 8, 2005,

(4) if obligated to file the Shelf Registration Statement pursuant to clause 2(B) above, the Issuers fail to file the Shelf Registration Statement with the SEC on or prior to the 30th day (the “Shelf Filing Date”) after the date on which the obligation to file a Shelf Registration Statement arises,

(5) if obligated to file a Shelf Registration Statement pursuant to clause 2(B) above, the Shelf Registration Statement is not declared effective on or prior to the 60th day after the Shelf Filing Date, or

(6) after the Exchange Offer Registration Statement or the Shelf Registration Statement, as the case may be, is declared effective, such Registration Statement thereafter ceases to be effective or usable (subject to certain exceptions) (each such event referred to in the preceding clauses (1) through (5) a “Registration Default”);

from and including the date on which any such Registration Default shall occur to but excluding the date on which all Registration Defaults have been cured.

The rate of the additional interest will be 0.25% per annum for the first 90-day period immediately following the occurrence of a Registration Default, and such rate will increase by an additional 0.25% per annum with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum additional interest rate of 1.00% per annum. We will pay such additional interest on regular interest payment dates. Such additional interest will be in addition to any other interest payable from time to time with respect to the old Notes and the Exchange Notes.

All references in the Indenture, in any context, to any interest or other amount payable on or with respect to the old Notes shall be deemed to include any additional interest payable pursuant to the Registration Rights Agreement.

If we effect the Registered Exchange Offer, we will be entitled to close the Registered Exchange Offer 20 business days after the commencement thereof provided that we have accepted all old Notes theretofore validly tendered in accordance with the terms of the Registered Exchange Offer.

176

Change of Control

The occurrence of any of the following events will constitute a “Change of Control:”

(1) the sale, lease or transfer, in one or a series of related transactions, of all or substantially all the assets of Hexion and its Subsidiaries, taken as a whole, to a Person other than any of the Permitted Holders; or

(2) Hexion becomes aware (by way of a report or any other filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice or otherwise) of the acquisition by any Person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision), including any group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than any of the Permitted Holders, in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision), of more than 50% of the total voting power of the Voting Stock of Hexion; or

(3) individuals who on the Acquisition Date following consummation of the Borden Transaction constituted the Board of Directors of Hexion (together with any new directors whose election by such Board of Directors of Hexion or whose nomination for election by the shareholders of Hexion was approved by (a) a vote of a majority of the directors of Hexion then still in office who were either directors on the Acquisition Date or whose election or nomination for election was previously so approved or (b) the Permitted Holders) cease for any reason to constitute a majority of the Board of Directors of Hexion then in office.

The occurrence of any Change of Control will constitute an Event of Default under the Indenture unless the Issuers (i)(A) make an offer within 30 days following such Change of Control to all holders of the Notes to purchase all the Notes properly tendered (a “Change of Control Offer”) at a purchase price (the “Change of Control Purchase Price”) equal to 101% of the principal amount thereof, plus accrued and unpaid interest (if any) to the date of repurchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date); and (B) purchase all the Notes properly tendered in accordance with the Change of Control Offer or (ii) exercise their right, within 30 days following such Change of Control, to redeem all the Notes as described under “—Optional Redemption.”

A “Change of Control Offer” means a notice mailed to each holder of the Notes with a copy to the Trustee stating:

(1) that a Change of Control has occurred and that such holder has the right to require the Issuers to purchase such holder’s Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest and additional interest, if any, to the date of purchase (subject to the right of holders of record on a record date to receive interest on the relevant interest payment date);

(2) the circumstances and relevant facts and financial information regarding such Change of Control;

(3) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and

(4) the instructions determined by the Issuers, consistent with this covenant, that a holder must follow in order to have its Notes purchased.

The Issuers will be deemed to have made a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Issuers and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.

The Issuers will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with provisions of

177

the Indenture applicable to a Change of Control Offer, the Issuers will comply with the applicable securities laws and regulations and will not be deemed to have failed to make a Change of Control Offer or purchase Notes pursuant thereto as described above by virtue thereof.

This Change of Control repurchase provision is a result of negotiations among Hexion, the Issuers and the Initial Purchasers. Hexion has no present intention to engage in a transaction involving a Change of Control, although it is possible that Hexion could decide to do so in the future. Subject to the limitations discussed below, Hexion could, in the future, enter into certain transactions, including acquisitions, refinancings or other recapitalizations, that would not constitute a Change of Control under the Indenture, but that could increase the amount of indebtedness outstanding at such time or otherwise affect Hexion’s capital structure or credit ratings.

The occurrence of events which would constitute a Change of Control would constitute a default under the Credit Agreement as in effect on the Acquisition Date. Future indebtedness of Hexion may contain prohibitions on certain events which would constitute a Change of Control or require such indebtedness to be repurchased upon a Change of Control. Moreover, the purchase of the Notes pursuant to a Change of Control Offer could cause a default under such other indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Issuers, Hexion and the other Guarantors. Finally, our ability to pay cash to the holders upon a repurchase may be limited by our then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any such repurchases.

The definition of Change of Control includes a phrase relating to the sale, lease or transfer of “all or substantially all” the assets of Hexion and its Subsidiaries taken as a whole. Although there is a developing body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a holder of Notes to require the Issuers to repurchase such Notes as a result of a sale, lease or transfer of less than all of the assets of Issuers and its Subsidiaries taken as a whole to another Person or group may be uncertain.

The provisions under the Indenture relative to a Change of Control Event of Default may be waived or modified with the written consent of the Holders of a majority in principal amount of the Notes, respectively until such time as tendered Notes must be purchased.

Certain Covenants

The Indenture contains covenants including, among others, the following; provided however, that prior to the Acquisition Date, Hexion and its Restricted Subsidiaries were not subject to these covenants (although the Issuers were subject to the covenants applicable to them as described under “—Limitation on Issuers” and “—Merger, Consolidation or Sale of All or Substantially All Assets”):

Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock

Hexion will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness (including Acquired Indebtedness) or issue any shares of Disqualified Stock and Hexion will not permit any of its Restricted Subsidiaries to issue any shares of Preferred Stock; provided, however, that Hexion and any Restricted Subsidiary may Incur Indebtedness (including Acquired Indebtedness) or issue shares of Disqualified Stock and any Restricted Subsidiary may issue shares of Preferred Stock, in each case if the Fixed Charge Coverage Ratio of Hexion for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is Incurred or such Disqualified Stock or Preferred Stock is issued would have been at least 2.00 to 1.00 determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been Incurred, or the Disqualified Stock or Preferred Stock had been issued, as the case may be, and the application of proceeds therefrom had occurred at the beginning of such four-quarter period.

178

The foregoing limitations will not apply to:

(a) the Incurrence by Hexion or its Restricted Subsidiaries of Indebtedness under any Credit Agreement and the issuance and creation of letters of credit and bankers’ acceptances thereunder (with letters of credit and bankers’ acceptances being deemed to have a principal amount equal to the face amount thereof) up to an aggregate principal amount then outstanding equal to the greater of (i) $175 million less the sum of (A) the amount of any such Indebtedness Incurred pursuant to this clause (a) that is permanently retired with the Net Proceeds from any Asset Sale applied from and after the Issue Date to reduce the outstanding amounts pursuant to the covenant described under “—Asset Sales” and (B) the aggregate Off-Balance Sheet Financing Amount attributable to all Qualified Receivables Financings then outstanding and (ii) 100% of the book value of the accounts receivables of Hexion and its Restricted Subsidiaries (other than HAI);

(b) the Incurrence by the Issuers and the Guarantors of Indebtedness represented by the Notes (not including any additional Floating Rate Notes or additional Fixed Rate Notes) and the related Guarantees, as applicable;

(c) Indebtedness existing on both the Issue Date and the Acquisition Date (after giving effect to the Borden Transaction) (other than Indebtedness described in clauses (a) and (b)), including the Existing Debentures;

(d) Indebtedness (including Capitalized Lease Obligations) Incurred by Hexion or any of its Restricted Subsidiaries to finance the purchase, lease or improvement of property (real or personal) or equipment (whether through the direct purchase of assets or the Capital Stock of any Person owning such assets (but no other material assets)) in an aggregate principal amount which, when aggregated with the principal amount of all other Indebtedness then outstanding that was Incurred (or deemed Incurred as provided under clause (n) below) pursuant to this clause (d), does not exceed $75 million;

(e) Indebtedness Incurred by Hexion or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including letters of credit in respect of workers’ compensation claims, health, disability or other employee benefits or property, casualty or liability insurance or self-insurance, or other Indebtedness with respect to reimbursement type obligations regarding workers’ compensation claims; provided, however, that upon the drawing of such letters of credit, such obligations are reimbursed within 30 days following such drawing;

(f) Indebtedness arising from agreements of Hexion or any of its Restricted Subsidiaries providing for adjustment of purchase price or similar obligations, in each case, Incurred in connection with the disposition of any business, assets or a Subsidiary of Hexion in accordance with the terms of the Indenture, other than guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; provided, however, that, at the time of closing, the amount of such Indebtedness is not determinable and, to the extent such Indebtedness thereafter becomes fixed and determined, the Indebtedness is paid within 60 days thereafter;

(g) Indebtedness of Hexion to a Restricted Subsidiary; provided, however, that any such Indebtedness is subordinated in right of payment to the obligations of Hexion under its Guarantee; provided further, however, that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such Indebtedness (except to another Restricted Subsidiary) shall be deemed, in each case to be an Incurrence of such Indebtedness;

(h) shares of Preferred Stock of a Restricted Subsidiary issued to Hexion or another Restricted Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock or any other event which results in any Restricted Subsidiary that holds such shares of Preferred Stock of another Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such shares of Preferred Stock (except to Hexion or another Restricted Subsidiary) shall be deemed, in each case, to be an issuance of shares of Preferred Stock;

179

(i) Indebtedness of a Restricted Subsidiary to Hexion or another Restricted Subsidiary; provided, however, that (i) any such Indebtedness is made pursuant to an intercompany note and (ii) if a Guarantor Subsidiary incurs such Indebtedness to a Restricted Subsidiary that is not a Guarantor such Indebtedness is subordinated in right of payment to the Guarantee of such Guarantor; provided further, however, that any subsequent issuance or transfer of any Capital Stock or any other event which results in any Restricted Subsidiary holding such Indebtedness ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such Indebtedness (except to another Restricted Subsidiary) shall be deemed, in each case, to be an Incurrence of such Indebtedness;

(j) Hedging Obligations that are Incurred in the ordinary course of business (and not for speculative purposes): (1) for the purpose of fixing or hedging interest rate risk with respect to any Indebtedness that is permitted by the terms of the Indenture to be outstanding; (2) for the purpose of fixing or hedging currency exchange rate risk with respect to any currency exchanges; or (3) for the purpose of fixing or hedging commodity price risk with respect to any commodity purchases;

(k) obligations in respect of performance, bid and surety bonds, including surety bonds issued in respect of workers’ compensation claims, and completion guarantees provided by Hexion or any Restricted Subsidiary in the ordinary course of business;

(l) Indebtedness or Disqualified Stock of Hexion or any Restricted Subsidiary not otherwise permitted hereunder in an aggregate principal amount or liquidation preference, as applicable, which when aggregated with the principal amount or liquidation preference of all other Indebtedness and Disqualified Stock then outstanding and Incurred pursuant to this clause (l), does not exceed $100 million at any one time outstanding (it being understood that any Indebtedness Incurred under this clause (l) shall cease to be deemed Incurred or outstanding for purposes of this clause (l) but shall be deemed Incurred for purposes of the first paragraph of this covenant from and after the first date on which Hexion, or the Restricted Subsidiary, as the case may be, could have Incurred such Indebtedness under the first paragraph of this covenant without reliance upon this clause (l));

(m) any guarantee by Hexion or any of its Restricted Subsidiaries of Indebtedness or other obligations of Hexion or any of its Restricted Subsidiaries so long as the Incurrence of such Indebtedness Incurred by Hexion or such Restricted Subsidiary is permitted under the terms of the Indenture; provided, however, that if such Indebtedness is by its express terms subordinated in right of payment to the Notes or the Guarantee of such Restricted Subsidiary, as applicable, any such guarantee of any Guarantor with respect to such Indebtedness shall be subordinated in right of payment to such Guarantor’s Guarantee with respect to the Notes substantially to the same extent as such Indebtedness is subordinated to the Notes or the Guarantee of such Guarantor, as applicable;

(n) the Incurrence by Hexion or any of its Restricted Subsidiaries of Indebtedness which serves to refund, refinance or defease any Indebtedness Incurred under the first paragraph of this covenant or clause (b), (c), (d), (n), (o) or (s) of this paragraph (subject to the following proviso, “Refinancing Indebtedness”); provided, however, that such Refinancing Indebtedness:

(1) has a Weighted Average Life to Maturity at the time such Refinancing Indebtedness is Incurred which is not less than the shorter of (x) the remaining Weighted Average Life to Maturity of the Indebtedness being refunded or refinanced and (y) the Weighted Average Life to Maturity that would result if all payments of principal on the Indebtedness being refunded or refinanced that were due on or after the date one year following the last maturity date of any Notes then outstanding were instead due on such date one year following;

(2) has a Stated Maturity which is no earlier than the earlier of (x) the Stated Maturity of the Indebtedness being refunded or refinanced or (y) one year following the last maturity date of any Notes then outstanding;

(3) to the extent such Refinancing Indebtedness refinances Indebtedness junior to the Notes or the Guarantee of such Restricted Subsidiary, as applicable, such Refinancing Indebtedness is junior to the Notes or the Guarantee of such Restricted Subsidiary, as applicable;

180

(4) is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being refinanced plus premium and fees Incurred in connection with such refinancing;

(5) shall not include (x) Indebtedness of a Restricted Subsidiary of Hexion that is not a Guarantor that refinances Indebtedness of Hexion or another Guarantor (unless such Restricted Subsidiary is an obligor with respect to such Indebtedness being refinanced), or (y) Indebtedness of Hexion or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary; and

(6) in the case of any Refinancing Indebtedness Incurred to refinance Indebtedness outstanding under clause (d) or (s), shall be deemed to have been Incurred and to be outstanding under such clause (d) or (s), as applicable, and not this clause (n) for purposes of determining amounts outstanding under such clauses (d) and (s);

provided further, however, that subclauses (1), (2) and (3) of this clause (n) will not apply to any refunding or refinancing of (A) the Notes, (B) any Secured Indebtedness constituting a First-Priority Lien Obligation or (C) any Existing Debentures consisting of pollution control bonds;

(o) Indebtedness or Disqualified Stock of Persons that are acquired by Hexion or any of its Restricted Subsidiaries or merged into Hexion or a Restricted Subsidiary in accordance with the terms of the Indenture; provided, however, that such Indebtedness or Disqualified Stock is not Incurred in contemplation of such acquisition or merger or to provide all or a portion of the funds or credit support required to consummate such acquisition or merger; provided further, however, that after giving effect to such acquisition and the Incurrence of such Indebtedness either:

(1) Hexion would be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first sentence of this covenant; or

(2) the Fixed Charge Coverage Ratio would be greater than immediately prior to such acquisition;

(p) Indebtedness Incurred by a Receivables Subsidiary in a Qualified Receivables Financing that is not recourse to Hexion or any Restricted Subsidiary other than a Receivables Subsidiary (except for Standard Securitization Undertakings);

(q) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within two business days of its Incurrence;

(r) Indebtedness of Hexion or any Restricted Subsidiary supported by a letter of credit issued pursuant to the Credit Agreement, in a principal amount not in excess of the stated amount of such letter of credit;

(s) Contribution Indebtedness;

(t) Indebtedness of Foreign Subsidiaries of Hexion Incurred for working capital purposes; and

(u) Indebtedness of Hexion or any Restricted Subsidiary consisting of (x) the financing of insurance premiums or (y) take or pay obligations contained in supply arrangements, in each case, entered into in the ordinary course of business.

Notwithstanding the foregoing, Hexion, the Issuers and the Guarantors may not Incur any Indebtedness pursuant to the immediately preceding paragraph if the proceeds thereof are used, directly or indirectly, to repay, prepay, redeem, defease, retire, refund or refinance any Subordinated Indebtedness unless such Indebtedness will be subordinated to the Notes or such Guarantor’s Guarantee, as applicable, to at least the same extent as such Subordinated Indebtedness. For purposes of determining compliance with this covenant, (A) Indebtedness need not be Incurred solely by reference to one category of permitted Indebtedness described in clauses (a) through (u) or pursuant to the first paragraph of this covenant but is permitted to be Incurred in part under any combination thereof and (B) in the event that an item of Indebtedness (or any portion thereof) meets the criteria

181

of one or more of the categories of permitted Indebtedness described in clauses (a) through (u) above or is entitled to be Incurred pursuant to the first paragraph of this covenant, Hexion shall, in its sole discretion, classify or reclassify such item of Indebtedness (or any portion thereof) in any manner that complies with this covenant and will only be required to include the amount and type of such item of Indebtedness in one of the above clauses and such item of Indebtedness will be treated as having been Incurred pursuant to only one of such clauses or pursuant to the first paragraph hereof; provided, however, that all Indebtedness under the Credit Agreement outstanding on the Acquisition Date shall be deemed to have been Incurred pursuant to clause (a) and Hexion shall not be permitted to reclassify all or any portion of such Indebtedness. Accrual of interest, the accretion of accreted value, amortization of original issue discount, the payment of interest in the form of additional Indebtedness with the same terms or in the form of common stock of Hexion, the payment of dividends on Preferred Stock in the form of additional shares of Preferred Stock of the same class, the accretion of liquidation preference and increases in the amount of Indebtedness outstanding solely as a result of fluctuations in the exchange rate of currencies or increases in the value of property securing Indebtedness described in clause (3) of the definition of “Indebtedness” will not be deemed to be an Incurrence of Indebtedness for purposes of this covenant. Guarantees of, or obligations in respect of letters of credit relating to, Indebtedness which is otherwise included in the determination of a particular amount of Indebtedness shall not be included in the determination of such amount of Indebtedness; provided, however, that the Incurrence of the Indebtedness represented by such guarantee or letter of credit, as the case may be, was in compliance with this covenant.

Notwithstanding the foregoing, the Issuers may not incur any Indebtedness or issue any shares of Disqualified Stock or Preferred Stock unless all of the Issuers’ obligations with respect thereto are fully and unconditionally guaranteed by Hexion; provided, however, such guarantee will be deemed to be full and unconditional even if subject to the same kinds of limitations applicable to the Guarantee by Hexion of the Notes.

Limitation on Restricted Payments

(a) Hexion will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:

(1) declare or pay any dividend or make any distribution on account of Hexion’s or any of its Restricted Subsidiaries’ Equity Interests, including any payment with respect to such Equity Interests made in connection with any merger or consolidation (other than (A) dividends or distributions payable solely in Equity Interests (other than Disqualified Stock) of Hexion; or (B) dividends or distributions by a Restricted Subsidiary; provided, however, that, in the case of any dividend or distribution payable on or in respect of any Equity Interests issued by a Restricted Subsidiary other than a Wholly Owned Restricted Subsidiary, Hexion or a Restricted Subsidiary receives at least its pro rata share of such dividend or distribution in accordance with its ownership percentage of such Equity Interests);

(2) purchase or otherwise acquire or retire for value any Equity Interests of Hexion or any direct or indirect parent company of Hexion;

(3) make any principal payment on, or redeem, repurchase, defease or otherwise acquire or retire for value, in each case prior to any scheduled repayment or scheduled maturity, any Subordinated Indebtedness of Hexion or any Subsidiary Guarantor (other than the payment, redemption, repurchase, defeasance, acquisition or retirement of (A) Subordinated Indebtedness in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of such payment, redemption, repurchase, defeasance, acquisition or retirement and (B) Indebtedness permitted under clauses (g) and (i) of the second paragraph of the covenant described under “—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock”); or

(4) make any Restricted Investment

(all such payments and other actions set forth in clauses (1) through (4) above being collectively referred to as “Restricted Payments”), unless, at the time of such Restricted Payment:

(i) no Default shall have occurred and be continuing or would occur as a consequence thereof;

182

(ii) immediately after giving effect to such transaction on a pro forma basis, Hexion could Incur $1.00 of additional Indebtedness under the provisions of the first paragraph of the covenant described under “—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock;” and

(iii) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by Hexion and its Restricted Subsidiaries after the Issue Date (including Restricted Payments permitted by clauses (1), (4) (only to the extent of one-half of the amounts paid pursuant to such clause), (6) and (8) of paragraph (b) below, but excluding all other Restricted Payments permitted by paragraph (b) below), is less than the sum of, without duplication,

(1) 50% of the Consolidated Net Income of Hexion for the period (taken as one accounting period) from June 30, 2004 to the end of Hexion’s most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, in the case such Consolidated Net Income for such period is a deficit, minus 100% of such deficit), plus

(2) 100% of the aggregate net proceeds, including cash and the Fair Market Value (as determined in accordance with the next succeeding sentence) of property other than cash, received by Hexion after the Acquisition Date from the issue or sale of Equity Interests of Hexion (excluding Refunding Capital Stock, Designated Preferred Stock, Cash Contribution Amounts, Excluded Contributions and Disqualified Stock), including Equity Interests issued upon conversion of Indebtedness or upon exercise of warrants or options (other than an issuance or sale to a Subsidiary of Hexion or an employee stock ownership plan or trust established by Hexion or any of its Subsidiaries), plus

(3) 100% of the aggregate amount of cash contributions to the capital of Hexion, and the Fair Market Value (as determined in accordance with the next succeeding sentence) of property other than cash, received after the Acquisition Date (other than Refunding Capital Stock, Designated Preferred Stock, contributions from the issuance of Designated Preferred Stock, Cash Contribution Amounts, Excluded Contributions and Disqualified Stock), plus

(4) 100% of the aggregate amount received by Hexion or any Restricted Subsidiary in cash and the Fair Market Value (as determined in accordance with the next succeeding sentence) of property other than cash received by Hexion or any Restricted Subsidiary, in each case subsequent to the Acquisition Date, from:

(A) the sale or other disposition (other than to Hexion or a Restricted Subsidiary of Hexion) of Restricted Investments made by Hexion and its Restricted Subsidiaries and from repurchases and redemptions of such Restricted Investments from Hexion and its Restricted Subsidiaries by any Person (other than Hexion or any of its Subsidiaries) and from repayments of loans or advances which constituted Restricted Investments (other than in each case to the extent that the Restricted Investment was made pursuant to clause (7) or (10) of paragraph (b) below),

(B) the sale (other than to Hexion or a Restricted Subsidiary of Hexion) of the Capital Stock of an Unrestricted Subsidiary or

(C) a distribution or dividend from an Unrestricted Subsidiary, plus

(5) in the event any Unrestricted Subsidiary of Hexion has been redesignated as a Restricted Subsidiary or has been merged, consolidated or amalgamated with or into, or transfers or conveys its assets to, or is liquidated into, Hexion or a Restricted Subsidiary of Hexion, in each case subsequent to the Acquisition Date, the Fair Market Value (as determined in accordance with the next succeeding sentence) of the Investment of Hexion in such Unrestricted Subsidiary at the time of such redesignation, combination or transfer (or of the assets transferred or conveyed, as applicable), after deducting any Indebtedness associated with the Unrestricted Subsidiary so designated or combined or any Indebtedness associated with the assets so transferred or conveyed (other than in each case to the extent that the designation of such Subsidiary as an Unrestricted Subsidiary was made pursuant to clause (7) or (10) of paragraph (b) below or constituted a Permitted Investment).

183

The Fair Market Value of property other than cash covered by clauses (iii)(2), (3), (4) and (5) above shall be determined in good faith by Hexion and

(A) in the event of property with a Fair Market Value in excess of $4 million, shall be set forth in an Officers’ Certificate or

(B) in the event of property with a Fair Market Value in excess of $15 million, shall be set forth in a resolution approved by at least a majority of the Board of Directors of Hexion.

(b) The foregoing provisions will not prohibit:

(1) the payment of any dividend or distribution within 60 days after the date of declaration thereof, if at the date of declaration such payment would have complied with the provisions of the Indenture;

(2) (A) the repurchase, retirement or other acquisition of any Equity Interests (“Retired Capital Stock”) of Hexion or any direct or indirect parent company of Hexion or Subordinated Indebtedness of Hexion or any Subsidiary Guarantor in exchange for, or out of the proceeds of the substantially concurrent sale of, Equity Interests of Hexion or any direct or indirect parent company of Hexion or contributions to the equity capital of Hexion (other than Designated Preferred Stock, Cash Contribution Amounts, Excluded Contributions and Disqualified Stock or any Equity Interests sold to a Subsidiary of Hexion or to an employee stock ownership plan or any trust established by Hexion or any of its Subsidiaries) (collectively, including any such contributions, “Refunding Capital Stock”) and

(B) the declaration and payment of accrued dividends on the Retired Capital Stock out of the proceeds of the substantially concurrent sale (other than to a Subsidiary of Hexion or to an employee stock ownership plan or any trust established by Hexion or any of its Subsidiaries) of Refunding Capital Stock;

(3) the redemption, repurchase or other acquisition or retirement of Subordinated Indebtedness of Hexion or any Subsidiary Guarantor made by exchange for, or out of the proceeds of the substantially concurrent sale of new Indebtedness of Issuer or such Subsidiary Guarantor, respectively, which is Incurred in accordance with the covenant described under “—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock” so long as

(A) the principal amount of such new Indebtedness does not exceed the principal amount of the Subordinated Indebtedness being so redeemed, repurchased, acquired or retired for value (plus the amount of any premium required to be paid under the terms of the instrument governing the Subordinated Indebtedness being so redeemed, repurchased, acquired or retired plus any fees incurred in connection therewith),

(B) such Indebtedness is subordinated to the Notes or the related Guarantee, as the case may be, at least to the same extent as such Subordinated Indebtedness so purchased, exchanged, redeemed, repurchased, acquired or retired for value,

(C) such Indebtedness has a Stated Maturity which is no earlier than the earlier of (x) the Stated Maturity of the Subordinated Indebtedness being redeemed, repurchased, acquired or retired or (y) one year following the last maturity date of any Notes then outstanding; and

(D) such Indebtedness has a Weighted Average Life to Maturity which is not less than (x) the remaining Weighted Average Life to Maturity of the Subordinated Indebtedness being redeemed, repurchased, acquired or retired and (y) the Weighted Average Life to Maturity that would result of all payments of principal on the Subordinated Indebtedness being redeemed, repurchased, acquired or retired that were due on or after the date one year following the last maturity date of any Notes then outstanding were instead due on such date one year following;

(4) the repurchase, retirement or other acquisition (or dividends to any direct or indirect parent company of Hexion to finance any such repurchase, retirement or other acquisition) for value of Equity Interests of Hexion or any direct or indirect parent company of Hexion held by any future, present or former employee, director or consultant of Hexion or any direct or indirect parent company of Hexion or any

184

Subsidiary of Hexion pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or other agreement or arrangement; provided, that the aggregate amounts paid under this clause (4) do not exceed $12.5 million in any calendar year (with unused amounts in any calendar year being permitted to be carried over for the next succeeding calendar year); provided further, however, that such amount in any calendar year may be increased by an amount not to exceed:

(A) the cash proceeds received by Hexion or any of its Restricted Subsidiaries from the sale of Equity Interests (excluding Refunding Capital Stock, Designated Preferred Stock, Cash Contribution Amounts, Excluded Contributions and Disqualified Stock) of Hexion or any direct or indirect parent company of Hexion (to the extent contributed to Hexion) to members of management, directors or consultants of Hexion and its Restricted Subsidiaries or any direct or indirect parent company of Hexion that occurs after the Acquisition Date; provided, however, that the amount of such cash proceeds utilized for any such repurchase, retirement, other acquisition or dividend will not increase the amount available for Restricted Payments under clause (iii) of paragraph (a) of this covenant); plus

(B) the cash proceeds of key man life insurance policies received by Hexion or any direct or indirect parent company of Hexion (to the extent contributed to Hexion) and its Restricted Subsidiaries after the Acquisition Date;

(provided, however, that Hexion may elect to apply all or any portion of the aggregate increase contemplated by clauses (A) and (B) above in any calendar year and, to the extent any payment described under this clause (4) is made by delivery of Indebtedness and not in cash, such payment shall be deemed to occur only when, and to the extent, the obligor on such Indebtedness makes payments with respect to such Indebtedness);

(5) the declaration and payment of dividends or distributions to holders of any class or series of Disqualified Stock of Hexion or any of its Restricted Subsidiaries issued or incurred in accordance with the covenant described under “—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock;”

(6) the declaration and payment of dividends or distributions to holders of any class or series of Designated Preferred Stock (other than Disqualified Stock) issued after the Acquisition Date and the declaration and payment of dividends to any direct or indirect parent company of Hexion, the proceeds of which will be used to fund the payment of dividends to holders of any class or series of Designated Preferred Stock (other than Disqualified Stock) of any direct or indirect parent company of Hexion issued after the Acquisition Date the proceeds of which were contributed to Hexion; provided, however, that (A) for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date of issuance of such Designated Preferred Stock, after giving effect to such issuance (and the payment of dividends or distributions) on a pro forma basis, Hexion would have had a Fixed Charge Coverage Ratio of at least 2.25 to 1.00 and (B) the aggregate amount of dividends declared and paid pursuant to this clause (6) does not exceed the net cash proceeds actually received by Hexion from the issuance of Designated Preferred Stock (other than Disqualified Stock) issued after the Acquisition Date;

(7) Investments in Unrestricted Subsidiaries having an aggregate Fair Market Value, taken together with all other Investments made pursuant to this clause (7) that are at that time outstanding, not to exceed $25 million at the time of such Investment (with the Fair Market Value of each Investment being measured at the time made and without giving effect to subsequent changes in value);

(8) the payment of dividends on Hexion’s common stock (or the payment of dividends to any direct or indirect parent of Hexion to fund the payment by any direct or indirect parent of Hexion of dividends on such entity’s common stock) of up to 6.0% per annum of the net proceeds received by Hexion from any public offering of common stock or contributed to Hexion by any direct or indirect parent of Hexion from any public offering of common stock;

(9) Investments that are made with Excluded Contributions;

(10) other Restricted Payments in an aggregate amount not to exceed $30 million;

185

(11) the distribution, as a dividend or otherwise, of shares of Capital Stock of, or Indebtedness owed to Hexion or a Restricted Subsidiary of Hexion by, Unrestricted Subsidiaries;

(12) (A) with respect to each tax year or portion thereof that any direct or indirect parent of Hexion qualifies as a Flow Through Entity, the distribution by Hexion to the holders of Capital Stock of such direct or indirect parent of Hexion of an amount equal to the product of (i) the amount of aggregate net taxable income of Hexion allocated to the holders of Capital Stock of Hexion for such period and (ii) the Presumed Tax Rate for such period; and

(B) with respect to any tax year or portion thereof that any direct or indirect parent of Hexion does not qualify as a Flow Through Entity, the payment of dividends or other distributions to any direct or indirect parent company of Hexion that files a consolidated U.S. federal tax return that includes Hexion and its subsidiaries in an amount not to exceed the amount that Hexion and its Restricted Subsidiaries would have been required to pay in respect of federal, state or local taxes (as the case may be) in respect of such year if Hexion and its Restricted Subsidiaries paid such taxes directly as a stand-alone taxpayer (or stand-alone group);

(13) the payment of dividends, other distributions or other amounts by Hexion:

(A) in amounts equal to the amounts required for any direct or indirect parent of Hexion to pay fees and expenses (including franchise or similar taxes) required to maintain its corporate existence, customary salary, bonus and other benefits payable to, and indemnity provided on behalf of, officers and employees of any direct or indirect parent of Hexion, and general corporate overhead expenses of any direct or indirect parent of Hexion, in each case to the extent such fees, expenses, salaries, bonuses, benefits and indemnities are attributable to the ownership or operation of Hexion and its respective Subsidiaries; provided, however, that any such dividends, distributions or other amounts are treated as an operating expense of Hexion for purposes of determining the Consolidated Net Income of Hexion; and

(B) in amounts equal to amounts required for any direct or indirect parent of Hexion, to pay interest or principal on Indebtedness the proceeds of which have been contributed to Hexion or any of its Restricted Subsidiaries and that has been guaranteed by, or is otherwise considered Indebtedness of, Hexion Incurred in accordance with the covenant described under “—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock;” provided, however, that any such contribution will not increase the amount available for Restricted Payments under clause (iii) of the immediately preceding paragraph or be used to incur Contribution Indebtedness or to make a Restricted Payment pursuant to paragraph (b) of this covenant (other than payments permitted by this clause (13); provided further, however, any such dividends, other distributions or other amounts used to pay interest are treated as interest payments of Hexion for purposes of the Indenture;

(14) cash dividends or other distributions on Hexion’s Capital Stock used to, or the making of loans to any direct or indirect parent of Hexion to, fund the payment of fees and expenses incurred in connection with the Borden Transaction or owed by Hexion or any Restricted Subsidiary of Hexion to Affiliates, in each case to the extent permitted by the covenant described under “—Transactions with Affiliates;”

(15) repurchases of Equity Interests deemed to occur upon exercise of stock options if such Equity Interests represent a portion of the exercise price of such options;

(16) purchases of receivables pursuant to a Receivables Repurchase Obligation in connection with a Qualified Receivables Financing;

(17) in the event of a Change of Control, the payment, purchase, redemption, defeasance or other acquisition or retirement of Subordinated Indebtedness or Disqualified Stock of Hexion or Subordinated Indebtedness of any Guarantor or Disqualified Stock or Preferred Stock of any Restricted Subsidiary, in each case, at a purchase price not greater than 101% of the principal amount or liquidation preference, as applicable (or, if such Subordinated Indebtedness was issued with original issue discount, 101% of the accreted value), of such Subordinated Indebtedness, Disqualified Stock or Preferred Stock, plus any accrued

186

and unpaid interest or dividends thereon; provided, however, that prior to such payment, purchase, redemption, defeasance or other acquisition or retirement, Issuers (or a third party to the extent permitted by the Indenture) have made a Change of Control Offer with respect to the Notes as a result of such Change of Control and have repurchased all Notes validly tendered and not withdrawn in connection with such Change of Control Offer; and

(18) in the event of an Asset Sale that requires the Issuers to offer to purchase Notes pursuant to the covenant described under “—Asset Sales,” the payment, purchase, redemption, defeasance or other acquisition or retirement of Subordinated Indebtedness or Disqualified Stock of Hexion or Subordinated Indebtedness of any Guarantor or Disqualified Stock or Preferred Stock of any Restricted Subsidiary, in each case, at a purchase price not greater than 100% of the principal amount or liquidation preference, as applicable (or, if such Subordinated Indebtedness was issued with original issue discount, 100% of the accreted value), of such Subordinated Indebtedness, Disqualified Stock or Preferred Stock, plus any accrued and unpaid interest or dividends thereon; provided, however, that (i) prior to such payment, purchase, redemption, defeasance or other acquisition or retirement, the Issuers (or a third party to the extent permitted by the Indenture) have made an Asset Sale Offer with respect to the Notes as a result of such Asset Sale and have repurchased all Notes validly tendered and not withdrawn in connection with such Asset Sale Offer and (ii) the aggregate amount of all such payments, purchases, redemptions, defeasances or other acquisitions or retirements of all such Subordinated Indebtedness, Disqualified Stock and Preferred Stock may not exceed the amount of the Excess Proceeds used to determine the aggregate purchase price of the Notes tendered for in such Asset Sale Offer less the aggregate amount applied in connection with such Asset Sale Offer;

(19) any Restricted Payments made in connection with the consummation of the Borden Transaction, the redemption of Hexion’s 9 ¹/4% Debentures Due 2019, the repayment or repurchase of the Parish of Ascension, Louisiana Industrial Revenue Bonds of Hexion, the repayment of Hexion’s senior secured credit facility in effect immediately prior to the Acquisition Date or as contemplated by the Stock Purchase Agreement, including any payments or loans made to any direct or indirect parent to enable it to make any such payments; and

(20) payments of cash, or dividends, distributions or advances by Hexion or any Restricted Subsidiary to allow any such entity to make payments of cash, in lieu of the issuance of fractional shares upon the exercise of warrants or upon the conversion or exchange of Capital Stock of any such Person; provided, however, the aggregate amount of such payments, dividends, distributions or advances does not exceed $3 million;

provided, however, that at the time of, and after giving effect to, any Restricted Payment permitted under clauses (6), (7), (10), (11), (17) and (18), no Default shall have occurred and be continuing or would occur as a consequence thereof.

As of the Acquisition Date, all of Hexion’s Subsidiaries were Restricted Subsidiaries, except that HAI will not be subject to the covenants described under “—Certain Covenants.” Hexion will not permit any Unrestricted Subsidiary to become a Restricted Subsidiary except pursuant to the definition of “Unrestricted Subsidiary.” For purposes of designating any Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments by Hexion and its Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so designated will be deemed to be Restricted Payments in an amount determined as set forth in the last sentence of the definition of “Investments.” Such designation will only be permitted if a Restricted Payment in such amount would be permitted at such time and if such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.

Dividend and Other Payment Restrictions Affecting Subsidiaries

Hexion will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary to:

(a) (i) pay dividends or make any other distributions to Hexion or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or by, its profits or (ii) pay any Indebtedness owed to Hexion or any of its Restricted Subsidiaries;

187

(b) make loans or advances to Hexion or any of its Restricted Subsidiaries; or

(c) sell, lease or transfer any of its properties or assets to Hexion or any of its Restricted Subsidiaries;

except in each case for such encumbrances or restrictions existing under or by reason of:

(1) contractual encumbrances or restrictions in effect on the Issue Date or the Acquisition Date, including pursuant to the Credit Agreement and the other Senior Credit Documents;

(2) the Indenture, the Notes, the Security Documents and the Intercreditor Agreement;

(3) applicable law or any applicable rule, regulation or order;

(4) any agreement or other instrument relating to Indebtedness of a Person acquired by Hexion or any Restricted Subsidiary which was in existence at the time of such acquisition (but not created in contemplation thereof or to provide all or any portion of the funds or credit support utilized to consummate such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired;

(5) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition;

(6) Secured Indebtedness otherwise permitted to be Incurred pursuant to the covenants described under “—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock” and “—Liens” that limit the right of the debtor to dispose of the assets securing such Indebtedness;

(7) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business;

(8) customary provisions in joint venture agreements and other similar agreements entered into in the ordinary course of business;

(9) purchase money obligations for property acquired in the ordinary course of business or Capitalized Lease Obligations that impose restrictions of the nature discussed in clause (c) above on the property so acquired;

(10) customary provisions contained in leases and other similar agreements entered into in the ordinary course of business that impose restrictions of the type described in clause (c) above on the property subject to such lease;

(11) any encumbrance or restriction of a Receivables Subsidiary effected in connection with a Qualified Receivables Financing; provided, however, that such restrictions apply only to such Receivables Subsidiary;

(12) other Indebtedness

(i) of (A) Hexion or (B) any Restricted Subsidiary of Hexion, in each case that (x) is Incurred subsequent to the Acquisition Date pursuant to the covenant described under “—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock” and (y) an Officer reasonably and in good faith determines at the time such Indebtedness is Incurred (and at the time of any modification of the terms of any such encumbrance or restriction) that any such encumbrance or restriction will not materially adversely affect Hexion’s ability to honor its Guarantee of the Notes and any other Indebtedness that is an obligation of Hexion and such determination is set forth in an Officer’s Certificate delivered to the Trustee, or

(ii) that is Incurred by a Foreign Subsidiary of Hexion subsequent to the Acquisition Date pursuant to clauses (d), (l), (m) (but limited to guarantees of Indebtedness of other Foreign Subsidiaries described in this clause (12)(ii)), (n) (but only to the extent such Indebtedness refunds, refinances or decreases Indebtedness of such Foreign Subsidiary Incurred pursuant to clause (d) or (l)) or (t) of the

188

second paragraph of the covenant described under “—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock;” provided, however, that such encumbrance or restriction applies only to Foreign Subsidiaries of Hexion; or

(13) any encumbrances or restrictions of the type referred to in clauses (a), (b) and (c) above imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (1) through (12) above; provided, however, that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of Hexion, no more restrictive with respect to such dividend and other payment restrictions than those contained in the dividend or other payment restrictions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing.

For purposes of determining compliance with this covenant, (i) the priority of any Preferred Stock in receiving dividends or liquidating distributions prior to dividends or liquidating distributions being paid on common stock shall not be deemed a restriction on the ability to make distributions on Capital Stock and (ii) the subordination of loans or advances made to Hexion to other Indebtedness Incurred by Hexion shall not be deemed a restriction on the ability to make loans or advances.

Asset Sales

Hexion will not, and will not permit any of its Restricted Subsidiaries to, cause or make an Asset Sale, unless (x) Hexion or any of its Restricted Subsidiaries, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value (as determined in good faith by Hexion) of the assets sold or otherwise disposed of, and (y) at least 75% of the consideration therefor received by Hexion or such Restricted Subsidiary, as the case may be, is in the form of Cash Equivalents; provided, however, that the amount of:

(a) any liabilities (as shown on Hexion’s or such Restricted Subsidiary’s most recent balance sheet or in the footnotes thereto) of Hexion or any Restricted Subsidiary of Hexion (other than liabilities that are by their terms subordinated to the Notes or the Guarantees of the Notes, as the case may be) that are assumed by the transferee of any such assets,

(b) any notes or other obligations or other securities or assets received by Hexion or such Restricted Subsidiary from such transferee that are converted by Hexion or such Restricted Subsidiary into cash within 180 days of the receipt thereof (to the extent of the cash received), and

(c) any Designated Non-cash Consideration received by Hexion or any of its Restricted Subsidiaries in such Asset Sale having an aggregate Fair Market Value, taken together with all other Designated Non-cash Consideration received pursuant to this clause (c) that is at that time outstanding, not to exceed the greater of 3% of Total Assets and $25 million at the time of the receipt of such Designated Non-cash Consideration (with the Fair Market Value of each item of Designated Non-cash Consideration being measured at the time received and without giving effect to subsequent changes in value)

shall be deemed to be Cash Equivalents for the purposes of this provision.

Within 365 days after Hexion’s or any Restricted Subsidiary of Hexion’s receipt of the Net Proceeds of any Asset Sale, Hexion or such Restricted Subsidiary may apply the Net Proceeds from such Asset Sale at its option to any one or more of the following:

(1) to permanently reduce any Indebtedness constituting First-Priority Lien Obligations or Indebtedness of a Restricted Subsidiary that is not a Guarantor (and, in the case of revolving Obligations, to correspondingly reduce commitments with respect thereto) or any Pari Passu Indebtedness, in each case other than Indebtedness owed to Hexion or an Affiliate of Hexion; provided, however, that if the Issuers or any Guarantor shall so reduce any Pari Passu Indebtedness (other than any First-Priority Lien Obligation), the Issuers will equally and ratably reduce Indebtedness under the Notes by making an offer to all holders of

189

Notes to purchase at a purchase price equal to 100% of the principal amount thereof, plus accrued and unpaid interest and additional interest, if any, the pro rata principal amount of the Notes) such offer to be conducted in accordance with the procedures set forth below for an Asset Sales Offer but without any further limitation in amount; or

(2) to an investment in any one or more businesses or capital expenditures, in each case used or useful in a Similar Business; provided, however, that if such investment is in the form of the acquisition of Capital Stock of a Person, such acquisition results in such Person becoming a Restricted Subsidiary of Hexion or, if such Person is a Restricted Subsidiary of Hexion, in an increase in the percentage ownership of such Person by Hexion or any Restricted Subsidiary of Hexion; or

(3) to make an investment in any one or more businesses; provided, however, that if such investment is in the form of the acquisition of Capital Stock of a Person, such acquisition results in such Person becoming a Restricted Subsidiary of Hexion or, if such Person is a Restricted Subsidiary of Hexion, in an increase in the percentage ownership of such Person by Hexion or any Restricted Subsidiary of Hexion).

Pending the final application of any such Net Proceeds, Hexion or such Restricted Subsidiary of Hexion may temporarily reduce Indebtedness under a revolving credit facility, if any, or otherwise invest such Net Proceeds in Cash Equivalents or Investment Grade Securities. The Indenture provides that any Net Proceeds from any Asset Sale that are not applied as provided and within the time period set forth in the first sentence of this paragraph will be deemed to constitute “Excess Proceeds.” When the aggregate amount of Excess Proceeds exceeds $15 million, the Issuers shall make an offer to all holders of Notes (and, at the option of the Issuers, to holders of any Pari Passu Indebtedness) (an “Asset Sale Offer”) to purchase the maximum principal amount of Notes (and such Pari Passu Indebtedness), that is an integral multiple of $1,000 that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof (or, in the event such Pari Passu Indebtedness was issued with significant original issue discount, 100% of the accreted value thereof), plus accrued and unpaid interest and additional interest, if any (or, in respect of such Pari Passu Indebtedness, such lesser price, if any, as may be provided for by the terms of such Pari Passu Indebtedness), to the date fixed for the closing of such offer, in accordance with the procedures set forth in the Indenture. The Issuers will commence an Asset Sale Offer with respect to Excess Proceeds within ten Business Days after the date that Excess Proceeds exceeds $15 million by mailing the notice required pursuant to the terms of the Indenture, with a copy to the Trustees. To the extent that the aggregate amount of Notes (and such Pari Passu Indebtedness) tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Issuers may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes (and such Pari Passu Indebtedness) surrendered by holders thereof exceeds the amount of Excess Proceeds, the Trustees shall select the Notes (and such Pari Passu Indebtedness) to be purchased in the manner described below. Upon completion of any such Asset Sale Offer, the amount of Excess Proceeds which served as the basis for such Asset Sale Offer shall be reduced to zero.

The Issuers will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations to the extent such laws or regulations are applicable in connection with the repurchase of the Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of the Indenture, the Issuers will comply with the applicable securities laws and regulations and shall not be deemed to have breached their obligations described in the Indenture by virtue thereof.

If more Notes (and Pari Passu Indebtedness) are tendered pursuant to an Asset Sale Offer than the Issuers are required to purchase, the principal amount of the Notes (and Pari Passu Indebtedness) to be purchased will be determined pro rata based on the principal amounts so tendered and the selection of the actual Notes of each series for purchase will be made by the Trustee on a pro rata basis to the extent practicable; provided, however, that no Notes (or Pari Passu Indebtedness) of $1,000 or less shall be purchased in part.

Notices of an Asset Sale Offer shall be mailed by first class mail, postage prepaid, at least 30 but not more than 60 days before the purchase date to each holder of Notes at such holder’s registered address. If any Note is

190

to be purchased in part only, any notice of purchase that relates to such Note shall state the portion of the principal amount thereof that has been or is to be purchased.

A new Note in principal amount equal to the unpurchased portion of any Note purchased in part will be issued in the name of the holder thereof upon cancellation of the original Note. On and after the purchase date, unless the Issuers default in payment of the purchase price, interest shall cease to accrue on Notes or portions thereof purchased.

Transactions with Affiliates

Hexion will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction or series of transactions, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of Hexion (each of the foregoing, an “Affiliate Transaction”) involving aggregate consideration in excess of $2.5 million, unless:

(a) such Affiliate Transaction is on terms that are not materially less favorable to Hexion or the relevant Restricted Subsidiary than those that could reasonably have been obtained in a comparable transaction by Hexion or such Restricted Subsidiary with an unaffiliated party; and

(b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $20 million, Hexion delivers to the Trustee a resolution adopted in good faith by the majority of the Board of Directors of Hexion approving such Affiliate Transaction and set forth in an Officers’ Certificate certifying that such Affiliate Transaction complies with clause (a) above.

The foregoing provisions will not apply to the following:

(1) (a) transactions between or among Hexion or any of its Restricted Subsidiaries and (b) any merger of Hexion and any direct parent company of Hexion; provided, however, that such parent shall have no material liabilities and no material assets other than cash, Cash Equivalents and the Capital Stock of Hexion and such merger is otherwise in compliance with the terms of the Indenture and effected for a bona fide business purpose;

(2) Restricted Payments permitted under the covenant “—Limitation on Restricted Payments;”

(3) the entering into of any agreement to pay, and the payment of, annual management, consulting, monitoring and advisory fees and expenses to the Sponsor in an aggregate amount in any fiscal year not to exceed the greater of (x) $3 million and (y) 2% of EBITDA of Hexion and its Restricted Subsidiaries for the immediately preceding fiscal year; provided, however, any payment not made in any fiscal year may be carried forward and paid in the following fiscal year;

(4) the payment of reasonable and customary fees paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of Hexion or any Restricted Subsidiary or any direct or indirect parent company of Hexion;

(5) payments by Hexion or any of its Restricted Subsidiaries to the Sponsor made for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including, without limitation, in connection with acquisitions or divestitures, which payments are (x) approved by a majority of the Board of Directors of Hexion in good faith or (y) made pursuant to any agreement described under the caption “Certain Relationships and Related Party Transactions” in the Offering Circular;

(6) transactions in which Hexion or any of its Restricted Subsidiaries, as the case may be, delivers to the Trustee a letter from an Independent Financial Advisor stating that such transaction is fair to Hexion or such Restricted Subsidiary from a financial point of view or meets the requirements of clause (a) of the preceding paragraph;

191

(7) payments or loans to employees or consultants in the ordinary course of business which are approved by a majority of the Board of Directors of Hexion in good faith;

(8) the existence of, or the performance by Hexion or any of its Restricted Subsidiaries under the terms of, any agreement or instrument (other than with the Sponsor, except to the extent the Sponsor includes Hexion, any of its direct or indirect parents, Borden Holdings, Inc. or any Subsidiary of Hexion) as in effect as of the Acquisition Date or any amendment thereto (so long as any such agreement or instrument together with all amendments thereto, taken as a whole, is not more disadvantageous to the holders of the Notes in any material respect than the original agreement or instrument as in effect on the Acquisition Date) or any transaction contemplated thereby;

(9) the existence of, or the performance by Hexion or any of its Restricted Subsidiaries of its obligations under the terms of, the Stock Purchase Agreement, any stockholders agreement or investor rights agreement (including any registration rights agreement or purchase agreement related thereto) to which it is a party as of the Acquisition Date and any amendment thereto or similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by Hexion or any of its Restricted Subsidiaries of its obligations under, any future amendment to any such existing agreement or under any similar agreement entered into after the Acquisition Date shall only be permitted by this clause (9) to the extent that the terms of any such existing agreement together with all amendments thereto, taken as a whole, or new agreement are not otherwise more disadvantageous to the holders of the Notes in any material respect than the original agreement as in effect on the Acquisition Date;

(10) the payment of all fees and expenses related to the Borden Transaction, including fees to the Sponsor, which are described in the Offering Circular;

(11) (a) transactions with customers, clients, suppliers, toll manufacturers or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of the Indenture, on terms at least as favorable as could reasonably have been obtained at such time from an unaffiliated party or (b) transactions with joint ventures or Unrestricted Subsidiaries for the purchase or sale of chemicals, equipment and services entered into in the ordinary course of business;

(12) any transaction effected as part of a Qualified Receivables Financing;

(13) the issuance of Equity Interests (other than Disqualified Stock) of Hexion;

(14) the issuances of securities or other payments, awards or grants in cash, securities or otherwise pursuant to or the funding of, employment arrangements, stock option and stock ownership plans or similar employee benefit plans approved by the Board of Directors of Hexion or of a Restricted Subsidiary, as appropriate, in good faith;

(15) the entering into of any tax sharing agreement or arrangement and any payments permitted by clause (b)(12)(a) of the covenant described under “—Limitations on Restricted Payments;” and

(16) any contribution to the capital of Hexion.

Liens

Hexion will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, Incur or suffer to exist any Lien (the “Initial Lien”) on any asset or property of Hexion or such Restricted Subsidiary of Hexion, or any income or profits therefrom, or assign or convey any right to receive income therefrom, whether owned at the Issue Date or thereafter acquired, (i) that secures any Indebtedness of any Person (other than Permitted Liens) unless the Notes are equally and ratably secured with (or on a senior basis to, in the case of Subordinated Indebtedness) such Indebtedness so long as such Indebtedness is so secured and (ii) that secures any First-Priority Lien Obligation of Hexion or any Subsidiary Guarantor without effectively providing that the Notes or the applicable Guarantee, as the case may be, shall be granted a second-priority security interest (subject to Permitted Liens) upon the assets or property constituting the collateral for such First-Priority Lien Obligations; provided, however, that if granting such second-priority security interest requires the consent of a third party,

192

Hexion will use commercially reasonable efforts to obtain such consent with respect to the second-priority security interest for the benefit of the Trustee on behalf of the holders of the Notes; provided further, however, that if such third party does not consent to the granting of such second-priority security interest after the use of commercially reasonable efforts, Hexion will not be required to provide such security interest.

Any Lien created for the benefit of the Holders of the Notes pursuant to clause (i) of the preceding paragraph shall provide by its terms that such Lien shall be automatically and unconditionally released and discharged upon the release and discharge of the Initial Lien.

Reports and Other Information

Notwithstanding that Hexion may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on an annual and quarterly basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the SEC, Hexion will file with the SEC (and provide the Trustee and holders of the Notes with copies thereof, without cost to each holder, within 15 days after it files them with the SEC),

(1) within 90 days after the end of each fiscal year (or such shorter period as may be required by the SEC), annual reports on Form 10-K (or any successor or comparable form) containing the information required to be contained therein (or required in such successor or comparable form),

(2) within 45 days after the end of each of the first three fiscal quarters of each fiscal year (or such shorter period as may be required by the SEC), reports on Form 10-Q (or any successor or comparable form),

(3) promptly from time to time after the occurrence of an event required to be therein reported (and in any event within the time period specified for filing current reports on Form 8-K by the SEC), such other reports on Form 8-K (or any successor or comparable form), and

(4) any other information, documents and other reports which Hexion would be required to file with the SEC if it were subject to Section 13 or 15(d) of the Exchange Act;

provided, however, that Hexion shall not be so obligated to file such reports with the SEC if the SEC does not permit such filing, in which event Hexion will post the reports specified in the first sentence of this paragraph on its website within the time periods that would apply if Hexion were required to file those reports with the SEC. In addition, Hexion will make available such information to prospective purchasers of Notes, in addition to providing such information to the Trustee and the holders of the Notes, in each case within 15 days after the time Hexion would be required to file such information with the SEC if it were subject to Section 13 or 15(d) of the Exchange Act.

In the event that:

(a) the rules and regulations of the SEC permit Hexion and any direct or indirect parent company of Hexion to report at such parent entity’s level on a consolidated basis and

(b) such parent entity of Hexion is not engaged in any business in any material respect other than incidental to its ownership, directly or indirectly, of the capital stock of Hexion,

such consolidated reporting at such parent entity’s level in a manner consistent with that described in this covenant for Hexion will satisfy this covenant.

Future Guarantors

On the Acquisition Date, each of our Restricted Subsidiaries that is a guarantor under the Credit Agreement will guarantee the Notes in the manner and on the terms set forth in the Indenture.

193

After the Acquisition Date, Hexion will cause each of its Restricted Subsidiaries (other than (x) a Foreign Subsidiary or (y) a Receivables Subsidiary or (z) a Domestic Subsidiary that is wholly owned by one or more Foreign Subsidiaries, created to enhance the worldwide tax efficiency of Hexion and its Subsidiaries) that

(a) guarantees any Indebtedness of Hexion or any of its Restricted Subsidiaries; or

(b) Incurs any Indebtedness or issues any shares of Disqualified Stock permitted to be Incurred or issued pursuant to clause (a) or (l) of the second paragraph of the covenant described under “—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock” or not permitted to be Incurred by such covenant to execute and deliver to the Trustee a supplemental indenture pursuant to which such Subsidiary will guarantee payment of the Notes on the terms and conditions set forth in the Indenture. Each Guarantee will be limited to an amount not to exceed the maximum amount that can be guaranteed by that Restricted Subsidiary without rendering the Guarantee, as it relates to such Restricted Subsidiary, voidable under applicable law relating to fraudulent conveyance or fraudulent transfer or similar laws affecting the rights of creditors generally.

Each Guarantee by a Restricted Subsidiary may be released as described under “—Guarantees.”

Impairment of Security Interest

Subject to the rights of the holders of Permitted Liens, Hexion will not, and will not permit any of its Restricted Subsidiaries to, take or knowingly or negligently omit to take, any action which action or omission would or could reasonably be expected to have the result of materially impairing the security interest with respect to the Collateral for the benefit of the Trustee and the Holders of the Notes, subject to limited exceptions. Hexion shall not amend, modify or supplement, or permit or consent to any amendment, modification or supplement of, the Security Documents in any way that would be adverse to the holders of the Notes in any material respect, except as described above under “—Security for the Notes” or as permitted under “—Amendments and Waivers.”

After-Acquired Property

Upon the acquisition by the Issuers, Hexion or any Guarantor of any First-Priority After-Acquired Property, the Issuers, Hexion or such Guarantor shall execute and deliver such mortgages, deeds of trust, security instruments, financing statements and certificates and opinions of counsel as shall be reasonably necessary to vest in the Trustee a perfected security interest, subject only to Permitted Liens, in such First-Priority After-Acquired Property and to have such First-Priority After-Acquired Property (but subject to certain limitations, if applicable, including as described under “—Security for the Notes—Limitations on Stock Collateral”) added to the Collateral, and thereupon all provisions of the Indenture relating to the Collateral shall be deemed to relate to such First-Priority After-Acquired Property to the same extent and with the same force and effect; provided, however, that if granting such second-priority security interest in such First-Priority After-Acquired Property requires the consent of a third party, Hexion will use commercially reasonable efforts to obtain such consent with respect to the second-priority interest for the benefit of the Trustee on behalf of the Holders of the Notes; provided further, however, that if such third party does not consent to the granting of such second-priority security interest after the use of such commercially reasonable efforts, Hexion or such Guarantor, as the case may be, will not be required to provide such security interest.

Limitation on Indenture Restricted Subsidiaries

Hexion will not, and will not permit any of its Restricted Subsidiaries to, take or knowingly or negligently omit to take any action which action or omission could reasonably be expected to or would have the result of any Existing Debentures Subsidiary being an Indenture Restricted Subsidiary at any time when the negative covenants contained in the Existing Debentures are applicable to an Indenture Restricted Subsidiary unless such Subsidiary concurrently becomes a Subsidiary Guarantor and, after giving effect thereto, there is no default under the Existing Debentures.

194

Limitation on Issuers

Hexion will not cease to beneficially own (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, 100% of the Voting Stock of the Issuers (except to the extent either of the Issuers is merged with and into Hexion or a Guarantor in accordance with the terms of the Indenture). The Issuers will not own any material assets or other property, other than Indebtedness or other obligations owing to the Issuers by Hexion and its Restricted Subsidiaries and Cash Equivalents, or engage in any trade or conduct any business other than treasury, cash management, hedging and cash pooling activities and activities incidental thereto. The Issuers will not Incur any material liabilities or obligations other than their obligations pursuant to the Notes, the Indenture, the Credit Agreement, the Security Documents and other Indebtedness permitted to be Incurred by the Issuers as described under “—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock” and liabilities and obligations pursuant to business activities permitted by this covenant.

Merger, Consolidation or Sale of All or Substantially All Assets

(a) Hexion will not consolidate or merge with or into or wind up into (whether or not Hexion is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to any Person unless:

(1) Hexion is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than Hexion) or to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made is a corporation, partnership or limited liability company organized or existing under the laws of the United States, any state thereof, the District of Columbia, or any territory thereof (Hexion or such Person, as the case may be, being herein called the “Successor Company”);

(2) the Successor Company (if other than Hexion) expressly assumes all the obligations of Hexion under the Indenture and its Guarantee of the Notes pursuant to supplemental indentures or other documents or instruments in form reasonably satisfactory to the Trustee;

(3) immediately after giving effect to such transaction no Default shall have occurred and be continuing;

(4) immediately after giving pro forma effect to such transaction, as if such transaction had occurred at the beginning of the applicable four-quarter period (and treating any Indebtedness which becomes an obligation of the Successor Company or any of its Restricted Subsidiaries as a result of such transaction as having been Incurred by the Successor Company or such Restricted Subsidiary at the time of such transaction), either

(A) the Successor Company would be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first sentence of the covenant described under “—Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock” or

(B) the Fixed Charge Coverage Ratio for the Successor Company and its Restricted Subsidiaries would be greater than the Fixed Charge Coverage Ratio for Hexion and its Restricted Subsidiaries immediately prior to such transaction; and

(5) Hexion shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indentures (if any) comply with the Indenture.

The Successor Company will succeed to, and be substituted for, Hexion under the Indenture and its Guarantee of the Notes. Notwithstanding the foregoing clauses (3) and (4), (a) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to Hexion or to another Restricted Subsidiary, and (b) Hexion may merge with an Affiliate incorporated solely for the purpose of reincorporating Hexion in another state of the United States so long as the amount of Indebtedness of Hexion and its Restricted Subsidiaries is not increased thereby.

195

(b) An Issuer may not, and Hexion will not permit an Issuer to, consolidate or merge with or into or wind up into (whether or not such Issuer is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions, to any Person unless:

(1) such Issuer is the surviving entity or the Person formed by or surviving any such consolidation or merger (if other than such Issuer) or to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made is a corporation, partnership, limited liability company or unlimited liability company organized and existing under the laws of Canada or the laws of any political subdivision thereof or the laws of the United States of America, any state thereof or the District of Columbia, or any territory thereof (such Issuer or such Person, as the case may be, being herein called, a “Successor Issuer”);

(2) a Successor Issuer (if other than such Issuer) expressly assumes, all the obligations of such Issuer under the Indenture and the Notes pursuant to supplemental indentures or other documents or instruments in form reasonably satisfactory to the Trustee;

(3) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of a Successor Issuer as a result of such transaction as having been Incurred by such Successor Issuer at the time of such transaction), no Default shall have occurred and be continuing; and

(4) Hexion shall have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the Indenture.

A Successor Issuer will be the successor to the predecessor Issuer and shall succeed to, and be substituted for, and may exercise every right and power of, the predecessor Issuer under the Indenture, and the predecessor Issuer, except in the case of a lease, shall be released from the obligation to pay the principal of and interest on the Notes. Notwithstanding the foregoing clause (3), an Issuer may consolidate with, merge into or transfer all or part of its property and assets to Hexion or a Restricted Subsidiary.

(c) Hexion will not permit any Subsidiary Guarantor to, consolidate or merge with or into or wind up into (whether or not such Subsidiary Guarantor is the surviving corporation), or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its properties or assets in one or more related transactions to, any Person unless:

(1) such Subsidiary Guarantor is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than such Subsidiary Guarantor) or to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made is a corporation, partnership or limited liability company organized and existing under the laws of the United States, any state thereof, the District of Columbia, or any territory thereof (such Subsidiary Guarantor or such Person, as the case may be, being herein called the “Successor Guarantor”);

(2) the Successor Guarantor (if other than such Guarantor) expressly assumes all the obligations of such Guarantor under the Indenture and such Guarantors’ Guarantee of the Notes pursuant to a supplemental indenture or other documents or instruments in form reasonably satisfactory to the Trustee;

(3) immediately after giving effect to such transaction (and treating any Indebtedness which becomes an obligation of the Successor Guarantor or any of its Subsidiaries as a result of such transaction as having been Incurred by the Successor Guarantor or such Subsidiary at the time of such transaction) no Default shall have occurred and be continuing; and

(4) the Successor Guarantor (if other than such Subsidiary Guarantor) shall have delivered or caused to be delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the Indenture.

Subject to certain limitations described in the Indenture, the Successor Guarantor will succeed to, and be substituted for, such Guarantor under the Indenture and such Guarantor’s Guarantee. Notwithstanding the

196

foregoing clause (3), (1) a Guarantor may merge with an Affiliate incorporated solely for the purpose of reincorporating such Guarantor in another state of the United States, so long as the amount of Indebtedness of the Guarantor is not increased thereby and (2) a Guarantor may merge with another Guarantor or an Issuer.

Defaults

An Event of Default with respect to all the Notes is defined in the Indenture as:

(1) a default in any payment of interest or any Additional Amounts on any Note when due continued for 30 days,

(2) a default in the payment of principal or premium, if any, of any Note when due at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise,

(3) the failure by Hexion to comply with its obligations under the covenant described under “—Merger, Consolidation or Sale of All or Substantially All Assets” above, or the failure by the Issuers to comply with their obligations under the Escrow Agreement,

(4) the failure by Hexion or any of its Restricted Subsidiaries to comply for 30 days after notice with any of its obligations under the covenants described under “—Certain Covenants” (in each case, other than a failure to purchase Notes when required under the covenant described under “—Asset Sales),

(5) the failure by Hexion or any of its Restricted Subsidiaries to comply for 60 days after notice with its other agreements contained in the Notes or the Indenture (other than those referred to in (1), (2), (3) or (4) above),

(6) the failure by Hexion or any Significant Subsidiary to pay any Indebtedness (other than Indebtedness owing to Hexion or a Restricted Subsidiary of Hexion) within any applicable grace period after final maturity or the acceleration of any such Indebtedness (or, with respect to the pollution control bonds constituting Existing Debentures, failure to pay under the guarantees of Hexion and its applicable Restricted Subsidiaries related thereto) by the holders thereof because of a default, in each case, if the total amount of such Indebtedness unpaid or accelerated exceeds $20 million or its foreign currency equivalent (the “cross-acceleration provision”),

(7) certain events of bankruptcy, insolvency or reorganization of Hexion, either Issuer or a Significant Subsidiary (the “bankruptcy provisions”),

(8) failure by Hexion or any Significant Subsidiary to pay final judgments aggregating in excess of $20 million or its foreign currency equivalent (net of any amounts which are covered by enforceable insurance policies issued by solvent carriers), which judgments are not discharged, waived or stayed for a period of 60 days following the entry thereof (the “judgment default provision”),

(9) the Guarantee of the Notes by a Significant Subsidiary ceases to be in full force and effect (except as contemplated by the terms thereof or by the Indenture) or any Guarantor denies or disaffirms its obligations under the Indenture or any Guarantee of any Notes and such Default continues for 10 days,

(10) unless all of the Collateral has been released from the second-priority Liens in accordance with the provisions of the Security Documents, Hexion shall assert or any Subsidiary shall assert, in any pleading in any court of competent jurisdiction, that any such security interest is invalid or unenforceable and, in the case of any such Subsidiary, Hexion fails to cause such Subsidiary to rescind such assertions within 30 days after Hexion has actual knowledge of such assertions,

(11) the failure by Hexion, the Issuers or any Restricted Subsidiary to comply for 60 days after notice with its other agreements contained in the Security Documents except for a failure that would not be material to the holders of the Notes and would not materially affect the value of the Collateral taken as a whole (together with the defaults described in clauses (9) and (10) the “security default provisions”), or

(12) a Change of Control shall occur and the Issuers do not cure this event as permitted under the Indenture (the “change of control default provisions”).

197

The foregoing will constitute Events of Default whatever the reason for any such Event of Default and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body.

However, a default under clause (4), (5) or (11) will not constitute an Event of Default until the Trustee notifies the Issuers or the holders of 25% in principal amount of outstanding Notes notify the Issuers of the default and the Issuers do not cure such default within the time specified in clauses (4), (5) and (11) hereof after receipt of such notice.

If an Event of Default (other than a Default relating to certain events of bankruptcy, insolvency or reorganization of either of the Issuers or Hexion) occurs and is continuing, the Trustee by notice to the Issuers or the holders of at least 25% in principal amount of outstanding Notes by notice to the Issuers may declare the principal of, premium, if any, and accrued but unpaid interest on all the Notes to be due and payable; provided, however, in the case of an Event of Default described in clause (1) or (2) with respect to a series of Notes, such notice may be given by 25% in principal amount of the outstanding Notes of such series. Upon such a declaration, such principal and interest will be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Issuers or Hexion occurs, the principal of, premium, if any, and interest on all the Notes will become immediately due and payable without any declaration or other act on the part of the Trustee or any holders of the Notes. Under certain circumstances, the holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences; provided, however, that if the Notes of any series were accelerated as a result of an Event of Default described in clause (1) or (2) above with respect to a Note of such series, holders of a majority in principal amount of the outstanding Notes of such series must also agree to rescind such acceleration and its consequences.

Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the holders unless such holders have offered to the Trustee reasonable indemnity or security satisfactory to it against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium (if any) or interest when due, no holder may pursue any remedy with respect to the Indenture or the Notes unless:

(1) such holder has previously given the Trustee notice that an Event of Default is continuing,

(2) holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy,

(3) such holders have offered the Trustee reasonable security or indemnity satisfactory to it against any loss, liability or expense,

(4) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity, and

(5) the holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period.

Subject to certain restrictions, the holders of a majority in principal amount of outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other holder or that would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee will be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action.

The Indenture provides that if a Default occurs and is continuing and is actually known to the Trustee, the Trustee must mail to each holder of the Notes notice of the Default within the earlier of 90 days after it occurs or

198

30 days after it is actually known to a Trust Officer or written notice of it is received by the Trustee. Except in the case of a Default in the payment of principal of, premium (if any) or interest on any Note, the Trustee may withhold notice if and so long as a committee of its Trust Officers in good faith determines that withholding notice is in the interests of the Noteholders. In addition, the Issuers are required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. The Issuers also are required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any event which would constitute certain Defaults with respect to the Notes, their status and what action the Issuers are taking or propose to take in respect thereof.

Amendments and Waivers

Subject to certain exceptions, the Indenture and the related Security Documents may be amended with the consent of the holders of a majority in principal amount of the Notes, then outstanding voting as a single class (including consents obtained in connection with a tender offer or exchange for the Notes) and any past default or compliance with any provisions may be waived with the consent of the holders of a majority in principal amount of the Notes then outstanding voting as a single class (including consents obtained in connection with a tender offer or exchange for the Notes); provided, however, that if any such amendment or waiver disproportionately affects one series of the Notes, such amendment or waiver shall also require the consent of the holders of a majority in principal amount of such series of Notes; provided further, however, that, if any such amendment or waiver affects only one series of the Notes, the holders of the other series of Notes shall not be required to consent thereto (and, in such case, only the consent of at least a majority in principal amount of the affected series shall be required to consent thereto). Notwithstanding the foregoing, without the consent of each holder of an outstanding Note affected, no amendment may, among other things:

(1) reduce the amount of such Notes whose holders must consent to an amendment,

(2) reduce the rate of or extend the time for payment of interest on such Note,

(3) reduce the principal of or change the Stated Maturity of such Note,

(4) reduce the amount payable upon the redemption of such Note or change the time when any such Note may be redeemed as described under “—Optional Redemption” or “—Redemption for Changes in Withholding Taxes,”

(5) make such Note payable in money other than that stated in such Note,

(6) impair the right of any holder to receive payment of principal of, premium, if any, and interest on such holder’s Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such holder’s Notes,

(7) make any change in the amendment provisions which require each holder’s consent or in the waiver provisions,

(8) expressly subordinate such Note or any Guarantee of such Note to any other Indebtedness of the Issuers or any Guarantor,

(9) modify the Guarantees in any manner adverse to the holders of such Note,

(10) make any change in the Escrow Agreement or the Intercreditor Agreement or the provisions in the Indenture dealing with the application of Trust proceeds of the Collateral that would adversely affect the Noteholders,

(11) make any change in the provisions described under “—Additional Amounts” that adversely affects the rights of any Noteholder or amend the terms of such Notes or the Indenture in a way that would result in the loss of an exemption from any of the Taxes described thereunder, or

(12) change the provisions applicable to the redemption of any Notes as described under “—Escrow of Proceeds; Special Mandatory Redemption.”

199

Without the consent of the holders of at least two-thirds in aggregate principal amount of the Notes then outstanding, no amendment or waiver may release from the Lien of the Indenture and the Security Documents all or substantially all of the Collateral; provided, however, that if any such amendment or waiver disproportionately adversely affects one series of Notes, such amendment or waiver shall also require the consent of the holders of at least two-thirds in aggregate principal amount of such adversely affected series of Notes.

Without the consent of any holder, the Issuers, the Guarantors and the Trustee may amend the Indenture, the Notes, any Security Document or the Intercreditor Agreement to cure any ambiguity, omission, defect, mistake or inconsistency, to provide for the assumption by a successor corporation, partnership or limited liability company of the obligations of the Issuers or any Guarantor under the Indenture, to provide for uncertificated Notes in addition to or in place of certificated Notes (provided, however, that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code), to add Guarantees with respect to the Notes, to secure the Notes, to add additional assets as Collateral, to release Collateral from the Lien pursuant to the Indenture, the Security Documents and the Intercreditor Agreement when permitted or required by the Indenture or the Security Documents, to add to the covenants of Hexion or any Restricted Subsidiaries for the benefit of the holders or to surrender any right or power conferred upon the Issuers or any Guarantor, to make any change that does not adversely affect the rights of any holder, to comply with any requirement of the SEC in connection with the qualification of the Indenture under the TIA, to make certain changes to the Indenture to provide for the issuance of additional Floating Right Notes or additional Fixed Rate Notes, as the case may be, or to make any amendment to the provisions of the Indenture relating to the transfer and legending of Notes; provided, however, that (a) compliance with the Indenture as so amended would not result in Notes being transferred in violation of the Securities Act or any other applicable securities law and (b) such amendment does not materially and adversely affect the rights of holders to transfer Notes. In addition, the Intercreditor Agreement will provide that, subject to certain exceptions, any amendment, waiver or consent to any of the collateral documents with respect to First-Priority Lien Obligations will also apply automatically to the comparable Security Documents with respect to the Notes.

The consent of the noteholders is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment.

After an amendment under the Indenture becomes effective, the Issuers are required to mail to the respective Noteholders a notice briefly describing such amendment. However, the failure to give such notice to all Noteholders entitled to receive such notice, or any defect therein, will not impair or affect the validity of the amendment.

No Personal Liability of Directors, Officers, Employees and Stockholders

No affiliate, director, officer, employee, incorporator or holder of any equity interests in Hexion, the Issuers or any direct or indirect parent corporation of Hexion, as such, will have any liability for any obligations of the Issuers under the Notes or the Indenture, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws.

Transfer and Exchange

A noteholder may transfer or exchange Notes in accordance with the Indenture. Upon any transfer or exchange, the registrar and the Trustee may require a noteholder, among other things, to furnish appropriate endorsements and transfer documents and the Issuers may require a noteholder to pay any taxes required by law or permitted by the Indenture. The Issuers are not required to transfer or exchange any Note, selected for redemption or to transfer or exchange any such Note for a period of 15 days prior to a selection of such Notes to be redeemed. The old Notes are and the Exchange Notes will be issued in registered form and the registered holder of a Note will be treated as the owner of such Note for all purposes.

200

Satisfaction and Discharge

The Indenture will be discharged and will cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the Notes, as expressly provided for in the Indenture) as to all outstanding Notes when:

(1) either (a) all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Issuers and thereafter repaid to the Issuers or discharged from such trust) have been delivered to the Trustee for cancellation or (b) all of the Notes (i) have become due and payable, (ii) will become due and payable at their stated maturity within one year (or, in the case of Floating Rate Notes, within the remaining term of the then current Interest Period) or (iii) if redeemable at the option of the Issuers, are to be called for redemption within one year (or, in the case of Floating Rate Notes, within the remaining term of the then current Interest Period) under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Issuers, and the Issuers have irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the Notes to the date of deposit together with irrevocable instructions from the Issuers directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be;

(2) the Issuers or the Guarantors have paid all other sums payable under the Indenture; and

(3) the Issuers have delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel stating that all conditions precedent under the Indenture relating to the satisfaction and discharge of the Indenture have been complied with.

Defeasance

The Issuers at any time may terminate all their obligations under the Fixed Rate Notes and their obligations under the Indenture with respect to the holders of the Fixed Rate Notes (“legal defeasance”), except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the Fixed Rate Notes, to replace Fixed Rate Notes that have been mutilated, destroyed, lost or stolen and to maintain a registrar and paying agent in respect of the Notes. The Issuers at any time may terminate their obligations under the covenants described under “—Certain Covenants” for the benefit of the Fixed Rate Notes, the operation of the cross acceleration provision, the bankruptcy provisions with respect to Significant Subsidiaries, the judgment default provision, the security default provisions, and the change of control default provision described under “—Defaults” (but only to the extent that those provisions relate to the Defaults with respect to the Fixed Rate Notes) and certain provisions of the covenant described under “—Merger, Consolidation or Sale of All or Substantially All Assets” (“covenant defeasance”) for the benefit of the Fixed Rate Notes. If the Issuers exercise their legal defeasance option or their covenant defeasance option, each Guarantor will be released from all of its obligations with respect to its Guarantee and the Security Documents so long as no Floating Rate Notes are then outstanding.

The Issuers may exercise their legal defeasance option notwithstanding their prior exercise of their covenant defeasance option. If the Issuers exercise their legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. If the Issuers exercise their covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in clause (3), (4), (6), (7) with respect only to Significant Subsidiaries, (8) with respect only to Significant Subsidiaries, (9), (10), (11) or (12) under “—Defaults” or because of the failure of Hexion to comply with clause (a)(4) under “—Merger, Consolidation or Sale of All or Substantially All Assets.”

In order to exercise either defeasance option, the Issuers must irrevocably deposit in trust (the “defeasance trust”) with the Trustee money or Government Obligations for the payment of principal, premium (if any) and

201

interest on the Fixed Rate Notes to redemption or maturity, as the case may be, and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel to the effect that holders of the Fixed Rate Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and defeasance and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or change in applicable Federal income tax law). Notwithstanding the foregoing, the Opinion of Counsel required with respect to a legal defeasance need not be delivered if all the Fixed Rate Notes, not theretofore delivered to the Trustee for cancelation have become due and payable.

Concerning the Trustee

Wilmington Trust Company is the Trustee under the Indenture and has been appointed by the Issuers as Registrar and a Paying Agent with regard to the Notes.

The Indenture contains certain limitations on the rights of the Trustee, should it become a creditor of the Issuers, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; provided, however, if it acquires any conflicting interest it must either eliminate such conflict within 90 days, apply to the SEC for permission to continue or resign.

The Holders of a majority in principal amount of the outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. If an Event of Default with respect to any Notes occurs (and is not cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any holder of Notes unless such holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense and then only to the extent required by the terms of the Indenture.

Governing Law

The Indenture, the Security Documents, the Intercreditor Agreement and the Notes are governed by, and construed in accordance with, the laws of the State of New York.

Enforceability of Judgments

Since a significant portion of our operating assets and the operating assets of our Subsidiaries are situated outside the United States, any judgment obtained in the United States against us or a Subsidiary, including judgments with respect to the payment of principal, interest, Additional Amounts, redemption price and any purchase price with respect to the Notes, may not be collectible within the United States.

The Canadian Issuer has been informed by its Nova Scotia counsel Stewart McElvey Stirling Scales, that in such counsel’s opinion the laws of the Province of Nova Scotia (the “Province”) and the federal laws of Canada applicable therein permit an action to be brought in a court of competent jurisdiction in the Province on a final and conclusive judgment in personam of a United States federal court or a court of the State of New York sitting in the Borough of Manhattan in The City of New York (a “New York Court”), respecting the enforcement of the Notes, the Indenture, the Registration Rights Agreement or the Security Documents, that is not impeachable as void or voidable under the laws of the State of New York and that is for a sum certain in money if:

(1) the New York Court that rendered such judgment has jurisdiction over the judgment debtor, as recognized by the courts of the Province and in accordance with its conflict of laws rules (and the enforceable submission by the Canadian Issuer in the Indenture to the jurisdiction of the New York Court will be sufficient for this purpose);

202

(2) such judgment was not obtained by fraud or in a manner contrary to natural justice or in contravention of fundamental principles of procedure and the enforcement thereof would not be inconsistent with public policy, as each of such terms is understood under the laws of the Province and the federal laws of Canada applicable therein;

(3) such judgment not obtained contrary to an order made by the Attorney General of Canada under the Foreign Extraterritorial Measures Act (Canada) or by the Competition Tribunal under the Competition Act (Canada);

(4) the enforcement of such judgment does not constitute, directly or indirectly, the enforcement of foreign revenue, expropriatory, public or penal laws or other laws of a public nature;

(5) the action to enforce such judgment is commenced within six years after the date of such judgment; and

(6) the judgment is not contrary to the final and conclusive judgment of any court in the Province or in any other jurisdiction.

Furthermore, we have been advised by such counsel, absent procedural concerns concerning the granting of such judgment or concerns representing particular laws of the State of New York or of federal United States’ laws (and although they have no knowledge of foreign laws they are not aware of any laws which would be expected to give rise to concerns), they do not know of any reason under present laws of the Province and the federal laws of Canada applicable therein for avoiding recognition of such judgment of a New York Court under the Registration Rights Agreement, the Security Documents, the Indenture or on the Notes based upon a reasonable interpretation of public policy.

Consent to Jurisdiction and Service

The Canadian Issuer has appointed Corporation Service Company, 521 Fifth Avenue, New York, New York 10175 as its agent for actions relating to the Notes, the Indenture, the Registration Rights Agreement or the Security Documents or brought under Federal or state securities laws brought in any Federal or state court located in the Borough of Manhattan in The City of New York and will submit to such jurisdiction.

Certain Definitions

“Acquired Indebtedness” means, with respect to any specified Person:

(1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, and

(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person,

in each case, other than Indebtedness Incurred as consideration in, in contemplation of, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was otherwise acquired by such Person, or such asset was acquired by such Person, as applicable.

“Acquisition” means the acquisition directly or indirectly by BHI Investment, LLC, a Delaware limited liability company, of all of the outstanding capital stock of Borden Holdings, Inc. and all the shares of Borden Chemical, Inc., the predecessor to Hexion held by certain individual stockholders of Borden Chemical, in each case pursuant to the Stock Purchase Agreement.

“Acquisition Date” means August 12, 2004, the date on which the Acquisition was consummated.

“Adjusted EBITDA” means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication, to the extent the same was deducted in calculating Consolidated Net Income:

(1) Consolidated Taxes; plus

203

(2) Consolidated Interest Expense; provided, however, such amount will be included in Adjusted EBITDA notwithstanding that such amount was not deducted in calculating Consolidated Net Income; plus

(3) Consolidated Non-cash Charges; plus

(4) the amount of management, monitoring, consulting and advisory fees and related expenses paid to the Sponsor or its predecessor (or any accruals relating to such fees and related expenses) during such period; provided, however, that such amount shall not exceed in any four-quarter period commencing after June 30, 2004 the amount determined in accordance with clause (3) of the covenant described under “—Certain Covenants—Transactions with Affiliates;”

(5) plant closure and severance costs and charges; plus

(6) impairment charges, including the write-down of Investments; plus

(7) non-operating expenses; plus

(8) restructuring expenses and charges; plus

(9) the cost (or amortization of prior service cost) of subsidizing coverage for persons affected by amendments to medical benefit plans implemented prior to the Issue Date; provided, however, such amount will be included in Adjusted EBITDA notwithstanding that such amount was not deducted in calculating Consolidate Net Income; plus

(10) the sum of (x) $1.625 million and (y) $925,000 for each of the six consecutive calendar quarters commencing with the calendar quarter ending September 30, 2003; provided, however, such sum will be included in Adjusted EBITDA for the referenced quarters notwithstanding that such amount was not deducted in calculating Consolidated Net Income; plus

(11) $1.0095 million for each of the two consecutive calendar quarters commencing with the calendar quarter ending March 31, 2004; provided, however, such amount will be included in Adjusted EBITDA for the referenced quarters notwithstanding that such amount was not deducted in calculating Consolidated Net Income; provided further, however, that the acquisitions of Fentak and SEACO are not given pro forma effect for purposes of determining the Fixed Charge Coverage Ratio;

less, without duplication,

(12) non-cash items increasing Consolidated Net Income for such period (excluding any items which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period, including the amortization of employee benefit plan prior service costs); minus

(13) non-operating income.

“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise.

“Applicable Premium” means, with respect to any Fixed Rate Note on any applicable redemption date, the greater of:

(1) 1.0% of the then outstanding principal amount of such Fixed Rate Note; and

(2) the excess of:

(A) the present value at such redemption date of the sum of (i) the redemption price of such Fixed Rate Note at July 15, 2009 (such redemption price being set forth in the applicable table appearing

204

above under “—Optional Redemption”) plus (ii) all required interest payments due on such Fixed Rate Note through July 15, 2009 (excluding accrued but unpaid interest), such present value to be computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points; over

(B) the then outstanding principal amount of such Fixed Rate Note.

“Asset Sale” means:

(1) the sale, conveyance, transfer or other disposition (whether in a single transaction or a series of related transactions) of assets (including by way of a Sale/Leaseback Transaction) of Hexion or any Restricted Subsidiary of Hexion other than in the ordinary course of business (each referred to in this definition as a “disposition”) or

(2) the issuance or sale of Equity Interests of any Restricted Subsidiary (other than to Hexion or another Restricted Subsidiary of Hexion other than directors’ or other legally required qualifying shares) (whether in a single transaction or a series of related transactions),

in each case other than:

(a) a disposition of Cash Equivalents or Investment Grade Securities;

(b) disposition of obsolete, damaged or worn out equipment or disposals of equipment in connection with reinvestment in or replacement of equipment, in each case, in the ordinary course of business;

(c) the disposition of all or substantially all of the assets of Hexion in a manner permitted pursuant to paragraph (a) of the provisions described above under “—Merger, Consolidation or Sale of All or Substantially All Assets” or any disposition that constitutes a Change of Control;

(d) any Restricted Payment or Permitted Investment that is permitted to be made, and is made, under the covenant described above under “—Certain Covenants—Limitation on Restricted Payments;”

(e) any disposition of assets or issuance or sale of Equity Interests of any Restricted Subsidiary, which disposition or issuance has an aggregate Fair Market Value of less than $5 million;

(f) any disposition or assets to Hexion or any Restricted Subsidiary of Hexion, including by way of merger;

(g) any exchange of assets for assets related to a Similar Business to the extent of comparable or better market value, as determined in good faith by Hexion, which in the event of an exchange of assets with a Fair Market Value in excess of (1) $4 million shall be evidenced by an Officers’ Certificate, and (2) $15 million shall be set forth in a resolution approved in good faith by at least a majority of the Board of Directors of Hexion;

(h) any disposition of assets received by Hexion or any of its Restricted Subsidiaries upon the foreclosure on a Lien;

(i) any disposition of Equity Interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary;

(j) any disposition of inventory in the ordinary course of business;

(k) the lease, assignment or sub-lease of any real or personal property in the ordinary course of business;

(l) any disposition of accounts receivable and related assets of the type specified in the definition of “Receivables Financing” to a Receivables Subsidiary in a Qualified Receivables Financing or in factoring or similar transactions;

(m) a transfer of accounts receivable and related assets of the type specified in the definition of “Receivables Financing” (or a fractional undivided interest therein) by a Receivables Subsidiary in a Qualified Receivables Financing;

205

(n) any agreement or arrangement involving, relating to or otherwise facilitating, (i) requirements contracts, (ii) tolling arrangements, (iii) the reservation or presale of production capacity of Hexion or any of its Restricted Subsidiaries by one or more third parties;

(o) sales or grants of licenses or sublicenses to use Hexion’s or any of its Restricted Subsidiaries patents, trade secrets, know-how and technology to the extent that such license does not prohibit the licensor from using the patent, trade secret, know-how or technology;

(p) any Sale/Leaseback Transaction pursuant to which Hexion or any Restricted Subsidiaries receives with respect to such transaction aggregate consideration of less than $15 million;

(q) the disposition of the Brisbane facility owned by Borden Chemical Company (Australia) Pty. Ltd., Hexion or any of its Affiliates; and

(r) the disposition by Hexion or any of its Affiliates of up to one-third of the Capital Stock of Borden Chemical (M.) Sdn. Bhd. owned, in the aggregate, by Hexion or any of its Affiliates as of the Acquisition Date.

“Bank Indebtedness” means any and all amounts payable under or in respect of any Credit Agreement or the other Senior Credit Documents, as amended, restated, supplemented, waived, replaced, restructured, repaid, refunded, refinanced or otherwise modified from time to time (including after termination of the Credit Agreement), including principal, premium (if any), interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to Hexion whether or not a claim for post-filing interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees and all other amounts payable thereunder or in respect thereof.

“Board of Directors” means as to any Person, the board of directors or managers, as applicable, of such Person (or, if such Person is a partnership, the board of directors or other governing body of the general partner of such Person) or any duly authorized committee thereof.

“Borden Transaction” means the “Transactions” as defined in the Offering Circular.

“Business Day” means each day which is not a Legal Holiday.

“Calculation Agent” means a financial institution appointed by the Issuers to calculate the interest rate payable on the Floating Rate Notes in respect of each Interest Period, which shall initially be the Trustee.

“Canadian Issuer” means Hexion Nova Scotia Finance, ULC, a Nova Scotia unlimited liability company, and any successor in interest thereto.

“Capital Stock” means:

(1) in the case of a corporation, corporate stock;

(2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;

(3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and

(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.

“Capitalized Lease Obligation” means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized and reflected as a liability on a balance sheet (excluding the footnotes thereto) in accordance with GAAP.

206

“Cash Contribution Amount” means the aggregate amount of cash contributions made to the capital of Hexion described in the definition of “Contribution Indebtedness.”

“Cash Equivalents” means:

(1) U.S. dollars, pounds sterling, euros, or, in the case of any Foreign Subsidiary that is a Restricted Subsidiary, such local currencies held by it from time to time in the ordinary course of business;

(2) securities issued or directly and fully guaranteed or insured by the government of, or any agency or instrumentality thereof, the United States of America, Australia, Great Britain, Canada, the Netherlands or any other member state of the European Union, in each case with maturities not exceeding two years after the date of acquisition;

(3) in the case of any Foreign Subsidiary, securities issued or directly and fully guaranteed or insured by the government of, or any agency or instrumentality thereof, Malaysia or Brazil, in each case with maturities not exceeding 270 days after the date of acquisition and held by it from time to time in the ordinary course of business;

(4) certificates of deposit, time deposits and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers’ acceptances, in each case with maturities not exceeding one year and overnight bank deposits and demand deposits (in their respective local currencies), in each case with any commercial bank having capital and surplus in excess of $500 million or the foreign currency equivalent thereof and whose long-term debt is rated “A” or the equivalent thereof by Moody’s or S&P (or, in the case of an obligor domiciled outside of the United States, reasonably equivalent ratings of another internationally recognized credit rating agency);

(5) repurchase obligations for underlying securities of the types described in clauses (2) and (4) above entered into with any financial institution meeting the qualifications specified in clause (4) above;

(6) commercial paper issued by a corporation (other than an Affiliate of Hexion) rated at least “A-1” or the equivalent thereof by Moody’s or S&P (or, in the case of an obligor domiciled outside of the United States, reasonably equivalent ratings of another internationally recognized credit rating agency) and in each case maturing within one year after the date of acquisition;

(7) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody’s or S&P in each case with maturities not exceeding two years from the date of acquisition;

(8) Indebtedness issued by Persons (other than the Sponsor or any of their Affiliates) with a rating of “A” or higher from S&P or “A-2” or higher from Moody’s (or, in the case of an obligor domiciled outside of the United States, reasonably equivalent ratings of another internationally recognized credit rating agency) in each case with maturities not exceeding two years from the date of acquisition; and

(9) investment funds investing at least 95% of their assets in securities of the types described in clauses (1) through (8) above.

“Code” means the Internal Revenue Code of 1986, as amended.

“Collateral” means all the collateral described in the Security Documents.

“Collateral Agent” means the Trustee in its capacity as “Collateral Agent” under the Indenture and under the Security Documents and any successor thereto in such capacity.

“consolidated” means, with respect to any Person, such Person consolidated with its Restricted Subsidiaries and shall not include any Unrestricted Subsidiary, but the interest of such Person in an Unrestricted Subsidiary shall be accounted for as an Investment.

207

“Consolidated Interest Expense” means, with respect to any Person (the “Specified Person”) for any period, the sum, without duplication, of:

(1) consolidated interest expense of the Specified Person and its Restricted Subsidiaries for such period, to the extent such expense was deducted in computing Consolidated Net Income (including amortization of original issue discount, the interest component of Capitalized Lease Obligations, and net payments and receipts (if any) pursuant to interest rate Hedging Obligations and excluding amortization of deferred financing fees and expensing of any bridge or other financing fees);

(2) consolidated capitalized interest of the Specified Person and its Restricted Subsidiaries for such period, whether paid or accrued;

(3) commissions, discounts, yield and other fees and charges Incurred for such period in connection with any Receivables Financing of the Specified Person or any of its Restricted Subsidiaries which are payable to Persons other than Hexion and its Restricted Subsidiaries;

(4) dividends accrued for such period in respect of all Disqualified Stock of the Specified Person and any of its Restricted Subsidiaries and all Preferred Stock (including Designated Preferred Stock) of any such Restricted Subsidiaries, in each case held by Persons other than Hexion or a Wholly Owned Subsidiary (in each such case other than (x) dividends payable solely in Capital Stock (other than Disqualified Stock) of Hexion and (y) dividends that are payable only at such time as there are no Notes outstanding); and

(5) interest accruing for such period on any Indebtedness of any other Person to the extent such Indebtedness is guaranteed by (or secured by the assets of) the Specified Person or any of its Restricted Subsidiaries;

less

(6) interest income of the Specified Person and its Restricted Subsidiaries for such period.

“Consolidated Net Income” means, with respect to any Person for any period, the aggregate Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis; provided, however, that:

(1) any net after-tax extraordinary or nonrecurring gains or losses or income or expenses, including any severance expenses and fees, expenses or charges related to any Equity Offering, Permitted Investment, acquisition or Indebtedness permitted to be Incurred by the Indenture (in each case, whether or not successful), including any such fees, expenses, charges or change in control payments related to the Borden Transaction, in each case, shall be excluded; provided, however, that with respect to each nonrecurring item, Hexion shall have delivered to the Trustee an Officers’ Certificate specifying and quantifying such item and stating that such item is a nonrecurring item;

(2) any increase in amortization or depreciation or any one-time non-cash charges (such as purchased in-process research and development or capitalized manufacturing profit in inventory) resulting from purchase accounting in connection with any acquisition that is consummated after the Acquisition shall be excluded;

(3) the Net Income for such period shall not include the cumulative effect of a change in accounting principles during such period;

(4) any net after-tax income or loss from discontinued operations and any net after-tax gains or losses on disposal of discontinued operations shall be excluded;

(5) any net after-tax gains or losses, or any subsequent charges or expenses, attributable to business dispositions or asset dispositions having occurred at any time other than in the ordinary course of business (as determined in good faith by the Board of Directors of Hexion) shall be excluded;

(6) any net after-tax gains or losses attributable to the early extinguishment of indebtedness shall be excluded;

208

(7) the Net Income for such period of any Person that is not a Subsidiary of such Person, or is an Unrestricted Subsidiary, or that is accounted for by the equity method of accounting, shall be included only to the extent of the amount of dividends or distributions or other payments paid in cash (or to the extent converted into cash) to the referent Person or a Restricted Subsidiary thereof in respect of such period;

(8) solely for the purpose of determining the amount available for Restricted Payments under clause (a)(iii)(1) of the first paragraph of “—Certain Covenants—Limitation on Restricted Payments,” the Net Income for such period of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of its Net Income is not at the date of determination permitted without any prior governmental approval (which has not been obtained) or, directly or indirectly, by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, unless such restrictions with respect to the payment of dividends or similar distributions have been legally waived; provided, however, that the net loss of any such Restricted Subsidiary for such period shall be included;

(9) an amount equal to the amount of Tax Distributions actually made to the holders of Capital Stock of such Person or any parent company of such Person in respect of such period in accordance with clause (b)(12) of the covenant described under “—Certain Covenants—Limitation on Restricted Payments” shall be included, to the extent not otherwise deducted, as though such amounts had been paid as income taxes directly by such Person for such period;

(10) any non-cash impairment charges resulting from the application of Statement of Financial Accounting Standards No. 142 shall be excluded;

(11) any non-cash compensation expense realized from any deferred stock compensation plan or grants of stock appreciation or similar rights, stock options, restricted stock or other rights to officers, directors and employees of such Person or any of its Restricted Subsidiaries shall be excluded;

(12) solely for purposes of calculating Adjusted EBITDA, (a) the Net Income of any Person and its Restricted Subsidiaries shall be calculated without deducting the income attributable to, or adding the losses attributable to, the minority equity interests of third parties in any non-wholly-owned Restricted Subsidiary except to the extent of dividends declared or paid in respect of such period or any prior period on the shares of Capital Stock of such Restricted Subsidiary held by such third parties and (b) any ordinary course dividend, distribution or other payment paid in cash and received from any Person in excess of amounts included in clause (7) above shall be included;

(13) non-cash gains, losses, income and expenses resulting from fair value accounting required by Statement of Financial Accounting Standards No. 133 shall be excluded;

(14) accruals and reserves that are established within twelve months after the Acquisition Date and that are so required to be established in accordance with GAAP shall be excluded; and

(15) non-cash charges for deferred tax asset valuation allowances shall be excluded.

Notwithstanding the foregoing, for the purpose of the covenant described under “—Certain Covenants—Limitation on Restricted Payments” only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries of Hexion or a Restricted Subsidiary of Hexion to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such covenant pursuant to clauses (iii)(4) and (5) of paragraph (a) thereof.

“Consolidated Non-cash Charges” means, with respect to any Person for any period, the aggregate depreciation, amortization and other non-cash expenses of such Person and its Restricted Subsidiaries reducing Consolidated Net Income of such Person for such period on a consolidated basis and otherwise determined in accordance with GAAP, but excluding any such charge which consists of or requires an accrual of, or cash reserve for, anticipated cash charges for any future period.

209

“Consolidated Secured Debt Ratio” means, as of any date of determination, the ratio of (a) Consolidated Total Indebtedness of Hexion and its Restricted Subsidiaries on the date of determination that constitutes First-Priority Lien Obligations to (b) the aggregate amount of Adjusted EBITDA for the then most recent four fiscal quarters for which internal financial statements of Hexion and its Restricted Subsidiaries are available in each case with such pro forma adjustments to Consolidated Total Indebtedness and Adjusted EBITDA as are consistent with the pro forma adjustment provisions set forth in the definition of Fixed Charge Coverage Ratio; provided, however, that solely for purposes of the calculation of the Consolidated Secured Debt Ratio, in connection with the incurrence of any Lien pursuant to clause (8) of the definition of “Permitted Liens,” Hexion or its Restricted Subsidiaries may elect, pursuant to an Officer’s Certificate delivered to the Trustee, to treat all or any portion of the commitment under any Indebtedness (including any Bank Indebtedness) which is to be secured by such Lien as being Incurred at such time and any subsequent Incurrence of Indebtedness under such commitment shall not be deemed, for purposes of this calculation, to be an Incurrence at such subsequent time.

“Consolidated Taxes” means provision for taxes based on income, profits or capital, including state, franchise and similar taxes and any Tax Distributions taken into account in calculating Consolidated Net Income.

“Consolidated Total Indebtedness” means, as of any date of determination, an amount equal to the sum of (1) the aggregate amount of all outstanding Indebtedness of Hexion and its Restricted Subsidiaries (excluding any undrawn letters of credit issued in the ordinary course of business) and (2) the aggregate amount of all outstanding Disqualified Stock of Hexion and its Restricted Subsidiaries and all Preferred Stock of Restricted Subsidiaries of Hexion, with the amount of such Disqualified Stock and Preferred Stock equal to the greater of their respective voluntary or involuntary liquidation preferences, in each case determined on a consolidated basis in accordance with GAAP.

“Contingent Obligations” means, with respect to any Person, any obligation of such Person guaranteeing any leases, dividends or other obligations that do not constitute Indebtedness (“primary obligations”) of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent:

(1) to purchase any such primary obligation or any property constituting direct or indirect security therefor,

(2) to advance or supply funds:

(a) for the purchase or payment of any such primary obligation; or

(b) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor; or

(3) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation against loss in respect thereof.

“Contribution Indebtedness” means Indebtedness of Hexion or any of its Restricted Subsidiaries that is a Guarantor in an aggregate principal amount not greater than twice the aggregate amount of cash contributions (other than Excluded Contributions) made to the capital of Hexion by any stockholder of Hexion (other than a Restricted Subsidiary) after the Acquisition Date; provided, however, that:

(1) if the aggregate principal amount of such Contribution Indebtedness is greater than one times such cash contributions to the capital of Hexion the amount in excess shall be Indebtedness (other than Secured Indebtedness) with a Stated Maturity later than the Stated Maturity of any Notes then outstanding,

(2) such Contribution Indebtedness (a) is Incurred within 180 days after the making of such cash contributions and (b) is so designated as Contribution Indebtedness pursuant to an Officers’ Certificate on the Incurrence date thereof; and

(3) such cash contribution is not and has not been included in the calculation of permitted Restricted Payments under the covenant described in “—Certain Covenants—Limitation on Restricted Payments.”

210

“Credit Agreement” means (i) the amended and restated credit agreement among Hexion, certain Subsidiaries of Hexion, the financial institutions named therein, and Credit Suisse First Boston, as Administrative Agent, and Fleet Capital Corporation, as Collateral Agent entered into in connection with, and on or prior to, the consummation of the Acquisition, as amended, restated, supplemented, waived, replaced (whether or not upon termination, and whether with the original agents, lenders or otherwise), renewed, restructured, repaid, refunded, refinanced or otherwise modified from time to time, including any agreement or indenture or multiple agreements and indentures extending the maturity thereof, refinancing, replacing or otherwise restructuring all or any portion of the Indebtedness under such agreement or agreements or indenture or indentures or any successor or replacement agreement or agreements or indenture or indentures or increasing the amount loaned or issued thereunder or altering the maturity thereof and adding Restricted Subsidiaries as additional borrowers, issuers or guarantors thereunder or (ii) whether of not the credit agreement referred to in clause (i) remains outstanding, if designated by Hexion to be included in the definition of “Credit Agreement,” one or more (A) debt facilities or commercial paper facilities, providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to lenders or to special purpose entities formed to borrow from lenders against such receivables) or letters of credit, (B) debt securities, indentures or other forms of debt financing (including convertible or exchangeable debt instruments), or (C) instruments or agreements evidencing any other Indebtedness in each case, as amended, supplemented, modified, extended, restructured, renewed, refinanced, restated, replaced or refunded in whole or in part from time to time.

“Default” means any event which is, or after notice or passage of time or both would be, an Event of Default.

“Designated Non-cash Consideration” means the Fair Market Value of non-cash consideration received by Hexion or one of its Restricted Subsidiaries in connection with an Asset Sale that is so designated as Designated Non-cash Consideration pursuant to an Officers’ Certificate, setting forth the basis of such valuation, less the amount of Cash Equivalents received in connection with a subsequent sale of such Designated Non-cash Consideration.

“Designated Preferred Stock” means Preferred Stock of Hexion or any direct or indirect parent company of Hexion, as applicable (other than Disqualified Stock), that is issued for cash (other than to Hexion or any of its Subsidiaries or an employee stock ownership plan or trust established by Hexion or any of its Subsidiaries) and is so designated as Designated Preferred Stock, pursuant to an Officers’ Certificate, on the issuance date thereof, the cash proceeds of which are excluded from the calculation set forth in clause (a)(iii) of the covenant described under “—Certain Covenants—Limitation on Restricted Payments.”

“Determination Date” with respect to an Interest Period will be the second London Banking Day preceding the first day of such Interest Period.

“Disqualified Stock” means, with respect to any Person, any Capital Stock of such Person which, by its terms (or by the terms of any security into which it is convertible or for which it is redeemable or exchangeable), or upon the happening of any event:

(1) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise (other than as a result of a change of control or asset sale; provided, however, that the relevant asset sale or change of control provisions, taken as a whole, are no more favorable in any material respect to holders of such Capital Stock than the asset sale and change of control provisions applicable to the Notes and any purchase requirement triggered thereby may not become operative until compliance with the asset sale and change of control provisions applicable to the Notes (including the purchase of any Notes tendered pursuant thereto)),

(2) is convertible or exchangeable for Indebtedness or Disqualified Stock, or

(3) is redeemable at the option of the holder thereof, in whole or in part,

211

in each case prior to 91 days after the maturity date of the Notes;

provided, however, that only the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such date shall be deemed to be Disqualified Stock; provided further, however, that if such Capital Stock is issued to any employee or to any plan for the benefit of employees of Hexion or its Subsidiaries or by any such plan to such employees, such Capital Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by Hexion in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, death or disability; provided further, however, that any class of Capital Stock of such Person that by its terms authorizes such Person to satisfy its obligations thereunder by delivery of Capital Stock that is not Disqualified Stock shall not be deemed to be Disqualified Stock.

“Domestic Subsidiary” means a Restricted Subsidiary that is not a Foreign Subsidiary.

“EBITDA” means Adjusted EBITDA but without giving effect to clauses (9), (10) and (11) contained therein.

“Equity Interests” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

“Equity Offering” means any public or private sale after the Acquisition Date of common stock or Preferred Stock of Hexion or any direct or indirect parent company of Hexion, as applicable (other than Disqualified Stock), other than:

(1) public offerings with respect to Hexion’s or such direct or indirect parent company’s common stock registered on Form S-8;

(2) any such public or private sale that constitutes an Excluded Contribution; and

(3) any Cash Contribution Amount.

“Escrow Agent” means the party so designated in the Escrow Agreement.

“Escrow Agreement” means the escrow agreement between the Issuers, BHI Investment, LLC and the Escrow Agent.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.

“Excluded Contributions” means the net cash proceeds received by Hexion after the Acquisition Date from:

(1) contributions to its common equity capital, and

(2) the sale (other than to a Subsidiary of Hexion or to any Hexion or Subsidiary management equity plan or stock option plan or any other management or employee benefit plan or agreement) of Capital Stock (other than Disqualified Stock and Designated Preferred Stock) of Hexion,

in each case designated as Excluded Contributions pursuant to an Officers’ Certificate executed by an Officer of Hexion, the cash proceeds of which are excluded from the calculation set forth in clause (a)(iii) of “—Certain Covenants—Limitation on Restricted Payments.”

“Existing Debentures” means Hexion’s 7.875% Debentures due 2023, 8.375% Sinking Fund Debentures due 2016 and 9.2% Debentures due 2021 and the Parish of Ascension, State of Louisiana Pollution Control Revenue Refunding Bonds (Borden, Inc. Project Series 1992) (and the related guarantees of such Refunding Bonds).

212

“Existing Debentures Subsidiary” means each corporation of which Hexion, or Hexion and one or more Existing Debentures Subsidiaries, or any one or more Existing Debentures Subsidiaries, directly or indirectly own securities entitling the holders thereof to elect a majority of the directors, either at all times or so long as there is no default or contingency which permits the holders of any other class or classes of securities to vote for the election of one or more directors.

“Fair Market Value” means, with respect to any asset or property, the price which could be negotiated in an arm’s-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction.

“First-Priority After-Acquired Property” means any property (other than the initial collateral) of Hexion, the Issuer or any Subsidiary Guarantor that secures any Secured Bank Indebtedness.

“First-Priority Lien Obligations” means (i) all Secured Bank Indebtedness, (ii) all other Obligations (not constituting Indebtedness) of the Issuers, Hexion and its Subsidiaries under the agreements governing Secured Bank Indebtedness and (iii) all other Obligations of the Issuers Hexion or any of its Subsidiaries in respect of Hedging Obligations or Obligations in respect of cash management services in connection with Indebtedness described in clause (i) or Obligations described in clause (ii).

“Fixed Charge Coverage Ratio” means, with respect to any Person for any period, the ratio of Adjusted EBITDA of such Person for such period to the Consolidated Interest Expense of such Person for such period. In the event that Hexion or any of its Restricted Subsidiaries Incurs or redeems any Indebtedness (other than in the case of revolving credit borrowings or revolving advances under any Qualified Receivables Financing, in which case interest expense shall be computed based upon the average daily balance of such Indebtedness during the applicable period) or issues or redeems Preferred Stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the event for which the calculation of the Fixed Charge Coverage Ratio is made (the “Calculation Date”), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such Incurrence or redemption of Indebtedness, or such issuance or redemption of Preferred Stock, as if the same had occurred at the beginning of the applicable four-quarter period.

For purposes of making the computation referred to above, Investments, acquisitions or dispositions of operating units of a business, mergers, consolidations, discontinued operations (as determined in accordance with GAAP), and business realignment projects and initiatives, restructurings and reorganizations (each a “pro forma event”) that Hexion or any of its Restricted Subsidiaries has both determined to make and made after the Acquisition Date and during the four-quarter reference period or subsequent to such reference period and on or prior to or simultaneously with the Calculation Date shall be calculated on a pro forma basis assuming that all such Investments, acquisitions or dispositions of an operating unit of a business, mergers, consolidations, discontinued operations and business realignment projects and initiatives, restructurings and reorganizations (and the change of any associated fixed charge obligations, consolidated interest expense and the change in Adjusted EBITDA resulting therefrom) had occurred on the first day of the four-quarter reference period. If, since the beginning of such period any Person that subsequently became a Restricted Subsidiary of Hexion or was merged with or into Hexion or any Restricted Subsidiary of Hexion since the beginning of such period shall have made any Investment, acquisition or disposition of an operating unit of a business, merger, consolidation, discontinued operation or business realignment project or initiative, restructuring or reorganization, that would have required adjustment pursuant to this definition, then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect thereto for such period as if such Investment, acquisition, disposition, discontinued operation, merger, consolidation, business realignment project or initiative, restructuring, or reorganization had occurred at the beginning of the applicable four-quarter period.

For purposes of this definition, whenever pro forma effect is to be given to any pro forma event, the pro forma calculations shall be made in good faith by a responsible financial or accounting officer of Hexion. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest on such

213

Indebtedness shall be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligations applicable to such Indebtedness if such Hedging Obligation has a remaining term in excess of 12 months). Any such pro forma calculation may include adjustments appropriate, in the reasonable good faith determination of Hexion as set forth in an Officers’ Certificate, to reflect (i) operating expense reductions, other operating improvements or synergies reasonably expected to result from the applicable pro forma event (including, to the extent applicable, from the Borden Transaction) and (ii) all adjustments used in connection with the calculation of “Adjusted EBITDA” as set forth in footnote (3) to the “Summary—Summary Historical, Pro Forma and Other Financial Data” in Offering Circular, to the extent such adjustments, without duplication, continue to be applicable to such four quarter period.

“Fixed Rate Notes” means the 9% Second-Priority Senior Secured Notes Due 2014 of the Issuers.

“Floating Rate Notes” means the Second-Priority Senior Secured Notes Due 2010 of the Issuers.

“Flow Through Entity” means an entity that is treated as a partnership not taxable as a corporation, a grantor trust or a disregarded entity for U.S. federal income tax purposes or subject to treatment on a comparable basis for purposes of state, local or foreign tax law.

“Foreign Subsidiary” means a Restricted Subsidiary not organized or existing under the laws of the United States of America or any state or territory thereof or the District of Columbia.

“GAAP” means generally accepted accounting principles set forth in (i) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, (ii) statements and pronouncements of the Financial Accounting Standards Board and (iii) in such other statements by such other entity as have been approved by a significant segment of the accounting profession, in each case which are in effect on the Issue Date. For the purposes of the Indenture, the term “consolidated” with respect to any Person shall mean such Person consolidated with its Restricted Subsidiaries, and shall not include any Unrestricted Subsidiary, but the interest of such Person in an Unrestricted Subsidiary will be accounted for as an Investment.

“Government Obligations” means securities that are:

(1) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged, or

(2) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in each case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such U.S. Government Obligations or a specific payment of principal of or interest on any such U.S. Government Obligations held by such custodian for the account of the holder of such depository receipt; provided, however, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligations or the specific payment of principal of or interest on the U.S. Government Obligations evidenced by such depository receipt.

“guarantee” means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness or other obligations.

“Guarantee” means any guarantee of the obligations of the Issuers under the Indenture and the Notes by any Person in accordance with the provisions of the Indenture.

214

“Guarantor” means any Person that Incurs a Guarantee with respect to the Notes; provided, however, that upon the release or discharge of such Person from its Guarantee in accordance with the Indenture, such Person ceases to be a Guarantor.

“HAI” means HA-International, LLC, a Delaware limited liability company, and any successor in interest thereto.

“Hedging Obligations” means, with respect to any Person, the obligations of such Person under:

(1) currency exchange, interest rate or commodity swap agreements, currency exchange, interest rate or commodity cap agreements and currency exchange, interest rate or commodity collar agreements; and

(2) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange, interest rates or commodity prices.

“Hexion” means Hexion Specialty Chemicals, Inc., a New Jersey corporation, and any successor in interest thereto.

“Hexion Canada” means Hexion Specialty Chemicals Canada, Inc., a Canadian corporation, and any successor in interest thereto.

“Hexion Canada Entities” means (1) Hexion Canada, (2) each Person that is a Subsidiary of Hexion Canada after giving effect to the Borden Transaction and (3) each Person that is a successor in interest, directly or indirectly, to any Person described in clause (2), including pursuant to any merger, consolidation, amalgamation or transfer of all or substantially all of its assets.

“holder”, “Holder”, “noteholder” or “Noteholder” means the Person in whose name a Note is registered on the Registrar’s books.

“Incur” means issue, assume, guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Person at the time it becomes a Subsidiary.

“Indebtedness” means, with respect to any Person:

(1) the principal and premium (if any) of any indebtedness of such Person, whether or not contingent, (a) in respect of borrowed money, (b) evidenced by bonds, Notes, debentures or similar instruments or letters of credit or bankers’ acceptances (or, without duplication, reimbursement agreements in respect thereof), (c) representing the deferred and unpaid purchase price of any property, except any such balance that constitutes a trade payable or similar obligation to a trade creditor due within six months from the date on which it is Incurred, in each case Incurred in the ordinary course of business, which purchase price is due more than six months after the date of placing the property in service or taking delivery and title thereto, (d) in respect of Capitalized Lease Obligations, or (e) representing any Hedging Obligations, if and to the extent that any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability on a balance sheet (excluding the footnotes thereto) of such Person prepared in accordance with GAAP;

(2) to the extent not otherwise included, any obligation of such Person to be liable for, or to pay, as obligor, guarantor or otherwise, on the Indebtedness of another Person (other than by endorsement of negotiable instruments for collection in the ordinary course of business);

(3) to the extent not otherwise included, Indebtedness of another Person secured by a Lien on any asset owned by such Person (whether or not such Indebtedness is assumed by such Person); provided, however, that the amount of such Indebtedness will be the lesser of: (a) the Fair Market Value of such asset at such date of determination, and (b) the amount of such Indebtedness of such other Person; and

215

(4) to the extent not otherwise included, with respect to Hexion and its Restricted Subsidiaries, the amount then outstanding (including amounts advanced, and received by, and available for use by, Hexion or any of its Restricted Subsidiaries) under any Receivables Financing (as set forth in the books and records of Hexion or any Restricted Subsidiary and confirmed by the agent, trustee or other representative of the institution or group providing such Receivables Financing); provided, however, that Contingent Obligations incurred in the ordinary course of business shall be deemed not to constitute Indebtedness.

“Indenture Restricted Subsidiary” means any Existing Debenture Subsidiary which owns, operates or leases one or more Principal Properties and shall not include any other Existing Debenture Subsidiary.

“Independent Financial Advisor” means an accounting, appraisal or investment banking firm or consultant to Persons engaged in a Similar Business, in each case of nationally recognized standing that is, in the good faith determination of Hexion, qualified to perform the task for which it has been engaged.

“Initial Purchasers” means Credit Suisse First Boston LLC, J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated.

“Intercreditor Agent” has the meaning given to such term in the Intercreditor Agreement.

“Intercreditor Agreement” means the intercreditor agreement among Fleet Capital Corporation, as agent under the Senior Credit Documents, the Trustee, the Issuers, Hexion and each Subsidiary Guarantor, as it may be amended from time to time in accordance with the Indenture.

“Interest Period” means the period commencing on and including an interest payment date and ending on and including the day immediately preceding the next succeeding interest payment date, with the exception that the first Interest Period shall commence on and include the Issue Date and end on and include October 14, 2004.

“Investment Grade Securities” means:

(1) securities issued or directly and fully guaranteed or insured by the U.S. government or any agency or instrumentality thereof (other than Cash Equivalents) and in each case with maturities not exceeding two years from the date of acquisition,

(2) investments in any fund that invests exclusively in investments of the type described in clause (1) which fund may also hold immaterial amounts of cash pending investment or distribution, and

(3) corresponding instruments in countries other than the United States customarily utilized for high quality investments and in each case with maturities not exceeding two years from the date of acquisition.

“Investments” means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of loans (including guarantees), advances or capital contributions (excluding accounts receivable, trade credit and advances to customers and commission, travel and similar advances to officers, employees and consultants made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities issued by any other Person and investments that are required by GAAP to be classified on the balance sheet of Hexion in the same manner as the other investments included in this definition to the extent such transactions involve the transfer of cash or other property. For purposes of the definition of “Unrestricted Subsidiary” and the covenant described under “—Certain Covenants—Limitation on Restricted Payments:”

(1) “Investments” shall include the portion (proportionate to Hexion’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of a Subsidiary of Hexion at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, Hexion shall be deemed to continue to have a permanent “Investment” in an Unrestricted Subsidiary equal to an amount (if positive) equal to:

(A) Hexion’s “Investment” in such Subsidiary at the time of such redesignation less

216

(B) the portion (proportionate to Hexion’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time of such redesignation; and

(2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its Fair Market Value at the time of such transfer, in each case as determined in good faith by the Board of Directors of Hexion.

“Issue Date” means August 12, 2004, the date on which the Notes are originally issued.

“Legal Holiday” means a Saturday, a Sunday or a day on which banking institutions are not required to be open in the State of New York.

“LIBOR,” with respect to an Interest Period, will be the rate (expressed as a percentage per annum) for deposits in U.S. dollars for a three-month period beginning on the second London Banking Day after the Determination Date that appears on Telerate Page 3750 as of 11:00 a.m., London time, on the Determination Date. If Telerate Page 3750 does not include such a rate or is unavailable on a Determination Date, the Calculation Agent will request the principal London office of each of four major banks in the London interbank market, as selected by the Calculation Agent, to provide such bank’s offered quotation (expressed as a percentage per annum), as of approximately 11:00 a.m., London time, on such Determination Date, to prime banks in the London interbank market for deposits in a Representative Amount in U.S. dollars for a three-month period beginning on the second London Banking Day after the Determination Date. If at least two such offered quotations are so provided, the rate for the Interest Period will be arithmetic mean of such quotations. If fewer than two such quotations are so provided, the Calculation Agent will request each of three major banks in New York City, as selected by the Calculation Agent, to provide such bank’s rate (expressed as a percentage per annum), as of approximately 11:00 a.m., New York City time, on such Determination Date, for loans in a Representative Amount in U.S. dollars to leading European banks for a three-month period beginning on the second London Banking Day after the Determination Date. If at least two such rates are so provided, the rate for the Interest Period will be the arithmetic mean of such rates. If fewer than two such rates are so provided, then the rate for the Interest Period will be the rate in effect with respect to the immediately preceding Interest Period.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any other agreement to give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction); provided, however, that in no event shall an operating lease be deemed to constitute a Lien.

“London Banking Day” is any day on which dealings in U.S. dollars are transacted or, with respect to any future date, are expected to be transacted in the London interbank market.

“Management Group” means all of the individuals consisting of the directors, executive officers and other management personnel of Hexion or any direct or indirect parent company of Hexion, as the case may be, on the Acquisition Date together with (1) any new directors whose election by such boards of directors or whose nomination for election by the shareholders of Hexion or any direct or indirect parent company of Hexion, as the case may be, as applicable, was approved by (x) a vote of a majority of the directors of Hexion or any direct or indirect parent of Hexion as applicable, then still in office who were either directors on the Acquisition Date or whose election or nomination was previously so approved or (y) the Permitted Holders and (2) executive officers and other management personnel of Hexion or any direct or indirect parent company of Hexion, as the case may be, as applicable, hired at a time when the directors on the Acquisition Date together with the directors so approved constituted a majority of the directors of Hexion or any direct or indirect parent company of Hexion, as the case may be, as applicable.

“Moody’s” means Moody’s Investors Service, Inc. or any successor to the rating agency business thereof.

217

“Net Income” means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends.

“Net Proceeds” means the aggregate cash proceeds received by Hexion or any of its Restricted Subsidiaries in respect of any Asset Sale (including any cash received in respect of or upon the sale or other disposition of any Designated Non-cash Consideration received in any Asset Sale and any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding the assumption by the acquiring Person of Indebtedness relating to the disposed assets or other consideration received in any other non-cash form), net of the direct costs relating to such Asset Sale and the sale or disposition of such Designated Non-cash Consideration (including legal, accounting and investment banking fees, and brokerage and sales commissions), and any relocation expenses Incurred as a result thereof, taxes paid or payable as a result thereof, amounts required to be applied to the repayment of principal, premium (if any) and interest on Indebtedness required (other than pursuant to the second paragraph of the covenant described under “—Certain Covenants—Asset Sales”) to be paid as a result of such transaction, and any deduction of appropriate amounts to be provided by Hexion as a reserve in accordance with GAAP against any liabilities associated with the asset disposed of in such transaction and retained by Hexion after such sale or other disposition thereof, including, without limitation, pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with such transaction.

“Obligations” means any principal, interest, penalties, fees, indemnifications, reimbursements (including, without limitation, reimbursement obligations with respect to letters of credit and bankers’ acceptances), damages and other liabilities payable under the documentation governing any Indebtedness; provided, however, that Obligations with respect to the Notes shall not include fees or indemnifications in favor of the Trustee and other third parties other than the holders of such Notes.

“Off-Balance Sheet Financing Amount” means, at any date, with respect to any Qualified Receivables Financing, the face or notional amount of any interest in assets of the type described in the definition of the term Qualified Receivables Financing transferred to a Receivables Subsidiary in connection with such Qualified Receivables Financing by or on behalf of Hexion or any of its Subsidiaries.

“Offering Circular” means the Offering Circular dated August 4, 2004 with respect to the Notes.

“Officer” means the Chairman of the Board, Chief Executive Officer, President, any Executive Vice President, Senior Vice President or Vice President, the Treasurer or the Secretary of Hexion.

“Officers’ Certificate” means a certificate signed on behalf of Hexion by two Officers of Hexion, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of Hexion that meets the requirements set forth in the Indenture.

“Opinion of Counsel” means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to Hexion or the Trustee.

“Other Second-Lien Obligations” means other Indebtedness of the Company and the Restricted Subsidiaries that is equally and ratably secured with the Notes and is designated by Hexion as an Other Second-Lien Obligation.

“Pari Passu Indebtedness” means:

(1) with respect to the Issuers, the Notes and any Indebtedness which ranks pari passu in right of payment to the Notes; and

(2) with respect to any Guarantor, its Guarantee and any Indebtedness which ranks pari passu in right of payment to such Guarantor’s Guarantee.

218

“Permitted Holders” means, at any time, each of (i) the Sponsor and (ii) the Management Group. Any person or group whose acquisition of beneficial ownership constitutes a Change of Control in respect of which a Change of Control Offer is made in accordance with the requirements of the Indenture will thereafter, together with its Affiliates, constitute an additional Permitted Holder.

“Permitted Investments” means:

(1) any Investment in Hexion or any Restricted Subsidiary of Hexion;

(2) any Investment in Cash Equivalents or Investment Grade Securities;

(3) any Investment by Hexion or any Restricted Subsidiary of Hexion in a Person that is primarily engaged, directly or indirectly, in a Similar Business if as a result of such Investment (a) such Person becomes a Restricted Subsidiary of Hexion, or (b) such Person, in one transaction or a series of related transactions, is merged, consolidated or amalgamated with or into, or transfers or conveys all or substantially all of its assets to, or is liquidated into, Hexion or a Restricted Subsidiary of Hexion;

(4) any Investment in securities or other assets not constituting Cash Equivalents and received in connection with an Asset Sale made pursuant to the provisions of “—Certain Covenants—Asset Sales” or any other disposition of assets not constituting an Asset Sale;

(5) any Investment existing on the Issue Date;

(6) advances to employees not in excess of $15 million outstanding at any one time in the aggregate;

(7) any Investment acquired by Hexion or any of its Restricted Subsidiaries (a) in exchange for any other Investment or accounts receivable or claims held by Hexion or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or accounts receivable, or (b) as a result of a foreclosure by Hexion or any of its Restricted Subsidiaries with respect to any secured Investment or other transfer of title with respect to any secured Investment in default;

(8) Hedging Obligations permitted under clause (j) of the “—Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock” covenant;

(9) any Investment by Hexion or any of its Restricted Subsidiaries in a Similar Business (other than an Investment in an Unrestricted Subsidiary) having an aggregate Fair Market Value, taken together with all other Investments made pursuant to this clause (9), not to exceed $75 million (with the Fair Market Value of each Investment being measured at the time made and without giving effect to subsequent changes in value); provided, however, that if any Investment pursuant to this clause (9) is made in any Person that is not a Restricted Subsidiary of Hexion at the date of the making of such Investment and such Person becomes a Restricted Subsidiary of Hexion after such date, such Investment shall thereafter be deemed to have been made pursuant to clause (1) above and shall cease to have been made pursuant to this clause (9) for so long as such Person continues to be a Restricted Subsidiary;

(10) additional Investments by Hexion or any of its Restricted Subsidiaries having an aggregate Fair Market Value, taken together with all other Investments made pursuant to this clause (10), not to exceed the greater of (a) $75 million and (b) 7.5% of Total Assets at the time of such Investment (with the Fair Market Value of each Investment being measured at the time made and without giving effect to subsequent changes in value);

(11) loans and advances to officers, directors and employees for business-related travel expenses, moving expenses and other similar expenses, in each case Incurred in the ordinary course of business;

(12) Investments the payment for which consists of Equity Interests (other than Disqualified Stock) of Hexion or any direct or indirect parent company of Hexion, as applicable; provided, however, that such Equity Interests will not increase the amount available for Restricted Payments under clause (a)(iii) of the covenant described under “—Certain Covenants—Limitation on Restricted Payments;”

219

(13) any transaction to the extent it constitutes an Investment that is permitted by and made in accordance with the provisions of the second paragraph of the covenant described under “—Certain Covenants—Transactions with Affiliates” (except transactions described in clauses (2), (6), (7) and (11) of such paragraph);

(14) Investments consisting of the licensing or contribution of intellectual property pursuant to joint marketing arrangements with other Persons;

(15) guarantees issued in accordance with the covenants described under “—Certain Covenants— Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock” and “—Certain Covenants—Future Guarantors;”

(16) any Investment by Restricted Subsidiaries of Hexion in other Restricted Subsidiaries of Hexion and Investments by Subsidiaries that are not Restricted Subsidiaries in other Subsidiaries that are not Restricted Subsidiaries of Hexion;

(17) Investments consisting of purchases and acquisitions of real estate, inventory, supplies, materials and equipment or purchases of contract rights or licenses or leases of intellectual property, in each case in the ordinary course of business;

(18) any Investment in a Receivables Subsidiary or any Investment by a Receivables Subsidiary in any other Person in connection with a Qualified Receivables Financing, including Investments of funds held in accounts permitted or required by the arrangements governing such Qualified Receivables Financing or any related Indebtedness; provided, however, that any Investment in a Receivables Subsidiary is in the form of a Purchase Money Note, contribution of additional receivables or an equity interest;

(19) Investments resulting from the receipt of non-cash consideration in an Asset Sale received in compliance with the covenant described under “—Certain Covenants—Asset Sales;” and

(20) additional Investments in joint ventures of Hexion or any of its Restricted Subsidiaries existing on the Issue Date in an aggregate amount not to exceed $15 million.

“Permitted Liens” means, with respect to any Person:

(1) pledges or deposits by such Person under workmen’s compensation laws, unemployment insurance laws or similar legislation, or good faith deposits in connection with bids, tenders, contracts (other than for the payment of Indebtedness) or leases to which such Person is a party, or deposits to secure public or statutory obligations of such Person or deposits of cash or U.S. government bonds to secure surety or appeal bonds to which such Person is a party, or deposits as security for contested taxes or import duties or for the payment of rent, in each case Incurred in the ordinary course of business;

(2) Liens imposed by law, such as carriers’, warehousemen’s and mechanics’ Liens, in each case for sums not yet due or being contested in good faith by appropriate proceedings or other Liens arising out of judgments or awards against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review;

(3) Liens for taxes, assessments or other governmental charges not yet due or payable or subject to penalties for nonpayment or which are being contested in good faith by appropriate proceedings;

(4) Liens in favor of issuers of performance and surety bonds or bid bonds or with respect to other regulatory requirements or letters of credit (or deposits to secure letters of credit or surety bonds for the same purpose) issued pursuant to the request of and for the account of such Person in the ordinary course of its business;

(5) minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real properties or Liens incidental to the conduct of the business of such Person or to the ownership of its properties which were not Incurred in connection with Indebtedness and which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person;

220

(6) Liens securing Indebtedness (including Capitalized Lease Obligations) Incurred to finance the purchase, lease or improvement of property (real or personal) or equipment (whether through the direct purchase of assets or Capital Stock of any Person owning such assets, where such Person has no other material assets) of such Person; provided, however, that the Lien may not extend to any other property owned by such Person or any of its Restricted Subsidiaries at the time the Lien is Incurred (other than assets and property affixed or appurtenant thereto and except for customary cross collateral arrangements with respect to property or equipment financed by the same financing source pursuant to the same financing scheme), and the Indebtedness (other than any interest thereon) secured by the Lien may not be Incurred more than 180 days after the latest of the (i) acquisition of the property subject to the Lien, (ii) completion of construction, repair, improvement or addition of the property subject to the Lien and (iii) commencement of full operation of the property subject to the Lien;

(7) Liens securing Indebtedness of a Foreign Subsidiary Incurred pursuant to the first paragraph of, or clause (a), (l) or (t) (or (m) to the extent it guarantees any such Indebtedness) of the second paragraph of, the covenant described under “—Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock;” provided, however, that such Liens do not extend to the property or assets of Hexion or any Domestic Subsidiary (other than a Domestic Subsidiary that is wholly owned by one or more Foreign Subsidiaries created to enhance the worldwide tax efficiency of Hexion and its Subsidiaries);

(8) Liens incurred to secure Indebtedness Incurred pursuant to the first paragraph of, or clause (a) or (l) (or (m) to the extent it guarantees any such Indebtedness) of the second paragraph of, the covenant described under “—Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock” to the extent such Lien is incurred pursuant to this clause (8) as designated by Hexion; provided, however, that, at the time of incurrence and after giving pro forma effect thereto, the Consolidated Secured Debt Ratio would be no greater than 2.75 to 1.0; provided further, however, that the immediately preceding proviso shall not apply to any Lien which is deemed to be incurred under this clause (8) by reason of the second proviso to clause (20) of this definition of “Permitted Liens” (except to the extent such Lien also secures Indebtedness in addition to the Indebtedness permitted to be secured thereby under clause (20));

(9) Liens existing on the Acquisition Date (other than Liens described in clause (8) above);

(10) Liens on property or shares of stock of a Person at the time such Person becomes a Subsidiary; provided, however, such Liens are not created or Incurred in connection with, or in contemplation of, such other Person becoming such a Subsidiary; provided further, however, that such Liens may not extend to any other property owned by Hexion or any Restricted Subsidiary of Hexion;

(11) Liens on property at the time Hexion or a Restricted Subsidiary of Hexion acquired the property, including any acquisition by means of a merger or consolidation with or into Hexion or any Restricted Subsidiary of Hexion; provided, however, that such Liens are not created or Incurred in connection with, or in contemplation of, such acquisition; provided further, however, that the Liens may not extend to any other property owned by Hexion or any Restricted Subsidiary of Hexion;

(12) Liens securing Indebtedness or other obligations of a Restricted Subsidiary owing to Hexion or a Restricted Subsidiary of Hexion permitted to be Incurred in accordance with the covenant described under “—Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock;”

(13) Liens securing Hedging Obligations so long as the related Indebtedness is, and is permitted to be under the Indenture, secured by a Lien on the same property securing such Hedging Obligations;

(14) Liens on specific items of inventory or other goods and proceeds of any Person securing such Person’s obligations in respect of bankers’ acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods;

221

(15) licenses, sublicenses, leases and subleases which do not materially interfere with the ordinary conduct of the business of Hexion or any of its Restricted Subsidiaries;

(16) Liens arising from Uniform Commercial Code financing statement filings regarding operating leases entered into by Hexion and its Restricted Subsidiaries in the ordinary course of business;

(17) Liens in favor of the Issuers or any Guarantor or Liens on assets of a Restricted Subsidiary of Hexion that is not a guarantor in favor solely of another Restricted Subsidiary of Hexion that is not a Guarantor;

(18) Liens on equipment of Hexion or any Restricted Subsidiary granted in the ordinary course of business to Hexion’s or such Restricted Subsidiary’s client at which such equipment is located;

(19) Liens on accounts receivable and related assets of the type specified in the definition of “Receivables Financing” Incurred in connection with a Qualified Receivables Financing;

(20) Liens to secure any refinancing, refunding, extension or renewal (or successive refinancings, refundings, extensions or renewals) as a whole, or in part, of any Indebtedness secured by any Lien referred to in the foregoing clauses (6), (7), (8), (9), (10) and (11); provided, however, that (x) such new Lien shall be limited to all or part of the same property (including any after acquired property to the extent it would have been subject to the original Lien) that was subject to the original Lien (plus improvements on such property), and (y) the Indebtedness secured by such Lien at such time is not increased to any amount greater than the sum of (A) the outstanding principal amount or, if greater, committed amount of the Indebtedness described under clauses (6), (7), (8), (9), (10) and (11) at the time the original Lien became a Permitted Lien under the Indenture, and (B) an amount necessary to pay any fees and expenses, including premiums, related to such refinancing, refunding, extension or renewal; provided further, however, that in the case of any Liens to secure any refinancing, refunding, extension or renewal of Indebtedness secured by a Lien referred to in clause (8), the principal amount of any Indebtedness Incurred for such refinancing, refunding, extension or renewal shall be deemed secured by a Lien under clause (8) and not this clause (20) for purposes of determining the principal amount of Indebtedness outstanding under clause (8) and for purposes of the definition of Secured Bank Indebtedness;

(21) judgment Liens not giving rise to an Event of Default, so long as such Lien is adequately bonded any appropriate legal proceedings which may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such proceedings may be initiated shall have expired;

(22) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with importation of goods;

(23) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by Hexion or any of its Restricted Subsidiaries in the ordinary course of business;

(24) Liens securing insurance premium financing arrangements; provided that such Lien is limited to the applicable insurance carriers;

(25) Liens incurred to secure cash management services in the ordinary course of business; and

(26) other Liens securing obligations incurred in the ordinary course of business which obligations do not exceed $15 million at any one time outstanding.

Any provider of additional extensions of credit shall be entitled to rely on the determination of an Officer that Liens incurred satisfy clause (8) above if such determination is set forth in an Officer’s Certificate delivered to such provider; provided, however, that such determination will not affect whether such Lien actually was incurred as permitted by clause (8).

“Person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

222

“Preferred Stock” means any Equity Interest with preferential right of payment of dividends or upon liquidation, dissolution, or winding up.

“Presumed Tax Rate” means the highest effective marginal statutory combined U.S. federal, state and local income tax rate prescribed for an individual residing in New York City (taking into account (i) the deductibility of state and local income taxes for U.S. federal income tax purposes, assuming the limitation of Section 68(a)(2) of the Code applies and taking into account any impact of Section 68(f) of the Code, and (ii) the character (long-term or short-term capital gain, dividend income or other ordinary income) of the applicable income).

“Principal Property” means any single manufacturing or processing plant or warehouse owned or leased by Hexion or any Existing Debenture Subsidiary of Hexion and located within the United States of America (excluding its territories and possessions and the Commonwealth of Puerto Rico) other than any such plant or warehouse or portion thereof which the Board of Directors of Hexion reasonably determines not to be a Principal Property after due consideration of the materiality of such property to the business of Hexion and its Subsidiaries as a whole.

“Purchase Money Note” means a promissory note of a Receivables Subsidiary evidencing a line of credit, which may be irrevocable, from Hexion or any Subsidiary of Hexion to a Receivables Subsidiary in connection with a Qualified Receivables Financing, which note is intended to finance that portion of the purchase price that is not paid by cash or a contribution of equity.

“Qualified Receivables Financing” means any Receivables Financing of a Receivables Subsidiary that meets the following conditions:

(1) the Board of Directors of Hexion shall have determined in good faith that such Qualified Receivables Financing (including financing terms, covenants, termination events and other provisions) is in the aggregate economically fair and reasonable to Hexion and the Receivables Subsidiary,

(2) all sales of accounts receivable and related assets to the Receivables Subsidiary are made at Fair Market Value (as determined in good faith by Hexion), and

(3) the financing terms, covenants, termination events and other provisions thereof shall be market terms (as determined in good faith by Hexion) and may include Standard Securitization Undertakings.

The grant of a security interest in any accounts receivable of Hexion or any of its Restricted Subsidiaries (other than a Receivables Subsidiary) to secure Bank Indebtedness shall not be deemed a Qualified Receivables Financing.

“Receivables Financing” means any transaction or series of transactions that may be entered into by Hexion or any of its Subsidiaries pursuant to which Hexion or any of its Subsidiaries may sell, convey or otherwise transfer to (a) a Receivables Subsidiary (in the case of a transfer by Hexion or any of its Subsidiaries), and (b) any other Person (in the case of a transfer by a Receivables Subsidiary), or may grant a security interest in, any accounts receivable (whether now existing or arising in the future) of Hexion or any of its Subsidiaries, and any assets related thereto including all collateral securing such accounts receivable, all contracts and all guarantees or other obligations in respect of such accounts receivable, proceeds of such accounts receivable and other assets which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving accounts receivable and any Hedging Obligations entered into by Hexion or any such Subsidiary in connection with such accounts receivable.

“Receivables Repurchase Obligation” means any obligation of a seller of receivables in a Qualified Receivables Financing to repurchase receivables arising as a result of a breach of a representation, warranty or covenant or otherwise, including as a result of a receivable or portion thereof becoming subject to any asserted defense, dispute, off-set or counterclaim of any kind as a result of any action taken by, any failure to take action by or any other event relating to the seller.

223

“Receivables Subsidiary” means a Wholly Owned Restricted Subsidiary of Hexion (or another Person formed for the purposes of engaging in a Qualified Receivables Financing with Hexion in which Hexion or any Subsidiary of Hexion makes an Investment and to which Hexion or any Subsidiary of Hexion transfers accounts receivable and related assets) which engages in no activities other than in connection with the financing of accounts receivable of Hexion and its Subsidiaries, all proceeds thereof and all rights (contractual or other), collateral and other assets relating thereto, and any business or activities incidental or related to such business, and which is designated by the Board of Directors of Hexion (as provided below) as a Receivables Subsidiary and:

(a) no portion of the Indebtedness or any other obligations (contingent or otherwise) of which (i) is guaranteed by Hexion or any other Subsidiary of Hexion (excluding guarantees of obligations (other than the principal of, and interest on, Indebtedness) pursuant to Standard Securitization Undertakings), (ii) is recourse to or obligates Hexion or any other Subsidiary of Hexion in any way other than pursuant to Standard Securitization Undertakings, or (iii) subjects any property or asset of Hexion or any other Subsidiary of Hexion, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings,

(b) with which neither Hexion nor any other Subsidiary of Hexion has any material contract, agreement, arrangement or understanding other than on terms which Hexion reasonably believes to be no less favorable to Hexion or such Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of Hexion, and

(c) to which neither Hexion nor any other Subsidiary of Hexion has any obligation to maintain or preserve such entity’s financial condition or cause such entity to achieve certain levels of operating results.

Any such designation by the Board of Directors of Hexion shall be evidenced to the Trustee by filing with the Trustee a certified copy of the resolution of the Board of Directors of Hexion giving effect to such designation and an Officers’ Certificate certifying that such designation complied with the foregoing conditions.

“Registration Rights Agreement” means the Registration Rights Agreement dated August 12, 2004, among Hexion, the Issuers and the Initial Purchasers.

“Representative Amount” means a principal amount of not less than $1,000,000 for a single transaction in the relevant market at the relevant time.

“Restricted Investment” means an Investment other than a Permitted Investment.

“Restricted Subsidiary” means, with respect to any Person, any Subsidiary of such Person other than an Unrestricted Subsidiary of such Person; provided, however, that, unless HAI would be a Subsidiary without giving effect to the specific 50% test for HAI as set forth in the definition of “Subsidiary,” HAI will not be treated as a Restricted Subsidiary that is subject to the covenants described under “—Certain Covenants.” Unless otherwise indicated in this “Description of the Notes,” all references to Restricted Subsidiaries shall mean Restricted Subsidiaries of Hexion.

“S&P” means Standard & Poor’s Ratings Group or any successor to the rating agency business thereof.

“Sale/Leaseback Transaction” means an arrangement relating to property now owned or hereafter acquired by Hexion or a Restricted Subsidiary whereby Hexion or a Restricted Subsidiary transfers such property to a Person and Hexion or such Restricted Subsidiary leases it from such Person, other than leases between Hexion and a Restricted Subsidiary of Hexion or between Restricted Subsidiaries of Hexion.

“SEC” means the Securities and Exchange Commission.

“Secured Bank Indebtedness” means any Bank Indebtedness that is secured by a Permitted Lien incurred or deemed incurred pursuant to clause (8) of the definition of Permitted Lien.

224

“Secured Indebtedness” means any Indebtedness secured by a Lien.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.

“Security Documents” means the security agreements, pledge agreements, collateral assignments and related agreements, as amended, supplemented, restated, renewed, refunded, replaced, restructured, repaid, refinanced or otherwise modified from time to time, creating the security intents in the Collateral as contemplated by the Indenture.

“Senior Credit Documents” means the collective reference to the Credit Agreement, the notes issued pursuant thereto and the guarantees thereof, and the collateral documents relating thereto, as amended, supplemented, restated, renewed, refunded, replaced, restructured, repaid, refinanced or otherwise modified from time to time.

“Significant Subsidiary” means any Restricted Subsidiary that would be a “Significant Subsidiary” of Hexion within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC.

“Similar Business” means a business, the majority of whose revenues are derived from the activities of Hexion and its Subsidiaries as of the Acquisition Date or any business or activity that is reasonably similar thereto or a reasonable extension, development or expansion thereof or ancillary thereto.

“Sponsor” means Apollo Management, L.P., one or more investment funds controlled by Apollo Management, L.P. and any of their respective Affiliates.

“Standard Securitization Undertakings” means representations, warranties, covenants, indemnities and guarantees of performance entered into by Hexion or any Subsidiary of Hexion which Hexion has determined in good faith to be customary in a Receivables Financing including those relating to the servicing of the assets of a Receivables Subsidiary, it being understood that any Receivables Repurchase Obligation shall be deemed to be a Standard Securitization Undertaking.

“Stated Maturity” means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred).

“Stock Purchase Agreement” means the Stock Purchase Agreement dated as of July 5, 2004, among BHI Investment, LLC, a Delaware limited liability company, BW Holdings LLC, a Delaware limited liability company, Borden Holdings, Inc., Borden Chemical, Inc., the predecessor to Hexion, Craig O. Morrison and Joseph P. Bevilaqua, as amended up to and including the Issue Date.

“Subordinated Indebtedness” means (a) with respect to the Issuers, any Indebtedness of such Issuer which is by its terms subordinated in right of payment to the Notes, and (b) with respect to any Guarantor, any Indebtedness of such Guarantor which is by its terms subordinated in right of payment to its Guarantee.

“Subsidiary” means, with respect to any Person (1) any corporation, association or other business entity (other than a partnership, joint venture or limited liability company) of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time of determination owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof, and (2) any partnership, joint venture or limited liability company of which (x) more than 50% (or in the case of HAI,

225

50% or more) of the capital accounts, distribution rights, total equity and voting interests or general and limited partnership interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof, whether in the form of membership, general, special or limited partnership interests or otherwise, and (y) such Person or any Restricted Subsidiary of such Person is a controlling general partner or otherwise controls such entity (or, in the case of HAI, such Person or any Restricted Subsidiary of such Person has the right to designate at least 50% of the members of the board of directors of such entity).

“Subsidiary Guarantor” means any Restricted Subsidiary that Incurs a Guarantee; provided, however, that upon the release or discharge of such Restricted Subsidiary from its Guarantee in accordance with the Indenture, such Restricted Subsidiary will cease to be a Subsidiary Guarantor.

“Tax Distributions” means any dividends and distributions described in clause (b)(12) of the covenant described under “—Certain Covenants—Limitation on Restricted Payments.”

“TIA” means the Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date of the Indenture.

“Total Assets” means the total consolidated assets of Hexion and its Restricted Subsidiaries, as shown on the most recent balance sheet of Hexion.

“Treasury Rate” means with respect to the Fixed Rate Notes, as of the applicable redemption date, the yield to maturity as of such redemption date of constant maturity United States Treasury securities (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two business days prior to such redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from such redemption date to July 15, 2009; provided, however, that if no published maturity exactly corresponds with such date, then the Treasury Rate shall be interpolated or extrapolated on a straight-line basis from the arithmetic mean of the yields for the next shortest and next longest published maturities; provided further, however, that if the period from such redemption date to July 15, 2009 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.

“Trust Officer” means:

(1) any officer within the corporate trust department of the Trustee, including any vice president, assistant vice president, assistant secretary, assistant treasurer, trust officer or any other officer of the Trustee who customarily performs functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of such person’s knowledge of and familiarity with the particular subject, and

(2) who shall have direct responsibility for the administration of the Indenture.

“Trustee” means the respective party named as such in the Indenture until a successor replaces it and, thereafter, means the successor.

“Uniform Commercial Code” means the New York Uniform Commercial Code as in effect from time to time.

“Unrestricted Subsidiary” means:

(1) any Subsidiary of Hexion that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors of Hexion in the manner provided below; and

(2) any Subsidiary of an Unrestricted Subsidiary.

226

The Board of Directors of Hexion may designate any Subsidiary of Hexion (including any newly acquired or newly formed Subsidiary of Hexion but excluding the Issuers) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Equity Interests or Indebtedness of, or owns or holds any Lien on any property of, Hexion or any other Subsidiary of Hexion that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that the Subsidiary to be so designated and its Subsidiaries do not at the time of designation have and do not thereafter Incur any Indebtedness pursuant to which the lender has recourse to any of the assets of Hexion or any of its Restricted Subsidiaries; provided further, however, that either:

(a) the Subsidiary to be so designated has total consolidated assets of $1,000 or less; or

(b) if such Subsidiary has consolidated assets greater than $1,000, then such designation would be permitted under the covenant described under “—Certain Covenants—Limitation on Restricted Payments.”

The Board of Directors of Hexion may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation:

(x)(1) Hexion could Incur $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test described under “—Certain Covenants—Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock,” or (2) the Fixed Charge Coverage Ratio for Hexion and its Restricted Subsidiaries would be greater than such ratio for Hexion and its Restricted Subsidiaries immediately prior to such designation, in each case on a pro forma basis taking into account such designation, and

(y) no Event of Default shall have occurred and be continuing.

Any such designation by the Board of Directors of Hexion shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors of Hexion giving effect to such designation and an Officers’ Certificate certifying that such designation complied with the foregoing provisions.

“U.S. Issuer” means Hexion U.S. Finance Corp., a Delaware corporation, and any successor in interest thereto.

“Voting Stock” of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.

“Weighted Average Life to Maturity” means, when applied to any Indebtedness or Disqualified Stock, as the case may be, at any date, the quotient obtained by dividing (1) the sum of the products of the number of years from the date of determination to the date of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Disqualified Stock multiplied by the amount of such payment, by (2) the sum of all such payments.

“Wholly Owned Restricted Subsidiary” is any Wholly Owned Subsidiary that is a Restricted Subsidiary.

“Wholly Owned Subsidiary” of any Person means a Subsidiary of such Person 100% of the outstanding Capital Stock or other ownership interests of which (other than directors’ qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person and one or more Wholly Owned Subsidiaries of such Person.

227

CERTAIN TAX CONSEQUENCES

General

The following is a summary of material U.S. federal income tax consequences of the exchange of old notes for exchange notes pursuant to the exchange offer, but does not address any other aspects of U.S. federal income tax consequences to holders of old notes or exchange notes. This summary is based upon the Internal Revenue Code of 1986, as amended, existing and proposed regulations thereunder, and published rulings and court decisions, all as in effect and existing on the date hereof and all of which are subject to change at any time, which change may be retroactive. This summary is not binding on the Internal Revenue Service or on the courts, and no ruling will be requested from the Internal Revenue Service on any issues described below. There can be no assurance that the Internal Revenue Service will not take a different position concerning the matters discussed below and that such positions of the Internal Revenue Service would not be sustained.

Except as expressly stated otherwise, this summary applies only to U.S. holders that exchange old notes for exchange notes in the exchange offer and who hold the old notes as capital assets. It does not address the tax consequences to taxpayers who are subject to special rules (such as financial institutions, tax-exempt organizations and insurance companies). A “U.S. holder” means a beneficial owner of a note who purchased the notes pursuant to the offering and is, for U.S. federal income tax purposes

• a citizen or resident of the United States;

• a corporation, partnership or other entity created or organized in or under the laws of the United States or

• any political subdivision thereof;

• an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

• a trust if

• a court within the United States is able to exercise primary supervision over the administration of the trust and

• one or more U.S. fiduciaries have the authority to control all substantial decisions of the trust.

Persons considering the exchange of old notes for exchange notes should consult their own tax advisors concerning the U.S. federal income tax consequences in light of their particular situations as well as any consequences arising under the laws of any other taxing jurisdiction.

Exchange of an old note for an exchange note pursuant to the exchange offer

The exchange by any holder of an old note for an exchange note should not constitute a taxable exchange for U.S. federal income tax purposes. Consequently, no gain or loss will be recognized by holders that exchange old notes for exchange notes pursuant to the exchange offer. For purposes of determining gain or loss upon the subsequent sale or exchange of exchange notes, a holder’s tax basis in an exchange will be the same as such holder’s tax basis in the old note exchanged therefor. Holders will be considered to have held the exchange notes from the time of their acquisition of the old notes.

Certain Canadian Tax Consequences to Non-Canadian Holders

The following is a general summary of the principal Canadian federal income tax considerations pursuant to the Income Tax Act (Canada) (the “Tax Act”) generally applicable to the purchase, ownership, and disposition of a new note acquired at the initial issue price in the offering. This summary is applicable to a beneficial owner of a new note who deals at arms length with the issuers and holds (or will hold) the new notes as capital property. The new notes will generally be considered to constitute capital property to a holder provided the holder does not

228

hold the new notes in the course of carrying on a business and has not acquired them in one or more transactions considered to be an adventure in the nature of trade. This summary is applicable only to a holder who, at all relevant times, for the purposes of the Tax Act and any applicable income tax convention, is neither resident nor deemed to be resident in Canada and who does not use or hold and is not deemed to use or hold the new notes in carrying on a business in Canada. Special rules, which are not discussed in this summary, may apply to a non-resident that is an insurer carrying on business in Canada and elsewhere.

This summary is based on the current provisions of the Tax Act and the regulations thereunder, specific proposals to amend the Tax Act and regulations thereunder publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date hereof (the “Proposed Amendments”) and the current published administrative and assessing practices and policies of the Canada Revenue Agency. This summary does not take into account or anticipate any changes in law other than the Proposed Amendments, whether by legislative, regulatory, administrative or judicial action, nor does it take into account provincial, territorial or foreign income tax legislation or considerations which may differ significantly from those discussed herein.

This summary is of a general nature only and is not a complete analysis of the tax considerations that may be applicable to a prospective investor. It is not intended to be, nor should it be construed to be, legal or tax advice to any particular investor. Therefore, prospective investors should consult their own tax advisors with respect to their particular circumstances.

Under the Tax Act, provided that the exchange of notes pursuant to the registered exchange offer does not constitute a repayment under the commercial laws of the jurisdiction which governs the notes, the payment of interest, principal and premium in respect of the new notes will be exempt from Canadian withholding tax.

No other taxes on income (including taxable capital gains) will be payable under the Tax Act in respect of the acquisition, holding, redemption or disposition of the new notes or the receipt of interest, principal and premium thereon solely as a consequence of such acquisition, holding redemption or disposition.

229

PLAN OF DISTRIBUTION

Until 90 days after the date of this prospectus, all dealers effecting transactions in the exchange notes, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for old notes only where such old notes were acquired as a result of market-making activities or other trading activities. We have agreed that, for a period of 180 days from the date on which the exchange offer is consummated, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until                     , 2005, all dealers effecting transactions in the exchange notes may be required to deliver a prospectus.

We will not receive any proceeds from any sale of exchange notes by broker-dealers. Exchange notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the exchange notes or a combination of such methods of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any exchange notes. Any broker-dealer that resells exchange notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such exchange notes may be deemed to be an “underwriter” within the meaning of the Securities Act and any profit on any such resale of exchange notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act.

For a period of 180 days from the date on which the exchange offer is consummated, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests such documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer, other than commissions or concessions of any broker-dealers and will indemnify the holders of the notes, including any broker-dealers, against certain liabilities, including liabilities under the Securities Act.

230

LEGAL MATTERS

The validity of the exchange notes will be passed upon for us by O’Melveny & Myers LLP, New York, New York. Stewart Mckelvey Stirling Scales will pass on matters if Nova Scotia law. Connell Foley LLP will pass on matters of New Jersey law.

EXPERTS

The audited consolidated financial statements of Hexion Specialty Chemicals, Inc. as of December 31, 2004 and 2003 and for each of the three years in the period ended December 31, 2004, included in this prospectus, except as they relate to Borden Chemical, Inc., have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report thereon appears herein. Such financial statements have been so included in reliance on the report of such registered public accounting firm given on the authority of said firm as experts in auditing and accounting.

The consolidated financial statements of Borden Chemical, Inc. as of December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003, and the consolidated/combined financial statements of Borden Chemical Canada, Inc. as of December 31, 2004 and 2003, and for each of the three years in the period ended December 31, 2004, included in this prospectus; the consolidated financial statements of Borden Chemical, Inc. as of December 31, 2004, and for the period from August 12, 2004 to December 31, 2004, not presented separately herein; and the related financial statement schedule of Borden Chemical, Inc. included elsewhere in the registration statement have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their reports appearing herein and elsewhere in the registration statement (which reports as to (1) Borden Chemical, Inc. for each of the three years in the period ended December 31, 2003, and (2) Borden Chemical Canada, Inc. express an unqualified opinion and include an explanatory paragraph referring to the adoption in 2002 of Statement of Financial Accounting Standards No. 142; and which report as to Borden Chemical, Inc. for the period from August 12, 2004 to December 31, 2004, expresses an unqualified opinion and includes an explanatory paragraph regarding the restatement of the balance sheet) and have been so included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.

The financial statements of the Resins, Inks and Monomers Business of Eastman Chemical Company as of December 31, 2003 and for each of the two years in the period ended December 31, 2003 and the seven months ended July 31, 2004 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

The combined financial statements of the Resin Business of the Bakelite Group as of December 31, 2004 and 2003 and for each of the three years in the period ended December 31, 2004, included in this prospectus, have been so included in reliance on the report of PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.

231

WHERE YOU CAN FIND MORE INFORMATION

We will be required to file annual and quarterly reports and other information with the SEC after the registration statement described below is declared effective by the SEC. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C., 20549. Please call 1-800-SEC-0330 for further information on the operation of the Public Reference Room. Our filings will also be available to the public from commercial document retrieval services and at the web site maintained by the SEC at http://www.sec.gov.

We have filed a registration statement on Form S-4 to register with the SEC the exchange notes to be issued in exchange for the old notes. This prospectus is part of that registration statement. As allowed by the SEC’s rules, this prospectus does not contain all of the information you can find in the registration statement or the exhibits to the registration statement. You should note that where we summarize in this prospectus the material terms of any contract, agreement or other document filed as an exhibit to the registration statement, the summary information provided in the prospectus is less complete than the actual contract, agreement or document. You should refer to the exhibits filed to the registration statement for copies of the actual contract, agreement or document.

We have not authorized anyone to give you any information or to make any representations about us or the transactions we discuss in this prospectus other than those contained in this prospectus. If you are given any information or representations about these matters that is not discussed in this prospectus, you must not rely on that information. This prospectus is not an offer to sell or a solicitation of an offer to buy securities anywhere or to anyone where or to whom we are not permitted to offer or sell securities under applicable law.

232

INDEX TO FINANCIAL STATEMENTS

	Page
Hexion Specialty Chemicals
Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operations and Comprehensive Loss:
For the nine months ended September 30, 2005 and 2004	F-4
Condensed Consolidated Balance Sheets:
As of September 30, 2005 and December 31, 2004	F-5
Condensed Consolidated Statements of Cash Flows:
For the nine months ended September 30, 2005 and 2004	F-7
Condensed Consolidated Statements of Common Stock and Other Shareholders’ Deficit:
For the nine months ended September 30, 2005	F-8
Notes to Condensed Consolidated Financial Statements:
For the nine months ended September 30, 2005 and 2004	F-9
Audited Financial Statements
Report of Independent Registered Public Accounting Firm	F-43
Consolidated Statements of Operations:
For the years ended December 31, 2004, 2003 and 2002	F-44
Consolidated Balance Sheets:
As of December 31, 2004 and 2003	F-45
Consolidated Statements of Cash Flows:
For the years ended December 31, 2004, 2003 and 2002	F-47
Consolidated Statements of Shareholders’ Equity (Deficit):
For the years ended December 31, 2004, 2003 and 2002	F-48
Notes to the Consolidated Financial Statements:
For the years ended December 31, 2004, 2003, and 2002	F-49
Schedule II—Valuation and Qualifying Accounts	S-2
Borden Chemical, Inc.
Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income:
For the six months ended June 30, 2004 and 2003	F-103
Condensed Consolidated Balance Sheet:
As of June 30, 2004	F-104
Condensed Consolidated Statements of Cash Flows:
For the six months ended June 30, 2004 and 2003	F-106
Condensed Consolidated Statement of Shareholders’ Deficit:
For the six months ended June 30, 2004	F-107
Notes to Condensed Consolidated Financial Statements:
For the six months ended June 30, 2004 and 2003	F-108

F-1

	Page
Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F-129
Consolidated Statements of Operations and Comprehensive Income (Loss):
For the years ended December 31, 2003, 2002 and 2001	F-130
Consolidated Balance Sheets:
As of December 31, 2003 and 2002	F-131
Consolidated Statements of Cash Flows:
For the years ended December 31, 2003, 2002 and 2001	F-133
Consolidated Statements of Shareholders’ Deficit:
For the years ended December 31, 2003, 2002 and 2001	F-134
Notes to Consolidated Financial Statements:
For the years ended December 31, 2003, 2002, and 2001	F-136
Report of Independent Registered Public Accounting Firm:
For the period from August 12, 2004 to December 31, 2004	F-192
Hexion Specialty Chemicals Canada, Inc. and Subsidiaries
Unaudited Condensed Consolidated Financial Statements
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss:
For the nine months ended September 30, 2005 and 2004	F-194
Unaudited Condensed Consolidated Balance Sheets:
As of September 30, 2005 and December 31, 2004	F-195
Unaudited Condensed Consolidated Statements of Cash Flows:
For the nine months ended September 30, 2005 and 2004	F-196
Unaudited Condensed Consolidated Statement of Shareholder’s Equity (Deficit):
For the nine months ended September 30, 2005	F-197
Notes to the Unaudited Condensed Consolidated Financial Statements:
For the nine months ended September 30, 2005 and 2004	F-198
Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F-206
Consolidated/Combined Statements of Operations and Comprehensive (Loss) Income:
For the years ended December 31, 2004, 2003 and 2002	F-207
Consolidated/Combined Balance Sheets:
As of December 31, 2004 and 2003	F-208
Consolidated/Combined Statements of Cash Flows:
For the years ended December 31, 2004, 2003 and 2002	F-210
Consolidated/Combined Statements of Shareholder’s (Deficit) Equity:
For the years ended December 31, 2004, 2003 and 2002	F-211
Notes to Consolidated/Combined Financial Statements:
For the years ended December 31, 2004, 2003 and 2002	F-212
Resins, Inks and Monomers Business of Eastman Chemical Company Combined Financial Statements
Report of Independent Auditors	F-238
Combined Statements of Operations:
For the years ended December 31, 2002 and 2003 and for the period from January 1, 2004 through July 31, 2004	F-240
Combined Balance Sheets:
As of December 31, 2003	F-241

F-2

	Page
Combined Statements of Cash Flows:
For the years ended December 31, 2002 and 2003 and for the period from January 1, 2004 through July 31, 2004	F-242
Combined Statements of Owner’s Equity (Deficit) and Comprehensive Income (Loss):
For the years ended December 31, 2002 and 2003 and for the period from January 1, 2004 through July 31, 2004	F-243
Notes to Combined Financial Statements	F-244
Resin Business of the Bakelite Group
Unaudited Combined Financial Statements
Unaudited Combined Statements of Operations for the three months ended March 31, 2005 and 2004	F-250
Unaudited Combined Balance Sheet as of March 31, 2005 and Audited Combined Balance Sheet as of December 31, 2004	F-251
Unaudited Combined Statements of Changes in Owner’s Net Investment and Comprehensive Income (Loss) for the three months ended March 31, 2005	F-252
Unaudited Combined Statements of Cash Flows for the three months ended March 31, 2005 and 2004	F-253
Notes to the Unaudited Combined Interim Financial Statements	F-254
Audited Combined Financial Statements
Report of Independent Auditors	F-272
Combined Statements of Operations for the years ended December 31, 2004, 2003 and 2002	F-273
Combined Balance Sheets as of December 31, 2004 and 2003	F-274
Combined Statements of Changes in Owner’s Net Investment and Comprehensive Income (Loss) for the years ended December 31, 2004, 2003 and 2002	F-275
Combined Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002	F-276
Notes to the Combined Financial Statements	F-277

F-3

HEXION SPECIALTY CHEMICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

	Nine Months ended September 30,
	2005			2004
	(In millions, except share and per share data)
Net sales	$	3,317		$	1,081
Cost of sales		2,831			968
Gross profit		486			113
Selling, general & administrative expense (See Note 12)		290			98
Transaction related costs (See Note 1)		34			47
Other operating expense		(4	)		—
Operating income (loss)		166			(32	)
Interest expense		152			73
Write-off of deferred financing fees (See Note 6)		17			—
Other non-operating expense, net		14			—
Loss from continuing operations before income tax and minority interest		(17	)		(105	)
Income tax expense (benefit)		43			(4	)
Loss from continuing operations before minority interest		(60	)		(101	)
Minority interest in net income (loss) of consolidated subsidiaries		3			(7	)
Loss from continuing operations		(63	)		(94	)
Loss from discontinued operations (See Note 4)		10			—
Net loss		(73	)		(94	)
Redeemable preferred stock accretion (See Note 9)		18			—
Net loss available to common shareholders	$	(91	)	$	(94	)
Comprehensive loss	$	(127	)	$	(90	)
Basic and Diluted Per Share Data
Loss from continuing operations (See Note 2)	$	(0.98	)	$	(1.14	)
Loss from discontinued operations		(0.12	)		—
Net loss available to common shareholders	$	(1.10	)	$	(1.14	)
Dividends (See Note 11)	$	6.66		$	—
Average number of common shares outstanding during the period – basic and diluted		82,629,906			82,629,906

See Notes to Condensed Consolidated Financial Statements

F-4

HEXION SPECIALTY CHEMICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

	September 30, 2005			December 31, 2004
	(In millions)
ASSETS
Current Assets
Cash and equivalents	$	164		$	152
Accounts receivable (less allowance for doubtful accounts of $22 in 2005 and $15 in 2004)		607			518
Inventories:
Finished and in-process goods		296			290
Raw materials and supplies		156			115
Other current assets		148			64
		1,371			1,139
Other Assets		99			95
Property and Equipment
Land		56			44
Buildings		225			201
Machinery and equipment		1,747			1,706
		2,028			1,951
Less accumulated depreciation		(617	)		(628	)
		1,411			1,323
Goodwill		146			51
Other Intangible Assets, net		170			88
Total Assets	$	3,197		$	2,696

See Notes to Condensed Consolidated Financial Statements

F-5

HEXION SPECIALTY CHEMICALS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS—(Continued)

(unaudited)

	September 30, 2005			December 31, 2004
	(In millions, except share and per share data)
LIABILITIES, REDEEMABLE PREFERRED STOCK, COMMON STOCK AND OTHER SHAREHOLDERS’ DEFICIT
Current Liabilities
Accounts and drafts payable	$	440		$	488
Debt payable within one year		61			16
Interest payable		50			36
Income taxes payable		65			33
Other current liabilities		220			133
		836			706
Other Liabilities
Long-term debt		2,306			1,834
Non-pension postemployment benefit obligations		137			142
Deferred income taxes		155			131
Other long-term liabilities		267			138
		2,865			2,245
Minority interest in consolidated subsidiaries		11			54
Commitments and Contingencies (See Note 8)
Redeemable Preferred Stock - $0.01 par value; liquidation preference $25 per share; 60,000,000 shares authorized, 14,000,000 issued and outstanding at September 30, 2005 (See Note 9)		352			—
Common Stock and Other Shareholders’ Deficit
Common stock - $0.01 par value; 300,000,000 shares authorized, 170,678,965 issued, 88,049,059 treasury and 82,629,906 outstanding at September 30, 2005 and December 31, 2004 (See Note 11)		1			1
Paid-in capital		525			1,523
Treasury stock		(296	)		(296	)
Receivable from parent		—			(561	)
Accumulated other comprehensive (loss) income		(39	)		20
Accumulated deficit		(1,058	)		(996	)
		(867	)		(309	)
Total Liabilities, Redeemable Preferred Stock, Common Stock and Other Shareholders’ Deficit	$	3,197		$	2,696

See Notes to Condensed Consolidated Financial Statements

F-6

HEXION SPECIALTY CHEMICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

	Nine months ended September 30,
	2005			2004
	(In millions)
Cash Flows from (used in) Operating Activities
Net loss	$	(73	)	$	(94	)
Adjustments to reconcile net loss to net cash from (used in) operating activities:
Depreciation and amortization		111			54
Unrealized translation loss		5			—
Minority interest in net loss (income) of consolidated subsidiaries		3			(7	)
Stock based compensation expense (See Note 12)		10			2
Deferred tax benefit		(4	)		(14	)
Write-off of deferred financing fees (See Note 6)		11			—
Other non-cash adjustments		6			—
Net change in assets and liabilities:
Accounts receivable		(1	)		(75	)
Inventories		61			(42	)
Accounts and drafts payable		(93	)		92
Income taxes		74			9
Other assets		(11	)		9
Other liabilities		4			(11	)
		103			(77	)
Cash Flows (used in) from Investing Activities
Capital expenditures		(63	)		(29	)
Acquisition of businesses, net of cash acquired		(234	)		(152	)
Proceeds from the sale of business, net of cash		3			—
Cash combination of BCI		—			185
Proceeds from the sale of assets		—			4
		(294	)		8
Cash Flows from (used in) Financing Activities
Net short-term repayments		(12	)		(6	)
Borrowings of long-term debt		1,194			183
Repayments of long-term debt		(754	)		(111	)
Payment of dividends		(523	)		—
Proceeds from issuance of preferred stock, net of issuance costs (See Note 9)		334			—
Long-term debt and credit facility financing fees paid		(22	)		—
IPO related costs (See Note 1)		(8	)		—
Proceeds from the issuance of common stock		—			60
		209			126
Effect of exchange rates on cash and equivalents		(6	)		1
Increase in cash and equivalents		12			58
Cash and equivalents at beginning of period		152			49
Cash and equivalents at end of period	$	164		$	107
Supplemental Disclosures of Cash Flow Information
Cash paid:
Interest, net	$	134		$	74
Income taxes, net		4			3
Non-cash activity:
Settlement of note receivable from parent	$	581		$	—
Unpaid common stock dividends declared		27			—
Redeemable preferred stock accretion (See Note 9)		18			—
Issuance of note in RSM Transaction		—			50

See Notes to Condensed Consolidated Financial Statements

F-7

HEXION SPECIALTY CHEMICALS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMMON STOCK AND OTHER SHAREHOLDERS’ DEFICIT

(unaudited)

	Common Stock		Paid-in Capital			Treasury Stock			Receivable from Parent			Accumulated Other Comprehensive Income (Loss) (a)			Accumulated Deficit			Total
	(In millions)
Balance, December 31, 2004	$	1	$	1,523		$	(296	)	$	(561	)	$	20		$	(996	)	$	(309	)
Net loss		—		—			—			—			—			(73	)		(73	)
Translation adjustments		—		—			—			—			(54	)		—			(54	)
Comprehensive loss		—		—			—			—			—			—			(127	)
Interest accrued on notes from parent of BCI (See Note 11)		—		20			—			(20	)		—			—			—
Stock based compensation expense (See Note 12)		—		10			—			—			—			—			10
Redeemable preferred stock accretion (See Note 9)		—		(18	)		—			—			—			—			(18	)
Purchase accounting related to acquisition of minority interests (See Note 3)		—		121			—			—			(5	)		11			127
Effect of Combinations (See Note 11)		—		(581	)		—			581			—			—			—
Dividends declared (See Note 11)		—		(550	)		—			—			—			—			(550	)
Balance, September 30, 2005	$	1	$	525		$	(296	)	$	—		$	(39	)	$	(1,058	)	$	(867	)

(a) Accumulated other comprehensive income (loss) at September 30, 2005 includes a $42 net gain on foreign currency translation, $5 net loss from purchase accounting adjustments related to the acquisition of minority interests and a $76 net loss relating to the Company’s minimum pension liability adjustment. Accumulated other comprehensive income at December 31, 2004 represents $96 of net foreign currency translation gains and a $76 net loss relating to the Company’s minimum pension liability adjustment.

See Notes to Condensed Consolidated Financial Statements

F-8

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements

(Dollars in millions, except share amounts and as otherwise indicated)

1. Background and Nature of Operations

Hexion Specialty Chemicals, Inc. (“Hexion” or “the Company”) is engaged in the manufacture and marketing of resins, inks, coating and adhesive resins, formaldehyde, oilfield products and other specialty and industrial chemicals worldwide. Hexion was formed on May 31, 2005 upon the combination of three Apollo Management, L.P. (“Apollo”) controlled companies (the “Combinations”), Resolution Performance Products, LLC (“RPP”), Resolution Specialty Materials, Inc. (“RSM Inc.”) and Borden Chemical, Inc. (“BCI”). Apollo acquired RPP on November 14, 2000, formed RSM Inc. and purchased the Specialty Resins and Monomers and Ink business of Eastman Chemical Company (“Eastman”) on August 2, 2004 through a subsidiary (the “RSM Transaction”), Resolution Specialty Materials, LLC (“RSM”), and acquired BCI on August 12, 2004. Upon consummation of the Combinations, BCI changed its name to Hexion Specialty Chemicals, Inc., and BHI Acquisition LLC (“BHI Acquisition”), BCI’s parent, changed its name to Hexion LLC. Prior to the Combinations, on April 29, 2005, a subsidiary of BCI completed its acquisition of Bakelite Aktiengesellschaft (“Bakelite”) (See Note 3). At September 30, 2005, the Company, including Bakelite, has 86 production, manufacturing and distribution facilities, of which 37 are located in the U.S.

The Company has incurred costs totaling approximately $34 in connection with the Combinations, during the nine months ended September 30, 2005, primarily for accounting, consulting, legal and contract termination fees. As this transaction is considered a merger of entities under common control, in accordance with FASB Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations” (“ SFAS 141”), these costs have been expensed as incurred and are included in the 2005 Condensed Consolidated Statements of Operations as Transaction related costs.

In the third quarter of 2004, as a result of the acquisitions of RSM and BCI by Apollo, the Company incurred Transaction related costs of $47. This amount included charges for accounting and legal fees, fees paid to Apollo, payments for cancellation of restricted stock and management bonuses pertaining to the activity. See Note 3.

On April 25, 2005, the Company filed a registration statement, which is not yet effective, with the U.S. Securities and Exchange Commission (the “SEC”) for a proposed IPO of its common stock. The Company subsequently filed five amendments to its registration statement on May 2, 2005, June 13, 2005, July 15, 2005, August 26, 2005 and September 19, 2005.

The Company has incurred costs totaling approximately $8 in connection with the proposed IPO during the nine months ended September 30, 2005, primarily for accounting and legal fees. As the costs of issuing common stock are considered a reduction of the related proceeds of the offering, these costs have been deferred within Other assets on the September 30, 2005 Condensed Consolidated Balance Sheet until the IPO is effected.

2. Basis of Presentation

Prior to the Combinations, RPP, RSM Inc. and BCI were considered entities under the common control of Apollo affiliates as defined in Emerging Issues Task Force Issue No. 02-5, Definition of Common Control in Relation to FASB Statement of Financial Accounting Standards No. 141, “Business Combinations”. As a result of the Combinations the financial statements of these entities are presented retroactively on a consolidated basis in a manner similar to a pooling of interests, and include the results of operations of each business only from the date of acquisition by the Apollo affiliates.

The accompanying unaudited Hexion Financial Statements include the following entities: RPP and its majority-owned subsidiaries as of September 30, 2005 and December 31, 2004 and for the nine months ended September 30, 2005 and 2004; RSM Inc. and its majority-owned subsidiaries as of September 30, 2005 and

F-9

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

December 31, 2004, for the nine months ended September 30, 2005, and from the date of acquisition for 2004; and BCI and its majority-owned subsidiaries (which includes Bakelite since the date of acquisition) as of September 30, 2005 and December 31, 2004, for the nine months ended September 30, 2005, and from the date of acquisition for 2004. RPP, RSM Inc. and Bakelite reflect the purchase method of accounting. BCI elected not to apply push-down accounting because it was a public reporting registrant as a result of public debt that was outstanding prior and subsequent to the acquisition by Apollo. In the opinion of management, all adjustments, consisting only of normal, recurring adjustments considered necessary for a fair presentation, have been included. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these unaudited Financial Statements be read in conjunction with the financial statements, accounting policies and notes included in the Company’s audited financial statements for the year ended December 31, 2004. Results for the interim periods are not necessarily indicative of results for the full year.

The following is an update of the significant accounting policies followed by the Company:

Principles of Consolidation—The Consolidated financial statements include the accounts of RPP, RSM Inc., BCI and Bakelite and their majority-owned subsidiaries in which no substantive participating rights are held by minority shareholders, after elimination of intercompany accounts and transactions. The Company’s share of the net earnings of 20% to 50% owned companies, for which it has the ability to exercise significant influence over operating and financial policies, are included in income on an equity basis. Investments of other companies are carried at cost.

The Company has recorded a minority interest for the equity interests in subsidiaries that are not 100% owned by the Company. At December 31, 2004, the minority interest primarily reflected the equity interest in RPP and RSM held by management and other third-parties. On May 31, 2005, the RPP and RSM minority interests were purchased in connection with the Combinations and recorded as a step acquisition (See Note 3). At September 30, 2005, the minority interest primarily reflects the Company’s ownership interest in HA-International, LLC (“HAI”), a joint venture between the Company and Delta-HA, Inc.

Loss Per Share—As a result of the Combinations, the Company’s capital structure consists of 82,629,906 shares outstanding (See Note 11). For purposes of calculating loss per share, 82,629,906 was used as the number of outstanding shares for all periods presented as no new shares were issued as a result of the legal merger of RPP, RSM and BCI. This presentation reflects the post-merger capital structure of the Company for all periods on a consistent basis. The Company did not have any potentially dilutive instruments outstanding for any periods.

The Company’s loss per share is calculated as follows:

	Nine Months ended September 30,
	2005			2004
Loss from continuing operations	$	(63	)	$	(94	)
Deduct: Redeemable preferred stock accretion		(18	)		—
Loss from continuing operations available to common shareholders	$	(81	)	$	(94	)
Per share – Loss from continuing operations available to common shareholders	$	(0.98	)	$	(1.14	)
Average number of common shares outstanding during the period – basic and diluted		82,629,906			82,629,906

Stock-Based Compensation—Effective January 1, 2005, the Company elected to adopt SFAS No. 123(R) (revised 2004), Share-Based Payment. Under the provisions of SFAS No. 123(R), stock-based compensation cost

F-10

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

is measured at the grant date based on the value of the award and is recognized as expense over the requisite service period. As the Company was considered a nonpublic entity, at the date of adoption, that used the minimum value method for pro forma disclosures under SFAS No. 123, Accounting for Stock-Based Compensation, the Company is required to apply the prospective transition method. As such, the Company applies the statement to any new awards and to any awards modified, repurchased or cancelled since January 1, 2005. The adoption of SFAS No. 123(R) had no initial impact on the Company’s financial condition and results of operations.

Previously, the Company accounted for stock based awards under APB No. 25 and applied the minimum value method to determine fair value for disclosure requirements under SFAS No. 123. As of September 30, 2005, all awards outstanding are accounted for under SFAS No. 123(R). See Note 12.

The following table sets forth the required reconciliation of reported and pro forma net loss and earnings per share (“EPS”) under SFAS No. 148:

	Nine Months Ended September 30, 2004
Net loss, as reported	$	(94	)
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		6
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(3	)
Pro forma net loss	$	(91	)
Average number of common shares outstanding—basic and diluted		82,629,906
Per share, as reported (basic and diluted)	$	(1.14	)
Per share, pro forma (basic and diluted)	$	(1.10	)

To determine pro forma compensation cost for the plans in accordance with SFAS No. 123, the fair value of each option grant was estimated at the date of the grant using the minimum value method and the Black-Scholes options pricing model with the following weighted average rates, dividend rates and expected lives for each of the Company’s respective plans:

	2004
	RPP			RSM			BCI
Risk-free weighted average interest rate		4.50	%		3.90	%		3.54	%
Dividend Rate		0	%		0	%		0	%
Expected life		7.0 years			6.3 years			5.0 years
Estimated fair value of options grants (a)	$	—		$	0.77		$	1.01

(a) Fair value of option grants reflects the post-contribution equivalent Hexion LLC common units giving effect to the reverse split (Note 12)

Recently Issued Accounting Standards

In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143. This Interpretation clarifies that the term “conditional asset retirement obligation” as used in FASB No. 143, Accounting for Asset Retirement Obligations, refers to a

F-11

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation, when incurred, if the fair value of the liability can be reasonably estimated. The Interpretation is effective for the Company no later than the end of the fiscal year ending on December 31, 2005. The Company does not expect this Interpretation to have a material effect on its financial condition or results of operations.

In June 2005, the FASB staff issued FASB Staff Position 143-1, Accounting for Electronic Equipment Waste Obligations (FSP 143-1), to address the accounting for obligations associated with the Directive 2002/96/EC on Waste Electrical and Electronic Equipment (the “Directive”) adopted by the European Union. The Directive effectively obligates a commercial user to incur costs associated with the retirement of a specified asset that qualifies as historical waste equipment. The commercial user should apply the provisions of SFAS 143 and FIN 47 discussed above. FSP 143-1 shall be applied the later of the first reporting period ending after June 8, 2005 or the date of the adoption of the law by the applicable EU-member country. We adopted the FSP at certain of our European operations where applicable legislation was adopted. The impact of the adoption on the consolidated financial statements was not significant.

3. Business Acquisitions and Divestitures

Acquisition of RSM

On August 2, 2004 (the Closing Date), RSM, as assignee of RSM Inc., purchased the Specialty Resins and Monomers and Ink businesses of Eastman Chemical Company (“Eastman”) for $192, including direct acquisition costs (“RSM Transaction”).

The RSM Transaction has been accounted for under the purchase method of accounting. The cost of the RSM Transaction was allocated to the assets acquired and liabilities assumed based on estimates of their respective fair values at the date of Acquisition. Fair values were determined based upon appraisals and internal studies. As the fair value of net assets acquired exceeded cost, no goodwill was recorded in the transaction.

The RSM Transaction agreement provides for a seller indemnification (“Eastman Indemnification”), whereby Eastman agreed to indemnify RSM and its affiliates for certain losses and associated expenses occurring within specified time periods. Items covered by the Eastman Indemnification include: (i) breaches by Eastman of its representations, warranties or covenants in the acquisition agreement; (ii) product liability claims brought against the Company that relate to the manufacture, distribution, marketing or sale of any products by the predecessor business that were manufactured prior to the Closing Date and sold within ninety (90) days following the Closing Date (except to the extent that such claims relate to the actions or negligent omissions of RSM or any of its Affiliates following the Closing Date); and (iii) liabilities of Eastman or the predecessor business that were not assumed by RSM in connection with its purchase of the predecessor business.

In connection with the RSM Transaction, RSM Inc. executed a Senior Subordinated Note Purchase Agreement (“Seller Note Financing”) with Eastman on August 2, 2004, which provided for the sale of $50 aggregate principal amount of Senior Subordinated Notes of RSM Inc. to Eastman that are due and payable in 2011. Such notes were delivered to Eastman as partial consideration of the RSM Transaction. These notes were subsequently reapaid when the Company entered a new senior secured credit facility. See Note 6.

F-12

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

The following table summarizes the assets acquired and liabilities assumed at the date of acquisition of RSM.

	RSM at August 1, 2004
Current assets	$	196
Property, plant and equipment		89
Other assets		1
Intangible assets		—
Goodwill		—
Total assets acquired		286
Current liabilities		80
Long-term debt		3
Other liabilities		11
Total liabilities assumed		94
Net assets acquired	$	192

Acquisition of BCI by Apollo

On August 12, 2004, BHI Investment, LLC, an affiliate of Apollo, acquired all of the outstanding capital stock of Borden Holdings, Inc. (“BHI”), BCI’s parent at that time, for total consideration of approximately $1.2 billion, including assumption of debt.

The acquisition of BHI, and the payment of transaction fees and expenses, was financed with the net proceeds of a $475 second-priority senior secured private debt offering (the “Second Priority Notes”) by two newly formed, wholly owned subsidiaries of BCI and certain equity contributions to BHI Acquisition from Apollo. See Note 7. Collectively, these transactions are referred to as the “BCI Transaction.”

Acquisition of Bakelite

On April 29, 2005, Hexion Specialty Chemicals Canada, Inc., a subsidiary of Hexion, through its wholly owned subsidiary, National Borden Chemical Germany GmbH, completed its acquisition of Bakelite pursuant to a share purchase agreement with RÜTGERS AG and RÜTGERS Bakelite Projekt GmbH (collectively, the “Sellers”) dated October 6, 2004 (the “Bakelite Acquisition”) for a net purchase price of approximately €201, or approximately $259, subject to certain adjustments. The Company incurred direct costs associated with the acquisition of $39, which have been capitalized as part of the purchase in accordance with SFAS 141 and are included in the net purchase price. Based in Iserlohn-Letmathe, Germany, Bakelite is a producer of phenolic and epoxy thermosetting resins and molding compounds with 13 manufacturing facilities and 1,700 employees, primarily in Europe and Asia. The acquisition provides the Company with additional phenolic resin technology and products and a new epoxy resin technology platform.

        The Company financed the Bakelite Acquisition through a combination of available cash and a second-priority senior secured bridge loan facility in the amount of $250. The bridge financing arrangement had a variable interest rate equal to LIBOR plus an applicable margin and had a final maturity date of July 15, 2014. The bridge financing arrangement was settled and cancelled on May 31, 2005 using proceeds from the $150 Second-priority senior secured floating rate notes due 2010 and $100 of term loan debt borrowed under the Company’s credit facility (See Note 6). The Bakelite Acquisition has been accounted for under the purchase method of accounting. As such, Bakelite’s results of operations are included in the Company’s Condensed Consolidated Financial Statements (the “Financial Statements”) since the date of acquisition.

F-13

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

On December 14, 2004, in order to mitigate the risk of foreign currency exposure related to the Bakelite Acquisition, the Company entered into a foreign currency forward position of $235 to purchase Euros with U.S. Dollars at a rate of $1.3430, contingent upon the close of the transaction. On March 31, 2005, the Company adjusted the contract to have a target settlement date of April 29, 2005 and a new exchange rate of $1.3446. In conjunction with the consummation of the Bakelite Acquisition, the Company realized an aggregate loss of approximately $9 on this contract, the current year portion of which is included as Other non-operating expense in the Condensed Consolidated Statement of Operations.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. Fair values are based upon preliminary appraisals and internal studies and are subject to final adjustments.

	Fair value at April 29, 2005
Current assets	$	290
Property, plant and equipment		166
Other assets		4
Intangible assets		72
Goodwill		46
Total assets acquired		578
Current liabilities		158
Long-term debt		21
Other liabilities		140
Total liabilities assumed		319
Net assets acquired	$	259

Of the $72 of acquired intangible assets, $19 was assigned to trade names, $16 was assigned to technology and $37 was assigned to customer relationships. The acquired intangible assets with finite lives have a weighted average useful life of approximately 14 years. The trade names have a 30-year useful life, technology has a 13-year useful life and customer relationships have a 14-year weighted average useful life.

The $46 of goodwill was assigned to the Bakelite reportable segment, none of which is expected to be deductible for tax purposes.

Pacific Epoxy Polymers Acquisition

During the second quarter of 2005, the Company acquired certain assets and assumed certain liabilities from Pacific Epoxy Polymers, Inc., a domestic manufacturer of epoxy resins, for an estimated total purchase price of $7. At closing, the Company paid $5 from available cash and issued a note for the remaining $2. This acquisition was accounted for under the purchase method of accounting and the Company has made a preliminary allocation of the purchase price resulting in goodwill of $4 million. The pro forma effects of the acquisition are not material.

Acquisition of RPP and RSM Minority Interests

Upon the Combinations, shares of RPP Inc., the former parent of RPP, and RSM Inc. held by minority shareholders and management were exchanged for shares in Hexion LLC. The minority shareholders and management held ownership interests of 28.2% and 5% for RPP and RSM, respectively, on a fully diluted basis. The acquisition of these ownership interests was accounted for under the purchase method of accounting and pushed-down to the respective acquired businesses.

F-14

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

The following table summarizes the step-up to fair value of the assets acquired and liabilities assumed at the date of acquisition based upon the percentage ownership acquired from the minority shareholders. Fair values are based upon preliminary third party appraisals and internal studies and are subject to final adjustments.

	Incremental fair value at May 31, 2005
Current assets	$	9
Property, plant and equipment		26
Intangible assets		15
Goodwill		50
Other assets		15
Total asset step-up		115
Current liabilities		3
Long-term debt		8
Other liabilities		14
Total liability step-up		25
Net assets stepped-up	$	90

As a result of the exchange of minority interest shares, Shareholders’ Deficit was adjusted by $127, consisting of the $90 step-up to fair value of net assets and a $37 reclassification from minority interest to Paid-in capital. Additionally, $5 and $11 of Accumulated other comprehensive income and Accumulated deficit were reclassified to Paid-in capital to recognize an accumulated negative basis by minority interest holders whose shares were exchanged.

Of the $15 of acquired intangible assets, approximately $13 was assigned to patents and $2 was assigned to trademarks. The acquired intangible assets have a weighed average useful life of 20 years.

Of the $50 of goodwill, $5 was assigned to the RSM-SRM reportable segment, $1 was assigned to the RSM-Inks segment, $22 was assigned to the RPP-Americas segment and $22 was assigned to the RPP-Europe segment. No goodwill is expected to be deductible for tax purposes.

The following unaudited pro forma financial information combines the consolidated results of operations as if the Bakelite Acquisition and the combination of RPP, RSM Inc. and BCI had occurred as of the beginning of the periods presented. Pro forma adjustments include only the effects of events directly attributable to the acquisitions. The pro forma adjustments reflected in the tables below include amortization of intangibles, depreciation adjustments due to the write-up of property, plant and equipment to estimated fair market value, and interest expense on the acquisition debt for the Bakelite Acquisition and related income tax effects.

	Nine Months ended September 30,
	2005			2004
Net sales	$	3,564		$	2,983
Loss from continuing operations		(71	)		(340	)
Net loss		(81	)		(340	)
Basic and Diluted Share Data
Loss from continuing operations	$	(1.08	)	$	(4.11	)
Net loss		(1.20	)		(4.11	)

F-15

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

The following are included in the pro forma Loss from continuing operations:

	Nine Months ended September 30,
	2005		2004
Payment to Apollo to cancel fee agreements	$	11	$	—
Cost of sales related to inventory sold that was stepped-up at the acquisition date		16		9
	$	27	$	9

The pro forma financial information does not necessarily reflect the operating results that would have occurred had the acquisitions been consummated as of the beginning of the periods presented, nor is such information indicative of future operating results.

4. Discontinued Operations

In 1998, pursuant to a merger and recapitalization transaction sponsored by The Blackstone Group (“Blackstone”) and financing arranged by The Chase Manhattan Bank (“Chase”), Borden Decorative Products Holdings, Inc. (“BDPH”), a wholly owned subsidiary of the Company, was acquired by Blackstone, which subsequently merged with Imperial Wallcoverings to create Imperial Home Décor Group (“IHDG”). The Company received approximately $309 in cash and 11% of IHDG common stock for its interest in BDPH. On January 5, 2000, IHDG filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. IHDG emerged from bankruptcy in April 2001. The IHDG Litigation Trust (the “Trust”) was created pursuant to the plan of reorganization in the IHDG bankruptcy to pursue preference and other avoidance claims on behalf of the unsecured creditors of IHDG. In November 2001, the Trust filed a lawsuit against the Company and certain of its affiliates seeking to have the IHDG transaction voided as a fraudulent conveyance and asking for a judgment to be entered against the Company for $314 plus interest, costs and attorney fees. On June 8, 2005, the Company reached an agreement with the parties to settle and release all claims against the Company for $15. The amount was subsequently paid by the Company in July 2005. As the settlement directly related to a divested business which was accounted for as a discontinued operation in 1997, the Company has included the settlement cost in Loss from discontinued operations in its Financial Statements.

In 1996 and 1997, the Company sold its Dairy and Foods businesses. Both disposals were accounted for as discontinued operations in those years. In 2005, the Company received $5 as settlement from a class action suit related to raw material purchases by the divested businesses between July 21, 1991 and June 30, 1995. As the settlement directly related to the previously divested businesses, the Company has included the settlement proceeds in Loss from discontinued operations in its Financial Statements.

Typically, losses from discontinued operations are recorded in the Financial Statements net of tax; however, because the Company has a full valuation allowance on its domestic deferred tax assets and is unable to realize an income tax benefit from these losses, the corresponding benefit has been offset by a full valuation allowance.

5. Related Party Transactions

Administrative Service, Management and Consulting Arrangements

In connection with their respective acquisitions by Apollo, RPP, RSM and BCI entered into certain management, consulting and transaction fee agreements with Apollo and its affiliates for the provision of certain structuring and advisory services. These agreements allowed Apollo and its affiliates to provide certain advisory services to the companies for terms up to ten years. The companies also agreed to indemnify Apollo and its

F-16

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

affiliates and their directors, officers and representatives for potential losses relating to the services contemplated under these agreements. In addition, upon the closing of the RSM and BCI transactions in the third quarter of 2004, the Company paid $12 for transaction and advisory services, and reimbursed expenses of $1. Prior to the Combinations, on May 31, 2005, RPP and RSM terminated their agreements with Apollo, thereby releasing any and all obligations and liabilities by all parties under the respective agreements. In consideration of the terminations, RPP and RSM paid Apollo $4 and $7, respectively. These amounts are included within Transaction related costs in the Company’s Consolidated Statements of Operations.

At the time of the Combinations, the Company entered into a seven-year, amended and restated version of the former BCI management consulting agreement with Apollo (the “Amended Management Consulting Agreement”). The terms of the Amended Management Consulting Agreement currently provide for annual fees of approximately $3 and provide for a lump-sum settlement equal to the net present value of the remaining annual management fees payable under the remaining term of the agreement in connection with a sale of the Company or an IPO.

Pursuant to the agreements in effect, during each of the nine months ended September 30, 2005 and 2004, the Company paid fees of $3 and $1, respectively. These amounts are included within Other operating expense in the Company’s Consolidated Statements of Operations. There were no amounts payable to Apollo at September 30, 2005 or December 31, 2004.

In connection with the Bakelite Acquisition, in exchange for deal structuring and negotiating provided by Apollo, the Company made payments to Apollo in the amount of $4. These amounts are considered direct costs of the acquisition and have been capitalized as part of the purchase.

Other Transactions and Arrangements

The Company sells finished goods to an unconsolidated joint venture of the Company and certain Apollo affiliates. These sales totaled $20 and $7 for the nine months ended September 30, 2005 and 2004, respectively. Accounts receivable from these affiliates totaled $4 and $1 at September 30, 2005 and December 31, 2004, respectively. The Company also purchases raw materials and services from certain Apollo affiliates. These purchases totaled $4 and $5 for the nine months ended September 30, 2005 and 2004, respectively. The Company had accounts payable to Apollo affiliates of less than $1 at September 30, 2005 and December 31, 2004 related to these purchases.

In the first quarter of 2005, BCI received a payment of $8 from its previous owner, Kohlberg Kravis Roberts & Co., for adjustments made to the purchase price of the Apollo acquisition of BCI. This amount was subsequently paid to BCI’s parent, BHI Acquisition, in the second quarter of 2005.

Upon closing the BCI Transaction, BCI paid transaction related costs of $9 on behalf of BHI Investment LLC, $22 on behalf of BW Holdings, LLC and shared compensation costs of $12. These amounts are included in Transaction related costs.

F-17

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

6. Debt

Debt outstanding at September 30, 2005 and December 31, 2004 consisted of the following:

	September 30, 2005				December 31, 2004
	Long - Term		Due Within One Year		Long - Term		Due Within One Year
Revolving Credit facilities	$	—	$	—	$	28	$	—
Senior Secured Notes:
8% Senior secured notes due 2009 (includes $1 of unamortized debt premium at September 30, 2005 and $0 at December 31, 2004)(a)		141		—		140		—
9.5% Senior second secured notes due 2010 (includes $2 of unamortized debt premium at September 30, 2005 and $1 at December 31, 2004)(a)		202		—		201		—
9% Second-priority senior secured notes due 2014		325		—		325		—
Floating rate second-priority senior secured notes due 2010 (includes $2 of unamortized debt discount at September 30, 2005 and $0 at December 31, 2004)		298		—		150		—
Credit Agreement: term loans due 2010		494		5		123		2
Unsecured Debentures:
9.2% debentures due 2021		115		—		115		—
7.875% debentures due 2023		247		—		247		—
Sinking fund debentures: 8.375% due 2016		78		—		78		—
13.5% Senior subordinated notes due 2010 (includes $9 of unamortized debt premium at September 30, 2005 and $4 at December 31, 2004)(a)		337		—		332		—
Seller senior subordinated notes due 2011		—		—		50		—
Other:
Industrial revenue bonds due 2009		34		—		34		—
Other		24		9		7		5
Capital Leases		11		1		4		—
Total current maturities of long-term debt		—		15		—		7
Short-term debt (primarily foreign bank loans)		—		46		—		9
Total debt	$	2,306	$	61	$	1,834	$	16

(a) September 30, 2005 balance includes purchase accounting adjustments as a result of the acquisition of RPP’s minority interests (See Note 3). These adjustments have been reflected as unamortized debt premiums.

Credit Facility

In May 2005, the Company entered into a new $775 senior secured credit facility (“Hexion Credit Facility”) and replaced and repaid the RPP and RSM credit facilities, including the RPP $150 revolving credit facility entered into on January 24, 2005, $100 of the Bakelite bridge loan facility (See Note 3) and the Seller senior subordinated notes. The Hexion Credit Facility has a $225 revolving credit facility and $500 term loan facility. The facility will also provide a $50 synthetic letters of credit facility (“LOCs”). Repayment of 1% of the term loan per annum must be made quarterly with the balance payable upon the final maturity date. Further, the Company may be required to make additional repayments on the term loan beginning in the second quarter of

F-18

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

2007 if the Company generates excess cash flow, as defined in the agreement. Interest on the term and revolving loan facilities is LIBOR plus 2.5% or the higher of prime rate plus 1% or the Federal Funds Rate plus 1.5%. Loans made in Canadian dollars will carry interest at the Canadian Bankers’ Acceptance rate plus 2.5% or the higher of prime rate plus 1% or average banker’s acceptance rate plus 1.5%. Loans made in sterling will carry interest at LIBOR plus 2.5% or the rate quoted by JPMorgan Chase Bank, N.A. (“JPMCB”) as its base rate for such loans plus 1%. Loans denominated in euros will carry interest at EURO LIBOR plus 2.5% or the rate quoted by JPMCB as its base rate for such loans plus 1%. Interest rates are subject to reduction based on an improved leverage ratio. The Hexion Credit Facility has commitment fees (other than with respect to the synthetic LOC facility) equal to 0.5% per annum of the unused line fee plus a fronting fee of 0.25% of the aggregate face amount of outstanding LOCs. The synthetic LOC facility has a commitment fee of 0.1% per annum. The Hexion Credit Facility is secured by substantially all the assets of Hexion, subject to certain exceptions. The Hexion Credit Facility contains, among other provisions, restrictive covenants regarding indebtedness, payments and distributions, mergers and acquisitions, asset sales, affiliate transactions, capital expenditures, and the maintenance of certain financial ratios. Payment of borrowings under the Hexion Credit Facility may be accelerated in the event of a default. Events of default include the failure to pay principal and interest when due, a material breach of representation or warranty, covenant defaults, events of bankruptcy and a change of control. On May 31, 2005, the Company issued $500 term loans under the facility of which approximately $300 of the proceeds were used to repay existing debt including borrowings under the RPP $150 revolving credit facility entered into January 24, 2005, $125 term note under the RSM facility, $100 of the Bakelite bridge loan facility (See Note 3) and the Seller senior subordinated notes. The remainder was used to pay a dividend to the Company’s parent and transaction expenses. The Company incurred financing costs of $18 related to the Hexion Credit Facility. These costs are included within Other assets on the Financial Statements and will be amortized over the life of the related debt.

In the second quarter of 2005, the Company incurred a charge for the write-off of deferred financing costs totaling $17. Of this amount, $6 was related to the Bakelite Acquisition bridge loan facility, which was entered into and repaid during the quarter, and $11 was related to the early termination of the RPP, RSM and BCI credit facilities. The $17 expense is included in Write-off of deferred financing fees on the Condensed Consolidated Statements of Operations.

For the nine months ended September 30, 2005, the Company incurred an unrealized loss of $10, related to a foreign subsidiary’s $290 U.S. dollar denominated term loan. The loss is included as Other non-operating expense on the Condensed Consolidated Statements of Operations. On October 11, 2005, the Company entered into a three-year swap agreement to offset balance sheet and interest rate exposures and cash flow variability associated with exchange rate fluctuations on the term loan.

Senior Secured Notes

In May 2005, the Company issued $150 Second-Priority Senior Secured Floating Rate Notes due 2010. The notes were issued at a discount of 98.846%. Interest on the notes accrues at a rate per annum, reset quarterly, equal to LIBOR plus 5.5% and is payable on January 15, April 15, July 15 and October 15, commencing on July 15, 2005. These notes may be redeemed at any time on or after July 15, 2006 at the applicable redemption price set forth in the indenture for the notes. In addition, up to 35% of these notes may be redeemed prior to July 15, 2006 with cash proceeds from certain equity offerings at the applicable redemption price set forth in the indenture for the notes. The notes are collateralized by a second-priority security interest in the same collateral as the remaining $150 of Floating rate second-priority senior secured notes, the 9% Second-priority senior secured notes and the 9.5% Senior second secured notes, which are all second in priority (subject to Permitted Liens) to the Hexion Credit Facility and the 8% Senior secured notes. The proceeds from the notes were used to repay in

F-19

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

part the bridge loan facility used to finance the Bakelite Acquisition (See Note 3). The Company incurred financing costs of $4 related to the issuance of the Senior Secured Notes. These costs are included within Other assets on the Financial Statements and will be amortized over the life of the notes.

Following the Combinations, the Company, certain of its U.S. subsidiaries and Hexion U.S. Finance Corporation (formerly known as Borden U.S. Finance) guarantee the senior secured debt previously issued by RPP (See Note 15).

7. Guarantees, Indemnifications and Warranties

Standard Guarantees / Indemnifications

In the ordinary course of business, the Company enters into numerous agreements that contain standard guarantees and indemnities whereby the Company indemnifies another party for, among other things, breaches of representations and warranties. Such guarantees or indemnifications are granted under various agreements, including those governing (i) purchases and sales of assets or businesses, (ii) leases of real property, (iii) licenses of intellectual property, (iv) long-term supply agreements and (v) agreements with public authorities on subsidies received for designated research and development projects. The guarantees or indemnifications issued are for the benefit of the (i) buyers in sale agreements and sellers in purchase agreements, (ii) landlords or lessors in lease contracts, (iii) licensors or licensees in license agreements, (iv) vendors or customers in long-term supply agreements and (v) governments or agencies subsidizing research or development. In addition, the Company guarantees certain payables of its subsidiaries for the purchase of raw materials in the ordinary course of business.

These parties may also be indemnified against any third party claim resulting from the transaction that is contemplated in the underlying agreement. Additionally, in connection with the sale of assets and the divestiture of businesses, the Company may agree to indemnify the buyer with respect to liabilities related to the pre-closing operations of the assets or businesses sold. Indemnities related to pre-closing operations generally include tax liabilities, environmental liabilities and employee benefit liabilities not assumed by the buyer in the transaction.

Indemnities related to the pre-closing operations of sold assets normally do not represent additional liabilities to the Company, but simply serve to protect the buyer from potential liability associated with the Company’s existing obligations at the time of sale. As with any liability, the Company has accrued for those pre-closing obligations that are considered probable and reasonably estimable. Amounts recorded are not significant at September 30, 2005.

While some of these guarantees extend only for the duration of the underlying agreement, many survive the expiration of the term of the agreement or extend into perpetuity (unless subject to a legal statute of limitations). There are no specific limitations on the maximum potential amount of future payments that the Company could be required to make under its guarantees nor is the Company able to develop an estimate of the maximum potential amount of future payments to be made under these guarantees as the triggering events are not predictable. With respect to certain of the aforementioned guarantees, the Company maintains limited insurance coverage that mitigates potential payments to be made.

Warranties

The Company does not make express warranties on its products, other than that they comply with the Company’s specifications; therefore, the Company does not record a warranty liability. Adjustments for product quality claims are not material and are charged against sales revenues.

F-20

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

8. Commitments and Contingencies

Environmental Matters

Because the Company’s operations involve the use, handling, processing, storage, transportation and disposal of hazardous materials, the Company is subject to extensive environmental regulation at the Federal, state and local levels as well as foreign laws and regulations, and therefore is exposed to the risk of claims for environmental remediation or restoration. In addition, violations of environmental laws or permits may result in restrictions being imposed on operating activities, substantial fines, penalties, damages or other costs, any of which could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

Accruals for environmental matters are recorded following the guidelines of Statement of Position 96-1, “Environmental Remediation Liabilities,” when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Environmental accruals are reviewed on an interim basis and as events and developments warrant.

The Company has recorded liabilities, relating to 69 locations (63 at December 31, 2004), of approximately $39 and $41 at September 30, 2005 and December 31, 2004, respectively, for all probable environmental remediation, indemnification and restoration liabilities. These amounts include estimates of unasserted claims the Company believes are probable of loss and reasonably estimable. Based on the factors discussed below and currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such sites may fall within a range of $27 to $80, in the aggregate, at September 30, 2005. This estimate of the range of reasonably possible costs is less certain than the estimates upon which the liabilities are based, and in order to establish the upper end of such range, assumptions less favorable to the Company among the range of reasonably possible outcomes were used. As with any estimate, if facts or circumstances change, the final outcome could differ materially from these estimates.

Following is a more detailed discussion of the Company’s environmental liabilities and related assumptions at September 30, 2005:

BCP Geismar Site—BCI formerly owned a basic chemicals and polyvinyl chloride business which was taken public as Borden Chemicals and Plastics Operating Limited Partnership (“BCPOLP”) in 1987. BCI retained a 1% interest and the general partner interest, which were held by its subsidiary, BCP Management (“BCPM”). BCI also retained the liability for certain environmental matters after BCPOLP’s formation. Under a Settlement Agreement approved by the United States Bankruptcy Court for the District of Delaware among BCI, BCPOLP, BCPM, the United States Environmental Protection Agency and the Louisiana Department of Environmental Quality, BCI agreed to perform certain of BCPOLP’s obligations with respect to environmental conditions at BCPOLP’s Geismar, Louisiana site. These obligations are related to soil and groundwater contamination at the Geismar site. The Company bears the sole responsibility for these obligations, as there are no other potentially responsible parties (“PRPs”) or third parties from which the Company can seek reimbursement, and no additional insurance recoveries are expected.

A groundwater pump and treat system for the removal of contaminants is operational, and natural attenuation studies are proceeding. The Company has performed extensive soil and groundwater testing. Regulatory agencies are reviewing the current findings and remediation efforts. If closure procedures and remediation systems prove inadequate, or if additional contamination is discovered, this could result in the costs approaching the higher end of the range of possible outcomes discussed below.

F-21

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

The Company has recorded a liability of approximately $20 and $21 at September 30, 2005 and December 31, 2004, respectively, related to the BCP Geismar site. Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with this site may fall within a range of $14 to $32, depending upon the factors discussed above. Due to the long-term nature of the project, the reliability of timing and the ability to estimate remediation payments, this liability was recorded at its net present value, assuming a 3% discount rate and a time period of thirty years and the range of possible outcomes is discounted similarly. The undiscounted liability is approximately $30 over thirty years.

Following are expected payments for each of the next five years, and a reconciliation of the expected aggregate payments to the liability reflected at September 30, 2005:

2005	$	1
2006		2
2007		2
2008		1
2009		1
Remaining aggregate payments		23
Total undiscounted liability		30
Less: discount to net present value		(10	)
Liability per Condensed Consolidated Balance Sheet	$	20

Superfund Sites / Offsite Landfills—The Company is currently involved in environmental remediation activities at 29 sites (26 at December 31, 2004) in which it has been notified that it is, or may be, a PRP under the United States Comprehensive Environmental Response, Compensation and Liability Act or similar state “superfund” laws. The Company has recorded a liability of approximately $8 at September 30, 2005 and December 31, 2004 related to these sites. The Company anticipates approximately 60% of this liability will be paid within the next five years, with the remaining payments occurring over the next twenty-five years. The Company generally does not bear a significant level of responsibility for these sites, and therefore, has little control over the costs and timing of cash flows. At 17 of the 29 sites, the Company’s share is less than 1%. At the remaining 12 sites, the Company has a share of up to 8.8% of the total liability which accounts for $7 of the total amount reserved for superfund / offsite landfill sites at September 30, 2005 and December 31, 2004. Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such sites may be as low as $6 or as high as $19, in the aggregate. In estimating both its current reserves for environmental remediation at these sites and the possible range of additional costs, the Company has not assumed that it will bear the entire cost of remediation of every site to the exclusion of other known PRPs who may be jointly and severally liable. The Company has limited information to assess the viability of other PRPs and their probable contribution on a per site basis. The range of possible outcomes also takes into account the maturity of each project, which results in a more narrow range as the project progresses. The Company’s ultimate liability will depend on many factors including its volumetric share of waste, the financial viability of other PRPs, the remediation methods and technology used, the amount of time necessary to accomplish remediation, and the availability of insurance coverage. The Company’s insurance provides very limited, if any, coverage for these environmental matters.

Sites Under Current Ownership—The Company is conducting environmental remediation at 15 locations currently owned by the Company, of which 2 sites are no longer operating. There are no other parties responsible for remediation at these sites. Much of the remediation is being performed by the Company on a voluntary basis;

F-22

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

therefore, the Company has greater control over the costs to be incurred and the timing of cash flows. The Company has accrued approximately $7 and $8 at September 30, 2005 and December 31, 2004, respectively, for remediation and restoration liabilities at these locations. The Company anticipates approximately $4 of these liabilities will be paid within the next three years, with the remaining amounts being paid over the next ten years. Approximately $2 of these reserves is included in the Company’s business realignment reserve, as the environmental clean up is being handled in conjunction with planned closure of the location. Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such sites may fall within a range of $5 to $15, in the aggregate. The factors influencing the ultimate outcome include the methods of remediation to be elected, the conclusions and assessment of site studies remaining to be completed and the time period required to complete the work.

Other Sites—The Company is conducting environmental remediation at 10 locations (9 at December 31, 2004) formerly owned by BCI. The Company has accrued approximately $3 at September 30, 2005 and December 31, 2004 for remediation and restoration liabilities at these locations. Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such sites may fall within a range of $2 to $14, in the aggregate. The primary drivers in determining the final costs to the Company on these matters are the method of remediation selected and the level of participation of third parties.

In addition, the Company is responsible for 13 sites (11 at December 31, 2004) that require monitoring where no additional remediation is expected and has also established accruals for other related costs, such as fines and penalties. The Company has accrued approximately $1 at September 30, 2005 and December 31, 2004, respectively, related to these sites. Payment of these liabilities is anticipated to occur over the next ten years. The ultimate cost to the Company will be influenced by any variations in projected monitoring periods or by findings that are better or worse than anticipated findings.

BCI formerly operated the Smith Douglass fertilizer business, which included a phosphate processing operation in Manatee County, Florida and an animal food processing operation in Hillsborough County, Florida. Both operations were sold in 1980. The EPA sent the Company and another former owner of the Manatee County facility a request for $0.1 relating to oversight costs incurred when the site was abandoned by its current owner. The Company is disputing the charge. The Company is aware that state and Federal environmental agencies have taken measures to prevent the off-site release of water from rainfall that accumulated in the drainage ditches and lagoons surrounding the gypsum piles located on this site. The Company is aware that the current owner of the Hillsborough County site ceased operations in March 2004 and is working with governmental agencies to effect closure of that site. At this time, the Company has received an information request from the EPA but has not received any demands from any governmental agencies or others regarding the closure and environmental cleanup at this site, which the Company believes is the responsibility of the current owner. While it is reasonably possible some costs could be incurred related to these sites, the Company has inadequate information to enable it to estimate a potential range of liability, if any.

As a result of the Bakelite Acquisition, the Company acquired a site in Duisburg, Germany with significant soil and groundwater contamination beneath a facility that is shared with Rütgers Chemicals AG (“Rütgers”). Rütgers is in discussions with the local authorities concerning a proposed remediation plan; however, the scope and extent of that plan and the costs of its possible implementation are not yet reasonably estimable. Rütgers has contractually agreed to provide indemnifications to the Company with respect to this matter until 2025, subject to certain exceptions and limitations. Management believes that it is unlikely that the Company will have to take extensive actions for remediation. While it is reasonably possible some costs could be incurred related to these sites, the Company has inadequate information to enable it to estimate a potential range of liability, if any.

F-23

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

For environmental conditions that existed at RPP related sites prior to November 2000, the Royal Dutch/Shell Group of Companies (“Shell”) generally will indemnify the Company for environmental damages associated with environmental conditions that occurred or existed before the recapitalization in November 2000, subject to certain limitations. There have been no claims against RPP since November 2000 relating to RPP environmental matters; therefore, the Company has no accruals at September 30, 2005 and December 31, 2004 relating to RPP environmental matters.

According to the terms of the RSM Transaction, Eastman retained the liability and indemnified RSM for certain matters that occurred or existed before the acquisition in August 2004 subject to certain limitations.

Non-Environmental Legal Matters

The Company has reserved approximately $13 and $21 at September 30, 2005 and December 31, 2004, respectively, relating to all non-environmental legal matters for legal defense and settlement costs that it believes are probable and estimable at this time.

Following is a discussion of non-environmental legal proceedings that are not in the ordinary course of business:

Brazil Tax Claim—In 1992, the State of Sao Paulo Administrative Tax Bureau issued an assessment against BCI’s primary Brazilian subsidiary claiming that excise taxes were owed on certain intercompany loans made for centralized cash management purposes, characterized by the Tax Bureau as intercompany sales. Since that time, management and the Tax Bureau have held discussions and the subsidiary has filed an administrative appeal seeking cancellation of the assessment. The Administrative Court upheld the assessment in December 2001. In 2002, the subsidiary filed a second appeal with the highest-level Administrative Court, again seeking cancellation of the assessment. Argument was made to the court in September 2004; the Company is awaiting its ruling. At September 30, 2005, the amount of the assessment, including tax, penalties, monetary correction and interest, is 72 million Brazilian Reais, or approximately $32. The Company believes it has a strong defense against the assessment and will pursue the appeal vigorously, including appealing to the judicial level; however, there is no assurance that the assessment will not be upheld. At this time, the Company does not believe a loss is probable; therefore, only related legal fees have been accrued.

HAI Grand Jury Investigation—HAI received a grand jury subpoena dated November 5, 2003 from the U.S. Department of Justice Antitrust Division relating to a foundry resins Grand Jury investigation. HAI has provided documentation in response to the subpoena. As is frequently the case when such investigations are in progress, various antitrust lawsuits have been brought against the Company alleging that BCI and HAI, along with various other entities, engaged in a price fixing conspiracy. At this time, the Company does not believe a loss is probable; therefore, only related legal fees have been accrued. The Company does not have sufficient information to determine a range of possible outcomes for this matter at this time.

CTA Acoustics—From the third quarter 2003 to the first quarter 2004, six lawsuits were filed against BCI in the 27th Judicial District, Laurel County Circuit Court, in Kentucky, arising from an explosion at a customer’s plant where seven plant workers were killed and other workers were injured. The lawsuits primarily seek recovery for wrongful death, emotional and personal injury, loss of consortium, property damage and indemnity. The litigation also includes claims by the Company’s customer against its insurer and the Company for property damage. On October 20, 2005, a settlement was reached with representatives of the seven deceased plant workers and twelve seriously injured workers. The Company’s proposed share of the settlement amount is covered by insurance. In the unlikely event that the co-defendants do not pay their $21 proposed share of the settlement, the Company could be held liable for this amount. The Company believes any additional liability would be covered

F-24

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

by insurance. The property damage claim and suits by workers for emotional distress and minor injuries remain to be resolved. The Company previously accrued $5, the amount of its insurance deductible, relating to these actions and has insurance coverage expected to address any additional payments and legal fees.

Other Legal Matters— The Company is involved in various product liability, commercial and employment litigation, personal injury, property damage and other legal proceedings which are considered to be in the ordinary course of business. There has been increased publicity about asbestos liabilities faced by manufacturing companies. In large part, as a result of the bankruptcies of many asbestos producers, plaintiffs’ attorneys are increasing their focus on peripheral defendants, including the Company, and asserting that even products that contained a small amount of asbestos caused injury. Plaintiffs are also focusing on alleged harm caused by other products the Company has made or used, including those containing silica and vinyl chloride monomer. The Company does not believe that it has a material exposure relating to these claims and believes it has adequate reserves and insurance to cover currently pending and foreseeable future claims.

The Company is named in two lawsuits filed in Hillsborough County, Florida Circuit Court, relating to an animal feed supplement processing site formerly operated by BCI and sold in 1980. The lawsuits are filed on behalf of multiple residents of Hillsborough County living near the site and allege various injuries related to exposure to toxic chemicals. At this time, the Company has inadequate information from which to estimate a potential range of liability, if any.

Other Commitments and Contingencies

The Company entered into contractual agreements with Shell and other third parties for the supply of site services, utilities, materials and facilities and for operation and maintenance services necessary to operate certain RPP facilities on a stand-alone basis. The duration of the contracts range from less than one year to 20 years, depending on the nature of services. Such contracts may be terminated by either party under certain conditions as provided for in the respective agreements; generally, 90 days notice is required for short-term contracts and three years notice is required for longer-term contracts (generally those contracts in excess of five years). Contractual pricing generally includes a fixed and variable component.

In addition, the Company entered into contractual agreements with Shell and other third parties for the purchase of feedstocks. The terms of the agreements vary from three to ten years, extendable at the Company’s request and cancelable by either party as provided for in the respective agreements. Feedstock prices are based on market prices less negotiated volume discounts or cost input formulas.

F-25

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

On October 15, 2004, in order to secure the long-term supply of a key raw material, the Company entered into a ten-year contract with a supplier to purchase a specified quantity of product at a specified price whether or not it takes delivery. Prices are adjusted annually according to a formula that is based on an agreed upon raw material benchmark index. The initial volume is adjusted annually based on the prior year’s sales of the related finished good manufactured with the raw material. In addition, the Company is party to a non-cancelable agreement to purchase certain gas supplies at a fixed monthly rate through June 30, 2012. The Company is required to make minimum annual payments under these contracts as follows:

2005	$	2
2006		3
2007		3
2008		3
2009		3
2010 and beyond		14
Total minimum payments		28
Less: Amount representing interest		(8	)
Present value of minimum payments	$	20

The Company had purchases of $2 during the nine months ended September 30, 2005 under the contracts.

9. Redeemable Preferred Stock

In May 2005, Hexion Escrow Corp., a subsidiary of Hexion which merged into Hexion coincidental with the Combinations, offered 14 million shares of Redeemable Series A Floating Rate Preferred Stock, par value $0.01 per share, and a liquidation preference of $25 per share (the “Preferred Stock”). The Preferred Stock will accumulate cumulative preferential dividends from the issue date at an initial rate of LIBOR plus 8.0%, compounded semi-annually. The dividend rate increases 75 basis points every six months beginning November 15, 2005 until May 15, 2007, at which time the rate is LIBOR plus 11.0%. Dividends will be paid by issuing additional shares of Preferred Stock through May 15, 2010. Thereafter, dividends will be required to be paid in cash. Prior to November 15, 2005, the Company has the option to redeem all or a portion of the Preferred Stock at 100% of the aggregate liquidation value plus accrued and unpaid dividends. After November 15, 2005, the Company has the option to redeem all or a portion of the Preferred Stock at between 101% and 103% of the aggregate liquidation value plus accrued and unpaid dividends. On or after May 15, 2007, the Company may convert the Preferred Stock from a floating rate security to a fixed rate security, with dividends payable at an annual rate equal to 14.0%. On October 15, 2014, or upon a change in control of the Company, the Preferred Stock shareholders have the option to require the Company to repurchase all or a portion of the Preferred Stock. Because of this mandatory redemption clause, the Preferred Stock is considered a mezzanine financing and is recorded outside of Common Stock and Other Shareholders’ Deficit.

The Company expects to use a portion of the proceeds it receives from its proposed IPO (See Note 1) to redeem the Preferred Stock. The net proceeds from the Preferred Stock issuance were $334, after deducting underwriting expenses and expenses of the offering of $16, and were used along with term loan debt borrowed under the Hexion Credit Facility to pay a dividend to its parent on May 31, 2005 (See Note 11). For presentation purposes, the issuance costs of $16 offset the carrying amount of the Preferred Stock. These costs are amortized using the effective interest method from the issue date through October 15, 2014. For accounting purposes, the Preferred Stock is considered increasing rate preferred stock issued at an implied premium. As such, the implied

F-26

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

premium is being accreted using the effective interest method from the issue date through May 15, 2007, which is the commencement of the perpetual dividend. For the nine months ended September 30, 2005, the Company has recognized accreted dividends, including accretion of the implied premium, of $18.

10. Pension and Postretirement Expense

Following are the components of net pension and postretirement expense recognized by the Company for the periods ended September 30, 2005 and 2004:

	Pension						Postretirement
	Nine months ended September 30,						Nine months ended September 30,
	2005			2004			2005			2004
Service cost	$	11		$	5		$	—		$	—
Interest cost		17			6			1			—
Expected return on plan assets		(20	)		(8	)		—			—
Amortization of prior service cost		—			—			(8	)		(1	)
Recognized net actuarial loss (gain)		6			—			(2	)		(1	)
	$	14		$	3		$	(9	)	$	(2	)

The amortization of prior service cost included in the postretirement benefit relates to plan amendments made in 2004 and 2003.

As part of the Bakelite Acquisition, the Company acquired various defined benefit and defined contribution pension plans covering Bakelite’s employees worldwide. In Germany, Bakelite provides a defined benefit pension plan with a total projected benefit obligation of $78, while in certain other countries, defined contribution pension plans are provided. In addition, Bakelite’s Italian and Korean subsidiaries have statutory requirements to provide severance indemnity benefits to employees. All of the Bakelite benefit plans are unfunded. The Company anticipates making contributions of $1 to pay current obligations related to the Bakelite benefit plans in 2005.

11. Common Stock and Other Shareholders’ Deficit

On September 19, 2005, the Board of Directors approved a 0.85268157-to-1 reverse stock split. The reverse stock split was effective September 19, 2005 and the par value of the common stock remained at $0.01 per share. All share and per share amounts have been retroactively adjusted for all periods presented to reflect the 0.85268157-to-1 reverse stock split.

As a result of the Combinations and subsequent reverse stock split, the Company’s capital structure consists of 82,629,906 shares outstanding. The Company’s capital structure has been retroactively consolidated for all periods presented. No new shares were issued as a result of the legal merger of RPP, RSM and BCI.

        In conjunction with the Combinations, Hexion declared a dividend to its parent of $550 and paid $517 on May 31, 2005. Approximately $6 of the unpaid amount was distributed in the third quarter of 2005, and the remainder is expected to be paid in the second quarter of 2007, and is classified in Other long-term liabilities.

F-27

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

The dividend was funded through the proceeds from the issuance of preferred stock and from amounts borrowed under the Company’s credit facility.

At December 31, 2004, BCI held a note receivable in an aggregate principal amount of $405 and accrued interest of $156 from BHI Acquisition, which was accounted for as a reduction of equity. The note accrued interest at 12% per year, payable quarterly, and BCI accrued interest quarterly in paid-in capital. The notes were previously due from Borden Holdings, Inc., BCI’s parent prior to August 12, 2004. Historically, Borden Holdings, Inc. funded the payment of the interest on the note through common dividends received from BCI. BCI had not received a payment on the accrued interest, nor had BCI paid an associated dividend, since October 15, 2001. In connection with the Combinations, the note (including $176 of accrued interest to the date of the Combinations) was reclassified to Paid-in capital.

12. Stock Based Compensation

Prior to the Combinations, RPP, RSM and BHI Acquisition maintained three stock option plans: the RPP 2000 Stock Option Plan (the “RPP plan”), the RSM 2004 Stock Option Plan (the “RSM plan”) and the BHI Acquisition 2004 Stock Incentive Plan (the “2004 Incentive Plan”). In addition to these option plans, the Company’s parent maintains a stock-based deferred compensation plan. Upon the Combinations, the stock options under the RPP plan and RSM plan were exchanged for equivalent stock options under the 2004 Incentive Plan based upon relative fair value.

On September 20, 2005, a 0.464637297-to-1 reverse stock split of Hexion LLC common units was made effective. All common unit amounts relating to options issued by Hexion LLC to the Company’s employees and directors have been retroactively adjusted for all periods presented to reflect the 0.464637297-to-1 reverse stock split. At September 30, 2005, on an as converted basis, there were approximately 4,137,000 options outstanding under the 2004 Incentive Plan and approximately 1,008,000 deferred common stock units under the deferred compensation plan. All outstanding awards at September 30, 2005 are denominated in Hexion LLC units.

In connection with the filing of a registration statement, which is not yet effective, with the SEC for a proposed IPO of its common stock, the Company became subject to the measurement requirements as a public company and consequently remeasured liability designated awards. In addition, modifications to the awards under the 2004 Incentive Plan and the stock-based deferred compensation plan were made to allow for the value of the options to be determined by fair market value instead of by formula. Also, certain directors’ options granted under the RPP plan and RSM plan, which would have been forfeited upon the Combinations, were modified to allow for immediate vesting. These equity modifications were treated in accordance with the provisions of SFAS No. 123(R). As a result of this remeasurement and modifications associated with the Combinations to the RPP plan, the RSM plan, the 2004 Incentive Plan and the deferred compensation plan, the Company recognized a compensation charge of $10 for the nine months ended September 30, 2005, which is included in Selling, general & administrative expense. The Company expects to realize additional compensation expense of $20, which will be recognized over the vesting period of the underlying stock based awards. These awards are expected to vest over the next seven years.

The Company’s compensation expense was calculated using the Black-Scholes pricing model with risk-free weighted average interest rates ranging from 2.83% to 4.23%, expected lives of 0.75 to 8.22 years, a dividend rate of zero and expected volatility of 30%. In calculating the compensation expense recognized in connection with the modification of the options, the fair value of the Company’s common stock was calculated using a multiple of EBITDA (earnings before interest, taxes, depreciation and amortization) approach, which is a valuation technique commonly used by the investment banking community. Under this technique, estimated

F-28

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

enterprise values are the result of an EBITDA multiple derived from comparison to comparable company multiples applied to an appropriate EBITDA amount. The equity value is then calculated by subtracting the amount of the company’s net debt from the calculated enterprise value. This calculation yielded a fair value per share of $17.52 at the combination date.

On May 11, 2005, BHI Acquisition issued options to purchase 84,424 membership units to the Company’s non-management directors. These options have a ten-year life with immediate vesting and exercise upon an IPO. Upon the consummation of an IPO, the Company will recognize expense of $1, which represents the fair value of the options at the date of grant as determined by the Black-Sholes pricing model.

13. Income Taxes

Effective with the Combinations, Hexion and its eligible subsidiaries file consolidated income tax returns. Prior to the Combinations, RPP, RSM and BCI each filed separate returns. The Company uses the asset and liability method required by SFAS No. 109 to provide income taxes on all transactions recorded in its Financial Statements. This requires that income taxes reflect the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for book and tax purposes. Accordingly, a deferred tax asset or liability for each temporary difference is determined based on the tax rates that the Company expects to be in effect when the underlying items of income and expense are to be realized. The Company’s expense for income taxes includes the current and deferred portions of that expense.

A valuation allowance is provided when it is more likely than not that some portion of the Federal tax asset will not be realized. At the date of their acquisition by Apollo, BCI and RSM had valuation allowances on a portion of their deferred tax assets. Those assets consisted primarily of net operating and capital loss carryforwards. At that time, RPP had a net deferred tax liability. As a result of the Combinations, the total valuation allowance was reduced by $50 based on RPP’s net deferred tax liability position. In management’s opinion, the results of future operations will not generate sufficient taxable income to realize these deferred tax assets. Consequently, a full valuation allowance has been provided against these attributes.

Income tax expense for the nine-month period ending September 30, 2005 primarily reflects the impact of taxes on income in non-U.S. jurisdictions, the impact of a cumulative translation adjustment on the settlement of an intercompany loan that had been previously treated as permanently invested and the adjustment of an income tax reserve in the Netherlands. The Company has increased its valuation allowances in various tax jurisdictions, including the U.S., related primarily to net operating losses that may not be realized.

Each quarter, taxes for the full year are estimated and year-to-date tax accrual adjustments are made. Revisions of the full year estimate of accrued taxes occur periodically due to changes in the tax rates, audit resolution with taxing authorities, and newly enacted statutory, judicial and regulatory guidance. These changes, when they occur, affect accrued taxes and can result in a change in the quarterly tax provision. Although the final resolution of any proposed adjustments is uncertain and may involve unsettled areas, based on currently available information, the Company has provided the best estimate of the probable tax liability for such matters.

14. Segment Data

At September 30, 2005, the Company’s management had not made a final determination regarding the financial reporting structure of the internal organization and the composition of its reportable segments. Subsequent to the Combinations, the Company’s management has continued to make operating decisions and assess performance based upon the reportable segments in place prior to the Combinations.

F-29

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

The Company’s reportable segments were determined in accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, based on the way that management organized the business operations for decision-making purposes. This organization of the business operations has resulted in a historical presentation of nine segments, including Bakelite, which is deemed to be a reportable segment of BCI. Prior to the Combinations, the legacy RPP business organized and managed its operations on the basis of geographic regions. These geographic regions resulted in three reportable segments: (i) Americas, (ii) Europe and Africa, and (iii) Asia Pacific and Middle East. RSM operated its business by product line, and had two reportable segments: (i) Specialty Resins and Monomers (“SRM”) and (ii) Inks. BCI had four reportable business segments: (i) Forest Products, (ii) Performance Resins, (iii) International and (iv) Bakelite, which was acquired by BCI in April 2005. Consolidated results for RSM and BCI also include Corporate & Other, which includes general and administrative expenses.

The following tables include the stand-alone disclosures for each of the nine historical segments in accordance with SFAS No. 131. In addition, the Company has voluntarily included the RSM and BCI information using the same segments utilized by RPP because management deems the additional segment data to be beneficial for an enhanced understanding of the combined entity.

Net sales to external customers:

	Nine months ended September 30, 2005
	RPP		RSM		BCI (1)		Elim. (2)			Total
Americas	$	405	$	393	$	1,245	$	(12	)	$	2,031
Europe and Africa		530		276		398		(30	)		1,174
Asia Pacific and Middle East		1		9		102		—			112
Total	$	936	$	678	$	1,745	$	(42	)	$	3,317

	Nine months ended September 30, 2004
	RPP		RSM (3)		BCI (4)		Elim. (2)		Total
Americas	$	315	$	76	$	212	$	—	$	603
Europe and Africa		391		48		23		—		462
Asia Pacific and Middle East		2		2		12		—		16
Total	$	708	$	126	$	247	$	—	$	1,081

(1) Includes Bakelite results from the date of the Bakelite Acquisition.

(2) Entries to eliminate transactions between RPP, RSM and BCI.

(3) Includes results from August 2, 2004.

(4) Includes results from August 12, 2004.

F-30

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

Operating income (loss):

	Nine months ended September 30, 2005
	RPP			RSM			BCI (1)		Elim. (2)			Total
Americas	$	(18	)	$	(21	)	$	76	$	(1	)	$	36
Europe and Africa		79			44			7		(2	)		128
Asia Pacific and Middle East		(2	)		1			3		—			2
Total	$	59		$	24		$	86	$	(3	)	$	166

	Nine months ended September 30, 2004
	RPP		RSM (3)			BCI (4)			Elim. (3)		Total
Americas	$	1	$	(14	)	$	(30	)	$	—	$	(43	)
Europe and Africa		6		4			—			—		10
Asia Pacific and Middle East		—		—			1			—		1
Total	$	7	$	(10	)	$	(29	)	$	—	$	(32	)

(1) Includes Bakelite results from the date of the Bakelite Acquisition.

(2) Entries to eliminate intersegment transactions between RPP, RSM and BCI.

(3) Includes results from August 2, 2004.

(4) Includes results from August 12, 2004.

Total assets

	September 30, 2005
	RPP		RSM		BCI		Elim. (1)			Total
Americas	$	687	$	173	$	871	$	(18	)	$	1,713
Europe and Africa		562		217		614		(36	)		1,357
Asia Pacific and Middle East		1		15		111		—			127
Total	$	1,250	$	405	$	1,596	$	(54	)	$	3,197

	December 31, 2004
	RPP		RSM		BCI		Elim. (1)			Total
Americas	$	644		194	$	840	$	(4	)	$	1,674
Europe and Africa		611		193		131		—			935
Asia Pacific and Middle East		1		13		73		—			87
Total	$	1,256	$	400	$	1,044	$	(4	)	$	2,696

(1) Entries to eliminate transactions between RPP, RSM and BCI and to record deferred taxes.

F-31

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

Reconciliation of operating income to loss from continuing operations before income tax and minority interest:

	Nine months ended September 30, 2005			Nine months Ended September 30, 2004 (1)
Operating income (loss)	$	166		$	(32	)
Interest expense		(152	)		(73	)
Write-off of deferred financing fees		(17	)		—
Other non-operating expense, net		(14	)		—
Loss from continuing operations before income tax and minority interest	$	(17	)	$	(105	)

(1) Includes RSM results from August 2, 2004 and BCI results from August 12, 2004.

Set forth below is the segment reporting for RSM and BCI.

Segment reporting for RSM for the nine months ended September 30, 2005 and 2004:

	Nine months ended September 30, 2005			Nine months ended September 30, 2004 (1)
Net sales to external customers
SRM	$	545		$	98
Inks		133			28
Total	$	678		$	126
Operating income (loss)
SRM	$	47		$	(1	)
Inks		5			(2	)
Corporate and Other		(28	)		(7	)
Total	$	24		$	(10	)
	September 30, 2005			December 31, 2004
Total Assets
SRM	$	304		$	288
Inks		101			108
Corporate and Other		—			4
Total	$	405		$	400

(1) Includes results from August 2, 2004.

F-32

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

Segment reporting for BCI for the nine months ended September 30, 2005 and 2004:

	Nine months ended September 30, 2005 (2)			Nine months ended September 30, 2004 (1)
Net sales to external customers
Forest Products	$	766		$	132
Performance Resins		369			62
Bakelite(2)		297			—
International		313			53
Total	$	1,745		$	247
Segment EBITDA
Forest Products	$	90		$	15
Performance Resins		55			7
Bakelite(2)		14			—
International		30			3
Corporate and Other		(32	)		(2	)
Total	$	157		$	23

	September 30, 2005		December 31, 2004
Total Assets
Forest Products	$	373	$	403
Performance Resins		213		213
Bakelite		534		—
International		288		291
Corporate and Other		188		137
Total	$	1,596	$	1,044

(1) Includes results from August 12, 2004.

(2) Includes Bakelite results from the date of the Bakelite Acquisition.

F-33

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

Reconciliation of Segment EBITDA to net loss:

	Nine months ended September 30, 2005			Nine months ended September 30, 2004 (1)
Segment EBITDA—BCI:
Forest Products	$	90		$	15
Performance Resins		55			7
Bakelite		14			—
International		30			3
Corporate & Other		(32	)		(2	)
Operating expense not included in BCI Segment EDITDA		(24	)		(45	)
Depreciation and amortization-BCI		(47	)		(7	)
Operating income-RPP		59			7
Operating income (loss)-RSM		24			(10	)
Transaction costs and elimination of intercompany profits		(3	)		—
Total operating income (loss)—consolidated		166			(32	)
Interest expense—consolidated		(152	)		(73	)
Write-off of deferred financing fees		(17	)		—
Other non-operating expense—consolidated		(14	)		—
Income tax (expense) benefit—consolidated		(43	)		4
Minority interest in net (income) loss income of consolidated subsidiaries		(3	)		7
Loss from discontinued operations		(10	)		—
Net loss—consolidated	$	(73	)	$	(94	)

(1) Includes RSM results from August 2, 2004 and BCI results from August 12, 2004.

Segment EBITDA is equal to net income before depreciation and amortization, interest expense, other non-operating expenses or income, income taxes and other adjustments. Segment EBITDA is presented by reportable segment and for Corporate & Other of BCI for the nine months ended September 30, 2005 and 2004. Segment EBITDA information is presented with BCI’s segment disclosures because it is the measure used by BCI’s management in the evaluation of operating results and in determining allocations of capital resources among the business segments. It is also the metric used by BCI to set management and executive incentive compensation.

15. Guarantor/Non-Guarantor Subsidiary Financial Information

In conjunction with the Apollo acquisition of BCI, BCI formed two wholly owned finance subsidiaries to borrow $475 through a private debt offering. The Company and certain of its U.S. subsidiaries (the “combined subsidiary guarantors”) guarantee this debt. In addition, following the Combinations, the Company, the combined subsidiary guarantors and Hexion U.S. Finance Corporation (formerly known as Borden U.S. Finance) also guarantee the senior secured debt previously issued by RPP (“the RPP guaranteed debt”).

        The following information contains the condensed consolidating financial information for the parent, Hexion, the subsidiary issuers (Hexion U.S. Finance Corporation, formerly known as Borden U.S. Finance Corporation, Hexion Nova Scotia Finance, ULC (formerly known as Borden Nova Scotia, ULC) (“Nova Scotia, ULC”) HSC Capital Corporation (formerly known as RPP Capital Corporation) (“HSC Capital”), the combined

F-34

HEXION SPECIALTY CHEMICALS, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in millions, except share amounts and as otherwise indicated)

subsidiary guarantors (BDS Two, Inc., Borden Chemical Investments, Inc., Borden Chemical Foundry, Inc., Lawter International, Inc., Borden Chemical International, Inc., Bakelite North America Holding Company, Bakelite Epoxy Polymers Corporation, Oilfield Technology Group, Inc. and Borden Services Company) and the combined non-guarantor subsidiaries, which includes all of the Company’s foreign subsidiaries and HAI. All of the subsidiary issuers and subsidiary guarantors are owned 100% by Hexion. All guarantees are full and unconditional and are joint and several. There are no significant restrictions on the ability of the Company to obtain funds from its domestic subsidiaries by dividend or loan. While the Company’s Australian subsidiary and HAI are restricted in the payment of dividends and intercompany loans due to the terms of their credit facilities, there are no material restrictions on the Company’s ability to obtain cash from the remaining U.S. non-guarantor subsidiaries.

This information includes allocations of corporate overhead to the combined non-guarantor subsidiaries based on net sales. Income tax expense has been provided on the combined non-guarantor subsidiaries based on actual effective tax rates. All other tax expense is reflected in the parent.

F-35

Notes to Condensed Consolidated Financial Statements

(Dollars in millions)

HEXION SPECIALTY CHEMICALS, INC.

NINE MONTHS ENDED SEPTEMBER 30, 2005

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Specialty Chemicals, Inc.			Subsidiary Issuers (1)			Combined Subsidiary Guarantors			Combined Non- Guarantor Subsidiaries		Eliminations			Consolidated
Net sales	$	1,625		$	—		$	67		$	1,835	$	(210	)	$	3,317
Cost of sales		1,428			—			66			1,544		(207	)		2,831
Gross profit		197			—			1			291		(3	)		486
Selling, general & administrative expense		135			—			4			151		—			290
Transaction related costs		25			—			—			9		—			34
Other operating (income) expense		(5	)		—			(2	)		3		—			(4	)
Operating income (loss)		42			—			(1	)		128		(3	)		166
Interest expense		101			40			—			11		—			152
Write-off of deferred financing fees		9			6			—			2		—			17
Intercompany royalty expense (income)		17			—			(19	)		2		—			—
Intercompany interest expense (income)		197			(42	)		(185	)		30		—			—
Equity in earnings of subsidiaries, net		(212	)		—			(6	)		—		218			—
Other non-operating expense		(5	)		1			—			18		—			14
(Loss) income from continuing operations before income tax and minority interest		(65	)		(5	)		209			65		(221	)		(17	)
Income tax expense		2			—			1			40		—			43
(Loss) income from continuing operations before minority interest		(67	)		(5	)		208			25		(221	)		(60	)
Minority interest in net income of consolidated subsidiaries		3			—			—			—		—			3
(Loss) income from continuing operations		(70	)		(5	)		208			25		(221	)		(63	)
Loss from discontinued operations		3			—			—			7		—			10
Net (loss) income	$	(73	)	$	(5	)	$	208		$	18	$	(221	)	$	(73	)

(1) Subsidiary issuers include Hexion U.S. Finance Corporation, HSC Capital and Nova Scotia, ULC. Hexion U.S. Finance Corporation is also a guarantor of the RPP guaranteed debt. HSC Capital is also a subsidiary guarantor of the debt issued by Hexion U.S. Finance Corporation and Nova Scotia, ULC. The primary asset of the Hexion U.S. Finance Corporation is an intercompany receivable from Hexion (the parent) for $197, which is essentially offset by the debt payable. HSC Capital has no significant assets.

F-36

Notes to Condensed Consolidated Financial Statements

(Dollars in millions)

HEXION SPECIALTY CHEMICALS, INC.

NINE MONTHS ENDED SEPTEMBER 30, 2004

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (Unaudited)

	Hexion Specialty Chemicals, Inc.			Subsidiary Issuers(1)			Combined Subsidiary Guarantors(1)			Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	541		$	—		$	13		$	580		$	(53	)	$	1,081
Cost of sales		497			—			14			510			(53	)		968
Gross profit (loss)		44			—			(1	)		70			—			113
Selling, general & administrative expense		40			—			1			57			—			98
Transaction related costs		26			—			—			21			—			47
Other operating (income) expense		(5	)		—			(1	)		6			—			—
Operating loss		(17	)		—			(1	)		(14	)		—			(32	)
Interest expense		66			6			—			1			—			73
Intercompany interest expense (income)		16			(6	)		(18	)		8			—			—
Equity in earnings (loss) of subsidiaries, net		5			—			(1	)		—			(4	)		—
Other non-operating (income) expense		(1	)		—			—			1			—			—
(Loss) income before income tax and minority interest		(103	)		—			18			(24	)		4			(105	)
Income tax benefit		(2	)		—			—			(2	)		—			(4	)
(Loss) income before minority interest		(101	)		—			18			(22	)		4			(101	)
Minority interest in net loss of consolidated subsidiaries		(7	)		—			—			—			—			(7	)
Net (loss) income	$	(94	)	$	—		$	18		$	(22	)	$	4		$	(94	)

(1) The nine month data for 2004 reflects RPP results for the full year, RSM results from August 2, 2004 and BCI results from August 12, 2004.

F-37

Notes to Condensed Consolidated Financial Statements

(Dollars in millions)

HEXION SPECIALTY CHEMICALS, INC.

SEPTEMBER 30, 2005

CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)

	Hexion Specialty Chemicals, Inc.			Subsidiary Issuers (1)			Combined Subsidiary Guarantors		Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current Assets
Cash and equivalents	$	12		$	—		$	1	$	151		$	—		$	164
Accounts receivable, net		177			—			16		414			—			607
Accounts receivable from (payable to) affiliates		(2	)		2			1		(1	)		—			—
Inventories:
Finished and in-process goods		127			—			8		161			—			296
Raw materials and supplies		60			—			5		91			—			156
Other current assets		118			—			1		29			—			148
		492			2			32		845			—			1,371
Other Assets
Investment in subsidiaries		6,815			—			14		—			(6,829	)		—
Intercompany loans receivable		—			652			6,349		73			(7,074	)		—
Other assets		54			20			2		23			—			99
		6,869			672			6,365		96			(13,903	)		99
Property and Equipment, net		661			—			7		743			—			1,411
Goodwill		59			—			—		87			—			146
Other Intangible Assets, net		97			—			—		73			—			170
Total Assets	$	8,178		$	674		$	6,404	$	1,844		$	(13,903	)	$	3,197
LIABILITIES, REDEEMABLE PREFERRED STOCK, COMMON STOCK AND OTHER SHAREHOLDERS’ (DEFICIT) EQUITY
Current Liabilities
Accounts and drafts payable	$	185		$	—		$	11	$	244		$	—		$	440
Debt payable within one year		17			—			—		44			—			61
Loans payable to affiliates		2			—			3		(5	)		—			—
Interest payable		38			12			—		—			—			50
Income taxes payable		38			—			—		27			—			65
Other current liabilities		136			—			1		83			—			220
		416			12			15		393			—			836
Other Liabilities
Long-term debt		1,368			625			—		313			—			2,306
Intercompany loans payable		6,601			(12	)		—		485			(7,074	)		—
Non-pension postemployment benefit obligations		114			—			—		23			—			137
Deferred income taxes		14			—			—		141			—			155
Other long-term liabilities		172			—			—		95			—			267
		8,269			613			—		1,057			(7,074	)		2,865
Minority interest in consolidated subsidiaries		8			—			—		3			—			11
Redeemable preferred stock		352			—			—		—			—			352
Common Stock and Other Shareholders’ (Deficit) Equity		(867	)		49			6,389		391			(6,829	)		(867	)
Total Liabilities Redeemable Preferred Stock, Common Stock and Other Shareholders’ (Deficit) Equity	$	8,178		$	674		$	6,404	$	1,844		$	(13,903	)	$	3,197

(1) Subsidiary issuers include Hexion U.S. Finance Corporation, HSC Capital and Nova Scotia, ULC. Hexion U.S. Finance Corporation is also a guarantor of the RPP guaranteed debt. HSC Capital is also a subsidiary guarantor of the debt issued by Hexion U.S. Finance Corporation and Nova Scotia, ULC. The primary asset of the Hexion U.S. Finance Corporation is an intercompany receivable from Hexion (the parent) for $197, which is essentially offset by the debt payable. HSC Capital has no significant assets.

F-38

Notes to Condensed Consolidated Financial Statements

(Dollars in millions)

HEXION SPECIALTY CHEMICALS, INC.

DECEMBER 31, 2004

CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)

	Hexion Specialty Chemicals, Inc.			Subsidiary Issuers (1)			Combined Subsidiary Guarantors		Combined Non- Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets
Cash and equivalents	$	63		$	—		$	9	$	80	$	—		$	152
Accounts receivable, net		198			—			15		305		—			518
Accounts receivable from affiliates		10			—			—		—		(10	)		—
Inventories:
Finished and in-process goods		152			—			8		130		—			290
Raw materials and supplies		52			—			6		57		—			115
Other current assets		43			—			1		10		10			64
		518			—			39		582		—			1,139
Other Assets
Investment in subsidiaries		6,648			—			16		—		(6,664	)		—
Intercompany loans receivable		189			482			6,152		—		(6,823	)		—
Other assets		29			19			—		47		—			95
		6,866			501			6,168		47		(13,487	)		95
Property and Equipment, net		636			—			8		679		—			1,323
Goodwill		35			—			—		16		—			51
Other Intangible Assets, net		82			—			—		6		—			88
Total Assets	$	8,137		$	501		$	6,215	$	1,330	$	(13,487	)	$	2,696
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY
Current Liabilities
Accounts and drafts payable	$	228		$	—		$	9	$	251	$	—		$	488
Accounts payable to affiliates		2			(14	)		15		—		(3	)		—
Debt payable within one year		8			—			—		8		—			16
Interest payable		22			14			—		—		—			36
Income taxes payable		33			—			—		—		—			33
Other current liabilities		85			—			1		44		3			133
		378			—			25		303		—			706
Other Liabilities
Long-term debt		1,348			475			—		11		—			1,834
Intercompany loans payable		6,390			—			—		433		(6,823	)		—
Non-pension postemployment benefit obligations		120			—			—		22		—			142
Deferred income taxes		34			—			—		97		—			131
Other long-term liabilities		122			—			1		15		—			138
		8,014			475			1		578		(6,823	)		2,245
Minority interest in consolidated subsidiaries		54			—			—		—		—			54
Shareholders’ (Deficit) Equity		(309	)		26			6,189		449		(6,664	)		(309	)
Total Liabilities and Shareholders’ (Deficit) Equity	$	8,137		$	501		$	6,215	$	1,330	$	(13,487	)	$	2,696

(1) Subsidiary issuers include Hexion U.S. Finance Corporation, HSC Capital and Nova Scotia, ULC. Hexion U.S. Finance Corporation is also a guarantor of the RPP guaranteed debt. HSC Capital is also a subsidiary guarantor of the debt issued by Hexion U.S. Finance Corporation and Nova Scotia, ULC. The primary asset of the Hexion U.S. Finance Corporation is an intercompany receivable from Hexion (the parent) for $197, which is essentially offset by the debt payable. HSC Capital has no significant assets.

F-39

Notes to Condensed Consolidated Financial Statements

(Dollars in millions)

HEXION SPECIALTY CHEMICALS, INC.

NINE MONTHS ENDED SEPTEMBER 30, 2005

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

	Hexion Specialty Chemicals, Inc.			Subsidiary Issuers (1)			Combined Subsidiary Guarantors			Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash Flows from (used in) Operating Activities	$	(57	)	$	37		$	7		$	116		$	—		$	103
Cash Flows (used in) from Investing Activities
Capital expenditures		(33	)		—			—			(30	)		—			(63	)
Acquisition of businesses		(4	)		—			—			(230	)		—			(234	)
Proceeds from sale of business		—			—			3			—			—			3
Investment in subsidiary		(95	)		—			—			—			95			—
Dividend from subsidiary		100			—			—			—			(100	)		—
		(32	)		—			3			(260	)		(5	)		(294	)
Cash flows from (used in) Financing Activities
Net short-term debt repayments		(8	)		—			—			(4	)		—			(12	)
Borrowings of long-term debt		465			398			—			331			—			1,194
Repayments of long-term debt		(456	)		(250	)		—			(48	)		—			(754	)
Proceeds from issuance of preferred stock, net of issuance costs		334			—			—			—			—			334
Affiliated loan (repayments) borrowings		229			(181	)		(9	)		(39	)		—			—
Long-term debt and credit facility financing fees paid		(10	)		(4	)		—			(8	)		—			(22	)
IPO related costs		(8	)		—			—			—			—			(8	)
Dividends paid		(508	)		—			(9	)		(106	)		100			(523	)
Capital contribution from affiliates		—			—			—			95			(95	)		—
		38			(37	)		(18	)		221			5			209
Effect of exchange rates on cash and equivalents		—			—			—			(6	)		—			(6	)
Increase (decrease) in cash and equivalents		(51	)		—			(8	)		71			—			12
Cash and equivalents at beginning of period		63			—			9			80			—			152
Cash and equivalents at end of period	$	12		$	—		$	1		$	151		$	—		$	164

(1) Subsidiary issuers include Hexion U.S. Finance Corporation, HSC Capital and Nova Scotia, ULC. Hexion U.S. Finance Corporation is also a guarantor of the RPP guaranteed debt. HSC Capital is also a subsidiary guarantor of the debt issued by Hexion U.S. Finance Corporation and Nova Scotia, ULC. The primary asset of the Hexion U.S. Finance Corporation is an intercompany receivable from Hexion (the parent) for $197, which is essentially offset by the debt payable. HSC Capital has no significant assets.

F-40

Notes to Condensed Consolidated Financial Statements

(Dollars in millions)

HEXION SPECIALTY CHEMICALS, INC.

NINE MONTHS ENDED SEPTEMBER 30, 2004

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (Unaudited)

	Hexion Specialty Chemicals, Inc.			Subsidiary Issuers(1)(2)		Combined Subsidiary Guarantors(2)			Combined Non- Guarantor Subsidiaries			Eliminations		Consolidated
Cash Flows (used in) from Operating Activities	$	(289	)	$	—	$	29		$	183		$	—	$	(77	)
Cash Flows (used in) Investing Activities
Capital expenditures		(22	)		—		—			(7	)		—		(29	)
Acquisition of businesses, net of cash acquired		17			—		(24	)		(145	)		—		(152	)
Cash combination of BCI		185			—		—			—			—		185
Proceeds from the sale of business, net of cash		260			—		—			(260	)		—		—
Proceeds from the sale of assets		4			—		—			—			—		4
		444			—		(24	)		(412	)		—		8
Cash flows from (used in) Financing Activities
Net short-term debt repayments		(4	)		—		—			(2	)		—		(6	)
Borrowings of long-term debt		165			—		—			18			—		183
Repayments of long-term debt		(93	)		—		—			(18	)		—		(111	)
Affiliated loan (repayments)		(274	)		—		—			274			—		—
Proceeds from issuance of common stock		60			—		—			—			—		60
		(146	)		—		—			272			—		126
Effect of exchange rates on cash and equivalents		—			—		—			1			—		1
Increase in cash and equivalents		9			—		5			44			—		58
Cash and equivalents at beginning of period		34			—		—			15			—		49
Cash and equivalents at end of period	$	43		$	—	$	5		$	59		$	—	$	107

(1) Subsidiary issuers include Hexion U.S. Finance Corporation, HSC Capital and Nova Scotia, ULC. Hexion U.S. Finance Corporation is also a guarantor of the RPP guaranteed debt. HSC Capital is also a subsidiary guarantor of the debt issued by Hexion U.S. Finance Corporation and Nova Scotia, ULC. The primary asset of the Hexion U.S. Finance Corporation is an intercompany receivable from Hexion (the parent) for $197, which is essentially offset by the debt payable. HSC Capital has no significant assets.

(2) The nine month data for 2004 reflects RPP results for the full year, RSM results from August 2, 2004 and BCI results from August 12, 2004.

F-41

Notes to Condensed Consolidated Financial Statements

(Dollars in millions)

16. Subsequent Event

a. The Rhodia Business Unit Acquisition

On November 3, 2005, the Company signed a definitive agreement to purchase the decorative coatings and adhesives business unit of The Rhodia Group. The Rhodia business had 2004 sales of approximately €150, with 8 manufacturing facilities in Europe, Australia and Thailand. Closing will occur upon successful completion of normal governmental reviews.

b. The Akzo Nobel Business Unit Acquisition

On November 25, 2005, the Company signed an offer to purchase the global ink and adhesive resins business of Akzo Nobel for €88. The Akzo business had 2004 sales of approximately €166, with 10 manufacturing facilities in Europe, North and South America and the Asia-Pacific region. Closing will occur upon successful completion of normal government reviews and consultations with employee works councils.

c. Sixth Amendment to the Registration Statement

On April 25, 2005, the Company had filed a registration statement, which is not yet effective, with the SEC for a proposed IPO of its common stock. On November 21, 2005, the Company filed a subsequent sixth amendment to its registration statement for which five amendments had been filed in the past on May 2, 2005, June 13, 2005, July 15, 2005, August 26, 2005 and September 19, 2005.

F-42

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Hexion Specialty Chemicals, Inc.:

In our opinion, based on our audits and the report of other auditors, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders’ equity (deficit) and cash flows present fairly, in all material respects, the financial position of Hexion Specialty Chemicals, Inc. and its subsidiaries at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, based on our audits and the report of other auditors, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and this financial statement schedule based on our audits. We did not audit the financial statements of Borden Chemical, Inc., a company which has been consolidated with other entities to form the Company, which statements reflect total assets of $1,044 million as of December 31, 2004, and total revenues of $702 million for the period of August 12, 2004 to December 31, 2004. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Borden Chemical, Inc., is based solely on the report of the other auditors. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

PRICEWATERHOUSECOOPERS LLP

Columbus, Ohio

August 25, 2005, except for Note 17h as to which

the date is September 19, 2005 and Note 17i as to which

the date is September 21, 2005

F-43

HEXION SPECIALTY CHEMICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2004			2003			2002
	(in millions, except for share and per share data)
Net sales	$	2,019		$	782		$	740
Cost of sales		1,785			714			601
Gross profit		234			68			139
Selling, general & administrative expense		163			81			82
Transaction related costs (see Note 3)		56			—			—
Impairments		2			13			—
Other operating expense (income)		4			(3	)		16
Operating income (loss)		9			(23	)		41
Interest expense		118			77			65
Other non-operating expense		4			—			—
Loss before income tax and minority interest		(113	)		(100	)		(24	)
Income tax benefit		—			(37	)		(10	)
Loss before minority interest		(113	)		(63	)		(14	)
Minority interest in net loss of consolidated subsidiaries		(8	)		(13	)		(3	)
Net loss	$	(105	)	$	(50	)	$	(11	)
Comprehensive (loss) income	$	(36	)	$	(9	)	$	28
Basic and Diluted Per Share Data
Net loss	$	(1.27	)	$	(0.61	)	$	(0.13	)
Average number of common shares outstanding during the period—basic and diluted		82,629,906			82,629,906			82,629,906

See Notes to Consolidated Financial Statements

F-44

HEXION SPECIALTY CHEMICALS, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2004			2003
	(in millions)
ASSETS
Current Assets
Cash and equivalents	$	152		$	49
Accounts receivable (less allowance for doubtful accounts of $15 in 2004 and $3 in 2003)		518			110
Inventories:
Finished and in-process goods		290			119
Raw materials and supplies		115			26
Deferred tax assets		14			5
Other current assets		50			9
		1,139			318
Other Assets		95			37
Property and Equipment
Land		44			1
Buildings		201			41
Machinery and equipment		1,706			867
		1,951			909
Less accumulated depreciation		(628	)		(145	)
		1,323			764
Goodwill		51			—
Other Intangible Assets		88			72
Total Assets	$	2,696		$	1,191

See Notes to Consolidated Financial Statements

F-45

HEXION SPECIALTY CHEMICALS, INC.

CONSOLIDATED BALANCE SHEETS—(Continued)

	December 31,
	2004			2003
	(in millions)
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY
Current Liabilities
Accounts and drafts payable	$	488		$	108
Debt payable within one year		16			8
Interest payable		36			10
Income taxes payable		33			—
Other current liabilities		133			15
		706			141
Other Liabilities
Long-term debt		1,834			675
Non-pension postemployment benefit obligations		142			26
Long-term pension obligations		73			7
Deferred tax liability		131			141
Other long-term liabilities		65			4
		2,245			853
Minority interest in consolidated subsidiaries		54			45
Commitments and Contingencies (See Notes 7 and 9)
Shareholders’ (Deficit) Equity (See Note 12)
Common stock		1			1
Treasury stock		(296	)		—
Paid-in capital		1,523			143
Receivable from parent of BCI		(561	)		—
Accumulated other comprehensive income		20			82
Accumulated deficit		(996	)		(74	)
		(309	)		152
Total Liabilities and Shareholders’ (Deficit) Equity	$	2,696		$	1,191

See Notes to Consolidated Financial Statements

F-46

HEXION SPECIALTY CHEMICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31,
	2004			2003			2002
	(In millions)
Cash Flows from (used in) Operating Activities
Net loss	$	(105	)	$	(50	)	$	(11	)
Adjustments to reconcile net loss to net cash (used in) from operating activities:
Depreciation and amortization		86			58			47
Minority interest in net loss of consolidated subsidiaries		(8	)		(13	)		(3	)
Gain on the sale of assets		—			(3	)		(1	)
Deferred tax provision		(3	)		(37	)		(10	)
Deferred compensation expense		4			—			—
Impairments		2			13			—
Other non-cash adjustments		—			(2	)		(1	)
Net change in assets and liabilities:
Accounts receivable		(81	)		9			14
Inventories		(53	)		10			(7	)
Accounts and drafts payable		133			(46	)		23
Income taxes payable		—			10			7
Other assets		(15	)		14			4
Other liabilities		8			(6	)		2
		(32	)		(43	)		64
Cash Flows from (used in) Investing Activities
Capital expenditures		(57	)		(18	)		(48	)
RSM acquisition activity, net of cash acquired		(152	)		—			—
Cash combination of BCI		185			—			—
Proceeds from the sale of assets		4			23			2
Distributions from equity affiliates		—			2			1
		(20	)		7			(45	)
Cash Flows from (used in) Financing Activities
Net short-term borrowings		(6	)		—			—
Borrowings of long-term debt		293			748			223
Repayments of long-term debt		(195	)		(645	)		(247	)
Proceeds of the issuance of common stock		60			—			—
Other		(4	)		(23	)		3
		148			80			(21	)
Effect of exchange rates on cash and equivalents		7			1			—
Increase (decrease) in cash and equivalents		103			45			(2	)
Cash and equivalents at beginning of year		49			4			6
Cash and equivalents at end of year	$	152		$	49		$	4
Supplemental Disclosures of Cash Flow Information
Cash paid (received):
Interest, net	$	102		$	63		$	60
Income taxes, net		3			(19	)		(10	)
Non-cash activity:
Reclassification of minimum pension liability adjustment from shareholders’ equity		2			—			—
Issuance of Note in RSM Transaction		50			—			—

See Notes to Consolidated Financial Statements

F-47

HEXION SPECIALTY CHEMICALS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY

	Common Stock		Treasury Stock			Paid-in Capital		Receivable from Parent of BCI			Accumulated Other Comprehensive Income (a)			Accumulated Deficit			Total
	(In millions)
Balance, December 31, 2001	$	1	$	—		$	142	$	—		$	2		$	(11	)	$	134
Net loss		—		—			—		—			—			(11	)		(11	)
Translation adjustments		—		—			—		—			33			—			33
Interest rate swap, net of tax		—		—			—		—			6			—			6
Comprehensive income																		28
Capital contribution		—		—			1		—			—			—			1
Balance, December 31, 2002		1		—			143		—			41			(22	)		163
Net loss		—		—			—		—			—			(50	)		(50	)
Translation adjustments		—		—			—		—			40			—			40
Interest rate swap, net of tax		—		—			—		—			1			—			1
Comprehensive loss																		(9	)
Constructive distribution		—		—			—		—			—			(2	)		(2	)
Balance, December 31, 2003		1		—			143		—			82			(74	)		152
Net loss		—		—			—		—			—			(105	)		(105	)
Translation adjustments		—		—			—		—			67			—			67
Minimum pension liability adjustment (net of tax)		—		—			—		—			2			—			2
Comprehensive loss																		(36	)
Acquisition of RSM to Consolidated group		—		—			57		—			—			—			57
Acquisition of BCI to Consolidated group		—		(296	)		1,252		(542	)		(131	)		(817	)		(534	)
Interest accrued on notes from parent of BCI		—		—			19		(19	)		—			—			—
Compensation expense under deferred compensation plan		—		—			4		—			—			—			4
Deferred tax adjustments as a result of combination		—		—			48		—			—			—			48
Balance, December 31, 2004	$	1	$	(296	)	$	1,523	$	(561	)	$	20		$	(996	)	$	(309	)

(a) Accumulated other comprehensive income at December 31, 2004 includes a $96 net gain on foreign currency translation and a $76 net loss relating to the Company’s minimum pension liability adjustment. Accumulated other comprehensive income at December 31, 2003 represents $82 of net foreign currency translation gains. Accumulated other comprehensive income at December 31, 2002 is comprised of $42 of foreign currency translation gains, partially offset by a $1 loss on interest rate swap.

See Notes to Consolidated Financial Statements

F-48

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements

(In millions, except for share and per share data)

1. Background and Nature of Operations

Hexion Specialty Chemicals, Inc. (“Hexion” or “the Company”) is engaged in the manufacture and marketing of resins, inks, coating and adhesive resins, formaldehyde, oilfield products and other specialty and industrial chemicals worldwide. Hexion was formed on May 31, 2005 upon the combination of three Apollo Management, L.P. (“Apollo”) controlled companies (the “Hexion Combination”), Resolution Performance Products, LLC (“RPP”), Borden Chemical, Inc. (“BCI”) and Resolution Specialty Materials, Inc. (“RSM Inc.”). Apollo acquired RPP on November 14, 2000, formed RSM Inc. and purchased the Specialty Resins and Monomers and Ink businesses of Eastman Chemical Company (“Eastman”) on August 2, 2004 through a subsidiary (the “RSM Transaction”), Resolution Specialty Materials, LLC (“RSM”), and acquired BCI on August 12, 2004 (see Note 3). Upon consummation of the Hexion Combination, BCI changed its name to Hexion Specialty Chemicals, Inc., and BHI Acquisition LLC (“BHI Acquisition”), the Company’s parent, changed its name to Hexion LLC. At December 31, 2004, the Company has 74 manufacturing and processing facilities, of which 39 are located in the U.S. During 2004, approximately 51% of the Company’s sales were generated in the U.S.

Basis of Presentation—Prior to the Hexion Combination, RPP, RSM Inc. and BCI were considered entities under the common control of Apollo affiliates as defined in Emerging Issues Task Force Issue No. 02-5 “Definition of Common Control in Relation to FASB Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations”. As a result of the Hexion Combination, the financial statements of these entities are presented retroactively on a consolidated basis, in a manner similar to a pooling of interests, and include the results of operations of each business only from the date of acquisition by the Apollo affiliates.

The accompanying Hexion Consolidated Financial Statements include the following entities: RPP and its majority-owned subsidiaries as of and for the years ended December 31, 2004, 2003 and 2002; RSM and its majority-owned subsidiaries as of and for the period from August 2, 2004 (effective date of Apollo acquisition) through December 31, 2004; and BCI and its majority-owned subsidiaries as of and for the period from August 12, 2004 (date of Apollo acquisition) to December 31, 2004. RPP and RSM reflect the purchase method of accounting. BCI elected not to apply push-down accounting because it is a public reporting registrant as a result of public debt that was outstanding prior and subsequent to the acquisition by Apollo.

2. Summary of Significant Accounting Policies

Significant accounting policies followed by the Company, as summarized below, are in conformity with generally accepted accounting principles.

Principles of Consolidation—The Consolidated Financial Statements include the accounts of RPP, RSM and BCI and their majority-owned subsidiaries in which no substantive participating rights are held by minority shareholders, after elimination of intercompany accounts and transactions. The Company’s share of the net earnings of 20% to 50% owned companies, for which it has the ability to exercise significant influence over operating and financial policies, are included in income on an equity basis. Investments of other companies are carried at cost.

The Company has recorded a minority interest liability for the equity interests in subsidiaries that are not 100% owned by the Company. At December 31, 2004, the minority interest liability primarily reflects the equity interests in RPP and RSM held by management and other third parties. The RPP and RSM minority ownership interests were acquired on May 31, 2005 in connection with the Hexion Combination. See Note 17.

Use of Estimates—The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported

F-49

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. The most significant estimates reflected in the financial statements include environmental remediation, legal liabilities, deferred tax assets and liabilities and related valuation allowances, income tax accruals, pension and postretirement assets and liabilities, valuation allowances for accounts receivable and inventories, general insurance liabilities, asset impairments and related party transactions. Actual results could differ from estimated amounts.

Cash and Equivalents—The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 2004 and 2003, the Company had interest bearing time deposits and other cash equivalent investments of $72 and $0, respectively, included on the Balance Sheet as Cash and equivalents.

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

Property and Equipment—Land, buildings, and machinery and equipment are valued at cost. Depreciation is recorded on the straight-line basis by charges to expense at rates based on estimated useful lives of properties (average estimated useful life for buildings is 20 years; average useful life for machinery and equipment is 15 years). Major renewals and betterments are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. Depreciation expense was $81, $54 and $43 for the years ended December 31, 2004, 2003, and 2002, respectively.

Deferred Expenses—Deferred financing costs are classified as Other assets on the Consolidated Balance Sheets and are amortized over the life of the related debt or credit facility using the straight-line method since no installment payments are required. Upon retirement of any of the related debt, a proportional share of debt issuance costs is expensed. At December 31, 2004 and 2003, the unamortized balances were $54 and $24, respectively.

Goodwill and Intangibles—The excess of purchase price over net tangible and identifiable intangible assets of businesses acquired are carried as Goodwill on the Consolidated Balance Sheets. The Company does not amortize goodwill. Certain trademarks, patents and other intangible assets used in the operations of the business are carried as Other Intangible Assets on the Consolidated Balance Sheets. Intangible assets with determinable lives are amortized on a straight-line basis over the shorter of the legal or useful life of the asset, which ranges from 4 to 20 years. See Note 5.

Impairment—As events warrant, the Company evaluates the recoverability of long-lived assets by assessing whether the carrying value of the assets can be recovered over their remaining useful lives through the expected future undiscounted operating cash flows of the underlying business. Any impairment loss required is determined by comparing the carrying value of the assets to operating cash flows on a discounted basis.

The Company performs an annual impairment test for goodwill and indefinite-lived intangible assets. See Note 5.

General Insurance—The Company maintains insurance policies for losses and liabilities relating to workers’ compensation, health and welfare claims, physical damage to property, business interruption and comprehensive general, product and vehicle liability for operations related to RPP and RSM. For operations related to BCI, the Company is generally self-insured for such claims but maintains insurance policies for certain items exceeding deductible limits. Losses are accrued for the estimated aggregate liability for claims using

F-50

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

certain actuarial assumptions followed in the insurance industry and the Company’s experience. The Company maintains a liability for certain self-insured claims incurred but not yet recorded, based on actuarial estimates. The Company’s reserves for self-insurance totaled $4 at December 31, 2004.

Legal Costs—The Company accrues for legal costs in the period in which a claim is made or an event becomes known, if the amounts are probable and reasonably estimable. Each claim is assigned a range of potential liability, with the most likely amount being accrued. The amount accrued includes all costs associated with a claim, including settlements, assessments, judgments, fines and legal fees.

Revenue Recognition—Revenue for product sales, net of allowances, is recognized as risk and title to the product transfer to the customer, which either occurs at the time shipment is made or upon delivery. In situations where product is delivered by pipeline, risk and title transfers when the product moves across an agreed transfer point, which is typically the customers’ property line. Product sales delivered by pipeline are measured based on daily flow meter readings. The Company’s standard terms of delivery are included in its contracts of sale and invoices.

Shipping and Handling—The Company records freight billed to customers in net sales. Shipping costs are incurred to move the Company’s products from production and storage facilities to the customer. Handling costs are incurred from the point the product is removed from inventory until it is provided to the shipper and generally include costs to store, move and prepare the products for shipment. Shipping and handling costs are recorded in Cost of sales in the Consolidated Statements of Operations.

Research and Development Costs—Funds are committed to research and development for technical improvement of products and processes that are expected to contribute to operating profits in future years. All costs associated with research and development are charged to expense as incurred. Research and development and technical service expenditures were $30, $16 and $20 for the years ended December 31, 2004, 2003 and 2002, respectively.

Foreign Currency Translations—Assets and liabilities of foreign affiliates are translated at the exchange rates in effect at the balance sheet date, and income and expenses are translated at average exchange rates prevailing during the year. The effect of translation is accounted for as an adjustment to Shareholders’ Equity (Deficit) and is included in Other comprehensive income (loss).

Income Taxes—The Company provides for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes”. SFAS 109 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of the assets and liabilities.

Deferred tax balances are adjusted to reflect tax rates, based on current tax laws, that will be in effect in the years in which temporary differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Derivative Financial Instruments—The Company is party to forward exchange contracts and options and natural gas futures to reduce its cash flow exposure to changes in foreign exchange rates and natural gas prices. The Company does not hold or issue derivative financial instruments for trading purposes. These instruments are not accounted for using hedge accounting, but are measured at fair value and recorded on the balance sheet as an asset or liability, depending upon the Company’s underlying rights or obligations. See Note 6.

F-51

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

Loss Per Share—As a result of the Hexion Combination, the Company’s capital structure consists of 82,629,906 shares outstanding (see Note 12). For purposes of calculating loss per share, 82,629,906 was used as the number of outstanding shares for all periods presented as no new shares were issued as a result of the legal merger of RPP, RSM and BCI on May 31, 2005. This presentation reflects the post-merger capital structure of the Company for all periods on a consistent basis. The Company did not have any potentially dilutive instruments for all periods presented.

Stock-Based Compensation—The Company accounts for stock-based compensation under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) and has adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure”, an amendment of SFAS No. 123.

The following table sets forth the required annual reconciliation of reported and pro forma net loss under SFAS No. 148:

	2004			2003			2002
Net loss, as reported	$	(105	)	$	(50	)	$	(11	)
Add: Stock-based employee compensation expense included in reported net income, net of related tax benefit		8			—			—
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(6	)		—			—
Pro-forma net loss	$	(103	)	$	(50	)	$	(11	)
Average number of common shares outstanding during the period—basic and diluted		82,629,906			82,629,906			82,629,906
Per share, as reported—basic and diluted	$	(1.27	)	$	(0.61	)	$	(0.13	)
Per share pro-forma—basic and diluted	$	(1.25	)	$	(0.61	)	$	(0.13	)

Prior to the Hexion Combination, RPP, RSM and BHI Acquisition (now Hexion LLC) maintained three stock option plans: the RPP 2000 Stock Option Plan (the “RPP plan”), the RSM 2004 Stock Option Plan (the “RSM plan”) and the BHI Acquisition 2004 Stock Incentive Plan (the “2004 Incentive Plan”). In addition to these option plans, the Company’s parent maintains a stock-based deferred compensation plan. The options granted under each of these plans were for the purchase of the common stock of the parent company of each of the respective companies; upon the Hexion Combination, the stock options under the RPP plan and RSM plan became denominated in Hexion LLC common units based upon relative fair value. As such, none of these options are denominated in the Company’s stock as of the date of the Hexion Combination. The Company does not intend to make future option grants from these plans subsequent to the Hexion Combination, but plans to adopt a new plan from which future grants of options to purchase the Company’s stock will be made.

F-52

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(Dollars in millions except per share data)

To determine pro forma compensation cost for the plans in accordance with SFAS No. 123, the fair value of each option grant was estimated at the date of the grant using the minimum value method and the Black-Scholes options pricing model with the following weighted averages rates, dividend rates and expected lives for each of the Company’s respective plans:

	2004									2003			2002
	RPP			RSM			BCI			RPP			RPP
Risk-free weighted average interest rate		4.50	%		3.90	%		3.54	%		4.23	%		5.54	%
Dividend Rate		0	%		0	%		0	%		0	%		0	%
Expected life		7.0 years			6.3 years			5.0 years			6.0 years			6.0 years
Estimated fair value of option grants (a)	$	—		$	0.77		$	1.01		$	—		$	13.75

(a) Fair value of option grants reflects the post-combination equivalent Hexion LLC common units giving effect to the reverse split (Note 17i).

The Company adopted SFAS No. 123R “Accounting for Stock Based Compensation” effective January 1, 2005. The adoption of SFAS No. 123R had no initial impact on the Company’s financial condition and results of operations.

Concentrations of Credit Risk—Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and accounts receivable. The Company places its temporary cash investments with high quality institutions and, by policy, limits the amount of credit exposure to any one institution. At December 31, 2004 and 2003 investments included $52 and $32, respectively, in a prime money market account and $18 and $0, respectively, in a guaranteed investment certificate. Remaining cash is held in several financial institutions. Concentrations of credit risk with respect to accounts receivable are limited, due to the large number of customers comprising the Company’s customer base and their dispersion across many different industries and geographies. The Company generally does not require collateral or other security to support customer receivables. For information on supplier concentrations, see Note 9.

Recently Issued Accounting Standards

In May 2004, the Financial Accounting Standards Board (“FASB”) issued Staff Position (“FSP”) 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.” This Position provides guidance on the accounting, disclosure, effective date, and transition requirements related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. FSP 106-2 is effective for interim or annual periods beginning after June 15, 2004. The Company did not experience a material impact from this FSP on its financial condition or results of operations.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs.” The statement amends Accounting Research Bulletin (“ARB”) No. 43, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. ARB No. 43 previously stated that these costs must be “so abnormal as to require treatment as current-period charges.” SFAS No. 151 requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this statement requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. The statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005, with earlier application permitted for fiscal years beginning after the issue date of the statement. The Company is evaluating the impact that this statement will have on its financial condition and results of operations.

In December 2004, the FASB revised its SFAS No. 123 (“SFAS No. 123R”), “Accounting for Stock Based Compensation.” The revision establishes standards for the accounting of transactions in which an entity

F-53

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(Dollars in millions except per share data)

exchanges its equity instruments for goods or services, particularly transactions in which an entity obtains employee services in share-based payment transactions. The revised statement requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is to be recognized over the period during which the employee is required to provide service in exchange for the award. Changes in fair value during the requisite service period are to be recognized as compensation cost over that period. In addition, the revised statement amends SFAS No. 95, “Statement of Cash Flows,” to require that excess tax benefits be reported as a financing cash flow rather than as a reduction of taxes paid. The provisions of the revised statement are effective for financial statements of non-public companies issued for the first annual reporting period beginning after June 15, 2005, with early adoption encouraged. The Company adopted Statement No. 123R as of January 1, 2005 on a prospective basis. The adoption of SFAS No. 123R had no initial impact on the Company’s financial condition and results of operations.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets – An Amendment of APB Opinion No. 29.” APB Opinion No. 29, “Accounting For Nonmonetary Transactions,” is based on the opinion that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. SFAS No. 153 amends Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets whose results are not expected to significantly change the future cash flows of the entity. The statement is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005 and is not expected to have any impact on the Company’s current financial condition or results of operations.

In December 2004, the FASB issued two FSPs that provide accounting guidance on how companies should account for the effects of the American Jobs Creation Act of 2004 that was signed into law on October 22, 2004. FSP FAS 109-1, “Application of FASB Statement No. 109, “Accounting for Income Taxes”, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004”, states that the manufacturers’ deduction provided for under this legislation should be accounted for as a special deduction instead of a tax rate change. FSP FAS 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004”, allows a company additional time to evaluate the effects of the legislation on any plan for reinvestment or repatriation of foreign earnings for purposes of applying Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes”. These FSPs are effective upon issuance. The FSPs did not have a material impact on the Company’s financial condition or results of operations.

In March 2005, the FASB issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations”, an interpretation of FASB Statement No. 143. This Interpretation clarifies that the term “conditional asset retirement obligation” as used in FASB No. 143, “Accounting for Asset Retirement Obligations”, refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation, when incurred, if the fair value of the liability can be reasonably estimated. The Interpretation is effective for the Company no later than the end of the fiscal year ending on December 31, 2005. The Company is currently evaluating the impact of this Interpretation on its consolidated financial statements.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3”. SFAS No. 154 replaces APB Opinion No. 20, “Accounting Changes,” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements”, and changes the requirements for the accounting for and reporting of a change in accounting

F-54

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does not include specific transition provisions. SFAS No. 154 is effective for fiscal years beginning after December 15, 2005. The Company will adopt SFAS No. 154 as of the effective date. However, it is not expected to have a material effect on the Company’s financial condition or results of operations.

3. Business Acquisitions and Divestitures

Acquisition of RSM

On August 2, 2004 (the Closing Date), RSM, as assignee of RSM Inc., purchased the Specialty Resins and Monomers and Ink businesses of Eastman Chemical Company (“Eastman”) for $192, including direct acquisition costs (“RSM Transaction”).

The RSM Transaction has been accounted for under the purchase method of accounting. The cost of the RSM Transaction was allocated to the assets acquired and liabilities assumed based on estimates of their respective fair values at the date of Acquisition. Fair values were determined based upon third party appraisals and internal studies. As the fair value of net assets acquired exceeded cost, no goodwill was recorded in the transaction.

The RSM Transaction agreement provides for a seller indemnification (“Eastman Indemnification”), whereby Eastman agreed to indemnify RSM and its affiliates for certain losses and associated expenses occurring within specified time periods. Items covered by the Eastman Indemnification include: (i) breaches by Eastman of its representations, warranties or covenants in the acquisition agreement; (ii) product liability claims brought against the Company that relate to the manufacture, distribution, marketing or sale of any products by the predecessor business that were manufactured prior to the Closing Date and sold within ninety (90) days following the Closing Date (except to the extent that such claims relate to the actions or negligent omissions of RSM or any of its Affiliates following the Closing Date); and (iii) liabilities of Eastman or the predecessor business that were not assumed by RSM in connection with its purchase of the predecessor business.

In connection with the RSM Transaction, RSM Inc. executed a Senior Subordinated Note Purchase Agreement (“Seller Note Financing”) with Eastman on August 2, 2004, which provided for the sale of $50 aggregate principal amount of Senior Subordinated Notes of RSM Inc. to Eastman that are due and payable in 2011. Such notes were delivered to Eastman as partial consideration of the RSM Transaction. See Note 7.

The following table summarizes the assets acquired and liabilities assumed at the date of acquisition of RSM.

	RSM at August 1, 2004
Current assets	$	196
Property, plant and equipment		89
Other assets		1
Intangible assets		—
Goodwill		—
Total assets acquired		286
Current liabilities		80
Long-term debt		3
Other liabilities		11
Total liabilities assumed		94
Net assets acquired	$	192

F-55

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

Acquisition of BCI by Apollo

On August 12, 2004, BHI Investment, LLC, an affiliate of Apollo, acquired all of the outstanding capital stock of Borden Holdings, Inc. (“BHI”), BCI’s parent at that time, for total consideration of approximately $1.2 billion, including assumption of debt.

The acquisition of BHI, and the payment of transaction fees and expenses, was financed with the net proceeds of a $475 second-priority senior secured private debt offering (the “Second Priority Notes”) by two newly formed, wholly owned subsidiaries of BCI and certain equity contributions to BHI Acquisition from Apollo. See Note 7. Collectively, these transactions are referred to as the “BCI Transaction.”

As a result of the acquisition by Apollo, BCI incurred transaction related costs of $56 for the period from August 12, 2004 to December 31, 2004 of which $32 is related to investment banking, accounting and legal fees and fees paid to Apollo and $14 is primarily related to management bonuses pertaining to the acquisition.

The following unaudited pro forma income statements for years ended December 31, 2004 and 2003 illustrate results of operations as though the business combinations had been completed at the beginning of the respective periods.

	2004
	Hexion			RSM Predecessor			BCI Predecessor			Total
Net sales	$	2,019		$	440		$	984		$	3,443
Net loss	$	(114	)	$	(95	)	$	(137	)	$	(346	)
Basic and diluted share data		N/A			N/A			N/A		$	(4.19	)

	2003
	Hexion			RSM Predecessor			BCI Predecessor		Total
Net sales	$	782		$	678		$	1,434	$	2,894
Net (loss) income	$	(83	)	$	(507	)	$	23	$	(567	)
Basic and diluted share data		N/A			N/A			N/A	$	(6.86	)

The net loss for 2004 includes a $9 charge for a one time purchase accounting step up adjustment relating to RSM inventory.

Divestitures

On November 14, 2003, a wholly owned subsidiary of RPP completed the sale of 40% of the outstanding shares in Japan Epoxy Resins Co., Ltd. to its joint venture partner, Mitsubishi Chemical Company for a purchase price of $23. A gain on the sale was recorded in the amount of $14 after recognizing direct costs of $5 and accumulated foreign currency translation gain of $4. The transaction was exempt from taxes as a result of the structure of ownership. In connection with the sale of its shares, a new joint venture agreement, technology license agreement and trademark license agreement were negotiated.

As RPP retains only a 10% interest in Japan Epoxy Resins Co., Ltd., it can no longer exercise significant influence over the operating and financial policies of the joint venture. As such, the investment is accounted for using the cost method and was $2 as of December 31, 2004 and 2003.

4. Related Party Transactions

The Company has transactions and relationships with affiliated entities. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions between unrelated parties.

F-56

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

Administrative Service, Management and Consulting Arrangements

In connection with their respective acquisitions by Apollo, RPP and BCI entered into transaction fee agreements with Apollo and its affiliates for the provision of certain structuring and advisory services. The agreements allow Apollo and its affiliates to provide certain advisory services to the Company for terms up to ten years. The agreements currently provide for annual fees of up to $4. In 2004 and 2002, the Company paid annual fees of $2 and $1, respectively, under its agreements. No annual fees were paid in 2003. Upon closing of the BCI and RSM Transactions, the Company paid $13 of aggregate transaction and advisory fees, under this agreement, and reimbursed expenses of $1. The Company has also agreed to indemnify Apollo and its affiliates and their directors, officers and representatives for potential losses relating to the services contemplated under this agreement.

Financing and Investing Arrangements

On November 14, 2000, RPP issued notes to certain officers of RPP totaling $1 to purchase stock of RPP, Inc. As of December 31, 2004 and 2003, the notes and accrued interest amounted to $2.

At December 31, 2004, the Company held $405 of notes receivable from its parent, which accrue interest at 12% per year, payable quarterly, and mature on September 29, 2005. The notes were previously due from BHI. Interest of $156 has been accrued at December 31, 2004. Paid-in capital includes the related interest income of $19 for the period ended December 31, 2004. Historically, BHI funded the payment of the interest on the note through common dividends received from BCI. BCI has not received a payment on the accrued interest, nor has BCI paid an associated dividend, since October 15, 2001.

Other Transactions and Arrangements

The Company sells finished goods to Japan Epoxy Resins and certain Apollo affiliates. These sales totaled $11, $15 and $13 for the years ended December 31, 2004, 2003 and 2002, respectively. Accounts receivable from these affiliates totaled $1 and $2 at December 31, 2004 and 2003, respectively. The Company purchases raw materials and services from Japan Epoxy Resins and certain Apollo affiliates. These purchases totaled $12, $5 and $8 for the years ended December 31, 2004, 2003 and 2002, respectively. Accounts payable to affiliates totaled $0 and $1 at December 31, 2004 and 2003, respectively.

In 2004 and 2003, the Company paid constructive cash distributions of $1 and $4 to Shell on behalf of RPP, Inc. relating to the reimbursement of certain pension costs, of which $1 and $2, respectively, was previously accrued. RPP, Inc. made capital contributions of approximately $1 during 2002 to RPP relating to pension costs.

In addition, upon closing the BCI Transaction, BCI paid transaction-related costs of $9 on behalf of BHI Investment LLC, $22 on behalf of BW Holdings, LLC and shared compensation costs of $14. These amounts are included in Transaction related costs.

5. Goodwill and Intangible Assets

At December 31, 2004, the Company’s management performed the annual goodwill impairment test. As required by SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company identified the appropriate reporting units and identified the assets and liabilities (including goodwill) of the reporting units. The Company determined estimated fair values of the reporting units and assessed whether the estimated fair value of each reporting unit was more or less than the carrying amount of the assets and liabilities assigned to the units.

F-57

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

Valuations were performed using a standard methodology based on comparable company analysis. Comparable company analysis ascribes a value to an entity by comparing certain operating metrics of the entity to those of a set of comparable companies in the same industry. Using this method, market multiples and ratios based on operating, financial and stock market performance are compared across different companies and to the entity being valued. The Company employed a comparable analysis technique commonly used in the investment banking and private equity industries to estimate the values of its reporting units—the EBITDA (earnings before interest, taxes, depreciation and amortization) multiple technique. Under this technique, estimated values are the result of an EBITDA multiple derived from this process applied to an appropriate historical EBITDA amount. In addition, the BCI goodwill valuation was done utilizing the multiple of the BCI Transaction. At December 31, 2004, the fair value of each reporting unit exceeded the carrying amount of assets and liabilities assigned to the units.

The changes in the carrying amount of goodwill for RPP for the years ended December 31, 2004 and 2003 are as follows:

	Americas			Europe & Africa		Asia Pacific & Middle East		Total
Goodwill balance at January 1, 2003	$	13		$	—	$	—	$	13
Impairment		(13	)		—	$	—		(13	)
Goodwill balance at December 31, 2003 and 2004	$	—		$	—	$	—	$	—

The goodwill and impairment of $13 is a result of the valuation of the purchase price related to the Apollo acquisition of the RPP business from Shell.

The changes in the carrying amount of goodwill for BCI for the period from August 12, 2004 to December 31, 2004 are as follows:

	Forest Products			Performance Resins		International			Total
Goodwill balance at August 12, 2004	$	25		$	18	$	14		$	57
Purchase accounting adjustments		(2	)		—		(5	)		(7	)
Foreign currency translation		—			—		1			1
Goodwill balance at December 31, 2004	$	23		$	18	$	10		$	51

The $7 of purchase accounting adjustments in 2004 reflects the final allocation of purchase price related to BCI acquisitions made in 2003 from goodwill to separately identifiable intangible assets.

The Company’s intangible assets with identifiable useful lives, which continue to be amortized, consist of the following:

	At December 31, 2004				At December 31, 2003
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Intangible assets:
Customer list and contracts	$	20	$	7	$	—	$	—
Formulas, technology and patents		82		20		72		11
Unrecognized prior service cost		1		—		—		—
Other		1		1		—		—
	$	104	$	28	$	72	$	11

F-58

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

The Company has $12 and $11 of Trademarks at December 31, 2004 and 2003, respectively, with indefinite lives.

The impact of foreign currency translation adjustments is included in accumulated amortization.

Total intangible amortization expense for the years ended December 31, 2004, 2003 and 2002 was $5, $4 and $4, respectively.

Estimated annual intangible amortization expense for 2005 through 2009 is as follows:

2005	$	8
2006		7
2007		7
2008		7
2009		4

6. Financial Instruments

The following table presents the carrying or notional amounts and fair values of the Company’s financial instruments at December 31, 2004 and 2003. The fair value of a financial instrument is the estimated amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair values are determined from quoted market prices where available or based on other similar financial instruments.

The carrying amounts of cash and equivalents, accounts receivable, accounts payable and other accruals are considered reasonable estimates of their fair values.

The following table includes the carrying and fair values of the Company’s financial instruments as of December 31:

	2004				2003
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Nonderivative Liabilities
Debt	$	1,850	$	1,900	$	683	$	640

	2004
	Average Days To Maturity	Average Contract Rate	Notional Amount	Fair Value Gain (Loss)
Foreign Exchange:
Currency to sell for U.S. Dollars
Canadian Dollars – Put options purchased	183	1.3200	36	$	—
Canadian Dollars – Call options sold	183	1.2300	36		(2	)
Currency to sell for CDN Dollars
British Pound – Forward currency contracts	31	2.3255	42		1
Currency to sell for Euros
U.S. Dollars – Deal contingent forward	90	1.3430	235		2
Commodity Future Contracts:
Natural gas futures			3		—

F-59

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

The Company had no derivatives at December 31, 2003.

At December 31, 2004, the Company had derivative losses of $2 classified as Other current liabilities and derivative gains of $3, classified as Other assets. The Company did not have any gains or losses at December 31, 2003 and 2002. Gains and losses arising from contracts are recognized on a quarterly basis, through the Consolidated Statement of Operations. The Company does not hold or issue derivative financial instruments for trading purposes.

Foreign Exchange

International operations account for a significant portion of the Company’s revenue and operating income. It is the policy of the Company to reduce foreign currency cash flow exposure due to exchange rate fluctuations by hedging anticipated and firmly committed transactions when economically feasible. The Company enters into forward and option contracts to buy and sell foreign currencies to reduce foreign exchange exposure and protect the U.S. dollar value of such transactions to the extent of the amount under contract. These contracts are designed to minimize the impact from foreign currency exchange on operating income and on certain balance sheet exposures. The Company is exposed to credit loss in the event of non-performance by other parties to the contract. The Company evaluates the credit worthiness of the counterparties’ financial condition and does not expect default by the counterparties.

Deal Contingent Forward

On December 14, 2004, BCI entered into a foreign currency forward position of $235 to purchase Euros with U.S. Dollars at a rate of $1.3430. The contract is contingent upon the close of the Bakelite share purchase agreement (see Note 3) and had an initial target settlement date of March 31, 2005 and provides for an extension and adjustments through July 6, 2005. The purpose of the forward is to mitigate the risk of foreign currency exposure related to the pending transaction. At December 31, 2004, the Company recorded a gain of $2 related to its deal contingent forward contract. This amount is included as Other non-operating income in the Consolidated Statements of Operations. Upon the acquisition of Bakelite on April 29, 2005 (see Note 17), the Company recognized a $9 loss on the settlement of the deal contingent forward contract.

Commodity Future Contracts

The Company is exposed to price fluctuations associated with raw materials purchases, most significantly with methanol, phenol, urea, acetone, propylene and chlorine. For these commodity raw materials, the Company has purchase contracts, with periodic price adjustment provisions. For certain contracts, the Company also adds to customer contracts selling price provisions that are indexed to publicly available indices for these commodity raw materials. The Board of Directors approves all commodity futures and commodity commitments based on delegations of authority documents.

BCI hedges a portion of natural gas purchases for North America. In 2004, BCI entered into futures contracts with varying settlement dates through December 2005. BCI used futures contracts to hedge 46% of its calendar 2004 North American natural gas usage. The contracts are settled for cash each month based on the closing market price on the last day the contract trades on the New York Mercantile Exchange. Commitments settled under these contracts totaled $2 in 2004. At December 31, 2004, the Company had future commitments under these contracts of $3. Gains and losses on commodity futures contracts are recognized each month as gas is used. Remaining obligations are marked to market on a quarterly basis.

F-60

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

7. Debt and Lease Obligations

Debt outstanding at December 31, 2004 and 2003 is as follows:

	December 31, 2004				December 31, 2003
	Long- Term		Due Within One Year		Long- Term		Due Within One Year
Revolving Credit facilities (at an average rate of 6.4% in 2004)	$	28	$	—	$	—	$	—
Senior Secured Notes:
8% Senior secured notes due 2009		140		—		140		—
9.5% Senior second secured notes due 2010 (includes $1 of unamortized debt premium at December 31, 2004 and 2003		201		—		201		—
9% second-priority senior secured notes due 2014		325		—		—		—
Floating rate second-priority senior secured notes due 2010 (at an average rate of 6.6% in 2004)		150		—		—		—
Credit Agreement: term loans due 2010 (at an average rate of 4.7% in 2004)		123		2		—		—
Unsecured Debentures:
9.2% debentures due 2021		115		—		—		—
7.875% debentures due 2023		247		—		—		—
Sinking fund debentures: 8.375% due 2016		78		—		—		—
13.5% Senior subordinated notes due 2010 (includes $4 and $5 of unamortized debt premium at December 31, 2004 and 2003		332		—		333		—
Seller senior subordinated notes due 2011 (at an average rate of 7.6% in 2004)		50		—		—		—
Other:
Industrial revenue bonds (at an average rate of 10% in 2004) due 2009		34		—		—		—
Other (at an average rate of 4.1% in 2004 and 5.0% in 2003)		7		5		—		8
Capital Leases		4		—		1		—
Total current maturities of long-term debt		—		7		—		8
Short-term debt (primarily foreign bank loans at an average rate of 8.4% in 2004)		—		9		—		—
Total debt	$	1,834	$	16	$	675	$	8

The Company is raising a senior secured credit facility that will replace the individual company credit facilities and certain debentures.

Revolving Credit Facilities

RPP Credit Facility

In 2000, RPP, Inc., RPP, Resolution Performance Products Capital Corporation (“RPP CC”) and Resolution Nederland B.V., entered into a $600 credit agreement (“the RPP Credit Agreement”) with a syndicate of financial institutions. The RPP Credit Agreement currently provides for a six-year $75 revolving credit facility, the euro equivalent of which is also available, to be used for, among other things, working capital and general corporate purposes of RPP and its subsidiaries, including without limitation, certain permitted acquisitions. The revolving credit facility also includes a sub-limit for letters of credit (“LOCs”) in an amount not to exceed $50. At

F-61

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

December 31, 2004, RPP had $28 of outstanding borrowings under the revolving credit facility and $2 in outstanding LOCs. At December 31, 2004, RPP had additional borrowing capacity under the RPP Credit Agreement of $45.

Borrowings that are maintained as dollar term loans or loans under the revolving credit facility denominated in dollars accrue interest at either Citibank’s prime lending base rate or the eurodollar rate, plus a margin ranging from 1.25% to 3.00% and is dependent upon leverage, as determined on a quarterly basis. Interest rates on loans under the revolving credit facility denominated in euros accrue interest at the euro rate plus associated costs plus a margin ranging from 2.25% to 3.00% depending on leverage, as determined on a quarterly basis. Interest period elections generally range from one to six months, or to the extent available, nine or twelve months for eurodollar and euro rate loans. With respect to eurodollar loans and euro rate loans, interest is payable at the end of each interest period, or for interest periods longer than three months, at least every three months. With respect to base rate loans under the RPP Credit Agreement, interest is payable quarterly on the last business day of each fiscal quarter. For each drawn letter of credit, RPP is required to pay a per annum fee equal to the spread over the eurodollar rate for the revolving credit facility, a fronting fee equal to 0.25% on the aggregate daily stated amount of each LOC, plus administrative charges. Additionally, RPP will pay a commitment fee ranging from 0.375% to 0.500% per annum, depending on leverage ratio, which is payable quarterly on the unused available portion of the revolving credit facility.

The RPP Credit Agreement was amended on December 22, 2003. This amendment, among other things, (a) permitted RPP to issue certain notes so long as the net proceeds from the offering of the Notes were used to repay all of the remaining term loans outstanding under the RPP Credit Agreement, (b) maximum borrowings allowable under the RPP Credit Agreement is calculated monthly and is based upon specific percentages of eligible accounts receivable, inventory and fixed assets. Substantially all of RPP’s current and future assets are pledged as security under RPP’s credit agreement, totaling $1,323. The loans incurred under the RPP Credit Agreement by RPP and RPP Capital are guaranteed by RPP Inc. and all of RPP’s existing and future direct and indirect wholly-owned domestic subsidiaries.

In January 2005, RPP and RPP CC entered into a $150 revolving credit facility, which was subsequently replaced in May 2005 by the Hexion Credit Facility (See Note 17).

RSM Credit Facility

In 2004, RSM and RSM Inc. entered into a $155 credit agreement (“RSM Credit Agreement”) with a syndicate of financial institutions. The RSM Credit Agreement provides for term loans (“Term Loans”) totaling $125 and revolving facility loans and LOCs (“Revolving Facility Loans”) of up to $30, subject to certain restrictions.

The Revolving Facility Loans provide for a five-year $30 revolving credit facility due August 2, 2009 to be used for working capital, general corporate purposes and acquisitions. Borrowings under the Revolving Facility Loans are subject to a maximum permitted amount based on a formula. For interest rate determination purposes, loans under the RSM Credit Agreement are defined as either ABR (alternative base rate) Loans or Eurocurrency Loans and are tied to the prime rate, Base CD rate or Federal Funds Rate for ABR Loans or adjusted LIBOR for Eurocurrency Loans. Incremental interest rates ranging from 1.75% to 3.00% are applied to these interest rates based on the type of loan, currency, time period and RSM’s consolidated leverage ratio. Commitment fees under the Revolving Facility Loans are payable quarterly at an annual rate of 0.5% on the available unused commitment. Letters of credit are subject to participation, fronting and issuing bank fees. As of December 31, 2004, RSM had $1 outstanding in LOCs, none of which had been drawn against.

F-62

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

RSM borrowed the full amount of the $125 under the Term Loans to partially fund the acquisition and for working capital and other corporate purposes. The Term Loans are payable in quarterly principal installments through June 30, 2010, with a balloon payment of $118 on the term facility maturity date of August 2, 2010.

The RSM Credit Agreement contains, among other provisions, restrictive covenants regarding indebtedness, payments and distributions, mergers and acquisitions, asset sales, affiliate transactions, capital expenditures, and the maintenance of certain financial ratios. Payment of borrowings under the RSM Credit Agreement may be accelerated in the event of a default. Events of default include the failure to pay principal and interest when due, a material breach of representation or warranty, covenant defaults, events of bankruptcy and a change of control.

RSM’s obligations under the RSM Credit Agreement are guaranteed, on a joint and several basis, by RSM Inc. and each of RSM’s domestic subsidiaries. The RSM Credit Agreement is secured by substantially all current and future assets of RSM, including a pledge of the equity in its domestic subsidiaries and 65% of the equity of its ‘first tier’ foreign subsidiaries, totaling $394.

BCI Credit Facility

BCI entered into a three-year asset based revolving credit facility in the third quarter of 2002 (the “BCI Credit Facility”), which provides for a maximum borrowing of $175, including LOCs. BCI amended the BCI Credit Facility (the “Amended BCI Credit Facility”) on August 12, 2004 as part of the BCI Transaction. The Amended BCI Credit Facility is a five-year asset based revolving credit facility with the same borrowing capacity as the BCI Credit Facility.

The Amended BCI Credit Facility is secured with inventory and accounts receivable in the U.S., Canada and the U.K., a portion of property and equipment in Canada and the U.K. and the stock of certain subsidiaries. At December 31, 2004, the net book value of the collateral securing the Amended BCI Credit Facility, excluding the stock of foreign subsidiaries, was approximately $266. Maximum borrowing allowable under the Amended BCI Credit Facility is calculated monthly (quarterly, if availability is greater than $100) and is based upon specific percentages of eligible accounts receivable, inventory and fixed assets. The Amended BCI Credit Facility contains restrictions on dividends, capital expenditures ($38 from August 12, 2004 to December 31, 2004; $75 in 2005) and payment of management fees ($3 per year or 2% of Segment EBITDA). It also includes a minimum trailing twelve-month fixed charge coverage ratio of 1.1 to 1.0 if aggregate availability is less than $50. The trailing twelve-month fixed charge coverage ratio requirement does not apply when aggregate availability exceeds $50. At December 31, 2004, the maximum borrowing allowable under the Amended BCI Credit Facility was approximately $175, of which approximately $128, after outstanding LOCs and other draws, was unused and available. As a result, BCI has no fixed charge coverage ratio requirements at the end of 2004.

Under the terms of the Amended BCI Credit Facility, BCI has the ability to borrow funds at either the prime rate plus an applicable margin (“the prime rate option”) or at LIBOR plus an applicable margin. BCI must designate which option it chooses at the time of the borrowing. Currently, the applicable margin for any prime rate borrowing is 50 basis points and for any LIBOR borrowing is 200 basis points. For LOCs issued under the Amended BCI Credit Facility, BCI pays a per annum fee equal to the LIBOR applicable margin, or 2.00%, plus a fronting fee of 0.125%. In addition, BCI pays a 0.375% per annum fee on the amount of the revolving loan commitment less any borrowings or outstanding LOCs. BCI incurred commitment fees of $0.2 in the period from August 12, 2004 to December 31, 2004, related to the Amended BCI Credit Facility.

BCI’s Australian subsidiary entered into a five-year secured credit facility in the fourth quarter of 2003 (the “Australian Facility”), which provides for a maximum borrowing of AUD$20, or approximately $16. At

F-63

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

December 31, 2004, outstanding debt under this facility was $11, of which $7 is classified as long-term. In addition, there was approximately $3 of short term debt under the facility. The Australian Facility provided the funding for the Fentak acquisition made in the fourth quarter of 2003 and is secured by liens against substantially all of the assets of the Australian business including the stock of the Australian subsidiaries. At December 31, 2004, the net book value of the collateral securing the Australian Facility was approximately $30. In addition, BCI pledged the stock of the Australian subsidiaries as collateral for borrowing under the Australian Facility. This facility includes a fixed rate facility used for the acquisition, as well as a revolver. At December 31, 2004, $8 was outstanding under the fixed rate facility at an interest rate of 6.4%. The Australian Facility contains restrictions relative to the Australian businesses on dividends, the sale of assets and additional borrowings. The Australian Facility also contains financial covenants applying to the Australian subsidiaries including current ratio, interest coverage, debt service coverage and leverage. The fixed portion of the Australian Facility requires minimum quarterly principal reductions totaling AUD$0.5 (approximately $0.4). The Australian Facility requires semi-annual principal reductions based on a portion of excess cash as defined in the agreement. At December 31, 2004, the maximum borrowing allowable under the Australian Facility was AUD$18 (approximately $14), of which about AUD$4 (approximately $3), after outstanding LOCs and other draws, was unused and available.

Additional international credit facilities provide availability totaling approximately $26. Of this amount, approximately $12 (net of $4 of borrowings, LOCs and other guarantees of approximately $5 and $5 of other draws) was available to fund working capital needs and capital expenditures at December 31, 2004. These credit facilities have various expiration dates ranging from 2006 through 2008. Of the total $4 of outstanding debt, $1 was classified as long-term. While these facilities are primarily unsecured, portions of the lines are secured by equipment. At December 31, 2004, the net book value of collateral securing a portion of these facilities was approximately $1. BCI guarantees up to $7 of the debt of one of its Brazilian subsidiaries, included in these facilities.

HA-International, LLC (“HAI”), a subsidiary of BCI, entered into a three-year asset based revolving credit facility in 2004, which provides for a maximum borrowing of $15, (the “HAI Facility”). Maximum borrowing allowable under the HAI Facility is based upon specific percentages of eligible accounts receivable and inventory and is secured with inventory, accounts receivable and property and equipment of HAI. At December 31, 2004, the net book value of collateral securing the HAI Facility was approximately $34. The HAI Facility provides up to $2 for LOCs. The HAI Facility contains restrictions relative to HAI on dividends, affiliate transactions, minimum availability ($2), additional debt and capital expenditures ($2 in 2005). In addition, HAI is required to maintain a minimum trailing twelve-month debt coverage ratio of 1.5 to 1.0 and a monthly debt to tangible capital ratio of less than 2.5 to 1.0. At December 31, 2004, borrowing allowable under the HAI Facility was approximately $14, of which approximately $12 was unused and available, after the minimum availability requirement.

In addition, on August 12, 2004, BCI redeemed its 9.25% debentures for total cash of $49. Included in the total cash paid was $47 for the principal of the debentures, $1 of accrued interest and an early redemption premium of $1. The redemption was funded with cash received from the $475 private debt offering shown below.

At December 31, 2004 and 2003, the Company was in compliance with the covenants and restrictions in all credit facilities, with the exception of the RSM credit facility, for which the Company has received a permanent waiver relating to the delivery of the statement of cash flows for the fiscal quarter ended September 30, 2004. Subsequent to December 31, 2004, RSM obtained waivers on two additional covenants; delivery of the December 31, 2004 audited financial statements (waived through May 31, 2005), and obtaining interest rate swap agreements (waived through August 2, 2005).

F-64

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

Senior Secured Notes

	Origination Date	Interest Payable	Early Redemption	Collateral / Priority
8% Senior secured notes due 2009	December 2003	December 15 June 15	December 2006	Substantially all assets of RPP and a portion of capital stock of subsidiaries Equal to all senior debt
9.5% Senior secured notes due 2010	April 2003	April 15 October 15	April 2006	Substantially all assets of RPP and a portion of capital stock of subsidiaries Equal to all senior debt, second to 8% notes
9% Second-priority senior secured notes due 2014	August 2004	January 15 July 15	July 2007 (b)	BCI—Inventory, accounts receivable and certain stock, second to credit facility
Floating Rate second-priority senior secured notes due 2010—average rate of 6.6%(a)	August 2004	January 15 April 15 July 15 October 15	July 2006 (b)	BCI—Inventory, accounts receivable and certain stock, second to credit facility

(a) Interest on the Floating Rate Notes accrues at an annual rate, reset quarterly, equal to LIBOR plus 475 basis points. At December 31, 2004, the interest rate on the Floating Rate Notes was 6.82%. There is no sinking fund for the Floating Rate Notes.

(b) Redemption of 35% permitted with certain equity offering proceeds. Redemption of 100% permitted in July 2009.

Certain senior secured notes contain restrictive covenants, which could trigger acceleration of repayment in the event of default, absent a waiver. Such restrictive covenants include, among other provisions, restrictions on payments and distributions, mergers and acquisitions and transactions with affiliates.

Following the Hexion Combination, the Company, certain of its U.S. subsidiaries and Hexion U.S. Finance Corporation (formerly known as Borden U.S. Finance Corporation) guarantee the senior secured debt previously issued by RPP (see Note 16).

F-65

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

Unsecured Debentures

	Origination Date	Interest Payable	Early Redemption
9.2% debentures due 2021	March 1991	March 15 September 15	None
7.875% debentures due 2023	May 1993	February 15 August 15	None
8.375% Sinking fund debentures	April 1986	April 15 October 15	April 2006
Seller Senior Subordinated Note due 2011 (a)	August 2004	February 1 August 1	Any time
13.5% Senior subordinated notes due 2010	2000	May 15 November 15	November 2005

(a) Interest is base rate equal to the seven year Treasury plus basis points ranging from 350 to 550. RSM may pay interest in either dollars or Notes until the third anniversary. Average interest rate is 7.6% in 2004.

Certain debentures contain restrictive covenants, which could trigger acceleration of repayment in the event of default absent a waiver. Such restrictive covenants include, among other provisions, restrictions on payments and distributions, mergers and acquisitions and transactions with affiliates.

Other Borrowings

During 2002, RPP financed the purchase of computer equipment and related services. RPP entered into unsecured trade notes, totaling $4, that bear interest ranging from 6.75 to 8.18 percent, payable over thirty-six months with one vendor. As of December 31, 2004 and 2003, balances outstanding were $0 and $2, respectively.

In addition, the Company finances certain insurance premiums. Short-term borrowings under this arrangement include $6 at December 31, 2004.

The $34 Parish of Ascension Industrial Revenue Bonds (IRBs) are related to the purchase, construction and installation of air and water pollution control facilities that are no longer owned by BCI. The tax-exempt status of the IRBs is based upon there being no change in the use of the facilities, as defined by the Internal Revenue Code. BCI continues to monitor the use of the facilities by the current owner. If a change in use were to occur, BCI could be required to take remedial action, including redeeming all of the bonds.

The Company’s capital leases range from one to forty-nine year terms for vehicle, equipment, land and buildings. At December 31, 2004 and 2003, total amounts outstanding under capital leases totaled $4 and $1, respectively. These balances are included in debt on the Consolidated Balance Sheets.

F-66

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

Aggregate maturities of total debt, minimum annual rentals under operating leases, and minimum payments under capital leases at December 31, 2004, for the Company are as follows:

Year	Debt		Minimum Rentals Under Operating Leases		Minimum Payments Under Capital Leases
2005	$	16	$	24	$	1
2006		3		20		1
2007		3		17		1
2008		5		15		—
2009		175		10		—
2010 and beyond		1,644		36		1
	$	1,846	$	122	$	4

Rental expense amounted to $15, $10 and $10 in the years ended December 31, 2004, 2003 and 2002, respectively.

8. Guarantees, Indemnifications and Warranties

Standard Guarantees / Indemnifications

In the ordinary course of business, the Company enters into numerous agreements that contain standard guarantees and indemnities whereby the Company indemnifies another party for, among other things, breaches of representations and warranties. Such guarantees or indemnifications are granted under various agreements, including those governing (i) purchases and sales of assets or businesses, (ii) leases of real property, (iii) licenses of intellectual property and (iv) long-term supply agreements. The guarantees or indemnifications issued are for the benefit of the (i) buyers in sale agreements and sellers in purchase agreements, (ii) landlords or lessors in lease contracts, (iii) licensors or licensees in license agreements and (iv) vendors or customers in long-term supply agreements.

These parties may also be indemnified against any third party claim resulting from the transaction that is contemplated in the underlying agreement. Additionally, in connection with the sale of assets and the divestiture of businesses, the Company may agree to indemnify the buyer with respect to liabilities related to the pre-closing operations of the assets or businesses sold. Indemnities related to pre-closing operations generally include tax liabilities, environmental liabilities and employee benefit liabilities not assumed by the buyer in the transaction.

Indemnities related to the pre-closing operations of sold assets normally do not represent additional liabilities to the Company, but simply serve to protect the buyer from potential liability associated with the Company’s existing obligations at the time of sale. As with any liability, the Company has accrued for those pre-closing obligations that are considered probable and reasonably estimable. Amounts recorded are not significant at December 31, 2004.

While some of these guarantees extend only for the duration of the underlying agreement, many survive the expiration of the term of the agreement or extend into perpetuity (unless subject to a legal statute of limitations). There are no specific limitations on the maximum potential amount of future payments that the Company could be required to make under its guarantees nor is the Company able to develop an estimate of the maximum potential amount of future payments to be made under these guarantees as the triggering events are not predictable. With respect to certain of the aforementioned guarantees, the Company maintains limited insurance coverage that mitigates potential payments to be made.

F-67

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

In connection with Apollo’s acquisitions of RPP and BCI, the Company entered into transaction fee agreements with Apollo and its affiliates for the provision of certain structuring and advisory services. The Company has agreed to indemnify Apollo and its affiliates and their directors, officers and representatives for potential losses relating to the services contemplated under the agreements.

The Company has not entered into any significant agreement subsequent to January 1, 2003 that would require it, as a guarantor, to recognize a liability for the fair value of obligations it has undertaken in issuing the guarantee.

Warranties

The Company does not make express warranties on its products, other than that they comply with the Company’s specifications; therefore, the Company does not record a warranty liability. Adjustments for product quality claims are not material and are charged against sales revenues.

9. Commitments and Contingencies

Environmental Matters

Because the Company’s operations involve the use, handling, processing, storage, transportation and disposal of hazardous materials, the Company is subject to extensive environmental regulation at the Federal, state and local levels as well as foreign laws and regulations, therefore is exposed to the risk of claims for environmental remediation or restoration. In addition, violations of environmental laws or permits may result in restrictions being imposed on operating activities, substantial fines, penalties, damages or other costs, any of which could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

Accruals for environmental matters are recorded following the guidelines of Statement of Position 96-1, “Environmental Remediation Liabilities,” when it is probable that a liability has been incurred and the amount of the liability can be estimated. Environmental accruals are reviewed on an interim basis and as events and developments warrant.

Based on management’s estimates, which are determined through historical experience, the Company has recorded liabilities, relating to 63 locations, of approximately $41 and $0 at December 31, 2004 and 2003, respectively, for all probable environmental remediation, indemnification and restoration liabilities. These amounts include estimates of unasserted claims the Company believes are probable of loss and reasonably estimable. Based on the factors discussed below and currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such sites may fall within a range of $27 to $84 in the aggregate, at December 31, 2004. This estimate of the range of reasonably possible costs is less certain than the estimates upon which the liabilities are based, and in order to establish the upper end of such range, assumptions less favorable to the Company among the range of reasonably possible outcomes were used. As with any estimate, if facts or circumstances change, the final outcome could differ materially from these estimates.

Indemnifications

For environmental conditions that existed at RPP related sites prior to November 2000, environmental remediation liability is influenced by agreements whereby Shell generally will indemnify the Company for

F-68

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

environmental damages associated with environmental conditions that occurred or existed before November 2000 of the recapitalization, subject to certain limitations. RPP had no accrual at December 31, 2004 and 2003. This assessment is based on the lack of evidence of any claims or possible claims against RPP prior to November 2000. In addition, management believes that RPP maintains adequate insurance coverage, subject to deductibles, for environmental remediation activities.

According to the terms of the RSM Transaction, Eastman has retained the liability and indemnified RSM for certain matters, including: i) pre-closing contamination at certain facilities, ii) pre-closing shipments of hazardous substances to off-premise sites, iii) all unknown environmental liabilities or contamination issues existing as of the closing date not previously disclosed by Eastman, subject to a $0.1 deductible, cost sharing, time limits and caps, and iv) any claims arising from assertions of personal injury attributable to pre-closing exposure to adverse work place conditions.

Following is a more detailed discussion of the Company’s environmental liabilities and related assumptions at December 31, 2004:

BCP Geismar Site—BCI formerly owned a basic chemicals and polyvinyl chloride business which was taken public as Borden Chemicals and Plastics Operating Limited Partnership (“BCPOLP”) in 1987. BCI retained a 1% interest and the general partner interest, which were held by its subsidiary, BCP Management (“BCPM”). BCI also retained the liability for certain environmental matters after BCPOLP’s formation. Under a Settlement Agreement approved by the United States Bankruptcy Court for the District of Delaware among BCI, BCPOLP, BCPM, the United States Environmental Protection Agency and the Louisiana Department of Environmental Quality, BCI agreed to perform certain of BCPOLP’s obligations with respect to environmental conditions at BCPOLP’s Geismar, Louisiana site. These obligations are related to soil and groundwater contamination at the Geismar site. BCI bears the sole responsibility for these obligations, as there are no other potentially responsible parties (“PRPs”) or third parties from which BCI can seek reimbursement, and no additional insurance recoveries are expected.

A groundwater pump and treat system for the removal of contaminants is operational, and preliminary natural attenuation studies are proceeding. BCI has performed extensive soil and groundwater testing. Regulatory agencies are reviewing the current findings and remediation efforts. If closure procedures and remediation systems prove inadequate, or if additional contamination is discovered, this could result in the costs approaching the higher end of the range of possible outcomes discussed below.

BCI has recorded a liability of approximately $21 at December 31, 2004, related to the BCP Geismar site. Based on currently available information and analysis, BCI believes that it is reasonably possible that costs associated with this site may fall within a range of $14 to $32, depending upon the factors discussed above. Due to the long-term nature of the project, the reliability of timing and the ability to estimate remediation payments, this liability was recorded at its net present value, assuming a 3% discount rate and a time period of thirty years and the range of possible outcomes is discounted similarly. The undiscounted liability is approximately $32 over thirty years.

F-69

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

Following are expected payments for each of the next five years, and a reconciliation of the expected aggregate payments to the liability reflected at December 31, 2004:

2005	$	3
2006		2
2007		2
2008		2
2009		1
Remaining aggregate payments		22
Total undiscounted liability		32
Less: discount to net present value		(11	)
Liability per Consolidated Balance Sheet	$	21

Superfund Sites / Offsite Landfills—The Company is currently involved in environmental remediation activities at 26 sites in which it has been notified that it is, or may be, a PRP under the United States Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) or similar state “superfund” laws. The Company has recorded liabilities of approximately $8 at December 31, 2004, related to these sites. The Company anticipates approximately 60% of this liability will be paid within the next five years, with the remaining payments occurring over the next twenty-five years. The Company generally does not bear a significant level of responsibility for these sites, and therefore, has little control over the costs and timing of cash flows. At 16 of the 26 sites, the Company’s share is less than 1%. At the remaining 10 sites, the Company has a share of up to 8.8% of the total liability which accounts for $7 of the total amount reserved for superfund / offsite landfill sites at December 31, 2004. Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such sites may be as low as $5 or as high as $17, in the aggregate. In estimating both its current reserves for environmental remediation at these sites and the possible range of additional costs, the Company has not assumed that it will bear the entire cost of remediation of every site to the exclusion of other known PRPs who may be jointly and severally liable. The Company has limited information to assess the viability of other PRPs and their probable contribution on a per site basis. The range of possible outcomes also takes into account the maturity of each project, which results in a more narrow range as the project progresses. The Company’s ultimate liability will depend on many factors including its volumetric share of waste, the financial viability of other PRPs, the remediation methods and technology used, the amount of time necessary to accomplish remediation, and the availability of insurance coverage. The Company’s insurance provides very limited, if any, coverage for these environmental matters.

Sites Under Current Ownership—The Company is conducting environmental remediation at 14 locations currently owned by the Company, of which 4 sites are no longer operating. There are no other parties responsible for remediation at these sites. Much of the remediation is being performed by the Company on a voluntary basis; therefore, the Company has greater control over the costs to be incurred and the timing of cash flows. The Company has accrued approximately $8 at December 31, 2004, for remediation and restoration liabilities at these locations. The Company anticipates approximately $6 of these liabilities will be paid within the next three years, with the remaining amounts being paid over the next ten years. Approximately $4 of these reserves is included in the Company’s business realignment reserve, as the environmental clean up is being handled in conjunction with planned closure of the location. Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such sites may fall within a range of $5 to $21, in the aggregate. The factors influencing the ultimate outcome include the methods of remediation to be elected, the conclusions and assessment of site studies remaining to be completed and the time period required to complete the work.

F-70

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

Other Sites—The Company is conducting environmental remediation at 9 locations formerly owned by the Company. The Company has accrued approximately $3 at December 31, 2004, for remediation and restoration liabilities at these locations. Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such sites may fall within a range of $2 to $11, in the aggregate. The primary drivers in determining the final costs to the Company on these matters are the method of remediation selected and the level of participation of third parties.

In addition, the Company is responsible for 11 sites that require monitoring where no additional remediation is expected and has also established accruals for other related costs, such as fines and penalties. The Company has accrued approximately $1 at December 31, 2004, related to these sites. Payment of these liabilities is anticipated to occur over the next ten years. Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such sites may fall within a range of $1 and $2, in the aggregate. The ultimate cost to the Company will be influenced by any variations in projected monitoring periods or by findings that are better or worse than anticipated findings.

BCI formerly operated the Smith Douglass fertilizer business, which included a phosphate processing operation in Manatee County, Florida and an animal food processing operation in Hillsborough County, Florida. Both operations were sold in 1980. The EPA has sent BCI and another former owner of the Manatee County facility a request for $0.1 relating to oversight costs incurred when the site was abandoned by its current owner. BCI is disputing the charge. BCI is aware that state and Federal environmental agencies have taken measures to prevent the off-site release of water from rainfall that accumulated in the drainage ditches and lagoons surrounding the gypsum piles located on this site. BCI is aware that the current owner of the Hillsborough County site ceased operations in March of 2004 and is working with governmental agencies to effect closure of that site. At this time, BCI has received an information request from the EPA but has not received any demands from any governmental agencies or others regarding the closure and environmental cleanup at this site, which BCI believes is the responsibility of the current owner. While it is reasonably possible some costs could be incurred related to these sites, BCI has inadequate information to enable it to estimate a potential range of liability, if any. As of December 31, 2004, BCI had a reserve of $0.06 relating to these matters.

Non-Environmental Legal Matters

The Company has reserved approximately $21 and $0 at December 31, 2004 and 2003, respectively, relating to all non-environmental legal matters for legal defense and settlement costs that it believes are probable and estimable at this time. For the period ended December 31, 2004 and 2003, the Company recorded, in General and administrative expense, legal fees of approximately $4 and $0, respectively, related to the non-environmental legal matters described below.

Following is a discussion of non-environmental legal proceedings that are not in the ordinary course of business:

Imperial Home Décor Group—In 1998, pursuant to a merger and recapitalization transaction sponsored by The Blackstone Group (“Blackstone”) and financing arranged by The Chase Manhattan Bank (“Chase”), Borden Decorative Products Holdings, Inc. (“BDPH”), a wholly owned subsidiary of BCI, was acquired by Blackstone and subsequently merged with Imperial Wallcoverings to create Imperial Home Décor Group (“IHDG”). Blackstone provided $85 in equity, a syndicate of banks funded $198 of senior secured financing and $125 of senior subordinated notes were privately placed. BCI received approximately $309 in cash and 11% of IHDG common stock for its interest in BDPH at the closing of the merger. On January 5, 2000, IHDG filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The IHDG Litigation Trust (the “Trust”) was

F-71

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

created pursuant to the plan of reorganization in the IHDG bankruptcy to pursue preference and other avoidance claims on behalf of the unsecured creditors of IHDG. In November 2001, the Trust filed a lawsuit against BCI and certain of its affiliates in U.S. Bankruptcy Court in Delaware seeking to have the IHDG recapitalization transaction voided as a fraudulent conveyance and asking for a judgment to be entered against BCI for $314 plus interest, costs and attorney fees.

At December 31, 2004, the Company had an accrual of approximately $4 for legal defense costs related to this matter. On June 8, 2005, the Company reached an agreement with the parties to the lawsuit to settle and release all claims against it for a payment by the Company and certain former affiliates of $16.

Brazil Tax Claim—In 1992, the State of Sao Paulo Administrative Tax Bureau issued an assessment against BCI’s primary Brazilian subsidiary claiming that excise taxes were owed on certain intercompany loans made for centralized cash management purposes, characterized by the Tax Bureau as intercompany sales. Since that time, management and the Tax Bureau have held discussions, and the subsidiary has filed an administrative appeal seeking cancellation of the assessment. The Administrative Court upheld the assessment in December 2001. In 2002, the subsidiary filed a second appeal with the highest-level Administrative Court, again seeking cancellation of the assessment. Argument was made to the court in September 2004 and BCI is awaiting its ruling.

At December 31, 2004, the amount of the assessment, including tax, penalties, monetary correction and interest, is 61 Brazilian Reais, or approximately $23. BCI believes it has a strong defense against the assessment and will pursue the appeal vigorously, including appealing to the judicial level; however, there is no assurance that the assessment will not be upheld. At this time BCI does not believe a loss is probable; therefore, only related legal fees have been accrued. Reasonably possible losses to BCI resulting from the resolution of this matter range from zero to $23.

HAI Grand Jury Investigation—HA-International, LLC (“HAI”), a consolidated venture in which BCI had a 70% interest at December 31, 2004, received a grand jury subpoena dated November 5, 2003 from the U.S. Department of Justice Antitrust Division relating to a foundry resins Grand Jury investigation. HAI has provided documentation in response to the subpoena. As is frequently the case when such investigations are in progress, various antitrust lawsuits have been brought against BCI alleging that BCI and HAI, along with various other entities, engaged in a price fixing conspiracy. At this time BCI does not believe a loss is probable; therefore, only related legal fees have been accrued. BCI does not have sufficient information to determine a range of possible outcomes for this matter at this time.

CTA Acoustics—From the third quarter 2003 to the first quarter 2004, six lawsuits were filed against BCI in the 27th Judicial District, Laurel County Circuit Court, in Kentucky, arising from an explosion at a customer’s plant where seven plant workers were killed and over 40 other workers were injured. The lawsuits primarily seek recovery for wrongful death, emotional and personal injury, loss of consortium, property damage and indemnity. BCI expects that a number of these suits will be consolidated. The litigation also includes claims by its customer against its insurer and BCI. BCI is pursuing a claim for indemnity against its customer, based on language in its contract with the customer, and a claim against a third party that performed services for BCI in connection with sales to the customer. BCI previously accrued $5, the amount of its insurance deductible, relating to these actions and has insurance coverage expected to address any payments and legal fees in excess of this amount.

Other Legal Matters—BCI has been served in two lawsuits filed in Hillsborough County, Florida Circuit Court which name BCI and several other parties, relating to an animal feed supplement processing site formerly

F-72

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

operated by BCI and sold in 1980. The lawsuits are filed on behalf of multiple residents of Hillsborough County living near the site and allege various injuries related to exposure to toxic chemicals. At this time, BCI has inadequate information from which to estimate a potential range of liability, if any.

General

The Company is involved in various product liability, commercial and employment litigation, personal injury, property damage and other legal proceedings which are considered to be in the ordinary course of business. There has been increased publicity about asbestos liabilities faced by manufacturing companies. In large part, as a result of the bankruptcies of many asbestos producers, plaintiff’s attorneys are increasing their focus on peripheral defendants, including the Company, and asserting that even products that contained a small amount of asbestos caused injury. Plaintiffs are also focusing on alleged harm caused by other products the Company has made or used, including those containing silica and vinyl chloride monomer. The Company does not believe that it has a material exposure relating to these claims and believes it has adequate reserves and insurance to cover currently pending and foreseeable future claims.

Other Commitments and Contingencies

RPP entered into contractual agreements with Shell and other third parties for the supply of site services, utilities, materials and facilities and for operation and maintenance services necessary to operate certain RPP facilities on a stand-alone basis. The duration of the contracts range from one year, or less, to 20 years, depending on the nature of services. Such contracts may be terminated by either party under certain conditions as provided for in the respective agreements; generally, 90 days notice is required for short-term contracts and three years notice is required for longer-term contracts (generally in excess of five years). Contractual pricing generally includes a fixed and variable component.

In addition, RPP entered into contractual agreements with Shell and other third parties for the purchase of feedstocks. The terms of the agreements vary from three to ten years, extendable at RPP’s request and cancelable by either party as provided for in the respective agreements. Feedstock prices are based on market prices less negotiated volume discounts or cost input formulas.

The Company relies on long-term supply agreements with Shell and other key suppliers for most of their raw material supply. The loss of a key source of supply or a delay in shipments could have an adverse effect on business. Should any of the Company’s suppliers fail to deliver or should any of the key long-term supply contracts be canceled, the Company would be forced to purchase raw materials in the open market, and no assurances can be given that the Company would be able to make these purchases or make them at prices that would allow the Company to remain competitive. Some raw materials are provided by one supplier and the Company could incur significant time and expense if the Company had to replace the supplier. In addition, several of the feedstocks at various facilities are transported through a pipeline from one supplier. If the Company was unable to receive these feedstocks through these pipeline arrangements, the Company may not be able to obtain them from other suppliers at competitive prices or in a timely manner.

As part of the RSM Transaction, RSM was provided with certain services and systems from Eastman on an interim basis under a Transition Service Agreement (“TSA”). These transaction services are intended to allow RSM to continue to operate from the acquisition date on a seamless basis. Services included information systems, financial systems and reporting, procurement services, supply chain (order processing and logistics), and certain research and development support services. The TSA was terminated effective January 31, 2005. During 2004, the Company incurred expenses of $5 under the TSA.

F-73

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

On October 15, 2004, in order to secure the long-term supply of a key raw material, RSM entered into a ten-year contract with a supplier to purchase a specified quantity of product at a specified price whether or not it takes delivery. Prices are adjusted annually according to a formula that is based upon an agreed upon raw material benchmark index. The initial volume is adjusted annually based upon the prior year’s sales of the related finished good manufactured with the raw material. In addition, RSM is party to a non-cancellable agreement to purchase certain gas supplies at a fixed monthly rate through June 30, 2012. RSM is required to make minimum annual payments under these contracts as follows:

2005	$	2
2006		3
2007		3
2008		3
2009		3
2010 and beyond		14
Total minimum payments		28
Less: Amount representing interest		(8	)
Present value of minimum payments	$	20

RSM had purchases of $1 during 2004 under the contracts.

The Limited Liability Agreement of HAI provides Delta-HA, Inc. (“Delta”), BCI’s partner in HAI, the right to purchase between 3-5% of additional interest in HAI each year, beginning in 2004. Delta is limited to acquiring a maximum of 25% of additional interest in HAI under this arrangement. Delta purchased an additional 5% interest in the third quarter of 2004. Delta’s purchase price of the interest is based on the enterprise value of HAI determined by applying a contractually agreed upon multiple to EBITDA, as defined in the agreement. The Company received cash proceeds of $2, as determined by the agreement, and recorded a gain of $1 related to the sale, which is included in Other operating expense in the 2004 Consolidated Statement of Operations. In the first quarter of 2005, Delta purchased an additional 5% interest.

10. Pension and Retirement Savings Plans

Most U.S. employees of the Company, except RSM associates, are covered under non-contributory defined benefit plans (“the U.S. Plans”). The U.S. Plans provide benefits for salaried and certain hourly employees and some hourly employees covered under a collective bargaining agreement based on eligible compensation and years of credited service. The benefits for other hourly employees who are covered under a collective bargaining agreement benefits are calculated using a formula based on years of credited service multiplied by the fixed benefit multiplier amount established in the union contract. Certain employees in other countries are covered under other contributory and non-contributory defined benefit foreign plans that are included in the data presented herein. The measurement dates for the plans are: December 31 for RPP plans and September 30 for BCI plans.

F-74

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

	2004						2003
	RPP			BCI			RPP
Change in Benefit Obligation
Benefit obligation at beginning of year	$	111		$	259		$	81
Service cost		6			3			5
Interest cost		6			14			5
Actuarial losses		12			9			9
Foreign currency exchange rate changes		8			1			13
Benefits paid		(3	)		(32	)		(2	)
		140			254			111
Change in Plan Assets
Fair value of plan assets at beginning of year		102			190			80
Actual return on plan assets		4			21			7
Foreign currency exchange rate changes		8			—			13
Employer contribution		9			1			4
Benefits paid		(3	)		(32	)		(2	)
Fair value of plan assets at end of year		120			180			102
Plan assets less than benefit obligation		(20	)		(74	)		(9	)
Unrecognized net actuarial loss		35			121			16
Unrecognized prior service cost (credit)		(4	)		1			(4	)
Net amount recognized	$	11		$	48		$	3

Amounts recognized in the balance sheets, after reclassification of the prepaid pension asset to reflect a minimum pension liability adjustment, consist of:

	2004						2003
	RPP			BCI			RPP
Accrued benefit liability	$	(8	)	$	(72	)	$	(7	)
Prepaid benefit cost		19			—			10
Intangible asset		—			1			—
Accumulated other comprehensive income		—			119			—
Net amount recognized	$	11		$	48		$	3

The Company’s accrued benefit liability of $80 includes $7 recorded in Other current liabilities at December 31, 2004. The weighted average discount rates used to determine benefit obligations for the Company were between 2% and 6% in 2004 and between 3.5% and 6.75% in 2003. The weighted average rate of increase in future compensation levels was between 2% and 4.42% in 2004 and between 2% and 4% in 2003.

The following summarizes defined benefit pension plans with an accumulated benefit obligation in excess of plan assets:

	2004				2003
	RPP		BCI		RPP
Projected benefit obligation	$	38	$	254	$	35
Accumulated benefit obligation		32		251		29
Fair value of plan assets		27		180		25

F-75

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

Following are the components of net pension expense recognized by the Company for the years ended December 31, 2004, 2003 and 2002:

	2004									2003			2002
	RPP			BCI(a)			Total			RPP			RPP
Service cost	$	6		$	1		$	7		$	5		$	5
Interest cost on projected benefit obligation		6			5			11			5			4
Expected return on assets		(9	)		(6	)		(15	)		(7	)		(5	)
Recognized actuarial loss		—			3			3			—			—
Net pension expense	$	3		$	3		$	6		$	3		$	4

(a) BCI balances shown are for the period August 12, 2004 to December 31, 2004.

The weighted average discount rates used to determine net pension expense for the Company was between 2.5% and 6.25% in 2004, between 3.5% and 6.75% in 2003, and between 3.5% and 7.25% in 2002. The weighted average rate of increase in future compensation was between 2% and 4% in 2004 and 2003, and between 2% and 4.25% in 2002. The expected long-term rate of return on the plan assets were between 8% and 9% in 2004, 2003 and 2002.

Investment Strategy

Following is a summary of actual 2004 and 2003, at the measurement date, and target 2005 allocations of assets by investment type:

	2005 Target				2004				2003
	RPP		BCI		RPP (a)		BCI		RPP
Debt securities	20	%	40	%	29	%	35	%	28	%
Equity securities	80	%	60	%	70	%	61	%	71	%
Cash and short-term investments	—		—		—		4	%	—
Other	—		—		1	%	—		1	%
	100	%	100	%	100	%	100	%	100	%

(a) RPP investments allocations are for U.S. assets only. RPP’s international investment portfolio includes 100% of The Netherlands plan assets invested in debt securities and 100% of Belgium’s plan assets invested in other investments for the years 2004 and 2003. For international plans, RPP is expected to transfer to and maintain an 80% equity and 20% bond mix in international investments in the near future.

RPP Plan

For the U.S. Plan, the expected long-term rate of return was chosen from the range of likely results of compound average annual returns over a 20-year time horizon based on the plan’s current investment policy (70% equity securities, 29% bonds, and 1% cash). The expected return and volatility for each asset class was based on historical equity, bond and cash market returns during the period 1926 to 2002 using a Monte Carlo Simulation. Increasing or decreasing the expected return rate by one percentage point would not be material on combined results of operations, cash flows or financial position.

F-76

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

BCI Plan

In determining the expected overall long-term rate of return on assets, BCI takes into account the rates on long-term debt investments held within the portfolio, as well as expected trends in the equity markets. Peer data and historical returns are also reviewed to confirm that BCI’s assumptions are reasonable.

BCI’s investment strategy for defined benefit pension plan assets is to maximize the long-term return on plan assets using a mix of equities and fixed income investments and accepting a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status and expected timing of future cash flow requirements. The investment portfolio contains a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value and small and large capital investments. Investment risk and performance is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements and periodic asset / liability studies.

The Company expects to make contributions totaling $19 to its defined benefit plans in 2005.

Estimated future plan benefit payments as of December 31, 2004 are as follows:

2005	$	28
2006		28
2007		26
2008		26
2009		26
2010 to 2014		132

In 2003 BCI was informed by the IRS that cash balance plans may be required to be amended because of recent ERISA rulings that found some cash balance plans to be discriminatory. The IRS indicated that the U.S. Plan should continue to operate as currently designed until new guidance is available. There is insufficient information to assess any potential impact to BCI of the ERISA ruling at this time.

Most BCI employees not covered by the Company’s U.S. and foreign defined benefit pension plans are covered by collective bargaining agreements, which are generally effective for five years. Under Federal pension law, there would be continuing liability to these pension trusts if BCI ceased all or most participation in any such trust, and under certain other specified conditions. The Consolidated Statements of Operations include charges of $1 in 2004 for payments to pension trusts on behalf of BCI employees not covered by its plans.

Qualified Savings Plans

The Company provides a defined contribution plan to its RPP and RSM employees. Full time employees are eligible to participate immediately. Employees may make pre-tax contributions ranging from 1% to 60% and after-tax contributions ranging from 1% to 10% of their pay subject to Internal Revenue Service limitation. Company contributions range from 3% to 6% after completion of service of 1 to 4 years of service and 6% after completion of 5 years of service. Company contributions amounted to $2 and $1 for each of the years ended December 31, 2004 and, 2003, respectively.

The Company also provides a defined contribution plan to its BCI U.S. employees (“the Retirement Savings Plan”). Eligible salaried and hourly employees may contribute up to 5% of their pay (7% for certain longer

F-77

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(Dollars in millions except per share data)

service salaried employees), as basic contributions to the plan. The Company contributes monthly to the plan an amount equal to at least 50% and up to 100% of basic contributions. The Company has the option to make additional contributions based upon financial performance. Charges to operations for matching contributions under the Retirement Savings Plan in the period from August 12, 2004 to December 31, 2004 totaled $2.

Deferred Compensation Plans

The Company provides a nonqualified deferred compensation plan for its RPP U.S. employees who are participants in the former RPP stock option plan. Participants may elect to defer up to 50% of base wages and 100% of bonus pay and stock option compensation. The participants’ deferred compensation contributions are made to a Rabbi trust. The Company’s obligations under this plan are unfunded; however, the Company must pay tax on compensation that is deferred by the participant. The participant is required to reimburse the Company for taxes once the funds are withdrawn from the plan. Eligible RSM employees also receive profit sharing contributions based on age and years of service. Contributions range from 1 to 15% on wages to FICA limits and 2 to 20% on wages in excess of FICA limits. Contributions for RSM’s employees amounted to less than $1 for the period ended December 31, 2004.

The Company also provides executives with a nonqualified plan that provides an opportunity for executives to elect deferral of compensation and also provides retirement benefits in cases where executives cannot fully participate in the defined benefit or defined contribution plan because of plan and Internal Revenue Service limitations. The Company’s plans will be amended in 2005 to comply with the deferred compensation provisions of the American Jobs Creation Act of 2004.

11. Non-Pension Postemployment Benefits

Most U.S. and Canadian employees of the Company are provided other postemployment benefit plans (“OPEBs”). The OPEBs provide retirees and their dependents certain health and life insurance benefits. Domestic participants under the former BCI plan who are not eligible for Medicare are generally provided with the same medical benefits as active employees. Until September 2003, participants who were eligible for Medicare were provided with supplemental benefits. In September 2003, the BCI plan was amended, as is discussed below. Canadian participants are provided with supplemental benefits to the respective provincial healthcare plan in Canada. The domestic postretirement medical benefits are contributory; the Canadian medical benefits are non-contributory. The domestic and Canadian postretirement life insurance benefits are non-contributory. Benefits are funded on a pay-as-you-go basis.

During 2003, the Company revised the average retirement age and average turn-over rate to age 60 and 7 percent from age 58 and 5 percent of participants in the former RPP plan. This revision in assumptions decreased the obligations for the OPEB plan in the U.S. for 2003.

In 2003, the Company amended the BCI medical benefit plan, as a result, the post-retirement medical benefits were reduced by approximately $88. The Company’s unrecognized prior service cost was adjusted for the impact of the amendment, and the adjustment is being amortized over the estimated remaining years of service of approximately nine years (2003 – 2012). In 2004, the Company again amended the BCI retiree medical benefit plan to reduce subsidies to retirees effective January 1, 2005, and eliminate remaining subsidies effective January 1, 2006, except in certain cases where contractual obligations exist. As a result of this amendment, the Company’s liability related to providing postretirement medical benefits was further reduced by $8 in 2004. The Company’s unrecognized prior service cost has been adjusted to reflect this amendment. The prior service cost will be amortized over the estimated remaining years of service of approximately nine years (2004 – 2013).

F-78

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

The measurement dates for the plans are: December 31 for the RPP plan and September 30 for the BCI plans. The following represents amounts for the full calendar years of January 1 to December 31, 2004 and 2003.

	2004						2003
	RPP			BCI			RPP
Change in Benefit Obligation
Benefit obligation at beginning of year	$	7		$	32		$	7
Interest cost		1			2			—
Actuarial (gains) losses		(2	)		(2	)		—
Plan amendments		—			(8	)		(1	)
Benefits paid		—			(5	)		—
Foreign currency exchange rate changes		—			—			1
		6			19			7
Unrecognized net actuarial gain		16			6			14
Unrecognized prior service benefit		4			84			5
Accrued postretirement obligation at end of year	$	26		$	109		$	26

The weighted average discount rates used to determine benefit obligations for the Company were between 5% and 6.25% in 2004 and between 5.5% and 6.25% in 2003.

Following are the components of net postretirement (benefit) expense recognized by the Company:

	2004									2003			2002
	RPP			BCI(a)			Total			RPP			RPP
Interest cost on projected benefit obligation	$	—		$	1		$	1		$	—		$	1
Amortization of prior service cost		—			(4	)		(4	)		—			—
Recognized actuarial gain		(1	)		—			(1	)		(1	)		—
Settlement/curtailment gain		—			—			—			—			(1	)
Net postretirement benefit	$	(1	)	$	(3	)	$	(4	)	$	(1	)	$	—

(a) BCI amounts shown are for the period August 12, 2004 to December 31, 2004.

The weighted average discount rates used to determine net postretirement (benefit) expense for the Company was between 5.5% and 6.25% in 2004 and between 6% and 6.75% in 2003 and 2002.

Following are the assumed health care cost trend rates at December 31, 2004.

	2004		2003
	RPP	BCI	RPP
Health care cost trend rate assumed for next year—U.S. plan	8.0-8.5%	5.25%	9.0%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)—U.S. Plan	4.0-4.5%	5.25%	4.5%
Year that the rate reaches the ultimate trend rate—U.S. Plan	2009	2005	2008
Health care cost trend rate assumed for next year—Canadian Plan	—	7.5%	—
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)—Canadian Plan	—	4.4%	—
Year that the rate reaches the ultimate trend rate—Canadian Plan	—	2015	—

F-79

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(Dollars in millions except per share data)

A one-percentage-point change in the assumed health care cost trend rates would not have a material impact on the Company.

Estimated future plan benefit payments as of December 31, 2004 are as follows:

2005	$	3
2006		2
2007		2
2008		2
2009		2
2010 to 2014		6

Also included in the Consolidated Balance Sheets at December 31, 2004 and 2003, are other post-employment benefit obligations of $5 and $0, respectively.

12. Shareholders’ (Deficit) Equity

As a result of the Hexion Combination, the Company’s capital structure consists of 82,629,906 shares outstanding at December 31, 2004, which consists of 300,000,000 shares of $0.01 par value common stock authorized, 170,678,965 shares issued and 88,049,059 shares held in treasury (see Note 17h). The Company’s capital structure has been retroactively consolidated for all periods presented. For purposes of calculating loss per share, 82,629,906 was used as the number of outstanding shares for all periods presented as no new shares were issued as a result of the legal merger.

During 2004 and 2003, the Company paid constructive cash distributions of $1 and $4 to Shell, of the $4, $2 was previously accrued, relating to the same reimbursements of certain pension costs in accordance with the Master Sales Agreement dated November 14, 2000 and related ancillary agreements.

The Company’s equity at December 31, 2004 includes the addition of the historical equity balances of BCI at August 12, 2004. BCI’s equity included $296 related to treasury shares and a receivable from its parent of $542.

At December 31, 2004, the Company held $405 of notes receivable from its parent, which accrue interest at 12% per year, payable quarterly, and mature on September 29, 2005. The notes were previously due from BHI. Interest of $156 has been accrued at December 31, 2004. Paid-in capital includes the related interest income of $19 for the period ended December 31, 2004. Historically, BHI funded the payment of the interest on the note through common dividends received from BCI. BCI has not received a payment on the accrued interest, nor has BCI paid an associated dividend, since October 15, 2001.

13. Stock Option Plans and Other Stock Based Compensation

Prior to the Hexion Combination, RPP, RSM and BHI Acquisition (now Hexion LLC) maintained three stock option plans: the RPP 2000 Stock Option Plan (the “RPP plan”), the RSM 2004 Stock Option Plan (the “RSM plan”) and the BHI Acquisition 2004 Stock Incentive Plan (the “2004 Incentive Plan”). In addition to these option plans, the Company’s parent maintains a stock-based deferred compensation plan. The options granted under each of these plans were for the purchase of the common stock of the parent company of each of the respective companies; upon the Hexion Combination, the stock options under the RPP plan and RSM plan

F-80

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

became denominated in Hexion LLC common units based upon relative fair value. As such, none of these options are denominated in the Company’s stock as of the date of the Hexion Combination. The Company does not intend to make future option grants from these plans subsequent to the Hexion Combination, but plans to adopt a new plan from which future grants of options to purchase the Company’s stock will be made.

Stock Options

The Company accounts for stock-based compensation under APB No. 25 and has adopted the disclosure-only provisions of SFAS No. 123 “Accounting for Stock-Based Compensation.”

Following is a summary of the historical option activity relating to these plans, on the equivalent, post-combination and reverse split (see Note 17i) basis, for the three years ended December 31, 2004:

	Hexion LLC Common Units	Weighted Average Exercise Price
Options outstanding at December 31, 2002	636,074	$	12.05
Options exercised	84		9.49
Options granted	14,964		9.49
Options forfeited	54,862		12.81
Options outstanding at December 31, 2003	596,092		11.97
Options granted	3,658,471		5.64
Options forfeited	107,331		16.23
Options outstanding at December 31, 2004	4,147,232	$	6.31
Exercisable at December 31, 2003	90,692	$	11.58
Exercisable at December 31, 2004	111,241	$	12.14

At December 31, 2004 the range of exercise prices on a post-combination and reverse split basis was $3.51 to $29.42 and the weighted average remaining contractual life was 9.2 years.

RPP Plan

RPP Inc. adopted stock option plans pursuant to which options with respect to a total of 69,000 shares of RPP Inc.’s common stock (727,134 shares on a post-combination and reverse split basis) are available for grant to employees of, consultants to, or directors of RPP Inc. or RPP. The right to grant options under the option plan will expire in 2010. Options granted under the plan are or will be either nonqualified or incentive stock options. One third of the options will vest ratably over a five year period, while the remaining vest after the eighth anniversary of the grant date (“the RPP performance options”). The RPP performance options provide for accelerated vesting upon the sale of RPP, Inc. and achievement of certain financial targets. Options are granted at the fair market value on the date of the grant and expire eight years from the grant date.

RSM Plan

In August 2004, RSM Inc. initiated its 2004 Stock Option Plan pursuant to which options with respect to a total of 37,500 shares of RSM Inc.’s common stock (1,069,997 shares on a post-combination and reverse split basis) are available for grant to employees of, consultants to, or directors of RSM Inc. or RSM. The right to grant options under the option plan will expire on the tenth anniversary of the adoption date by the Board

F-81

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

of Directors. Options granted under the plan shall be nonqualified stock options. One third of the options will vest ratably over a five year period, while the remaining vest after the eighth anniversary of the grant date (“the RSM performance options”). The RSM performance options provide for accelerated vesting upon the sale of RSM Inc. and achievement of certain financial targets. Options are granted at the fair market value on the date of the grant and expire eight years from the grant date.

BCI Plans

As a result of the BCI Transaction, all 4,968,250 of the in-the-money options to purchase BCI stock, granted under predecessor BCI option plans, were exercised, resulting in the recognition of $4 of option expenses, which is included in Transaction related compensation and other costs. The remaining options were terminated without payment.

In August 2004, BHI Acquisition (now Hexion LLC) adopted the BHI Acquisition 2004 Stock Incentive Plan, pursuant to which up to 3,670,635 (see Note 17i) options to purchase BHI Acquisition (now Hexion LLC) stock are available for grant to BCI employees. The right to grant options under this plan will expire on the tenth anniversary of the adoption of the plan. On August 12, 2004, BHI Acquisition granted options to purchase 2,519,860 shares of BHI Acquisition (now Hexion LLC) stock, half of which vest ratably over a five-year period, while the remaining vest after the eighth anniversary of the grant date (the “performance options”). The performance options provide for accelerated vesting upon the sale of BCI and the achievement of certain financial targets. The options were granted at fair value, but are treated as variable because the 2004 Incentive Plan is a book value plan with the value of the options determined by a formula. BCI has not recorded any expense under APB No. 25 related to these options, as their formula value is less than the exercise price.

At December 31, 2004, there were no exercisable options outstanding under the 2004 Incentive Plan to purchase Hexion LLC common units and there were 1,150,775 shares available for future grant.

Stock-Based Deferred Compensation Plans

Certain key employees of the Company have been granted 1,007,944 (see Note 17i) deferred common stock units under the BHI Acquisition Corp. 2004 Deferred Compensation Plan (“the Deferred Compensation Plan”), which is an unfunded plan. Each unit gives the grantee the right to one share of common stock of Hexion LLC, following the completion of a forfeiture period, upon the earlier of termination of employment or upon certain other events triggered by a registration of Hexion LLC common stock for sale to the public. The forfeiture period for 686,396 of the deferred units expired on December 10, 2004. The remaining 321,549 deferred units are subject to forfeiture until December 31, 2005. The Company recorded $4 of expense related to the Deferred Compensation Plan during the period from August 12, 2004 to December 31, 2004, and the related credit is in Paid-in capital.

F-82

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

14. Income Taxes

Comparative analysis of the Company’s income tax expense (benefit) related to continuing operations follows:

	2004			2003			2002
Current
Federal	$	(5	)	$	—		$	—
State and local		7			—			—
Foreign		1			—			—
Total		3			—			—
Deferred
Federal		(11	)		(22	)		—
State and local		(1	)		(1	)		—
Foreign		9			(14	)		(10	)
Total		(3	)		(37	)		(10	)
Income tax expense (benefit)	$	—		$	(37	)	$	(10	)

A reconciliation of the Company’s differences between income taxes related to continuing operations computed at the Federal statutory tax rate of 35% and provisions for income taxes is as follows:

	2004			2003			2002
Income taxes computed at Federal statutory tax rate	$	(40	)	$	(35	)	$	(8	)
State tax provision, net of Federal benefits		(4	)		(2	)		—
Foreign tax differentials		1			(5	)		1
Foreign source income also subject to U.S. taxation		9			—			—
Losses and other expenses not deductible for tax		12			—			—
Valuation allowance		(33	)		—			—
Additional tax on foreign unrepatriated earnings		61			—			—
Write off of net operating losses		17			—			—
Long-lived asset impairment		—			4			—
Change in enacted tax rate		(10	)		—			—
Adjustment of prior estimates and other		(13	)		1			(3	)
Income tax expense (benefit)	$	—		$	(37	)	$	(10	)

The domestic and foreign components of the Company’s loss (income) before income tax and minority interest are as follows:

	2004			2003		2002
Domestic	$	126		$	72	$	(6	)
Foreign		(13	)		28		30
Total	$	113		$	100	$	24

F-83

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

The tax effects of the Company’s significant temporary differences, and net operating loss and credit carryforwards, which comprise the deferred tax assets and liabilities at December 31, 2004 and 2003, is as follows:

	2004			2003
Assets
Non-pension post-employment benefit obligations	$	42		$	—
Accrued and other expenses		65			—
Loss and credit carryforwards		260			89
Pension liability		26			6
Property, Plant & Equipment		16			—
Other		9			6
Gross deferred tax assets		418			101
Valuation allowance		(192	)		—
Net deferred tax asset		226			101
Liabilities
Property, plant, equipment and intangibles		(243	)		(203	)
Unrepatriated earnings of foreign subsidiaries		(66	)		—
Amortization of intangibles		(30	)		(31	)
Other		(4	)		(3	)
Gross deferred tax liabilities		(343	)		(237	)
Net deferred tax liability	$	(117	)	$	(136	)

The following table summarizes the Company’s presentation of its net deferred tax (liability) asset on the Consolidated Balance Sheets at December 31, 2004 and 2003:

	2004			2003
Assets
Current deferred income taxes	$	14		$	5
Liabilities
Long-term deferred income taxes		(131	)		(141	)
Net deferred tax liability	$	(117	)	$	(136	)

The 2004 consolidated tax rate primarily reflects a provision of $61 for taxes associated with the unrepatriated earnings of BCI’s foreign subsidiaries. Management has determined that after the acquisition of BCI by Apollo (the “BCI Transaction”), the earnings could no longer be considered permanently reinvested. In addition, the provision also reflects a $12 tax expense for nondeductible expenses primarily related to the BCI Transaction and a tax benefit of $10 for a reduction in the Netherlands tax rate.

The 2003 effective tax rate reflects a Federal income tax benefit computed at the Federal statutory rate as well as a $4 charge for book impairment charges related to goodwill that are not deductible for tax purposes.

Hexion LLC and its eligible subsidiaries file a consolidated U.S. Federal income tax return. As Hexion LLC is not a member of the registrant, its tax attributes are not reflected in the above tables. However, because Hexion

F-84

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

LLC is the Company’s parent, the Company has the ability to utilize Hexion LLC’s attributes. These attributes are made up of $130 of deferred interest deductions, which have significant restrictions on their use, and $24 of net operating loss carryforwards, which expire starting in 2020. Hexion LLC maintains a full valuation allowance against these tax attributes as it is more likely than not that some portion of these assets will not be realized.

In addition, as of December 31, 2004, the Company has a $192 valuation allowance for a portion of its deferred tax assets that management believes, that more likely than not, will not be realized. In the United States, a consolidated tax return will be filed and future taxable income and losses of the consolidated group may be offset. During 2004, the Company released $51 of valuation allowance in connection with its decision to repatriate earnings from its foreign subsidiaries. The valuation allowance was also evaluated considering the combined deferred taxes of the Company after the Hexion Combination. At the time BCI and RSM became part of the combined group, RPP had a $50 net deferred tax liability and BCI and RSM had valuation allowances on a portion of their deferred tax assets. These valuation allowances were reduced by $50 based on RPP’s net deferred tax liability position. Of this amount, $2 was recorded as a component of purchase accounting and the remainder was credited to Paid-in capital.

The Company’s deferred tax assets include Federal, state and foreign net operating loss carryforwards. The Federal net operating losses available are $308, which expire starting in 2020. A valuation allowance of $82 has been provided against these attributes.

The Company had undistributed earnings of foreign subsidiaries of $6, on which deferred taxes had not been provided because such earnings are considered permanently invested outside of the U.S.

The IRS has substantially completed audits of BCI for all years through 2001. As a result, the Company has recorded a benefit of $12 in their tax provision relating to settlements of Federal, state and foreign audits. For BCI, the years 2002 through 2004 remain open for examination. For RPP, the years 2001 through 2004 remain open for examination. RSM’s initial 2004 tax year remains open for examination.

At December 31, 2004, the Company has $25 accrued for probable state tax liabilities. As the various taxing authorities continue with their audit/examination programs, the Company will adjust its reserves accordingly to reflect these settlements.

The Canada Revenue Agency is currently auditing BCI’s Canadian subsidiary for the period 1991 through 1995. The years 1996-2004 remain open for examination by various Canadian tax authorities. Deposits have been made to offset any probable additional taxes.

The Netherlands taxing authority is currently examining RPP’s Dutch subsidiary’s tax returns for the years 2000 through 2002. Net operating losses carried back during this period of time resulted in $18 of tax refunds in the fourth quarter of 2003. The Netherlands tax authority has not issued a formal notice of deficiency and the Company will aggressively contest any proposed adjustments. Although the final resolution of any proposed adjustments is uncertain and may involve unsettled areas, based on currently available information, the Company has provided the best estimate of the probable tax liability for such matters.

15. Segment and Geographic Data

Each of the companies comprising Hexion has determined its segments in accordance with SFAS No. 131, “Disclosures about segments of an Enterprise and Related Information,” based on the way that management organizes the business operations for decision-making purposes. This organization of the business operations has

F-85

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

resulted in a historical presentation of eight segments. RPP organizes and manages its business through geographic regions. These geographic regions result in three reportable segments: (i) Americas, (ii) Europe and Africa, and (iii) Asia Pacific and Middle East. RSM operates its business by product line, and has two reportable segments: (i) Specialty Resins and Monomers and (ii) Inks. BCI has three reportable business segments: (i) Forest Products, (ii) Performance Resins and (iii) International. Consolidated results for RSM and BCI also include Corporate and Other, which includes general and administrative expenses, and for BCI only, income and expenses retained from businesses sold in previous years.

The following tables include the stand-alone disclosures for each of the eight historical segments in accordance with SFAS No. 131. In addition, the Company has voluntarily included the RSM and BCI information using the same segments utilized by RPP because management deems the additional segment data to be beneficial for a deeper understanding of the consolidated entity. RSM amounts shown below are for the period August 1, 2004 to December 31, 2004. BCI amounts shown below are for the period August 12, 2004 to December 31, 2004.

Net sales to external customers:

	2004											2003		2002
	RPP		RSM		BCI		Elim. (1)			Total		RPP		RPP
Americas	$	431	$	189	$	602	$	(4	)	$	1,218	$	349	$	367
Europe and Africa		563		131		66		—			760		430		364
Asia Pacific and Middle East		2		5		34		—			41		3		9
Total	$	996	$	325	$	702	$	(4	)	$	2,019	$	782	$	740

(1) Entries to eliminate transactions between RPP, RSM and BCI.

Net sales by product line:

	2004											2003		2002
	RPP		RSM		BCI		Elim. (1)			Total		RPP		RPP
Resins	$	627	$	249	$	528	$	(4	)	$	1,400	$	499	$	488
Formaldehyde		—		—		108		—			108		—		—
Inks		—		76		—		—			76		—		—
Bisphenol-A		178		—		—		—			178		129		125
Versatics		149		—		—		—			149		116		91
All other (2)		42		—		66		—			108		38		36
Total	$	996	$	325	$	702	$	(4	)	$	2,019	$	782	$	740

(1) Entries to eliminate transactions between RPP, RSM and BCI.

(2) Net Sales of other products that individually account for less than 10% of total revenues.

F-86

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

Depreciation and amortization expense:

	2004								2003		2002
	RPP		RSM		BCI		Total		RPP		RPP
Americas	$	34	$	1	$	16	$	51	$	33	$	27
Europe and Africa		28		3		3		34		25		20
Asia Pacific and Middle East		—		—		1		1		—		—
Total	$	62	$	4	$	20	$	86	$	58	$	47

Operating income (loss):

	2004												2003			2002
	RPP			RSM			BCI			Total			RPP			RPP
Americas	$	(34	)	$	(17	)	$	(7	)	$	(58	)	$	—		$	66
Europe and Africa		57			11			—			68			(24	)		(25	)
Asia Pacific and Middle East		(2	)		—			1			(1	)		1			—
Total	$	21		$	(6	)	$	(6	)	$	9		$	(23	)	$	41

Reconciliation of operating income to income (loss) before income tax and minority interest:

	2004			2003			2002
Operating Income (loss)	$	9		$	(23	)	$	41
Interest expense		(118	)		(77	)		(65	)
Other non-operating expense		(4	)		—			—
Loss before income tax and minority interest	$	(113	)	$	(100	)	$	(24	)

Total assets at year-end:

	2004											2003
	RPP		RSM		BCI		Elim. (1)			Total		RPP
Americas	$	644	$	194	$	840	$	(4	)	$	1,674	$	653
Europe and Africa		611		193		131		—			935		537
Asia Pacific and Middle East		1		13		73		—			87		1
Total	$	1,256	$	400	$	1,044	$	(4	)	$	2,696	$	1,191

(1) Entries to eliminate transactions between RPP, RSM and BCI and to record deferred taxes.

Expenditures for long-lived assets:

	2004								2003
	RPP		RSM		BCI		Total		RPP
Americas	$	17	$	13	$	11	$	41	$	12
Europe and Africa		9		5		1		15		5
Asia Pacific and Middle East		—		—		1		1		1
Total	$	26	$	18	$	13	$	57	$	18

F-87

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

Set forth below is the segment reporting for RSM and BCI.

Segment reporting for RSM from the acquisition date of August 2, 2004 to December 31, 2004:

	SRM		Inks		Corporate & Other			Total
Net sales to external customers	$	249	$	76	$	—		$	325
Depreciation and amortization expense		3		1		—			4
Operating income (loss)		6		2		(14	)		(6	)
Total assets at December 31, 2004		288		108		4			400
Expenditures for long lived assets		13		5		—			18

Segment reporting for BCI from the acquisition date of August 12, 2004 to December 31, 2004:

	Forest Products		Performance Resins		International		Corporate & Other			Total
Net sales to external customers	$	376	$	174	$	152	$	—		$	702
Depreciation and amortization expense		9		4		5		2			20
Total assets		403		213		291		137			1,044
Expenditures for long lived assets		5		3		3		2			13
Segment EBITDA		43		20		11		(11	)		63

Reconciliation of Segment EBITDA to Net Loss:

	2004
Segment EBITDA—BCI:
Forest Products	$	43
Performance Resins		20
International		11
Corporate and Other		(11	)
Adjustments to Segment EBITDA (described below)—BCI		(49	)
Depreciation and Amortization—BCI		(20	)
Operating Income—RPP		21
Operating Income—RSM		(6	)
Total operating income—consolidated		9
Reconciliation:
Interest expense—consolidated		(118	)
Other non-operating income—consolidated		(4	)
Income tax benefit—consolidated		—
Minority interest in net loss of consolidated subsidiaries		8
Net loss—consolidated	$	105

F-88

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(Dollars in millions except per share data)

Adjustments to BCI Segment EBITDA:

The following items are not included in Segment EBITDA:

	Forest Products			Performance Resins			International			Corporate & Other			Total
Adjustments to EBITDA:
Plant closure (a)	$	—		$	—		$	(1	)	$	—		$	(1	)
Transaction related costs		—			—			—			(46	)		(46	)
Impairment (b)		—			(2	)		—			—			(2	)
Other		(1	)		1			—			—			—
Total Adjustments to EBITDA	$	(1	)	$	(1	)	$	(1	)	$	(46	)	$	(49	)

(a) Plant closure costs include fixed asset write-offs, plant employee severance and demolition, environmental and other related costs.

(b) Represents write-down of production assets due to certain changes in the Company’s manufacturing footprint.

Segment EBITDA is equal to net income before depreciation and amortization, interest expense, other non-operating expenses or income, income taxes and other adjustments (which include costs included in operating income associated with the BCI Transaction, business realignment activities, and certain costs primarily related to legacy businesses). Segment EBITDA is presented by reportable segment and for Corporate and Other and Divested Business of BCI for the period from August 12 to December 31, 2004. Segment EBITDA information is presented with BCI’s segment disclosures because it is the measure used by BCI’s management in the evaluation of operating results and in determining allocations of capital resources among the business segments. It is also the metric used by BCI to set management and executive incentive compensation.

Geographic Information

Net sales to Unaffiliated Customers:⁽¹⁾

	2004											2003		2002
	RPP		RSM		BCI		Elim. (2)			Total		RPP		RPP
United States	$	431	$	182	$	429	$	(4	)		1,038	$	349	$	367
Netherlands		563		—		—		—			563		430		229
Canada		—		7		121		—			128		—		—
Other international		2		136		152		—			290		3		144
Total	$	996	$	325	$	702	$	(4	)	$	2,019	$	782	$	740

(1) For purposes of geographic disclosures, sales are attributed to the country in which individual business locations reside.

(2) Entries to eliminate transactions between RPP, RSM and BCI.

F-89

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(Dollars in millions except per share data)

Long-Lived Assets: ⁽¹⁾

	2004											2003		2002
	RPP		RSM		BCI		Elim. (2)			Total		RPP		RPP
United States	$	368	$	40	$	251	$	(4	)	$	655	$	381	$	396
Netherlands		390		—				—			390		379		336
Canada		—		—		73		—			73		—		—
Other international		6		75		124		—			205		4		5
Total	$	764	$	115	$	448	$	(4	)	$	1,323	$	764	$	737

(1) Long-lived assets include property, plant and equipment, net of accumulated depreciation.

(2) Deferred tax adjustment as a result of the combination.

16. Guarantor/Non-Guarantor Subsidiary Financial Information

In conjunction with the Apollo Acquisition of BCI, BCI formed two wholly owned finance subsidiaries to borrow $475 through a private debt offering. The Company and certain of its U.S. subsidiaries guarantee this debt. In addition, following the Hexion Combination, the Company and these same U.S. subsidiaries plus Hexion U.S. Finance Corporation (formerly known as Borden U.S. Finance) also guarantee the senior secured debt previously issued by RPP (the “RPP guaranteed debt”).

The following information contains the condensed consolidating financial information for the parent, Hexion, the subsidiary issuers (Hexion U.S. Finance Corporation, formerly known as Borden U.S. Finance Corporation, Hexion Nova Scotia Finance, ULC (formerly known as Borden Nova Scotia, ULC) (“Nova Scotia, ULC”) and RPP Capital Corporation), the combined subsidiary guarantors (BDS Two, Inc., Borden Chemical Investments, Inc., Borden Chemical Foundry, Inc., Lawter International, Inc., Borden Chemical International, Inc., Oilfield Technology Group, Inc. and Borden Services Company) and the combined non-guarantor subsidiaries, which includes all of the Company’s foreign subsidiaries and HAI. All of the subsidiary issuers and subsidiary guarantors are owned 100% by Hexion. All guarantees are full and unconditional and are joint and several. There are no significant restrictions on the ability of the Company to obtain funds from its domestic subsidiaries by dividend or loan. While the Company’s Australian subsidiary and HAI are restricted in the payment of dividends and intercompany loans due to the terms of their credit facilities, there are no material restrictions on the Company’s ability to obtain cash from the remaining U.S. non-guarantor subsidiaries.

This information includes allocations of corporate overhead to the combined non-guarantor subsidiaries based on net sales. Income tax expense has been provided on the combined non-guarantor subsidiaries based on actual effective tax rates. All other tax expense is reflected in the parent.

F-90

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

YEAR ENDED DECEMBER 31, 2004

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

	Hexion Specialty Chemical, Inc.			Subsidiary Issuers(1)			Combined Subsidiary Guarantors			Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	1,038		$	—		$	33		$	1,061		$	(113	)	$	2,019
Cost of goods sold		934			—			32			932			(113	)		1,785
Gross margin		104			—			1			129			—			234
Selling, general & administrative expense		70			—			2			91			—			163
Transaction related costs		34			—			—			22			—			56
Other operating expense (income)		4			—			(1	)		3			—			6
Operating income (loss)		(4	)		—			—			13			—			9
Interest expense		100			16			—			2			—			118
Intercompany royalty expense (income)		6			—			(6	)		—			—			—
Intercompany interest expense (income)		63			(17	)		(63	)		17			—			—
Equity in (earnings) losses of subsidiaries, net		(48	)		—			(2	)		—			50			—
Other non-operating expense (income)		—			—			—			4			—			4
(Loss) income before income tax and minority interests		(125	)		1			71			(10	)		(50	)		(113	)
Income tax expense (benefit)		(12	)		—			—			12			—			—
Net (loss) income before minority interests		(113	)		1			71			(22	)		(50	)		(113	)
Minority interests in net loss of consolidated subsidiaries		(8	)		—			—			—			—			(8	)
Net (loss) income	$	(105	)	$	1		$	71		$	(22	)	$	(50	)	$	(105	)

(1) Subsidiary issuers include Hexion U.S. Finance Corporation, RPP Capital Corporation and Nova Scotia, ULC. Hexion U.S. Finance Corporation is also a guarantor of the RPP guaranteed debt. RPP Capital is also a subsidiary guarantor of the debt issued by Hexion U.S. Finance Corporation and Nova Scotia, ULC. The primary asset of the Hexion U.S. Finance Corporation is an intercompany receivable from Hexion (the parent) for $197, which is essentially offset by the debt payable. RPP Capital Corporation has no significant assets.

F-91

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

YEAR ENDED DECEMBER 31, 2003

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

	Hexion Specialty Chemical, Inc.			Subsidiary Issuers(1)		Combined Subsidiary Guarantors		Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	359		$	—	$	—	$	442		$	(19	)	$	782
Cost of goods sold		311			—		—		422			(19	)		714
Gross margin		48			—		—		20			—			68
Selling, general & administrative expense		35			—		—		46			—			81
Impairments		13			—		—		—			—			13
Other operating expense (income)		—			—		—		(3	)		—			(3	)
Operating income (loss)		—			—		—		(23	)		—			(23	)
Interest expense		74			—		—		3			—			77
Equity in (earnings) losses of subsidiaries, net		18			—		—		—			(18	)		—
Intercompany interest (income) expense		(6	)		—		—		6			—			—
Other non-operating expense (income)		—			—		—		—			—			—
(Loss) income before income tax and minority interests		(86	)		—		—		(32	)		18			(100	)
Income tax expense (benefit)		(23	)		—		—		(14	)		—			(37	)
(Loss) income before minority interests		(63	)		—		—		(18	)		18			(63	)
Minority interests in net loss of consolidated subsidiaries		(13	)		—		—		—			—			(13	)
Net (loss) income	$	(50	)	$	—	$	—	$	(18	)	$	18		$	(50	)

(1) Subsidiary issuers include Hexion U.S. Finance Corporation, RPP Capital Corporation and Nova Scotia, ULC. Hexion U.S. Finance Corporation is also a guarantor of the RPP guaranteed debt. RPP Capital is also a subsidiary guarantor of the debt issued by Hexion U.S. Finance Corporation and Nova Scotia, ULC. The primary asset of the Hexion U.S. Finance Corporation is an intercompany receivable from Hexion (the parent) for $197, which is essentially offset by the debt payable. RPP Capital Corporation has no significant assets.

F-92

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

YEAR ENDED DECEMBER 31, 2002

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

	Hexion Specialty Chemical, Inc.			Subsidiary Issuers(1)		Combined Subsidiary Guarantors		Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	387		$	—	$	—	$	518		$	(165	)	$	740
Cost of goods sold		270			—		—		496			(165	)	$	601
Gross margin		117			—		—		22			—			139
Selling, general & administrative expense		41			—		—		41			—			82
Impairments		—			—		—		—			—			—
Other operating expense (income)		10			—		—		6			—			16
Operating income (loss)		66			—		—		(25	)		—			41
Interest expense		60			—		—		5			—			65
Equity in (earnings) losses of subsidiaries, net		31			—		—		—			(31	)		—
Intercompany interest (income) expense		(11	)		—		—		11			—			—
Other non-operating expense (income)		—			—		—		—			—			—
(Loss) income before income tax and minority interests		(14	)		—		—		(41	)		31			(24	)
Income tax expense (benefit)		—			—		—		(10	)		—			(10	)
(Loss) income before minority interests		(14	)		—		—		(31	)		31		$	(14	)
Minority interests in net loss of consolidated subsidiaries		(3	)		—		—		—			—			(3	)
Net (loss) income	$	(11	)	$	—	$	—	$	(31	)	$	31		$	(11	)

(1) Subsidiary issuers include Hexion U.S. Finance Corporation, RPP Capital Corporation and Nova Scotia, ULC. Hexion U.S. Finance Corporation is also a guarantor of the RPP guaranteed debt. RPP Capital is also a subsidiary guarantor of the debt issued by Hexion U.S. Finance Corporation and Nova Scotia, ULC. The primary asset of the Hexion U.S. Finance Corporation is an intercompany receivable from Hexion (the parent) for $197, which is essentially offset by the debt payable. RPP Capital Corporation has no significant assets.

F-93

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

DECEMBER 31, 2004

CONDENSED CONSOLIDATING BALANCE SHEET

	Hexion Specialty Chemicals, Inc.			Subsidiary Issuers (1)			Combined Subsidiary Guarantors		Combined Non- Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets
Cash and equivalents	$	63		$	—		$	9	$	80	$	—		$	152
Accounts receivable, net		198			—			15		305		—			518
Accounts receivable from affiliates		10			—			—		—		(10	)		—
Inventories:
Finished and in-process goods		152			—			8		130		—			290
Raw materials and supplies		52			—			6		57		—			115
Other current assets		43			—			1		10		10			64
		518			—			39		582		—			1,139
Other Assets
Investment in subsidiaries		6,648			—			16		—		(6,664	)		—
Intercompany loans receivable		189			482			6,152		—		(6,823	)		—
Other assets		29			19			—		47		—			95
		6,866			501			6,168		47		(13,487	)		95
Property and Equipment, net		636			—			8		679		—			1,323
Goodwill		35			—			—		16		—			51
Other Intangible Assets, net		82			—			—		6		—			88
Total Assets	$	8,137		$	501		$	6,215	$	1,330	$	(13,487	)	$	2,696
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY
Current Liabilities
Accounts and drafts payable	$	228		$	—		$	9	$	251	$	—		$	488
Accounts payable to affiliates		2			(14	)		15		—		(3	)		—
Debt payable within one year		8			—			—		8		—			16
Interest payable		22			14			—		—		—			36
Income taxes payable		33			—			—		—		—			33
Other current liabilities		85			—			1		44		3			133
		378			—			25		303		—			706
Other Liabilities
Long-term debt		1,348			475			—		11		—			1,834
Intercompany loans payable		6,390			—			—		433		(6,823	)		—
Non-pension postemployment benefit obligations		120			—			—		22		—			142
Deferred income taxes		34			—			—		97		—			131
Other long-term liabilities		122			—			1		15		—			138
		8,014			475			1		578		(6,823	)		2,245
Minority interest in consolidated subsidiaries		54			—			—		—		—			54
Shareholders’ (Deficit) Equity		(309	)		26			6,189		449		(6,664	)		(309	)
Total Liabilities and Shareholders’ (Deficit) Equity	$	8,137		$	501		$	6,215	$	1,330	$	(13,487	)	$	2,696

(1) Subsidiary issuers include Hexion U.S. Finance Corporation, RPP Capital Corporation and Nova Scotia, ULC. Hexion U.S. Finance Corporation is also a guarantor of the RPP guaranteed debt. RPP Capital is also a subsidiary guarantor of the debt issued by Hexion U.S. Finance Corporation and Nova Scotia, ULC. The primary asset of the Hexion U.S. Finance Corporation is an intercompany receivable from Hexion (the parent) for $197, which is essentially offset by the debt payable. RPP Capital Corporation has no significant assets.

F-94

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

DECEMBER 31, 2003

CONDENSED CONSOLIDATING BALANCE SHEET

	Hexion Specialty Chemicals, Inc.			Subsidiary Issuers(1)		Combined Subsidiary Guarantors		Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current Assets
Cash and equivalents	$	34		$	—	$	—	$	15		$	—		$	49
Accounts receivable		42			—		—		68			—			110
Inventories:												—
Finished & in-process goods		70					—		49			—			119
Raw materials and supplies		16					—		10			—			26
Other current assets		14					—		—			—			14
		176			—		—		142			—			318
Other Assets
Investment in subsidiaries		195			—		—		—			(195	)		—
Other assets		32			—		—		5			—			37
		227			—		—		5			(195	)		37
Property and Equipment, net		380			—		—		384			—			764
Goodwill		—			—		—		—			—			—
Other intangible assets		72			—		—		—			—			72
Total Assets	$	855		$	—	$	—	$	531		$	(195	)	$	1,191
LIABILITIES, MINORITY INTERESTS AND SHAREHOLDER’S (DEFICIT) EQUITY
Current Liabilities
Accounts and drafts payable	$	40		$	—	$	—	$	68		$	—		$	108
Debt payable within one year		8			—		—		—			—			8
Interest payable		10			—		—		—			—			10
Other current liabilities		8			—		—		7			—			15
		66			—		—		75			—			141
Other Liabilities
Long-term debt		675			—		—		—			—			675
Long-term (receivable)/payable to affiliates		(186	)		—		—		186			—			—
Non-pension postemployment benefit obligations		15			—		—		11			—			26
Deferred tax liability		76			—		—		65			—			141
Other long-term liabilities		12			—		—		(1	)		—			11
		592			—		—		261			—			853
Minority Interests in Consolidated Subsidiaries (net of tax)		45													45
Shareholder’s (Deficit) Equity		152			—		—		195			(195	)		152
Total Liabilities & Shareholder’s (Deficit) Equity	$	855		$	—	$	—	$	531		$	(195	)	$	1,191

(1) Subsidiary issuers include Hexion U.S. Finance Corporation, RPP Capital Corporation and Nova Scotia, ULC. Hexion U.S. Finance Corporation is also a guarantor of the RPP guaranteed debt. RPP Capital is also a subsidiary guarantor of the debt issued by Hexion U.S. Finance Corporation and Nova Scotia, ULC. The primary asset of the Hexion U.S. Finance Corporation is an intercompany receivable from Hexion (the parent) for $197, which is essentially offset by the debt payable. RPP Capital Corporation has no significant assets.

F-95

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

YEAR ENDED DECEMBER 31, 2004

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

	Hexion Specialty Chemicals, Inc.			Subsidiary Issuers(1)		Combined Subsidiary Guarantors			Combined Non- Guarantor Subsidiaries			Eliminations		Consolidated
Cash Flows (used in) from Operating Activities	$	(297	)	$	—	$	40		$	225		$	—	$	(32	)
Cash Flows (used in) from Investing Activities
Capital expenditures		(37	)		—		(1	)		(19	)		—		(57	)
RSM acquisition activity, net of cash		17			—		(24	)		(145	)		—		(152	)
Cash combination of BCI		185			—		—			—			—		185
Proceeds (purchase) from sale of businesses		260			—		—			(260	)		—		—
Proceeds from the sale of assets		2			—		2			—			—		4
		427			—		(23	)		(424	)		—		(20	)
Cash flows from (used in) Financing Activities
Net short-term debt borrowings		(9	)		—		—			3			—		(6	)
Borrowings of long-term debt		256			—		—			37			—		293
Repayments of long-term debt		(156	)		—		(1	)		(38	)		—		(195	)
Affiliated loan (repayments) borrowings		(271	)		—		15			256			—		—
Dividends received (paid)		23			—		(22	)		(1	)		—		—
Proceeds from issuance of common stock		60			—		—			—			—		60
Other		(4	)		—		—			—			—		(4	)
		(101	)		—		(8	)		257			—		148
Effect of exchange rates on cash flow		—			—		—			7			—		7
Increase in cash and equivalents		29			—		9			65			—		103
Cash & equivalents at beginning of period		34			—		—			15			—		49
Cash & equivalents at end of period	$	63		$	—	$	9		$	80		$	—	$	152

(1) Subsidiary issuers include Hexion U.S. Finance Corporation, RPP Capital Corporation and Nova Scotia, ULC. Hexion U.S. Finance Corporation is also a guarantor of the RPP guaranteed debt. RPP Capital is also a subsidiary guarantor of the debt issued by Hexion U.S. Finance Corporation and Nova Scotia, ULC. The primary asset of the Hexion U.S. Finance Corporation is an intercompany receivable from Hexion (the parent) for $197, which is essentially offset by the debt payable. RPP Capital Corporation has no significant assets.

F-96

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

YEAR ENDED DECEMBER 31, 2003

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

	Hexion Specialty Chemicals, Inc.			Subsidiary Issuers(1)		Combined Subsidiary Guarantors		Combined Non- Guarantor Subsidiaries			Eliminations		Consolidated
Cash Flows (used in) from Operating Activities	$	(110	)	$	—	$	—	$	67		$	—	$	(43	)
Cash Flows (used in) from Investing Activities
Capital expenditures		(15	)		—		—		(3	)		—		(18	)
Distributions from equity affiliates		—			—		—		2			—		2
Proceeds from sale of assets		—			—		—		23			—		23
		(15	)		—		—		22			—		7
Cash flows from (used in) Financing Activities
Net short-term debt borrowings		—			—		—		—			—		—
Borrowings of long-term debt		651			—		—		97			—		748
Repayments of long-term debt		(474	)		—		—		(171	)		—		(645	)
Other		(22	)		—		—		(1	)		—		(23	)
		155			—		—		(75	)		—		80
Effect of exchange rates on cash flow		—			—		—		1			—		1
Increase in cash and equivalents		30			—		—		15			—		45
Cash & equivalents at beginning of period		4			—		—		—			—		4
Cash & equivalents at end of period	$	34		$	—	$	—	$	15		$	—	$	49

(1) Subsidiary issuers include Hexion U.S. Finance Corporation, RPP Capital Corporation and Nova Scotia, ULC. Hexion U.S. Finance Corporation is also a guarantor of the RPP guaranteed debt. RPP Capital is also a subsidiary guarantor of the debt issued by Hexion U.S. Finance Corporation and Nova Scotia, ULC. The primary asset of the Hexion U.S. Finance Corporation is an intercompany receivable from Hexion (the parent) for $197, which is essentially offset by the debt payable. RPP Capital Corporation has no significant assets.

F-97

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

YEAR ENDED DECEMBER 31, 2002

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

	Hexion Specialty Chemicals, Inc.			Subsidiary Issuers(1)		Combined Subsidiary Guarantors		Combined Non- Guarantor Subsidiaries			Eliminations		Consolidated
Cash Flows (used in) from Operating Activities	$	45		$	—	$	—	$	19		$	—	$	64
Cash Flows (used in) from Investing Activities
Capital expenditures		(39	)		—		—		(9	)		—		(48	)
Distributions from equity affiliates		—			—		—		1			—		1
Proceeds from sale of assets		2			—		—		—			—		2
		(37	)		—		—		(8	)		—		(45	)
Cash flows from (used in) Financing Activities
Net short-term debt borrowings		—			—		—		—			—		—
Borrowings of long-term debt		149			—		—		74			—		223
Repayments of long-term debt		(158	)		—		—		(89	)		—		(247	)
Other		3			—		—		—			—		3
		(6	)		—		—		(15	)		—		(21	)
Effect of exchange rates on cash flow		—			—		—		—			—		—
Increase in cash and equivalents		2			—		—		(4	)		—		(2	)
Cash & equivalents at beginning of period		2			—		—		4			—		6
Cash & equivalents at end of period	$	4		$	—	$	—	$	—		$	—	$	4

(1) Subsidiary issuers include Hexion U.S. Finance Corporation, RPP Capital Corporation and Nova Scotia, ULC. Hexion U.S. Finance Corporation is also a guarantor of the RPP guaranteed debt. RPP Capital is also a subsidiary guarantor of the debt issued by Hexion U.S. Finance Corporation and Nova Scotia, ULC. The primary asset of the Hexion U.S. Finance Corporation is an intercompany receivable from Hexion (the parent) for $197, which is essentially offset by the debt payable. RPP Capital Corporation has no significant assets.

F-98

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

Note 17. Subsequent Events

a. Acquisition of Bakelite

On April 29, 2005, Hexion Specialty Chemicals Canada, Inc., a subsidiary of Hexion, through its wholly owned subsidiary, National Borden Chemical Germany GmbH, completed its acquisition of Bakelite pursuant to a share purchase agreement with the Sellers dated October 6, 2004 (the “Bakelite Acquisition”) for a net purchase price of approximately €201, or approximately $259, subject to certain adjustments. The Company financed the Bakelite Acquisition through a combination of available cash and a second-priority senior secured bridge loan facility in the amount of $250. The bridge financing arrangement was settled and cancelled on May 31, 2005, using proceeds from the $150 Second-priority senior secured floating rate notes due 2010 and $100 of term loan debt borrowed under the Hexion Credit Facility (see below). The acquisition will be accounted for under the purchase method of accounting.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. Fair values are based upon preliminary third party appraisals and internal studies and are subject to final adjustments.

	Fair value at April 29, 2005
Current assets	$	290
Property, plant and equipment		166
Other assets		4
Intangible assets		72
Goodwill		46
Total assets acquired		578
Current liabilities		158
Long-term debt		21
Other liabilities		140
Total liabilities assumed		319
Net assets acquired	$	259

b. Acquisition of RPP and RSM Minority Interests

At the time of the Hexion Combination, shares of RPP Inc., the former parent of RPP, and RSM Inc. held by minority shareholders and management were exchanged for shares in Hexion LLC. The minority shareholders and management held ownership interests of 28.2% and 5% for RPP and RSM, respectively, on a fully diluted basis. The acquisition of these ownership interests was accounted for under the purchase method of accounting and pushed-down to the Company.

F-99

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

The following table summarizes the step-up to fair value of the assets acquired and liabilities assumed at the date of acquisition based upon the percentage ownership acquired from the minority shareholders. Fair values are based upon preliminary third party appraisals and internal studies and are subject to final adjustments.

	Incremental fair value at May 31, 2005
Current assets	$	9
Property, plant and equipment		26
Intangible assets		15
Goodwill		50
Other assets		15
Total asset step-up		115
Current liabilities		3
Long-term debt		8
Other liabilities		14
Total liability step-up		25
Net assets stepped-up	$	90

c. Related Party Transactions

Prior to the Hexion Combination, on May 31, 2005, RPP and RSM agreed to terminate their agreements with Apollo, thereby releasing any and all obligations and liabilities by all parties under the respective agreements. In consideration of the terminations, RPP and RSM paid Apollo $4 and $7, respectively.

At the time of the Hexion Combination, the Company entered into a seven-year, amended and restated version of the former BCI management consulting agreement with Apollo (the “Amended Management Consulting Agreement”). The terms of the Amended Management Consulting Agreement currently provide for annual fees of approximately $3 and provide for a lump-sum settlement equal to the net present value of the remaining annual management fees payable under the remaining term of the agreement in connection with a sale of the Company or an initial public offering.

d. Credit Facility

In May 2005, the Company entered into new senior secured credit facilities (“Hexion Credit Facility”) and replaced and repaid the RPP and RSM credit facilities. The $775 senior secured credit facility has a $225 revolving credit facility and $500 term loan facility. The facility will also provide a $50 synthetic letters of credit facility. Repayment of 1% of the term loan per annum must be made quarterly with the balance payable upon the final maturity date. Interest on the term and revolving loan facilities is LIBOR plus 2.5% or higher of prime rate plus 1% or the Federals Funds Rate plus 1.5%.

The total amount of term debt borrowed under the Hexion Credit Facility was $500, of which $200 was used to pay a special dividend to BHI Acquisition (the “Special Dividend”) (see below) and $14 was used to pay transaction costs related to the Hexion Credit Facility. The remaining proceeds were used to repay existing debt, amounts outstanding under the RPP and RSM credit facilities, $100 of the Bakelite bridge loan facility and the $50 Seller senior subordinated notes.

F-100

HEXION SPECIALTY CHEMICALS, INC.

Notes to the Consolidated Financial Statements—(Continued)

(In millions, except for share and per share data)

e. Senior Secured Notes

In May 2005, the Company issued $150 Second-Priority Senior Secured Floating Rate Notes due 2010. The notes were issued at a discount of 98.846%. Interest on the notes accrues at a rate per annum, reset quarterly, equal to LIBOR plus 5.5%. The proceeds from the notes were used to repay in part the bridge loan facility used to finance the Bakelite Acquisition.

f. Redeemable Preferred Stock

In May 2005, Hexion Escrow Corp., a subsidiary of Hexion which merged into Hexion coincidental with the Hexion Combination, offered 14 million shares of Redeemable Series A Floating Rate Preferred Stock, par value $0.01 per share and a liquidation preference of $25 per share (the “Preferred Stock”). The Preferred Stock will accumulate cumulative preferential dividends from the issue date at an initial rate of LIBOR plus 8.0%, compounded semi-annually. Prior to November 2005, the Company has the option to redeem all or a portion of the Preferred Stock at 100% of the aggregate liquidation value plus accrued and unpaid dividends.

g. Dividends

In conjunction with the Hexion Combination, the Company declared a dividend to its parent of $550 and paid $517 on May 31, 2005. Approximately $6 of the unpaid amount will be distributed in the third quarter of 2005, and the remainder is expected to be paid in the second quarter of 2007. The dividend was funded through the proceeds from the issuance of preferred stock and from amounts borrowed under the Company’s credit facility.

h. Hexion Specialty Chemicals, Inc. Reverse Stock Split

On September 19, 2005, the Board of Directors approved a 0.85268157-to-1 reverse stock split. The reverse stock split was effective September 19, 2005 and the par value of the common stock remained at $.01 per share. All share and per share amounts have been retroactively adjusted for all periods presented to reflect the 0.85268157-to-1 reverse stock split.

i. Hexion LLC Reverse Split

On September 20, 2005, a 0.464637297-to-1 reverse split of Hexion LLC common units was made effective. All common unit amounts relating to options issued by Hexion LLC to the Company’s employees and directors have been retroactively adjusted for all periods presented to reflect the 0.464637297-to-1 reverse split.

F-101

[PAGE INTENTIONALLY LEFT BLANK]

F-102

BORDEN CHEMICAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

	Six Months ended June 30,
	2004			2003
	(In thousands, except per share data)
Net sales	$	798,401		$	720,051
Cost of goods sold		638,718			581,468
Gross margin		159,683			138,583
Distribution expense		35,992			33,385
Marketing expense		23,397			21,159
General & administrative expense		46,893			51,789
Transaction-related costs (see Note 1)		7,236			—
Business realignment expense and impairments		261			1,421
Other operating expense		2,841			3,666
Operating income		43,063			27,163
Interest expense		23,696			22,839
Affiliated interest expense		99			323
Other non-operating expense		571			1,002
Income (loss) before income tax		18,697			2,999
Income tax expense (benefit)		145,797			(13,746	)
Net (loss) income	$	(127,100	)	$	16,745
Comprehensive (loss) income	$	(133,033	)	$	39,758
Basic and Diluted Per Share Data
Net income (loss)—basic and diluted	$	(0.64	)	$	0.08
Average number of common shares outstanding during the period—basic		199,308			199,312
Average number of common shares outstanding during the period—diluted		199,308			199,970

See Notes to Condensed Consolidated Financial Statements

F-103

BORDEN CHEMICAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(UNAUDITED)

	June 30, 2004
	(In thousands)
ASSETS
Current Assets
Cash and equivalents	$	32,190
Accounts receivable (less allowance for doubtful accounts of $12,671)		208,986
Accounts receivable from affiliates		301
Inventories:
Finished and in-process goods		43,005
Raw materials and supplies		45,562
Deferred income taxes		23,476
Other current assets		9,721
		363,241
Investments and Other Assets
Deferred income taxes		2,320
Other assets		23,241
		25,561
Property and Equipment
Land		33,103
Buildings		103,829
Machinery and equipment		699,215
		836,147
Less accumulated depreciation		(395,501	)
		440,646
Goodwill		56,395
Other Intangible Assets		5,064
Total Assets	$	890,907

See Notes to Condensed Consolidated Financial Statements

F-104

BORDEN CHEMICAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEET—(Continued)

(UNAUDITED)

	June 30, 2004
	(In thousands except share data)
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities
Accounts and drafts payable	$	162,901
Debt payable within one year		5,654
Loans payable to affiliates		7,380
Income taxes payable		32,168
Interest payable		12,359
Other current liabilities		66,086
		286,548
Other Liabilities
Long-term debt		529,947
Non-pension post-employment benefit obligations		121,804
Long-term pension liability		70,915
Other long-term liabilities		110,324
		832,990
Commitments and Contingencies (See Note 8)
Shareholders’ Deficit
Common stock—$0.01 par value: authorized 300,000,000 shares, Issued 201,754,598, treasury 858,970, outstanding 200,895,628 shares		2,009
Paid-in capital		1,248,300
Receivable from parent		(536,383	)
Deferred compensation		(893	)
Accumulated other comprehensive income		(134,126	)
Accumulated deficit		(807,538	)
		(228,631	)
Total Liabilities and Shareholders’ Deficit	$	890,907

See Notes to Condensed Consolidated Financial Statements

F-105

BORDEN CHEMICAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six months ended June 30,
	2004			2003
	(In thousands)
Cash Flows from (used in) Operating Activities
Net income (loss)	$	(127,100	)	$	16,745
Adjustments to reconcile net income (loss) to net cash from (used in) operating activities:
Tax valuation allowance		137,110			—
Deferred tax benefit		(326	)		(23,532	)
Depreciation and amortization		24,029			22,906
Business realignment expense and impairments		261			1,421
Minority interest expense (income)		944			(234	)
Other non-cash adjustments		1,217			1,796
Net change in assets and liabilities:
Accounts receivable		(26,961	)		(30,744	)
Inventories		(8,477	)		2,859
Accounts and drafts payable		37,765			6,318
Income taxes		(1,368	)		3,808
Other assets		6,327			13,637
Other liabilities		(16,085	)		(15,472	)
		27,336			(492	)
Cash Flows from (used in) Investing Activities
Capital expenditures		(19,255	)		(15,621	)
Proceeds from the sale of assets		9,359			2,231
		(9,896	)		(13,390	)
Cash Flows (used in) from Financing Activities
Net short-term debt (repayments) borrowings		(2,513	)		(1,456	)
Borrowings of long-term debt		—			255
Repayment of long-term debt		(19	)		—
Affiliated (repayments) borrowings		(10,880	)		(51,382	)
Decrease in restricted cash		—			65,281
Repurchases of common stock from management		—			(286	)
		(13,412	)		12,412
Increase in cash and equivalents		4,028			(1,470	)
Cash and equivalents at beginning of year		28,162			14,740
Cash and equivalents at end of period	$	32,190		$	13,270
Supplemental Disclosures of Cash Flow Information
Cash paid:
Interest, net	$	23,750		$	22,493
Income taxes, net		10,381			6,019

See Notes to Condensed Consolidated Financial Statements

F-106

BORDEN CHEMICAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT (UNAUDITED)

(In thousands)

	Common Stock		Paid-in Capital		Receivable From Parent			Deferred Compensation			Accumulated Other Comprehensive Income			Accumulated Deficit			Total
Balance, December 31, 2003	$	2,009	$	1,224,011	$	(512,094	)	$	(1,488	)	$	(128,193	)	$	(680,438	)	$	(96,193	)
Net loss															(127,100	)		(127,100	)
Translation adjustments and other												(5,933	)					(5,933	)
Comprehensive loss																		(133,033	)
Interest accrued on notes from parent				24,289		(24,289	)											—
Compensation expense on restricted stock									595									595
Balance, June 30, 2004	$	2,009	$	1,248,300	$	(536,383	)	$	(893	)	$	(134,126	)	$	(807,538	)	$	(228,631	)

See Notes to Condensed Consolidated Financial Statements

F-107

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands except per share amounts and as otherwise indicated)

1. Background and Nature of Operations

Borden Chemical, Inc. (the “Company”) was incorporated on April 24, 1899. The Company is engaged primarily in manufacturing, processing, purchasing and distributing forest products and industrial resins, formaldehyde, oilfield products, UV coatings and other specialty and industrial chemicals worldwide. Production facilities are located throughout the U.S. and in many foreign countries. The Company has three reportable segments: Forest Products, Performance Resins and International. See Note 6.

The Company has been controlled by an affiliate of Kohlberg Kravis Roberts & Co. L.P. (“KKR”) since 1995. The Company’s immediate parent is Borden Holdings, Inc. (“BHI”), which is a wholly owned subsidiary of BW Holdings, LLC (“BWHLLC”), an entity controlled by KKR.

On July 6, 2004 an affiliate of Apollo Management LP (“Apollo”) entered into a stock purchase agreement with BWHLLC, BHI, the Company and certain members of Company’s management. Pursuant to this agreement, Apollo will acquire (the “Acquisition”) all of the outstanding capital stock of BHI, and all of the outstanding capital stock of the Company not otherwise owned by BHI will be redeemed. Completion of the Acquisition is subject to customary closing conditions. The Company and BHI will continue to operate independently until those conditions are satisfied and closing occurs.

The Acquisition, and the payment of estimated transaction fees and expenses will be financed with the net proceeds of a $475 million second-priority senior secured private debt offering and certain equity contributions from Apollo. The Company may refinance certain existing debt with a portion of this funding. The Acquisition is expected to be completed in the third quarter of 2004. During the second quarter of 2004 the Company incurred $7,236 of expenses related to the Acquisition and for a prior registration statement (subsequently withdrawn) for a proposed initial public offering of the Company’s common stock.

2. Basis of Presentation

The accompanying unaudited Consolidated Financial Statements include the accounts of Borden Chemical, Inc. and its subsidiaries, after elimination of intercompany accounts and transactions and contain all adjustments, which in the opinion of management are necessary for a fair presentation of the results for the interim periods. Results for the interim periods are not necessarily indicative of results for the full year.

Stock-Based Compensation—The Company accounts for stock-based compensation under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and has adopted the disclosure-only provision of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” and SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment to SFAS No. 123.” The following table sets forth the required reconciliation of reported and pro forma net (loss) income and earnings per share (“EPS”) under SFAS No. 148:

	Six months ended June 30,
	2004			2003
Net (loss) income applicable to common stock	$	(127,100	)		16,745
Add: Stock-based employee compensation expense included in reported net income, net of related tax benefit		—			67
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards granted since January 1, 1996, net of related tax effects		(97	)		(56	)
Pro forma net (loss) income	$	(127,197	)	$	16,756
Average shares outstanding (in thousands)—basic		199,308			199,312
Average shares outstanding (in thousands)—diluted		199,308			199,970
Per share as reported (basic and diluted)	$	(0.64	)	$	0.08
Per share pro forma (basic and diluted)	$	(0.64	)	$	0.08

F-108

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

At June 30, 2004, options to purchase 5,578,850 common shares of the Company were outstanding, of which none are considered dilutive. At June 30, 2003, options to purchase 2,290,040 common shares of the Company were outstanding, of which 1,492,000 were considered dilutive.

Earnings Per Share

The Company’s basic and diluted earnings per share are calculated as follows:

	Six months ended June 30,
	2004			2003
Net income (loss) applicable to common shareholders	$	(127,100	)	$	16,745
Effect of dilutive options		—			—
Diluted EPS—Numerator		(127,100	)		16,745
Average share outstanding (in thousands)—basic		199,308			199,312
Effect of dilutive options (in thousands)		—			658
Diluted EPS—Denominator (in thousands)		199,308			199,970
Diluted EPS	$	(0.64	)	$	0.08

Reclassification—Previously, at June 30, 2004, income taxes payable of $24,374 was classified as Other long-term liabilities. This amount has been reclassified as Income taxes payable in the current presentation. In addition, for the six months ended June 30, 2004, $348 of Distribution expense and $1,109 of General & administrative expense were reclassified to Cost of goods sold as a result of standardizing the classification of corporate controlled charges across the Company.

3. Business Realignment

In June 2003, the Company initiated a realignment program (the “2003 realignment program”) designed to reduce operating expenses and increase organizational efficiency. The components of this program include reducing headcount, streamlining processes, consolidating manufacturing processes and reducing general and administrative expenses. We expect to complete this program in the first quarter of 2005 and will incur additional expenses through its completion. In addition, we have certain additional long-term realignment programs initiated prior to 2003, which primarily relate to consolidation of plant facilities.

Six Months Ended June 30, 2004

In the first half of 2004, the Company recorded business realignment expense of $261, consisting of plant closure costs (which include plant employee severance and plant asset impairments) of $794, offset by a gain of $1,025 from the sale of a former U.S. plant site. Other severance and employee costs of $492 related to continued execution of the 2003 realignment program.

Provided below is a rollforward of the business realignment reserves for the first half of 2004.

	Reserves December 31, 2003		2004 Expense		2004 Settlements/ Charges			Reserves June 30, 2004
Plant closure costs
2003 realignment program	$	3,488	$	574	$	(3,565	)	$	497
Other programs		4,741		220		(1,034	)		3,927
Other severance and employee costs
2003 realignment program		2,784		492		(1,277	)		1,999
Other programs		1,151		—		(1,151	)		—
	$	12,164	$	1,286	$	(7,027	)	$	6,423

F-109

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

Plant Closure Costs

Expenses for plant closure reported for the first half of 2004 of $794 relate primarily to additional costs relating to the conversion of the France manufacturing facility into a distribution center and the transition of the related production to the U.K. ($286) and other plant closure costs at various sites ($508).

Other Severance and Employee Costs

Year-to-date June 2004 realignment expense also includes additional net severance costs during the first half of 2004 totaling $492, related primarily to the 2003 realignment program.

Gain on the Sale of Assets

During the second quarter 2004, the Company sold a U.S. plant previously closed under a prior year realignment program for a gain of $1,025, which is also recorded in realignment expense.

Six Months Ended June 30, 2003

In the first half of 2003, the Company recorded business realignment expense and impairments of $1,421, consisting of plant closure expenses (which includes plant employee severance and plant asset impairments) of $1,299 less reserve reductions of $1,574, other severance and employee costs of $2,113, a gain on the sale of Melamine of $568, and non-cash asset impairment charges of $151.

Plant Closure and Other Employee Severance Costs

Provided below is a rollforward of business realignment reserve activity for the first half of 2003.

	Reserves December 31, 2002		2003 Expense			2003 Settlements/ Charges			Reserves June 30, 2003
Plant closure costs
2003 realignment program	$	—	$	—		$	—		$	—
Other programs		9,568		(275	)		(3,382	)		5,911
Other severance and employee costs
2003 realignment program		—		1,716			—			1,716
Other programs		3,996		397			(2,824	)		1,569
	$	13,564	$	1,838		$	(6,206	)	$	9,196

Plant Closure Costs

Plant closure income of $275 in the first half of 2003 consisted of a net reduction in reserves no longer required due to the sale of Melamine of $1,574, partially offset by environmental remediation costs of $894 for closed plants in Brazil and other net costs of $405 for plant closures and consolidations.

Other Severance and Employee Costs

The Company recorded severance costs of $2,113 in the first half of 2003. Of this amount, $1,716 related to the 2003 realignment program, and $397 related to other administrative workforce reduction programs.

Gain on the Sale of Assets

During the second quarter 2003, the Company sold its melamine crystal business (“Melamine”), resulting in a gain of $568. The gain is included in realignment expense because the business was sold as part of a prior year realignment program.

F-110

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

Asset Impairment

The Company also recorded asset impairments of $151 related to its Colombian operations in the first six months of 2003.

4. Pension and Postretirement Expense

Following are the components of net pension and postretirement expense recognized by the Company for the periods ended June 30, 2004 and 2003:

	Pension Six Months Ended June 30,						Postretirement Six Months Ended June 30,
	2004			2003			2004			2003
Service cost	$	1,490		$	1,128		$	36		$	36
Interest cost		6,955			7,493			740			3,047
Expected return on plan assets		(8,309	)		(7,741	)		—			—
Amortization
Unrecognized transition obligation		—			5			—			—
Prior service cost		219			198			(5,177	)		(1,432	)
Recognized net actuarial loss		3,214			3,519			—			(31	)
	$	3,569		$	4,602		$	(4,401	)	$	1,620

The amortization of prior service cost in 2004 postretirement expense relates to the plan amendment made in the second quarter of 2003.

5. Comprehensive Income (Loss)

Comprehensive (loss) income is computed as follows:

	Six Months Ended June 30,
	2004			2003
Net income (loss)	$	(127,100	)	$	16,745
Foreign currency translation adjustments		(5,933	)		23,013
	$	(133,033	)	$	39,758

The currency translation adjustments in 2004 relate primarily to unfavorable changes in exchange rates in Brazil, Canada, Australia and the U.K. The favorable foreign currency translation adjustments in 2003 relate primarily due to favorable changes in exchange rates in Canada and Brazil.

6. Segment Data

The Company has three reportable segments: Forest Products, Performance Resins and International. Consolidated results also include general corporate and administrative expenses disclosed as “Corporate and Other” and activities related to Melamine, which was shut down in 2002, sold in 2003 and is disclosed as “Divested Business.” These are presented to provide a complete picture of the Company’s results.

Forest Products includes the North American forest product resins and formaldehyde product lines. The key business drivers for Forest Products are housing starts, furniture demand, panel production capacity and chemical intermediates sector operating conditions.

F-111

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

Performance Resins includes the North American specialty resins, foundry resins and oilfield product lines. Performance Resins’ key business drivers are housing starts, auto builds, active gas drilling rigs and the general industrial sector performance.

International includes production operations in Europe, Latin America and Asia Pacific. Principal countries of operation are the U.K., Brazil, Australia and Malaysia. Product lines include formaldehyde, forest product and performance resins and consumer products. The key business drivers for International are export levels, panel production capacity, housing starts, furniture demand and the local political and general economic environments.

Corporate and Other represents general and administrative expenses and income and expenses related to liabilities retained from businesses sold in previous years.

Operating Results by Segment:

In previous documents filed with the SEC Adjusted EBITDA was the description used in our segment footnote to describe our segment performance measure. For purposes of this document we have described our segment performance measure as “Segment EBITDA”. We intend to use the term Segment EBITDA to measure segment performance in future SEC documents.

Following is a comparison of net sales and net income (loss) before depreciation and amortization, interest expense, other non-operating expense (income) income taxes and other adjustments (which may include costs associated with business realignment activities, dispositions and pension settlement charges). The Company refers to this as “Segment EBITDA.” Segment EBITDA is presented by segment and for Corporate and Other and Divested Business of the Company for the six months ended June 30, 2004 and 2003. Segment EBITDA information is presented with the Company’s segment disclosures because it is the measure used by the Company’s management in the evaluation of operating results and in determining allocations of capital resources among the business segments. It is also the metric used by the Company to set management and executive incentive compensation.

Net Sales

	Six Months Ended June 30,
	2004		2003
Forest Products	$	417,852	$	379,735
Performance Resins		207,718		188,937
International		172,831		151,373
Divested Business		—		6
	$	798,401	$	720,051

Segment EBITDA

	Six Months Ended June 30,
	2004			2003
Forest Products	$	53,103		$	42,622
Performance Resins		24,269			24,295
International		16,901			15,985
Corp & Other		(18,397	)		(28,219	)
Total	$	75,876		$	54,683

F-112

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

The table below reconciles Segment EBITDA to net (loss) income, which management believes to be the most directly comparable GAAP financial measure.

Reconciliation of Segment EBITDA to Net Income (Loss)

	Six Months Ended June 30,
Segment EBITDA:	2004			2003
Forest Products	$	53,103		$	42,622
Performance Resins		24,269			24,295
International		16,901			15,985
Corporate and Other		(18,397	)		(28,219	)
Reconciliation:
Depreciation and amortization		(24,029	)		(22,906	)
Adjustments to Segment EBITDA (described below)		(8,784	)		(4,614	)
Interest expense		(23,696	)		(22,839	)
Affiliated interest expense		(99	)		(323	)
Other non-operating expense		(571	)		(1,002	)
Income tax (expense) benefit		(145,797	)		13,746
Net (loss) income	$	(127,100	)	$	16,745
Adjustments to Segment EBITDA
The following items are not included in Segment EBITDA:

Six months ended June 30, 2004	(1) Plant Closure			Severance			(2) Other			Total
Forest Products	$	189		$	(334	)	$	(457	)	$	(602	)
Performance Resins		961			—			(46	)		915
International		(932	)		(119	)		(25	)		(1,076	)
Corporate and Other		13			(39	)		(7,995	)		(8,021	)
Total	$	231		$	(492	)	$	(8,523	)	$	(8,784	)

(1) Plant closure income for the six months ended June 30, 2004 of $231 relates primarily to a gain of $1,025 on the sale of a U.S. plant site previously closed under a realignment program, partially offset by costs relating to the shut-down of several international sites. These expenses include additional costs relating to the conversion of the France manufacturing facility into a distribution center and the transition of the related production to the U.K. ($286) and other plant closure costs at various sites ($508).

(2) Other expenses of $8,523 not included in Segment EBITDA through June 30, 2004 relate primarily to Transaction-related costs of $7,236 and severance expense included in general and administrative expense for positions to be replaced as part of the 2003 realignment program.

F-113

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

Six months ended June 30, 2003	Plant Closure (1)			Severance (2)			Impairment			Other (3)			Total
Forest Products	$	698		$	66		$	—		$	(570	)	$	194
Performance Resins		(163	)		(310	)		—			—			(473	)
International		(1,690	)		(171	)		(151	)		—			(2,012	)
Corporate and Other		(146	)		(1,698	)		—			(2,317	)		(4,161	)
Divested Business		2,144			—			—			(306	)		1,838
Total	$	843		$	(2,113	)	$	(151	)	$	(3,193	)	$	(4,614	)

(1) Plant closure income of $843 in the first half of 2003 was generated by the sale of Melamine in the second quarter and consisted of a net reduction in related reserves of $1,574 and a gain on the sale of $568. These income items were partially offset by environmental remediation costs of $894 for closed plants in Brazil and other net costs of $405 for plant closures and consolidations.

(2) The Company recorded severance costs of $2,113 in the first half of 2003. Of this amount, $1,716 is related to the 2003 realignment program, and $397 related to other administrative workforce reduction programs.

(3) Other expenses of $3,193 not included in Segment EBITDA for the first half of 2003 primarily represent severance expense, included in general and administrative expense, incurred by us for positions to be replaced and expenses incurred related to the closure of Melamine.

7. Guarantees and Indemnifications

Standard Guarantees / Indemnifications

In the ordinary course of business, the Company enters into numerous agreements that contain standard guarantees and indemnities whereby the Company indemnifies another party for, among other things, breaches of representations and warranties. Such guarantees or indemnifications are granted under various agreements, including those governing (i) purchases and sales of assets or businesses, (ii) leases of real property, (iii) licenses of intellectual property and (iv) long-term supply agreements. The guarantees or indemnifications issued are for the benefit of the (i) buyers in sale agreements and sellers in purchase agreements, (ii) landlords or lessors in lease contracts, (iii) licensors or licensees in license agreements and (iv) vendors or customers in long-term supply agreements.

These parties may also be indemnified against any third party claim resulting from the transaction that is contemplated in the underlying agreement. Additionally, in connection with the sale of assets and the divestiture of businesses, the Company may agree to indemnify the buyer with respect to liabilities related to the pre-closing operations of the assets or businesses sold. Indemnities related to pre-closing operations generally include tax liabilities, environmental liabilities and employee benefit liabilities not assumed by the buyer in the transaction.

Indemnities related to the pre-closing operations of sold assets normally do not represent additional liabilities to the Company, but simply serve to protect the buyer from potential liability associated with the Company’s existing obligations at the time of sale. As with any liability, the Company has accrued for those pre-closing obligations that are considered probable and reasonably estimable. Amounts recorded are not significant at June 30, 2004.

While some of these guarantees extend only for the duration of the underlying agreement, many survive the expiration of the term of the agreement or extend into perpetuity (unless subject to a legal statute of limitations). With respect to certain of the aforementioned guarantees, the Company has limited reimbursement agreements from affiliates or maintains limited insurance coverage that mitigates potential payments to be made. There are

F-114

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

no specific limitations on the maximum potential amount of future payments that the Company could be required to make under these guarantees nor is the Company able to develop an estimate of the maximum potential amount of future payments to be made under these guarantees as the triggering events are not predictable.

In addition the Company has agreed to indemnify KKR for any claims resulting from its services to the Company and its affiliates. The indemnification does not expire, and the Company is not able to determine a maximum exposure under the agreement. However, the Company does have an indemnification agreement from BHI for any amounts that it must pay under the KKR indemnity relating to World Kitchen, Inc., a former affiliate of the Company.

The Company has not entered into any significant agreement subsequent to January 1, 2003 that would require it, as a guarantor, to recognize a liability for the fair value of obligations it has undertaken in issuing the guarantee.

Subsidiary Guarantees

The Company guarantees the bank debt of one of its Brazilian subsidiaries up to a maximum U.S. equivalent of $6,700.

In connection with the conversion of the $34,000 Parish of Ascension Industrial Revenue Bonds (“IRBs”) to a fixed rate, the Company’s Canadian and U.K. subsidiaries have guaranteed the Company’s IRBs.

Contingent Sale/Purchase Consideration

The Limited Liability Agreement of HA-International, LLC (“HAI”), the Company’s joint venture, provides Delta-HA, Inc. (“Delta”), the Company’s partner in HAI, the right to purchase between 3-5% of additional interest in HAI each year, beginning in 2004. Delta is limited to acquiring a maximum of 25% of additional interest in HAI under this arrangement. Pursuant to this provision, in the first quarter of 2004, Delta provided the Company with written notice of their intention to exercise their option to purchase an additional 5% interest in 2004. Delta’s purchase price of the interest is based on the enterprise value of HAI determined by applying a contractually agreed upon multiple to EBITDA, as defined in the agreement.

The Fentak Pty. Ltd. acquisition agreement includes a contingent purchase consideration provision based on achievement of certain targeted earnings before interest and taxes. Maximum annual payments are AU$600 for the period 2004-2006.

In connection with the acquisition of assets from Southeastern Adhesives Company, the Company agreed to pay a royalty fee to the seller based on sales levels to existing regular customers of the business as of the closing date. To the extent that annual sales exceed targeted levels, the Company is obligated to pay up to $300 per year, for a five-year period.

Warranties

The Company does not make express warranties on its products, other than that they comply with the Company’s specifications; therefore, the Company does not record a warranty liability. Adjustments for product quality claims are not material and are charged against sales revenues.

F-115

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

8. Commitments and Contingencies

Environmental Matters

Because the Company’s operations involve the use, handling, processing, storage, transportation and disposal of hazardous materials, the Company is subject to extensive environmental regulation at the Federal and state level and is exposed to the risk of claims for environmental remediation or restoration. In addition, violations of environmental laws or permits may result in restrictions being imposed on operating activities, substantial fines, penalties, damages or other costs, any of which could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

Accruals for environmental matters are recorded following the guidelines of Statement of Position 96-1, “Environmental Remediation Liabilities,” when it is probable that a liability has been incurred and the amount of the liability can be estimated. Environmental accruals are reviewed on an interim basis and as events and developments warrant. Based on management’s estimates, which are determined through historical experience, the Company has recorded liabilities, relating to 54 locations, of approximately $37,400 at June 30, 2004, for all probable environmental remediation, indemnification and restoration liabilities. These amounts include estimates of unasserted claims the Company believes are probable of loss and reasonably estimable. Based on the factors discussed below and currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such sites may fall within a range of $22,300 to $73,500, in the aggregate, at June 30, 2004. This estimate of the range of reasonably possible costs is less certain than the estimates upon which the liabilities are based, and in order to establish the upper end of such range, assumptions less favorable to the Company among the range of reasonably possible outcomes were used. As with any estimate, if facts or circumstances change, the final outcome could differ materially from these estimates. The Company has not taken into consideration insurance coverage or any anticipated recoveries from other third parties in determining the liability or range of possible outcomes. The Company’s current insurance coverage provides very limited, if any, coverage for environmental matters.

Following is a more detailed discussion of the Company’s environmental liabilities and related assumptions:

BCP Geismar Site—The Company formerly owned a basic chemicals and polyvinyl chloride business which was taken public as Borden Chemicals and Plastics Operating Limited Partnership (“BCPOLP”) in 1987. The Company retained a 1% interest and the general partner interest, which were held by its subsidiary, BCP Management, Inc. (“BCPM”). The Company also retained the liability for certain environmental matters after BCPOLP’s formation. Under a Settlement Agreement approved by the United States Bankruptcy Court for the District of Delaware among the Company, BCPOLP, BCPM, the United States Environmental Protection Agency and the Louisiana Department of Environmental Quality, the Company agreed to perform certain of BCPOLP’s obligations with respect to environmental conditions at BCPOLP’s Geismar, Louisiana site. These obligations are related to soil and groundwater contamination at the Geismar site. The Company bears the sole responsibility for these obligations, as there are no other potentially responsible parties (“PRPs”) or third parties from which the Company can seek reimbursement, and no additional insurance recoveries are expected.

A groundwater pump and treat system for the removal of contaminants is operational, and preliminary natural attenuation studies are proceeding. The Company has performed extensive soil and groundwater testing. Regulatory agencies are reviewing the current findings and remediation efforts. If closure procedures and remediation systems prove inadequate, or if additional contamination is discovered, this could result in the costs approaching the higher end of the range of possible outcomes discussed below.

F-116

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

The Company has recorded a liability of approximately $21,500 at June 30, 2004 related to the BCP Geismar site. Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with this site may fall within a range of $13,300 to $33,300, depending upon the factors discussed above. Due to the long-term nature of the project, the reliability of timing and estimability of remediation payments, this liability was recorded at its net present value, assuming a 3% discount rate and a time period of thirty years, and the range of possible outcomes is discounted similarly. The undiscounted liability is approximately $33,000 over thirty years.

Following are expected payments for each of the next five years and a reconciliation of the expected aggregate payments to the liability reflected at June 30, 2004:

2004	$	2,100
2005		1,100
2006		1,700
2007		1,500
2008		700
Remaining aggregate payments		25,900
Total undiscounted liability		33,000
Less: discount to net present value		(11,500	)
Liability per Consolidated Balance Sheet	$	21,500

Superfund Sites / Offsite Landfills—The Company is currently involved in environmental remediation activities at 26 sites where it has been notified that it is, or may be, a PRP under the United States Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) or similar state “superfund” laws. The Company has recorded liabilities of approximately $7,400 at June 30, 2004, for environmental remediation costs related to these sites. The Company anticipates approximately 60% of this liability will be paid within the next five years, with the remaining payments occurring over the next twenty-five years. The Company generally does not bear a significant level of responsibility for these sites and has little control over the costs and timing of cash flows. At 17 of the 26 sites, the Company’s share is less than 1%. At the remaining 9 sites, the Company has a share of up to 8.8% of the total liability which accounts for approximately $6,300 of the total amount reserved for superfund / offsite landfill sites at June 30, 2004. Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with the superfund / offsite landfill sites may be as low as $3,900 or as high as $15,700, in the aggregate. In estimating both its current reserves for environmental remediation at these sites and the possible range of additional costs, the Company has not assumed that it will bear the entire cost of remediation of every site to the exclusion of other known PRPs who may be jointly and severally liable. The Company has limited information to assess the viability of other PRPs and their probable contribution on a per site basis. The range of possible outcomes also takes into account the maturity of each project, which results in a more narrow range as the project progresses. The Company’s ultimate liability will depend on many factors including its volumetric share of waste, the financial viability of other PRPs, the remediation methods and technology used, the amount of time necessary to accomplish remediation, and the availability of insurance coverage. The Company’s insurance provides very limited, if any, coverage for these environmental matters.

Sites Under Current Ownership—The Company is conducting environmental remediation at 7 locations currently owned by the Company, of which 4 sites are no longer operating. There are no other parties responsible for remediation at these sites. Much of the remediation is being performed by the Company on a voluntary basis;

F-117

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

therefore, the Company has greater control over the costs to be incurred and the timing of cash flows. The Company has accrued approximately $5,000 at June 30, 2004, for remediation and restoration liabilities at these locations. The Company anticipates approximately $3,500 of these liabilities will be paid within the next three years, with the remaining amounts being paid over the next ten years. Approximately $3,300 of these reserves is included in the Company’s business realignment reserve, as the environmental clean up is being handled in conjunction with planned closure of the location (see Note 3). Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such sites may fall within a range of $3,100 to $13,300, in the aggregate. The factors influencing the ultimate outcome include the methods of remediation to be elected, the conclusions and assessment of site studies remaining to be completed and the time period required to complete the work.

Other Sites—The Company is conducting environmental remediation at 9 locations (10 locations as of December 31, 2003) formerly owned by the Company. The Company has accrued approximately $1,800 at June 30, 2004, for remediation and restoration liabilities at these locations. The Company anticipates cash outflows of approximately $1,500 within the next three years, with the remainder occurring over the next ten years. Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such sites may fall within a range of $1,300 to $9,000, in the aggregate. The primary drivers in determining the final costs to the Company on these matters are the method of remediation selected and the level of participation of third parties.

In addition, the Company is responsible for 10 sites that require monitoring where no additional remediation is expected and has also established accruals for other related costs, such as fines and penalties. The Company has accrued approximately $1,700 at June 30, 2004, related to these sites. Payment of these liabilities is anticipated to occur over the next ten years. Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such sites may fall within a range of $700 and $2,200, in the aggregate. The ultimate cost to the Company will be influenced by any variations in projected monitoring periods or by findings that are better or worse than anticipated findings.

The Company formerly operated the Smith Douglass fertilizer business which included a phosphate mining operation in Manatee County, Florida and an animal food processing operation in Hillsborough County, Florida. Both operations were sold in 1980. The EPA has sent the Company and another former owner of the Manatee County facility a request for $112 relating to oversight costs incurred when the site was abandoned by its current owner. The Company is disputing the charge. The Company is aware that state and Federal environmental agencies have taken measures to prevent the off-site release of water from rainfall that accumulated in the drainage ditches and lagoons surrounding the gypsum piles located on this site. The Company is aware that the current owner of the Hillsborough County site ceased operations in March of 2004 and is working with governmental agencies to effect closure of that site. At this time, the Company has not received any demands from any governmental agencies or others regarding the closure and environmental cleanup at this site, which the Company believes is the responsibility of the current owner. While it is reasonably possible some costs could be incurred related to these sites, the Company has inadequate information to enable it to estimate a potential range of liability, if any.

Non-Environmental Legal Matters

Following is a discussion of non-environmental legal proceedings that are not in the ordinary course of business:

Subsidiary Bankruptcy—The Company’s former subsidiary, BCPM, filed for protection under Chapter 11 of the United States Bankruptcy Code, in the United States Bankruptcy Court for the District of Delaware on

F-118

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

March 22, 2002. BCPM served as the general partner and held a 1% interest in BCPOLP, which was created in November 1987 and operated as a commodity chemicals producer. On April 3, 2001, BCPOLP filed for protection under Chapter 11 of the United States Bankruptcy Code, in the United States Bankruptcy Court for the District of Delaware. On February 5, 2003, the U.S. Bankruptcy Court approved a Joint Plan of Liquidation for BCPOLP and BCPM which provided for the transfer of the remaining assets of both entities, including preference, avoidance and other claims against third parties (including the Company) to separate liquidating entities for liquidation and distribution to their creditors. The transfer of the remaining assets of both entities to the liquidating agents was effective March 13, 2003, and the Company’s ownership interest in BCPM was extinguished.

On March 19, 2004, the Company reached a tentative agreement with BCPM Liquidating LLC, the successor in interest to BCPM, providing for the settlement of all of its claims for a payment by the Company of $6,000, and with BCP Liquidating LLC, the successor in interest to BCPOLP, providing for the settlement of all of its claims for a payment by the Company of $1,050. In June 2004, the bankruptcy court approved the settlements and the $6,000 and $1,050 payments were made shortly thereafter.

Imperial Home Décor Group—In 1998, pursuant to a merger and recapitalization transaction sponsored by The Blackstone Group (“Blackstone”) and financed by The Chase Manhattan Bank (“Chase”), Borden Decorative Products Holdings, Inc. (“BDPH”), a wholly owned subsidiary of the Company, was acquired by Blackstone and subsequently merged with Imperial Wallcoverings to create Imperial Home Décor Group (“IHDG”). Blackstone provided $84,500 in equity, a syndicate of banks funded $198,000 of senior secured financing and $125,000 of senior subordinated notes were privately placed. The Company received approximately $309,000 in cash and 11% of IHDG common stock for its interest in BDPH at the closing of the merger. On January 5, 2000, IHDG filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The IHDG Litigation Trust (the “Trust”) was created pursuant to the plan of reorganization in the IHDG bankruptcy to pursue preference and other avoidance claims on behalf of the unsecured creditors of IHDG. In November 2001, the Trust filed a lawsuit against the Company and certain of its affiliates in U.S. Bankruptcy Court in Delaware seeking to have the IHDG recapitalization transaction voided as a fraudulent conveyance and asking for a judgment to be entered against the Company for $314,400 plus interest, costs and attorney fees. The parties have agreed to pursue non-binding mediation in September of 2004.

The Company has accrued legal expenses for scheduled depositions related to this matter and alternative dispute resolution. To the extent that additional depositions or legal work is required, legal defense costs will increase. The Company has not recorded a liability for any potential losses because a loss is not considered probable based on current information. The Company believes it has strong defenses to the Trust’s allegations and intends to defend the case vigorously. While it is reasonably possible the resolution of this matter may result in a loss due to the many variables involved, the Company is not able to estimate the range of possible outcomes at this time.

Brazil Tax Claim—In 1992, the State of Sao Paolo Administrative Tax Bureau issued an assessment against the Company’s primary Brazilian subsidiary claiming that excise taxes were owed on certain intercompany loans made for centralized cash management purposes, characterized by the Tax Bureau as intercompany sales. Since that time, management and the Tax Bureau have held discussions, and the subsidiary has filed an administrative appeal seeking cancellation of the assessment. In December 2001, the Administrative Court upheld the assessment in the amount of 52 million Brazilian Reals, or approximately US$17,000, an amount that includes tax, penalties, monetary correction and interest. In September 2002, the subsidiary filed a second appeal with the highest-level administrative court, again seeking cancellation of the assessment. The

F-119

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

Company believes it has a strong defense against the assessment and will pursue the appeal vigorously, including appealing to the judicial level; however, there is no assurance that the assessment will not be upheld. At this time the Company does not believe a loss is probable; therefore, only related legal fees have been accrued. Reasonably possible losses to the Company resulting from the resolution of this matter range from zero to $17,000.

HAI Grand Jury Investigation—HAI, a joint venture in which the Company has a 75% interest, received a grand jury subpoena dated November 5, 2003 from the U.S. Department of Justice Antitrust Division relating to a foundry resins Grand Jury investigation. HAI has provided documentation in response to the subpoena. As is frequently the case when such investigations are in progress, various antitrust lawsuits have been brought against the Company alleging that the Company and HAI, along with various other entities, engaged in a price fixing conspiracy. The Company has accrued legal fees for the defense of this matter but does not have sufficient information to determine a range of possible outcomes at this time.

CTA Acoustics—From the third quarter, 2003 to the first quarter, 2004 six lawsuits were filed against the Company in the 27th Judicial District, Laurel County Circuit Court, in Kentucky, arising from an explosion at a customer’s plant where seven plant workers were killed and over 40 other workers were injured. The lawsuits primarily seek recovery for wrongful death, emotional and personal injury, loss of consortium, property damage and indemnity. The Company expects that a number of these suits will be consolidated. The litigation also includes claims by its customer against its insurer and the Company. The Company is pursuing a claim for indemnity against its customer, based on language in the contract with them. The Company has accrued $5,000 relating to these actions and has insurance coverage to address any payments and legal fees in excess of this amount.

Other Legal Matters—The Company is involved in various product liability, commercial and employment litigation, personal injury, property damage and other legal proceedings which are considered to be in the ordinary course of business. There has been increased publicity about asbestos liabilities faced by manufacturing companies. In large part, as a result of the bankruptcies of many asbestos producers, plaintiff’s attorneys are increasing their focus on peripheral defendants, including the Company, and asserting that even products that contained a small amount of asbestos caused injury. Plaintiffs are also focusing on alleged harm caused by other products we have made or used, including those containing silica and vinyl chloride monomer. The Company does not believe that it has a material exposure relating to these claims and believes it has adequate reserves and insurance to cover currently pending and foreseeable future claims.

The Company has been served in a lawsuit filed in Hillsborough County, Florida Circuit Court which names the Company and several other parties, relating to an animal feed supplement processing site formerly operated by the Company and sold in 1980. The lawsuit is filed on behalf of multiple residents of Hillsborough County living near the site and alleges various injuries related to exposure to toxic chemicals. At this time, the Company has inadequate information from which to estimate a potential range of liability, if any.

The Company has reserved approximately $16,100 at June 30, 2004, relating to all non-environmental legal matters for legal defense and settlement costs that it believes are probable and estimable at this time.

9. Related Party Transactions

Financing and Investing Arrangements

The Company has a borrowing arrangement with BWHLLC, evidenced by a demand promissory note bearing interest at a variable rate. The loan is reported as Loans payable to affiliates on the Consolidated Balance

F-120

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

Sheet and totaled $7,380 at June 30, 2004. The interest rate on the amount outstanding at June 30, 2004 was 2.6%. Interest expense totaled $99 for the six months ended June 30, 2004.

In 2003, the Company and HAI had separate borrowing arrangements with Borden Foods Holdings Corporation (“Foods”), an affiliate, evidenced by demand promissory notes bearing interest at variable rates. The loans were reported as Loans payable to affiliates on the Consolidated Balance Sheet. Interest rates on these loans ranged from 1.0% to 4.75%. In early 2004, the Company entered into the arrangement with BWHLLC and canceled its arrangement with Foods. In early 2004, HAI obtained a $20,000 credit facility with an external bank and terminated its affiliated borrowing arrangement with Foods. Interest expense, related to the Foods loans, totaled $323 for the six months ended June 30, 2003.

Administrative Service, Management and Consulting Arrangements

KKR provides certain management, consulting and board services to the Company for an annual fixed fee. In 2003 and through April 2004, the fixed fee was $3,000 annually. Beginning in May 2004, the fee was reduced to $1,000. For the six months ended June 30, 2004, the Company recorded $1,167 for amounts due to KKR under this arrangement. In the six months ended June 30, 2003, the management fee recorded was $1,500.

The Company provides certain administrative services to BWHLLC and other affiliates under a service agreement. Fees charged under this agreement were based on the projected cost to the Company to provide these services, primarily based on employee costs. For the six months ended June 30, 2004, the Company charged these affiliates $246 for these services. During the six months ended June 30, 2003, the Company charged these affiliates $270.

The Company has a liability to BHI of $675 at June 30, 2004 for costs incurred related to the pending sale of the Company.

Other Transactions and Arrangements

The Company utilizes Willis Group Holdings, Ltd. (“Willis”), an entity controlled by KKR, as its insurance broker. As of the six months ended June 30, 2004 and 2003, the Company had paid $411 and $237, respectively, to Willis.

10. Income Tax Expense

In connection with the expected sale of BHI, the Company has recorded a non-cash charge of $137,110 to income tax expense in the second quarter of 2004 to increase the valuation reserves related to the Company’s net domestic deferred tax asset.

As a result of the expected sale of the Company, certain limitations will be placed on the utilization of the attributes under U.S. tax law, and the new financing discussed in Note 1 will limit the Company’s flexibility with respect to prior tax planning strategies. As a result, the Company no longer believes that utilization of the net domestic deferred tax asset is more likely than not to occur.

The Company’s remaining net deferred tax liability of $32,014 is reflected in the Consolidated Balance Sheet at June 30, 2004 as a current deferred asset of $23,476 and a long-term deferred tax asset of $2,320, offset by a current deferred tax liability of $3,960 included in other current liabilities and long-term deferred tax liability of $53,850 included in Other long-term liabilities.

F-121

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

11. Pending Capital Market Transaction

As discussed in Note 1 the Company will be issuing $475 million of second-priority senior secured private debt in connection with the Acquisition.

The Notes will be guaranteed by the Company and certain of its existing and future domestic restricted subsidiaries (the “Guarantors”). The Notes and the related guarantees will be senior obligations secured by a second-priority lien (subject to certain exceptions and permitted liens) on certain of the Guarantors’ existing and future domestic assets.

Supplemental financial information for the Company and the combined non-guarantor subsidiaries and the combined subsidiary guarantors for the Notes are presented below:

FOR THE SIX MONTHS ENDED JUNE 30, 2004

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

	Borden Chemical Inc.			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net Sales	$	479,538			—		$	385,814		$	(66,951	)	$	798,401
Cost of Goods Sold		390,764			—			314,905			(66,951	)		638,718
Gross Margin		88,774			—			70,909			—			159,683
Distribution expense		21,727			—			14,265			—			35,992
Marketing expense		11,736			—			11,661			—			23,397
General & administrative expense		23,371		$	232			23,290			—			46,893
Transaction—related costs		3,920			—			3,316			—			7,236
Business realignment expense and impairments		(775	)		—			1,036			—			261
Other operating expense		3,120			(25	)		(254	)		—			2,841
Operating income (loss)		25,675			(207	)		17,595			—			43,063
Interest expense		22,974			—			722			—			23,696
Affiliated interest expense, net		81			—			18			—			99
Intracompany interest expense, net		51,459			(52,061	)		602			—			—
Affiliate royalty expense (Income)		9,769			(9,769	)		—			—			—
Other non-operating expense		1,782			—			(1,211	)		—			571
Equity in (earnings) losses of investees		(69,762	)		(2,834	)		—			72,596			—
Income (loss) before income tax		9,372			64,457			17,464			(72,596	)		18,697
Income tax (benefit) expense		136,472			—			9,325			—			145,797
Net income (loss)	$	(127,100	)	$	64,457		$	8,139		$	(72,596	)	$	(127,100	)

F-122

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

FOR THE SIX MONTHS ENDED JUNE 30, 2003

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

	Borden Chemical Inc.			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net Sales	$	440,346			—		$	340,095		$	(60,390	)	$	720,051
Cost of Goods Sold		358,986			—			282,872			(60,390	)		581,468
Gross Margin		81,360			—			57,223			—			138,583
Distribution expense		20,810			—			12,575			—			33,385
Marketing expense		10,433			—			10,726			—			21,159
General & administrative expense		30,024		$	106			21,659			—			51,789
Business realignment expense and impairments		(204	)		—			1,625			—			1,421
Other operating expense		4,836			—			(1,170	)		—			3,666
Operating Income (loss)		15,461			(106	)		11,808			—			27,163
Interest expense		22,137			—			702			—			22,839
Affiliated interest expense, net		301			—			22			—			323
Intracompany interest expense, net		56,059			(56,648	)		589			—			—
Affiliate royalty expense (income)		9,116			(9,116	)		—			—			—
Other non-operating expense		1,034			24			(56	)		—			1,002
Equity in (earnings) losses of investees		(67,325	)		(1,265	)		—			68,590			—
Income (loss) before income tax		(5,861	)		66,899			10,551			(68,590	)		2,999
Income tax (benefit) expense		(22,606	)		—			8,860			—			(13,746	)
Net income (loss)	$	16,745		$	66,899		$	1,691		$	(68,590	)	$	16,745

F-123

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

JUNE 30, 2004

CONDENSED CONSOLIDATING BALANCE SHEET

	Borden Chemical Inc.			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current Assets
Cash and equivalents	$	1,178		$	217		$	30,795			—		$	32,190
Accounts receivable		101,620			66			107,300			—			208,986
Accounts receivable from affiliates		17,354			7,035			5,925		$	(30,013	)		301
Inventories:
Finished and in-process goods		25,156			—			17,849			—			43,005
Raw materials and supplies		26,542			—			19,020			—			45,562
Deferred income taxes		23,132			—			344			—			23,476
Other current assets		6,186			64			3,471			—			9,721
		201,168			7,382			184,704			(30,013	)		363,241
Investments and Other Assets
Investment in subsidiaries		6,366,907			17,045			—		$	(6,383,952	)		—
Deferred income taxes		(6,060	)		—			8,380			—			2,320
Loans and interest receivable from affiliates		—			6,084,028			5,047			(6,089,075	)		—
Other assets		15,792			—			7,449			—			23,241
		6,376,639			6,101,073			20,876			(12,473,027	)		25,561
Property and Equipment
Land		25,119			—			7,984			—			33,103
Buildings		68,333			—			35,496			—			103,829
Machinery and equipment		410,575			531			288,109			—			699,215
		504,027			531			331,589			—			836,147
Less accumulated depreciation		(255,786	)		(416	)		(139,299	)		—			(395,501	)
		248,241			115			192,290			—			440,646
Goodwill		36,598			—			19,797			—			56,395
Other intangible assets		4,172			—			892			—			5,064
Total Assets	$	6,866,818		$	6,108,570		$	418,559		$	(12,503,040	)	$	890,907

F-124

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

JUNE 30, 2004

CONDENSED CONSOLIDATING BALANCE SHEET—(Continued)

	Borden Chemical Inc.			Combined Guarantor Subsidiaries		Combined Non-Guarantor Subsidiaries		Eliminations			Consolidated
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities
Accounts and drafts payable	$	90,521			—	$	72,380		—		$	162,901
Debt payable within one year		—			—		5,654		—			5,654
Loans payable to affiliates		7,380			—		—		—			7,380
Other affiliated payables (receivables)		4,675		$	60		25,278	$	(30,013	)		—
Income taxes payable		29,608			—		2,560		—			32,168
Interest payable		12,339			—		20		—			12,359
Other current liabilities		49,986			342		15,758		—			66,086
		194,509			402		121,650		(30,013	)		286,548
Other Liabilities
Long-term debt		520,877			—		9,070		—			529,947
Long-term loans payable to affiliates		6,088,796			—		279		(6,089,075	)		—
Non-pension postemployment benefit obligations		120,855			—		949		—			121,804
Long-term pension liability		69,071			—		1,844		—			70,915
Other long-term liabilities		101,341			—		8,983		—			110,324
		6,900,940			—		21,125		(6,089,075	)		832,990
Shareholders’ Equity (Deficit)		(228,631	)		6,108,168		275,784		(6,383,952	)		(228,631	)
Total Liabilities and Shareholders’ Equity (Deficit)	$	6,866,818		$	6,108,570	$	418,559	$	(12,503,040	)	$	890,907

F-125

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

FOR THE SIX MONTHS ENDED JUNE 30, 2004

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

	Borden Chemical Inc.			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash Flows from (used in) Operating Activities
Net (loss) income	$	(127,100	)	$	64,457		$	8,139		$	(72,596	)	$	(127,100	)
Adjustments to reconcile net income (loss) to net cash from (used in) operating activities:
Tax valuation allowance		137,110			—			—			—			137,110
Non-cash affiliated interest(1)		51,804			(51,804	)		—			—			—
Equity in earnings of investee		(69,762	)		(2,834	)		—			72,596			—
Non-cash allocation of corporate expenses		(10,251	)		—			10,251			—			—
Depreciation and amortization		14,663			61			9,305			—			24,029
Deferred tax (benefit) expense		(328	)		—			2			—			(326	)
Minority interest expense (income)		944			—			—			—			944
Business realignment expense and impairments		(775	)		—			1,036			—			261
Other non-cash adjustments		1,086			—			131			—			1,217
Net change in assets and liabilities
Accounts receivable		(17,857	)		4			(9,108	)		—			(26,961	)
Inventories		(4,130	)		—			(4,347	)		—			(8,477	)
Accounts and drafts payable		24,391			42			13,332			—			37,765
Income Taxes		(1,626	)		—			258			—			(1,368	)
Other Assets		6,525			(52	)		(146	)		—			6,327
Other Liabilities		(13,025	)		(7	)		(3,053	)		—			(16,085	)
		(8,331	)		9,867			25,800			—			27,336
Cash Flows (used in) from Investing Activities
Capital Expenditures		(7,849	)		(51	)		(11,355	)		—			(19,255	)
Proceeds from the sale of assets		975			—			8,384			—			9,359
		(6,874	)		(51	)		(2,971	)		—			(9,896	)
Cash flows from (used in) Financing Activities
Net short-term debt (repayments) borrowings		(2,548	)		—			35			—			(2,513	)
Dividends received (paid)		17,797			(14,600	)		(3,197	)		—			—
Repayment of long-term debt		—			—			(19	)		—			(19	)
Affiliated (repayments/loans) borrowings/receipts		(236	)		4,850			(15,494	)		—			(10,880	)
		15,013			(9,750	)		(18,675	)		—			(13,412	)
Increase (decrease) in cash and equivalents		(192	)		66			4,154			—			4,028
Cash and equivalents at beginning of period		1,370			151			26,641			—			28,162
Cash and equivalents at end of period	$	1,178		$	217		$	30,795			—		$	32,190

(1) Interest on affiliated debt to certain guarantor subsidiaries is settled by increasing the loan principal.

F-126

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

FOR THE SIX MONTHS ENDED JUNE 30, 2003

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

	Borden Chemical Inc.			Combined Guarantor Subsidiaries			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash Flows from (used in) Operating Activities
Net (loss) income	$	16,745		$	66,899		$	1,691		$	(68,590	)	$	16,745
Adjustments to reconcile net income (loss) to net cash from (used in) operating activities:
Non-cash affiliated interest(1)		56,448			(56,448	)		—			—			—
Equity in earnings of subsidiaries		(67,325	)		(1,265	)		—			68,590			—
Non-cash allocations of corporate expenses		(9,261	)		—			9,261			—			—
Depreciation and amortization		14,512			75			8,319			—			22,906
Deferred tax (benefit) expense		(27,142	)		—			3,610			—			(23,532	)
Minority interest expense (income)		(234	)		—			—			—			(234	)
Business realignment expense and impairments		(204	)		—			1,625			—			1,421
Other non-cash adjustments		1,730			—			66			—			1,796
Net change in assets and liabilities:
Accounts receivable		(10,040	)		86			(20,790	)		—			(30,744	)
Inventories		1,960			—			899			—			2,859
Accounts and drafts payable		(2,745	)		(119	)		9,182			—			6,318
Income Taxes		3,037			—			771			—			3,808
Other Assets		13,555			10			72			—			13,637
Other Liabilities		(3,568	)		1,866			(13,770	)		—			(15,472	)
		(12,532	)		11,104			936			—			(492	)
Cash Flows (used in) from Investing Activities
Capital Expenditures		(9,931	)		—			(5,690	)		—			(15,621	)
Proceeds from the sale of assets		925			—			1,306			—			2,231
		(9,006	)		—			(4,384	)		—			(13,390	)
Cash flows from (used in) Financing Activities
Net short-term debt repayments		(975	)		—			(481	)		—			(1,456	)
Net long-term debt borrowings					—			255			—			255
Affiliated (repayments/loans) borrowings/receipts		(57,463	)		840			5,241			—			(51,382	)
Decrease (increase) in restricted cash		65,281						—			—			65,281
Dividends received (paid)		14,611			(12,000	)		(2,611	)		—			—
Net repurchases of common stock from/to management		(286	)		—			—			—			(286	)
		21,168			(11,160	)		2,404			—			12,412
Increase (decrease) in cash and equivalents		(370	)		(56	)		(1,044	)		—			(1,470	)
Cash and equivalents at beginning of period		1,838			116			12,786			—			14,740
Cash and equivalents at end of period	$	1,468		$	60		$	11,742			—		$	13,270

(1) Interest on affiliated debt to certain guarantor subsidiaries is settled by increasing the loan principal.

F-127

BORDEN CHEMICAL, INC.

Notes to Condensed Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share amounts and as otherwise indicated)

12. Reclassification

In the Company’s previously issued financial statements for the six months ended June 30, 2004, transaction-related costs of $7,236 (see Note 1) were classified as a non-operating expense. However, after discussions with the staff of the U.S. Securities and Exchange Commission, management concluded that classification of transaction-related costs as an operating expense would be a better presentation. Accordingly, the Company has reflected such reclassification in the accompanying Consolidated Statement of Operations.

F-128

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

and Shareholder of Borden Chemical, Inc.

We have audited the accompanying consolidated balance sheets of Borden Chemical, Inc. (effective August 12, 2004, a wholly-owned subsidiary of BHI Acquisition Corp., which is a majority owned subsidiary of BHI Investment, LLC; prior to August 12, 2004, a majority-owned subsidiary of Borden Holdings, Inc.) and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of operations and comprehensive income (loss), shareholders’ deficit and cash flows for each of the three years in the period ended December 31, 2003. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether 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, such consolidated financial statements present fairly, in all material respects, the financial position of Borden Chemical, Inc. and subsidiaries at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 4 to the consolidated financial statements, the Company changed its method of accounting for goodwill and other intangible assets in 2002 to conform to Statement of Financial Accounting Standards No. 142.

DELOITTE & TOUCHE LLP

Columbus, Ohio

March 19, 2004, except for Note 24, as to which the date is August 5, 2004.

F-129

BORDEN CHEMICAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

	Year Ended December 31,
	2003			2002			2001
	(In thousands, except per share data)
Net sales	$	1,434,813		$	1,247,885		$	1,372,141
Cost of goods sold		1,148,519			968,657			1,060,642
Gross margin		286,294			279,228			311,499
Distribution expense		66,383			61,927			63,929
Marketing expense		42,398			42,503			42,046
General & administrative expense		100,021			109,237			127,967
(Gain) loss on sale of assets		(746	)		282			(3,772	)
Loss on divestiture of business		—			—			2,303
Business realignment expense and impairments		4,748			19,699			126,408
Other operating expense		6,948			11,872			28,113
Operating income (loss)		66,542			33,708			(75,495	)
Interest expense		46,138			47,315			51,613
Affiliated interest expense, net		558			1,402			11,488
Other non-operating expense (income)		1,529			(5,989	)		1,841
Investment write-downs		—			—			27,000
Income (loss) from continuing operations before income tax		18,317			(9,020	)		(167,437	)
Income tax benefit		(4,659	)		(2,262	)		(30,833	)
Income (loss) from continuing operations		22,976			(6,758	)		(136,604	)
Income from discontinued operations, net of tax		—			—			11,804
Income (loss) before cumulative effect of change in accounting principle		22,976			(6,758	)		(124,800	)
Cumulative effect of change in accounting principle		—			(29,825	)		—
Net income (loss)		22,976			(36,583	)		(124,800	)
Preferred stock dividends		—			—			(61,846	)
Net income (loss) applicable to common stock	$	22,976		$	(36,583	)	$	(186,646	)
Comprehensive income	$	60,420		$	(67,784	)	$	(198,959	)
Basic and Diluted Per Share Data
Income (loss) from continuing operations	$	0.11		$	(0.03	)	$	(0.69	)
Income from discontinued operations, net of tax		—			—			0.06
Income (loss) before cumulative effect of change in accounting principle		0.11			(0.03	)		(0.63	)
Cumulative effect of change in accounting principle		—			(0.15	)		—
Net income (loss)		0.11			(0.18	)		(0.63	)
Preferred stock dividends		—			—			(0.31	)
Net income (loss) applicable to common stock—basic	$	0.11		$	(0.18	)	$	(0.94	)
Net income (loss) applicable to common stock—dilutive	$	0.11		$	(0.18	)	$	(0.94	)
Average number of common shares outstanding during the period—basic		199,310			199,319			198,997
Average number of common shares outstanding during the period—dilutive		200,267			199,319			198,997

See Notes to Consolidated Financial Statements

F-130

BORDEN CHEMICAL, INC.

CONSOLIDATED BALANCE SHEETS

	December 31, 2003			December 31, 2002
	(In thousands)
ASSETS
Current Assets
Cash and equivalents	$	28,162		$	14,740
Restricted cash		—			67,049
Accounts receivable (less allowance for doubtful accounts of $14,459 in 2003 and $12,219 in 2002)		196,093			170,822
Accounts receivable from affiliates		354			5,840
Inventories:
Finished and in-process goods		42,292			45,178
Raw materials and supplies		38,819			41,079
Deferred income taxes		27,085			28,869
Other current assets		13,551			13,232
		346,356			386,809
Investments and Other Assets
Deferred income taxes		113,434			118,368
Other assets		21,725			19,615
		135,159			137,983
Property and Equipment
Land		32,585			31,964
Buildings		103,774			98,313
Machinery and equipment		691,249			649,782
		827,608			780,059
Less accumulated depreciation		(378,724	)		(340,321	)
		448,884			439,738
Goodwill		57,516			39,640
Other Intangible Assets		5,951			7,610
Total Assets	$	993,866		$	1,011,780

See Notes to Consolidated Financial Statements

F-131

BORDEN CHEMICAL, INC.

CONSOLIDATED BALANCE SHEETS—(Continued)

	December 31, 2003			December 31, 2002
	(In thousands except share data)
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities
Accounts and drafts payable	$	127,174		$	113,549
Debt payable within one year		8,167			2,779
Loans payable to affiliates		18,260			84,680
Income taxes payable		34,977			55,964
Interest payable		12,524			12,136
Other current liabilities		71,546			78,957
		272,648			348,065
Other Liabilities
Long-term debt		529,966			523,287
Non-pension postemployment benefit obligations		128,723			145,384
Long-term pension obligations		66,656			70,216
Other long-term liabilities		92,066			85,721
		817,411			824,608
Commitments and Contingencies (See Note 22)
Shareholders’ Deficit
Common stock—$0.01 par value: authorized 300,000,000 shares, Issued 201,754,598, treasury 858,970, outstanding 200,895,628 in 2003 and Issued 201,782,598, treasury 858,970, outstanding 200,923,628 shares in 2002.		2,009			2,009
Paid-in capital		1,224,011			1,172,344
Receivable from parent		(512,094	)		(463,516	)
Deferred compensation		(1,488	)		(2,679	)
Accumulated other comprehensive income		(128,193	)		(165,637	)
Accumulated deficit		(680,438	)		(703,414	)
		(96,193	)		(160,893	)
Total Liabilities and Shareholders’ Deficit	$	993,866		$	1,011,780

See Notes to Consolidated Financial Statements

F-132

BORDEN CHEMICAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31,
	2003			2002			2001
	(In thousands)
Cash Flows from (used in) Operating Activities
Net income (loss)	$	22,976		$	(36,583	)	$	(124,800	)
Adjustments to reconcile net income (loss) to net cash from (used in) operating activities:
Loss on divestiture of businesses		—			—			2,303
(Gain) loss on the sale of assets		(746	)		282			(3,772	)
Deferred tax provision (benefit)		6,223			16,023			(25,883	)
Depreciation and amortization		47,319			47,947			59,361
Deferred compensation expense		1,191			892			—
Business realignment expense and impairments		4,748			19,699			126,408
Cumulative effect of change in accounting principle		—			29,825			—
Investment write-downs and other charges		—			—			27,000
Other non-cash adjustments		1,070			(822	)		3,063
Net change in assets and liabilities:
Accounts receivable		(3,217	)		(12,596	)		31,698
Inventories		10,731			2,552			14,679
Accounts and drafts payable		2,492			(8,303	)		(20,230	)
Income taxes		(30,291	)		(21,780	)		44,130
Other assets		3,581			(2,571	)		(72,388	)
Other liabilities		(32,051	)		(24,205	)		33,551
		34,026			10,360			95,120
Cash Flows (used in) from Investing Activities
Capital expenditures		(41,820	)		(38,773	)		(47,408	)
(Purchase) proceeds from sale of businesses		(14,691	)		—			96,977
Proceeds from the sale of assets		14,197			10,237			160,888
Proceeds from sale of note receivable to an affiliate		—			110,000			—
Other, net		—			—			524
		(42,314	)		81,464			210,981
Cash Flows from (used in) Financing Activities
Net short-term debt borrowings (repayments)		5,388			1,255			(41,763	)
Borrowings of long-term debt		7,925			—			57,400
Repayments of long-term debt		(1,246	)		(10,764	)		(54,000	)
Affiliated (repayments) borrowings		(66,420	)		6,130			(212,432	)
Payment of note payable to unconsolidated subsidiary		—			(31,581	)		—
Decrease (increase) in restricted cash		67,049			(66,165	)		(884	)
Interest received from parent		—			—			48,578
Common stock dividends paid		—			—			(48,578	)
Preferred stock dividends paid		—			—			(73,724	)
Repurchases, net of sale, of common stock from / to management		(286	)		(591	)		—
Capital contribution from affiliates		9,300			—			17,000
		21,710			(101,716	)		(308,403	)
Increase (decrease) in cash and equivalents	$	13,422		$	(9,892	)	$	(2,302	)
Cash and equivalents at beginning of year		14,740			24,632			26,934
Cash and equivalents at end of year	$	28,162		$	14,740		$	24,632
Supplemental Disclosures of Cash Flow Information
Cash paid (received):
Interest, net	$	45,466		$	46,928		$	70,258
Income taxes, net		19,368			978			(36,186	)
Non-cash activity:
Capital contribution by parent		17,002			24,440			21,038
Contribution of preferred stock and accrued dividend by parent		—			—			620,922
Reclassification of minimum pension liability adjustment from (to) shareholders’ equity		5,830			(17,075	)		(66,580	)

See Notes to Consolidated Financial Statements

F-133

BORDEN CHEMICAL, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT

(In thousands)

	Preferred Stock			Common Stock		Paid-in Capital			Receivable from Parent			Deferred Compensation		Accumulated Other Comprehensive Income			Accumulated Deficit			Total
Balance, December 31, 2000	$	614,369		$	1,990	$	353,309		$	(414,937	)	$	—	$	(60,277	)	$	(480,185	)	$	14,269
Net income																		(124,800	)		(124,800	)
Translation adjustments and other															(6,849	)					(6,849	)
Cumulative effect of change in accounting principle (net of $1,900 tax)															(3,300	)					(3,300	)
Derivative activity (net of $1,300 tax)															2,570						2,570
Minimum pension liability (net of $36,090 tax)															(66,580	)					(66,580	)
Comprehensive income																					(198,959	)
Preferred stock dividends																		(61,846	)		(61,846	)
Common stock dividends							(36,434	)													(36,434	)
Interest accrued on notes from parent (net of $13,784 tax)							24,674			10,120											34,794
Gain on Consumer Adhesives Sale to affiliate (net of $37,428 tax)							94,847														94,847
Gain on sale of common stock equity investment to affiliate (net of $5,600 tax)							10,197														10,197
Common stock and warrants issued to management							1,236														1,236
Capital contribution from parent of preferred stock and accrued dividend		(614,369	)				620,922														6,553
Capital contribution from parent							38,038														38,038
Balance, December 31, 2001	$	—		$	1,990	$	1,106,789		$	(404,817	)	$	—	$	(134,436	)	$	(666,831	)	$	(97,305	)

F-134

BORDEN CHEMICAL, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT—(Continued)

(In thousands)

	Common Stock			Paid-in Capital			Receivable from Parent			Deferred Compensation			Accumulated Other Comprehensive Income			Accumulated Deficit			Total
Balance, December 31, 2001	$	1,990		$	1,106,789		$	(404,817	)	$	—		$	(134,436	)	$	(666,831	)	$	(97,305	)
Net income																	(36,583	)		(36,583	)
Translation adjustments														(14,856	)					(14,856	)
Derivative activity (net of $401 tax)														730						730
Minimum pension liability (net of $9,194 tax)														(17,075	)					(17,075	)
Comprehensive income																				(67,784	)
Repurchases of common stock from management		(1	)		(1,341	)														(1,342	)
Restricted stock issued to management		16			3,555						(3,571	)								—
Interest accrued on notes from parent					58,699			(58,699	)											—
Compensation expense on restricted stock											892									892
Common stock issued management		4			747															751
Capital contribution from parent					3,895															3,895
Balance, December 31, 2002	$	2,009		$	1,172,344		$	(463,516	)	$	(2,679	)	$	(165,637	)	$	(703,414	)	$	(160,893	)
Net income																	22,976			22,976
Translation adjustments														31,614						31,614
Minimum pension liability (net of $3,139 tax)														5,830						5,830
Comprehensive income																				60,420
Repurchases of common stock from management					(286	)														(286	)
Income tax on sale to affiliate of Consumer Adhesives note receivable					(5,925	)														(5,925	)
Interest accrued on notes from parent					48,578			(48,578	)											—
Capital contribution from parent					9,300															9,300
Compensation expense on restricted stock											1,191									1,191
Balance, December 31, 2003	$	2,009		$	1,224,011		$	(512,094	)	$	(1,488	)	$	(128,193	)	$	(680,438	)	$	(96,193	)

See Notes to Consolidated Financial Statements

F-135

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements

(Dollars in thousands except per share data)

1. Background and Nature of Operations

Borden Chemical, Inc. (the “Company”) was incorporated on April 24, 1899. The Company is engaged primarily in manufacturing, processing, purchasing and distributing forest products and industrial resins, formaldehyde, oilfield products and other specialty and industrial chemicals worldwide. In 2001, the Company sold its Consumer Adhesives business. The Company’s executive and administrative offices are located in Columbus, Ohio. Production facilities are located throughout the U.S. and in many foreign countries.

Domestic products are sold by the Company’s sales force throughout the U.S. to industrial users. To the extent practicable, international distribution techniques parallel those used in the U.S. and are concentrated in Canada, Western Europe, Latin America, Australia and Malaysia.

At December 31, 2003, 27 of a total 48 manufacturing and processing facilities are located in the U.S., and in 2003, approximately 63% of the Company’s sales were generated in the U.S.

The Company has three reportable segments: North American Forest Products, North American Performance Resins Group and International. See Note 19.

The Company has been controlled by affiliates of Kohlberg Kravis Roberts & Co., L.P. (“KKR”), since 1995. The Company’s immediate parent is Borden Holdings, Inc. (“BHI”), a wholly owned subsidiary of BW Holdings, LLC (“BWHLLC”), an entity controlled by KKR.

In the fourth quarter of 2001, the Company (then known as Borden, Inc.) merged with its subsidiaries Borden Chemical, Inc. (“BCI”) and Borden Chemical Holdings, Inc. (“BCHI”), executed certain financial transactions with its parent and changed its name to Borden Chemical, Inc. (the “Corporate Reorganization”). See Note 3.

In 2001, through a series of transactions with affiliates, the Company sold Consumer Adhesives (the “Consumer Adhesives Sale”) for total proceeds of $94,120. As a result of the Consumer Adhesives Sale, this segment is reflected as a discontinued operation in the Consolidated Financial Statements in 2001. The Company retained continuing investments in Consumer Adhesives in the form of preferred stock and notes receivable. The notes receivable were sold to BHI in the fourth quarter of 2001 for their carrying value of $57,691. The preferred stock, with a carrying value of $110,000, was redeemed during the first quarter of 2002 for a $110,000 note receivable from Consumer Adhesives, which was subsequently sold to BHI in 2002 for face value plus accrued interest. In 2001, a pre-tax gain of $132,275 was recognized in Paid-in capital due to the affiliated nature of the transaction. In 2003, the Company recorded an adjustment of $5,925 in Paid-in capital to reflect additional tax expense associated with the sale of the $110,000 note receivable.

2. Summary of Significant Accounting Policies

Significant accounting policies followed by the Company, as summarized below, are in conformity with generally accepted accounting principles.

Principles of Consolidation—The Consolidated Financial Statements include the accounts of the Company and its subsidiaries, after elimination of intercompany accounts and transactions.

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

F-136

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. The most significant estimates reflected in the financial statements include environmental remediation, legal liabilities, deferred tax assets and liabilities and related valuation allowances, income tax accruals, pension and postretirement assets and liabilities, valuation allowances for accounts receivable and inventories, general insurance liabilities, asset impairments and related party transactions. Actual results could differ from estimated amounts.

Cash and Cash Equivalents—The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Included in the Company’s cash equivalents and restricted cash are interest bearing time deposits of $70,133 in 2002. At December 31, 2003, the Company had no material investments in cash equivalent instruments. The effect of exchange rate changes on cash is not material.

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

Property and Equipment—Land, buildings, and machinery and equipment are carried at cost. Depreciation is recorded on the straight-line basis by charges to expense at rates based on estimated useful lives of properties (average rates for buildings 3%; machinery and equipment 7%). Major renewals and betterments are capitalized. Maintenance, repairs and minor renewals are expensed as incurred.

Goodwill and Intangibles—The excess of purchase price over net tangible and identifiable intangible assets of businesses acquired is carried as Goodwill on the Consolidated Balance Sheet. As of January 1, 2002, the Company no longer amortizes goodwill. Prior to January 1, 2002, goodwill was amortized on a straight-line basis over not more than 40 years.

Certain trademarks, patents and other intangible assets used in the operations of the business are carried as Other Intangible Assets on the Consolidated Balance Sheet. These intangible assets are amortized on a straight-line basis over the shorter of the legal or useful life of the asset. See Note 4.

Impairment—As events warrant but at least annually, the Company evaluates the recoverability of long-lived assets by assessing whether the carrying value can be recovered over their remaining useful lives through the expected future undiscounted operating cash flows of the underlying business. Any impairment loss required is determined by comparing the carrying value of the assets to operating cash flows on a discounted basis.

The Company performs an annual impairment test for goodwill and other intangibles. See Note 4.

General Insurance—The Company is generally self-insured for losses and liabilities relating to workers’ compensation, health and welfare claims, physical damage to property, business interruption and comprehensive general, product and vehicle liability. The Company maintains insurance policies for certain items exceeding deductible limits. Losses are accrued for the estimated aggregate liability for claims using certain actuarial assumptions followed in the insurance industry and the Company’s experience.

Legal Costs—The Company accrues for legal costs in the period in which a claim is made or an event becomes known, if the amounts are probable and reasonably estimable. Each claim is assigned a range of potential liability, with the most likely amount being accrued. The amount accrued includes all costs associated with a claim, including settlements, assessments, judgments, fines and legal fees.

F-137

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

Revenue Recognition—Revenue for product sales is recognized as risk and title to the product transfer to the customer, which usually occurs at the time shipment is made. Substantially all of the Company’s products are sold FOB (“free on board”) shipping point. Other terms include sales where risk and title passes upon delivery (FOB destination point). In situations where our product is delivered by pipeline, risk and title transfers when our product moves across an agreed transfer point, which is typically the customers’ property line. Product sales delivered by pipeline are measured based on daily flow meter readings. The Company’s standard terms of delivery are included in its contracts of sales and invoices.

Shipping and Handling—The Company records freight billed to customers in net sales. Shipping costs are incurred to move the Company’s products from production and storage facilities to the customers. Handling costs are incurred from the point the product is removed from inventory until it is provided to the shipper and generally include costs to store, move and prepare the products for shipment. The Company incurred shipping costs of $66,383 in 2003, $61,927 in 2002 and $63,929 in 2001. These costs are classified as Distribution expense in the Consolidated Statements of Operations. Due to the nature of the Company’s business, handling costs incurred prior to shipment are not significant.

Foreign Currency Translations—Assets and liabilities of foreign affiliates are translated at the exchange rates in effect at the balance sheet date, and income and expenses are translated at average exchange rates prevailing during the year. The effect of translation is accounted for as an adjustment to shareholders’ equity and is included in other comprehensive income.

In addition, the Company incurred realized and unrealized net foreign transaction gains (losses) aggregating $438 in 2003, $1,307 in 2002 and $(912) in 2001.

Income Taxes—The Company files a consolidated U.S. Federal Income Tax return with BHI. Income tax expense is based on reported results of operations before income taxes. Deferred income taxes represent the tax effect of temporary differences between amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. Deferred tax balances are adjusted to reflect tax rates, based on current tax laws, that will be in effect in the years in which temporary differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Derivative Financial Instruments—The Company primarily uses three types of derivatives: interest rate swaps to effectively convert a portion of the Company’s fixed rate obligations to variable, forward exchange contracts and options to reduce the Company’s cash flow exposure to changes in foreign exchange rates and natural gas futures to reduce the Company’s cash flow exposure to changes in natural gas prices. The Company does not hold or issue derivative financial instruments for trading purposes. The Company’s $34,000 interest rate swap agreement is accounted for as a hedge. All other derivatives are not accounted for using hedge accounting but are measured at fair value and recorded on the balance sheet as an asset or liability, depending upon the Company’s underlying rights or obligations. See Notes 16 and 17.

Stock-Based Compensation—The Company accounts for stock-based compensation under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) and has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of SFAS No. 123.”

F-138

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

The following table sets forth the required annual reconciliation of reported and pro-forma net income and earnings per share (“EPS”) under SFAS No. 148:

	2003			2002			2001
Net income (loss) applicable to common stock	$	22,976		$	(36,583	)	$	(186,646	)
Add: Stock-based employee compensation expense included in reported net income, net of related tax benefit		147			9			—
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards granted since January 1, 1996, net of related tax effects		(211	)		(94	)		(382	)
Pro-forma net income	$	22,912		$	(36,668	)	$	(187,028	)
Average shares (in thousands) outstanding—basic		199,310			199,319			198,997
Average share (in thousands) outstanding—diluted		200,267			199,319			198,997
Per share as reported (basic and diluted)	$	0.11		$	(0.18	)	$	(0.94	)
Per share pro forma (basic and diluted)	$	0.11		$	(0.18	)	$	(0.94	)

Earnings Per Share—Basic and diluted net income attributable to common stock is computed by dividing net income by the weighted average number of common shares outstanding during the period including the effect of dilutive options, when applicable. At December 31, 2003, options to purchase 5,532,360 common shares of the Company were outstanding, of which 4,882,000 are considered dilutive. At December 31, 2002, 198,400 warrants and options to purchase 3,426,040 common shares of the Company were outstanding and not considered dilutive. At December 31, 2001, 1,039,864 warrants and options to purchase 6,871,380 common shares of the Company were outstanding and not considered dilutive. See Note 15.

The Company’s diluted EPS is calculated as follows:

	2003		2002			2001
Net income (loss) applicable to common stock	$	22,976	$	(36,583	)	$	(186,646	)
Effect of dilutive options		—		—			—
Diluted EPS—Numerator		22,976		(36,583	)		(186,646	)
Average share outstanding (in thousands)—basic		199,310		199,319			198,997
Effect of dilutive options (in thousands)		957		—			—
Diluted EPS—Denominator (in thousands)		200,267		119,319			198,997
Diluted EPS	$	0.11	$	(0.18	)	$	(0.94	)

Concentrations of Credit Risk—Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and accounts receivable. The Company places its temporary cash investments with high quality institutions and, by policy, limits the amount of credit exposure to any one institution. Concentrations of credit risk with respect to accounts receivable are limited, due to the large number of customers comprising the Company’s customer base and their dispersion across many different industries and geographies. The Company generally does not require collateral or other security to support customer receivables.

Reclassification—Previously at December 31, 2003 and 2002, income taxes payable of $15,800 and $46,545, respectively, were classified as other long-term liabilities. These amounts were reclassified as income taxes payable in the current presentation.

F-139

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

Recently Issued Accounting Standards

In November 2002, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). FIN 45 requires a guarantor to recognize a liability, at the inception of the guarantee, for the fair value of obligations it has undertaken in issuing the guarantee and also include more detailed disclosures with respect to guarantees. FIN 45 is effective for guarantees issued or modified after December 31, 2002. The disclosure requirements of FIN 45 are effective for financial statements for interim or annual periods ending after December 15, 2002. The Company has adopted FIN 45 and included the additional requirements with respect to guarantees in Note 21 to the Consolidated Financial Statements.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”) to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements, the assets, liabilities and activities of another entity. FIN 46 requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. In December 2003, the FASB issued a revision of FIN 46 deferring the effective date for implementation. The Company has no variable interest entities; therefore, the implementation of FIN 46 will not have an impact on its results of operations and financial condition.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The clarification provisions of this statement require that contracts with comparable characteristics be accounted for similarly. This statement is effective for any new derivative instruments entered into after June 30, 2003. The Company adopted SFAS No. 149 on July 1, 2003, and the adoption did not have an impact on the Company’s financial statements.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement addresses the accounting for certain financial instruments that, under previous guidance, could be accounted for as equity. SFAS No. 150 requires that those instruments be classified as liabilities in the statement of financial position. This statement is effective for financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. Adoption of SFAS No. 150 on July 1, 2003 did not have a material impact on the Company’s financial statements.

In December 2003, the FASB issued SFAS No. 132 (as revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88 and 106, and a revision of FASB Statement No. 132.” The new rules require additional disclosures about the assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans. This Statement is effective for the Company for fiscal years ending after December 15, 2003, except for certain disclosures on foreign plans, which are effective for fiscal years ending after June 15, 2004. The Company has adopted SFAS No. 132 (as revised 2003) and included the additional disclosures in Notes 12 and 13 to the Consolidated Financial Statements. The Company elected to include the disclosures for its foreign plans in 2003.

3. Corporate Reorganization

In the fourth quarter of 2001, the Company merged with its subsidiaries BCHI and BCI, executed certain financial transactions with BHI and changed its name to Borden Chemical, Inc., from Borden, Inc., reflecting the fact that the only remaining segment of the Company was the chemical business. The Corporate Reorganization

F-140

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

was undertaken to simplify the legal structure and strengthen the capital structure of the Company, and to reduce costs. As part of the Corporate Reorganization, certain functions were downsized, eliminated or transferred to a separate legal entity, Borden Capital, Inc. (“Capital”), also owned by BHI.

Subsequent to the Corporate Reorganization, Capital provided certain management, consulting and board services to the Company, as well as other entities owned by KKR, and charged fees to the Company and other affiliates for these services. The Company provided certain administrative services to Capital. The Company was charged a management fee of $9,000 in 2002, payable quarterly in arrears, for the net cost of Capital’s services.

The following transactions occurred as part of the Corporate Reorganization and are included in the 2001 results:

• BHI contributed all of the outstanding Series A Cumulative Preferred Stock plus accumulated dividends of $6,553 to the Company as a capital contribution. The significant impact of this transaction was to eliminate required annual future preferred dividend payments of $73,724.

• The Company recorded severance costs of $1,501 for workforce reductions and additional costs of $2,044 related to the Corporate Reorganization. These amounts are classified as Business realignment expense and impairments in the 2001 Consolidated Statement of Operations.

• The Company sold certain assets to BHI for cash. The Company sold a common stock equity investment for its estimated fair value of $55,187 resulting in a pre-tax gain of $15,797 that is recorded as an increase to Paid-in capital due to the affiliated nature of the transaction. Notes receivable from Consumer Adhesives were sold for their carrying amount of $57,691, and a loan receivable from WKI Holding Company, Inc. (“WKI”), an affiliate of the Company, of $25,056 was sold for its fair value of $18,056. Prior to the sale in 2001, the Company recorded a $7,000 charge that is included in investment write-downs and other charges to reflect the decline in fair value of the WKI loan receivable.

• The Company paid Capital $8,741 to assume certain liabilities, the estimated fair value at the date of sale, net of certain assets transferred, including accounts receivable from WKI of $3,594. These liabilities were for accrued compensation, certain employee benefit obligations and accrued liabilities associated with the transferred employees and functions.

• Outstanding stock options on the stock of BCHI held by its management became options of the Company (see Note 15).

• In addition, the Company settled the minority interest liability related to managements’ ownership of shares in BCHI by exchanging shares of the Company’s stock and common stock warrants for the BCHI shares held by management. This resulted in an increase to Paid-in capital for 2001 of $1,236, the approximate fair value of the liability.

In 2002, BHI decided to cease Capital’s operations during the first half of 2003. Certain management, consulting and board services previously provided to the Company by Capital were assumed by the Company, while other such services were provided to the Company by KKR for an annual fee of $3,000. The Company recorded a charge, funded by BHI, of $5,500 in 2002 related to costs allocable to the Company in connection with the cessation of Capital’s operations.

4. Goodwill and Intangible Assets

At December 31, 2003, the Company’s management performed the annual goodwill impairment test. As required by SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company identified the appropriate

F-141

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

reporting units and identified the assets and liabilities (including goodwill) of the reporting units. The Company determined estimated fair values of the reporting units and assessed whether the estimated fair value of each reporting unit was more or less than the carrying amount of the assets and liabilities assigned to the units.

Valuations were performed using a standard methodology based largely on comparable company analysis. Comparable company analysis ascribes a value to an entity by comparing certain operating metrics of the entity to those of a set of comparable companies in the same industry. Using this method, market multiples and ratios based on operating, financial and stock market performance are compared across different companies and to the entity being valued. The Company employed a comparable analysis technique commonly used in the investment banking and private equity industries to estimate the values of its reporting units—the EBITDA (earnings before interest, taxes, depreciation and amortization) multiple technique. Under this technique, estimated values are the result of an EBITDA multiple derived from this process applied to an appropriate historical EBITDA amount.

As a result of this test at December 31, 2003, the fair value of each reporting unit exceeded the carrying amount of assets and liabilities, except for the Company’s Malaysian reporting unit. Based on the excess of the carrying value over the estimated fair value of its Malaysian reporting unit, the Company recorded a goodwill impairment charge of $762 that represented 100% of the carrying amount. This impairment charge is reflected in the 2003 Consolidated Statement of Operations as Business realignment expense and impairments.

At December 31, 2002, the Company’s management performed the goodwill impairment test using the same methodology described above. No impairment charge was necessary as of December 31, 2002, as the fair values of all reporting units exceeded the carrying amount of the assets and liabilities assigned to the units.

Upon the adoption of SFAS No. 142, on January 1, 2002, fair values of the Company’s reporting units as of December 31, 2001 were determined employing the same methodology used by the Company, as described above. As a result of the initial test, the fair value of each reporting unit exceeded the carrying amount of assets and liabilities assigned, except for the Company’s European reporting unit. Based on the excess of the carrying value over the estimated fair value of its European reporting unit, the Company recorded a goodwill impairment charge of $29,825 that represented 100% of the December 31, 2001 carrying amount. This impairment charge is reported as Cumulative effect of change in accounting principle in the 2002 Consolidated Statement of Operations.

The following table provides a comparison of 2003, 2002 and 2001 as if the new accounting principle were applied in 2001:

	Year Ended December 31,
	2003		2002			2001
Reported net income (loss)	$	22,976	$	(36,583	)	$	(124,800	)
Add back goodwill amortization		—		—			3,712
Adjusted net income (loss)		22,976		(36,583	)		(121,088	)
Add back cumulative effect of change in accounting principle		—		29,825			—
Adjusted net income (loss) before cumulative effect of change in accounting principle	$	22,976	$	(6,758	)	$	(121,088	)
Basic and diluted per share data:
Reported net income (loss)	$	0.11	$	(0.18	)	$	(0.63	)
Add back goodwill amortization		—		—			0.02
Adjusted net income (loss)		0.11		(0.18	)		(0.61	)
Add back cumulative effect of change in accounting principle		—		0.15			—
Adjusted net income (loss) before cumulative effect of change in accounting principle	$	0.11	$	(0.03	)	$	(0.61	)

F-142

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

The changes in the carrying amount of goodwill for the year ended December 31, 2003 and 2002 are as follows:

	N.A. Forest Products		N.A. Performance Resins			International			Total
Goodwill balance at December 31, 2001	$	20,713	$	19,487		$	31,199		$	71,399
Less goodwill impairment recognized upon adoption of SFAS No. 142		—		—			(29,825	)		(29,825	)
Acquisitions/divestitures		—		(1,343	)		—			(1,343	)
Foreign currency translation		6		—			(597	)		(591	)
Goodwill balance at December 31, 2002	$	20,719	$	18,144		$	777		$	39,640
Acquisitions/divestitures		4,068		—			14,387			18,455
Impairment		—		—			(762	)		(762	)
Foreign currency translation		167		—			16			183
Goodwill balance at December 31, 2003	$	24,954	$	18,144		$	14,418		$	57,516

Intangible assets with identifiable useful lives, which continue to be amortized, consist of the following:

	At December 31, 2003				At December 31, 2002
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Intangible assets:
Customer list and contracts	$	7,559	$	4,619	$	6,559	$	3,736
Formulas and technology		6,524		4,925		6,524		4,331
Unrecognized prior service cost		2,657		1,309		2,657		153
Other		744		680		744		654
	$	17,484	$	11,533	$	16,484	$	8,874

The impact of foreign currency translation adjustments is included in accumulated amortization.

Total intangible amortization expense for the year ended December 31, 2003, 2002 and 2001 was $1,508, $1,555 and $1,653, respectively.

Estimated annual intangible amortization expense for 2004 through 2008 is as follows:

2004	$	1,700
2005		970
2006		350
2007		180
2008		150

5. Business Acquisitions and Divestitures

Acquisitions

All of the Company’s acquisitions described below have been accounted for using the purchase method of accounting. Accordingly, results of operations of the acquired entities have been included from the date of acquisition, and any excess of purchase price over the sum of amounts assigned to identified assets and liabilities has been recorded as goodwill. The pro forma effects of the acquisitions are not material.

F-143

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

During 2003, the Company acquired Fentak Pty. Ltd. (“Fentak”), an international manufacturer of specialty chemical products for engineered wood, laminating and paper impregnation markets, and the business and technology assets of Southeastern Adhesives Company (“SEACO”), a domestic producer of specialty adhesives, for total cash of $14,691. Fentak was acquired in November, 2003 and SEACO was acquired on December 31, 2003. The Company is required to make additional deferred payments for these acquisitions of approximately $3,050 and contingent future payments of $1,500. The Company recorded goodwill totaling $18,455 for these acquisitions.

In the second quarter of 2001, the Company and Delta-HA, Inc. (“Delta”) merged their North American foundry resins and coatings businesses forming HA-International, LLC (“HAI”). In conjunction with the merger, the Company recorded an accrual of approximately $7,000 to restructure operations of the acquired entity, a minority interest liability of $4,500 to recognize the 25% minority interest and goodwill of approximately $9,000.

The Limited Liability Agreement of HAI provides Delta the right to purchase between 3-5% of additional interest in HAI each year, beginning in 2004. Delta is limited to acquiring a maximum of 25% of additional interest in HAI under this arrangement. Pursuant to this provision, in the first quarter of 2004, Delta provided the Company with written notice of their intention to exercise their option to purchase an additional 5% interest in 2004. Delta’s purchase price of the interest is based on the enterprise value of HAI determined by applying a contractually agreed upon multiple to EBITDA, as defined in the agreement.

Divestitures

In 2003, the Company sold its idled melamine crystal business (“Melamine”). The gain from the sale was recorded as business realignment income. See Note 6.

In 2001, the Company divested its chemical operation in Ecuador. Proceeds from the sale of the Ecuador chemical business were $5,275, which resulted in a pre-tax loss of $2,303.

6. Business Realignment and Asset Impairments

In June 2003, the Company initiated a realignment program designed to reduce operating expenses and increase organizational efficiency. To achieve these goals, the Company is reducing headcount, streamlining processes, consolidating manufacturing processes and reducing general and administrative expenses. The Company is combining jobs where practical and has eliminated over 200 positions as of the end of 2003 related to this program. To further reduce future general and administrative expenses, the Company has reduced contract work, consolidated and eliminated positions and streamlined the administration of medical and other postretirement benefits. The Company anticipates this program will be completed in 2004. The Company expects to incur additional costs in 2004 related to this program.

In addition to the June 2003 realignment program, the Company has realignment activities from programs initiated in previous years, primarily related to plant consolidations and reorganization of certain administrative functions. Following is a discussion of realignment activities and impairments recognized during the past three years.

F-144

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

Year Ended December 31, 2003

During 2003, the Company recorded net business realignment expense and impairments of $4,748, consisting of plant closure costs (which include plant employee severance and plant asset impairments) and other severance and employee costs of $13,825, gains on the sale of assets of $12,260 and other non-cash asset impairment charges of $3,183.

Provided below is a rollforward of the business realignment reserves for 2003:

	Reserves 12/31/02		2003 Expense		2003 Settlements/ Payments			Reserves 12/31/03
Plant closure costs
Prior years’ programs	$	9,568	$	144	$	(4,971	)	$	4,741
June 2003 program		—		6,844		(3,356	)		3,488
Other severance costs
Prior years’ programs		3,996		3,670		(6,515	)		1,151
June 2003 program		—		3,167		(383	)		2,784
Total reserve activity	$	13,564	$	13,825	$	(15,225	)	$	12,164

Plant Closure Costs

Plant closure costs in 2003 include $144 for prior years’ programs and $6,844 for 2003 programs.

Costs relating to prior years’ programs include environmental remediation of approximately $800 for closed plants in Brazil and other plant closure costs of approximately $900. Partially offsetting these costs was a reduction of reserves of approximately $1,600 for Melamine, which was sold in the second quarter of 2003.

The $6,844 of charges relating to the 2003 realignment program included costs associated with two plant consolidation programs. As a result of consolidating manufacturing processes, the Company’s facility in France has been converted into a distribution center, and the manufacturing has transitioned to the U.K., resulting in plant closure costs of $5,414, including plant employee severance of approximately $3,600, asset impairment charges of $1,427 and other costs of approximately $400. Additionally, manufacturing was transitioned from the Company’s North Bay, Ontario plant to another facility, and the North Bay site was idled as of the end of 2003, resulting in asset impairment charges of $1,430.

Other Severance Costs

Other severance costs for 2003 include $3,167 relating to the 2003 program and $3,670 relating to prior years’ programs. The 2003 severance related to the elimination of 200 positions under the June 2003 realignment program, as discussed above.

Gain on the Sale of Assets

In 2003, the Company sold Melamine and land associated with a closed plant in the U.K. for gains of $12,260. The gains related to these sales were recorded as business realignment income because the facilities were closed in conjunction with prior years’ realignment programs.

F-145

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

Asset Impairment

The Company recorded other asset impairment charges of $3,183 in 2003. Of the total, $1,421 was for the write-down of assets at various international manufacturing facilities, $1,000 was for a facility held for sale and the remaining $762 related to the write-down of goodwill carried by the Company’s Malaysian operations.

Year Ended December 31, 2002

During 2002, the Company recorded net business realignment expense and impairments of $19,699, consisting of plant closure costs of $12,584, other severance and employee costs of $3,265, a gain on the sale of assets of $2,465 and non-cash impairment charges of $6,315.

Plant Closure and Other Severance and Employee Costs

Provided below is a roll forward of the business realignment reserve activity for 2002:

	Reserves 12/31/01		2002 Expense		2002 Settlements/ Payments			Reserves 12/31/02
Plant closure costs	$	14,067	$	12,584	$	(17,083	)	$	9,568
Other severance costs		8,360		3,265		(7,629	)		3,996
Total reserve activity	$	22,427	$	15,849	$	(24,712	)	$	13,564

Plant closure costs in 2002 of $12,584 consist of plant employee severance of $2,721, demolition, environmental and other costs of $8,764 and a $1,099 increase to the reserve related to revised estimates of environmental clean-up and demolition for several locations closed in previous years.

Gain on the Sale of Assets

In 2002, the Company sold land associated with a closed plant in Spain and recorded a gain of $2,465. The gain related to this sale was recorded as business realignment income because the facility was closed in conjunction with prior years’ realignment programs.

Asset Impairment

The Company recorded asset impairment charges of $6,315 in 2002. Of the total, $5,275 related to the write-down of fixed assets at various international manufacturing facilities and $1,040 was for a facility held for sale.

Year Ended December 31, 2001

During 2001, the Company recorded net business realignment expense and impairments of $126,408, consisting of plant closure costs of $23,285, other severance and employee costs of $12,582, a gain on the sale of assets of $10,507 and non-cash impairment charges of $101,048.

Plant Closure and Other Severance and Employee Costs

Plant closure costs in 2001 of $23,285 consist of fixed asset write-offs of $11,863, plant employee severance of $1,862 and demolition, environmental and other costs of $9,560.

F-146

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

Gain on the Sale of Assets

In 2001, the Company sold land associated with a closed domestic plant and recorded a gain of $10,507. The gain related to this sale was recorded as business realignment income because the facility was closed in conjunction with prior years’ realignment programs.

Asset Impairment

In the fourth quarter of 2001, the Company decided to cease operations at Melamine and to offer it for sale. As of the end of 2001, no sale had been negotiated, and in January 2002, the plant was shut-down. Under SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,” the Company recorded a 2001 impairment charge of $98,163 for the fixed assets ($62,527), goodwill ($32,701) and spare parts ($2,935) of Melamine.

Also, in the fourth quarter of 2001, the Company discontinued construction of a new plant facility and recorded an impairment charge of $2,885 to write-down the engineering, construction and other costs incurred to the estimated net realizable value of the land and building.

7. Discontinued Operations

The summary of discontinued operations below includes Consumer Adhesives’ results through August 2001, the date of the Consumer Adhesives Sale:

	2001
Net sales	$	106,307
Income before income taxes		17,404
Income tax expense		5,600
Income from discontinued operations	$	11,804

Proceeds from the Consumer Adhesives sale were $94,120, net of cash sold with the business, resulting in a pre-tax gain of $132,275, which was recorded in Paid-in capital due to the affiliated nature of the transaction. See Note 1.

8. Comprehensive Income

Comprehensive income includes the following items:

	2003		2002			2001
Net income (loss)	$	22,976	$	(36,583	)	$	(124,800	)
Foreign currency translation adjustments		31,614		(14,856	)		(12,649	)
Reclassification adjustments		—		—			5,800
Cumulative effect of change in accounting principle		—		—			(3,300	)
Derivative activity		—		730			2,570
Minimum pension liability (see Note 12)		5,830		(17,075	)		(66,580	)
	$	60,420	$	(67,784	)	$	(198,959	)

F-147

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

The foreign currency translation adjustments in 2003 primarily relate to favorable exchange rates in Canada, Latin America and Australia. In 2002, the foreign currency translation adjustments primarily relate to unfavorable exchange rates in Latin America. The 2001 foreign currency translation adjustments primarily relate to unfavorable exchange rates in Latin America and Canada.

The 2001 reclassification adjustment reflects the accumulated translation adjustment recognized on the sale of the Company’s operations in Ecuador.

The cumulative effect of change in accounting principle and derivative activity represents the impact of the adoption of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” on January 1, 2001. The Company recorded a pre-tax initial transition adjustment to Accumulated other comprehensive income of $5,200 of which $1,330 and $3,870 was reclassified into earnings for the year ended December 31, 2002 and 2001, respectively.

The components of Accumulated other comprehensive income as of December 31, 2003 and 2002 are as follows:

	2003			2002
Cumulative foreign currency translation adjustments	$	(49,923	)	$	(81,537	)
Minimum pension liability, net of tax		(78,270	)		(84,100	)
	$	(128,193	)	$	(165,637	)

9. Investments in Affiliates

The Company had no continuing investments in affiliates at December 31, 2003 and 2002.

The Company sold a common stock equity investment in 2001 for $64,141. Of the total proceeds, $55,187 was received from BHI as part of the Corporate Reorganization (see Note 3), and the related pre-tax gain of $15,797 was recorded in Paid-in capital due to the affiliated nature of the transaction. The remaining $8,954 was received from sales to third parties, and a related gain of $4,400 was reflected in the 2001 Consolidated Statement of Operations as Gain on the sale of assets.

In 2001, the Company wrote-off its $10,000 investment in WKI preferred stock, $7,000 of a loan receivable from WKI and its remaining $10,000 investment in BCP Management, Inc. (“BCPM”), a former subsidiary of the Company. The write-offs are reflected in Investment write-downs and other charges in the 2001 Consolidated Statement of Operations.

BCPM filed for protection under Chapter 11 of the United States Bankruptcy Code, in the United States Bankruptcy Court for the District of Delaware on March 22, 2002. As a result of the bankruptcy of BCPM, the Company no longer consolidated BCPM in its Consolidated Financial Statements. There was no impact on previously reported amounts of net (loss) income as a result of the deconsolidation. The Company’s investment in BCPM was written-off in 2001, as described above. In the first quarter of 2003, the assets of BCPM were transferred to a liquidating agent, and the Company’s ownership interest was extinguished.

F-148

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

10. Debt and Lease Obligations

Debt outstanding at December 31, 2003 and 2002 is as follows:

	2003				2002
	Long-Term		Due Within One Year		Long-Term		Due Within One Year
9.2% debentures due 2021	$	114,800			$	114,800
7.875% debentures 2023		246,782				246,782
Sinking fund debentures:
8 3/8% due 2016		78,000				78,000
9 1/4% due 2019		47,295				47,295
Industrial Revenue Bonds (at an average rate of 3.1% in 2003 and 1.6% in 2002)		34,000				34,885
Other (at an average rate of 8.1% in 2003 and 13.8% in 2002)		9,089	$	2,221		1,525
Total current maturities of long-term debt				2,221
Short-term debt (primarily foreign bank loans at an average rate of 4.8% in 2003 and 10.7% in 2002)		—		5,946		—	$	2,779
Total debt	$	529,966	$	8,167	$	523,287	$	2,779

The Company entered into a three-year asset based revolving credit facility dated September 23, 2002 (the “Credit Facility”) which provides for a maximum borrowing of $175,000, including letters of credit (“LOC”). The Credit Facility replaced an uncommitted LOC facility (discussed below) and the prior $250,000 credit facility that expired on July 13, 2002.

The Credit Facility is secured with inventory and accounts receivable in the United States, Canada and the U.K., a portion of property and equipment in Canada and the U.K. and the stock of certain subsidiaries. Maximum borrowing allowable under the Credit Facility is determined monthly and is based upon specified percentages of eligible accounts receivable, inventory and fixed assets. The Credit Facility contains restrictions on dividends, limitations on borrowings from affiliates ($30,000), capital expenditures ($68,000 in 2004) and payment of management fees ($5,000 per year). It also has a minimum trailing EBITDA twelve-month fixed charge coverage ratio requirement (as defined) of 1.5 to 1.0 if aggregate availability is less than $25,000, 1.25 to 1.0 if aggregate availability is between $25,000 and $50,000 and 1.1 to 1.0 if aggregate availability is between $50,000 and $75,000. There are no fixed coverage ratio requirements when aggregate availability exceeds $75,000. As of December 31, 2003, the maximum borrowing allowable under the Credit Facility was approximately $144,000, of which approximately $98,000, net of LOCs, was unused and available; therefore, the Company had no fixed charge coverage ratio requirements.

Under the terms of the Credit Facility the Company has the ability to borrow funds at either the prime rate plus an applicable margin (“the prime rate option”) or at LIBOR plus an applicable margin. The Company must designate which option it chooses at the time of the borrowing. Currently the applicable margin for any prime rate borrowing is 75 basis points and for any LIBOR borrowing is 225 basis points. As of December 31, 2003 there were borrowings of $220 outstanding under the prime rate option, equivalent to 6.0%. For LOCs issued under the Credit Facility, the Company pays a per annum fee equal to the LIBOR applicable margin, or 2.25%, plus a fronting fee of .125%. In addition, the Company pays a .50% per annum fee on the amount of the

F-149

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

revolving loan commitment less any borrowings or outstanding LOCs. The Company incurred commitment fees of $557 in 2003 related to the Credit Facility.

Under an uncommitted LOC facility, the Company provided cash collateral equivalent to 101% of LOCs outstanding which was classified as Restricted cash on the Consolidated Balance Sheet as of December 31, 2002. In early July 2003, the Company completed the process of transferring all the LOCs under this facility to the Credit Facility.

The Company’s Australian subsidiary entered into a five-year asset-backed credit facility in the fourth quarter of 2003 (the “Australian facility”), which provides for a maximum borrowing of AUD$19,900, or approximately $15,000. At December 31, 2003, outstanding debt under this facility was $12,178, of which $7,670 is classified as long-term. In addition, there were approximately $400 of outstanding LOCs under the facility. The Australian facility provided the funding for the Fentak acquisition made in the fourth quarter of 2003 (see Note 5) and is secured by mortgages on the fixed assets of the Australian business and the stock of Australian subsidiaries. This facility includes a fixed rate facility used for the acquisition, as well as a revolver. The Australian facility contains restrictions relative to the Australian businesses on dividends, the sale of assets and additional borrowings. The Australian facility also contains financial covenants applying to the Australian subsidiaries including current ratio, interest coverage, debt service coverage and leverage. The fixed portion of the Australian facility requires minimum quarterly principal reductions totaling AUD$450 (approximately $330). The Australian facility requires semi-annual principal reductions based on a portion of excess cash as defined in the agreement. As of December 31, 2003, of the maximum borrowing allowable under the Australian Facility, AUD$3,178 (approximately $2,400) was unused and available.

Additional international credit facilities provide availability totaling approximately $29,900. Of this amount, approximately $15,900 (net of LOCs and other guarantees of approximately $7,700 and $2,300 of other draws) was available to fund working capital needs and capital expenditures at December 31, 2003. Of the total $2,310 of outstanding debt, $1,419 was classified as long-term. There is an additional $4,000 available for which usage is restricted to capital investments and for foreign currency hedging. While these facilities are primarily unsecured, portions of the lines are secured by equipment and with $1,442 of cash. The Company guarantees up to $6,700 of the debt of one of its Brazilian subsidiaries, included in these facilities.

The Company and HAI had affiliated borrowing arrangements with Borden Foods Holding Corporation (“Foods”) during 2003. See Note 20.

HAI entered into a three-year asset based revolving credit facility on January 28, 2004, which provides for a maximum borrowing of $20,000 (the “HAI facility”). The HAI facility replaced the affiliated loan agreement with Foods. The HAI facility is secured with inventory, accounts receivable and property and equipment of HAI. Maximum borrowing allowable under the HAI facility is based upon specific percentages of eligible accounts receivable and inventory. The HAI facility provides up to $2,000 for LOCs. The HAI facility contains restrictions relative to HAI on dividends, affiliate transactions, minimum availability ($2,000), additional debt and capital expenditures ($2,000 in 2004). In addition, HAI is required to maintain a minimum trailing twelve-month debt coverage ratio of 1.5 to 1.0.

The Company finances certain insurance premiums outside of the Credit Facility. Short-term borrowings include $2,548 and $975 related to this arrangement at December 31, 2003 and 2002, respectively.

On October 1, 2003, the Company exercised its option to redeem, at par, the remaining $885 of County of Maricopa Industrial Revenue Bonds (“IRBs”). In October 2003, the Company converted the $34,000 Parish of

F-150

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

Ascension IRBs to a fixed interest rate and, by doing so, eliminated the requirement to maintain a backup letter of credit of approximately $34,500. The elimination of this LOC increased availability under the Credit Facility.

During the fourth quarter of 2002, the Company repurchased $7,368 of the outstanding publicly held bonds for $4,510 plus fees. A $2,741 gain on the extinguishment of the bonds was recognized in 2002 and is included in Other non-operating income.

Aggregate maturities of total debt and minimum annual rentals under operating leases at December 31, 2003, for the Company are as follows:

Year	Debt		Minimum Rentals Under Operating Leases
2004	$	8,167	$	12,120
2005		2,219		10,205
2006		1,841		7,882
2007		1,420		5,961
2008		3,609		4,302
2009 and beyond		520,877		3,789
	$	538,133	$	44,259

Rental expense amounted to $14,595, $14,399 and $19,566 in 2003, 2002 and 2001, respectively.

11. Income Taxes

Comparative analysis of the Company’s income tax benefit related to continuing operations follows:

	Current									Deferred
	2003			2002			2001			2003		2002		2001
Federal	$	(9,899	)	$	(29,479	)	$	(363	)	$	4,662	$	12,040	$	(25,800	)
State & Local		(737	)		(380	)		(4,365	)		566		187		(805	)
Foreign		(246	)		11,574			(222	)		995		3,796		722
	$	(10,882	)	$	(18,285	)	$	(4,950	)	$	6,223	$	16,023	$	(25,883	)

In 2001, the Company’s income tax expense related to discontinued operations was $5,600 (see Note 7). The Company’s income tax expense from the gain on disposal of discontinued operations was $37,428 in 2001, which is reflected as a reduction to shareholders’ equity due to the affiliated nature of the transaction (see Note 1).

F-151

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

A reconciliation of the Company’s difference between income taxes related to continuing operations computed at Federal statutory tax rates and provisions for income taxes is as follows:

	2003			2002			2001
Income taxes computed at Federal statutory tax rate	$	6,411		$	(3,157	)	$	(58,602	)
State tax provision, net of Federal benefits		(111	)		(193	)		(5,842	)
Foreign tax differentials		(813	)		3,502			1,187
Foreign source income also subject to U.S. taxation		9,324			1,777			12,397
Losses and other expenses not deductible for tax		373			(863	)		2,723
Impairment of non-deductible goodwill		—			—			31,692
Valuation allowance		5,401			16,672			—
Elimination of deferred tax liabilities of BCPM		(1,624	)		—			—
Capital loss on sale of Melamine		(19,936	)		—			—
Adjustment of prior estimates and other		(3,684	)		(20,000	)		(14,388	)
Income tax benefit	$	(4,659	)	$	(2,262	)	$	(30,833	)

The 2003 consolidated rate reflects a benefit of $19,936 from the sale of the stock of Melamine in 2003. The tax basis of the stock exceeded the tax basis of the assets and this additional basis was not recognized until the stock sale was completed in 2003. This benefit is a capital loss carryforward that can only be used against capital gains; therefore, a valuation reserve was established for the full amount of this benefit. The 2003 consolidated rate also reflects a reduction of the deferred tax valuation reserve in the amount of $14,534 related to benefits which the Company now believes are more likely than not to be realized. The 2003 tax rate also reflects the elimination of $1,624 of deferred tax liabilities associated with the BCPM bankruptcy. In addition, reserves for prior years’ Canadian and U.S. tax audits were reduced by $3,997 as a result of preliminary settlements of certain matters in the fourth quarter of 2003. The effective rate also reflects additional income tax expense of $9,324 on foreign dividend income and on deemed dividend income related to loans and guarantees from foreign subsidiaries.

The 2002 consolidated tax rate reflects a valuation allowance in the amount of $16,672 recorded against the benefit of certain deferred interest expense deductions, which are subject to usage limitations by the Internal Revenue Service (“IRS”), that are no longer more likely than not to be used. This expense is offset by the reduction of a $20,000 reserve for U.S. Federal income tax audits reflecting preliminary settlement of certain matters for the years 1998 and 1999 that were resolved in 2002.

The 2001 consolidated tax rate includes a $31,692 effect of the non-deductible impairment of the fixed assets and goodwill related to the 2001 shutdown of Melamine. Additionally, tax expense of $12,397 is reflected in the tax rate for the impact of earnings related to the expected sale of foreign businesses that are no longer expected to be permanently reinvested in foreign locations, as well as the inability to use foreign tax credits associated with those earnings due to usage limitations. Offsetting this charge was a tax benefit of $14,388 relating to the settlement of U.S. Federal income tax audits for the years 1987 to 1991 that were finalized in 2001.

F-152

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

The domestic and foreign components of the Company’s Income (loss) from continuing operations before income taxes are as follows:

	2003			2002			2001
Domestic	$	(30,706	)	$	(42,929	)	$	(165,478	)
Foreign		49,023			33,909			(1,959	)
	$	18,317		$	(9,020	)	$	(167,437	)

The tax effects of the Company’s significant temporary differences, and loss and credit carryforwards, which comprise the deferred tax assets and liabilities at December 31, 2003 and 2002, are as follows:

	2003			2002
Assets
Non-pension postemployment benefit obligations	$	46,261		$	52,411
Accrued and other expenses		75,493			91,332
Loss and credit carryforwards		162,308			169,302
Pension liability		23,448			23,071
Gross deferred tax assets		307,510			336,116
Valuation allowance		(81,992	)		(89,321	)
		225,518			246,795
Liabilities
Property, plant, equipment and intangibles		77,558			76,107
Unrepatriated earnings of foreign subsidiaries		30,374			30,374
Foreign property, plant, equipment and other		9,060			7,275
Deferred gain on sale of a partnership interest		—			17,264
Prepaid expenses		2,406			293
Gross deferred tax liabilities		119,398			131,313
Net deferred tax asset	$	106,120		$	115,482

The Company’s net deferred tax asset at December 31, 2003 was $106,120, which is the net of $140,518 of deferred tax assets, a $4,024 current deferred tax liability and a long-term deferred tax liability of $30,374. Of this amount, $139,336 represents net domestic deferred tax assets related to future tax benefits. The Company’s deferred tax asset related to loss and credit carryforwards, net of valuation allowance is $80,316. This $80,316 includes net operating loss carryforwards and future deductions of $43,369 for U.S. federal tax purposes, which will begin expiring in 2021. This amount also includes minimum tax credits of $33,132, which do not expire, and other available carryforwards of $3,815, with various expiration dates.

The Company regularly assesses the realizability of the deferred tax assets to determine whether it is more likely than not that some portion of the deferred tax assets will not be realized. Valuation reserves are adjusted to reflect this assessment. The Company considers projected future taxable income, the length of the period during which the deferred tax asset can be utilized and tax planning strategies in making this assessment.

In 2003 the Company reduced its deferred tax valuation reserve by $14,534. This change in our estimate was mainly based on the 2003 amendment to the Total Family Protection Plan which eliminated $88,200 of

F-153

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

future obligations. Deferred tax assets of approximately $30,000 will be absorbed as the benefit associated with this decrease in future obligations is amortized over the next 9 years. In addition, $34,000 of additional taxable income will be generated by the guarantees from foreign subsidiaries discussed above. Management believes this additional future taxable income provides the capacity to reduce the deferred tax valuation reserve accordingly. In management’s judgment, the net deferred tax assets at December 31, 2003 are more likely than not to be realized.

Credit carryforwards and valuation allowances both decreased from 2002 principally due to the expiration of foreign tax credits and the valuation allowances previously established against those credits. Loss carryforwards increased from 2002 due to the generation of additional net operating loss carryforwards in 2003.

At December 31, 2003, the Company has $35,000 accrued for probable tax liabilities. This amount is recorded in income taxes payable.

The IRS has substantially completed audits of all years through 1999, and unresolved issues for the years 1994-1999 are currently under discussion with the Appeals Office of the IRS and the Competent Authority group of the U.S. Treasury Department. These unresolved issues generally include appropriateness of: expense allocations and royalty charges between U.S. and foreign jurisdictions, compensation excise tax assessments, certain carryback claims filed by the Company and the treatment of various business sale transactions undertaken by the Company during the period. The IRS has substantially completed the audit of tax years 2000-2001, and the results have been discussed and agreed upon by the Company. The years 2002 and 2003 remain open for examination.

The 2003 consolidated tax rate reflects the reversal of $3,997 of the aforementioned tax reserves. This reversal reflects the settlement of potential U.S. Federal, state and local tax matters, an adjustment of foreign tax credits available for future use, Canadian audit issues related to the divestiture of operating businesses in prior years and the settlement of other audit related tax issues offset by the utilization of available tax assets.

The Canada Revenue Agency is currently auditing the Company’s Canadian subsidiary for the period 1993-1994. The years 1995-2003 remain open for inspection and examination by various Canadian taxing authorities. Deposits have been made to offset any probable additional taxes related to the divestiture of Canadian operating businesses. Since 1995, the Company has divested its Foods, Consumer Adhesives, and wallcoverings businesses, all of which had operations in Canada.

The Company and some of its affiliates have historically operated in over forty states across the U.S. Since 1995, the Company has divested a significant number of its businesses and generated significant taxable gains from these sales and divestitures. The Company has also utilized certain affiliated legal entities for the purposes of licensing its intellectual properties to related and unrelated parties and for providing loans and other financing for operations. Reserves have been established to provide for probable additional tax liabilities related to these transactions. As the various state and city taxing jurisdictions continue with their audit/examination programs, and as the corresponding audit years are finalized at the U.S. federal audit level, the Company will adjust its reserves to reflect these settlements.

The Company has not recorded income taxes applicable to undistributed earnings of foreign subsidiaries that are permanently reinvested in foreign operations. Undistributed earnings permanently reinvested amounted to approximately $173,400 at December 31, 2003.

F-154

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

12. Pension and Retirement Savings Plans

Most U.S. employees of the Company are covered under a non-contributory defined benefit plan (the “U.S. Plan”). The U.S. Plan provides benefits for salaried employees based on eligible compensation and years of credited service and for hourly employees based on years of credited service. Certain employees in other countries are covered under other contributory and non-contributory foreign defined benefit plans that, in the aggregate, are insignificant and are included in the data presented herein.

Following is a rollforward of the assets and benefit obligations of the Company’s defined benefit plans. The Company uses a September 30 measurement date for its plans.

	2003			2002
Change in Benefit Obligation
Benefit obligation at beginning of year	$	263,364		$	288,107
Service cost		2,316			3,844
Interest cost		15,228			19,148
Actuarial losses		12,038			4,693
Foreign currency exchange rate changes		1,165			84
Benefits paid		(34,403	)		(28,942	)
Plan amendments		—			330
Acquisitions/divestitures		(325	)		—
Settlements/curtailments		(304	)		(23,900	)
		259,079			263,364
Change in Plan Assets
Fair value of plan assets at beginning of year		190,831			260,540
Actual return on plan assets		30,683			(18,000	)
Foreign currency exchange rate changes		805			34
Employer contribution		1,770			1,099
Benefits paid		(34,403	)		(28,942	)
Settlements/curtailments		—			(23,900	)
Fair value of plan assets at end of year		189,686			190,831
Plan assets less than benefit obligation		(69,393	)		(72,533	)
Unrecognized net actuarial loss		122,261			131,658
Unrecognized initial transition gain		21			13
Unrecognized prior service cost		1,348			2,534
Net amount recognized	$	54,237		$	61,672

Amounts recognized in the balance sheets, after reclassification of the prepaid pension asset to reflect a minimum pension liability adjustment, consist of:

	2003			2002
Accrued benefit liability	$	(67,526	)	$	(70,216	)
Intangible asset		1,348			2,504
Accumulated other comprehensive income		120,415			129,384
Net amount recognized	$	54,237		$	61,672

F-155

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

The weighted average rates used to determine benefit obligations for the Company were as follows:

	2003		2002
Discount rate	5.8	%	6.5	%
Rate of increase in future compensation levels	4.0	%	4.2	%

The following summarizes defined benefit pension plans with an accumulated benefit obligation in excess of plan assets:

	2003		2002
Projected benefit obligation	$	259,079	$	263,364
Accumulated benefit obligation		256,972		259,655
Fair value of plan assets		189,686		190,831

While the Company reports the entire liability for the U.S. Plan, which is sponsored by the Company, its participants also include certain Foods’ former associates and Consumer Adhesives’ associates. Foods and Consumer Adhesives reimbursed the Company for the expense associated with their respective participants in the U.S. plan. Therefore, the tables summarizing the pension activities for the Company’s defined benefit pension plans include the liabilities and assets relating to these businesses. However, the expense table excludes the expense relating to Foods and Consumer Adhesives. Expense reimbursements received by the Company from Foods and Consumer Adhesives totaled $1,061, $1,012 and $952 for 2003, 2002 and 2001, respectively. The Company does not anticipate any future reimbursements from either Foods or Consumer Adhesives.

Following are the components of net pension expense recognized by the Company for the years ended December 31:

	2003			2002			2001
Service cost	$	2,101		$	3,602		$	3,352
Interest cost on projected benefit obligation		14,803			16,727			18,701
Expected return on assets		(15,481	)		(19,386	)		(22,925	)
Amortization of prior service cost		386			395			436
Amortization of initial transition asset		10			12			(122	)
Recognized actuarial loss		7,116			4,102			3,706
Settlement/curtailment loss		411			13,600			16,300
Net pension expense	$	9,346		$	19,052		$	19,448

The weighted average rates used to determine net pension expense for the Company were as follows:

	2003		2002		2001
Discount rate	6.5	%	7.2	%	7.7	%
Rate of increase in future compensation levels	4.2	%	4.5	%	4.7	%
Expected long-term rate of return on plan assets	8.2	%	8.3	%	8.7	%

The 2003 curtailment loss includes a $710 charge for the U.S. Plan, partially offset by a curtailment gain of $299 on an international plan. During 2002, the Company recognized a settlement charge of $13,600 related to

F-156

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

lump sum payments made by the U.S. Plan. During 2001, the Company recorded settlement and curtailment charges of $10,700 relating to the partial settlement of U.S. Plan liabilities for Foods and an additional $5,600 settlement for other lump sum payments made by the U.S. Plan.

In determining the expected overall long-term rate of return on assets, the Company takes into account the rates on long-term debt investments held within the portfolio, as well as expected trends in the equity markets. Peer data and historical returns are also reviewed to confirm that the Company’s assumptions are reasonable.

The Company’s investment strategy for defined benefit pension plan assets is to maximize the long-term return on plan assets using a mix of equities and fixed income investments and accepting a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status and expected timing of future cash flow requirements. The investment portfolio contains a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value and small and large capital investments. Investment risk and performance is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements and periodic asset/liability studies.

Following is a summary of actual 2003 and 2002, at the measurement date, and target 2004 allocations of Plan assets by investment type:

	Actual				Target
	2003		2002		2004
Fixed income securities	49	%	43	%	40	%
Equity securities	31	%	32	%	60	%
Cash and short-term investments	20	%	25	%	—
	100	%	100	%	100	%

The Company recently reviewed its target allocation of plan assets based on projections and expected timing of future benefit payments. Based on this review the Company has set a new allocation target in 2004 of 60% equities and 40% debt. The re-allocation process is expected to be completed by the end of the second quarter of 2004. The Company’s pension portfolio does not include any significant holdings in real estate.

The Company expects to make contributions totaling $870 to its defined benefit plans in 2004.

The Company has been informed by the IRS that cash balance plans may be required to be amended because of recent ERISA rulings that found some cash balance plans to be discriminatory. The IRS indicated that the U.S. Plan should continue to operate as currently designed until new guidance is available. There is insufficient information to assess any potential impact to the Company of the ERISA ruling at this time.

Most employees not covered by the Company’s U.S. and foreign defined benefit pension plans are covered by collective bargaining agreements, which are generally effective for five years. Under Federal pension law, there would be continuing liability to these pension trusts if the Company ceased all or most participation in any such trust, and under certain other specified conditions. The Consolidated Statements of Operations include charges of $472, $504 and $367 in 2003, 2002 and 2001, respectively, for payments to pension trusts on behalf of employees not covered by the Company’s plans.

F-157

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

The Company also provides a defined contribution plan to its U.S. employees (the “Retirement Savings Plan”). Eligible salaried and hourly employees may contribute up to 5% of their pay (7% for certain longer service salaried employees), as basic contributions to the plan. The Company contributes monthly to the plan an amount equal to at least 50% and up to 100% of basic contributions. The Company has the option to make additional contributions based upon financial performance. Charges to operations for matching contributions under the Retirement Savings Plan in 2003, 2002 and 2001 totaled $6,560, $5,647 and $5,289 respectively.

13. Non-Pension Postretirement Benefit

The Company provides certain health and life insurance benefits for eligible domestic and Canadian retirees and their dependents. The cost of postretirement benefits is accrued during employees’ working careers. Domestic participants who are not eligible for Medicare are generally provided with the same medical benefits as active employees. Until September 2003, participants who were eligible for Medicare were provided with supplemental benefits. In September 2003, the plan was amended, as is discussed below. Canadian participants are provided with supplemental benefits to the national healthcare plan in Canada. The domestic postretirement medical benefits are contributory; the Canadian medical benefits are non-contributory. The domestic and Canadian postretirement life insurance benefits are non-contributory. Benefits are funded on a pay-as-you-go basis.

In 2003, the Company amended its Total Family Protection Plan such that, effective September 1, 2003, medical benefits are no longer provided to the Company’s retirees and their dependents who are over age 65. The Company has made an arrangement with a major benefits provider to offer affected retirees and their dependents continued access to medical and prescription drug coverage, including coverage for pre-existing conditions. The Company is subsidizing a portion of the cost of coverage for affected retirees and dependents through December 2004 to assist retirees’ transition to alternative medical coverage. The Company has reserved the right to continue, terminate or reduce the subsidy provided to affected retirees and dependents in the future. This subsidy will be reviewed for periods after December 2004. As a result of these actions, based on current actuarial estimates and assumptions, the Company’s liability related to providing post retirement medical benefits has been reduced by approximately $88,000. The Company’s unrecognized prior service cost has been adjusted for the impact of the amendment, and the adjustment is being amortized over the estimated remaining years of service of approximately nine years.

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law. The Act introduces a prescription drug benefit under Medicare (Medicare Part D) that provides several options for Medicare eligible participants and employers, including a federal subsidy to companies that elect to provide a retiree prescription drug benefit which is at least actuarially equivalent to Medicare Part D. The Act provides for a two-year transitional period to allow for, among other items, the possibility that companies may amend existing plans. There are significant uncertainties regarding the eventual regulations required to implement the Act, as well as the Act’s overall affect on plan participant’s coverage choices and the related impact on their health care costs. As such, the effects of the Act are not reflected in the accumulated postretirement benefit obligation as of December 31, 2003 or in the 2003 net periodic postretirement benefit cost. Once the regulations regarding the implementation of the Act and FASB’s authoritative guidance on the accounting for the federal subsidy is issued, the Company may be required to change its previously reported information. The Company is currently evaluating the provisions of the Act and its potential impact to the Company’s postretirement medical plans.

F-158

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

Following is a rollforward of the changes in the non-pension postretirement benefit obligations of the Company for the years ended December 31. The Company uses a measurement date of September 30.

	2003			2002
Change in Benefit Obligation
Benefit obligation at beginning of year	$	131,609		$	128,499
Service cost		72			64
Interest cost		3,938			8,822
Contributions by plan participants		2,176			2,797
Actuarial (gains) losses		(4,683	)		5,240
Plan amendments		(88,168	)		—
Benefits paid		(12,889	)		(13,818	)
Foreign Exchange		150			5
Benefits obligation at end of year		32,205			131,609
Unrecognized net actuarial gain		3,809			496
Unrecognized prior service benefit		86,830			7,214
Accrued postretirement obligation at end of year	$	122,844		$	139,319

The weighted average rates used to determine benefit obligations for the Company were as follows:

	2003		2002
Discount rate	5.8	%	6.5	%

The net postretirement (benefit) expense table excludes the expense related to Foods for 2002, as Foods reimbursed the Company $509 for the expense related to Foods’ participants in that year. Foods reimbursed the Company in 2001 to assume their remaining postretirement liability following the sale of its businesses.

Following are the components of net postretirement (benefit) expense recognized by the Company for 2003, 2002 and 2001:

	2003			2002			2001
Service cost	$	72		$	64		$	44
Interest cost on projected benefit obligation		3,938			8,249			7,884
Amortization of prior service cost		(8,552	)		(3,294	)		(8,923	)
Recognized actuarial gain		(122	)		(1	)		(523	)
Settlement/curtailment gain		—			—			(487	)
Net postretirement (benefit) expense	$	(4,664	)	$	5,018		$	(2,005	)

The weighted average rates used to determine net postretirement (benefit) expense for the Company were as follows:

	2003		2002		2001
Discount rate	6.5	%	7.3	%	7.7	%

F-159

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

Following are the assumed health care cost trend rates at December 31, which are no longer significant due to the 2003 plan amendment.

	2003		2002
Health care cost trend rate assumed for next year—pre-age 65	5.25	%	5.25	%
Health care cost trend rate assumed for next year—post-age 65	7.75	%	8.25	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	5.25	%	5.25	%
Year that the rate reaches the ultimate trend rate	2008		2008

A one-percentage-point change in the assumed health care cost trend rates would not have a material impact on the Company.

	1% increase		1% decrease
Effect on total service cost and interest cost components	$	9	$	(10	)
Effect on postretirement benefit obligation		145		(150	)

Also included in the Consolidated Balance Sheets at December 31, 2003 and 2002 are other postemployment benefit obligations of $5,879 and $6,065, respectively.

14. Shareholders’ Deficit

Common Stock and Warrants

The Company has 200,895,628 shares of $0.01 par value common stock issued and outstanding and 300,000,000 shares authorized. At December 31, 2003, management held a total of 1,920,634 common shares of the Company, including 1,587,301 shares of restricted stock granted during 2002, which become unrestricted on the third anniversary of the grant date. During 2002, the Company sold 333,333 shares to management at the estimated fair value of $2.25 per share. In 2002, the Company repurchased shares and retired warrants at amounts greater than fair market value and recognized compensation expense of $487.

Preferred Stock

The Company is authorized to issue up to 100,000,000 shares of Series A Preferred Stock. There were no shares outstanding in 2003 or 2002, and the Company currently has no plans to issue Preferred shares. In 2001, the Company had 24,574,751 shares of Preferred Stock issued to BHI. Each share had a liquidation preference of $25.00 and was entitled to cumulative dividends at an annual rate of 12% payable quarterly in arrears. BHI contributed all of the outstanding Preferred Stock of $620,922, including accumulated dividends of $6,553 to the Company as a capital contribution in 2001 (see Note 3). During 2001, the Company declared preferred stock cash dividends of $61,846.

Other Shareholders’ Equity

There were no common stock dividends declared in 2003 and 2002. The Company declared common stock cash dividends of $36,434 in 2001. The dividends were recorded as a charge to Paid-in capital to reflect a return of capital to BHI.

At December 31, 2003, the Company held $404,817 of notes receivable from BHI, which accrue interest at 12% per year, payable quarterly, and mature on September 29, 2005. The notes were received from affiliates as

F-160

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

proceeds from the 1996 sales of businesses and options to purchase businesses formerly owned by the Company. The Receivable from parent, reflected as a reduction in the Consolidated Statements of Shareholders’ Deficit, includes accrued interest of $107,277, $58,699 and $0 related to these notes receivable at December 31, 2003, 2002 and 2001. Paid-in capital includes the related net of tax interest income of $31,576, $38,154 and $24,674 for the years ended December 31, 2003, 2002 and 2001. In the Company’s 2001 Annual Report on Form 10-K, the Company expressed its intention to cancel this note receivable; therefore; a valuation allowance was placed on the accrued interest at that date. During 2002, the Company decided to defer canceling the note, reversed this valuation allowance and resumed accruing the related interest. Historically, BHI funded the payment of the interest on the note through common dividends received from the Company. BHI has not made a payment on the accrued interest, nor has the Company paid an associated dividend, since October 15, 2001.

Deferred compensation expense of $3,571, related to the restricted shares granted in 2002, is being amortized over the three-year vesting period. At December 31, 2003, the unamortized deferred compensation was $1,488.

Capital Contributions

Following is a summary of capital contributions received by the Company during 2003, 2002 and 2001:

	2003		2002		2001
Income tax benefits	$	17,002	$	20,890	$	21,038
Non-compete agreement		5,000		—		—
Foods pension liability payment		4,300		—		—
Capital wind-down costs		—		3,550		—
Preferred stock and accumulated dividends		—		—		620,922
Cash contributions		—		—		17,000
	$	26,302	$	24,440	$	658,960

BHI contributed tax benefits to the Company of $17,002, $20,890 and $21,038 during 2003, 2002 and 2001, respectively. The Company is included in BHI’s tax return, and the deductible interest expense on BHI’s notes payable reduces the Company’s tax liability.

BHI also made a $5,000 payment to the Company in 2003, relating to a non-compete agreement entered into by BHI with the third party purchaser of Consumer Adhesives, which was sold by BWHLLC in the fourth quarter of 2003. The Company does not currently market the product line disallowed under the agreement and has no plans to market such a product; therefore, there is no impact on the Company’s operations resulting from the non-compete agreement. This amount is reflected in Paid-in capital because BHI is a related party.

In the fourth quarter of 2003, Foods made a $4,300 payment to the Company related to the U.S. pension obligation retained upon the sale of Foods’ operations. This payment is reflected as a credit to Paid-in capital because it is a related party transaction.

During 2002, the Company also recorded a capital contribution from BHI of $3,550 (net of tax) related to the allocation of Capital wind-down costs to the Company, which the Company had no responsibility to fund. See Note 3.

F-161

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

Other Equity Transactions

In 2001, the Company recorded a pre-tax gain on the Consumer Adhesives Sale of $132,275, which was recorded in Paid-in capital. In 2002, the Company sold its remaining investment of a $110,000 note receivable from Consumer Adhesives for face value plus accrued interest. In 2003, the Company recorded an adjustment of $5,925 in Paid-in capital to reflect additional tax expense associated with the sale of the $110,000 note receivable. See Note 1.

The Corporate Reorganization resulted in the issuance of shares of common stock of the Company and warrants to purchase common stock to certain management members, in exchange for the shares they held in BCHI. This resulted in an increase to Paid-in capital of $1,236 in 2001, the value of the minority interest liability that represented their previous interest in BCHI.

The Company recorded net of tax minimum pension liability adjustments of $5,830, $(17,075) and $(66,580) for 2003, 2002 and 2001, respectively, relating to underfunded pension plans, which is included in accumulated other comprehensive income.

15. Stock Option Plans and Other Stock Based Compensation

Stock Options

The Company accounts for stock-based compensation under APB No. 25 and has adopted the disclosure-only provisions of SFAS No. 123 “Accounting for Stock-Based Compensation.” The Company has granted options under its Amended and Restated 1996 Stock Purchase and Option Plan for Key Employees (the “Option Plan”).

Following is a summary of option activity for the three years ended December 31, 2003:

	2003				2002				2001
	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Options outstanding beginning of year	3,426,040		$	3.59	6,871,380		$	4.38	4,382,500		$	5.43
Options exercised	—			—	—			—	—			—
Options granted	3,457,500			2.00	1,492,000			2.25	—			—
Option conversion	—			—	—			—	4,451,880			4.38
Options forfeited	(1,351,180	)		4.30	(4,937,340	)		4.28	(1,963,000	)		5.09
Options outstanding end of year	5,532,360		$	2.42	3,426,040		$	3.59	6,871,380		$	4.85

During the fourth quarter of 2003, options to purchase 3,457,500 shares, in the aggregate, were granted to key employees. The options generally ratably vest over five years, have an exercise price of $2.00 and were granted at their estimated fair value.

During 2002, options to purchase 1,492,000 shares, in the aggregate, were granted to key employees, including performance options to purchase 1,176,000 shares. The 2002 grants have an exercise price of $2.25 per share, based on estimated fair value. The performance options vest after the fifth anniversary of the grant date; however, vesting is accelerated upon the achievement of certain financial targets. As of December 31, 2003, none of these targets were achieved. The remaining options generally vest ratably over five years.

F-162

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

From 1996 through 1999, BCHI issued stock options and sold equity to key management under the Option Plan (the “BCHI option grants”). The BCHI option grants had exercise prices between $5.00 and $7.50, the estimated fair values at the grant dates, and vested over five years. The outstanding BCHI option grants became options of the Company effective with the Corporate Reorganization in 2001 (see Note 3). The conversion of the BCHI option grant provided BCHI management with equivalent intrinsic value in the Company at the new measurement date; therefore no compensation expense was recorded. The strike prices of the converted options ranged from $4.13 to $5.00, which exceeds estimated fair market value. During 2003, all of the $4.13 options were cancelled upon the repurchase of the related shares from management. There are options to purchase 650,360 shares, in the aggregate, outstanding from the converted BCHI option grant, all with a $5.00 exercise price.

In accordance with FASB Interpretation No. 44, “Accounting for Certain Transactions involving Stock Compensation,” options granted under the Option Plan after July 1, 2001 require variable accounting. The expense relating to these options for 2003 and 2002 was $230 and $14, respectively.

To determine proforma compensation cost for the Option Plan according to SFAS No. 123 (see Note 2), the fair value of each option grant is estimated on the date of grant using the Black-Scholes options pricing model with a risk-free weighted average interest rate of 2.91% for 2003 grants and 5.0% for 2002 grants and expected lives of five years for all grants. To determine compensation cost according to SFAS No. 123, the fair value of each option was estimated as of the measurement date using the Black-Scholes option-pricing model with a risk free weighted average interest rate of 4.37% and expected lives of five years.

As of December 31, 2003, there were 4,017,639 shares available for future grants.

At December 31, 2003, there were options to purchase 583,488 shares, in the aggregate, exercisable, with a range of exercise prices of $2.25 to $5.00, a weighted average exercise price of $4.70 and a weighted average remaining life of 3 years. At December 31, 2002, there were options to purchase 1,472,824 shares, in the aggregate, exercisable, with a range of exercise prices of $4.13 to $5.00, a weighted average exercise price of $4.51 and a weighted average remaining life of 4 years.

Unit Appreciation Rights

Certain current and former employees of the Company hold unit appreciation rights (“UARs”) in BWHLLC granted by the Company during the years 1996 - 2000. The UARs have a ten-year life, and all outstanding UARs are fully vested. The UARs are accounted for under the liability method as prescribed by APB No. 25, and any compensation expense incurred in conjunction with the UARs will be reflected in the Statements of Operations for the Company. In 2003, 2002 and 2001, the Company did not record any compensation expense attributable to the UARs. There were 1,157,732 UARs outstanding at December 31, 2003 and no UARs available for future grants.

16. Derivative Financial Instruments

At December 31, 2003, the Company had derivative liabilities of $1,007 classified as other current liabilities and derivative gains of $18 classified as other assets. As of December 31, 2002, the Company had derivative liabilities of $402 classified as other current liabilities and derivative gains of $16 classified as other assets. On January 1, 2001, the Company adopted SFAS No. 133 resulting in a pre-tax charge of $5,200 to accumulated other comprehensive income, as discussed in Note 8.

F-163

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

Interest Rate Swaps

The Company uses interest rate swaps to alter interest rate exposures between fixed and floating rates on certain long-term debt. Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts calculated by reference to an agreed notional principal amount.

Effective December 1, 2003, the Company entered into a $34,000 interest rate swap agreement structured for the Parish of Ascension IRBs (see Note 10). Under this agreement, the Company receives a fixed rate of 10% and pays a variable rate equal to the 6-month LIBOR plus 630 basis points. This was the Company’s only outstanding interest rate swap at December 31, 2003. The $24,286 swap outstanding at December 31, 2001 matured on December 1, 2002, and the Company realized a gain on the settlement of $1,722. The net impact of interest rate swaps was a decrease in the Company’s interest expense of $62 in 2003 and an increase in interest expense of $2,566 and $2,215 in 2002 and 2001, respectively. The 2003 year-end fair value of the $34,000 interest rate swap was a loss of $483.

The following table summarizes the weighted average interest rates for the swaps used by the Company. Variable rates change with market conditions and may vary significantly in the future.

	2003		2002		2001
Average rate paid	7.6	%	13.7	%	13.7	%
Average rate received	10.0	%	1.9	%	4.5	%

Foreign Exchange

International operations account for a significant portion of the Company’s revenue and operating income. It is the policy of the Company to reduce foreign currency cash flow exposure due to exchange rate fluctuations by hedging anticipated and firmly committed transactions wherever economically feasible. The Company enters into forward and option contracts to buy and sell foreign currencies only to reduce foreign exchange exposure and protect the U.S. dollar value of such transactions to the extent of the amount under contract. These contracts are designed to minimize the impact from foreign currency exchange on operating income and on certain balance sheet exposures.

Gains and losses arising from contracts are recognized on a quarterly basis through the Consolidated Statement of Operations (see Note 2). The Company does not hold or issue derivative financial instruments for trading purposes.

At December 31, 2003 and 2002, the Company had $44,300 and $60,079, respectively, of notional value of foreign currency exchange forward contracts outstanding. At December 31, 2003, the Company recorded a loss of $323 related to its foreign currency exchange forward contract outstanding. At December 31, 2002, the Company recorded a loss of $402 related to its foreign currency exchange forward contracts outstanding.

At December 31, 2003, the Company’s forward position of $44,300 was to sell British Pounds for U.S. Dollars at a rate of 1.7710. At December 31, 2002, the Company had forward positions to sell British Pounds for U.S. Dollars ($36,916) and Canadian Dollars ($23,163). The unsecured contracts mature within three months and are placed with financial institutions with investment grade credit ratings. The Company is exposed to credit loss in the event of non-performance by the other parties to the contracts. The Company evaluates the credit worthiness of the counterparties’ financial condition and does not expect default by the counterparties.

F-164

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

At December 31, 2003, the Company had put options totaling $12,000 to sell Canadian Dollars to buy U.S. Dollars. The options expire within three months at varying dates and have a contract rate of 1.3600. The Company also is a party to call options held by financial institutions totaling $12,000 to buy Canadian Dollars with U.S. Dollars. The options expire within three months at varying dates and have contract rates that vary from 1.3040 to 1.3095. At December 31, 2003, the Company recorded a loss of $163 related to these options.

Option and Commodity Future Contracts

The Company is exposed to price fluctuations associated with raw materials purchases, most significantly with methanol, phenol and urea. For these commodity raw materials, the Company has purchase contracts, with periodic price adjustment provisions. The Company also adds to customer contracts selling price provisions that are indexed to publicly available indices for these commodity raw materials. The Board of Directors approves all commodity futures and commodity commitments.

Natural Gas Futures—The Company hedges a portion of natural gas purchases for North America. In March 2003, the Company entered into futures contracts with varying settlement dates through June 2004. The Company used futures contracts to hedge 69% of its 2003 North American natural gas usage. The contracts are settled for cash each month based on the closing market price on the last day the contract trades on the New York Mercantile Exchange. Obligations settled under these contracts totaled $4,866 and related losses were $224 in 2003. Remaining obligations outstanding under these contracts were $1,359 as of December 31, 2003.

The Company entered into similar futures contracts to hedge portions of its natural gas purchases in June 2001 with varying settlement dates through November 2002. Commitments settled under these contracts totaled $1,210 and $1,716 in 2002 and 2001, respectively, and related losses were $264 and $610 in 2002 and 2001, respectively. There were no remaining obligations under these contracts at December 31, 2002.

Gains and losses on commodity futures contracts are recognized each month as gas is used. Remaining obligations are marked to market on a quarterly basis. The Company recorded a loss of $20 at December 31, 2003 related to its natural gas futures contracts.

Natural Gas Commitments—In 2000, the Company entered into fixed rate, fixed quantity contracts to secure a portion of anticipated natural gas usage at certain of the Company’s facilities. The contracts were entered into to partially hedge the Company’s risk associated with natural gas price fluctuations in peak usage months through March 2003. Gas purchases under these contracts totaled $402, $671 and $853 in 2003, 2002 and 2001, respectively. These contracts covered approximately 75% of 2003 and 86% of 2002 natural gas usage during the periods of the contracts at those facilities. The Company had no natural gas commitments outstanding at December 31, 2003. The Company recorded a gain of $16 at December 31, 2002 for the difference between the fair value and carrying value of its remaining natural gas commitments.

17. Fair Value of Financial Instruments

The following table presents the carrying or notional amounts and fair values of the Company’s financial instruments at December 31, 2003 and 2002. The fair value of a financial instrument is the estimated amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair values are determined from quoted market prices where available or based on other similar financial instruments.

F-165

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other accruals are considered reasonable estimates of their fair values. The carrying value of the loans payable to affiliates approximates fair values, as management believes the loans bear interest at market interest rates.

The following table includes the carrying and fair values of the Company’s financial instruments.

	2003					2002
	Carrying Amount		Fair Value			Carrying Amount		Fair Value
Nonderivatives
Liabilities
Debt	$	538,133	$	503,630		$	526,066	$	345,048
	Notional Amount		Fair Value Gain (Loss)			Notional Amount		Fair Value (Loss) Gain
Derivatives relating to:
Foreign currency contracts	$	44,300	$	(323	)	$	60,079	$	(402	)
Interest rate swaps		34,000		(483	)		—		—
Call options		12,000		(181	)		—		—
Put options		12,000		18			—		—
Natural gas futures		1,359		(20	)		—		—
Natural gas commitments		—		—			402		16

18. Supplemental Information

	2003		2002		2001
Depreciation	$	45,811	$	46,392	$	53,996
Amortization		1,508		1,555		5,365
Research and Development		17,998		19,879		21,210

19. Segment and Geographic Data

In previous documents filed with the SEC Adjusted EBITDA was the description used in our segment footnote to describe our segment performance measure. For purposes of this document we have described our segment performance measure as “Segment EBITDA.” We intend to use the term Segment EBITDA to measure segment performance in future SEC documents.

The Company consists of three reportable segments: North American Forest Products, North American Performance Resins Group and International. Consolidated results also include Corporate and other and Divested business, which are reported separately. The product lines included in the North American Forest Products segment are formaldehyde and forest product resins. The key business drivers in the North American Forest Products segment are housing starts, furniture demand, panel production capacity and chemical sector operating conditions. The North American Performance Resins Group includes oilfield, foundry and specialty resins. In the North American Performance Resins Group segment, the key business drivers are housing starts, auto builds, active gas drilling rigs and the general industrial sector. The International segment consists of operations in Europe, Latin America and Asia Pacific. Principal countries of operation are the U.K., Brazil, Australia and Malaysia. Product lines include formaldehyde, forest product and performance resins and consumer products. In

F-166

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

the International segment, the key business drivers are export levels, panel production capacity, housing starts, furniture demand and the local political environment. Corporate and other represents general and administrative expenses and income and expenses related to liabilities retained from businesses sold in previous years. Divested business includes Melamine, which was impaired in 2001, closed in early 2002 and subsequently sold in 2003. Operating results subsequent to the closure date represent revenue from the sale of inventory.

Operating Segments:

Following is a comparison of net sales; sales by product line; depreciation and amortization; earnings before interest, taxes, depreciation and amortization adjusted for business realignment, impairments, non-operating income (expense) and certain other operating income (expense) items (“Segment EBITDA”); total assets and capital expenditures for the reportable business segments, Corporate and other and Divested business of the Company for the years ended December 31, 2003, 2002 and 2001. Segment EBITDA information is presented with the Company’s segment disclosures because it is the measure used by the Company’s chief operating decision maker to evaluate operating results and allocate capital resources:

Sales to Unaffiliated Customers:

	2003		2002		2001
North American Forest Products	$	755,767	$	634,619	$	656,694
North American Performance Resins		364,347		340,791		409,081
International		314,693		264,541		282,629
Divested business		6		7,934		23,737
Total	$	1,434,813	$	1,247,885	$	1,372,141

Sales by Product Line:

	2003		2002		2001
Forest products resins	$	704,930	$	598,835	$	612,638
Formaldehyde		242,774		185,102		189,111
Specialty resins		226,161		211,233		268,087
Foundry resins		137,481		143,419		140,088
Oilfield products		86,487		60,598		85,224
International consumer products		31,050		34,957		46,252
Melamine		6		7,934		23,737
Other		5,924		5,807		7,004
Total	$	1,434,813	$	1,247,885	$	1,372,141

F-167

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

Depreciation and Amortization Expense:

	2003		2002		2001
North American Forest Products	$	19,953	$	19,259	$	19,950
North American Performance Resins		10,209		9,929		11,314
International		11,089		10,305		11,766
Corporate and other		6,068		8,454		9,021
Divested business		—		—		7,310
Total	$	47,319	$	47,947	$	59,361

Segment EBITDA:

	2003			2002			2001
North American Forest Products	$	92,548		$	92,918		$	101,655
North American Performance Resins		46,661			45,127			74,321
International		32,250			28,630			17,595
Corporate and other		(43,713	)		(44,949	)		(54,356	)
Total	$	127,746		$	121,726		$	139,215

Total Assets at Year End:

	2003		2002		2001
North American Forest Products	$	400,950	$	329,574	$	319,846
North American Performance Resins		202,482		205,385		211,477
International		252,303		204,777		247,380
Corporate and other		138,131		271,811		329,280
Divested business		—		233		15,295
Total	$	993,866	$	1,011,780	$	1,123,278

Capital Expenditures:

	2003		2002		2001
North American Forest Products	$	21,726	$	17,322	$	9,791
North American Performance Resins		9,830		13,744		11,577
International		8,708		5,691		15,660
Corporate and other		1,556		2,016		5,016
Divested business		—		—		604
Discontinued operations		—		—		4,760
Total	$	41,820	$	38,773	$	47,408

F-168

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

The Company reports and manages its business through three operating segments which do cross geographic boundaries. The following tables reflect sales and long-lived assets by major geographic area:

Sales to Unaffiliated Customers:⁽¹⁾

	2003		2002		2001
United States	$	901,018	$	812,667	$	908,427
Canada		219,102		170,677		181,085
United Kingdom		121,893		105,595		114,641
Other International		192,800		158,946		167,988
Total	$	1,434,813	$	1,247,885	$	1,372,141

(1) For purposes of geographic disclosures, sales are attributed to the country in which individual business locations reside.

Long-Lived Assets:⁽²⁾

	2003		2002		2001
United States	$	265,963	$	277,349	$	283,423
Canada		63,109		51,042		60,744
United Kingdom		77,769		76,377		73,460
Other International		42,043		34,970		39,930
Total	$	448,884	$	439,738	$	457,557

(2) Long-lived assets include property, plant and equipment, net of accumulated depreciation.

Reconciliation of Segment EBITDA to Income (Loss) from Continuing Operations Before Income Tax:

Segment EBITDA:

	2003			2002			2001
North American Forest Products	$	92,548		$	92,918		$	101,655
North American Performance Resins		46,661			45,127			74,321
International		32,250			28,630			17,595
Corporate and other		(43,713	)		(44,949	)		(54,356	)

Reconciliation:

Depreciation and Amortization		(47,319	)		(47,947	)		(59,361	)
Adjustments to Segment EBITDA (described below)		(13,885	)		(40,071	)		(155,349	)
Interest expense		(46,138	)		(47,315	)		(51,613	)
Affiliated interest expense, net		(558	)		(1,402	)		(11,488	)
Other non-operating (expense) income		(1,529	)		5,989			(1,841	)
Investment write-down and other charges		—			—			(27,000	)
Income (loss) from continuing operations before income tax	$	18,317		$	(9,020	)	$	(167,437	)

F-169

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

Adjustments To Segment EBITDA

The following items are not included in Segment EBITDA reviewed by the Company’s chief operating decision maker to evaluate operating results and allocate capital resources:

Year Ended December 31, 2003	Plant Closure(1)			Severance			Impairment			Other			Total
North American Forest Products	$	(932	)	$	(1,125	)	$	—		$	(90	)(2)	$	(2,147	)
North American Performance Resins		94			(397	)		(1,000	)(3)		—			(1,303	)
International		(7,720	)		(643	)		(2,183	)(4)		11,692	(5)		1,146
Corporate and other		(146	)		(4,672	)		—			(8,732	)(2)		(13,550	)
Divested business(6)		1,716			—			—			253			1,969
Total	$	(6,988	)	$	(6,837	)	$	(3,183	)	$	3,123		$	(13,885	)

(1) Plant closure costs include fixed asset write-offs, plant employee severance and demolition, environmental and other related costs.

(2) Primarily represents a charge of $5,929 related to tentative legal settlements with BCPM Liquidating and BCP Liquidating (see Note 22) and severance expense included in general and administrative expense, incurred by the Company for positions to be replaced.

(3) Represents a reduction in estimated net realizable value of a facility held for sale.

(4) Represents fixed asset and goodwill impairments related to various international locations.

(5) Represents a gain on the sale of land associated with a closed plant in the U.K.

(6) Represents gains recognized related to the closure and subsequent sale of Melamine.

Year Ended December 31, 2002	Plant Closure(1)			Severance			Impairment			Other			Total
North American Forest Products	$	(1,107	)	$	(250	)	$	—		$	—		$	(1,357	)
North American Performance Resins		(1,950	)		(102	)		(1,040	)(2)		—			(3,092	)
International		(2,844	)		(795	)		(5,275	)(3)		2,465	(4)		(6,449	)
Corporate and other		—			(2,118	)		—			(19,850	)(5)		(21,968	)
Divested business(6)		(6,683	)		—			—			(522	)		(7,205	)
Total	$	(12,584	)	$	(3,265	)	$	(6,315	)	$	(17,907	)	$	(40,071	)

(1) Plant closure costs include fixed asset write-offs, plant employee severance and demolition, environmental and other related costs.

(2) Represents a reduction in estimated net realizable value of a facility held for sale.

(3) Represents fixed asset impairments at various international manufacturing facilities.

(4) Represents a gain on the sale of land associated with a closed plant in Spain.

(5) Primarily represents a pension settlement charge of $13,600, included in general and administrative expense, and an additional management fee of $5,500 related to the wind down of Capital, included in other operating expense.

(6) Represents expenses incurred related to the closure of Melamine.

F-170

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

Year Ended December 31, 2001	Plant Closure(1)			Severance			Impairment			Other			Total
North American Forest Products	$	(6,573	)	$	(2,080	)	$	—		$	10,507	(2)	$	1,854
North American Performance Resins		2,433			(2,632	)		(2,885	)(3)		—			(3,084	)
International		(20,020	)		(179	)		—			(2,303	)(4)		(22,502	)
Corporate and other		875			(7,691	)		—			(37,202	)(5)		(44,018	)
Divested business		—			—			(98,163	)(6)		10,564	(7)		(87,599	)
Total	$	(23,285	)	$	(12,582	)	$	(101,048	)	$	(18,434	)	$	(155,349	)

(1) Plant closure costs include fixed asset write-offs, plant employee severance and demolition, environmental, and other related costs.

(2) Represents a gain on the sale of land associated with a closed domestic plant.

(3) Represents a charge related to a plant facility for which construction was discontinued in 2001.

(4) Represents a loss incurred on the divestiture of the Company’s operations in Ecuador.

(5) Primarily represents a charge for environmental remediation of $19,028 related to a formerly owned business and a pension settlement charge of $15,813.

(6) Represents a charge related to the shut-down of Melamine including the write-down of fixed assets ($62,527), spare parts ($2,935) and goodwill ($32,701).

(7) Represents earnings generated by Melamine, which was closed in 2002.

20. Related Party Transactions

Financing and Investing Arrangements

The Company and HAI had separate borrowing arrangements with Foods, evidenced by demand promissory notes bearing interest at variable rates. These loans are reported as Loans payable to affiliates on the Consolidated Balance Sheets and totaled $18,260 and $84,680 at December 31, 2003 and 2002, respectively. Following the termination of the Company’s uncommitted LOC facility in 2003 (see Note 10), the Company (excluding HAI) is limited to borrowing up to $30,000 from affiliates. Of the total loans outstanding, $12,260 and $84,680 was owed by the Company at each respective year-end. HAI owed $6,000 at December 31, 2003 and had $4,000 available for additional borrowings. Interest rates ranged from 1.0% to 4.75%, and interest expense totaled $558, $1,857 and $9,460 for the years ended December 31, 2003, 2002 and 2001, respectively. In early 2004, the Company entered into a similar borrowing agreement with BWHLLC and cancelled its arrangement with Foods. In early 2004, HAI obtained a $20,000 credit facility with an external bank and terminated its affiliated borrowing arrangement (see Note 10).

The Company holds a $404,817 note receivable ($512,094 including accrued interest) from BHI, which is accounted for as a reduction of equity. The Company accrues interest quarterly on the note receivable in Paid-in capital. Historically, BHI funded the interest due on the note through common dividends received from the Company. However, quarterly interest has not been paid, nor an associated dividend declared, since October 15, 2001. See Note 14.

The Company had a note payable to BCPM for $34,181 that was settled in the first quarter of 2002. The Company accrued $151 and $2,502 of interest expense for the years ended December 31, 2002 and 2001, respectively, related to this note. The Company settled in full this note payable by making cash payments of $31,581 and $2,600 of certain set-offs asserted by the Company against amounts due under this note. BCPM acknowledged the validity and enforceability of the set-offs. The Company waived the right to assert other set-offs, and BCPM and the Company exchanged mutual releases with respect to this note. A committee comprised

F-171

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

solely of independent directors of BCPM, represented and advised by separate and independent counsel, reviewed and agreed to the above provisions.

At December 31, 2001, the Company had a $110,000 preferred stock investment in Consumer Adhesives. The preferred stock was redeemed in 2002 for a $110,000 note receivable from Consumer Adhesives which was subsequently sold to BHI for cash proceeds of $110,000 plus accrued interest of $455. In 2003, the Company recognized an income tax charge of $5,925 related to the sale of the note receivable to BHI. Consistent with the gain on the Consumer Adhesives Sale, this income tax charge was recorded in Paid-in capital due to the affiliated nature of the transaction.

As a guarantor of the Company’s debt, Foods received an annual fee from the Company of $1,050 in 2001. Under the terms of the guarantee agreement between Foods and the Company, Foods was automatically released from its obligation to guarantee the payment of the Company’s outstanding publicly-held debt upon Foods being released from its obligation to guarantee the payment of amounts due under the Company’s $250,000 Credit Agreement that expired in 2002.

The Company also had net affiliate interest income relating to other affiliates of $474 for the year ended December 31, 2001.

Administrative Service, Management and Consulting Arrangements

Commencing in 2003, certain management, consulting and board services previously provided to the Company by Capital (see below) were assumed by the Company, while other such services were assumed by KKR. During the year ended December 31, 2003, the Company recorded $3,000 for the fixed fee due to KKR under this arrangement. During the year ended December 31, 2002, the Company recorded $9,000 for the management fee to Capital.

During 2002, Capital provided management, consulting and board services to the Company, and the Company provided certain administrative services to Capital. Capital charged the Company an annual fee of $9,000, payable quarterly in arrears, which represented the net amount of Capital’s services less the Company’s fee for providing administrative services to Capital. During 2002, BHI made a decision to cease the operations of Capital by the end of the first quarter of 2003. This decision resulted in the immediate recognition by Capital of incremental expenses and liabilities related primarily to severance and rent obligations. These incremental expenses are the legal obligation of Capital and will be funded by Capital. The Company’s share of Capital’s incremental costs was $5,500 and was recognized by the Company as an additional management fee in 2002. Since the Company was not responsible for settling these liabilities, the offset to the charge was recorded as a capital contribution of $3,550 (the liability net of tax) to the Company from BHI.

Prior to the Corporate Reorganization in 2001, KKR rendered management, consulting and board services to the Company for an annual fee of $10,000, payable quarterly in arrears. The 2001 fee through the date of the Corporate Reorganization was $9,167. Effective with the Corporate Reorganization, Capital began providing services to the Company, as described above. Charges incurred for these services in 2001, subsequent to the Corporate Reorganization, were $750.

The Company incurred certain costs on Capital’s behalf and was reimbursed by Capital for 100% of these costs. Included in accounts receivable from affiliates at December 31, 2002 was $2,298 for these expenses.

F-172

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

The Company provides administrative services to Foods. Fees received for these services totaled $50, $120 and $1,000 for the years ended December 31, 2003, 2002 and 2001, respectively. In addition, the Company pays certain costs on behalf of Foods and is reimbursed by Foods for 100% of these costs. Included in accounts receivable from affiliates at December 31, 2002 was $1,375 related to these costs.

The Company provides certain administrative services to BWHLLC and other affiliates under a service agreement commencing on January 1, 2003. During the year ended December 31, 2003, the Company charged BWHLLC $540 for such services.

In 2001, the Company rendered management, consulting and financial services to WKI for an annual fee of $2,500 based on WKI reaching certain operating criteria. In addition, WKI also reimbursed the Company for certain expenses paid on its behalf. In November 2001, Capital purchased the management fee receivable of $1,667 from the Company plus receivables for expenses paid on WKI’s behalf in the amount of $1,927. Total fees received under this arrangement were $0 for 2001.

Other Transactions and Arrangements

The Company utilizes Willis Group Holdings, Ltd. (“Willis”), an entity controlled by KKR, as its insurance broker. As of December 31, 2003, and 2002, the Company had paid $429 and $241, respectively, to Willis for their services.

Capital contributions to the Company totaled $26,302, $24,440 and $658,960 for the years ended December 31, 2003, 2002 and 2001, respectively (see Note 14).

The Company and Consumer Adhesives were parties to a tax sharing agreement for periods prior to the Consumer Adhesives Sale. Under this agreement, Consumer Adhesives paid income taxes to the Company as if Consumer Adhesives filed stand-alone Federal and state income tax returns. At December 31, 2002, Consumer Adhesives had no remaining liability to the Company for any unpaid Federal or state income tax.

During 2001, the Company received payment of $11,802 from Foods for its calculated portion of the Company’s net pension liability. In the fourth quarter of 2001, the Company received $12,302 from Foods to assume the liability for payment of claims made under essentially all of Foods’ employee benefit plans.

The Corporate Reorganization included certain financial transactions between the Company and BHI (see Note 3).

21. Guarantees and Indemnifications

Standard Guarantees / Indemnifications

In the ordinary course of business, the Company enters into numerous agreements that contain standard guarantees and indemnities whereby the Company indemnifies another party for, among other things, breaches of representations and warranties. Such guarantees or indemnifications are granted under various agreements, including those governing (i) purchases and sales of assets or businesses, (ii) leases of real property, (iii) licenses of intellectual property and (iv) long-term supply agreements. The guarantees or indemnifications issued are for the benefit of the (i) buyers in sale agreements and sellers in purchase agreements, (ii) landlords or lessors in lease contracts, (iii) licensors or licensees in license agreements and (iv) vendors or customers in long-term supply agreements.

F-173

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

These parties may also be indemnified against any third party claim resulting from the transaction that is contemplated in the underlying agreement. Additionally, in connection with the sale of assets and the divestiture of businesses, the Company may agree to indemnify the buyer with respect to liabilities related to the pre-closing operations of the assets or businesses sold. Indemnities related to pre-closing operations generally include tax liabilities, environmental liabilities and employee benefit liabilities not assumed by the buyer in the transaction.

Indemnities related to the pre-closing operations of sold assets normally do not represent additional liabilities to the Company, but simply serve to protect the buyer from potential liability associated with the Company’s existing obligations at the time of sale. As with any liability, the Company has accrued for those pre-closing obligations that are considered probable and reasonably estimable. Amounts recorded are not significant at December 31, 2003.

While some of these guarantees extend only for the duration of the underlying agreement, many survive the expiration of the term of the agreement or extend into perpetuity (unless subject to a legal statute of limitations). With respect to certain of the aforementioned guarantees, the Company has limited reimbursement agreements from affiliates or maintains limited insurance coverage that mitigates potential payments to be made. There are no specific limitations on the maximum potential amount of future payments that the Company could be required to make under these guarantees nor is the Company able to develop an estimate of the maximum potential amount of future payments to be made under these guarantees as the triggering events are not predictable.

In addition the Company has agreed to indemnify KKR for any claims resulting from its services to the Company and its affiliates. The indemnification does not expire and the Company is not able to determine a maximum exposure under the agreement. However, the Company does have an indemnification agreement from BHI for any amounts that it must pay under the KKR indemnity relating to WKI.

The Company has not entered into any significant agreement subsequent to January 1, 2003 that would require it, as a guarantor, to recognize a liability for the fair value of obligations it has undertaken in issuing the guarantee.

Subsidiary Guarantees

The Company guarantees the bank debt of one of its Brazilian subsidiaries at Banco Itau S.A. up to a maximum U.S. equivalent of $6,700. In addition, the Company guarantees the open payables of certain subsidiaries related to the purchase of raw materials.

In connection with the conversion of the $34,000 Parish of Ascension IRBs to a fixed rate, the Company’s Canadian and U.K. subsidiaries have guaranteed the Company’s IRBs.

Contingent Purchase Consideration

The Fentak acquisition agreement includes a contingent purchase consideration provision based on achievement of certain targeted earnings before interest and taxes. Maximum annual payments are AU$600 for the period 2004-2006.

In connection with the acquisition of assets from SEACO, the Company agreed to pay a royalty fee to the seller based on sales levels to existing regular customers of the business as of the closing date. To the extent that annual sales exceed targeted levels, the Company is obligated to pay up to $300 per year, for a five-year period.

F-174

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

Warranties

The Company does not make express warranties on its products, other than that they comply with the Company’s specifications; therefore, the Company does not record a warranty liability. Adjustments for product quality claims are not material and are charged against sales revenues.

22. Commitments and Contingencies

Environmental Matters

Because the Company’s operations involve the use, handling, processing, storage, transportation and disposal of hazardous materials, the Company is subject to extensive environmental regulation at the Federal and state level and is exposed to the risk of claims for environmental remediation or restoration. In addition, violations of environmental laws or permits may result in restrictions being imposed on operating activities, substantial fines, penalties, damages or other costs, any of which could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

Accruals for environmental matters are recorded following the guidelines of Statement of Position 96-1, “Environmental Remediation Liabilities,” when it is probable that a liability has been incurred and the amount of the liability can be estimated. Environmental accruals are reviewed on an interim basis and as events and developments warrant. Based on management’s estimates, which are determined through historical experience, the Company has recorded liabilities, relating to 55 locations, of approximately $38,600 and $44,000 at December 31, 2003 and 2002, respectively, for all probable environmental remediation, indemnification and restoration liabilities. These amounts include estimates of unasserted claims the Company believes are probable of loss and reasonably estimable. Based on the factors discussed below and currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such sites may fall within a range of $24,200 to $73,600, in the aggregate, at December 31, 2003. This estimate of the range of reasonably possible costs is less certain than the estimates upon which the liabilities are based, and in order to establish the upper end of such range, assumptions less favorable to the Company among the range of reasonably possible outcomes were used. As with any estimate, if facts or circumstances change, the final outcome could differ materially from these estimates. The Company has not taken into consideration insurance coverage or any anticipated recoveries from other third parties in determining the liability or range of possible outcomes. The Company’s current insurance coverage provides very limited, if any, coverage for environmental matters.

Following is a more detailed discussion of the Company’s environmental liabilities and related assumptions:

BCP Geismar Site—The Company formerly owned a basic chemicals and polyvinyl chloride business which was taken public as Borden Chemicals and Plastics Operating Limited Partnership (“BCPOLP”) in 1987. The Company retained a 1% interest and the general partner interest, which were held by its subsidiary, BCPM. The Company also retained the liability for certain environmental matters after BCPOLP’s formation. Under a Settlement Agreement approved by the United States Bankruptcy Court for the District of Delaware among the Company, BCPOLP, BCPM, the United States Environmental Protection Agency and the Louisiana Department of Environmental Quality, the Company agreed to perform certain of BCPOLP’s obligations with respect to environmental conditions at BCPOLP’s Geismar, Louisiana site. These obligations are related to soil and groundwater contamination at the Geismar site. The Company bears the sole responsibility for these obligations, as there are no other potentially responsible parties (“PRPs”) or third parties from which the Company can seek reimbursement, and no additional insurance recoveries are expected.

F-175

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

A groundwater pump and treat system for the removal of contaminants is operational, and preliminary natural attenuation studies are proceeding. The Company has performed extensive soil and groundwater testing. Regulatory agencies are reviewing the current findings and remediation efforts. If closure procedures and remediation systems prove inadequate, or if additional contamination is discovered, this could result in the costs approaching the higher end of the range of possible outcomes discussed below.

The Company has recorded a liability of approximately $21,600 and $25,300 at December 31, 2003 and 2002, respectively, related to the BCP Geismar site. Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with this site may fall within a range of $13,500 to $33,100, depending upon the factors discussed above. Due to the long-term nature of the project, the reliability of timing and estimability of remediation payments, this liability was recorded at its net present value, assuming a 3% discount rate and a time period of thirty years and the range of possible outcomes is discounted similarly. The undiscounted liability is approximately $33,400 over thirty years.

Following are expected payments for each of the next five years, and a reconciliation of the expected aggregate payments to the liability reflected at December 31, 2003:

2004	$	2,500
2005		1,100
2006		1,700
2007		1,500
2008		700
Remaining aggregate payments		25,900
Total undiscounted liability		33,400
Less: discount to net present value		(11,800	)
Liability per Consolidated Balance Sheet	$	21,600

Superfund Sites / Offsite Landfills—The Company is currently involved in environmental remediation activities at 25 sites in which it has been notified that it is, or may be, a PRP under the United States Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) or similar state “superfund” laws. The Company has recorded liabilities of approximately $7,600 and $7,000 at December 31, 2003 and 2002, respectively, related to these sites. The Company anticipates approximately half of this liability will be paid within the next five years, with the remaining payments occurring over the next twenty-five years. The Company generally does not bear a significant level of responsibility for these sites, and therefore, has little control over the costs and timing of cash flows. At 16 sites, the Company’s share is less than 1%. At the remaining 9 sites, the Company has a share of up to 8.8% of the total liability which accounts for $6,400 and $5,700 of the total amount reserved for superfund / offsite landfill sites at December 31, 2003 and 2002, respectively. Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such sites may be as low as $4,700 or as high as $15,600, in the aggregate. In estimating both its current reserves for environmental remediation at these sites and the possible range of additional costs, the Company has not assumed that it will bear the entire cost of remediation of every site to the exclusion of other known PRPs who may be jointly and severally liable. The Company has limited information to assess the viability of other PRPs and their probable contribution on a per site basis. The range of possible outcomes also takes into account the maturity of each project, which results in a more narrow range as the project progresses. The Company’s ultimate liability will depend on many factors including its volumetric share of waste, the financial viability of other PRPs, the remediation methods and technology used and the amount of time necessary to accomplish remediation.

F-176

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

Sites Under Current Ownership—The Company is conducting environmental remediation at 7 locations currently owned by the Company, of which 4 sites are no longer operating. There are no other parties responsible for remediation at these sites. Much of the remediation is being performed by the Company on a voluntary basis; therefore, the Company has greater control over the costs to be incurred and the timing of cash flows. The Company has accrued approximately $5,200 and $4,700 at December 31, 2003 and 2002, respectively, for remediation and restoration liabilities at these locations. The Company anticipates approximately $3,100 of these liabilities will be paid within the next three years, with the remaining amounts being paid over the next ten years. Approximately $3,500 of these reserves is included in the Company’s business realignment reserve, as the environmental clean up is being handled in conjunction with planned closure of the location (see Note 6). Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such sites may fall within a range of $3,500 to $13,500, in the aggregate. The factors influencing the ultimate outcome include the methods of remediation to be elected, the conclusions and assessment of site studies remaining to be completed and the time period required to complete the work.

Other Sites—The Company is conducting environmental remediation at 10 locations formerly owned by the Company. The Company has accrued approximately $2,400 and $5,300 at December 31, 2003 and 2002, respectively, for remediation and restoration liabilities at these locations. The Company anticipates cash outflows of approximately $2,000 within the next three years, with the remainder occurring over the next ten years. Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such sites may fall within a range of $1,700 to $9,100, in the aggregate. The primary drivers in determining the final costs to the Company on these matters are the method of remediation selected and the level of participation of third parties.

In addition, the Company is responsible for 11 sites that require monitoring where no additional remediation is expected and has also established accruals for other related costs, such as fines and penalties. The Company has accrued approximately $1,800 and $1,700 at December 31, 2003 and 2002, respectively, related to these sites. Payment of these liabilities is anticipated to occur over the next ten years. Based on currently available information and analysis, the Company believes that it is reasonably possible that costs associated with such sites may fall within a range of $800 and $2,300, in the aggregate. The ultimate cost to the Company will be influenced by any variations in projected monitoring periods or by findings that are better or worse than anticipated findings.

From the late 1960’s until 1980, the Company operated a phosphate processing site on leased property in Manatee County, Florida. In 1980, the Company sold these operations. The Company and another former owner have each received a demand for $112 from the U.S. Environmental Protection Agency relating to oversight costs incurred when the site was abandoned by its current owner, and the Company is disputing the charge. The Company is aware that state and Federal environmental agencies have taken measures to prevent the off-site release of water from rainfall that accumulated in the drainage ditches and lagoons surrounding the gypsum piles located on the site. At this time, although it is reasonably possible some costs could be incurred related to this site, the Company has inadequate information to enable it to estimate a potential range of liability relating to this site.

F-177

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

Non-Environmental Legal Matters

Following is a discussion of non-environmental legal proceedings that are not in the ordinary course of business:

Imperial Home Décor Group—In 1998, pursuant to a merger and recapitalization transaction sponsored by The Blackstone Group (“Blackstone”) and financed by Chase Manhattan Bank (“Chase”), Borden Decorative Products Holdings, Inc. (“BDPH”), a wholly owned subsidiary of the Company, was acquired by Blackstone and subsequently merged with Imperial Wallcoverings to create Imperial Home Décor Group (“IHDG”). Blackstone provided $84,500 in equity, and Chase provided $295,000 in senior financing. The Company received approximately $309,000 in cash and 11% of IHDG common stock for its interest in BDPH at the closing of the merger. On January 5, 2000, IHDG filed for reorganization under Chapter 11 of the U. S. Bankruptcy Code. The IHDG Litigation Trust (the “Trust”) was created pursuant to the plan of reorganization in the IHDG bankruptcy to pursue preference and other avoidance claims on behalf of the unsecured creditors of IHDG. In November 2001, the Trust filed a lawsuit against the Company and certain of its affiliates seeking to have the IHDG recapitalization transaction voided as a fraudulent conveyance and asking for a judgment to be entered against the Company for $314,400 plus interest, costs and attorney fees. Discovery is proceeding in the case with a cut-off currently scheduled for November 2004. The parties are discussing alternatives to litigation.

The Company has accrued legal expenses for scheduled depositions related to this matter. To the extent that additional depositions or legal work is required, legal defense costs will increase. The Company has not recorded a liability for any potential losses because a loss is not considered probable based on current information. The Company believes it has strong defenses to the Trust’s allegations and intends to defend the case vigorously if a satisfactory alternative to litigation is not reached. While it is reasonably possible the resolution of this matter may result in a loss to the Company, due to the many variables involved, management is not able to estimate the range of possible outcomes at this time.

Subsidiary Bankruptcy—The Company’s former subsidiary, BCPM, filed for protection under Chapter 11 of the United States Bankruptcy Code, in the United States Bankruptcy Court for the District of Delaware on March 22, 2002. BCPM served as the general partner and held a 1% interest in BCPOLP, which was created in November 1987 and operated as a commodity chemicals producer. On April 3, 2001, BCPOLP filed for protection under Chapter 11 of the United States Bankruptcy Code, in the United States Bankruptcy Court for the District of Delaware. On February 5, 2003, the U.S. Bankruptcy Court approved a Joint Plan of Liquidation for BCPOLP and BCPM which provided for the transfer of the remaining assets of both entities, including preference, avoidance and other claims against third parties (including the Company) to separate liquidating entities for liquidation and distribution to their creditors. The transfer of the remaining assets of both entities to the liquidating agents was effective March 13, 2003. The Company’s ownership interest in BCPM was extinguished, and no distributions from BCPM to the Company are anticipated.

On March 19, 2004, BCPM Liquidating LLC (“BCPM Liquidating”), the successor in interest to BCPM, and the Company reached a tentative agreement providing for the settlement of all claims for a payment by the Company of $6,000. The Company has entered into an Agreement with BCPM Liquidating extending the period within which either party may file claims against the other until May 14, 2004, during which period the terms of the settlement agreement will be finalized and submitted to the bankruptcy court for approval.

In addition, on March 19, 2004, the Company and BCP Liquidating LLC (“BCP Liquidating”), the successor in interest to BCP, also reached a tentative agreement providing for the settlement of all claims for

F-178

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

a payment by the Company of $1,050. The Company has entered into an Agreement with BCP Liquidating extending the period within which either party may file claims against the other until June 15, 2004, during which period the terms of the settlement agreement will be finalized and submitted to the bankruptcy court for approval.

The Company recorded expense of $5,929 in other operating expense at December 31, 2003 relating to these settlements. No assurance can be given that these settlements will be finalized and approved, and absent such approval, these and other claims could be filed against the Company.

Brazil Tax Claim—In 1992, the State of Sao Paolo Tax Bureau issued an assessment against the Company’s primary Brazilian subsidiary claiming that excise taxes were owed on certain intercompany loans made for centralized cash management purposes, characterized by the Tax Bureau as intercompany sales. Since that time, management and the Tax Bureau have held discussions, and the subsidiary has filed an administrative appeal seeking cancellation of the assessment. In December 2001, the Administrative Court upheld the assessment in the amount of R$52,000, or approximately US$18,000, including tax, penalties, monetary correction and interest. In September 2002, the subsidiary filed a second appeal with the highest level administrative court, again seeking cancellation of the assessment. The Company believes it has a strong defense against the assessment and will pursue the appeal vigorously; however, no assurance can be given that the assessment will not be upheld. At this time the Company does not believe a loss is probable; therefore, only related legal fees have been accrued. Reasonably possible losses to the Company on the resolution of this matter range from zero to $18,000.

HAI Grand Jury Investigation—HAI, a joint venture in which the Company has a 75% interest, received a grand jury subpoena dated November 5, 2003 from the U.S. Department of Justice Antitrust Division relating to a Foundry Resins Grand Jury investigation. HAI has provided documentation in response to the subpoena, is cooperating with the Department of Justice and has heard nothing further.

In addition to this discussion of specific non-environmental legal matters, the Company is involved in various product liability, commercial and employment litigation and other legal proceedings which are considered to be in the ordinary course of the Company’s business. There has been increased publicity about asbestos liabilities faced by manufacturing companies. As a result of the bankruptcies of many asbestos producers, plaintiff’s attorneys are increasing their focus on peripheral defendants, including the Company. The Company does not believe it has a material asbestos exposure and believes it has adequate reserves and insurance. The Company has reserved approximately $24,000 and $10,800 at December 31, 2003 and 2002, respectively, relating to all non-environmental legal matters for legal defense and settlement costs that it believes are probable and estimable at this time.

F-179

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

23. Quarterly Financial Data (Unaudited)

The following represents Quarterly Financial Data for the Company:

2003 Quarters	First			Second		Third			Fourth
Net sales	$	349,288		$	370,763	$	358,281		$	356,481
Gross margin		65,834			72,749		74,390			73,321
Business realignment expense (income) & impairments		1,296			125		(8,806	)		12,133
(Loss) income from continuing operations		(3,405	)		20,150		11,053			(4,822	)
Net (loss) income		(3,405	)		20,150		11,053			(4,822	)
Net (loss) income applicable to common stock		(3,405	)		20,150		11,053			(4,822	)
Basic and diluted, per share of common stock:
(Loss) income from continuing operations	$	(0.02	)	$	0.10	$	0.06		$	(0.02	)
Net (loss) income applicable to common stock—basic and dilutive	$	(0.02	)	$	0.10	$	0.06		$	(0.02	)
Average number of common shares outstanding—basic		199,315			199,308		199,308			199,308
Average number of common shares outstanding—dilutive		199,315			199,906		200,122			199,308

2002 Quarters	First(1)			Second		Third		Fourth
Net sales	$	296,091		$	309,567	$	327,187	$	315,040
Gross margin		73,620			73,177		69,854		62,577
Business realignment expense and impairments		4,659			5,401		2,082		7,557
(Loss) income from continuing operations		(1,887	)		2,698		3,234		(10,803	)
Net (loss) income		(31,712	)		2,698		3,234		(10,803	)
Net (loss) income applicable to common stock		(31,712	)		2,698		3,234		(10,803	)
Basic and diluted, per share of common stock:
(Loss) income from continuing operations	$	(0.01	)	$	0.01	$	0.02	$	(0.05	)
Net (loss) income applicable to common stock—basic and dilutive	$	(0.16	)	$	0.01	$	0.02	$	(0.05	)
Average number of common shares outstanding—basic		199,158			199,361		199,416		199,385
Average number of common shares outstanding—dilutive		199,158			199,927		200,358		199,385

(1) As described in Note 6, the Company recorded an impairment charge of $29,825 in the first quarter to write-off the carrying amount of its European business unit’s goodwill as of January 1, 2002. There was no tax benefit recognized in conjunction with the impairment charge.

24. Subsequent Events

Sale of the Business and Pending Capital Market Transaction

On July 5, 2004 an affiliate of Apollo Management LP (“Apollo”) entered into a stock purchase agreement with BWHLLC, BHI, the Company and certain members of Company’s management. Pursuant to this agreement, Apollo will acquire (the “Acquisition”) all of the outstanding capital stock of BHI, and all of the outstanding capital stock of the Company not otherwise owned by BHI will be redeemed. Completion of the Acquisition is subject to customary closing conditions. The Company and BHI will continue to operate independently until those conditions are satisfied and closing occurs.

The Acquisition, and the payment of estimated transaction fees and expenses will be financed with the net proceeds of a $475 million second-priority senior secured private debt offering by certain subsidiaries of the

F-180

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

Company (the “Notes”) and certain equity contributions from Apollo. The Company may refinance certain existing debt with a portion of this funding. The Acquisition is expected to be completed in the third quarter of 2004. The closing of the Notes is conditioned upon the closing of the Acquisition.

The Notes will be guaranteed by the Company and certain of its existing and future domestic restricted subsidiaries (the “Guarantors”). The Notes and the related guarantees will be senior obligations secured by a second-priority lien (subject to certain exceptions and permitted liens) on certain of the Guarantors’ existing and future domestic assets.

Supplemental financial information for the Company and the combined non-guarantor subsidiaries and the combined subsidiary guarantors for the Notes are presented below:

YEAR ENDED DECEMBER 31, 2003

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

	Borden Chemical, Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net Sales	$	859,411		$	—		$	688,688		$	(113,286	)	$	1,434,813
Cost of goods sold		696,078			—			565,727			(113,286	)		1,148,519
Gross margin		163,333			—			122,961			—			286,294
Distribution expense		40,903			—			25,480			—			66,383
Marketing expense		20,845			—			21,553			—			42,398
General & administrative expense		54,262			273			45,486			—			100,021
Business realignment expense (income) and impairments		5,644			—			(896	)		—			4,748
Other operating expense (income)		8,328			(20	)		(2,106	)		—			6,202
Operating income (loss)		33,351			(253	)		33,444			—			66,542
Interest expense		44,825			—			1,313			—			46,138
Affiliated interest expense, net		394			—			164			—			558
Intercompany interest expense (income)		107,452			(108,273	)		821			—			—
Intercompany royalty expense (income)		19,193			(19,193	)		—			—			—
Equity in (earnings) losses of subsidiaries, net		(164,062	)		(2,453	)		—			166,515			—
Other non-operating expense (income)		8,038			105			(6,614	)		—			1,529
Income before income tax		17,511			129,561			37,760			(166,515	)		18,317
Income tax (benefit) expense		(5,465	)		—			806			—			(4,659	)
Net income	$	22,976		$	129,561		$	36,954		$	(166,515	)	$	22,976

F-181

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands)

YEAR ENDED DECEMBER 31, 2002

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

	Borden Chemical Inc.			Combined Subsidiary Guarantors			Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net Sales	$	740,703		$	—		$	604,214		$	(97,032	)	$	1,247,885
Cost of goods sold		578,907			—			486,782			(97,032	)		968,657
Gross margin		161,796			—			117,432			—			279,228
Distribution expense		38,223			—			23,704			—			61,927
Marketing expense		21,535			—			20,968			—			42,503
General & administrative expense		60,500			233			48,504			—			109,237
Business realignment expense and impairments		5,316			—			14,383			—			19,699
Other operating expense (income)		15,983			(6	)		(3,823	)		—			12,154
Operating income (loss)		20,239			(227	)		13,696			—			33,708
Interest expense		46,220			—			1,095			—			47,315
Affiliated interest expense, net		1,402			—			—			—			1,402
Intercompany interest expense (income)		143,639			(144,977	)		1,338			—			—
Intercompany royalty expense (income)		16,976			(16,976	)		—			—			—
Equity in (earnings) losses of subsidiaries, net		(102,441	)		(1,396	)		—			103,837			—
Other non-operating expense (income)		(9,871	)		23			3,859			—			(5,989	)
(Loss) income before income tax		(75,686	)		163,099			7,404			(103,837	)		(9,020	)
Income tax (benefit) expense		(39,103	)		—			36,841			—			(2,262	)
(Loss) income before cumulative effect of change in accounting principle		(36,583	)		163,099			(29,437	)		(103,837	)		(6,758	)
Cumulative effect of change in accounting principle		—			—			(29,825	)		—			(29,825	)
Net (loss) income	$	(36,583	)	$	163,099		$	(59,262	)	$	(103,837	)	$	(36,583	)

F-182

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands)

YEAR ENDED DECEMBER 31, 2001

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

	Borden Chemical Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	823,436			—		$	609,991		$	(61,286	)	$	1,372,141
Cost of goods sold		619,162			—			502,766			(61,286	)		1,060,642
Gross margin		204,274			—			107,225			—			311,499
Distribution expense .		38,617			—			25,312			—			63,929
Marketing expense		22,501			—			19,545			—			42,046
General & administrative expense		61,933		$	213			65,821			—			127,967
(Gain) loss on sale of assets		(3,925	)		—			153			—			(3,772	)
Loss on divestiture of business		2,303			—			—			—			2,303
Business realignment expense and impairments		5,743			—			120,665			—			126,408
Other operating expense		19,490			416			8,207			—			28,113
Operating income (loss)		57,612			(629	)		(132,478	)		—			(75,495	)
Interest expense		50,515			—			1,098			—			51,613
Affiliated interest expense, net		11,020			(3,281	)		3,749			—			11,488
Intercompany interest expense (income)		283,398			(278,371	)		(5,027	)		—			—
Affiliate royalty expense (income)		22,681			(19,557	)		(3,124	)		—			—
Other non-operating expense		1,170			671			—			—			1,841
Equity in (earnings) losses of investees, net		(191,374	)		787			—			190,587			—
Investment write-downs		27,000			—			—			—			27,000
Income (loss) from continuing operations before income tax		(146,798	)		299,122			(129,174	)		(190,587	)		(167,437	)
Income tax benefit		(21,998	)		—			(8,835	)					(30,833	)
Income (loss) from continuing operations		(124,800	)		299,122			(120,339	)		(190,587	)		(136,604	)
Income from discontinued operations, net of tax		—			—			11,804						11,804
Net income (loss)		(124,800	)		299,122			(108,535	)		(190,587	)		(124,800	)
Preferred stock dividends		(61,846	)		—			—			—			(61,846	)
Net income (loss) applicable to common stock	$	(186,646	)	$	299,122			$(108,535)			$(190,587)		$	(186,646	)

F-183

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands)

DECEMBER 31, 2003

CONDENSED CONSOLIDATING BALANCE SHEET

	Borden Chemical Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current Assets
Cash and equivalents	$	1,370		$	151		$	26,641		$	—		$	28,162
Accounts receivable		85,524			67			110,502			—			196,093
Inventories:
Finished and in-process goods		25,173			—			17,119			—			42,292
Raw materials and supplies		22,395			—			16,424			—			38,819
Deferred income taxes		26,744			—			341			—			27,085
Other current assets		10,102			73			3,730			—			13,905
		171,308			291			174,757			—			346,356
Other Assets
Investment in subsidiaries		6,315,510			16,610			—			(6,332,120	)		—
Loans receivable from affiliates		—			6,037,074			—			(6,037,074	)		—
Deferred income taxes		105,682			—			7,752			—			113,434
Other assets		14,410			—			7,315			—			21,725
		6,435,602			6,053,684			15,067			(12,369,194	)		135,159
Property and Equipment
Land		24,389			—			8,196			—			32,585
Buildings		67,365			—			36,409			—			103,774
Machinery and equipment		407,587			480			283,182			—			691,249
		499,341			480			327,787			—			827,608
Less accumulated depreciation		(244,120	)		(355	)		(134,249	)		—			(378,724	)
		255,221			125			193,538			—			448,884
Goodwill		36,593			—			20,923			—			57,516
Other intangible assets		4,822			—			1,129			—			5,951
Total Assets	$	6,903,546		$	6,054,100		$	405,414		$	(12,369,194	)	$	993,866

F-184

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands)

DECEMBER 31, 2003

CONDENSED CONSOLIDATING BALANCE SHEET—(Continued)

	Borden Chemical Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries		Eliminations			Consolidated
LIABILITIES AND SHAREHOLDER’S DEFICIT
Current Liabilities
Accounts and drafts payable	$	63,707		$	12		$	63,455	$	—		$	127,174
Accounts payable to affiliate		(8,582	)		(6,877	)		15,459		—			—
Debt payable within one year		2,548			—			5,619		—			8,167
Loans payable to affiliates		12,260			—			6,000		—			18,260
Income taxes payable		32,533						2,444		—			34,977
Interest payable		12,339						185		—			12,524
Other current liabilities		55,514			349			15,683		—			71,546
		170,319			(6,516	)		108,845		—			272,648
Other Liabilities
Long-term debt		520,877			—			9,089		—			529,966
Long-term loans payable to affiliates		6,032,348			—			4,726		(6,037,074	)		—
Non-pension postemployment benefit obligations		127,768			—			955		—			128,723
Long-term pension obligations		65,647			—			1,009		—			66,656
Other long-term liabilities		82,780			—			9,286		—			92,066
		6,829,420			—			25,065		(6,037,074	)		817,411
Shareholder’s (Deficit) Equity		(96,193	)	$	6,060,616			271,504		(6,332,120	)		(96,193	)
Total Liabilities & Shareholder’s (Deficit) Equity	$	6,903,546		$	6,054,100		$	405,414	$	(12,369,194	)	$	993,866

F-185

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands)

DECEMBER 31, 2002

CONDENSED CONSOLIDATING BALANCE SHEET

	Borden Chemical Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
ASSETS
Current Assets
Cash and equivalents	$	1,838		$	116		$	12,786			—		$	14,740
Restricted cash		67,049			—			—			—			67,049
Accounts receivable		81,120			121			89,581			—			170,822
Accounts receivable from affiliates		5,822			18			—			—			5,840
Inventories:
Finished and in-process goods		28,895			—			16,283			—			45,178
Raw materials and supplies		23,002			—			18,077			—			41,079
Deferred income taxes		27,074			—			1,795			—			28,869
Other current assets		9,261			28			3,943			—			13,232
		244,061			283			142,465			—			386,809
Investments and Other Assets
Investment in subsidiaries		6,089,381			16,115			—		$	(6,105,496	)		—
Deferred income taxes		95,226			—			23,142			—			118,368
Loans and interest receivable from affiliates		—			5,919,997			11,279			(5,931,276	)		—
Other assets		14,844			—			4,771			—			19,615
		6,199,451			5,936,112			39,192			(12,036,772	)		137,983
Property and Equipment
Land		24,872			—			7,092			—			31,964
Buildings		67,866			—			30,447			—			98,313
Machinery and equipment		407,284			555			241,943			—			649,782
		500,022			555			279,482			—			780,059
Less accumulated depreciation		(234,584	)		(255	)		(105,482	)		—			(340,321	)
		265,438			300			174,000			—			439,738
Goodwill		32,525			—			7,115			—			39,640
Other intangible assets		6,006			—			1,604			—			7,610
Total Assets	$	6,747,481		$	5,936,695		$	364,376		$	(12,036,772	)	$	1,011,780

F-186

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands)

DECEMBER 31, 2002

CONDENSED CONSOLIDATING BALANCE SHEET—(Continued)

	Borden Chemical Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries		Eliminations			Consolidated
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities
Accounts and drafts payable	$	64,919		$	94		$	48,536	$	—		$	113,549
Accounts payable to affiliate		(13,225	)		(7,920	)		21,145		—			—
Debt payable within one year		821			—			1,958		—			2,779
Loans payable to affiliates		84,680			—			—		—			84,680
Income taxes payable		40,054			—			15,910		—			55,964
Interest payable		12,136			—			—		—			12,136
Other current liabilities		56,157			1,075			21,725		—			78,957
		245,542			(6,751	)		109,274		—			348,065
Other Liabilities
Long-term debt		521,916			—			1,371		—			523,287
Long-term loans payable to affiliates		5,862,264			—			69,012		(5,931,276	)		—
Non-pension postemployment benefit obligations		144,652			—			732		—			145,384
Long-term pension obligation		68,752			—			1,464		—			70,216
Other long-term liabilities		65,248			107			20,366		—			85,721
		6,662,832			107			92,945		(5,931,276	)		824,608
Shareholders’ Equity (Deficit)		(160,893	)		5,943,339			162,157		(6,105,496	)		(160,893	)
Total Liabilities and Shareholders’ Equity (Deficit)	$	6,747,481		$	5,936,695		$	364,376	$	(12,036,772	)	$	1,011,780

F-187

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands)

FOR THE YEAR ENDED DECEMBER 31, 2003

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

	Borden Chemical Inc.			Combined Subsidiary Guarantors			Combined Non- Guarantor Subsidiaries			Eliminations			Consolidated
Cash Flows from (used in) Operating Activities
Net loss	$	22,976		$	129,561		$	36,954		$	(166,515	)	$	22,976
Adjustments to reconcile net income to net cash from (used in) operating activities:
Non-cash affiliated interest(1)		107,837			(107,837	)		—			—			—
Equity in earnings of subsidiaries		(166,515	)		—			—			166,515			—
Non-cash allocation of corporate expenses		(16,150	)		—			16,150			—			—
Depreciation and amortization		29,789			—			17,530			—			47,319
Deferred tax provision		2,588			—			3,635			—			6,223
Business realignment expense (income) and impairments		5,644			—			(896	)		—			4,748
(Gain) loss on the sale of assets		(1,061	)		—			315			—			(746	)
Deferred compensation expense		1,191			—			—			—			1,191
Other non-cash adjustments		727			—			343			—			1,070
Net change in assets and liabilities:
Accounts receivable		4,562			—			(7,779	)		—			(3,217	)
Inventories		4,490			—			6,241			—			10,731
Accounts and drafts payable		(2,886	)		—			5,378			—			2,492
Income taxes		(12,993	)		—			(17,298	)		—			(30,291	)
Other assets		(4,207	)		(1,245	)		9,033			—			3,581
Other liabilities		9,822			896			(44,855	)		—			(34,137	)
		(14,186	)		21,375			24,751			—			31,940
Cash Flows (used in) from Investing Activities
Capital expenditures		(24,922	)		—			(16,898	)		—			(41,820	)
Purchase of business		(3,140	)		—			(11,551	)		—			(14,691	)
Proceeds from the sale of assets		6,613			—			7,584			—			14,197
		(21,449	)		—			(20,865	)		—			(42,314	)
Cash flows from (used in) Financing Activities
Net short-term debt borrowings		1,727			—			3,661			—			5,388
Borrowings of long-term debt		207			—			7,718			—			7,925
Repayments of long-term debt		(1,246	)		—			—			—			(1,246	)
Affiliated loan repayments		(53,584	)		(9,340	)		(3,496	)		—			(66,420	)
Decrease in restricted cash		67,049			—			—			—			67,049
Dividends received (paid)		12,000			(12,000	)		—			—			—
Capital contribution from affiliates		9,300			—			—			—			9,300
Repurchases, net of sale, of common stock (from) to management		(286	)		—			—			—			(286	)
		35,167			(21,340	)		7,883			—			21,710
Effect of exchange rates on cash		—			—			2,086			—			2,086
Increase (decrease) in cash and equivalents		(468	)		35			13,855			—			13,422
Cash and equivalents at beginning of year		1,838			116			12,786			—			14,740
Cash and equivalents at end of year	$	1,370		$	151		$	26,641		$	—		$	28,162

(1) Interest on affiliated debt to certain guarantor subsidiaries is settled by increasing the loan principal.

F-188

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands)

FOR THE YEAR ENDED DECEMBER 31, 2002

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

	Borden Chemical, Inc.			Combined Subsidiary Guarantor			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash Flows from (used in) Operating Activities
Net (loss) income	$	(36,583	)	$	163,099		$	(59,262	)	$	(103,837	)	$	(36,583	)
Adjustments to reconcile net (loss) income to net cash (used in) from operating activities:
Non-cash affiliated interest (1)		144,340			(144,340	)		—			—			—
Equity in earnings of subsidiaries		(103,837	)		—			—			103,837			—
Non-cash allocation of corporate expenses		(16,182	)		—			16,182			—			—
Depreciation and amortization		31,034			—			16,913			—			47,947
Deferred tax provision		15,132			—			891			—			16,023
Business realignment expense and impairments		5,316			—			14,383			—			19,699
Loss on the sale of assets		217			—			65			—			282
Deferred compensation expense		892			—			—			—			892
Cumulative effect of change in accounting principle		—			—			29,825			—			29,825
Other non-cash adjustments		(867	)		—			45			—			(822	)
Net change in assets and liabilities:
Accounts receivable		(15,812	)		—			3,216			—			(12,596	)
Inventories		(2,466	)		—			5,018			—			2,552
Accounts and drafts payable		(30,360	)		—			22,057			—			(8,303	)
Income taxes		(15,220	)		—			(6,560	)		—			(21,780	)
Other assets		14,239			(2,466	)		(14,344	)		—			(2,571	)
Other liabilities		1,721			743			(25,733	)		—			(23,269	)
		(8,436	)		17,036			2,696			—			11,296
Cash Flows (used in) from Investing Activities
Capital expenditures		(29,229	)		—			(9,544	)		—			(38,773	)
Proceeds from the sale of businesses		7,135			—			3,102			—			10,237
Proceeds from the sale of assets		110,000			—			—			—			110,000
		87,906			—			(6,442	)		—			81,464
Cash Flows (used in) from Financing Activities
Net short-term debt borrowings (repayments)		(579	)		—			1,834			—			1,255
Repayments of long-term debt		(8,769	)		—			(1,995	)		—			(10,764	)
Affiliated loans (repayments) borrowings		23,070			(16,940	)		—			—			6,130
Increase in restricted cash		(66,165	)		—			—			—			(66,165	)
Payment of note payable to unconsolidated subsidiary		(31,581	)		—			—			—			(31,581	)
Repurchases, net of sale, of common stock (from) to management		(591	)		—			—			—			(591	)
		(84,615	)		(16,940	)		(161	)		—			(101,716	)
Effect of exchange rates on cash		—			—			(936	)		—			(936	)
Increase (decrease) in cash and equivalents		(5,145	)		96			(4,843	)		—			(9,892	)
Cash and equivalents at beginning of year		6,983			20			17,629			—			24,632
Cash and equivalents at end of year	$	1,838		$	116		$	12,786		$	—		$	14,740

(1) Interest on affiliated debt to certain guarantor subsidiaries is settled by increasing the loan principal.

F-189

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands)

FOR THE YEAR ENDED DECEMBER 31, 2001

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

	Borden Chemical Inc.			Combined Subsidiary Guarantors			Combined Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash Flows from (used in) Operating Activities
Net (loss) income	$	(124,800	)	$	299,122		$	(108,535	)	$	(190,587	)	$	(124,800	)
Adjustments to reconcile net income (loss) to net cash from (used in) operating activities:
Non-cash affiliated interest(1)		278,209			(278,209	)		—			—			—
Equity in earnings of subsidiaries		(190,587	)		—			—			190,587			—
Depreciation and amortization		26,846			—			32,515			—			59,361
Deferred Tax (Benefit) Expense		(25,982	)		—			99			—			(25,883	)
Business Realignment Expense and Impairments		5,743			—			120,665			—			126,408
(Gain) loss on the sale of assets		(3,925	)		—			153			—			(3,772	)
Loss on divestiture of businesses		2,303			—			—			—			2,303
Investment write-downs and other charges		27,000			—			—			—			27,000
Other non-cash adjustments		2,992			—			71			—			3,063
Net change in assets and liabilities
Accounts receivable		31,285			—			413			—			31,698
Inventories		11,312			—			3,367			—			14,679
Accounts and drafts payable		(220	)		—			(20,010	)		—			(20,230	)
Income Taxes		39,176			—			4,954			—			44,130
Other Assets		6,207			2,532			(81,127	)		—			(72,388	)
Other Liabilities		(8,705	)		(5,917	)		48,173			—			33,551
		76,854			17,528			738			—			95,120
Cash Flows (used in) from Investing Activities
Capital Expenditures		(22,897	)		—			(24,511	)		—			(47,408	)
Proceeds from the sale of businesses		90,665			—			6,312			—			96,977
Proceeds from the sale of assets		109,603			48,285			3,000			—			160,888
Other, net		524			—			—			—			524
		177,895			48,285			(15,199	)		—			210,981
Cash flows from (used in) Financing Activities
Net short-term debt repayments		(21,670	)		—			(20,093	)		—			(41,763	)
Net Borrowings of long-term debt		2,074			—			1,326			—			3,400
Affiliated loans (repayments/loans) borrowings/receipts		(187,465	)		(52,274	)		27,307			—			(212,432	)
Decrease (increase) in restricted cash		(884	)		—			—			—			(884	)
Interest received from parent		48,578			—			—			—			48,578
Common stock dividends paid		(35,019	)		(13,559	)		—			—			(48,578	)
Preferred stock dividends paid		(73,724	)		—			—			—			(73,724	)
Capital contribution from affiliates		17,000			—			—			—			17,000
		(251,110	)		(65,833	)		8,540			—			(308,403	)
Increase (decrease) in cash and equivalents	$	3,639		$	(20	)	$	(5,921	)		—		$	(2,302	)
Cash and equivalents at beginning of year		3,344			40			23,550			—			26,934
Cash and equivalents at end of year	$	6,983		$	20		$	17,629			—		$	24,632

(1) Interest on affiliated debt to certain guarantor subsidiaries is settled by increasing the loan principal.

F-190

BORDEN CHEMICAL, INC.

Notes to Consolidated Financial Statements—(Continued)

(Dollars in thousands except per share data)

Deferred Tax Valuation Allowance

In connection with the expected sale of BHI, the Company has recorded a non-cash charge of $137,110 to income tax expense in the second quarter of 2004 to increase the valuation reserves related to the Company’s net domestic deferred tax asset.

As a result of the expected sale of the Company, certain limitations will be placed on the utilization of the attributes under U.S. tax law, and the new financing discussed in Note 1 will limit the Company’s flexibility with respect to prior tax planning strategies. As a result, the Company no longer believes that utilization of the net domestic deferred tax asset is more likely than not to occur.

The Company’s remaining net deferred tax liability of $32,014 is reflected in the Consolidated Balance Sheet at June 30, 2004 as a current deferred asset of $23,476 and a long-term deferred tax asset of $2,320, offset by a current deferred tax liability of $3,960 included in other current liabilities and long-term deferred tax liability of $53,850 included in Other long-term liabilities.

F-191

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of

Borden Chemical, Inc.:

We have audited the consolidated balance sheet of Borden Chemical, Inc. (a wholly owned subsidiary of BHI Acquisition Corp., which is a majority owned subsidiary of BHI Investment, LLC) and subsidiaries (the “Company”) as of December 31, 2004, and the related consolidated statements of operations and comprehensive loss, shareholder’s deficit, and cash flows for the period from August 12, 2004 to December 31, 2004. Such financial statements are not presented separately herein. 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 audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on test basis, evidence supporting the amounts and disclosure in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Borden Chemical, Inc. and subsidiaries at December 31, 2004, and the results of their operations and their cash flows for the period from August 12, 2004 to December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 20, the accompanying balance sheet has been restated.

DELOITTE & TOUCHE LLP

Columbus, Ohio

April 24, 2005, except for the effects of

    Notes 20 and 21, as to which the dates are

    April 27, 2005 and August 18, 2005, respectively

F-192

[THIS PAGE INTENTIONALLY LEFT BLANK]

F-193

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited)

HEXION SPECIALTY CHEMICALS CANADA, INC.

	Nine Months ended September 30,
	2005			2004
	(In millions)
Net sales	$	857		$	460
Cost of sales		733			396
Gross profit		124			64
Selling, general & administrative expense		67			31
Transaction related costs (See Note 4)		7			19
Other operating expense		3			4
Operating income		47			10
Interest expense		5			1
Affiliated interest expense (See Note 6)		29			5
Loss on foreign exchange hedge (See Note 3)		9			—
Other non-operating income, net		(2	)		(1	)
Income before income tax		6			5
Income tax expense		5			20
Net income (loss)	$	1		$	(15	)
Comprehensive loss	$	(29	)	$	(21	)

See Notes to Condensed Consolidated Financial Statements

F-194

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

HEXION SPECIALTY CHEMICALS CANADA, INC.

	September 30, 2005			December 31, 2004
	(In millions, except share data)
ASSETS
Current Assets
Cash and equivalents	$	80		$	58
Accounts receivable (less allowance for doubtful accounts of $9 in 2005 and $3 in 2004)		223			105
Accounts receivable from affiliates (see Note 4)		6			—
Inventories:
Finished and in-process goods		77			17
Raw materials and supplies		51			22
Other current assets		18			4
		455			206
Other Assets		13			20
Property and Equipment
Land		20			7
Buildings		58			33
Machinery and equipment		418			295
		496			335
Less accumulated depreciation		(154	)		(138	)
		342			197
Goodwill		50			10
Other Intangible Assets, net		70			5
Total Assets	$	930		$	438
LIABILITIES AND SHAREHOLDER’S EQUITY
Current Liabilities
Accounts and drafts payable	$	113		$	90
Accounts payable to affiliates (See Note 4)		11			5
Debt payable within one year		41			8
Affiliated interest payable		—			11
Other current liabilities		72			24
		237			138
Other Liabilities
Long-term debt		24			7
Affiliated long-term debt (See Note 6)		454			285
Affiliated royalties (See Note 4)		8			8
Deferred income taxes		43			25
Other long-term liabilities		118			7
		647			332
Commitments and Contingencies (See Note 8)
Shareholder’s Equity (Deficit)
Common stock—no par value; authorized shares unlimited, issued and outstanding 489,866 shares at September 30, 2005 and December 31, 2004		3			3
Paid-in capital		109			2
Accumulated other comprehensive loss		(87	)		(57	)
Retained earnings		21			20
		46			(32	)
Total Liabilities and Shareholder’s Equity (Deficit)	$	930		$	438

See Notes to Condensed Consolidated Financial Statements

F-195

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

HEXION SPECIALTY CHEMICALS CANADA, INC.

	Nine months ended September 30,
	2005			2004
	(In millions)
Cash Flows from (used in) Operating Activities
Net income (loss)	$	1		$	(15	)
Adjustments to reconcile net loss to net cash from (used in) operating activities:
Depreciation and amortization		25			13
Allocations of corporate overhead, net (See Note 4)		12			27
Deferred tax provision		4			15
Other non-cash adjustments		(2	)		3
Net change in assets and liabilities:
Accounts receivable		11			1
Inventories		30			(5	)
Accounts and drafts payable		(55	)		18
Income taxes		(2	)		(12	)
Other assets		—			(10	)
Other liabilities		3			3
		27			38
Cash Flows (used in) from Investing Activities
Capital expenditures		(12	)		(15	)
Acquisition of business, net of cash acquired		(230	)		—
Proceeds from the sale of assets		—			8
		(242	)		(7	)
Cash Flows from (used in) Financing Activities
Net short-term (borrowings) repayments		(6	)		1
Borrowings of long-term debt		18			—
Repayments of long-term debt		(18	)		(2	)
Borrowings (repayments) of affiliated long-term debt		245			(13	)
Common stock dividends paid		—			(1	)
		239			(15	)
Effect of exchange rates on cash and equivalents		(2	)		1
Increase in cash and equivalents		22			17
Cash and equivalents at beginning of period		58			23
Cash and equivalents at end of period	$	80		$	40
Supplemental Disclosures of Cash Flow Information
Cash paid:
Interest, net	$	42		$	3
Income taxes, net		6			13
Non-cash activity:
Affiliate note issued to purchase businesses, net of note payable to parent acquired (See Notes 1 and 6)	$	—		$	222
Distribution to parent – acquisition of subsidiaries previously combined (See Note 1)		—			(222	)
Capital contribution from parent (See Note 6)		95			—

See Notes to Condensed Consolidated Financial Statements

F-196

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDER’S EQUITY (DEFICIT) (Unaudited)

HEXION SPECIALTY CHEMICALS CANADA, INC.

	Common Stock		Paid-in Capital		Accumulated Other Comprehensive Loss (a)			Retained Earnings		Total
	(In millions)
Balance, December 31, 2004	$	3	$	2	$	(57	)	$	20	$	(32	)
Net income		—		—		—			1		1
Translation adjustments		—		—		(30	)		—		(30	)
Comprehensive loss		—		—		—			—		(29	)
Capital contribution from parent (See Note 6)		—		95		—			—		95
Allocations of corporate overhead, net (See Note 4)		—		12		—			—		12
Balance, September 30, 2005	$	3	$	109	$	(87	)	$	21	$	46

(a) Accumulated other comprehensive loss at September 30, 2005 represents $85 of net foreign currency translation losses and a $2 minimum pension liability adjustment. Accumulated other comprehensive loss at December 31, 2004 represents $55 of net foreign currency translation losses and a $2 minimum pension liability adjustment.

See Notes to Condensed Consolidated Financial Statements

F-197

HEXION SPECIALTY CHEMICALS CANADA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In millions, except rates of exchange)

1. Background and Nature of Operations

Hexion Specialty Chemicals Canada, Inc. (“Hexion Canada” or “the Company”) is engaged in the manufacture and distribution of forest products and industrial resins, formaldehyde, moulding compounds, and other specialty and industrial chemicals. At September 30, 2005, the Company’s operations included 31 manufacturing facilities in Canada, Brazil, Australia, Malaysia, Germany, Italy, Spain, Finland, the Czech Republic, the Netherlands and the United Kingdom (the “U.K.”). Hexion Canada is 100% owned by Hexion Specialty Chemicals, Inc. (“Hexion”).

Hexion Canada was formerly known as Borden Chemical Canada, Inc. (“BCCI”). Hexion was formed on May 31, 2005 upon the combination of certain Apollo Management, L.P. (“Apollo”) controlled companies (“the Combination”), including Hexion Canada’s parent, Hexion, formerly known as Borden Chemical, Inc. (“BCI”). In conjunction with the Combination, BCCI changed its name to Hexion Specialty Chemicals Canada, Inc.

Prior to the Combination, on April 29, 2005, Hexion Canada, through its wholly owned subsidiary, National Borden Chemical Germany GmbH (“NBCG”), completed its acquisition of Bakelite Aktiengesellschaft (“Bakelite”). See Note 3.

On August 12, 2004, concurrent with the acquisition (the “Acquisition”) of BCI by an affiliate of Apollo, the Company acquired most of Hexion’s foreign subsidiaries for a note payable of CDN$343 (See Note 6). Since the reorganization was between related parties, and Hexion elected not to apply push-down accounting relating to the Acquisition, Hexion Canada’s basis in the acquired subsidiaries is Hexion’s historical cost basis. As a result, Hexion Canada’s net purchase price of the assets acquired of $222 is reflected in Shareholders’ equity as a distribution to parent.

The Acquisition was partially financed through private debt offerings issued by two wholly owned subsidiaries of Hexion; and the debt is guaranteed by Hexion and certain of its domestic subsidiaries (the “Guarantors”). The private debt offerings and related guarantees are senior obligations secured by a second-priority lien (subject to certain exceptions and permitted liens) on certain of the Guarantors’ existing and future domestic assets, including the stock of Hexion Canada.

Hexion incurs various costs, including corporate and administrative expenses, on behalf of the Company; the allocation of these costs is reflected in these financial statements. See Note 4.

2. Basis of Presentation

In the opinion of management, all adjustments, consisting only of normal, recurring adjustments considered necessary for a fair presentation, have been included. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these unaudited Financial Statements be read in conjunction with the financial statements, accounting policies and notes included in the Company’s audited financial statements for the year ended December 31, 2004. Results for the interim periods are not necessarily indicative of results for the full year.

The following is an update of the significant accounting policies followed by the Company:

Stock-Based Compensation—Effective January 1, 2005, Hexion elected to adopt SFAS No. 123(R) (revised 2004), Share-Based Payment. Under the provisions of SFAS No. 123(R), stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the requisite

F-198

HEXION SPECIALTY CHEMICALS CANADA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

service period. As Hexion was considered a nonpublic entity, at the date of adoption, that used the minimum value method for pro forma disclosures under SFAS No. 123, Accounting for Stock-Based Compensation, Hexion is required to apply the prospective transition method. As such, Hexion applies the statement to any new awards and to any awards modified, repurchased or cancelled since January 1, 2005. The adoption of SFAS No. 123(R) had no initial impact on the Company’s financial condition and results of operations.

Previously, Hexion accounted for stock based awards under APB No. 25 and applied the minimum value method to determine fair value for disclosure requirements under SFAS No. 123 and SFAS No. 148, Accounting for Stock-Based Compensation —Transition and Disclosure, an amendment of SFAS No. 123. Pro forma net loss under SFAS No. 148 was not materially different from net loss for the nine months ended September 30, 2004. As of September 30, 2005, all awards outstanding are accounted for under SFAS No. 123(R). See Note 4 for stock-based compensation expense allocated to the Company.

Recently Issued Accounting Standards

In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143. This Interpretation clarifies that the term “conditional asset retirement obligation” as used in FASB No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation, when incurred, if the fair value of the liability can be reasonably estimated. The Interpretation is effective for the Company no later than the end of the fiscal year ending on December 31, 2005. The Company does not expect this Interpretation to have a material effect on its financial statements.

In June 2005, the FASB staff issued FASB Staff Position 143-1, Accounting for Electronic Equipment Waste Obligations (FSP 143-1), to address the accounting for obligations associated with the Directive 2002/96/EC on Waste Electrical and Electronic Equipment (the “Directive”) adopted by the European Union. The Directive effectively obligates a commercial user to incur costs associated with the retirement of a specified asset that qualifies as historical waste equipment. The commercial user should apply the provisions of SFAS 143 and FIN 47 discussed above. FSP 143-1 shall be applied the later of the first reporting period ending after June 8, 2005 or the date of the adoption of the law by the applicable EU-member country. Hexion Canada adopted the FSP at certain of its European operations where applicable legislation was adopted. The impact of the adoption on the Company’s financial condition or results of operations was not significant.

3. Acquisition

On April 29, 2005, Hexion Canada, through its wholly owned subsidiary, National Borden Chemical Germany GmbH, completed its acquisition of Bakelite Aktiengesellschaft (“Bakelite”) pursuant to a share purchase agreement with RÜTGERS AG and RÜTGERS Bakelite Projekt GmbH (collectively, the “Sellers”) dated October 6, 2004 (the “Bakelite Acquisition”) for a net purchase price of approximately €201, or approximately $259, subject to certain adjustments. The Company incurred direct costs associated with the acquisition of $39, which have been capitalized as part of the purchase in accordance with SFAS 141 and are included in the net purchase price. Based in Iserlohn-Letmathe, Germany, Bakelite is a producer of phenolic and epoxy thermosetting resins and molding compounds with 13 manufacturing facilities and 1,700 employees, primarily in Europe. The acquisition provides the Company with additional phenolic resin technology and products and a new epoxy resin technology platform.

The Bakelite Acquisition was financed primarily through an affiliate loan (See Note 6). The Bakelite Acquisition has been accounted for under the purchase method of accounting. As such, Bakelite’s results of operations are included in the Company’s Financial Statements since the date of acquisition.

F-199

HEXION SPECIALTY CHEMICALS CANADA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

On December 14, 2004, in order to mitigate the risk of foreign currency exposure related to the Bakelite Acquisition, Hexion and the Company entered into a foreign currency forward position of $235 to purchase Euros with U.S. Dollars at a rate of $1.3430, contingent upon the close of the transaction. On March 31, 2005, the contract was adjusted to have a target settlement date of April 29, 2005 and a new exchange rate of $1.3446. In conjunction with the consummation of the Bakelite Acquisition, the Company realized an aggregate loss of approximately $9 on this contract, which is included in Other non-operating expense in the Condensed Consolidated Statement of Operations.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. Fair values are based upon preliminary appraisals and internal studies and are subject to final adjustments.

	Fair value at April 29, 2005
Current assets	$	290
Property, plant and equipment		166
Other assets		4
Intangible assets		72
Goodwill		46
Total assets acquired		578
Current liabilities		158
Long-term debt		21
Other liabilities		140
Total liabilities assumed		319
Net assets acquired	$	259

Of the $72 of acquired intangible assets, $19 was assigned to trade names, $16 was assigned to technology and $37 was assigned to customer relationships. The acquired intangible assets with finite lives have a weighted average useful life of approximately 14 years. The trade names have a 30-year useful life, technology has a 13-year useful life and customer relationships have a 14-year weighted average useful life. The $46 of goodwill is not expected to be deductible for tax purposes.

The following unaudited pro forma financial information combines the consolidated results of operations as if the Bakelite Acquisition had occurred as of the beginning of the periods presented. Pro forma adjustments include only the effects of events directly attributable to the acquisition. The pro forma adjustments reflected in the tables below include amortization of intangibles, depreciation adjustments due to the write-up of property, plant and equipment to estimated fair market value, interest expense on the acquisition debt and related income tax effects.

	Nine months ended September 30,
	2005			2004
Net sales	$	1,104		$	940
Net loss		(5	)		(23	)

The Net loss for the nine months ended September 30, 2005 includes $7 of cost of sales related to inventory sold that was stepped-up at the acquisition date. The pro forma financial information does not necessarily reflect the operating results that would have occurred had the acquisition been consummated as of the beginning of the periods presented, nor is such information indicative of future operating results.

F-200

HEXION SPECIALTY CHEMICALS CANADA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. Related Party Transactions

Hexion incurs various administrative and operating costs on behalf of Hexion Canada that are reimbursed by the Company. These costs include engineering and technical support, purchasing, quality assurance, sales and customer service, information systems, research and development and certain administrative services. These service costs have been allocated to the Company generally based on sales or sales volumes and when determinable, based on the actual usage of resources. These costs are included within Selling, general & administrative expense and Cost of goods sold and totaled $5 for each of the nine months ended September 30, 2005 and 2004. In addition, Hexion maintains certain insurance policies, primarily excess liability coverage, that benefit the Company. Amounts pertaining to these policies and allocated to the Company based upon sales were $2 and $1 for the nine months ended September 30, 2005 and 2004, respectively.

The Company sells finished goods and certain raw materials to Hexion and certain of its subsidiaries. Total sales were $38 and $23 for the nine months ended September 30, 2005 and 2004, respectively. In addition, the Company purchases raw materials and finished goods from Hexion and certain of its subsidiaries, which totaled $36 and $11 for the nine months ended September 30, 2005 and 2004, respectively. These sales and purchases are priced similarly to prices charged to outside customers.

Total accounts payable, net of receivables, relating to these intercompany transactions was $5 at September 30, 2005 and December 31, 2004.

In addition to direct charges, Hexion provides certain administrative services that are not reimbursed by the Company. These costs include corporate controlled expenses such as executive management, legal, health and safety, accounting, tax and credit, and have been allocated herein to the Company on the basis of Net sales. The charge to Finance includes allocated stock-based compensation expense of $3 for the nine months ended September 30, 2005. Management believes that the amounts allocated in such a manner are reasonable and consistent and are necessary in order to properly depict the financial results of the Company on a stand-alone basis. However, the amounts are not necessarily indicative of the costs that would have been incurred if the Company had operated independently. This expense is included in Selling, general & administrative expense with the offsetting credit recorded in Shareholder’s equity (deficit). There is no income tax provided on these amounts as they are not deductible.

The following table summarizes these allocations for the nine months ended September 30:

	2005		2004
Executive Group	$	3	$	3
Health, Safety and Environmental Services		1		—
Finance		7		5
	$	11	$	8

In addition to the Hexion administrative services costs, the Company was allocated a share of the transaction costs associated with the Acquisition totaling $7 and $19 for the nine month periods ended September 30, 2005 and 2004 that is classified in Transaction related costs in the Condensed Consolidated Statements of Operations. The allocation of these costs was made on the basis of Net sales. The offsetting credit relating to the allocations is included in Shareholder’s equity (deficit). In 2005, the Company reimbursed Hexion $6 for amounts related to prior year allocations.

Prior to 2001, the Company incurred royalties for the use in operations of certain trademarks and patents owned by Hexion. At September 30, 2005 and December 31, 2004, the Company had amounts due to Hexion under these arrangements of $8. These amounts are included as Affiliated royalties and are classified as long-term due to restrictions on the ability to repay.

F-201

HEXION SPECIALTY CHEMICALS CANADA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In conjunction with the Bakelite Acquisition, the Company sold the U.S. businesses of Bakelite to Hexion for $1. At September 30, 2005, this amount is included as Accounts receivable from affiliates.

In connection with the Bakelite Acquisition, in exchange for deal structuring and negotiating provided by Apollo, the Company made payments to Apollo in the amount of $4. These amounts are considered direct costs of the acquisition and have been capitalized as part of the purchase (See Note 3).

See Note 6 for a description of the Companies’ affiliated financing activities.

5. Debt

In May 2005, Hexion entered into a new $775 senior secured credit facility (“Hexion Credit Facility”) and replaced and repaid certain other credit facilities. The Hexion Credit Facility has a $225 revolving credit facility and $500 term loan facility. The facility also provides a $50 synthetic letters of credit facility (“LOCs”). Repayment of 1% of the term loan per annum must be made quarterly with the balance payable upon the final maturity date. Further, Hexion may be required to make additional repayments on the term loan beginning in the second quarter of 2007 if Hexion generates excess cash flow, as defined in the agreement. Interest on the term and revolving loan facilities is LIBOR plus 2.5% or the higher of prime rate plus 1% or the Federal Funds Rate plus 1.5%. Loans made in Canadian dollars will carry interest at the Canadian Bankers’ Acceptance rate plus 2.5% or the higher of prime rate plus 1% or average banker’s acceptance rate plus 1.5%. Loans made in sterling will carry interest at LIBOR plus 2.5% or the rate quoted by JPMorgan Chase Bank, N.A. (“JPMCB”) as its base rate for such loans plus 1%. Loans denominated in euros will carry interest at EURO LIBOR plus 2.5% or the rate quoted by JPMCB as its base rate for such loans plus 1%. Interest rates are subject to reduction based on an improved leverage ratio. The Hexion Credit Facility has commitment fees (other than with respect to the synthetic LOC facility) equal to 0.5% per annum of the unused line fee plus a fronting fee of 0.25% of the aggregate face amount of outstanding LOCs. The synthetic LOC facility has a commitment fee of 0.1% per annum. The Hexion Credit Facility is secured by substantially all the assets of Hexion, subject to certain exceptions. The Hexion Credit Facility contains, among other provisions, restrictive covenants regarding indebtedness, payments and distributions, mergers and acquisitions, asset sales, affiliate transactions, capital expenditures, and the maintenance of certain financial ratios. Payment of borrowings under the Hexion Credit Facility may be accelerated in the event of a default. Events of default include the failure to pay principal and interest when due, a material breach of representation or warranty, covenant defaults, events of bankruptcy and a change of control.

Certain of the Hexion Canada subsidiaries are eligible to participate in the Hexion Credit Facility. Currently, the subsidiaries located in Germany and the U.K may each borrow a maximum of $75 while the Canadian operating subsidiary may borrow a maximum of $50. At September 30, 2005, Hexion Canada’s subsidiaries have no borrowings or letters of credit outstanding against the Hexion Credit Facility. Cross collateral guarantees exist whereby Canada is a guarantor for the European borrowings under the Hexion Credit Facility; while Europe guarantees against any default by Canada.

6. Loans Due To Affiliates

As discussed in Note 1, to finance the 2004 acquisition of the foreign subsidiaries from Hexion, the Company assumed a fixed rate note of CDN$343, or approximately $293, at September 30, 2005, payable to Hexion Nova Scotia Finance ULC (“Nova Scotia”), a subsidiary of Hexion. The interest rate on the note is 10%. Interest expense related to this note totaled $22 and $4 for the nine months ended September 30, 2005 and 2004, respectively.

F-202

HEXION SPECIALTY CHEMICALS CANADA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

To finance the acquisition of Bakelite in 2005, Hexion Canada also borrowed CDN$308, or approximately $263, at September 30, 2005, from Nova Scotia. The loan has a variable interest rate equal to the three month US LIBOR rate plus 650 basis points, which was approximately 10.1% at September 30, 2005, and becomes due July 15, 2010. Approximately CDN$119 (or $95) was effectively repaid as of September 30, 2005, via a capital contribution from Hexion to the Company, which is reflected in Shareholder’s (deficit) equity. The remaining outstanding loan balance at September 30, 2005 is CDN$189, or approximately $161. Interest expense related to this loan totaled $7 for the period ended September 30, 2005.

In conjunction with the Acquisition, Hexion contributed a demand note payable by the Company to a newly formed subsidiary, which was subsequently acquired by the Company, therefore the loan and related interest was eliminated subsequent to August 12, 2004. Interest expense to Hexion totaled $1 for the period ended September 30, 2004.

7. Guarantees, Indemnifications and Warranties

Standard Guarantees / Indemnifications

In the ordinary course of business, the Company enters into numerous agreements that contain standard guarantees and indemnities whereby third parties are indemnified for, among other things, breaches of representations and warranties. Such guarantees or indemnifications are granted under various agreements, including those governing (i) purchases and sales of assets or businesses, (ii) leases of real property, (iii) licenses of intellectual property, (iv) long-term supply agreements and (v) agreements with public authorities on subsidies received for designated research and development projects. The guarantees or indemnifications issued are for the benefit of the (i) buyers in sale agreements and sellers in purchase agreements, (ii) landlords or lessors in lease contracts, (iii) licensors or licensees in license agreements, (iv) vendors or customers in long-term supply agreements and (v) governments or agencies subsidizing research or development

These parties may also be indemnified against any third party claim resulting from the transaction that is contemplated in the underlying agreement. Additionally, in connection with the sale of assets and the divestiture of businesses, the Company may agree to indemnify the buyer with respect to liabilities related to the pre-closing operations of the assets or businesses sold. Indemnities related to pre-closing operations generally include tax liabilities, environmental liabilities and employee benefit liabilities not assumed by the buyer in the transaction.

Indemnities related to the pre-closing operations of sold assets normally do not represent additional liabilities to the Company, but simply serve to protect the buyer from potential liability associated with existing obligations at the time of sale. As with any liability, the Company has accrued for those pre-closing obligations that are considered probable and reasonably estimable. Such amounts are not significant.

While some of these guarantees extend only for the duration of the underlying agreement, many survive the expiration of the term of the agreement or extend into perpetuity (unless subject to a legal statute of limitations). There are no specific limitations on the maximum potential amount of future payments that the Company could be required to make under its guarantees nor is the Company able to develop an estimate of the maximum potential amount of future payments to be made under these guarantees as the triggering events are not predictable. With respect to certain of the aforementioned guarantees, the Company maintains limited insurance coverage that mitigates potential payments to be made.

Related Party Guarantees

Hexion Canada guarantees Hexion’s $34 Parish of Ascension Industrial Revenue Bonds, for which Hexion pays the Company a guarantor fee annually.

F-203

HEXION SPECIALTY CHEMICALS CANADA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Warranties

The Company does not make express warranties on its products, other than that they comply with their defined specifications; therefore, no warranty liability has been recorded. Adjustments for product quality claims are not material and are charged against sales revenues.

8. Commitments and Contingencies

Environmental Matters

Because the operations of the Company involve the use, handling, processing, storage, transportation and disposal of hazardous materials, it is subject to extensive environmental regulation and is exposed to the risk of claims for environmental remediation or restoration. In addition, violations of environmental laws or permits may result in restrictions being imposed on operating activities, substantial fines, penalties, damages or other costs, any of which could have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

Accruals for environmental matters are recorded following the guidelines of Statement of Position 96-1, “Environmental Remediation Liabilities,” when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Environmental accruals are reviewed on an interim basis and as events and developments warrant. Based on management’s estimates, which are determined through historical experience and consultation with outside experts, the Company has recorded liabilities, relating to nine locations of approximately $4 at September 30, 2005 and five locations of approximately $4 at December 31, 2004 for all probable environmental remediation, indemnification and restoration liabilities. These amounts include estimates of unasserted claims the Company believes are possible of loss and reasonably estimable.

Based on currently available information and analysis, management believes that it is reasonably possible that costs associated with such sites may fall within a range of $3 to $7, in the aggregate, at September 30, 2005. This estimate of the range of reasonably possible costs is less certain than the estimates upon which the liabilities are based, and in order to establish the upper end of such range, assumptions less favorable to the Company among the range of reasonably possible outcomes were used. As with any estimate, if facts or circumstances change, the final outcome could differ materially from these estimates. The factors influencing the ultimate outcome include the methods of remediation to be elected, the conclusions and assessment of site studies remaining to be completed and the time period required to complete the work. The Company does not anticipate any recoveries of these costs from insurance coverage or from other third parties. There are no other potentially responsible parties for these sites.

At four of these locations, the Company is conducting environmental remediation and restoration under business realignment programs due to closure of the sites. Total reserves related to these sites included in realignment were $2 and $4 at September 30, 2005 and December 31, 2004, respectively. Much of this remediation is being performed by the Companies on a voluntary basis in coordination with local regulatory authorities; therefore, management has greater control over the costs to be incurred and the timing of cash flows.

The Company anticipates approximately $2 of the liabilities will be paid within the next four years, with the remaining amounts being paid over the next ten years.

As a result of the Bakelite Acquisition, a site was acquired a site in Duisburg, Germany with significant soil and groundwater contamination beneath a facility that is shared with Rütgers Chemicals AG (“Rütgers”). Rütgers is in discussions with the local authorities concerning a proposed remediation plan; however, the scope and extent of that plan and the costs of its possible implementation are not yet reasonably estimable. Rütgers has

F-204

HEXION SPECIALTY CHEMICALS CANADA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

contractually agreed to provide indemnifications to the Company with respect to this matter until 2025, subject to certain exceptions and limitations. Management believes that it is unlikely that the Company will have to take extensive actions for remediation. While it is reasonably possible some costs could be incurred related to these sites, the Company has inadequate information to enable it to estimate a potential range of liability, if any.

Non-Environmental Legal Matters

The Company is involved in various product liability, commercial and employment litigation, personal injury, property damage and other legal proceedings that are considered to be in the ordinary course of business. The following legal claim is not in the ordinary course of business:

In 1992, the State of Sao Paulo Tax Bureau issued an assessment against Brazil Quimica, a wholly owned subsidiary of the Company, claiming that excise taxes were owed on certain intercompany loans made for centralized cash management purposes, characterized by the Tax Bureau as intercompany sales. Since that time, management and the Tax Bureau have held discussions, and Brazil Quimica has filed an administrative appeal seeking cancellation of the assessment. In December 2001, the Administrative Court upheld the assessment. In September 2002, Brazil Quimica filed a second appeal with the highest level administrative court, again seeking cancellation of the assessment. Argument was made to the court in September 2004; the Company is awaiting its ruling. At September 30, 2005, the amount of the assessment, including tax, penalties, monetary correction and interest is 72 million Brazilian Reais, or approximately $32. Management believes Brazil Quimica has a strong defense against the assessment and will pursue the appeal vigorously; including appeal to the judicial level; however, no assurance can be given that the assessment will not be upheld. At this time the Company does not believe a loss is probable, therefore, only related legal fees have been accrued. Reasonably possible losses to the Company on the resolution of this matter range from zero to $32.

The Company has reserved approximately $3 and $2 at September 30, 2005 and December 31, 2004, respectively, relating to all non-environmental legal matters for legal defense and settlement costs that it believes are probable and estimable at this time.

9. Pension and Postretirement Plans

Following are the components of net pension expense recognized for the nine months ended September 30, 2005 and 2004:

	Nine months ended September 30,
	2005		2004
Service cost	$	1	$	—
Interest cost		2		—
	$	3	$	—

As part of the Bakelite Acquisition, the Company acquired various defined benefit and defined contribution pension plans covering Bakelite’s employees worldwide. In Germany, Bakelite provides a defined benefit pension plan with a total projected benefit obligation of $78, while in certain other countries, defined contribution pension plans are provided. In addition, Bakelite’s Italian and Korean subsidiaries have statutory requirements to provide severance indemnity benefits to employees. All of the Bakelite benefit plans are unfunded. The Company anticipates making contributions of $1 to pay current obligations related to the Bakelite benefit plans in 2005.

F-205

HEXION SPECIALTY CHEMICALS CANADA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company also maintains certain postretirement plans. The expense related to these plans is insignificant for the nine months ended September 30, 2005 and 2004.

10. Income tax

The effective income tax rate for the nine months ended September 30, 2005 and 2004 were impacted by allocations of administrative costs from Hexion, which are not deductible for income tax purposes (See Note 4). In addition, income tax expense for the nine months ended September 30, 2004 reflects an additional provision of $14 pertaining to a determination, made subsequent to the Acquisition, that the unrepatriated earnings of Hexion’s non-U.S. subsidiaries are no longer considered permanently reinvested.

F-206

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of

Borden Chemical, Inc.:

We have audited the accompanying consolidated / combined balance sheets of Borden Chemical Canada, Inc. (a wholly owned subsidiary of Borden Chemical, Inc.) and affiliates (the “Company”) as of December 31, 2004 and 2003, and the related consolidated / combined statements of operations and comprehensive (loss) income, shareholder’s (deficit) equity, and cash flows for each of the three years in the period ended December 31, 2004. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, such consolidated / combined financial statements present fairly, in all material respects, the financial position of Borden Chemical Canada, Inc. and affiliates at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 8 to the consolidated / combined financial statements, the Company changed its method of accounting for goodwill and other intangible assets in 2002 to conform to Statement of Financial Accounting Standards No. 142.

DELOITTE & TOUCHE LLP

Columbus, Ohio

March 24, 2005, except for the effects of

    Note 18, as to which the date is August 18, 2005

F-207

CONSOLIDATED / COMBINED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

	Year ended December 31,
	2004			2003			2002
	(In thousands)
Net sales	$	637,078		$	533,098		$	435,715
Cost of goods sold		524,932			438,384			346,434
Gross margin		112,146			94,714			89,281
Distribution expense		24,832			20,845			19,169
Marketing expense		15,369			13,726			11,670
General & administrative expense		32,221			26,562			30,748
Transaction related costs		20,052			—			—
Business realignment expense (income) and impairments		2,915			(4,568	)		4,255
Other operating income		(1,586	)		(2,239	)		(3,581	)
Operating income		18,343			40,388			27,020
Interest expense		2,148			1,635			1,090
Affiliated interest expense		12,321			2,755			3,423
Other non-operating expense (income)		1,918			369			(702	)
Income before income taxes and cumulative effect of change in accounting principle		1,956			35,629			23,209
Income tax expense (benefit)		23,440			(839	)		8,667
(Loss) income before cumulative effect of change in accounting principle		(21,484	)		36,468			14,542
Cumulative effect of change in accounting principle		—			—			(27,533	)
Net (loss) income	$	(21,484	)	$	36,468		$	(12,991	)
Comprehensive (loss) income	$	(27,938	)	$	59,433		$	(35,171	)

See Notes to Consolidated / Combined Financial Statements

F-208

CONSOLIDATED / COMBINED BALANCE SHEETS

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

	December 31,			December 31,
	2004			2003
	(In thousands)
ASSETS
Current Assets
Cash and equivalents	$	57,829		$	22,588
Accounts receivable (less allowance for doubtful accounts of $3,110 in 2004 and $3,372 in 2003)		105,078			90,798
Inventories:
Finished and in-process goods		17,694			12,950
Raw materials and supplies		22,014			14,067
Other current assets		3,742			3,338
		206,357			143,741
Other Assets
Deferred income taxes		6,835			5,732
Other assets		12,729			5,482
		19,564			11,214
Property and Equipment
Land		7,254			6,605
Buildings		33,405			31,980
Machinery and equipment		294,634			263,580
		335,293			302,165
Less accumulated depreciation		(138,549	)		(119,252	)
		196,744			182,913
Goodwill		10,467			15,331
Other Intangibles		4,868			—
Total Assets	$	438,000		$	353,199

See Notes to Consolidated / Combined Financial Statements

F-209

CONSOLIDATED / COMBINED BALANCE SHEETS

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

	December 31, 2004			December 31, 2003
	(In thousands, except share data)
LIABILITIES AND SHAREHOLDER’S (DEFICIT) EQUITY
Current Liabilities
Accounts and drafts payable	$	89,707		$	55,003
Accounts payable to affiliates		5,330			2,540
Income taxes payable		2,728			6,062
Debt payable within one year		7,997			5,616
Loans due to affiliates		27			46,399
Affiliated interest payable		11,002			268
Other current liabilities		21,334			17,996
		138,125			133,884
Other Liabilities
Long-term debt		7,234			9,089
Affiliated long-term debt		285,142			4,279
Deferred income taxes		25,312			7,737
Affiliated royalties		8,138			7,626
Other long-term liabilities		6,328			6,474
		332,154			35,205
Commitments and Contingencies (See Notes 8 and 11)
Shareholder’s (Deficit) Equity
Common stock – no par value: authorized shares unlimited, issued and outstanding 489,866 shares in 2004 and 2003		3,148			3,148
Paid-in-capital		568			133
Shareholder’s investment of combined subsidiaries		979			95,851
Accumulated other comprehensive loss		(57,389	)		(50,935	)
Retained earnings		20,415			135,913
		(32,279	)		184,110
Total Liabilities and Shareholder’s (Deficit) Equity	$	438,000		$	353,199

See Notes to Consolidated / Combined Financial Statements

F-210

CONSOLIDATED / COMBINED STATEMENTS OF CASH FLOWS

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

	Year ended December 31,
	2004			2003			2002
	(In thousands)
Cash Flows from (used in) Operating Activities
Net (loss) income	$	(21,484	)	$	36,468		$	(12,991	)
Adjustments to reconcile net (loss) income to net cash from (used in) operating activities
Cumulative effect of change in accounting principle		—			—			27,533
Allocations of corporate overhead		33,946			12,707			11,797
Deferred tax provision		15,746			1,492			3,779
Depreciation and amortization		17,784			15,625			14,501
Business realignment expense (income) and impairments		2,915			(4,568	)		4,255
Other non-cash adjustments		1,973			696			263
Net change in assets and liabilities:
Accounts receivable		(8,018	)		(5,778	)		(3,226	)
Inventories		(10,102	)		5,177			(6,949	)
Accounts and drafts payable		31,714			4,420			1,279
Income taxes		(9,102	)		(16,142	)		10,204
Other assets		1,184			2,228			(5,829	)
Other liabilities		(391	)		(16,192	)		(30,642	)
		56,165			36,133			13,974
Cash Flows (used in) from Investing Activities
Capital expenditures		(18,775	)		(16,122	)		(7,177	)
Purchase of business		—			(11,551	)		—
Liquidating dividend from investment		—			1,029			—
Proceeds from the sale of assets		8,473			7,084			—
		(10,302	)		(19,560	)		(7,177	)
Cash Flows from (used in) Financing Activities
Net short-term debt borrowings		2,219			2,195			697
Borrowings of long-term debt		222			9,316			106
Repayments of long-term debt		(2,400	)		(765	)		(161	)
Affiliated loan (repayments) borrowings, net		(13,337	)		(15,586	)		(7,217	)
Common stock dividends paid		(681	)		(1,750	)		(2,810	)
		(13,977	)		(6,590	)		(9,385	)
Effect of exchange rates on cash		3,355			2,386			(922	)
Increase (decrease) in cash and equivalents	$	35,241		$	12,369		$	(3,510	)
Cash and equivalents at beginning of year		22,588			10,219			13,729
Cash and equivalents at end of year	$	57,829		$	22,588		$	10,219
Supplemental Disclosures of Cash Flow Information
Cash paid:
Interest, net	$	1,794		$	819		$	149
Income taxes, net		16,796			14,981			5,024
Non-cash activity:
Affiliate note issued to purchase businesses, net of note payable to parent acquired of $37,849 (see Notes 1 and 9)		222,151			—			—
Distribution to parent – acquisition of subsidiaries previously combined (see Note 1)		(222,151	)		—			—
Capital contributions from parent (see Note 15)		435			52,227			—

See Notes to Consolidated / Combined Financial Statements

F-211

CONSOLIDATED / COMBINED STATEMENTS OF SHAREHOLDER’S (DEFICIT) EQUITY BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

	Common Stock		Paid-in Capital		Shareholder’s Investment			Accumulated Other Comprehensive Loss			Retained Earnings			Total
	(In thousands)
Balance, December 31, 2001	$	3,148	$	—	$	19,253		$	(51,720	)	$	116,996		$	87,677
Net loss		—		—		—			—			(12,991	)		(12,991	)
Translation adjustments		—		—		—			(21,616	)		—			(21,616	)
Minimum pension liability adjustment (net of $304 tax)		—		—		—			(564	)		—			(564	)
Comprehensive loss															(35,171	)
Common stock dividends paid		—		—		—			—			(2,810	)		(2,810	)
Allocations of corporate overhead		—		—		11,797			—			—			11,797
Balance, December 31, 2002		3,148		—		31,050			(73,900	)		101,195			61,493
Net income		—		—		—			—			36,468			36,468
Translation adjustments		—		—		—			23,567			—			23,567
Minimum pension liability adjustment (net of $324 tax)		—		—		—			(602	)		—			(602	)
Comprehensive income															59,433
Capital contributions from parent (See Note 15)		—		133		52,094			—			—			52,227
Common stock dividends paid		—		—		—			—			(1,750	)		(1,750	)
Allocations of corporate overhead		—		—		12,707			—			—			12,707
Balance, December 31, 2003		3,148		133		95,851			(50,935	)		135,913			184,110
Net loss		—		—		—			—			(21,484	)		(21,484	)
Translation adjustments		—		—		—			(6,072	)		—			(6,072	)
Minimum pension liability adjustment (net of $206 tax)		—		—		—			(382	)		—			(382	)
Comprehensive loss															(27,938	)
Distribution to parent—acquisition of subsidiaries previously combined (See Note 1)		—		—		(128,818	)		—			(93,333	)		(222,151	)
Capital contribution from parent (See Note 15)		—		435		—			—			—			435
Common stock dividends paid		—		—		—			—			(681	)		(681	)
Allocations of corporate overhead		—		—		33,946			—			—			33,946
Balance, December 31, 2004	$	3,148	$	568	$	979		$	(57,389	)	$	20,415		$	(32,279	)

See Notes to Consolidated / Combined Financial Statements

F-212

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS

(In thousands)

1. Background and Basis of Presentation

Borden Chemical Canada, Inc. (“BCCI”) and its subsidiaries (collectively, “the Companies”) are engaged in the manufacture and distribution of forest products and industrial resins, formaldehyde and other specialty and industrial chemicals. At December 31, 2004, the Companies’ operations included 18 manufacturing facilities in Canada, Brazil, Australia, Malaysia, the Netherlands and the United Kingdom (the “U.K.”). BCCI is owned 100% by Borden Chemical, Inc. (“BCI”).

On August 12, 2004, BHI Investment, LLC (“LLC”), an affiliate of Apollo Management, L.P. (“Apollo”), acquired all of the outstanding capital stock of Borden Holdings, Inc. (“BHI”), at that time, the parent company of BCI, for total consideration of approximately $1.2 billion, including assumption of debt (“the Acquisition”). Immediately following the Acquisition, LLC reorganized the existing corporate structure of BCI such that BCI became directly owned by BHI Acquisition Corporation, a subsidiary of LLC. In addition, BCCI acquired most of BCI’s foreign subsidiaries for a note payable of CDN$342,800, or $260,000 at August 12, 2004 (see Note 9). As the reorganization is between related parties and BCI elected not to apply push-down accounting relating to the Acquisition, BCCI’s basis in the acquired subsidiaries is BCI’s historical cost basis. As a result, BCCI’s net purchase price of the assets acquired of $222,151 is reflected in Shareholder’s (Deficit) Equity as a distribution to parent.

The Acquisition was financed through a private debt offering issued by two newly formed, wholly owned subsidiaries of BCI, which is guaranteed by BCI and certain of its domestic subsidiaries (the “Guarantors”), and with certain equity contributions from Apollo and management of BCI. The private debt offerings and related guarantees are senior obligations secured by a second-priority lien (subject to certain exceptions and permitted liens) on certain of the Guarantors’ existing and future domestic assets, including the stock of BCCI.

In accordance with Rule 3-16 of Regulation S-X under the Securities Act of 1933, BCI is required to file the annual financial statements of BCCI and subsidiaries with the U.S. Securities and Exchange Commission as if the Companies were a registrant. The financial statements for the Companies, which are consolidated from the date of the Acquisition, are presented on a combined basis for periods prior to the Acquisition and the related reorganization.

BCI incurs various costs, including corporate and administrative expenses, on behalf of the Companies; the allocation of these costs is reflected in these financial statements. See Note 5.

2. Summary of Significant Accounting Policies

Significant accounting policies followed by the Companies, as summarized below, are in conformity with accounting principles generally accepted in the United States of America.

Principles of Consolidation/Combination—The accompanying consolidated / combined financial statements include the accounts of the following entities, all of which are under the common control and management of BCI:

Borden Chemical Canada Inc.

BCHP, LLC, parent of Borden Chemical Panama Holdings, SA (“Borden Panama”) and subsidiaries

Borden Chemical Australia Pty. Ltd. (“Borden Australia”) and subsidiaries

F-213

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

Borden International Holdings Ltd. (“Borden U.K.”) and subsidiaries

Borden Lux, LLC

Borden Luxembourg, SARL

National Borden Chemical Germany GmbH

Subsequent to the Acquisition, BCCI wholly owns 100% of these entities with the exception of a 34% interest in Borden Chemical (M) Sdn. Bhd. (“Borden Malaysia”), a subsidiary of Borden Panama, which is owned by BCI. The accounts of Borden Malaysia are included within the financial statements presented herein. Intercompany transactions and balances have been eliminated.

Use of Estimates—The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America 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, as well as the reported amounts of revenues and expenses during the reporting period. The most significant estimates reflected in the financial statements include valuation allowances for accounts receivable and inventories, general insurance liabilities, asset impairments, legal liabilities, pension and postretirement assets and liabilities, deferred taxes and valuation allowances and related party transactions. Actual results could differ from estimated amounts.

Cash and Equivalents—The Companies consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Included in the Companies’ cash and equivalents are interest-bearing time deposits of $22,125 and $5,056 at December 31, 2004 and 2003, respectively.

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

Property and Equipment—Land, buildings and machinery and equipment are carried at cost. Depreciation is recorded on the straight-line basis by charges to expense at rates based on estimated useful lives of properties (average rates for buildings 3%; machinery and equipment 7%). Major renewals and betterments are capitalized. Maintenance, repairs and minor renewals are expensed as incurred.

Goodwill and Intangibles—The excess of purchase price over net tangible and identifiable intangible assets of non-affiliated businesses acquired is carried as Goodwill on the Consolidated / Combined Balance Sheets. As of January 1, 2002, the Companies no longer amortize goodwill. Certain trademarks, patents and other intangible assets used in the operations of the business are carried as Other Intangibles on the Consolidated / Combined Balance Sheets. These intangible assets are amortized on a straight-line basis over the shorter of the legal or useful lives of the asset which range from 8 to 10 years. Certain trademarks and patents used in operations are owned by BCI and are used on a royalty-free basis by the Companies. See Note 6.

Impairment—As events warrant, but at least annually, the Companies evaluate the recoverability of long-lived assets by assessing whether the carrying value can be recovered over their remaining useful lives through the expected future undiscounted operating cash flows of the underlying business. Any impairment loss required is determined by comparing the carrying value of the assets to operating cash flows on a discounted basis.

The Companies perform an annual impairment test for goodwill. See Note 6.

Deferred Expenses—Deferred financing costs are classified as Other assets on the balance sheets and are amortized over the lives of the related debt or credit facility using the straight-line method since no installment

F-214

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

payments are required. Upon retirement of any of the related debt, a proportional share of debt issuance costs is expensed. At December 31, 2004 and 2003, the unamortized balance was $1,826 and $206, respectively.

General Insurance—The Companies are generally self-insured for losses and liabilities relating to workers’ compensation, physical damage to property, business interruption and comprehensive general, product and vehicle liability. The Companies maintain insurance policies for certain items exceeding deductible limits. The Companies are covered by certain policies, primarily excess liability coverage, maintained by BCI and are allocated a share of these premiums (see Note 5). Losses are accrued for the estimated aggregate liability for claims using certain actuarial assumptions followed in the insurance industry and the Companies’ experience.

Legal Costs—Legal costs are accrued in the period in which a claim is made or an event becomes known, if the amounts are probable and reasonably estimable. Each claim is assigned a range of potential liability, with the most likely amount being accrued. The amount accrued includes all costs associated with a claim, including settlements, assessments, judgments, fines and legal fees.

Revenue Recognition—Revenue for product sales, net of allowances, is recognized as risk and title to the product transfer to the customer, which usually occurs at the time shipment is made. Substantially all of the Companies’ products are sold FOB (“free on board”) shipping point. Other terms include sales where risk and title passes upon delivery (FOB destination point). In situations where our product is delivered by pipeline, risk and title transfers when our product moves across an agreed transfer point, which is typically the customers’ property line. Product sales delivered by pipeline are measured based on daily flow meter readings. The Companies’ standard terms of delivery are included in their contracts of sale and invoices.

Shipping and Handling—The Companies record freight billed to customers in net sales. Shipping costs are incurred to move products from production and storage facilities to the customers. Handling costs are incurred from the point the product is removed from inventory until it is provided to the shipper and generally include costs to store, move and prepare the products for shipment. The Companies incurred shipping costs of $24,832 in 2004, $20,845 in 2003 and $19,169 in 2002. These costs are classified as Distribution expense in the Consolidated / Combined Statements of Operations. Due to the nature of the Companies’ business, handling costs incurred prior to shipment are not significant.

Research and Development Costs—Funds are committed to research and development for technical improvement of products that are expected to contribute to operating profits in future years. All costs associated with research and development are charged to expense as incurred. Research and development costs were $3,669, $3,514 and $3,914 for 2004, 2003 and 2002, respectively.

Advertising Costs—The Companies charge advertising costs to expense as incurred. Advertising costs were $64, $114 and $1,286 for 2004, 2003 and 2002, respectively.

Foreign Currency Translations—Although the functional currency of BCCI is the Canadian dollar, the accompanying financial statements are presented in the reporting currency of BCCI’s parent, BCI. Accordingly, assets and liabilities of the Companies are translated into BCI’s reporting currency, the U.S. dollar, at the exchange rates in effect at the balance sheet date, and income and expenses are translated at average exchange rates prevailing during the year. The effect of translation is accounted for as an adjustment to Shareholder’s (deficit) equity and is included in Accumulated other comprehensive loss.

The Companies incurred realized and unrealized net foreign transaction (losses) gains aggregating $(210) in 2004, $139 in 2003 and $1,281 in 2002.

F-215

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

Income Taxes—The Companies file individual tax returns in their respective countries. Income tax expense is based on reported results of operations before income taxes using the prevailing rates for each tax jurisdiction. Deferred income taxes represent the tax effect of temporary differences between amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. Deferred tax balances are adjusted to reflect tax rates, based on current tax laws that will be in effect in the years in which temporary differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. For purposes of these financial statements, the international subsidiaries are treated as foreign subsidiaries of a domestic parent, BCCI, for all periods presented. Reconciliations of tax rates are calculated at the statutory Canadian tax rates.

Derivative Financial Instruments—The Companies do not hold or issue derivative financial instruments for trading purposes. The Companies are parties to foreign currency forward contracts and options to reduce the Companies’ cash flow exposure to changes in foreign exchange rates. These instruments are not accounted for using hedge accounting, but are measured at fair value and recorded on the balance sheet as an asset or liability, depending upon the Companies’ underlying rights or obligations. See Note 7.

Stock-Based Compensation—The Companies account for stock-based compensation under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”) and has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of SFAS No. 123.” Pro forma net (loss) income under SFAS No. 148 was not materially different from Net (loss) income for the years ended December 31, 2004, 2003 and 2002.

Concentrations of Credit Risk—Financial instruments that potentially subject the Companies to concentrations of credit risk consist principally of cash and accounts receivable. The Companies place cash with high quality institutions and, by policy, limit the amount of credit exposure to any one institution. Approximately $18,300 of the Companies’ cash is invested in a guaranteed investment certificate with the remaining cash being held primarily in six financial institutions. Concentrations of credit risk with respect to accounts receivable are limited, due to the large number of customers comprising the Companies’ customer base and their dispersion across many different industries and geographies. The Companies generally do not require collateral or other security to support customer receivables.

Recently Issued Accounting Standards

In November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 151, “Inventory Costs.” The statement amends Accounting Research Bulletin (“ARB”) No. 43, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. ARB No. 43 previously stated that these costs must be “so abnormal as to require treatment as current-period charges.” SFAS No. 151 requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this statement requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. The statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005, with earlier application permitted for fiscal years beginning after the issue date of the statement. The adoption of SFAS No. 151 is not expected to have any impact on the Companies’ financial condition or results of operations.

In December 2004, the FASB revised its SFAS No. 123 (“SFAS No. 123R”), “Accounting for Stock Based Compensation.” The revision establishes standards for the accounting of transactions in which an entity

F-216

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

exchanges its equity instruments for goods or services, particularly transactions in which an entity obtains employee services in share-based payment transactions. The revised statement requires an entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is to be recognized over the period during which the employee is required to provide service in exchange for the award. Changes in fair value during the requisite service period are to be recognized as compensation cost over that period. In addition, the revised statement amends SFAS No. 95, “Statement of Cash Flows,” to require that excess tax benefits be reported as a financing cash flow rather than as a reduction of taxes paid. The provisions of the revised statement are effective for financial statements of the Companies issued for the first annual reporting period beginning after December 15, 2005, with early adoption encouraged. The Companies are evaluating the impact that this statement will have on their financial condition or results of operations.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets—An Amendment of APB Opinion No. 29.” APB Opinion No. 29, “Accounting For Nonmonetary Transactions,” is based on the opinion that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. SFAS No. 153 amends Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets whose results are not expected to significantly change the future cash flows of the entity. This statement is effective for non-monetary asset exchanges beginning December 4, 2005, and is not expected to have any impact on the Companies’ financial condition or results of operations.

3. Acquisitions

Pending Acquisition

On October 6, 2004, BCI entered into a share purchase agreement with RÜTGERS AG and RÜTGERS Bakelite Projekt GmbH (collectively, the “Sellers”). Pursuant to the terms of the share purchase agreement, BCI agreed to purchase from the Sellers all outstanding shares of capital stock of Bakelite Aktiengesellschaft (“Bakelite”) for a net purchase price ranging from approximately €175 million to €200 million, subject to certain adjustments. Based in Iserlohn-Letmathe, Germany, Bakelite is a leading source of phenolic and epoxy thermosetting resins and molding compounds with 13 manufacturing facilities and 1,700 employees in Europe and Asia.

The share purchase agreement contains customary representations, warranties and covenants, including non-compete, non-solicitation and confidentiality agreements by the Sellers. The Sellers have also agreed, subject to various provisions set forth in the share purchase agreement, to indemnify BCI for breaches of the representations and warranties contained in the share purchase agreement and in connection with various tax, environmental, certain pension and other matters. Until the closing date, the Sellers have agreed to operate the business of Bakelite in the ordinary course. Completion of the share purchase is subject to regulatory and other customary closing conditions. Bakelite will be structured as a subsidiary of BCCI. BCCI intends to finance this transaction through a combination of available cash and debt financing. There is no material relationship between BCCI or its affiliates and any of the Sellers other than in respect of the share purchase agreement.

2003 Acquisition

In November 2003, Borden Australia acquired Fentak Pty. Ltd. (“Fentak”), an international manufacturer of specialty chemical products for engineered wood, laminating and paper impregnation markets, for cash of $11,551 and additional deferred payments of approximately $3,050. The Fentak acquisition has been accounted for using the purchase method of accounting. Accordingly, results of operations of the acquired entity have been included from the date of acquisition. The pro forma effects of the acquisition are not material.

F-217

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

At the time of the Fentak acquisition in 2003, the Companies recorded goodwill totaling $14,387. In 2004, purchase accounting adjustments in the amount of $5,480 were made to allocate amounts originally recorded as goodwill to other intangible assets. Separately identifiable intangible assets included customer lists, proprietary technology and trade names.

4. Business Realignment

In 2003, BCI initiated a program of plant consolidations and other business realignment initiatives (the “2003 program”), which include initiatives impacting the Companies. These initiatives are focused on improving the efficiency of both manufacturing and administrative functions and are designed to focus resources on core operational strengths. The associated business realignment charges consist primarily of employee severance, plant consolidation and environmental remediation costs and asset write-offs.

In addition to the 2003 program, the Companies have realignment activities relating to programs initiated in prior years (the “prior years’ programs”), primarily related to plant consolidations and reorganization of certain administrative functions. The following is a brief overview of significant business realignment activities relating to the Companies.

Year Ended December 31, 2004

During 2004, the Companies recorded net business realignment and impairment expense of $2,915, consisting of plant closure costs (which included asset write-down and environmental remediation costs) and other severance and employee costs of $2,701 and non-cash impairment charges of $214.

Plant Closure Costs

Expenses during 2004 for plant closures of $2,303 relate primarily to environmental remediation and other closure costs for previously closed sites in Brazil ($1,399) and the U.K. ($994) partially offset by favorable adjustments to other plant closure costs at various sites of $90.

Other Severance Costs

Business realignment expense includes additional net severance costs incurred during 2004 totaling $398 primarily related to prior year programs.

F-218

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

Asset Impairment

The Companies recorded an impairment charge of $214 in 2004 to adjust the carrying value of a U.K. plant site that is held for sale to its expected sales price less costs of disposal.

Following is a rollforward of the Companies’ business realignment reserves for 2004:

	Reserves 12/31/03		2004 Expense			2004 Settlements/ Payments			Reserves 12/31/04
Plant closure costs
Prior years’ programs	$	4,487	$	2,345		$	(3,226	)	$	3,606
2003 program		43		(42	)		(1	)		—
Other severance costs
Prior years’ programs		19		371			(390	)		—
2003 program		—		27			(27	)		—
Total reserve activity	$	4,549	$	2,701		$	(3,644	)	$	3,606

Year Ended December 31, 2003

During 2003, the Companies recorded net business realignment and impairment income of $4,568, consisting of gains on the sale of assets of $12,260, offset by plant closure costs (which included asset impairment and environmental remediation costs) and other severance and employee costs of $5,698 and other non-cash asset impairment charges of $1,994.

Plant Closure Costs

Plant closure costs in 2003 include $3,508 for prior years’ programs and $1,994 for the 2003 program. Costs relating to prior years’ programs include environmental remediation of approximately $800 for closed plants in Latin America and other plant closure costs of approximately $2,708. The $1,994 of charges for the 2003 program primarily relate to costs associated with a plant consolidation program in Canada. Manufacturing was transitioned from the North Bay, Ontario plant to another facility; the North Bay site was idled as of the end of 2003, resulting in asset impairment charges of $1,430. The remaining charges pertain to plants in Brazil and the U.K. The impairment charges represent the excess of the carrying value of assets over the undiscounted cash flows expected to result from the eventual disposition of the North Bay site.

Gain on the Sale of Assets

In 2003, Borden U.K. sold land associated with a closed plant for a gain of $12,260. This gain was recorded as business realignment income because the facility was closed in conjunction with prior years’ programs.

Asset Impairment

Borden Malaysia recorded a goodwill impairment of $762 as a result of the annual impairment analysis conducted at year-end (see Note 6). In addition, the Companies recorded impairment charges of $1,232 pertaining to a plant in the U.K. that was held for sale. The amount of the impairment was based on expected proceeds from a sale in negotiation.

F-219

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

Following is a rollforward of the Companies’ business realignment reserves for 2003:

	Reserves 12/31/02		2003 Expense		2003 Settlements/ Payments			Reserves 12/31/03
Plant closure costs
Prior years’ programs	$	6,289	$	3,508	$	(5,310	)	$	4,487
2003 program		—		1,994		(1,951	)		43
Other severance costs
Prior years’ programs		551		47		(579	)		19
2003 program		—		149		(149	)		—
Total reserve activity	$	6,840	$	5,698	$	(7,989	)	$	4,549

Year Ended December 31, 2002

During 2002, the Companies recorded net business realignment expense of $4,255, consisting of plant closure costs of $3,558 and other severance and employee costs of $697.

Plant Closure Costs

Plant closure costs in 2002 of $3,558 consisted of plant demolition, employee severance and other related costs of $2,459 and a $1,099 increase to the reserve for revised estimates of environmental clean-up and demolition for several locations closed in previous years.

Other Severance Costs

Other severance costs primarily pertains to administrative reductions in Brazil and the U.K.

Following is a rollforward of the Companies’ business realignment reserve activity for 2002:

	Reserves 12/31/01		2002 Expense		2002 Settlements/ Payments			Reserves 12/31/02
Plant closure costs	$	9,238	$	3,558	$	(6,507	)	$	6,289
Other severance costs		70		697		(216	)		551
Total reserve activity	$	9,308	$	4,255	$	(6,723	)	$	6,840

5. Related Party Transactions

BCI incurs various administrative and operating costs on behalf of the Companies that are reimbursed by the Companies. These costs include engineering and technical support, purchasing, quality assurance, sales and customer service, information systems, research and development and certain administrative services. These service costs have been allocated to the Companies generally based on sales or sales volumes and when determinable, based on the actual usage of resources. These costs are included within General & administrative expense and Cost of goods sold and were $6,965, $8,424 and $9,092 in 2004, 2003 and 2002, respectively. In addition, BCI maintains certain insurance policies, primarily excess liability coverage, that benefit the Companies. Amounts pertaining to these policies and allocated to the Companies based upon sales were $1,803, $1,847 and $1,285 in 2004, 2003 and 2002, respectively.

F-220

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

The Companies sell finished goods and certain raw materials to BCI and some of its subsidiaries. Total sales were $28,847, $24,934 and $24,698, in 2004, 2003 and 2002, respectively. In addition, the Companies purchase raw materials and finished goods from BCI and some of its subsidiaries, which totaled $10,685, $8,063 and $8,654, in 2004, 2003 and 2002, respectively. These sales and purchases are priced similarly to prices charged to outside customers.

Total accounts payable, net of receivables, relating to these intercompany transactions was $5,330 and $2,540 at December 31, 2004 and 2003, respectively.

In addition to direct charges, BCI provides certain administrative services that are not reimbursed by the Companies. These costs include corporate controlled expenses such as executive management, legal, health and safety, accounting, tax and credit, and have been allocated herein to the Companies on the basis of Net sales. Management believes that the amounts allocated in such a manner are reasonable and consistent and are necessary in order to properly depict the consolidated / combined statements of financial position, operations and cash flows of the Companies on a stand-alone basis. However, the amounts are not necessarily indicative of the costs that would have been incurred if the Companies had operated independently. This expense is included in General & administrative expense with the offsetting credit recorded in Shareholder’s (deficit) equity. There is no income tax provided on these amounts as they are not deductible.

The following table summarizes these allocations for the years ended December 31:

	2004		2003		2002
Executive Group	$	4,343	$	4,136	$	5,767
General Counsel		2,559		2,990		2,243
Health, Safety and Environmental Services		686		553		543
Finance		6,306		5,028		3,244
	$	13,894	$	12,707	$	11,797

In addition to the BCI administrative services costs, the Companies have been allocated a share of the transaction costs associated with the Acquisition totaling $20,052. The allocation of these costs was made on the basis of Net sales. The offsetting credit relating to this allocation is included in Shareholder’s (deficit) equity.

BCCI, Borden U.K. and a subsidiary of Borden U.K. jointly and severally guarantee BCI’s $34,000 Parish of Ascension Industrial Revenue Bonds. BCCI guarantees the full amount, and Borden U.K. and its subsidiary each guarantee up to $30,000 of this debt. BCI pays these companies a guarantor fee totaling $75 annually.

Prior to 2001, the Companies incurred royalties for the use in operations of certain trademarks and patents owned by BCI. At December 31, 2004 and 2003, the Companies had amounts due to BCI under these arrangements of $8,138 and $7,626, respectively. These amounts are included within Affiliated royalties and are classified as long-term due to restrictions on the ability to repay.

BCCI and Borden Panama held a 12.6% interest in BCI’s Spanish subsidiary, Quimica Borden Espana S.A. (“Borden Espana”). Borden Espana filed for liquidation prior to 2000, and paid a liquidating dividend to the Companies in 2003. The liquidation of Borden Espana was completed in the third quarter of 2004.

See Note 9 for a description of the Companies’ affiliated financing activities.

F-221

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

6. Goodwill and Intangible Assets

At December 31, 2004 and 2003, management performed the annual goodwill impairment test. As required by SFAS No. 142, “Goodwill and Other Intangible Assets,” management identified the appropriate reporting units and identified the assets and liabilities (including goodwill) of the reporting units. They determined estimated fair values of the reporting units and assessed whether the estimated fair value of each reporting unit was more or less than the carrying amount of the assets and liabilities assigned to the units.

Valuations were performed using a standard methodology based largely on comparable company analysis. Comparable company analysis ascribes a value to an entity by comparing certain operating metrics of the entity to those of a set of comparable companies in the same industry. Using this method, market multiples and ratios based on operating, financial and stock market performance are compared across different companies and to the entity being valued. Management employed a comparable analysis technique commonly used in the investment banking and private equity industries to estimate the values of its reporting units—the EBITDA (earnings before interest, taxes, depreciation and amortization) multiple technique. Under this technique, estimated values are the result of an EBITDA multiple derived from this process applied to an appropriate historical EBITDA amount. At December 31, 2004, the fair value of each reporting unit exceeded the carrying amount of assets and liabilities assigned to the units.

At December 31, 2003, the fair value of each reporting unit exceeded the carrying amount of assets and liabilities, except for Borden Malaysia. Based on the excess of the carrying value over the estimated fair value of Borden Malaysia, the Companies recorded a goodwill impairment charge of $762 due to a decline in operating performance that represented 100% of the unit’s recorded goodwill balance. This impairment charge is reflected in the 2003 Combined Statement of Operations as Business realignment expense (income) and impairments.

Upon the adoption of SFAS No. 142, on January 1, 2002, fair values of the Companies’ reporting units as of December 31, 2001 were determined by employing a methodology similar to that described above. As a result of the initial test, the fair value of each reporting unit exceeded the carrying amount of assets and liabilities assigned, except for Borden U.K. Based on the excess of the carrying value over the estimated fair value of Borden U.K., the Companies recorded a goodwill impairment charge of $27,533 that represented 100% of the December 31, 2001 carrying amount. This impairment charge is reported as Cumulative effect of change in accounting principle in the 2002 Combined Statement of Operations.

The following table provides a comparison of 2004, 2003 and 2002 as if the new accounting principle were applied for all years:

	Year Ended December 31,
	2004			2003		2002
Reported net (loss) income	$	(21,484	)	$	36,468	$	(12,991	)
Add back cumulative effect of change in accounting principle		—			—		27,533
Adjusted net (loss) income before cumulative effect of change in accounting principle	$	(21,484	)	$	36,468	$	14,542

F-222

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

The changes in the carrying amount of goodwill for the years ended December 31, 2004 and 2003 are as follows:

	Total
Goodwill balance at December 31, 2002	$	1,523
Acquisitions		14,387
Impairment		(762	)
Foreign currency translation		183
Goodwill balance at December 31, 2003		15,331
Purchase accounting adjustments		(5,480	)
Foreign currency translation		616
Goodwill balance at December 31, 2004	$	10,467

Intangible assets consist of the following:

	At December 31, 2004
	Gross Carrying Amount		Accumulated Amortization
Intangible assets:
Customer relationships	$	2,547	$	298
Patents and technologies		2,154		314
Trademarks		779		—
	$	5,480	$	612

The impact of foreign currency translation adjustments is included in accumulated amortization.

Total intangible amortization expense for the year ended December 31, 2004 was $612. Estimated annual intangible amortization expense for 2005 through 2009 is $579 per year.

7. Financial Instruments

The following table presents the carrying or notional amounts and fair values of the Companies’ financial instruments at December 31, 2004 and 2003. The fair value of a financial instrument is the estimated amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair values are determined from quoted market prices where available or based on other similar financial instruments.

The carrying amounts of cash and equivalents, accounts receivable, accounts payable, affiliated royalties and other liabilities are considered reasonable estimates of their fair values.

F-223

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

The following table includes the carrying and fair values of the Companies’ financial instruments.

	2004					2003
	Carrying Amount		Fair Value			Carrying Amount		Fair Value
Nonderivatives
Liabilities
Debt	$	15,231	$	15,231		$	14,876	$	14,901
Affiliated debt		285,169		285,169			50,678		50,678
	Notional Average Amount		Fair Value Gain (Loss)			Notional Average Amount		Fair Value Gain (Loss)
Derivatives relating to:
Foreign currency contracts to sell British Pounds	$	41,577	$	521		$	—	$	—
Call options sold		36,000		(1,547	)		12,000		(181	)
Put options purchased		36,000		114			12,000		18

At December 31, 2004, the Companies had derivative losses of $1,547 classified as Other current liabilities and derivative gains of $635 classified as Other assets. At December 31, 2003, the Companies had derivative losses of $181 classified as Other current liabilities and derivative gains of $18 classified as Other assets.

Gains and losses arising from contracts are recognized on a quarterly basis through the Consolidated / Combined Statement of Operations (see Note 2). The Companies do not hold or issue derivative financial instruments for trading purposes.

At December 31, 2004, the Companies had a foreign currency exchange forward contract outstanding with a notional value of $41,577. At December 31, 2004, the Companies’ forward position of $41,577 was to sell British Pounds for Canadian Dollars at a rate of 2.3255. The unsecured contract matures within 31 days and is placed with a financial institution with investment grade credit ratings. The Companies are exposed to credit loss in the event of non-performance by the other party to the contract. The Companies evaluate the credit worthiness of the counterparty’s financial condition and does not expect default by the counterparty. At December 31, 2004, the Companies recorded an unrealized gain of $521 related to this contract.

At December 31, 2004 and 2003, respectively, the Companies had put options totaling $36,000 and $12,000, respectively, to buy U.S. Dollars with Canadian Dollars. The 2004 options have an average maturity of 183 days and a contract rate of 1.3200. The 2003 options had average maturities of 47 days and a contract rate of 1.3600. At December 31, 2004 and 2003, the Companies recorded gains of $114 and $18, respectively, related to these options. During 2004, the Companies also recorded gains of $69 related to put options that were exercised in 2004.

The Companies are also a party to call options held by financial institutions totaling $36,000 and $12,000 at December 31, 2004 and 2003, respectively, to sell Canadian Dollars for U.S. Dollars. The 2004 options have an average maturity of 183 days and a contract rate of 1.2300. The 2003 options had average maturities of 47 days and an average contract rate of 1.3068. At December 31, 2004 and 2003, the Companies recorded a loss of $1,547 and $181, respectively, related to these options.

F-224

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

8. Debt and Lease Obligations

BCI entered into a three-year asset based revolving credit facility in the third quarter of 2002 (the “Credit Facility”), which provides for a maximum aggregate borrowing of $175,000 for the Companies, including letters of credit (“LOC”). BCI amended this Credit Facility (the “Amended Credit Facility”) on August 12, 2004 as part of the Acquisition. The Amended Credit Facility is a five-year asset based revolving credit facility with the same borrowing capacity as the Credit Facility.

The Amended Credit Facility is secured with inventory and accounts receivable in the United States, Canada and the U.K., a portion of property and equipment in Canada and the U.K. and the stock of certain U.S. subsidiaries. At December 31, 2004, the net book value of the collateral securing the Amended Credit Facility was approximately $266,000 excluding the pledged subsidiary stock, of which, approximately $117,000 represents assets of the Companies and approximately $149,000 represents assets of BCI. The maximum borrowing allowable under the Amended Credit Facility is calculated monthly (quarterly if availability is greater than $100,000), and is based upon specific percentages of eligible accounts receivable, inventory and fixed assets. The Amended Credit Facility contains restrictions on dividends, capital expenditures and payment of management fees. It also includes a minimum trailing twelve-month fixed charge coverage ratio requirement of 1.1 to 1.0 if aggregate availability is less than $50,000. As of December 31, 2004, the maximum borrowing allowable under the Amended Credit Facility for BCCI and Borden U.K. was $68,421, of which $68,403, net of LOCs, was unused and available. Based upon the aggregate availability at December 31, 2004, BCI had no fixed charge coverage ratio requirements.

Under the terms of the Amended Credit Facility, BCCI and Borden U.K. have the ability to borrow funds at either the prime rate plus an applicable margin (“the prime rate option”) or at LIBOR plus an applicable margin. The option must be designated at the time of the borrowing. The applicable margin for any prime rate borrowing is 50 basis points and for any LIBOR borrowing is 200 basis points. As of December 31, 2004, the Companies had no borrowings outstanding under the prime rate option. For LOCs issued under the Amended Credit Facility, the Companies pay a per annum fee equal to the LIBOR applicable margin, or 2.00%, plus a fronting fee of .125%. In addition, BCI and the Companies pay a .375% per annum fee on the amount of the revolving loan commitment less any borrowings or outstanding LOCs. The Companies incurred commitment fees of $332, $335 and $92 in 2004, 2003 and 2002, respectively, related to the Amended Credit Facility.

Borden Australia entered into a five-year secured credit facility in the fourth quarter of 2003 (the “Australian Facility”), which provided for a maximum borrowing of AUD$19,900, or approximately $15,500. At December 31, 2004, outstanding debt under this facility was $11,295, of which $6,557 is classified as long-term. In addition, there was $3,334 of short-term debt outstanding under the facility. The Australian Facility provided the funding for the Fentak acquisition made in the fourth quarter of 2003 (see Note 3) and is secured by liens against substantially all of the assets of the Australian business, including the stock of Australian subsidiaries. At December 31, 2004, the net book value of the collateral securing this facility was approximately $29,700. In addition, BCCI has pledged the stock of Borden Australia as collateral for borrowings under this facility. This facility includes a fixed rate facility used for the acquisition, as well as a revolver. At December 31, 2004, $7,961 was outstanding under the fixed rate facility at an interest rate of 6.4%. The Australian Facility contains restrictions relative to Borden Australia on the payment of dividends, the sale of assets and additional borrowings. The Australian Facility also contains financial covenants applying to Borden Australia and its subsidiaries including current ratio, interest coverage, debt service coverage and leverage. The fixed portion of the Australian Facility requires minimum quarterly principal reductions totaling AUD$450 (approximately $350). The Australian facility requires semi-annual principal reductions based on a portion of excess cash as defined in the agreement. There were no repayments made under this provision during 2004. As of December 31,

F-225

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

2004, the maximum borrowing allowable under the Australian Facility was AUD$18,100 (approximately $14,100), of which about AUD$3,600 (approximately $2,800), after outstanding LOCs and other draws, was unused and available. . The Companies incurred commitment fees of $173 in 2004 related to the Australian Facility.

Additional international credit facilities provide availability totaling approximately $26,100. Of this amount, approximately $12,200 (net of approximately $3,900 of borrowings, LOCs and other guarantees of approximately $4,600 and $5,400 of other draws) was available to fund working capital needs and capital expenditures at December 31, 2004. These credit facilities have various expiration dates ranging from 2006 through 2008. Of the total $3,935 of outstanding debt at December 31, 2004, $677 is classified as long-term. Average interest rates on the outstanding debt were 14.0% and 14.8% at December 31, 2004 and 2003, respectively. While these facilities are primarily unsecured, portions of the lines are secured by equipment with a net book value of approximately $750 at December 31, 2004. BCI guarantees up to $6,700 of the debt of a Brazilian subsidiary included in these facilities.

Aggregate maturities of total non-affiliated debt and minimum annual rentals under operating leases at December 31, 2004, for the Companies are as follows:

Year	Debt		Minimum Rentals Under Operating Leases
2005	$	7,997	$	2,175
2006		1,991		1,704
2007		1,489		1,453
2008		3,754		1,277
2009		—		1,202
2010 and beyond		—		1,637
	$	15,231	$	9,448

Rental expense amounted to $2,139, $1,998 and $1,927 in 2004, 2003 and 2002, respectively.

9. Loans Due To Affiliates

To finance the acquisition of the subsidiaries from BCI, BCCI assumed a fixed rate note of CDN$342,836, or approximately $285,000 at December 31, 2004, with Borden Nova Scotia Finance ULC, a subsidiary of BCI. The note has an interest rate of 10% and becomes due July 15, 2014. BCCI recorded interest expense of $10,641 during 2004, and the December 31, 2004 balance sheet includes $11,000 of interest payable. In tandem with the issuance of this note, BCI entered into a common share forward subscription agreement with BCCI requiring BCI to subscribe to shares of BCCI stock at CDN$845 per share at the principal repayment date for the loan.

In conjunction with the Acquisition, a demand note payable by Borden U.K. to BCI was contributed by BCI to a newly formed subsidiary, Borden Lux, LLC. Borden Lux, LLC was subsequently acquired by BCCI in the Acquisition, therefore the loan and related interest is eliminated subsequent to August 12, 2004. In December 2003, BCI made a capital contribution to Borden U.K. in the amount of $49,087 reducing the outstanding loan payable. This portion of the loan was non-interest bearing during 2002. At December 31, 2003, $44,608 was outstanding at an interest rate of 6.6%. This amount is classified as current due to the note being a demand instrument. Interest expense to BCI totaled $1,538, $2,100 and $2,196, for the years ended December 31, 2004, 2003 and 2002, respectively.

F-226

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

In addition, Borden U.K. had demand notes, denominated in Euros, with BCI’s French subsidiary, Borden Chimie S.A. Amounts outstanding under the loans totaled $0 and $1,764 at December 31, 2004 and 2003, respectively. The interest rate at December 31, 2003 was 4.2%. Interest expense to Borden Chimie S.A. totaled $16, $59 and $10 for the years ended December 31, 2004, 2003 and 2002, respectively.

Borden U.K. also had a loan from Borden Espana with an outstanding balance of $7,958 at December 31, 2002, which was repaid during 2003. The loan, which was denominated in GBP, bore an interest rate of 4.5%. Interest expense to Borden Espana totaled $84 and $355 for the years ended December 31, 2003 and 2002, respectively.

Borden Quimica Industria E Comercio Ltda. (“Brazil Quimica”), a subsidiary of Borden Panama, maintained a demand note from BCI with a fixed interest rate of 8% and an installment loan from BCI with a fixed interest rate of 6%. Amounts outstanding under the demand note totaled $0 and $4,000 at December 31, 2004 and 2003, respectively, and were classified as long-term in 2003, due to local restrictions on the ability to repay without obtaining governmental approval. Amounts outstanding under the installment loan totaled $279 and $306 at December 31, 2004 and 2003. Brazil Quimica makes annual payments on the installment loan of $27 with a final balloon payment due in 2013. Interest expense on these notes totaled $126, $512 and $811 for the years ended December 31, 2004, 2003 and 2002, respectively.

Borden Panama had a borrowing arrangement with BCI during 2002, which was terminated. Interest expense accrued under this arrangement totaled $51 for 2002.

10. Guarantees, Indemnities and Warranties

Standard Guarantees / Indemnifications

In the ordinary course of business, the Companies enter into numerous agreements that contain standard guarantees and indemnities whereby third parties are indemnified for, among other things, breaches of representations and warranties. Such guarantees or indemnifications are granted under various agreements, including those governing (i) purchases and sales of assets or businesses, (ii) leases of real property, (iii) licenses of intellectual property and (iv) long-term supply agreements. The guarantees or indemnifications issued are for the benefit of the (i) buyers in sale agreements and sellers in purchase agreements, (ii) landlords or lessors in lease contracts, (iii) licensors or licensees in license agreements and (iv) vendors or customers in long-term supply agreements.

These parties may also be indemnified against any third party claim resulting from the transaction that is contemplated in the underlying agreement. Additionally, in connection with the sale of assets and the divestiture of businesses, the Companies may agree to indemnify the buyer with respect to liabilities related to the pre-closing operations of the assets or businesses sold. Indemnities related to pre-closing operations generally include tax liabilities, environmental liabilities and employee benefit liabilities not assumed by the buyer in the transaction.

Indemnities related to the pre-closing operations of sold assets normally do not represent additional liabilities to the Companies, but simply serve to protect the buyer from potential liability associated with its existing obligations at the time of sale. As with any liability, the Companies have accrued for those pre-closing obligations that are considered probable and reasonably estimable. Such amounts are not significant.

While some of these guarantees extend only for the duration of the underlying agreement, many survive the expiration of the term of the agreement or extend into perpetuity (unless subject to a legal statute of limitations).

F-227

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

With respect to certain of the aforementioned guarantees, the Companies maintain limited insurance coverage that mitigates any potential payments to be made. There are no specific limitations on the maximum potential amount of future payments that the Companies could be required to make under these guarantees, nor are the Companies able to develop an estimate of the maximum potential amount of future payments to be made under these guarantees as the triggering events are not predictable.

The Companies have not entered into any significant agreement subsequent to January 1, 2003 that would require them, as guarantors, to recognize a liability for the fair value of obligations they have undertaken in issuing the guarantee.

Related Party Guarantees

BCCI and certain subsidiaries of Borden U.K. have guaranteed BCI’s $34,000 Parish of Ascension Industrial Revenue Bonds.

Warranties

The Companies do not make express warranties on its products, other than that they comply with their defined specifications; therefore, no warranty liability has been recorded. Adjustments for product quality claims are not material and are charged against sales revenues.

11. Commitments and Contingencies

Environmental Matters

Because the operations of the Companies involve the use, handling, processing, storage, transportation and disposal of hazardous materials, it is subject to extensive environmental regulation and is exposed to the risk of claims for environmental remediation or restoration. In addition, violations of environmental laws or permits may result in restrictions being imposed on operating activities, substantial fines, penalties, damages or other costs, any of which could have a material adverse effect on the Companies’ business, financial condition, results of operations or cash flows.

Accruals for environmental matters are recorded following the guidelines of Statement of Position 96-1, “Environmental Remediation Liabilities,” when it is probable that a liability has been incurred and the amount of the liability can be estimated. Environmental accruals are reviewed on an interim basis and as events and developments warrant. Based on management’s estimates, which are determined through historical experience, the Companies have recorded liabilities, relating to seven locations, of approximately $4,200 and $4,800 at December 31, 2004 and 2003, respectively, for all probable environmental remediation, indemnification and restoration liabilities. These amounts include estimates of unasserted claims the Companies believe are possible of loss and reasonably estimable.

Based on currently available information and analysis, management believes that it is reasonably possible that costs associated with such sites may fall within a range of $2,400 to $10,400, in the aggregate, at December 31, 2004. This estimate of the range of reasonably possible costs is less certain than the estimates upon which the liabilities are based, and in order to establish the upper end of such range, assumptions less favorable to the Companies among the range of reasonably possible outcomes were used. As with any estimate, if facts or circumstances change, the final outcome could differ materially from these estimates. The factors influencing the ultimate outcome include the methods of remediation to be elected, the conclusions and assessment of site

F-228

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

studies remaining to be completed and the time period required to complete the work. The Companies do not anticipate any recoveries of these costs from insurance coverage or from other third parties. There are no other potentially responsible parties for these sites.

At six of these locations, the Companies are conducting environmental remediation and restoration under business realignment programs due to closure of the sites. Total reserves related to these sites included in realignment were $3,606 and $3,844 at December 31, 2004 and 2003, respectively. Much of this remediation is being performed by the Companies on a voluntary basis in coordination with local regulatory authorities; therefore, management has greater control over the costs to be incurred and the timing of cash flows. The Companies anticipate approximately $3,200 of these liabilities will be paid within the next four years, with the remaining amounts being paid over the next ten years.

Legal Matters

The Companies are involved in various product liability, commercial and employment litigation, personal injury, property damage and other legal proceedings that are considered to be in the ordinary course of business. The following legal claim is not in the ordinary course of business:

In 1992, the State of Sao Paulo Tax Bureau issued an assessment against Brazil Quimica claiming that excise taxes were owed on certain intercompany loans made for centralized cash management purposes, characterized by the Tax Bureau as intercompany sales. Since that time, management and the Tax Bureau have held discussions, and Brazil Quimica has filed an administrative appeal seeking cancellation of the assessment. In December 2001, the Administrative Court upheld the assessment in the amount of 60.8 million Brazilian Reais, or approximately $22,900, including tax, penalties, monetary correction and interest. In September 2002, Brazil Quimica filed a second appeal with the highest level administrative court, again seeking cancellation of the assessment. Management believes Brazil Quimica has a strong defense against the assessment and will pursue the appeal vigorously; however, no assurance can be given that the assessment will not be upheld. At this time the Companies do not believe a loss is probable, therefore, only related legal fees have been accrued. Reasonably possible losses to the Companies on the resolution of this matter range from zero to $22,900.

The Companies have reserved approximately $2,137 and $1,628 at December 31, 2004 and 2003, respectively, relating to all non-environmental legal matters for legal defense and settlement costs that it believes are probable and estimable at this time.

Other Contingencies

The Fentak acquisition agreement includes a contingent purchase consideration provision based on achievement of certain targeted earnings before interest and taxes. No payment was required for 2004. Maximum annual payments are AU$600 for the period 2005-2006.

At December 31, 2004, BCCI is a party to a contingent foreign currency exchange forward contract to purchase €175million for US$235 million, with BCI as the primary beneficiary. The contract is contingent upon the close of the Bakelite share purchase agreement (see Note 3) and has a target settlement date of March 31, 2005 and provides for an extension and adjustments through July 6, 2005. The purpose of the hedge is to mitigate BCI’s risk of foreign currency exposure related to the pending transaction.

F-229

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

12. Pension and Retirement Savings Plans

Most of BCCI’s Canadian employees are covered under a non-contributory defined benefit plan (the “Canadian Plan”). The Canadian Plan provides benefits for salaried employees based on eligible compensation and years of credited service, and for hourly employees based on an established annual amount of pension benefit multiplied by years of credited service. For hourly employees covered under a collective bargaining agreement, the benefit is determined using a flat dollar multiplier times credited service plus a percentage of participant contributions, if any.

Following is a rollforward of the assets and benefit obligations of the Canadian Plan. The measurement date for the plan assets is September 30.

	2004			2003
Change in Benefit Obligation
Benefit obligation at beginning of year	$	6,558		$	4,923
Service cost		231			197
Interest cost		389			401
Actuarial losses		361			536
Foreign currency exchange rate changes		493			1,096
Benefits paid		(507	)		(595	)
		7,525			6,558
Change in Plan Assets
Fair value of plan assets at beginning of year	$	4,538		$	3,615
Actual return on plan assets		285			353
Foreign currency exchange rate changes		345			805
Employer contribution		359			360
Benefits paid		(507	)		(595	)
Fair value of plan assets at end of year	$	5,020		$	4,538
Plan assets less than benefit obligation		(2,505	)		(2,020	)
Unrecognized net actuarial loss		4,388			3,792
Net amount recognized	$	1,883		$	1,772

Amounts recognized in the balance sheets, after reclassification of the prepaid pension asset to reflect a minimum pension liability adjustment, consist of:

	2004			2003
Accrued benefit liability	$	(2,068	)	$	(1,591	)
Accumulated other comprehensive loss		3,951			3,363
Net amount recognized	$	1,883		$	1,772

The weighted average rates used to determine benefit obligations for BCCI were as follows:

	2004		2003
Discount rate	6.0	%	6.0	%
Rate of increase in future compensation levels	3.0	%	3.0	%

F-230

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

The following summarizes BCCI’s benefit obligations and plan assets:

	2004		2003
Projected benefit obligation	$	7,525	$	6,558
Accumulated benefit obligation		7,088		6,128
Fair value of plan assets		5,020		4,538

Following are the components of net pension expense recognized by BCCI for the years ended December 31:

	2004			2003			2002
Service cost	$	231		$	197		$	134
Interest cost on projected benefit obligation		389			401			320
Expected return on assets		(403	)		(399	)		(345	)
Recognized actuarial loss		160			146			76
Net pension expense	$	377		$	345		$	185

The weighted average rates used to determine net pension expense for BCCI were as follows:

	2004		2003		2002
Discount rate	6.0	%	6.5	%	6.8	%
Rate of increase in future compensation levels	3.0	%	3.5	%	3.8	%
Expected long-term rate of return on plan assets	7.8	%	7.8	%	7.8	%

In determining the expected overall long-term rate of return on assets, BCCI takes into account the rates on long-term debt investments held within the portfolio, as well as expected trends in the equity markets. Peer data and historical returns are also reviewed to confirm that BCCI’s assumptions are reasonable.

BCCI’s investment strategy for defined benefit pension plan assets is to maximize the long-term return on plan assets using a mix of equities and fixed income investments and accepting a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status and expected timing of future cash flow requirements. The investment portfolio contains a diversified blend of equity and fixed-income investments. Furthermore, equity investments are diversified across various countries, as well as growth, value and small and large capital investments. Investment risk and performance are measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements and periodic asset / liability studies.

Following is a summary of actual 2004 and 2003, at the measurement date, and target 2005 allocations of plan assets by investment type:

	Actual				Target
	2004		2003		2005
Fixed income securities	38	%	50	%	40	%
Equity securities	58	%	45	%	60	%
Cash and short-term investments	4	%	5	%	—
	100	%	100	%	100	%

BCCI expects to make contributions totaling $950 to the Canadian Plan in 2005.

F-231

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

Estimated future plan benefit payments as of December 31, 2004 are as follows:

2005	$509
2006	503
2007	503
2008	512
2009	516
2010–2014	2,517

The Companies provide benefits under various defined contribution plans to their employees in various countries. Depending upon the country and plan, eligible salaried and hourly employees may contribute up to 7% of their pay as basic contributions to the plans. The Companies make contributions to these plans in amounts up to 100% of basic contributions. Charges to operations for matching contributions under these defined contribution plans in 2004, 2003 and 2002 totaled $1,797, $1,814 and $1,584, respectively.

13. Postretirement Benefit Obligations

BCCI provides certain health and life insurance benefits for eligible Canadian retirees and their dependents. The cost of postretirement benefits is accrued during employees’ working careers. Participants are provided with supplemental benefits to the respective provincial healthcare plans in Canada. These benefits are non-contributory and are funded on a pay-as-you-go basis.

Following is a rollforward of the changes in the non-pension postretirement benefit obligations of BCCI for the years ended December 31. BCCI uses a measurement date of September 30.

	2004			2003
Change in Benefit Obligation
Benefit obligation at beginning of year	$	3,058		$	677
Service cost		114			48
Interest cost		206			55
Actuarial losses		163			2,170
Benefits paid		(50	)		(42	)
Foreign currency exchange rate changes		99			150
Benefit obligation at end of year		3,590			3,058
Unrecognized net actuarial loss		(2,112	)		(2,103	)
Accrued postretirement obligation at end of year	$	1,478		$	955

The unrealized net actuarial loss recognized in 2003 relates to updated estimates on future benefit payments for medical and prescription drug coverage, as well as updates to population and other actuarial assumptions.

The weighted average rates used to determine the benefit obligations for BCCI were as follows:

	2004		2003
Discount rate	6.5	%	6.0	%

F-232

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

Following are the components of net postretirement expense recognized by BCCI for the years ended December 31:

	2004		2003		2002
Service cost	$	114	$	48	$	35
Interest cost on projected benefit obligation		206		55		43
Recognized actuarial loss		149		—		—
Net postretirement expense	$	469	$	103	$	78

The weighted average rates used to determine net postretirement expense for BCCI were as follows:

	2004		2003		2002
Discount rate	6.0	%	6.5	%	6.8	%

Following are the assumed health care cost trend rates at December 31, 2004 and 2003.

	2004		2003
Health care cost trend rate assumed for next year	7.5	%	7.8	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	4.4	%	4.4	%
Year that the rate reaches the ultimate trend rate	2015		2015

A one-percentage-point change in the assumed health care cost trend rates would have the following impact on the Companies:

	1% increase		1% decrease
Effect on total service cost and interest cost components	$	67	$	(51	)
Effect on postretirement benefit obligation		594		(474	)

Estimated future plan benefit payments as of December 31, 2004 are as follows:

2005	$	128
2006		144
2007		162
2008		181
2009		200
2010–2014		1,303

14. Accumulated Other Comprehensive Loss

The components of Accumulated other comprehensive loss as of December 31, 2004 and 2003 are as follows:

	2004			2003
Cumulative foreign currency translation adjustments	$	(54,821	)	$	(48,749	)
Minimum pension liability adjustment, net of tax		(2,568	)		(2,186	)
	$	(57,389	)	$	(50,935	)

F-233

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

15. Shareholder’s (Deficit) Equity

Shareholder’s deficit at December 31, 2004 reflects the common equity of BCCI with all of the common equity of BCCI’s subsidiaries eliminated, except for the equity of Malaysia representing BCI’s 34% interest, totaling $979. Shareholder’s investment for periods prior to the reorganization of the Companies on August 12, 2004 are presented on a combined basis and include the combined equity of BCCI and its current immediate dependents, including 100% of Malaysia’s equity.

BCCI has 489,866 shares of no-par common stock outstanding during all periods presented with an unlimited number of shares of common preference and Preference B shares authorized.

Borden Panama had 2,100 shares of no-par common stock issued at December 31, 2003, and a total of 5,100 authorized. Borden U.K. had 57,700,000 units with £1 par value outstanding at December 31, 2003, and 100,000,000 units authorized. Borden Australia had 577,500 shares of AUD$2 par common stock outstanding at December 31, 2003, and a total of 1,000,000 shares authorized.

In 2004, BCI made a capital contribution to BCCI for $435 relating to interest capitalized by BCI in association with a capital project completed by BCCI during 2004. In 2003, BCI made a capital contribution to Borden U.K. in the amount of $49,087 in exchange for a loan due to BCI from Borden U.K. (see Note 9). Also in 2003, BCI made a capital contribution to Brazil Quimica of a $3,007 receivable due to BCI from Brazil Quimica. In addition, BCI made a capital contribution in 2003 to BCCI of inventory acquired in connection with the Fentak acquisition totaling $133.

Borden Panama paid common stock dividends to BCI prior to BCCI’s ownership totaling $1,750 and $1,450 for the years ended December 31, 2003 and 2002, respectively. Borden Malaysia paid common stock dividends to BCI of $681, $0 and $1,360 for the years ended December 31, 2004, 2003 and 2002, respectively.

16. Stock-Based Compensation

Stock Options

The Companies account for stock-based compensation under APB No. 25 and have adopted the disclosure-only provisions of SFAS No. 123 and SFAS No. 148. During 2004, BHI Acquisition granted options to purchase BHI Acquisition common stock to key employees of the Companies under the BHI Acquisition Corp. 2004 Stock Incentive Plan (“the BHI Option Plan”). Prior to the Acquisition, BCI had granted options under its Amended and Restated 1996 Stock Purchase and Option Plan for Key Employees (“the BCI Option Plan”). Together these plans are referred to herein as the Option Plans.

During 2004, BHI Acquisition granted to employees of the Companies options to purchase 230,861 shares of BHI Acquisition stock that vest ratably over a five-year period. In addition, BHI Acquisition granted to employees of the Companies options to purchase 230,861 shares of BHI Acquisition stock (the “performance options”) that vest after the eighth anniversary of the grant date. The performance options provide for accelerated vesting upon the sale of BHI Acquisition and the achievement of certain financial targets. The exercise price for the BHI Acquisition option grants is $2.89. The options were granted at fair value, but are variable because the BHI Option Plan is a book value plan as the value of the options is determined by a formula. The Companies have not recorded any expense under APB No. 25 related to these options, as their value as determined by this formula is less than the exercise price.

F-234

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

During the fourth quarter of 2003, BCI granted 382,500 options to key employees of the Companies to purchase BCI common stock under its Amended and Restated 1996 Stock Purchase and Option Plan for Key Employees (“the Option Plan”). The options vested ratably over five years, had an exercise price of $2.00 and were granted at their estimated fair value. While this plan was administered and accounted for in BCI’s U.S. business, certain key employees of the Companies had been granted options in BCI stock under this plan. Compensation expense on options to purchase BCI stock held by the Companies’ employees was immaterial to net income for the years ended December 31, 2003, 2002 and 2001. During 2004, as a result of the Acquisition, all of the options granted to employees of the Companies were exercised, resulting in the recognition of $340 for option expense.

Deferred Compensation

Certain key employees of the Companies have been granted 92,344 deferred common stock units under the BHI Acquisition Corp. 2004 Deferred Compensation Plan (“the BHI Deferred Compensation Plan”), which is an unfunded plan. Each unit gives the grantee the right to one share of common stock of BHI Acquisition following the completion of the forfeiture period, upon the earlier of termination of employment or upon certain other events triggered by a registration of BHI Acquisition common stock for sale to the public. The forfeiture period for these deferred common stock units expired on December 10, 2004. The expense for employees of the Companies relating to the BHI Deferred Compensation Plan during 2004 was $267, and is included in the allocations of corporate overhead (see Note 5), and the related credit is in Shareholder’s deficit.

Repurchase of Stock from Management

From 1996 through 1999, a former subsidiary of BCI, Borden Chemical Holdings Inc. (“BCHI”), issued stock options and sold equity to key management, including four employees of the Companies, under the Option Plan (“the BCHI option grants”). The BCHI option grants had exercise prices between $5.00 and $7.50, the estimated fair values at the grant dates, and vested over five years. The outstanding BCHI option grants became options of BCI in 2001 when BCHI was merged into BCI. The conversion of the BCHI option grants provided BCHI management with equivalent intrinsic value in BCI at the new measurement date; therefore, no compensation expense was recorded. The strike prices of the converted options ranged from $4.13 to $5.00, which exceeded estimated fair market value. During 2003, all of the $4.13 options were cancelled upon the repurchase of the related shares from management. As the repurchase of shares was at an amount exceeding fair value, the Companies recorded expense of $74 in 2003.

Included in allocations of BCI administrative services costs (see Note 5) are stock-based compensation expenses totaling $3,238, $435 and $277 for 2004, 2003 and 2002, respectively.

F-235

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

17. Income Taxes

Comparative analysis of the Companies’ income tax expense (benefit) follows:

	2004		2003			2002
Current
Federal & provincial	$	5,373	$	(5,735	)	$	8,555
Foreign		2,321		3,404			(3,667	)
Total		7,694		(2,331	)		4,888
Deferred
Federal & provincial		14,170		509			(10	)
Foreign		1,576		983			3,789
Total		15,746		1,492			3,779
Income tax expense (benefit)	$	23,440	$	(839	)	$	8,667

A reconciliation of the Companies’ combined differences between income taxes computed at Canadian Federal statutory tax rate of 36.12% and provisions for income taxes follows:

	2004			2003			2002
Income taxes computed at Federal statutory tax rate	$	707		$	12,869		$	8,383
Foreign rate differentials		5,415			2,497			1,846
Expenses not deductible for tax		6,735			2,074			1,882
Credits		(3,823	)		(4,336	)		(3,423	)
Unrepatriated earnings of foreign subsidiaries		14,463			—			—
Adjustment of prior estimates		(3,189	)		(15,597	)		—
Provincial taxes and other		3,132			1,654			(21	)
Income tax expense (benefit)	$	23,440		$	(839	)	$	8,667

The 2004 foreign rate differential provision of $5,415 includes a provision for valuation allowances on foreign deferred tax assets and a provision for foreign allocations of administrative services costs, which are not deductible for income tax purposes (see Note 5). Expenses not deductible for tax of $6,735 represent a provision for domestic allocations of administrative services costs, which are not deductible for income tax purposes. Following the Acquisition, Apollo made a determination that the unrepatriated earnings of BCCI’s foreign subsidiaries are no longer considered permanently reinvested. As such, the 2004 consolidated tax rate reflects a provision of $14,463 for taxes associated with the unrepatriated earnings of the foreign subsidiaries. The 2004 consolidated rate also reflects adjustments of prior estimates related to the settlement of Canadian audit issues of $2,175 and provincial refunds totaling $1,343, offset by other adjustments of $329.

The 2003 consolidated rate reflects a release of reserves for prior years’ Canadian tax audits of $15,597. These reserves were released as a result of the settlement of audit issues relating to the divestiture of operating businesses by BCCI in prior years.

The domestic and foreign components of the Companies’ combined Income (loss) before income taxes are as follows:

	2004			2003		2002
Domestic	$	6,157		$	22,718	$	23,519
Foreign		(4,201	)		12,911		(310	)
	$	1,956		$	35,629	$	23,209

F-236

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

The tax effects of the Companies’ significant temporary differences, and net operating loss and credit carryforwards, which comprise the deferred tax assets and liabilities at December 31, 2004 and 2003, are as follows:

	2004			2003
Assets
Accrued and other expenses	$	3,125		$	5,738
Net operating loss and credit carryforwards		13,861			6,504
Pension liability		1,728			—
Certain intangibles		463			278
Gross deferred tax assets		19,177			12,520
Valuation allowance		(10,279	)		(5,313	)
		8,898			7,207
Liabilities
Property, plant, equipment and intangibles		12,580			9,606
Unrepatriated earnings of foreign subsidiaries		14,463			—
Gross deferred tax liabilities		27,043			9,606
Net deferred tax liability	$	18,145		$	2,399

At December 31, 2004, the Companies’ net deferred tax liability was $18,145, and primarily represents the Companies’ liability for withholding taxes related to unrepatriated earnings from BCCI’s foreign subsidiaries as a result of Apollo’s decision to repatriate earnings. At December 31, 2004, the Companies had $13,861 of deferred tax assets related to net operating loss (“NOL”) carryforwards. These amounts have been offset by a valuation allowance of $10,279 primarily related to NOL’s in Argentina and Borden U.K. The deferred tax assets are reduced by a valuation allowance when it is determined that it is more likely than not that these assets will not be fully utilized in the future. The unreserved NOL carryforward deferred tax asset of $3,582 pertains to Borden U.K. ($3,098) and Brazil Quimica ($484). These net operating losses were incurred beginning in 1997 and are available for utilization indefinitely, with a limitation in Brazil, where the utilization is limited to 30% of the taxable income for the year in which the loss is being applied.

At December 31, 2003, the Companies had $6,504 of deferred tax assets related to NOL carryforwards. These amounts were offset by a valuation allowance of $5,313 primarily related to NOL’s in Argentina and Borden U.K. The unreserved NOL carryforward deferred tax asset at year-end of $1,191 pertained to Brazil Quimica ($772) and Borden Australia ($419).

At December 31, 2004, the Companies have $3,059 accrued for probable tax liabilities primarily for BCCI ($1,213) and Borden U.K. ($1,846).

The Canada Revenue Agency is currently auditing BCCI for the period 1991-1995. The years 1996-2004 remain open for inspection and examination by various Canadian taxing authorities. Since 1995, BCCI has divested its foods, consumer adhesives and wallcoverings businesses, which operated in Canada. Deposits have been made to offset the accrued probable additional taxes related to the divestiture of these businesses.

F-237

BORDEN CHEMICAL CANADA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED / COMBINED FINANCIAL STATEMENTS—(Continued)

(In thousands)

18.  Reclassification

In the Company’s originally issued financial statements for the year ended December 31, 2004, transaction-related costs of $14,907 (see Note 5) were classified as a non-operating expense. However, after discussions with the staff of the U.S. Securities and Exchange Commission, management concluded that classification of transaction related costs as an operating expense would be a better presentation. Accordingly, the Company has reflected such reclassification in the accompanying Consolidated/Combined Statement of Operations. In addition, the Company has reclassified $5,145 of allocated transaction-related compensation costs from General & administrative expense to Transaction related costs to appropriately reflect all transaction related costs in a single line item in the accompanying Consolidated/Combined Statement of Operations.

F-238

Report of Independent Auditors

To the Board of Directors and Shareholders of

Eastman Chemical Company

In our opinion, the accompanying combined balance sheet and the related combined statements of operations, of owner’s equity (deficit) and comprehensive income (loss) and of cash flows present fairly, in all material respects, the financial position of the Resins, Inks and Monomers Business of Eastman Chemical Company (the “Business”) at December 31, 2003, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2003 and for the seven-month period ended July 31, 2004 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Business’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Notes 2 and 5 to the combined financial statements, on January 1, 2002, the Business adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.”

PRICEWATERHOUSECOOPERS LLP

Philadelphia, Pennsylvania

April 22, 2005

F-239

[THIS PAGE INTENTIONALLY LEFT BLANK]

F-240

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

COMBINED STATEMENTS OF OPERATIONS

(Dollars in thousands)

	Years ended December 31,						January 1, 2004 through July 31, 2004
	2002			2003
Revenues	$	651,065		$	678,349		$	440,151
Cost of sales		638,180			670,449			407,289
Gross profit		12,885			7,900			32,862
Selling, general and administrative expenses		68,110			60,365			38,450
Research and development expenses		26,215			29,184			9,103
Asset impairments and restructuring charges, net		7,743			412,787			71,107
Goodwill impairments		—			60,050			—
Operating loss		(89,183	)		(554,486	)		(85,798	)
Interest expense		109			153			196
Interest on advances from Eastman		11,851			10,999			5,003
Other non-operating (income) expense, net		(1,455	)		678			515
Loss before income taxes and cumulative effect of a change in accounting principle		(99,688	)		(566,316	)		(91,512	)
Provision (benefit) for income taxes		(31,577	)		(64,470	)		1,299
Loss before cumulative effect of change in accounting principle		(68,111	)		(501,846	)		(92,811	)
Cumulative effect of change in accounting principle, net of tax		(252,969	)		—			—
Net loss	$	(321,080	)	$	(501,846	)	$	(92,811	)

The accompanying notes are an integral part of these combined financial statements

F-241

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

COMBINED BALANCE SHEET

(Dollars in thousands)

	December 31, 2003
ASSETS
Current assets
Cash and cash equivalents	$	14,455
Trade receivables, net of allowances of $4,448		109,673
Miscellaneous receivables		11,077
Inventories, net		102,318
Other current assets		4,799
Total current assets		242,322
Property, plant and equipment, net		130,252
Intangible assets, net		10,883
Other noncurrent assets		528
Total assets	$	383,985
LIABILITIES AND OWNER’S EQUITY (DEFICIT)
Current liabilities
Accounts payable and accruals	$	72,325
Interest payable to Eastman		94,222
Deferred income taxes		8,152
Total current liabilities		174,699
Deferred income taxes		1,321
Post employment obligations		7,551
Advances from Eastman		624,310
Other long-term liabilities		15,175
Total liabilities		823,056
Commitments and contingencies
Net owner’s equity (deficit)		(458,186	)
Accumulated other comprehensive income		19,115
Total owner’s equity (deficit)		(439,071	)
Total liabilities and owner’s equity (deficit)	$	383,985

The accompanying notes are an integral part of these combined financial statements

F-242

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

COMBINED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

	Years ended December 31,						January 1, 2004 through July 31, 2004
	2002			2003
Operating activities
Net loss	$	(321,080	)	$	(501,846	)	$	(92,811	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		41,600			24,237			4,486
Cumulative effect of change in accounting principle		252,969			—			—
Asset impairments		1,700			462,110			63,878
Deferred tax provision (benefit)		(35,141	)		(66,328	)		(438	)
Change in assets and liabilities:
Trade receivables		(2,893	)		(3,832	)		(15,168	)
Inventories		(6,254	)		18,525			608
Trade payables and accruals		14,976			(18,162	)		6,538
Interest payable to Eastman		13,781			6,946			(90,161	)
Other long-term liabilities		2,063			1,033			(1,063	)
Other items, net		(112	)		3,445			(1,009	)
Net cash used in operating activities		(38,391	)		(73,872	)		(125,140	)
Investing activities
Capital expenditures		(49,773	)		(19,715	)		(10,563	)
Net cash used in investing activities		(49,773	)		(19,715	)		(10,563	)
Financing activities
Proceeds from advances from Eastman		64,248			—			—
Repayment of advances from Eastman		—			(15,669	)		(98,353	)
Transfers from Eastman, net		25,944			107,917			221,869
Net cash provided by financing activities		90,192			92,248			123,516
Net change in cash and equivalents		2,028			(1,339	)		(12,187	)
Cash and equivalents at beginning of period		13,766			15,794			14,455
Cash and equivalents at end of period	$	15,794		$	14,455		$	2,268
Supplemental Cash Flow Information
Cash paid
Interest, net	$	1,417		$	4,548		$	96,869
Income taxes, net		379			934			1,723
Non-cash activity:
Contribution of advance from Eastman to owner’s equity		—			—			522,576

The accompanying notes are an integral part of these combined financial statements

F-243

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

COMBINED STATEMENTS OF OWNER’S EQUITY (DEFICIT)

AND COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

	Net Equity (Deficit)			Accumulated Other Comprehensive Income (Loss)			TOTAL			Comprehensive Income (Loss)
Balance, January 1, 2002	$	230,879		$	1,876		$	232,755		$	—
Net loss		(321,080	)		—			(321,080	)		(321,080	)
Net transfers from Eastman		25,944			—			25,944			—
Currency translation adjustment		—			7,591			7,591			7,591
Comprehensive loss		—			—			—			(313,489	)
Balance, December 31, 2002		(64,257	)		9,467			(54,790	)		—
Net loss		(501,846	)		—			(501,846	)		(501,846	)
Net transfers from Eastman		107,917			—			107,917			—
Currency translation adjustment		—			9,648			9,648			9,648
Comprehensive loss		—			—			—			(492,198	)
Balance, December 31, 2003		(458,186	)		19,115			(439,071	)
Net loss		(92,811	)		—			(92,811	)		(92,811	)
Net transfers from Eastman		221,869			—			221,869			—
Contribution of advances from Eastman		522,576			—			522,576			—
Currency translation adjustment		—			(2,779	)		(2,779	)		(2,779	)
Comprehensive loss		—			—			—		$	(95,590	)
Balance, July 31, 2004	$	193,448		$	16,336		$	209,784

The accompanying notes are an integral part of these combined financial statements

F-244

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

Notes to the Combined Financial Statements

(Dollars in thousands)

1. Basis of Presentation

The accompanying combined financial statements include the Resins, Inks and Monomers business (“RIM business” or “Business”) of Eastman Chemical Company (“Eastman”), which is included in the consolidated financial statements of Eastman. On July 31, 2004, Eastman sold certain businesses and product lines of the RIM business to an investor group led by Apollo Management LP. These combined financial statements have been prepared from Eastman’s historical accounting records and are presented on a carve-out basis to include the historical financial position, results of operations and cash flows applicable to the Business. No direct relationship exists among all the operations comprising the Business. Accordingly, total equity (deficit) is presented in lieu of stockholders equity.

The accompanying combined financial statements include allocations of certain corporate services provided by Eastman’s management including finance, legal, information systems, human resources and distribution. Eastman has utilized its experience with the RIM businesses and its judgment in allocating such corporate services and other support to the periods. Costs allocated for such services for the years ended December 31, 2002 and 2003, and for the period from January 1, 2004 through July 31, 2004 were approximately:

	Years ended December 31,				January 1, through July 31,
	2002		2003		2004
Cost of sales	$	30,000	$	33,000	$	14,000
Selling, general and administrative expenses		33,000		33,000		20,000
Research and development		13,000		14,000		4,000
Total cost and expenses allocated	$	76,000	$	80,000	$	38,000

Allocations were made primarily based on a percentage of revenues or salaries, which management believes represents a reasonable allocation methodology. Some corporate services such as information technology are charged to the business based on usage. However, these allocations and estimates are not necessarily indicative of the costs and expenses that would have resulted if the RIM business had been operating as a separate entity. It is not practicable to estimate the costs and expenses that would have resulted on a stand-alone basis.

As described in Note 7, employees working in the Business participate in various Eastman pension, health care, defined contribution and other benefit plans. The pro-rata costs related to these plans have been allocated and are included in the accompanying combined financial statements.

The Business uses a centralized approach to cash management, hedging and the financing of its operations. As a result, debt and related interest income and expense, and certain cash and cash equivalents were maintained at the corporate office and not included in the accompanying combined financial statements. The Business generally has not had borrowings except advances from Eastman. Advances from Eastman represent intercompany debt agreements between Eastman and a subsidiary that is part of the Business. See Note 14.

2. Summary of Significant Accounting Policies

Principles of Combination

The accompanying combined financial statements include the accounts of the Business after elimination of intercompany accounts and transactions.

F-245

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

Notes to the Combined Financial Statements—(Continued)

(Dollars in thousands)

The accompanying combined statements of operations, cash flows and owner’s equity (deficit) for the years ended December 31, 2002 and 2003, and for the period from January 1, 2004 through July 31, 2004, have been prepared on a carve-out basis (see Note 1).

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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, as well as the reported amounts of revenues and expenses during the reporting period. The most significant estimates reflected in the financial statements include environmental remediation, legal liabilities, deferred tax assets and liabilities and related valuation allowances, income tax accruals, pension and postretirement assets and liabilities, valuation allowances for accounts receivable and inventories, general insurance liabilities, asset impairments and related party transactions. Although management believes these estimates are reasonable, actual results could differ from those estimates.

Cash and Cash Equivalents

Cash equivalents are defined as highly liquid investments with original maturities of 90 days or less. Amounts included as cash and cash equivalents in the accompanying combined balance sheet represent cash accounts held at certain of the Business’ foreign entities.

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Business maintains allowances for doubtful accounts (the “allowances”) for estimated losses resulting from the inability of its customers to make required payments. The allowances are based on the number of days an individual receivable is delinquent and management’s regular assessment of the financial condition of the Business’ customers. The Business considers that a receivable is delinquent if it is unpaid after the terms of the related invoice have expired. The Business evaluates the allowance based on a monthly assessment of the aged receivables. Write-offs are done at the time a customer receivable is deemed uncollectible.

The Business participates in an agreement that allows Eastman to sell certain domestic accounts receivable under a planned continuous sale program to a third party. The agreement permits the sale of undivided interests in domestic trade accounts receivable, which Eastman continues to service until collection. As the sale program is part of Eastman’s centralized approach to cash management, the Business’ $40 million participation is classified as trade accounts receivable in the accompanying combined balance sheet.

Inventories

Inventories are valued at the lower of cost or market. The Business determines the cost of inventories in the United States by the last-in, first-out (LIFO) method. The cost of all other inventories, including inventories outside the United States, is determined by the average cost method, which approximates the first-in, first-out (“FIFO”) method. The Business writes down its inventories for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.

F-246

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

Notes to the Combined Financial Statements—(Continued)

(Dollars in thousands)

Property, Plant and Equipment

The Business records property, plant and equipment at cost. Maintenance and repairs are charged to earnings; replacements and betterments that extend the useful life of the asset are capitalized. When the Business retires or otherwise disposes of assets, it removes the cost of such assets and related accumulated depreciation from the accounts. The Business records any profit or loss on retirement or other disposition in earnings. Depreciation expense is calculated based on historical cost and the estimated useful lives of the assets (building and building equipment 20 to 50 years, machinery and equipment 3 to 33 years), using the straight-line method.

Impaired Assets

The Business evaluates the carrying value of long-lived assets to be held and used, including definite-lived intangible assets, when events or changes in circumstances indicate that the carrying value may not be recoverable. Such events and circumstances include, but are not limited to, significant decreases in the market value of the asset, adverse change in the extent or manner in which the asset is being used, significant changes in business climate, or current or projected cash flow losses associated with the use of the assets. The carrying value of a long-lived asset is considered impaired when the total projected undiscounted cash flows from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the projected cash flows discounted at a rate commensurate with the risk involved or by appraisal. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair values are reduced for disposal costs.

The Business adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” effective January 1, 2002. The provisions of SFAS No. 142 require that goodwill and indefinite-lived intangible assets be tested at least annually for impairment and require reporting units to be identified for the purpose of assessing potential future impairments of goodwill. The carrying value of goodwill and indefinite lived intangibles is considered impaired when their fair value, as established by appraisal or based on undiscounted future cash flows of certain related products, is less than their carrying value. The Business conducts its annual testing of goodwill and indefinite-lived intangible assets for impairment in the third quarter of each year, unless events warrant more frequent testing.

Environmental Costs

The Business accrues environmental remediation costs when it is probable that the Business has incurred a liability and the amount can be reasonably estimated. When a single amount cannot be reasonably estimated but the cost can be estimated within a range, the Business accrues the minimum amount. This undiscounted accrued amount reflects the Business’s assumptions about remediation requirements at the contaminated site, the nature of the remedy, the outcome of discussions with regulatory agencies and other potentially responsible parties at multi-party sites, and the number and financial viability of other potentially responsible parties. Changes in the estimates on which the accruals are based, unanticipated government enforcement action, or changes in health, safety, environmental, and chemical control regulations and testing requirements could result in higher or lower costs.

The Business also establishes reserves for closure/post-closure costs associated with the environmental and other assets it maintains. Environmental assets include land fills and solid waste management units. When these types of assets are constructed, a reserve is established for the future environmental costs anticipated to be

F-247

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

Notes to the Combined Financial Statements—(Continued)

(Dollars in thousands)

associated with the closure of the site based on an expected life of the environmental assets. These future expenses are charged into earnings over the estimated useful life of the assets. Currently, the Business estimates the useful life of each individual asset up to 50 years. If the Business changes its estimate of the asset retirement obligation costs or its estimate of the useful lives of these assets, the future expenses to be charged into earnings could increase or decrease.

Accruals for environmental liabilities are included in other long-term liabilities and exclude claims for recoveries from insurance companies or other third parties. Environmental costs are capitalized if they extend the life of the related property, increase its capacity, and/or mitigate or prevent future contamination. The cost of operating and maintaining environmental control facilities is charged to expense.

Litigation and Contingent Liabilities

The Business’ operations from time to time are parties to or targets of lawsuits, claims, investigations, and proceedings, including product liability, personal injury, asbestos, patent and intellectual property, commercial, contract, environmental, antitrust, health and safety, and employment matters, which are handled and defended in the ordinary course of business. The Business accrues a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When a single amount cannot be reasonably estimated but the cost can be estimated within a range, the Business accrues the minimum amount. The Business expenses legal costs, including those expected to be incurred in connection with a loss contingency, as incurred.

Revenue Recognition and Customer Incentives

The Business recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the customer is fixed or determinable, and collectability is reasonably assured.

The Business records estimated obligations for customer programs and incentive offerings, which consist primarily of revenue or volume-based amounts that a customer must achieve over a specified period of time, as a reduction of revenue to each underlying revenue transaction as the customer progresses toward reaching goals specified in incentive agreements. These estimates are based on a combination of forecast of customer sales and actual sales volumes and revenues against established goals, the customer’s current level of purchases, Eastman’s knowledge of customer purchasing habits, and industry pricing practice. The incentive payment rate may be variable, based upon the customer reaching higher sales volume or revenue levels over a specified period of time in order to receive an agreed upon incentive payment.

Shipping and Handling Fees and Costs

Shipping and handling fees related to sales transactions are billed to customers and are recorded as sales revenue. Shipping and handling costs incurred are recorded in cost of sales.

Research and Development Costs

Research and development costs are expensed as incurred.

F-248

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

Notes to the Combined Financial Statements—(Continued)

(Dollars in thousands)

Restructuring of Operations

The Business records restructuring charges incurred in connection with consolidation of operations, exited business lines, or shutdowns of specific sites. These restructuring charges generally will be substantially completed within 12 months, are based on costs associated with site closure, legal and environmental matters, demolition, contract terminations, severance or other costs directly related to the restructuring. The Business records severance charges for involuntary employee separations when the separation is probable and reasonably estimable. The Business records severance charges for voluntary employee separations ratably over the remaining service period of those employees.

Stock-Based Compensation

The employees of the Business participated in long-term compensation plans, sponsored by Eastman. As permitted by SFAS No. 123 “Accounting for Stock-Based Compensation,” the Business continues to apply intrinsic value accounting for its stock option plans. Compensation cost for stock options, if any, is measured as the excess of the quoted market price of the stock at the date of grant over the amount an employee must pay to acquire the stock. The Business has adopted disclosure-only provisions of SFAS No. 123 and SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure—an Amendment of FASB Statement No. 123.” The Business’ pro forma net loss based upon the fair value at the grant dates for awards under Eastman’s plans are disclosed below.

	Years ended December 31						January 1, 2004 through July 31, 2004
	2002			2003
Net loss as reported	$	(321,080	)	$	(501,846	)	$	(92,811	)
Deduct: Additional stock-based employee compensation cost, net of tax, that would have been included in net loss under fair value method		435			465			184
Pro forma net loss	$	(321,515	)	$	(502,311	)	$	(92,995	)

Compensated Absences

The Business accrues compensated absences and related benefits as current charges to earnings in the period earned.

Income Taxes

The provision for income taxes has been determined using the asset and liability approach of accounting for income taxes. Under this approach, deferred taxes represent the future tax consequences expected to occur when the reported amounts of assets and liabilities are recovered or paid. The provision for income taxes represents income taxes paid or payable for the current year plus the change in deferred taxes during the year. Deferred taxes result from differences between the financial and tax bases of the Business’ assets and liabilities and are adjusted for changes in tax rates and tax laws when changes are enacted. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Provision has been made for income taxes on unremitted earnings of subsidiaries and affiliates, except for subsidiaries in which earnings are deemed to be permanently reinvested. The Business’ taxable income is included in Eastman’s consolidated U.S. Federal income tax return. The benefit for income taxes for the Business’ has been determined using the separate return method.

F-249

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

Notes to the Combined Financial Statements—(Continued)

(Dollars in thousands)

Translation of Non-U.S. Currencies

Where cash flows are primarily denominated in the local currency, foreign combined entities of the Business use the local currency as the functional currency. The effects of those entities remeasuring transactions denominated in currencies other than the functional currency are reflected in current earnings in other (income) charges, net. The effects of translating into U.S. dollars the operations of consolidated entities that use a foreign currency as the functional currency are included in comprehensive income (loss) and accumulated other comprehensive income (loss), a component of net owner’s equity (deficit).

Other Comprehensive Income

Other comprehensive income consists of cumulative translation adjustment. Because cumulative translation adjustment is considered a component of permanently invested, unremitted earnings of subsidiaries outside the United States, no taxes are provided on such amounts.

Risks and Uncertainties

The Business had manufacturing operations in ten countries, and in each country, the business was subject to varying degrees of risks and uncertainties. Eastman insures its business and assets against insurable risks in a manner that it deems appropriate. Because of its diversity, management believes that the risk of loss from non-insurable events in any one business or country would not have a material, adverse effect on its operations as a whole. Additionally, management believes there is no material concentration of risk within any single customer or supplier, or small group of customers or suppliers, except for Eastman, whose failure or nonperformance would materially affect the Business’ results.

3. Inventories

	December 31, 2003
At FIFO or average cost (approximates current cost)
Finished goods	$	71,676
Raw materials and supplies		33,256
Total inventories at FIFO or average cost		104,932
LIFO reserve		(2,614	)
Total inventories	$	102,318

Inventories valued on the LIFO method were approximately 52% of total inventory. LIFO inventory in the Resins segment is part of Eastman’s LIFO inventory pool. Accordingly, changes in the LIFO reserve were allocated based on cost of sales. The increase (decrease) in cost of sales that resulted from the allocation of changes in the Eastman LIFO reserve to Resins was $(2,136), $974 and $2,183 for the years ended December 31, 2002 and 2003, and for the period from January 1, 2004 through July 31, 2004, respectively. The Inks segment, which had its own LIFO pool, recorded decreases in cost of sales that resulted from decrements of $2,032 and $1,579 in 2002 and for the period from January 1, 2004 through July 31, 2004, respectively.

F-250

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

Notes to the Combined Financial Statements—(Continued)

(Dollars in thousands)

4. Property Plant and Equipment

	December 31, 2003
Properties at cost
Balance at beginning of year	$	461,145
Capital expenditures		19,715
Currency translation adjustment		42,131
Deductions		(23,653	)
Fixed asset impairments		(227,643	)
Balance at end of year	$	271,695
Properties
Land	$	29,122
Buildings and equipment		62,271
Machinery and equipment		173,293
Construction in progress		7,009
		271,695
Less: accumulated depreciation		141,443
Properties, net	$	130,252
Accumulated Depreciation
Balance at beginning of year	$	116,678
Provision for depreciation		17,011
Currency translation adjustment		26,179
Deductions		(18,425	)
Balance at end of year	$	141,443

Depreciation expense was $28,977, $17,011, and $4,070 for the years ended 2002 and 2003, and from January 1, 2004 to July 31, 2004, respectively. See Note 12 for additional information on asset impairments.

5. Goodwill and Intangible Assets

The Business adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” effective January 1, 2002. The provisions of SFAS No. 142 prohibit the amortization of goodwill and indefinite-lived intangible assets; require that goodwill and indefinite-lived intangible assets be tested at least annually for impairment; require reporting units to be identified for the purpose of assessing potential future impairments of goodwill; and remove the forty-year limitation on the amortization period of intangible assets that have finite lives.

In connection with the adoption of SFAS No. 142, the Business completed the impairment test for goodwill and intangible assets with indefinite useful lives. As a result of this impairment test, it was determined that the fair value of certain trademarks, as established by appraisal and based on discounted future cash flows, was less than the recorded value. Accordingly, the Business recognized goodwill impairment of $235,299 and an impairment charge for trademarks of $28,500 ($17,670 after-tax) in 2002 to reflect lower than previously expected cash flows from certain related products. This charge is reported in the Combined Statements of Operations as the cumulative effect of a change in accounting principle.

F-251

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

Notes to the Combined Financial Statements—(Continued)

(Dollars in thousands)

The changes in the carrying amount of goodwill for the year ended December 31, 2002 and 2003 are as follows:

	Resins			Inks			Total
Goodwill balance at January 1, 2002	$	60,000		$	235,349		$	295,349
Less: goodwill impairment recognized upon adoption of SFAS No. 142		(60,000	)		(175,299	)		(235,299	)
Goodwill balance at December 31, 2002		—			60,050			60,050
Less: goodwill impairment		—			(60,050	)		(60,050	)
Goodwill balance at December 31, 2003	$	—		$	—		$	—

Following are the Business’ amortizable intangible assets and indefinite-lived intangible assets. The difference between the gross carrying amount and net carrying amount for each item presented is attributable to accumulated amortization.

	At December 31, 2003
	Gross Carrying Amount		Net Carrying Amount
Amortizable intangible assets:
Developed Technology	$	25,320	$	3,588
Customer lists		12,948		1,753
	$	38,268	$	5,341
Indefinite-lived intangible assets:
Trademarks		5,542		5,542
	$	43,810	$	10,883

Total intangible amortization expense was $12,623, $7,226 and $416 for the years ended December 31, 2002 and 2003 and the period from January 1, 2004 to July 31, 2004, respectively. Amortization expense for the next five years is not significant to any one year.

Additional information regarding the impairment of intangibles and goodwill is available in Note 12.

6. Accounts Payable and Accruals

	At December 31, 2003
Trade creditors	$	48,724
Accrued payrolls, vacation, and variable-incentive compensation		11,983
Severance		4,566
Other		7,052
Total	$	72,325

F-252

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

Notes to the Combined Financial Statements—(Continued)

(Dollars in thousands)

7. Retirement Plans

The employees of the RIM business participate in defined benefit plans sponsored by Eastman. Through Eastman, the RIM business also provided post-retirement health care and life insurance benefits for employees who meet the eligibility requirements of the plans. Retirees share in the cost of these benefits based on age and years of service. Eastman charges the RIM business for the costs of the plans through an allocation based on labor costs.

The following charges are included in the accompanying combined statements of operations:

	Years ended December 31,				January 1, 2004 through July 31, 2004
	2002		2003
Pension plans	$	2,119	$	2,989	$	2,007
Postretirement benefits		4,732		5,203		2,520

Defined Contribution Plans

The Business participates in Eastman’s defined contribution employee stock ownership plan (the “ESOP”), a qualified plan under Section 401(a) of the Internal Revenue Code, which is a component of the Eastman Investment Plan and Employee Stock Ownership Plan (“EIP/ESOP”). Eastman anticipates that it will make annual contributions for substantially all U.S. employees equal to 5% of eligible compensation to the ESOP, or for employees who have five or more prior ESOP contributions, to either the Eastman Stock Fund or other investment funds within the EIP. Employees may diversify to other investment funds within the EIP from the ESOP at anytime without restrictions. Charges for domestic contributions to the EIP/ESOP were $2,288, $2,394 and $1,379 for 2002, 2003 and for the period from January 1, 2004 through July 31, 2004, respectively.

8. Commitments

Purchase Obligations and Leases

At July 31, 2004, the Business participated in the centralized purchasing programs of Eastman for materials, supplies and energy incident to the ordinary conduct of business. Accordingly, no purchase obligations were directly related to the Business. The Business had various lease commitments for property and equipment under cancelable, non-cancelable and month-to-month operating leases totaling approximately $1,781 over a period of several years.

The obligations described above are in the following table:

	Minimum Rentals Under Operating Leases
2004 Balance of Year	$	302
2005		702
2006		472
2007		270
2008		22
Thereafter		13
	$	1,781

F-253

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

Notes to the Combined Financial Statements—(Continued)

(Dollars in thousands)

Rental expense including allocations from Eastman was $4,296, $4,430 and $1,886 for the years ended December 31, 2002 and 2003 and for the period from January 1, 2004 through July 31, 2004, respectively.

Other Guarantees

Guarantees and claims arise during the ordinary course of business from relationships with suppliers, customers and non-consolidated affiliates when the Business undertakes an obligation to guarantee the performance of others if specified triggering events occur. Non-performance under a contract could trigger an obligation of the Business. These potential claims include actions based upon alleged exposures to products, intellectual property and environmental matters, and other indemnifications. The ultimate effect on future financial results is not subject to reasonable estimation because considerable uncertainty exists as to the final outcome of these claims. However, while the ultimate liabilities resulting from such claims may be significant to results of operations in the period recognized, management does not anticipate they will have a material adverse effect on the Business’ consolidated financial position or liquidity.

Product Warranty Liability

The Business warrants to the original purchaser of its products that it will repair or replace without charge products if they fail due to a manufacturing defect. However, the Business’ historical claims experience has not been material. The estimated product warranty liability for the Business’ products as of July 31, 2004 is less than $1 million. The Business accrues for product warranties when it is probable that customers will make claims under warranties relating to products that have been sold and a reasonable estimate of the costs can be made.

9. Environmental Matters

Certain manufacturing sites generate hazardous and non-hazardous wastes, the treatment, storage, transportation, and disposal of which are regulated by various governmental agencies. In connection with the cleanup of various hazardous waste sites, the Business, along with many other entities, has been designated a potentially responsible party (“PRP”), by the U.S. Environmental Protection Agency under the Comprehensive Environmental Response, Compensation and Liability Act, which potentially subjects PRPs to joint and several liability for such cleanup costs. In addition, the Business will be required to incur costs for environmental remediation and closure and post-closure under the Federal Resource Conservation and Recovery Act. Adequate reserves for environmental contingencies have been established in accordance with the Business’ policies described in Note 2. Because of expected sharing of costs, the availability of legal defenses, and the Business’ preliminary assessment of actions that may be required, it does not believe its liability for these environmental matters, individually or in the aggregate, will be material to the Business’ consolidated financial position, results of operations or cash flows. The Business’ reserve for environmental contingencies was approximately $9,336 at December 31, 2003, representing management’s minimum or best estimate for remediation costs and other environmental cleanup issues.

10. Legal Matters

From time to time, the Business and its operations are parties to, or targets of, lawsuits, claims, investigations and proceedings, including product liability, personal injury, asbestos, patent and intellectual property, commercial, contract, environmental, antitrust, health and safety and employment matters, which are being handled and defended in the ordinary course of business. While the Business is unable to predict the outcome of these matters, it does not believe, based upon currently available facts, that the ultimate resolution of

F-254

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

Notes to the Combined Financial Statements—(Continued)

(Dollars in thousands)

any such pending matters will have a material adverse effect on its overall financial condition, results of operations or cash flows. However, adverse developments could negatively impact earnings or cash flows in a particular future period.

11. Stock Option and Compensation Plans

The employees of the RIM business participated in various long term compensation plans, sponsored by Eastman, which provided for grants to employees of nonqualified stock options, incentive stock options, tandem and freestanding stock appreciation rights (“SAR’s”), performance shares and various other stock and stock-based awards. Certain of these awards may be based on criteria relating to Eastman performance as established by the Compensation and Management Development Committee of the Board of Directors of Eastman. The Eastman Omnibus Plan provided that options could be granted through May 2, 2007, for the purchase of Eastman common stock at an option price not less than 100% of the per share fair market value on the date of the stock option’s grant. Substantially all grants awarded under Eastman’s plans have been at option prices equal to the fair market value on the date of grant. Options typically vest in equal increments on either the first two or three anniversaries of the grant date and expire ten years after grant.

The fair value of each option is estimated by the Business on the grant date using the Black-Scholes-Merton option-pricing model, which requires input of highly subjective assumptions. Some of these assumptions used for grants in 2004, 2003, and 2002, respectively, include: average expected volatility of 28.0%, 27.90% and 27.57%; average expected dividend yield of 3.80%, 5.90% and 3.71%; and average risk-free interest rates of 3.46%, 3.50% and 5.06%. An expected option term of six years for all periods was developed based on historical experience information.

Because the Business’ employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

A summary of the status of the Business’ portion of Eastman’s stock option plans is presented below:

	2002				2003			January 1 to July 31, 2004
	Options		Weighted- Average Exercise Price		Options	Weighted- Average Exercise Price		Options		Weighted- Average Exercise Price
Outstanding at beginning of year	159,900		$	51.91	241,300	$	50.32	354,700		$	43.79
Granted	83,700			47.55	113,400		29.90	21,800			43.66
Exercised	(500	)		42.75	—		—	(26,675	)		29.90
Forfeited or canceled	(1,800	)		42.75	—		—	(7,700	)		59.14
Outstanding at end of year	241,300		$	50.32	354,700	$	43.79	342,125		$	44.69
Options exercisable at year-end	121,900				187,800			249,175

F-255

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

Notes to the Combined Financial Statements—(Continued)

(Dollars in thousands)

The following table summarizes information about stock options outstanding at December 31, 2003:

	Options Outstanding					Options Exercisable
Range of Exercise Prices	Number Outstanding at 12/31/03	Weighted- Average Remaining Contractual Life		Weighted- Average Exercise Price		Number Exercisable at 12/31/03	Weighted- Average Exercise Price
$30	113,400	9.2	Years	$	30	—	$	—
$43-46	32,600	5.3	Years		46	32,600		46
$47-49	141,400	7.8	Years		48	87,900		49
$50-74	67,300	3.2	Years		57	67,300		57
	354,700	7.2	Years	$	44	187,800	$	51

12. Impairments and Restructuring Charges, Net

The following table summarizes the impairments and restructuring charges:

	Years ended December 31,				January 1, 2004 through July 31, 2004
	2002		2003
Resins:
Fixed asset impairments	$	1,700	$	173,630	$	30,304
Intangible asset impairments		—		77,517		—
Restructuring charges		3,003		6,838		4,522
Inks:
Fixed asset impairments		—		54,013		27,574
Intangible asset impairments		—		96,900		6,000
Goodwill impairments		—		60,050		—
Restructuring charges		3,040		3,889		2,707
Total	$	7,743	$	472,837	$	71,107
Total asset impairments and restructuring charges, net	$	7,743		412,787		71,107
Total goodwill impairments		—		60,050		—
Total	$	7,743	$	472,837	$	71,107

Asset Impairments

In the third quarter 2003, Eastman reorganized the operating structure and changed its business strategy in response to the financial performance of certain underlying product lines. Those product lines include: acrylate ester monomers; composites (unsaturated polyester resins); inks and graphic arts raw materials; liquid resins; powder resins; and textile chemicals. Prior to the third quarter, management was pursuing growth strategies aimed at significantly improving the financial performance of these product lines. However, due to the continued operating losses and deteriorating market conditions, management decided to pursue alternative strategies including restructuring, divestiture, and consolidation. This change affected both the manner in which certain assets are used and the financial outlook for these product lines, thus triggering the impairments and certain restructuring charges.

F-256

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

Notes to the Combined Financial Statements—(Continued)

(Dollars in thousands)

The 2003 fixed asset impairments charges of $227,643 primarily relate to assets associated with the above mentioned product lines, and primarily impact manufacturing sites in the North American and European regions that were part of the Lawter International, Inc. (“Lawter”), McWhorter Technologies, Inc (“McWhorter”), and Chemicke Zavody Sokolov (“Sokolov”) acquisitions. As the undiscounted future cash flows could not support the carrying value of the assets, the fixed assets were written down to fair value, as established primarily by appraisal.

The 2003 intangible asset impairments charges relate to definite-lived intangible assets of $127,417 and indefinite-lived intangible assets of approximately $47,000. The definite-lived intangible assets relate primarily to developed technology and customer lists, and the indefinite-lived intangible assets primarily relate to trademarks. These intangible assets were primarily associated with the acquisitions of Lawter and McWhorter. As the undiscounted future cash flows could not support the carrying value of the definite-lived intangible assets, these assets were written down to fair value, as established primarily by appraisal. Indefinite-lived intangible assets were written down to fair value, as established by appraisal.

In 2004, Eastman entered into an agreement to sell certain businesses and product lines of the RIM business to an investor group led by Apollo Management LP. The estimated sales proceeds for the net assets to be sold were less than their carrying value. As a result, the Business assessed the impairment under the “held in use” model and determined that the sum of undiscounted future cash flows would not support the carrying value of the assets. As such, fixed assets and intangible assets were written down to fair value and an impairment charge was recorded in the amount of $63,878.

Restructuring Charges

Restructuring charges in 2002 and 2003 of $6,043 and $10,727, respectively, consist primarily of severance charges related to actual and probable involuntary separations resulting from decisions as part of the restructuring of Eastman discussed above and the annual budgeting process. During 2003, terminations related to actual and probable involuntary separations totaled approximately 200 employees. As of the end of 2003, approximately 150 of these terminations had been incurred, with the remaining primarily relating to previously announced consolidation and restructuring activities of certain European manufacturing sites that were completed prior to July 31, 2004.

In 2004, the Business recognized $7,229 in restructuring charges which included severance charges primarily related to separations stemming from the Eastman’s voluntary termination program announced in April 2004 and additional site closure costs of $2,616 related primarily to previously announced closures of the Waterford, Ireland and Bury, UK manufacturing facilities.

F-257

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

Notes to the Combined Financial Statements—(Continued)

(Dollars in thousands)

The following table summarizes the charges and changes in estimates described above, other asset impairments and restructuring charges, the non-cash reductions attributable to asset impairments, and the cash reductions in shutdown reserves for severance costs and site closure costs paid:

	Balance at January 1, 2002		Provision/ Adjustments		Non-cash Reductions			Cash Reductions			Balance at December 31, 2002
Non-Cash Charges	$	—	$	1,700	$	(1,700	)	$	—		$	—
Severance costs		—		—		—						—
Site closure costs		—		6,043		—			(2,797	)		3,246
Total	$	—	$	7,743	$	(1,700	)	$	(2,797	)	$	3,246
	Balance at January 1, 2003		Provision/ Adjustments		Non-cash Reductions			Cash Reductions			Balance at December 31, 2003
Non-Cash Charges	$	—	$	462,110	$	(462,110	)	$	—		$	—
Severance costs		—		7,727		—			(3,161	)		4,566
Site closure costs		3,246		3,000		—			(6,246	)		—
Total	$	3,246	$	472,837	$	(462,110	)	$	(9,407	)	$	4,566
	Balance at January 1, 2004		Provision/ Adjustments		Non-cash Reductions			Cash Reductions			Balance at July 31, 2004
Non-Cash Charges	$	—	$	63,878	$	(63,878	)	$	—		$	—
Severance costs		4,566		4,613					(8,475	)		704
Site closure costs		—		2,616		—			(2,616	)		—
Total	$	4,566	$	71,107	$	(63,878	)	$	(11,091	)	$	704

13. Other Non-operating (Income) Expense, Net

	Years ended December 31,						January 1, 2004 through July 31, 2004
	2002			2003
Other income	$	(674	)	$	(2,158	)	$	(707	)
Foreign exchange transaction (gains) losses		(1,363	)		(1,183	)		681
Other expenses		582			4,019			541
Total	$	(1,455	)	$	678		$	515

14. Transactions With Related and Certain Other Parties

Related Parties

The Business has entered into transactions with Eastman. Purchases from Eastman were approximately $43,000 for 2002, $43,000 for 2003, and $27,000 for the period from January 1, 2004 through July 31, 2004. See Note 2 regarding expenses allocated to the Business from Eastman. However, these transactions are not necessarily indicative of the costs and expenses that would have resulted if the RIM business had been operating as a separate entity.

F-258

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

Notes to the Combined Financial Statements—(Continued)

(Dollars in thousands)

Advances from Eastman

Advances from Eastman are long-term notes payable supported by contractual agreements, primarily a $536,000 note from Lawter International, Inc., a subsidiary included in the RIM business. All principal was due on May 1, 2009. Interest was payable annually at an interest rate equal to the one-month LIBOR. On July 31, 2004, the outstanding principal and interest balances were settled by a contribution to owner’s equity (deficit) by Eastman.

15. Income Taxes

Components of loss before the provision (benefit) for U.S. and other income taxes follow:

	Years ended December 31,						January 1, 2004 through July 31, 2004
	2002			2003
Loss before income taxes
United States	$	(91,915	)	$	(462,582	)	$	(67,107	)
Outside the United States		(7,773	)		(103,734	)		(24,405	)
Total	$	(99,688	)	$	(566,316	)	$	(91,512	)
Provision (benefit) for income taxes
United States
Deferred	$	(33,118	)	$	(61,487	)	$	—
Non-United States
Current		3,564			1,858			1,737
Deferred		818			433			(438	)
State and other
Deferred		(2,841	)		(5,274	)		—
Total	$	(31,577	)	$	(64,470	)	$	1,299

Differences between the provision (benefit) for income taxes and income taxes computed using the U.S. federal statutory income tax rate follow:

	Years ended December 31,						January 1, 2004 through July 31, 2004
	2002			2003
Amount computed using the statutory rate	$	(34,891	)	$	(198,211	)	$	(32,029	)
State income taxes, net		(2,841	)		(12,020	)		(1,988	)
Foreign rate variance		1,462			10,677			(3,585	)
Goodwill impairment		—			21,018			—
Valuation allowance		5,641			113,978			39,029
Other		(948	)		88			(128	)
Provision (benefit) for income taxes	$	(31,577	)	$	(64,470	)	$	1,299

F-259

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

Notes to the Combined Financial Statements—(Continued)

(Dollars in thousands)

The significant components of deferred tax assets and liabilities follow:

	December 31, 2003
Deferred tax assets
Depreciation	$	10,204
Purchase accounting		7,674
Net operating loss carry forwards		112,168
Other		6,763
Total deferred tax assets		136,809
Less valuation allowance		(113,846	)
Deferred tax assets less valuation allowance	$	22,963
Deferred tax liabilities
Depreciation	$	13,072
Inventories		5,136
Purchase accounting adjustments		6,573
Other		7,655
Total deferred tax liabilities	$	32,436
Net deferred tax liabilities	$	9,473

For certain consolidated foreign subsidiaries, income and losses directly flow through to taxable income in the United States. These entities are also subject to taxation in the foreign tax jurisdictions. Net operating loss carryforwards exist to offset future taxable income in foreign tax jurisdictions and valuation allowances are provided to reduce deferred related tax assets if it is more likely than not that this benefit will not be realized. Changes in the estimated realizable amount of deferred tax assets associated with net operating losses for these entities could result in changes in the deferred tax asset valuation allowance in the foreign tax jurisdiction. At the same time, because these entities are also subject to tax in the United States, a deferred tax liability for the expected future taxable income will be established concurrently. Therefore, the impact of any reversal of valuation allowances on consolidated income tax expense will only be to the extent that there are differences between the United States statutory tax rate and the tax rate in the foreign jurisdiction.

At December 31, 2003, net operating loss carryforwards totaled $330,000. Of this total, $300,000 will expire in 3 to 20 years; $30,000 will never expire.

16. Segment Information

Using guidelines set forth in SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” the Business has identified two reportable segments based on product line information: Resins and Inks.

Resins and Monomers (“Resins”)

The Resins segment manufactures materials for the coatings, composites, acrylics, and textile industries from 11 facilities in North America and Europe.

F-260

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

Notes to the Combined Financial Statements—(Continued)

(Dollars in thousands)

Inks

The Inks segment produces a variety of specialty polymers and other ink products through 6 facilities in North America, Europe and Asia.

	Years ended December 31,						January 1, 2004 through July 31, 2004
	2002			2003
Revenues:
Resins	$	454,612		$	490,534		$	336,059
Inks		196,453			187,815			104,092
Total	$	651,065		$	678,349		$	440,151
Operating loss:
Resins	$	(67,341	)	$	(314,323	)	$	(42,768	)
Inks		(21,842	)		(240,163	)		(43,030	)
Total	$	(89,183	)	$	(554,486	)	$	(85,798	)
Depreciation expense:
Resins	$	21,075		$	13,768		$	2,428
Inks		7,902			3,243			1,642
Total	$	28,977		$	17,011		$	4,070
Capital expenditures:
Resins	$	34,731		$	13,003		$	7,409
Inks		15,042			6,712			3,154
Total	$	49,773		$	19,715		$	10,563

	At December 31, 2003
Assets:
Resins	$	253,686
Inks		130,299
Total	$	383,985

F-261

RESINS, INKS AND MONOMERS BUSINESS

OF EASTMAN CHEMICAL COMPANY

Notes to the Combined Financial Statements—(Continued)

(Dollars in thousands)

	Years ended December 31,				January 1, 2004 through July 31, 2004
	2002		2003
Geographic Information
Revenues:
United States	$	361,237	$	334,502	$	216,854
All foreign countries		289,828		343,847		223,297
Total	$	651,065	$	678,349	$	440,151

	At December 31, 2003
Property, plant and equipment, net
Unites States	$	36,813
All foreign countries		93,439
Total	$	130,252

F-262

Resin Business of the Bakelite Group

(Euro amounts in thousands unless otherwise stated)

UNAUDITED COMBINED INTERIM STATEMENTS OF OPERATIONS

	Three months ended March 31,
	2005			2004
Net sales	€	147,139		€	134,947
Cost of goods sold		121,553			110,832
Gross margin		25,586			24,115
Distribution expense		4,318			3,993
Marketing expense		8,301			8,080
General and administrative expense		5,332			4,435
Research and development expense		2,832			2,698
Impairment of long-lived assets		0			2,317
Restructuring expense		608			353
Other operating expense, net		216			203
Income from operations		3,979			2,036
Other non-operating (expense) income		(38	)		498
Interest expense, net		(604	)		(508	)
Affiliated interest income (expense), net		76			(65	)
Income before income taxes, minority interest and equity in earnings of joint venture		3,413			1,961
Income tax expense		1,653			682
Income before minority interest and equity in earnings of joint venture		1,760			1,279
Minority interest loss, net of tax		(65	)		(8	)
Net income	€	1,695		€	1,271
Comprehensive income	€	1,997		€	2,379

The accompanying notes are an integral part of these Unaudited Combined Interim Financial Statements.

F-263

Resin Business of the Bakelite Group

(Euro amounts in thousands unless otherwise stated)

UNAUDITED COMBINED INTERIM BALANCE SHEETS

	Unaudited March 31, 2005		Audited December 31, 2004
ASSETS
Current Assets:
Cash and cash equivalents	€	7,871	€	5,807
Accounts and notes receivable, net of allowance for doubtful accounts of €4,737 in 2005 and €4,194 in 2004		104,049		100,279
Accounts receivable from affiliates		17,422		17,319
Inventories, net of reserves of €1,340 in 2005 and €988 in 2004
Finished goods and work-in-process goods		53,776		46,363
Raw materials		32,602		32,271
Deferred income taxes, net		1,858		1,677
Prepaid tax expense		1,736		1,467
Other current assets		4,098		2,994
Total current assets		223,412		208,177
Property, plant and equipment, net		171,540		173,019
Goodwill		8,481		8,551
Other intangible assets		9,302		10,884
Deferred income taxes, net		1,664		2,098
Investments and other long-term assets		2,651		2,626
Total assets	€	417,050	€	405,355
LIABILITIES AND OWNER’S NET INVESTMENT
Current Liabilities:
Accounts payable	€	45,331	€	52,805
Accounts payable to affiliates		33		729
Debt payable within one year		28,400		25,353
Deferred income taxes, net		3,939		3,848
Accrued income tax		1,574		916
Accrued payroll and related withholdings		8,773		7,426
Other current liabilities		21,714		10,509
Total current liabilities		109,764		101,586
Long-term debt, net of current portion		26,329		28,204
Pensions and employees’ severance indemnities		81,580		80,490
Deferred income taxes, net		20,258		19,399
Other long-term liabilities		2,135		4,223
Minority interest		1,496		1,431
Total liabilities		241,562		235,333
Owner’s net investment	€	175,488	€	170,022
Total liabilities and owner’s net investment	€	417,050	€	405,355

The accompanying notes are an integral part of these Unaudited Combined Interim Financial Statements.

F-264

Resin Business of the Bakelite Group

(Euro amounts in thousands unless otherwise stated)

UNAUDITED COMBINED INTERIM STATEMENTS OF CHANGES IN OWNER’S

NET INVESTMENT AND COMPREHENSIVE INCOME (LOSS)

	Owner’s Net Investment
Balance, January 1, 2005	€	170,022
Comprehensive income
Net income		1,695
Foreign currency translation adjustments		355
Minimum pension liability (net of €35 tax)		(53	)
Total comprehensive income	€	1,997
Capital contributions
Workers council agreement contribution		4,000
Push down of trade tax and corporation tax expenses (benefits) retained by Rütgers		(577	)
Other equity increase		46
Balance, March 31, 2005	€	175,488

The accompanying notes are an integral part of these Unaudited Combined Interim Financial Statements.

F-265

Resin Business of the Bakelite Group

(Euro amounts in thousands unless otherwise stated)

UNAUDITED COMBINED INTERIM STATEMENTS OF CASH FLOWS

	Three months ended March 31,
	2005			2004
Cash flows from operating activities:
Net income	€	1,695		€	1,271
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Impairment of long-lived assets		0			2,317
Depreciation and amortization expense		5,997			6,600
Loss (gain) on sale of assets		180			(14	)
Deferred income taxes		1,460			(2,359	)
Other non-cash adjustments		132			123
Push down of parent company expenses (benefits)		(531	)		3,175
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		(4,030	)		(1,102	)
Inventories		(7,063	)		(2,204	)
Accounts payable		(8,775	)		(4,493	)
Income taxes		388			844
Other assets		(1,083	)		(2,095	)
Other liabilities		12,479			6,480
Other non-current assets and liabilities		(1,060	)		(28,647	)
Net cash provided by (used in) operating activities		(211	)		(20,104	)
Cash flows from investing activities:
Capital expenditures		(2,750	)		(4,080	)
(Purchase) Proceeds from sale of business		0			(134	)
Proceeds from the sale of assets		64			321
Net cash (used in) provided by investing activities		(2,686	)		(3,893	)
Cash flows from financing activities:
Dividends paid to minorities		0			(134	)
Transactions with Rütgers		811			(72,806	)
Transactions related to Bozzetto		0			101,600
Workers council agreement contribution		4,000			0
Net short term borrowings		1,345			3,399
Repayments (proceeds) from long-term borrowings		0			101
Repayments of financing activities		(1,290	)		(3,785	)
Net cash provided by financing activities		4,866			28,375
Effect of exchange rate fluctuations on cash and cash equivalents		95			109
Net change in cash and cash equivalents		2,064			4,487
Cash and cash equivalents at beginning of period		5,807			5,385
Cash and cash equivalents at end of period	€	7,871		€	9,872

The accompanying notes are an integral part of these Unaudited Combined Interim Financial Statements.

F-266

Resin Business of the Bakelite Group

(Euro amounts in thousands unless otherwise stated)

Notes to the Unaudited Combined Interim Financial Statements

Note 1—Bakelite, its Operations and Basis of Presentation

The Resin Business of the Bakelite Group (“Bakelite”), wholly owned by Rütgers and, ultimately, RAG AG, manufactures and distributes epoxy and phenolic resins as well as moulding compounds in facilities located in Europe, North America, and Asia.

The Combined Interim Financial Statements of Bakelite, prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), as of and for the periods presented include all assets, liabilities, revenues, expenses and cash flows directly attributable to the Resin Business of the Bakelite Group, subject to the elimination of intercompany accounts and transactions. In addition, certain expenses of Rütgers and the utilization of certain tax benefits by Rütgers are included in the unaudited Combined Interim Financial Statements in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 54, Push Down Basis of Accounting Required in Certain Limited Circumstances (“SAB 54”). The expenses pushed down in the Combined Interim Financial Statements primarily relate to certain tax expenses, and tax benefits and cost of administrative services provided to Bakelite by Rütgers. The effects of common control transactions, to the extent appropriate, are also reflected as a component of equity.

The Combined Interim Financial Statements do not include the non-resin business of Bakelite, specifically Giovanni Bozzetto S.p.A. and its subsidiaries (“Bozzetto”). In relation to Bakelite, Bozzetto was dissimilar in its nature of business, autonomously managed and financed, and had no significant common facilities and costs. Dividends received from Bozzetto, net of related taxes, and the cash proceeds received from the sale of Bozzetto to private equity investors in February 2004 have been presented as capital contributions in the unaudited Combined Statements of Changes in Owner’s Net Investment. Cash flows associated with Bozzetto have been characterized as financing transactions with Rütgers in the unaudited Combined Statements of Cash Flows.

Transactions between Bakelite and other RAG AG companies, including Rütgers, have been identified in the Unaudited Interim Combined Financial Statements as transactions between related parties.

The remaining outstanding shares of Bakelite Ibérica S.A. were acquired for €134 in March 2004 from a third party. In May 2004, the remaining outstanding shares of Bakelite Italia S.p.A. (€159) and Bakelite Polymers UK Ltd. (for consideration of less than €1) were acquired from Rütgers. The difference between the purchase price and the minority interest carrying value was recorded as a capital contribution from Rütgers.

At the end of 2004, all appropriate corporate bodies of Bakelite approved an agreement for the sale of the shares of Bakelite AG to Borden Chemical, Inc. (Note 10).

Note 2—Significant Accounting Policies

The Combined Interim Financial Statements are unaudited but include all adjustments (consisting of normal recurring adjustments) which Bakelite’s management considers necessary for a fair presentation of the financial position as of such dates and the operating results and cash flows for those periods. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the US have been condensed or omitted pursuant to Securities and Exchange Commission (“SEC”) accounting rules and regulations. The result of operations for the three months ended March 31, 2005 may not necessarily be indicative of the operating results that may be incurred for the entire year. The Combined Interim Financial Statements contained herein should be read in conjunction with the Combined Financial Statements and notes thereto for the years ended December 31, 2004.

Consolidation of Variable Interest Entities (FIN 46R). FIN 46 R includes additional new scope exceptions, revised requirements on how to evaluate sufficiency of equity at risk, and quantification and allocation of an

F-267

Resin Business of the Bakelite Group

(Euro amounts in thousands unless otherwise stated)

Notes to the Unaudited Combined Interim Financial Statement—(Continued)

entity’s economic risks and rewards. Bakelite, as a non-public entity (as defined under FIN 46R) was required to apply this interpretation in its entirety as of January 1, 2005 and immediately to variable interest entities created or modified on or after January 1, 2004. The adoption of FIN 46R did not have a material impact on the financial position, results of operations or cash flows.

Note 3—Impairment of long-lived assets

The impairment recorded in the first quarter at 2004 at Bakelite AG relates to the steam production plant supplied by EVO. In 2003, Bakelite decided that the steam production from a planned formaline plant would be sufficient to supply its steam needs.

In April 2004, Bakelite, Rütgers Chemicals AG (“RC”), a wholly owned subsidiary of Rütgers, and the lessor entered into a tripartite agreement to transfer Bakelite’s benefits and obligations under the lease arrangement to RC. The steam plant, as an asset to be distributed to RC, was reduced to its fair value prior to the transfer. As such, an impairment loss of €2,317 was recognized at the time management determined the steam plant would be transferred to RC, as the carrying amount of the asset exceeded its fair value.

Note 4—Pensions and employees’ severance indemnities

Bakelite maintains various defined benefit and defined contribution pension plans covering its employees worldwide. In Germany, these plans are based on fixed benefits (defined benefit pension plans), while in certain other countries, there are defined contribution pension plans. Furthermore, the Italian and Korean subsidiaries provide severance indemnity benefits to employees.

The benefit plans are unfunded. The net cost of the defined benefit pension plans and employee severance indemnities recognized for the three month periods ended March 31, 2005 and 2004 consisted of the following components:

	Three months ended March 31,
	2005		2004
Service Cost	€	638	€	654
Interest Cost		962		1,048
Amortization of transition obligation		0		0
Amortization of net (gain) loss		32		3
Total	€	1,632	€	1,705

At December 31, 2003, Bakelite and Rütgers agreed to transfer certain pension obligations for retirees from Bakelite to Rütgers for a payment of €33,535, which was based on the German GAAP pension obligation. Although the agreement was made, the obligation will not be released until individual employees release Bakelite as primary obligor. The transfer and settlement of a portion of the obligation took place during 2004, when the majority of the pensioners released Bakelite as primary obligor. The remaining pensioners are not expected to release Bakelite as primary obligor.

As a result of the pension transfer Bakelite’s projected benefit obligation as of December 31, 2004, reduced by €32,339 for the year ended December 31, 2004, which consisted of €29,087 accrued pension cost, and €3,252 unrecognized loss. The difference between the €27,472 agreed payment and €29,087 of accrued pension cost for those employees was recorded as a capital contribution of €1,615 during the year ended December 31, 2004.

F-268

Resin Business of the Bakelite Group

(Euro amounts in thousands unless otherwise stated)

Notes to the Unaudited Combined Interim Financial Statement—(Continued)

Note 5—Income taxes

Income tax expense 2004—Bakelite has recorded a tax expense as of March 31, 2004 of €682, resulting in an effective tax rate of 34.8%. The items causing a difference in the effective tax rate from the statutory tax rate of 39.9% are non deductible expenses, income being taxed in jurisdictions less that the statutory rate of the 39.9% and a reduction in income tax rates in several countries. Because Bakelite is in a net deferred tax liability position, the reduction in tax rates resulted in a benefit being recorded to tax expenses.

Income tax expense 2005—Bakelite has recorded a tax expense as of March 31, 2005 of €1,653 resulting in an effective tax rate of 48.45%. The items causing a difference in the effective tax rate from the statutory tax rate of 39.9% are non deductible expenses, valuation allowances and additional local and municipal taxes accrued in Italy.

Note 6—Restructuring provisions

Restructuring Project 2003. In November 2003 Bakelite initiated a restructuring program designed to improve operating efficiency of its worldwide facilities and reduce the fixed-cost base of primarily the German and Italian operations. This goal will be achieved by headcount reductions, salary adjustments and streamlining of manufacturing and general administrative functions. Total costs incurred for involuntary terminations were €353 for the three month period ended March 31, 2004, which are recorded in Restructuring expense in the Combined Statements of Operations.

Restructuring Project 2005. In 2005, Bakelite initiated additional restructuring activities designed to increase profitability through structural changes and process improvement in Italy. The restructuring plan consists of reducing headcount and streamlining processes. Bakelite Italy has scheduled a total headcount reduction of 16 employees. As of March 31, 2005 a headcount reduction was achieved through involuntary terminations of 6 employees. Total costs incurred for involuntary terminations (quantity of 16 employees) were €608.

The following table reflects the changes in the restructuring provisions for the three months ended March 31, 2005 and 2004:

	Restructuring Project 2005			Restructuring Project 2003			Total
Three Months Ended March 31, 2004
January 1, 2004	€	0		€	883		€	883
Additions		0			353			353
Utilization		0			(632	)		(632	)
March 31, 2004	€	0		€	604		€	604
Three Months Ended March 31, 2005
January 1, 2005		0			416			416
Additions		608			0			608
Utilization		(188	)		(185	)		(373	)
March 31, 2005	€	420		€	231		€	651

F-269

Resin Business of the Bakelite Group

(Euro amounts in thousands unless otherwise stated)

Notes to the Unaudited Combined Interim Financial Statement—(Continued)

Note 7—Guarantees and Indemnifications

Standard Guarantees / Indemnifications: In the ordinary course of business, Bakelite enters into numerous agreements that contain standard guarantees and indemnities whereby Bakelite indemnifies another party for, among other things, breaches of representations and warranties. Such guarantees or indemnifications are granted under various agreements, including those governing (i) purchases and sales of assets or businesses, (ii) leases of real property, (iii) licenses of intellectual property, (iv) long-term supply agreements and (v) agreements with public authorities on subsidies received for designated research and development projects. The guarantees or indemnifications issued are for the benefit of the (i) buyers in sale agreements and sellers in purchase agreements, (ii) landlords or lessors in lease contracts, (iii) licensors or licensees in license agreements, (iv) vendors or customers in long-term supply agreements and (v) governments or agencies subsidizing research or development.

Bakelite has not entered into any significant agreements subsequent to January 1, 2003 that would require it, as a guarantor, to recognize a liability for the fair value of obligations it has undertaken in issuing the guarantee.

Subsidiary Guarantees: Bakelite AG has issued letters of comfort for €10,818 of bank debt of several non-German subsidiaries. In addition, Bakelite AG guarantees the open payables from certain vendors of Bakelite Korea and Bakelite s.r.o. related to the purchase of raw materials.

Furthermore, Rütgers has issued letters of comfort for bank and lease debt and other liabilities of Bakelite AG, Bakelite Italia, Bakelite Korea, Bakelite Oy and Bakelite UK for liabilities totalling €39,629 at March 31, 2005. These letters of comfort are intended to be terminated prior to the consummation of the sale of Bakelite to Borden Chemical, Inc. (Note 10).

The purchase agreement for the acquisition of order books from Neste-Meerbeck contained contingent consideration of €1,398 as of March, 31, 2005.

Warranties: Bakelite does not make express warranties on its products, other than that they comply with Bakelite’s specifications; therefore, Bakelite does not record a warranty liability. Adjustments for product quality claims are not material and are charged against sales revenue.

Note 8—Commitments and Contingencies

Environmental commitments and contingencies. Bakelite has responsibilities for environmental cleanup under various state, local and federal laws in the countries in which it operates as a result of Bakelite’s operations that involve the use, handling, processing, storage, transportation and disposal of hazardous materials. Based on management’s estimates, which are determined through historical experience, Bakelite has recorded liabilities of €264 and €724 at March 31, 2005 and March 31, 2004, respectively, for all probable and estimable environmental remediation activities. These accruals primarily represent two cases at the Solbiate, Italy site where remediation was performed for asbestos-containing materials identified on site and where remediation was assessed by local authorities for cumene contamination discovered. The removal of asbestos-containing materials for insulation on pipeline began in 2003 and was finalized in August 2004. This removal was not required under local law but was carried out voluntarily. The cumene contamination was discovered in 1998 and remediation began in 2000 after investigations by Bakelite and the authorities were finalized. During 2003, it was determined that the remediation procedures carried out since 1998 would be insufficient and further remediation would be required. Based on an agreement with the authorities, the current remediation measures are to be finalized by 2007 and will be performed in stages in the contaminated area. Parallel to the remediation measure, a

F-270

Resin Business of the Bakelite Group

(Euro amounts in thousands unless otherwise stated)

Notes to the Unaudited Combined Interim Financial Statement—(Continued)

groundwater monitoring program has been started in 1999 and is ongoing. The accrual contains costs for both the remediation and the monitoring program. For both of these cases management believes the accruals are sufficient to meet the remediation and monitoring activities. Furthermore, management believes it is remote that further remediation or assessments will be made with regard to these contaminations.

The following table summarizes the activity in Bakelite’s accrued obligations for environmental matters for the three months ended March 31, 2005 and 2004:

	March 31			March 31
	2005			2004
Accrued obligations for environmental matters
Balance at January 1	€	288		€	760
Charges against reserve		(24	)		(36	)
Total accrued obligations for environmental matters	€	264		€	724

At the Bakelite’s site in Duisburg, Germany, a significant tar contamination is located underneath Bakelite’s facilities that are shared with Rütgers Chemicals AG, a subsidiary of Rütgers. This contamination resulted from the demolition of a tar distillation facility located on that site. Although Rütgers Chemicals AG and Bakelite are in discussion with local authorities concerning a proposed remediation plan, the scope and extent of that plan and the costs of its possible implementation are not yet reasonably estimable. For the past 10 years Bakelite has taken part in investigation activities to determine the environmental impact of the tar pollution. These costs of investigation have been contractually shared by Rütgers Chemicals AG (70%) and by Bakelite (30%). Management believes it is unlikely that Bakelite will have to take extensive actions for remediation. If extensive actions were to be required by the local authorities, management estimates the range of exposure to be between €200—€500 a year and the cost will be borne by Rütgers Chemicals AG after the acquisition of Bakelite by Borden (except for a portion of up to €180 per year between 2005 and 2007, which will be borne by Bakelite).

For all other environmental risks to which Bakelite is exposed, management believes it is remote that litigation, assessments or claims will be filed against Bakelite in the future. Management believes these environmental risks cannot be estimated as there has been no indication of required remediation or possible future litigation. However, if litigation or remediation is threatened, the assessment could have a material affect on Bakelite’s results of operations or cash flows in the period of assessment.

Rütgers contractually agreed to provide indemnifications to Borden Chemicals, Inc. with respect to certain environmental liabilities. These indemnifications will be subject to exceptions and limitations.

Customer claims and other litigation. In addition to the environmental-related legal matters discussed above, Bakelite is subject to various product liability, commercial and employment litigation and other legal matters which are considered to be in the ordinary course of business. Bakelite has reserved €384 and €360 at March 31, 2005 and December 31, 2004, respectively, relating to an accident at a plant in Spain and the infringement of a patent in Finland. Furthermore the main German subsidiary faces several pending legal actions initiated by employees for protection against dismissal.

A claim has been filed against the Spanish subsidiary regarding an accident at the Salcedo Plant which caused the death of an employee of an external contractor. Management has assessed that an unfavorable outcome is probable and has recorded an accrual for the pending claim. In 2001, Ruutteri Oy filed a claim against

F-271

Resin Business of the Bakelite Group

(Euro amounts in thousands unless otherwise stated)

Notes to the Unaudited Combined Interim Financial Statement—(Continued)

Bakelite Oy, for the infringement of a patent. Bakelite filed a lawsuit to nullify the patent, which was dismissed. Therefore an unfavorable outcome is probable, and an accrual has been recorded for the estimated settlement amount. Bakelite has not taken into consideration insurance coverage or any anticipated recoveries from third parties in determining the reserve for legal matters.

In Italy, there have been several civil law claims filed against Bakelite related to asbestos-containing materials that were used in production. Italian regulations provide a general fund to pay damages related to asbestos claims by employees, former employees or surviving family members. The surviving family members of two former employees have initiated legal claims against Bakelite, in addition to their claim against the general fund. It is currently unclear whether a claim against Bakelite will be accepted by the Court, or to what damages Bakelite may be exposed. Furthermore, there is another asbestos related employee claim against the Spanish subsidiary. For all of the asbestos related claims, management has assessed the outcome of the litigation to be favorable, and therefore no accrual has been recorded by Bakelite.

For all other legal matters outstanding, most of which are related to product liability, management believes it is remote the outcome will be unfavorable and thus has not recorded an accrual.

Note 9—Related Parties

In 2004, and effective in the first quarter of 2005, an agreement was reached between Rütgers, Bakelite AG, and the Company’s workers council to compensate certain Bakelite employees for economic impacts relating to the cancellation of certain old workers council agreements. Based on the new compensation agreement, Rütgers has contributed € 4,000 to Bakelite for the costs that will be paid out by Bakelite to its affected employees.

Note 10—Subsequent events

On April 12, 2005 the European Commission cleared the proposed acquisition of Bakelite AG by Borden Chemical, Inc. which is owned by affiliates of the private investment firm Apollo Management, L.P., subject to conditions. The Commission found that the proposed transaction could give rise to competition concerns in the fields of phenolic resins for refractory materials and reactive diluents for epoxy systems. However, the parties have offered remedies that alleviate the concerns identified by the Commission. Specifically, the parties agreed to license a “technology package” to their customers, who could then sub-license it to alternative suppliers. In addition, the parties offered to enter into long term supply agreements to secure supply and pricing conditions for Cardura^™, a specific type of diluent, with any direct customer which uses it in epoxy formulated systems.

Borden Chemical, Inc. on April 29, 2005 announced it has completed its acquisition of Bakelite AG from its parent company, Rütgers AG. The Bakelite business will continue to be headquartered in Iserlohn-Letmathe, Germany. Upon completion of those transactions, the new combined company will be named Hexion Specialty Chemicals, Inc. “Hexion” Completion of the combination is subject to customary closing conditions including certain regulatory approvals. Borden Chemical, Resolution Performance Products LLC, Resolution Specialty Materials LLC and Bakelite AG will continue to operate independently until those conditions are satisfied.

Under sale and transfer agreements dated May 2005, Bakelite AG has sold an interest of 99.9% in Bakelite s.r.o., Czech Republic, to National Borden Chemical Germany GmbH and all shares in Bakelite North America Holding Corp. to Borden Chemical, Inc., Columbus/Ohio.

F-272

Report of Independent Auditors

To the Supervisory Board and the Owners of the Resin Business of the Bakelite Group:

We have audited the accompanying Combined Balance Sheets of the Resin Business of the Bakelite Group (“Bakelite”) as of December 31, 2004 and 2003, and the related Combined Statements of Operations, Changes in Owner’s Net Investment and Comprehensive Income (Loss) and of Cash Flows for the years ended December 31, 2004, 2003 and 2002. These Combined Financial Statements are the responsibility of Bakelite’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the Combined Financial Statements referred to above present fairly, in all material respects, the financial position of the Resin Business of the Bakelite Group at December 31, 2004 and 2003, and the results of its operations and its cash flows for the years ended December 31, 2004, 2003 and 2002 in conformity with accounting principles generally accepted in the United States of America.

As discussed in the notes to the Combined Financial Statements, effective January 1, 2002, the Resin Business of the Bakelite Group changed its method of accounting for goodwill to conform to Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets.

Düsseldorf, April 29, 2005

PwC Deutsche Revision

Aktiengesellschaft

Wirtschaftsprüfungsgesellschaft

/s/    E. Sprinkmeier	/s/    ppa. Mosko
Wirtschaftsprüfer	Wirtschaftsprüfer
[German Public Accountant]	[German Public Accountant]

F-273

Resin Business of the Bakelite Group

COMBINED STATEMENTS OF OPERATIONS

(Euro amounts in thousands unless otherwise stated)

	Year ended December 31,
	2004			2003			2002
Net sales	€	560,203		€	515,232		€	503,987
Cost of goods sold		460,469			430,374			400,554
Gross margin		99,734			84,858			103,433
Distribution expense		15,154			15,725			16,197
Marketing expense		33,736			37,397			33,452
General and administrative expense		20,664			24,961			22,396
Research and development expense		11,456			12,258			11,981
Impairment of long-lived assets		10,058			20,701			4,079
Goodwill impairments		5,883			—			2,920
Restructuring expense		573			1,650			270
Other operating expense, net		1,702			4,085			1,834
Income (loss) from operations		508			(31,919	)		10,304
Other non-operating income (expense)		559			(338	)		(176	)
Interest expense, net		(3,173	)		(3,398	)		(2,924	)
Affiliated interest income (expense), net		621			(661	)		(1,288	)
Income (loss) before income taxes		(1,485	)		(36,316	)		5,916
Income tax (expense) benefit		(661	)		11,096			(3,160	)
(Loss) income before minority interest and equity in earnings of joint venture		(2,146	)		(25,220	)		2,756
Minority interest (loss) net of tax		(94	)		(18	)		(5	)
Equity in (loss) earnings of joint venture		(5	)		326			1,282
(Loss) income before cumulative effect of change in accounting principle		(2,245	)		(24,912	)		4,033
Cumulative effect of change in accounting principle		—			—			(4,381	)
Net (loss)	€	(2,245	)	€	(24,912	)	€	(348	)
Comprehensive income (loss)	€	(1,096	)	€	(28,694	)	€	(1,505	)

The accompanying notes are an integral part of these Combined Financial Statements.

F-274

Resin Business of the Bakelite Group

COMBINED BALANCE SHEETS

(Euro amounts in thousands unless otherwise stated)

	December 31,
	2004		2003
ASSETS
Current Assets:
Cash and cash equivalents	€	5,807	€	5,385
Accounts and notes receivable, net of allowance for doubtful accounts of €4,194 in 2004 and €3,161 in 2003		100,279		90,562
Accounts receivable from affiliates		17,319		1,512
Inventories, net of reserves of €988 in 2004 and €1,596 in 2003
Finished and in-process goods		46,363		40,929
Raw materials		32,271		25,841
Deferred income taxes, net		1,677		2,028
Prepaid tax expense		1,467		8,318
Other current assets		2,994		1,903
Total current assets		208,177		176,478
Property, plant and equipment, net		173,019		190,632
Goodwill		8,551		14,764
Other intangible assets		10,884		20,025
Deferred income taxes		2,098		1,642
Investments and other long-term assets		2,626		3,790
Total assets	€	405,355	€	407,331
LIABILITIES AND OWNER’S NET INVESTMENT
Current Liabilities:
Accounts payable	€	52,805	€	43,067
Accounts payable to affiliates		729		20,147
Debt payable within one year		25,353		21,697
Deferred income taxes, net		3,848		14,398
Accrued income tax		916		6,279
Accrued payroll and related withholdings		7,426		7,750
Other current liabilities		10,509		16,896
Total current liabilities		101,586		130,234
Long-term debt, net of current portion		28,204		43,320
Pensions and employees’ severance indemnities		80,490		106,827
Deferred income taxes, net		19,399		15,215
Other long-term liabilities		4,223		9,738
Minority interest		1,431		1,891
Total liabilities		235,333		307,225
Commitments and contingencies (Note 13)
Owner’s net investment		170,022		100,106
Total liabilities and owner’s net investment	€	405,355	€	407,331

The accompanying notes are an integral part of these Combined Financial Statements.

F-275

Resin Business of the Bakelite Group

COMBINED STATEMENTS OF CHANGES IN OWNER’S NET INVESTMENT AND

COMPREHENSIVE INCOME (LOSS)

(Euro amounts in thousands unless otherwise stated)

	Owner’s Net Investment
Balances, January 1, 2002	€	118,863
Comprehensive loss
Net loss		(348	)
Foreign currency translation adjustments		(778	)
Minimum pension liability (net of €251 tax)		(379	)
Total comprehensive loss	€	(1,505	)
Capital contribution
Payment of dividends by Bozetto S.p.A., net of distributions to minority shareholders		5,417
Push down of trade tax expenses retained by Rütgers		1,042
Other equity increases		1,026
Dividend distribution to Rütgers		(10,715	)
Balance, December 31, 2002	€	114,128
Comprehensive loss
Net loss		(24,912	)
Foreign currency translation adjustments		(1,558	)
Minimum pension liability (net of €1,552 tax)		(2,224	)
Total comprehensive loss	€	(28,694	)
Capital contributions
Funding under profit and loss transfer agreements with Rütgers		16,341
Payment of dividends by Bozetto S.p.A., net of distributions to minority shareholders		13,401
Push down of trade tax expenses and tax benefits retained by Rütgers		(5,762	)
Purchase of remaining interest in Bozzetto		(10,397	)
Other equity increases		1,089
Balance, December 31, 2003	€	100,106
Comprehensive loss
Net loss		(2,245	)
Foreign currency translation adjustments		419
Minimum pension liability (net of €(486) tax)		730
Total comprehensive loss	€	(1,096	)
Capital contributions
Proceeds from sale of Bozzetto S.p.A.		101,685
Push down of trade tax and corporation tax expenses retained by Rütgers		3,253
Pension transfer to Rütgers (net of €634 tax)		981
Other equity increases		359
Dividend distribution to Rütgers		(33,658	)
Dividend of EVO steam capital lease to Rütgers (net of €1,039 tax)		(1,608	)
Balance, December 31, 2004	€	170,022

The accompanying notes are an integral part of these Combined Financial Statements.

F-276

Resin Business of the Bakelite Group

COMBINED STATEMENTS OF CASH FLOWS

(Euro amounts in thousands unless otherwise stated)

	Year ended December 31,
	2004			2003			2002
Cash flows from operating activities:
Net (loss)	€	(2,245	)	€	(24,912	)	€	(348	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Impairment of long-lived assets		10,058			20,701			4,079
Goodwill impairments		5,883			—			2,920
Depreciation and amortization expense		26,516			35,777			30,744
Loss (gain) on sale of assets		(233	)		1,358			(795	)
Cumulative effect of change in accounting principle		—			—			4,381
Deferred income taxes		(4,178	)		(6,871	)		6,860
Dividends from joint ventures net of equity earnings		22			(83	)		713
Push down of parent company expenses		3,437			(5,389	)		1,648
Other non-cash adjustments		134			18			5
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable		(6,881	)		6,854			(8,202	)
Inventories		(11,766	)		(411	)		(3,284	)
Accounts payable		9,587			(2,181	)		6,002
Income taxes		1,490			2,279			(6,666	)
Other assets		(496	)		(2,533	)		1,557
Other liabilities		(6,764	)		2,292			4,188
Other non-current assets		(26,015	)		2,349			(1,878	)
Net cash provided by operating activities		(1,451	)		29,248			41,924
Cash flows from investing activities:
Capital expenditures		(21,369	)		(31,410	)		(33,518	)
Proceeds from the sale assets		2,453			778			3,804
Purchase of Bakelite Korea		—			—			(18,522	)
Purchase of minority interests		(294	)		—			(3,715	)
Net cash (used) in investing activities		(19,210	)		(30,632	)		(51,951	)
Cash flows from financing activities:
Transactions with Rütgers (Note 16)		(70,578	)		(5,767	)		(14,078	)
Transactions related to Bozetto		101,685			3,003			5,417
Net short term borrowings		5,385			1,188			11,306
Proceeds from long-term borrowings		145			10,510			13,563
Repayments of financing activities		(15,120	)		(8,653	)		(12,127	)
Dividends paid to minorities		(379	)		(390	)		(232	)
Other cash flows from financing activities		—			—			426
Net cash (used in) provided by financing activities		21,138			(109	)		4,275
Effect of exchange rate fluctuations on cash and cash equivalents		(55	)		(193	)		(260	)
Net change in cash and cash equivalents		422			(1,686	)		(6,012	)
Cash and cash equivalents at beginning of period		5,385			7,071			13,083
Cash and cash equivalents at end of period	€	5,807		€	5,385		€	7,071

The accompanying notes are an integral part of these Combined Financial Statements.

F-277

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements

(Euro amounts in thousands unless otherwise stated)

Note 1—Bakelite, its Operations and Basis of Presentation

The Resin Business of the Bakelite Group (“Bakelite”), wholly owned by Rütgers and, ultimately, RAG AG, manufactures and distributes epoxy and phenolic resins as well as moulding compounds in facilities located in Europe, North America, and Asia. Bakelite is headquartered in Iserlohn-Letmathe, Germany. The Combined Financial Statements as of and for the periods presented comprise the following subsidiaries of Bakelite and the joint venture Rütgers Plenco LLC (activities terminated in 2003) that are entirely dedicated to the resin business:

Legal entity	Percentage of Ownership*	Country of Incorporation
Bakelite Aktiengesellschaft (AG)	100%	Germany
MGS Kunstharzprodukte GmbH	100%	Germany
Bakelite North America Holding Corp.	100%	United States of America
Bakelite Epoxy Polymers Corp.	100%	United States of America
Bakelite Italia S.p.A.	100%	Italy
Taro Plast S.p.A.	100%	Italy
Bakelite Ibérica S.A.	100%	Spain
Bakelite Oy	100%	Finland
Bakelite s.r.o.	100%	Czech Republic
Bakelite Polymers UK Ltd.	100%	United Kingdom
Bakelite Korea Co., Ltd.	100%	Korea
InfraTec Duisburg GmbH	70%	Germany

* as of December 31, 2004

The Combined Financial Statements of Bakelite, prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), as of and for the periods presented include all assets, liabilities, revenues, expenses and cash flows directly attributable to the legal entities above, subject to the elimination of intercompany accounts and transactions. In addition, certain expenses of Rütgers and the utilization of certain tax benefits by Rütgers are included in the Combined Financial Statements in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 54, Push Down Basis of Accounting Required in Certain Limited Circumstances (“SAB 54”). The expenses pushed down in the Combined Financial Statements primarily relate to certain tax expenses, and tax benefits and cost of administrative services provided to Bakelite by Rütgers (Note 15). The effects of common control transactions, to the extent appropriate, are also reflected as a component of equity.

Bakelite Korea Co., Ltd (“BAK”) was acquired in May 2002 and Bakelite Epoxy Polymers Corp. began operations in January 2003. InfraTec was founded in December 2003 and began operations in January 2004. Their financial information is included in the Combined Financial Statements as of the date of acquisition or commencement of operations. In January 2002, Bakelite acquired the remaining 30% interest of Taro Plast S.p.A. for €3,715. The remaining outstanding shares of Bakelite Ibérica S.A. were acquired for €134 in March 2004 from a third party. In May 2004, the remaining outstanding shares of Bakelite Italia S.p.A. for consideration of €160 and Bakelite Polymers UK Ltd. for consideration of less than €1 were acquired from Rütgers. The Rütgers Plenco LLC joint venture agreement was terminated December 2003.

The Combined Financial Statements do not include the non-resin business of Bakelite, specifically Giovanni Bozzetto S.p.A. and its subsidiaries (“Bozzetto”). In relation to Bakelite, Bozzetto was dissimilar in its nature of business, autonomously managed and financed, and had no significant common facilities and costs. Dividends received from Bozzetto, net of related taxes, and the cash proceeds received from the sale of Bozzetto to private equity investors in February 2004 have been presented as capital contributions in the Combined Statements of

F-278

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

Changes in Owner’s Net Investment. Cash flows associated with Bozzetto have been characterized as financing transactions with Rütgers in the Combined Statements of Cash Flows.

Transactions between Bakelite and other RAG AG companies, including Rütgers, have been identified and disclosed in the Combined Financial Statements as transactions between related parties.

At the end of 2004, all appropriate corporate bodies of Bakelite approved an agreement for the sale of the shares of Bakelite AG to Borden Chemical, Inc. (Note 17).

Note 2—Significant Accounting Policies

A summary of the significant accounting policies followed in the preparation of the accompanying Combined Financial Statements is presented below.

Fiscal year. Bakelite’s fiscal year ends on December 31 with the exception of Bakelite Korea Co., Ltd., an entity for which the fiscal year ends on November 30.

Use of estimates. The preparation of the Combined Financial Statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Combined Financial Statements and the reported amount of revenues and expenses during the reporting periods. Some of the more significant estimates include pension obligations, environmental remediation, legal liabilities, doubtful accounts, inventory valuation reserves, depreciable lives of assets, amortization periods, allocation of assets and liabilities to reporting units, asset impairments, deferred tax assets and liabilities and related valuation allowance, income tax accruals, provisions and contingencies. Actual results could differ from those estimates.

Foreign currency. The functional currency of operations outside of Germany has been determined to be the local currency. Assets and liabilities of foreign subsidiaries are translated at exchange rates on the balance sheet date. Revenue and expenses are translated at the weighted average exchange rates of the period. The effects of these translation adjustments are reported within comprehensive income (loss), a component of Owner’s Net Investment.

Exchange losses arising from transactions denominated in a currency other than the functional currency of the entity involved, as well as the fair value adjustment of forward exchange contracts, are included in Other operating expense, net, in the Combined Statements of Operations. In addition, Bakelite incurred realized and unrealized net foreign transaction losses aggregating €754, €32 and €808 in 2004, 2003 and 2002, respectively.

Other comprehensive income (loss). In addition to Net loss, comprehensive income (loss) includes charges or credits to equity that are not the result of transactions with shareholders. Other comprehensive income (loss) relates to foreign currency translation adjustments from Bakelite’s foreign subsidiaries and the minimum pension liability. Components of other comprehensive income (loss) are included within the Combined Statements of Changes in Owner’s Net Investment and Comprehensive Income (Loss).

Cash and cash equivalents. Cash and cash equivalents consist of all highly liquid investments that are readily convertible into cash and have original maturities of three months or less. At December 31, 2004, Bakelite had no material investment in cash equivalent instruments. Certain non-German entities are parties to cash pooling arrangements with Bakelite AG under which these entities transfer any unused cash balances to

F-279

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

Bakelite AG on a monthly basis. The German entities are direct or indirect parties to cash pooling arrangements with Rütgers. Under these agreements any cash balance is ultimately cleared from Bakelite AG to Rütgers on a daily basis (Notes 15 and 16).

Accounts receivable. Collectibility of accounts receivable is regularly reviewed and is based upon management’s knowledge of customers and compliance with credit terms. In addition, Bakelite AG, MGS Kunstharzprodukte, Bakelite Korea Co., Bakelite Ibérica and Bakelite Polymers UK Ltd. have credit insurance policies which cover substantial portions of Bakelite’s trade receivables. The allowance for doubtful accounts is adjusted based on such evaluation, with a corresponding expense included in Other operating expense, net. Accounts receivable and related allowance balances are written off when management deems them uncollectible and there is no or insufficient insurance. During the periods presented, certain of Bakelite’s subsidiaries had arrangements in place that allowed for the transfer of trade receivables to the bank, on a recourse basis, in order to receive cash. Proceeds received under these arrangements have been accounted for as secured borrowings.

Inventories. Inventories are carried at the lower of cost or market value. Cost is determined using the first in, first out method. In addition to direct material and direct labour costs, certain overhead and production expenses are included in inventory. Inventory reserves are provided for slow moving, obsolete and excess items.

Property, plant and equipment. Property, plant and equipment are stated at historical cost net of impairment recognized, and less accumulated depreciation. Additions and improvements are capitalized; maintenance and repairs are expensed as incurred. When assets are retired or disposed of, the assets and related accumulated depreciation are removed from the balance sheet and the resulting gain or loss is reflected in the Statement of Operations. The cost of property, plant and equipment is depreciated using the straight-line method over the following estimated useful lives of the respective assets:

Category	Depreciation period
Buildings	10-50
Machinery and equipment	3-25
Leasehold improvements	10-25

Interest is capitalized for assets under construction. The total amount of interest capitalized was €347, €327 and €428 for the years ended December 31, 2004, 2003 and 2002, respectively.

Bakelite elected early adoption of Financial Accounting Standards Board (“FASB”) Statement No. 143, Accounting for Asset Retirement Obligations (“FAS 143”), as of January 1, 2001, which requires entities to record the fair value of the liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes the estimated cost of retiring the asset as part of the carrying amount of the related long-lived asset. Over time, the liability is adjusted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset.

Intangible assets. Intangible assets, which primarily consist of customer lists, software licenses and patents, are identifiable finite-lived assets. These assets are amortized on a straight-line basis over their estimated useful lives of 3 to 10 years.

Goodwill. The excess purchase price over net tangible and identifiable intangible assets of acquired businesses is carried as goodwill on the Combined Balance Sheets. Effective January 1, 2002, Bakelite adopted FASB Statement No. FAS 142, Goodwill and Other Intangible Assets, (“FAS 142”), which requires companies

F-280

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

to cease amortizing goodwill. Prior to January 1, 2002, goodwill was amortized on a straight-line basis over a 20-year period.

Impairment. FAS 142 requires that goodwill and intangible assets deemed to have an indefinite useful life be reviewed for impairment upon adoption of FAS 142 and at least annually thereafter. Bakelite performed the required annual impairment tests as of December 31. Goodwill must be evaluated for impairment between these annual tests if events or changes in circumstances indicate that goodwill might be impaired (Note 6).

The testing of goodwill for impairment involves two steps:

• The first step is to compare each reporting unit’s fair value with its carrying amount, including goodwill. Bakelite determines the fair value of its reporting units based on a valuation model that draws on medium-term planning data used for internal reporting purposes. The model uses the discounted cash flow method and market comparables. If a reporting unit’s carrying amount exceeds its fair value, this indicates that goodwill may be impaired and the second step is required.

• The second step is to compare the implied fair value of the reporting unit’s goodwill with the carrying amount of its goodwill. The implied fair value is computed by allocating the reporting unit’s fair value to all of its assets and liabilities in a manner that is similar to a purchase price allocation in a business combination in accordance with FAS 141. The remaining unallocated purchase price is the implied fair value of the reporting unit’s goodwill. If the implied fair value of goodwill is less than its carrying value, the difference is recorded as an impairment.

Effective January 1, 2002, Bakelite adopted FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“FAS 144”), which requires that long-lived assets, including property, plant and equipment and finite-lived intangible assets, be reviewed for impairment whenever events or circumstances provide evidence that suggests that the carrying amount of the asset may not be recoverable. Recoverability of assets to be held and used is measured by the comparison of the carrying amount of the assets to the undiscounted future net cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Estimated fair value is generally based on either appraised value or measured by discounted estimated future cash flows. Long-lived assets to be disposed of by sale are recorded at the lower of carrying amount or fair value less costs to sell and depreciation is ceased. For these impairment reviews, Bakelite determines the fair value of its assets groups based on a valuation model that draws on medium-term planning data used for internal reporting purposes. The model uses the discounted cash flow method to determine fair value.

Environmental liabilities. Bakelite is subject to stringent laws and regulations in the various countries in which it operates. Management, on a periodic basis throughout the year, evaluates the liability for future environmental remediation costs. Bakelite accrues amounts for environmental remediation costs, which represent management’s best estimate of the probable and reasonably estimable costs relating to environmental remediation. Costs of future expenditures for environmental remediation obligations are not discounted to their present value. Estimates of the amount and timing of future costs of environmental remediation requirements are necessarily imprecise because of the continuing evolution of environmental laws and regulatory requirements, the availability and application of technology and the allocation of costs among the potentially responsible parties. Based upon information presently available, such future costs are not expected to have a material effect on Bakelite’s competitive or financial position. However, such costs could be material to results of operations in a particular future year (Note 13).

F-281

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

Income taxes. During the periods presented, the German entities did not file separate tax returns as they are included in the tax grouping of the ultimate parent company, RAG AG. The income tax provision in the Combined Financial Statements reflects Bakelite’s income taxes calculated as if on a stand-alone basis. Such provisions differ from the amounts currently receivable or payable because certain items of income are recognized in different time periods for financial reporting purposes than for income tax purposes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates. Bakelite records a valuation allowance to the extent that it is more likely than not that deferred tax assets will not be realized.

Revenue recognition. In accordance with US GAAP, including SAB No. 104, Revenue Recognition (“SAB 104”), Bakelite recognizes revenues from sales of products when there is evidence of a sales agreement, the delivery of goods has occurred (i.e. title and risk have been transferred), the sales price is fixed or determinable and collectibility is reasonably assured. Estimates for returns, incentive rebates and other allowances are recorded as a reduction of revenues in the period the related revenues are recorded. These estimates are based upon historical experience and information currently available to management with respect to business and economic trends. Revisions to these estimates are recorded in the period in which the facts that give rise to the revision become known. Price reduction incentives granted to customers upon the achievement of specified purchase volumes are recorded as a reduction of sales as they are earned by customers. Bakelite adopted EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables (“EITF 00-21”) which had no material impact on reported results.

Shipping and Handling. Bakelite records freight billed to customers in net sales. Shipping costs are incurred to move Bakelite’s products from production and storage facilities to the customers. Shipping costs are classified as Distribution expense in the Combined Statements of Operations and totalled €15,154, €15,725 and €16,197 for the years ended December 31, 2004, 2003 and 2002, respectively. Handling costs are incurred from the point the product is removed from inventory until it is provided to the shipper and generally includes costs to store, move and prepare the products for shipment. Handling costs are classified as a Cost of goods sold.

Advertising. Advertising costs include advertising, promotion and trade fair costs, which are expensed as incurred. Costs incurred were €1,114, €908 and €1,059 for the years ended December 31, 2004, 2003 and 2002, respectively.

Legal costs. Bakelite expenses legal costs in the period in which the costs are incurred. Legal costs incurred for outstanding claims were €48, €37 and €20 for the years ended December 31, 2004, 2003 and 2002, respectively.

Research and development. Amounts spent by Bakelite for research and development efforts are expensed as incurred. Research and development costs amounted to €11,456 in 2004, €12,258 in 2003 and €11,981 in 2002 and related primarily to internal costs for salaries, direct overhead costs and outside vendor fees.

Derivative financial instruments. Bakelite accounts for derivative financial instruments in accordance with FASB Statement No. 133, Accounting for Derivative Instrument and Hedging Activities (“FAS 133”), which requires that all derivatives are recognized as either assets or liabilities in the Combined Balance Sheets and recorded at fair value. FAS 133 prescribes requirements for designation and documentation of hedging relationships and ongoing assessments of effectiveness in order to qualify for hedge accounting. During the years presented, Bakelite did not have derivative financial instruments designated and qualifying for hedge accounting

F-282

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

under FAS 133. Bakelite uses forward foreign currency contracts in order to manage currency risks arising from its forecasted and firmly committed foreign currency denominated cash flows and foreign exchange receivables. The terms of currency instruments used for hedging purposes are generally consistent with the timing of the transactions being hedged. Bakelite also uses interest rate swaps to hedge its variable cash outflows from debt instruments. All of Bakelite’s derivative financial instruments are recorded at fair value based upon quoted market prices for comparable instruments. Bakelite does not utilize financial instruments for trading or speculative purposes (Notes 10 and 11).

Concentration of credit risk. Financial instruments that potentially subject Bakelite to concentrations of credit risk include cash and cash equivalents and accounts receivable. Bakelite places its temporary cash investments with Rütgers, Bakelite’s parent. Concentrations of credit risk with respect to accounts receivable are limited, due to the large number of customers comprising Bakelite’s customer base and their dispersion across many different industries and geographies. Bakelite requires collateral or other security to support customer receivables as deemed necessary for selected customers. Bakelite is exposed to credit (or repayment) risk and market risk through the use of derivative instruments (Note 10).

General insurance. Bakelite maintains insurance policies for certain items exceeding deductible limits, including property damage, business interruption, environmental liability, product liability, credit risk and directors and officers.

Guarantees. Bakelite accounts for guarantees in accordance with FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (“FIN 45”), which clarifies the requirements of FASB Statement No. 5, Accounting for Contingencies (“FAS 5”), relating to a guarantor’s accounting for, and disclosure of, the issuance of certain types of guarantees. The recognition provisions of FIN 45 became effective for any guarantees that are issued or modified after December 31, 2002 (Note 12).

Recent accounting pronouncements. In January 2003, the FASB issued FASB Interpretation FIN 46, Consolidation of Variable Interest Entities. This interpretation of Accounting Research Bulletin No. 51, Combined Financial Statements (“ARB 51”), addresses consolidation by business enterprises of variable interest entities. FIN 46 defines the concept of a variable interest entity and requires consolidation where there is a primary beneficial interest in a variable interest entity or where the variable interest entity does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties. The provisions of FIN 46 apply immediately to variable interest entities (VIE’s) created after January 31, 2003, and to VIE’s in which an enterprise obtains an interest after that date. In December 2003, the FASB issued a revised version of FIN 46, FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46 R). FIN 46 R includes additional new scope exceptions, revised requirements on how to evaluate sufficiency of equity at risk, and quantification and allocation of an entity’s economic risks and rewards. Bakelite, as a non-public entity (as defined under FIN 46R), must apply this interpretation in its entirety no later than the first annual period beginning after December 15, 2004 and immediately to variable interest entities created or modified on or after January 1, 2004. Bakelite does not expect the adoption of FIN 46R to have a material impact on its financial position, results of operations or cash flows.

In December 2003, the FASB issued a revised FAS 132, Employers’ Disclosures about Pensions and Other Postretirement Benefits (“FAS 132R”). FAS 132R retains many of the disclosure requirements contained in FASB Statement No. 132, Employers’ Disclosures about Pensions and Other Postretirement Benefits, which it replaces, and also requires additional disclosures to be made regarding pension plans and other postretirement

F-283

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

benefit plans. The newly required disclosures include information describing the plan assets by major categories, target allocations for each plan asset category, investment strategy, description of basis used to determine the overall expected long-term rate of return on plan assets, plan obligations, and cash flows. In addition, the revised statement requires certain disclosures during interim periods. FAS 132R does not change the measurement of pension plans and other postretirement benefit plans and, accordingly, impact on Bakelite’s financial statements in future periods will be limited to presentation of additional required disclosures.

In November 2004, the FASB issued Statement No. 151, Inventory Costs—an amendment of ARB No. 43, Chapter 4 (“FAS 151”). This statement amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). This statement requires that those items be recognized as current period charges. In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this statement must be applied prospectively and are effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Bakelite does not expect the adoption of this standard to have a material impact on its financial position or results of operations.

In December 2004, the FASB issued a revision to SFAS No. 123, Share-Based Payments which now requires that stock options be expensed based on their fair value. Bakelite currently does not have any share-based compensation plan, and does not expect the adoption of this standard to have a material impact on its financial position or results of operations.

In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets—an amendment of APB Opinion No. 29. The statement addresses the measurement of exchanges of non-monetary assets and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005.

In March 2005, the FASB issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations. The interpretation aims to clarify the requirement to record liabilities stemming from a legal obligation to clean up and retire fixed assets. Interpretation 47 is effective for fiscal years ending after December 31, 2005. Bakelite does not expect the adoption of this standard to have a material impact on its financial position or results of operations.

F-284

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

Note 3—Property, plant and equipment and impairment of long-lived assets

The following is a summary of Bakelite’s property, plant and equipment, net of accumulated depreciation and impairments:

	December 31,
	2004			2003
Machinery and equipment	€	375,718		€	390,465
Buildings		67,627			66,897
Construction in process		3,941			12,626
Machinery and equipment under capital lease		1,100			1,146
Land		4,844			5,023
Buildings under capital lease		600			600
Subtotal		453,830			476,757
Less: Accumulated depreciation and impairment		(279,692	)		(285,314	)
Less: Accumulated depreciation under capital leases		(1,119	)		(1,024	)
Subtotal property, plant and equipment, net		173,019			190,419
Assets held for sale, net		—			213
Total property, plant and equipment, net	€	173,019		€	190,632

Depreciation expense for property, plant and equipment for the years ended December 31, 2004, 2003 and 2002 was €18,580, €26,245 and €21,291 respectively.

Of the land and buildings owned by Bakelite, €9,400 is subject to mortgage with a bank (Note 9). Additional land and buildings, at a cost of €13,805, is otherwise mortgaged under an agreement with an insurance company. It is anticipated that this agreement will terminate upon the sale of Bakelite.

Impairments of long-lived assets

The reviews required under FAS 144 resulted in impairment charges to long-lived assets. These charges, which are summarized in the table below, are recorded in Impairment of long-lived assets in the Combined Statements of Operations.

	Phenolic Resins		Moulding Compounds		DTC Plant		EVO Steam Plant		Sibelco		Other		Total
2002 Bakelite Italia	€	—	€	4,041	€	—	€	—	€	—	€	—	€	4,041
Bakelite Iberica		—		—		—		—		—		38		38
	€	—	€	4,041	€	—	€	—	€	—	€	38	€	4,079
2003 Bakelite Italia	€	15,434	€	2,536	€	1,513	€	—	€	—	€	363	€	19,846
Bakelite AG		—		—		—		—		855		—		855
	€	15,434	€	2,536	€	1,513	€	—	€	855	€	363	€	20,701
2004 Bakelite Italia	€	7,741	€	—	€	—	€	—	€	—	€	—	€	7,741
Bakelite AG		—		—		—		2,317		—		—		2,317
	€	7,741	€	—	€	—	€	2,317	€	—	€	—	€	10,058

F-285

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

Phenolic Resins—In 2003, management decided to cease or sell their non-core businesses and product lines within the Bakelite Italia operations which triggered an impairment test for the phenolic resins operations. Based on management’s assessment, Bakelite recorded an impairment charge of €15,434 to reduce the carrying value of machinery, equipment and other plant assets used in the phenolic operations, as its cash flows were negatively influenced by significant increases in raw material prices which only in limited circumstances could be entirely passed on to customers under current market conditions. This trend continued in 2004. Bakelite revised its budgets for this reporting unit due to further anticipated deterioration in market conditions. This resulted in revised cash flow projections and a further impairment charge of €7,741 was necessary.

Moulding Compounds—The 2002 impairment charge of €4,041 at the Bakelite Italia moulding compounds operations was triggered by a decrease in Bakelite Italia´s customer base mainly within Italy. Market conditions further deteriorated in 2003, primarily due to (i) the market trend toward a substitution of certain moulding compounds products with less expensive products and (ii) customers relocating their facilities to Asian countries and sourcing products locally. This resulted in revised budgets and significantly reduced cash flow projections. An additional impairment charge of €2,536 was recorded in 2003. Both impairment charges primarily reduce the carrying value of machinery and equipment, tools and customer lists.

DTC Plant—In December 2002, a third party informed Bakelite of their intent to terminate an existing sub-contracting arrangement for the production of fungicides (“DTC”) effective January 1, 2004. Bakelite tested the long-lived assets for impairment at December 31, 2002 and concluded that the undiscounted cash flows exceeded the assets net carrying value; therefore no impairment was recorded. Bakelite ceased production at DTC as of June 30, 2003, since it was not economically feasible to continue production. Accordingly, Management performed another impairment analysis and determined an impairment charge of €1,513 was necessary. Management evaluated options related to the DTC assets and determined that the remaining useful lives of the assets should be adjusted.

The parties signed a memorandum of understanding in which the terms of the original sub-contracting arrangement were amended to provide for certain penalties payable to Bakelite if the third party terminates the agreement. In 2004 the third party agreed to pay Bakelite a termination penalty of €1,825 and Bakelite sold certain production lines of the DTC plant to the third party for €250, which resulted in a gain of €37.

EVO Steam Plant—The impairment recorded in 2004 at Bakelite AG relates to the steam production plant supplied by EVO. In 2003 Bakelite decided that the steam production from a planned formaline plant would be sufficient to supply its steam needs.

In April 2004, Bakelite, Rütgers Chemicals AG (“RC”), a wholly owned subsidiary of Rütgers, and the lessor entered into a tripartite agreement to transfer Bakelite’s benefits and obligations under the lease arrangement to RC. The steam plant, as an asset to be distributed to RC, was reduced to its fair value prior to the transfer. As such, an impairment loss of €2,317 was recognized at the time of transfer of the steam plant to RC, as the carrying amount of the asset exceeded its fair value.

Sibelco order book—During December 2003, management assessed a triggering event had occurred, as the projected cash flows from the order book could not justify its carrying value of €1,873. As such, management performed an impairment test and calculated an impairment of €855 based on the discounted cash flows of the order book.

Other—During 2003, Bakelite decided to dispose of the Biodiesel business (“Biodiesel”) by either sale or closure. As of December 31, 2003, an exit strategy had not been finalized; accordingly the related plant assets were not classified as held for sale. As of December 31, 2003, an impairment charge of €363 was recorded.

F-286

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

In April 2004, Bakelite entered into an agreement with a third party for the sale of Biodiesel. The sale included the fixed assets (carrying value of €1,503), inventory of the plant (carrying value of €2,458), as well as the transfer of debt of €119 related to the plant assets. Total proceeds received upon sale was €4,456 including €119 of assumed debt related to plant assets, resulting in a gain on sale of €495. In connection with the sale, the parties entered into a supply and services arrangement under which Bakelite will provide certain maintenance, laboratory, and other services to the buyer for a minimum period of eight years for an annual fee of €470. In the event that Bakelite fails to perform under the terms of the supply and services arrangement, Bakelite could be required to repurchase Biodiesel. The contingent repurchase price of €2,500 decreases by €400 at each anniversary in April following the year of acquisition until 2010, €200 in 2010/2011, €100 in 2011/2012 and €200 at April 2012. After April 2012 the repurchase price is one Euro.

Asset retirement obligations

Bakelite is subject to asset retirement obligations in connection with certain properties leased in Finland, Germany, and Spain. The liabilities include an obligation to dismantle and remove chemical tanks that Bakelite operates on leased land in Finland, and the obligation to dispose of installations, facilities, equipment and/or modifications erected by Bakelite on land leased in Germany. An asset retirement obligation as of December 31, 2004 was necessary for Spain, because Bakelite is required to clean up the land where the facilities are located when the factory is shut down.

Following is a reconciliation of the beginning and ending aggregate carrying amount of Bakelite’s asset retirement obligations:

	December 31,
	2004		2003
Balance at January 1	€	182	€	120
Liability incurred during the year		55		58
Accretion expense for the year		4		4
Balance at December 31	€	241	€	182

Revisions to the liability could occur due to estimated changes in asset retirement costs, useful lives of the related assets or if federal and/or state regulators enact new legislation on the retirement of fixed assets. There were no assets legally restricted for purposes of settling the asset retirement obligations.

Note 4—Investments in Companies

Rütgers-Plenco LLC. Bakelite and an unrelated third party each held 50% of the shares in the joint venture Rütgers-Plenco LLC which was established in March 1998 for the purpose of selling technical phenolic resins and terminated in December 2003. The joint venture agreement stipulated an equal allocation of both decision making and financial results. As such, Bakelite has accounted for the joint venture using the equity method of accounting.

The joint venture was terminated under contract of December 17, 2003 with effect from December 31, 2003.

For the years ended December 31, 2003 and 2002, Bakelite sold products produced in Germany to the joint venture of €1,281 and €1,311, respectively. Profits realized by Bakelite from these sales have been eliminated proportionately.

F-287

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

The joint venture entered into a licensing agreement with Bakelite and the unrelated third party shareholder whereby the joint venture paid royalties on sales of products purchased from the shareholders. The royalty payments were based on formulas defined in the agreements. Total royalty income recognized by Bakelite was €100 and €88 for the years ended December 31, 2003 and 2002, respectively.

Bakelite’s 50% share of the undistributed earnings of the joint venture amounted to €22 and €768 at December 31, 2003 and 2002, respectively. In December 2003, the shareholders entered into an agreement to terminate the trading business and operations of the joint venture on December 31, 2003. The agreement stipulated that as of December 31, 2003, employees and customers of the joint venture were to be transferred to the shareholders, liabilities of the joint venture were to be settled and the remaining assets were to be distributed to the parties. As the joint venture was accounted for using the equity method, there was no gain or loss upon the transfer to Bakelite of 50% of the joint venture’s assets valued at €1,515 at December 31, 2003. As of December 31, 2003 and 2002, the investment in Rütgers—Plenco LLC was €22 and €1,610, respectively. As of December 31, 2003 and 2002, Bakelite had accounts receivable from the joint venture of €652 and €187, respectively. Dissolution of the legal entity took place on November 4, 2004.

InfraTecDuisburg GmbH. Effective in December 2003, Bakelite established a new entity, InfraTec Duisburg GmbH (“InfraTec”), to manage the infrastructure services at Bakelite’s shared site in Duisburg, Germany. The site is shared with Rütgers Chemicals AG and other related and unrelated companies. InfraTec is owned 70% by Bakelite and 30% by Rütgers Chemicals AG. On December 31, 2003, Bakelite and Rütgers Chemicals AG contributed €3,442 and €1,888 of assets, respectively, at book value. In addition, Bakelite and Rütgers Chemicals AG contributed cash of €17.5 and €7.5 as paid-in capital, as required by law.

InfraTec provides infrastructure services, technical plant services and environmental, health and safety to the parties at the Duisburg site. These services are provided under a “cost plus” arrangement. InfraTec has been combined by Bakelite and all intercompany transactions have been eliminated. Rütgers Chemicals AG’s minority interest share in InfraTec is €1,431 and €1,337 at December 31, 2004 and 2003.

Note 5—Business acquisitions

Acquisition of LG Chemicals Epoxy Resins (Bakelite Korea Co. Limited). In May 2002, Bakelite formed a new corporation, BAK, to acquire 100% of the assets of LG Chemical’s epoxy resins business. The results of operations of BAK have been included in the Combined Financial Statements since May 2002. BAK is engaged in the manufacture and sale of epoxy resins used in electrical laminates, paint, civil engineering, adhesives, electrical castings, and as fire retardant additives for thermoplastics. The aggregate purchase price was €18,522, including acquisition expenses of €187 and a purchase price adjustment of 420 million Korean won (€359 at the acquisition date). There was also variable component to the earn-out limited to a maximum of 5.3 billion Korean won. This contingent consideration was recognized as a deferred credit (€4,181) and is shown in the table below summarizing the purchase price allocation.

Bakelite acquired BAK as a platform for growth in the epoxy resins market in the Asian region. The strategic acquisition allowed Bakelite to attract new customers in Asia and enhance the existing customer base.

The purchase price was allocated to the tangible assets and identifiable intangible assets acquired. For the excess of the fair values of identified acquired net assets over the purchase price, Bakelite recognized a deferred credit of €4,181 in order to record the remaining maximum contingent consideration due from the purchase price agreement. In 2004 the contingent consideration was resolved as Bakelite Korea did not exceed the average

F-288

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

earnings targets for three consecutive years as stipulated in the purchase agreement. The deferred credit was recognized as a pro-rata reduction of certain non-current assets.

For US GAAP purposes, no goodwill was recognized at the acquisition date for this transaction. However, the amount of goodwill that is expected to be deductible for Korean tax purposes is 4.1 billion Korean won (€3,551).

Unaudited pro forma net revenues and income from operations of Bakelite, calculated using BAK’s financial statements, would have been as follows if the acquisition had occurred as of January 1, 2002:

	Year ended December 31, 2002
	(Unaudited)
Net revenues	€	518,846
Income from operations	€	10,469

Acquisition of Taro Plast S.p.A. In January, 2002, Bakelite acquired the remaining 30% interest of Taro Plast S.p.A., an Italian corporation (“Taro Plast”). Bakelite had acquired a 70% interest in Taro Plast in 1998. Taro Plast is engaged in the engineering thermoplastic business. The business offers five main product lines which are primarily used in the automotive and electrical industries. The purchase price for the 30% interest was €3,715 in cash, including acquisition expenses of €65.

The purchase price has been allocated to the tangible assets, identifiable intangible assets acquired and liabilities assumed (the “net assets”). The excess purchase price over the net assets is goodwill.

The following is a summary of the purchase price allocations at the date of acquisition for BAK and Taro Plast:

	BAK			Taro Plast
Inventory	€	3,356		€	1,543
Property, plant and equipment		13,326			2,215
Identifiable intangible assets		7,475			755
Other assets		1,891			4,321
Goodwill		—			1,167
Deferred income taxes, net		(3,345	)		(549	)
Liabilities assumed		—			(5,737	)
Contingent consideration		(4,181	)		—
Total consideration	€	18,522		€	3,715

The amortization periods for major classes of intangible assets are described in Note 6 to the Combined Financial Statements.

Acquisitions in 2004: In 2004 Bakelite acquired the remaining 0.01% of Bakelite Polymers U.K. Limited for less than €1, the remaining 1% of Bakelite Italia S.p.A. for €160 and the remaining 0.7% of Bakelite Ibérica S.A. for €134.

F-289

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

Note 6—Intangible assets and goodwill, net

At December 31, 2004, 2003 and 2002, Bakelite’s management performed the annual goodwill impairment test for all of its reporting units. As a result of this test at December 31, 2004, goodwill impairment of €4,603 was recognized in respect of Taro Plast S.p.A. and €1,280 in respect of Bakelite Iberica. The impairment of goodwill at Taro Plast S.p.A. relates to a reduction in the projected profitability of the moulding compounds business. At Bakelite Iberica the amount of the impairment reflects the decline in the phenolic resins business. At December 31, 2003, the fair value of each reporting unit exceeded the carrying amount of assets and liabilities assigned to the units and no impairment charge was necessary. At the end of 2002, the test resulted in an impairment charge of $2,920 with respect to Bakelite Italia. This impairment test reflects the significantly reduced expected cash flows for the phenolic resins business.

Upon the adoption of FAS 142, on January 1, 2002, Bakelite recorded a non-cash charge, net of tax, of €4,381 to reduce the carrying value of goodwill related the Bakelite Italia moulding compound business. Such charge is reflected as a cumulative effect of a change in accounting principle in the accompanying Combined Statements of Operations. The amount of the impairment reflects the decline in the customer base at the Bakelite Italia moulding compounds business.

The decline in the moulding compounds business is primarily due to (i) the market trend toward substitution of certain moulding compounds products with less expensive products, and (ii) customers relocating their facilities to Asian countries and sourcing products locally.

Prior to the adoption of FAS 142, Bakelite amortized goodwill over a 20-year period. These impairment charges were non-cash in nature and did not affect Bakelite’s liquidity.

The changes in the carrying amount of goodwill for the year ended December 31, 2004 and 2003 are as follows:

	December 31,
	2004			2003
Goodwill balance at the beginning of the year	€	14,764		€	15,387
Goodwill impairment recognized		(5,883	)		—
Other		(330	)		(623	)
Goodwill balance at the end of the year	€	8,551		€	14,764

Intangible assets other than goodwill consist of the following as of December 31, 2004 and 2003:

	December 31,
	2004					2003
	Gross Carrying Value		Accumulated Amortization			Gross Carrying Value		Accumulated Amortization
Customer related intangibles	€	36,867	€	(28,249	)	€	40,719	€	(23,898	)
Software licenses and patents		10,661		(8,398	)		18,926		(15,731	)
Trademarks		11		(8	)		16		(7	)
Total	€	47,539	€	(36,655	)	€	59,661	€	(39,636	)

F-290

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

The gross carrying value and accumulated amortization include the impact of foreign currency adjustments. Total intangible amortization expense for the year ended December 31, 2004, 2003 and 2002 was €7,936, €9,531 and €9,452, respectively. Impairment charges of €855 and €349 were recorded in Impairment of long-lived assets in the years ended December 31, 2003 and 2002, respectively (Note 3).

Based on the number of intangible assets subject to amortization at the end of December 31, 2004, the expected amortization for each of the next five years is as follows:

Years ended December 31,	Amortization
2005	€	5,823
2006		2,504
2007		1,166
2008		758
2009		621
	€	10,872

Note 7—Pensions and employees’ severance indemnities

Bakelite maintains various defined benefit and defined contribution pension plans covering its employees worldwide. In Germany, these plans are based on fixed benefits (defined benefit pension plans), while in certain other countries, there are defined contribution pension plans. Furthermore, the Italian and Korean subsidiaries provide severance indemnity benefits to employees.

Defined benefit pension plans. Under defined benefit pension plans, the benefits are based primarily on years of service and employees’ pay near retirement. Benefit obligations are determined by actuarial valuations using a method based on projected salaries to the end of employment (the projected unit credit method). The annual benefit cost comprises the estimated cost of benefits accruing in the period as determined in accordance with FASB Statement No. 87, Employers’ Accounting for Pensions (“FAS 87”), which requires re-adjustment of the significant actuarial assumptions annually to reflect current market and economic conditions. All of Bakelite’s employee benefit plans are unfunded plans. The measurement date for these plans is December 31. The need to recognize actuarial gains or losses is reviewed using the corridor approach.

Defined contribution plans. Several subsidiaries offer defined contribution plans to eligible employees, whereby employees contribute a portion of their compensation, which is partially matched by Bakelite. Once the contributions have been paid, Bakelite has no further payment obligations. The regular contributions totaled €384, €530 and €494 for the years ended December 31, 2004, 2003 and 2002, respectively, which are recognized as expense when paid.

Severance indemnity plans. The employees’ severance indemnities primarily relate to Italy and Korea. This liability, which is indexed for inflation in accordance with Italian and Korean law, is accrued at the year-end for each employee. The liability is determined in accordance with applicable national labor legislation and with the employee’s annual salary. The reserve reflects the total amount of the employees’ severance indemnities, net of any advances taken, that each employee would be entitled to receive if termination were to occur for virtually any reason, as of the balance sheet date.

F-291

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

The aggregate disclosures for Bakelite’s defined benefit pension plans and employee severance indemnities are presented as follows:

	Year ended December 31,
	2004			2003			2002
Change in benefit obligation:
Benefit obligation at beginning of year	€	113,197		€	104,820		€	95,984
Service cost		2,829			4,039			2,483
Interest cost		4,193			5,301			5,320
Business acquisition		—			—			516
Actuarial loss		2,343			5,261			5,514
Effects of settlements/curtailments		(81	)		—			—
Foreign currency exchange rate changes		32			(117	)		(29	)
Transfer of benefit obligation (including unrecognized loss of €3,252)		(32,339	)		—			—
Benefit payments		(3,018	)		(6,107	)		(4,968	)
Benefit obligation at end of year	€	87,156		€	113,197		€	104,820
Funded status:
Funded Status	€	(87,156	)	€	(113,197	)	€	(104,820	)
Unrecognized transit obligation		—			—			1,052
Unrecognized net loss		9,856			10,776			5,514
Accrued pension cost	€	(77,300	)	€	(102,421	)	€	(98,254	)
Amounts recognized in the balance sheet consist of:
Accrued benefit cost	€	(80,490	)	€	(106,827	)	€	(99,940	)
Intangible assets		—			—			1,052
Accumulated other comprehensive loss		3,190			4,406			630
Net amount recognized	€	(77,300	)	€	(102,421	)	€	(98,258	)
Components of net periodic benefit costs:
Service cost	€	2,829		€	4,039		€	2,483
Interest cost		4,193			5,301			5,320
Amortization of unrecognized loss		10			—			—
Amortization of transition obligation		—			1,052			1,052
Net periodic benefit cost	€	7,032		€	10,392		€	8,855
Additional Information:
Projected benefit obligation	€	87,156		€	113,197		€	104,820
Accumulated benefit obligation	€	80,383		€	106,163		€	99,936
(Decrease) increase in minimum liability included in other comprehensive income	€	(1,216	)	€	3,776		€	630
Assumptions:
Weighted-average assumptions used to determine benefit obligations:
Discount rate		4.75	%		5.25	%		5.50	%
Rate of compensation increase		2.50	%		2.50	%		2.50	%
Weighted-average assumptions used to determine net periodic benefit cost:
Discount rate		5.25	%		5.50	%		6.00	%
Rate of compensation increase		2.50	%		2.50	%		3.00	%

F-292

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

At December 31, 2003, Bakelite and Rütgers agreed to transfer certain pension obligations for retirees from Bakelite to Rütgers for compensation of €33,535, which was based on the German GAAP pension obligation. Although the agreement has been made, the obligation will not be released until individual employees release Bakelite as primary obligor. The transfer of a portion of the obligation took place during the 12 month period ended December 31, 2004. The total compensation in 2004 to Rütgers amounts to €27,472.

As a result of the pension transfer Bakelite’s projected benefit obligation as of December 31, 2004 reduced by €32,339, which consisted of €29,087 accrued pension cost, and €3,252 unrecognized loss. The difference between the €27,472 agreed compensation and €29,087 of accrued pension cost was recorded as a capital contribution of €1,615.

As the benefit plans are unfunded plans, Bakelite does not expect to contribute to its pension plans in 2005.

Estimated future benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:

2005	€	2,195
2006		2,562
2007		2,832
2008		3,084
2009		3,329
Years 2010-2014		21,349

Note 8—Income Taxes

Profits earned by a German resident corporation are subject to a uniform corporate income tax rate of 25% (2003: 26.5%; 2002: 25%). Deferred taxes were also calculated with a solidarity surcharge of 5.5% (2003: 5.5%; 2002: 5.5%) on federal corporate taxes plus the after federal tax benefit rate for trade tax. The trade tax is levied at rates set by each municipality in which the corporation maintains a business establishment. The effective trade tax rates after federal tax benefit ranges between 12.78% to 14.01% (2003: 12.78% to 13.71%; 2002: 13.18% to 13.42%). Including the impact of the solidarity surcharge and the trade tax, the expected tax rate of Bakelite amounted to 39.90% (2003: 41.10%; 2002: 39.80%). The increase in 2003 was caused by a new tax legislation enacted by the Government in 2002 for the purpose of financing the flood disaster which, among other changes, increased Bakelite’s corporate tax rate for German companies from 25% to 26.5%, effective only for the calendar year 2003.

Comparative analysis of Bakelite’s income tax (expense) benefit related to continuing operations is as follows:

	2004			2003			2002
Current (expense)/benefit
Germany	€	(3,380	)	€	5,623		€	(3,098	)
Other		(1,798	)		278			(1,125	)
Total		(5,178	)		5,901			(4,223	)
Deferred (expense)/benefit
Germany		3,838			(2,988	)		1,284
Other		679			8,183			(221	)
Total		4,517			5,195			1,063
Total Provision for income tax (expense) benefit	€	(661	)	€	11,096		€	(3,160	)

F-293

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

The domestic and foreign components of Bakelite’s income (loss) from before income taxes are as follows:

	2004			2003			2002
Germany	€	1,959		€	(6,129	)	€	3,989
Other		(3,444	)		(30,187	)		1,927
Total	€	(1,485	)	€	(36,316	)	€	5,916

The tax effects of Bakelite’s income (loss) from continuing operations before income taxes are as follows:

	2004			2003
Assets
Current Assets
Accounts receivables	€	0		€	621
Inventory		0			0
Liabilities and reserves		716			1,036
Total current deferred tax assets		716			1,657
Non current Assets
Intangibles assets		882			0
Investments and other assets		484			0
Loss and credit carryforwards		1,269			991
Tax incentives		97			76
Liabilities and reserves		11,545			24,064
Total		14,277			25,131
Valuation allowance		(3,932	)		(3,491	)
Total non current deferred assets		10,345			21,640
Gross deferred tax assets		11,061			23,297
Liabilities
Current Liabilities
Accounts receivables		(1,779	)		0
Investments and other current assets		0			(23	)
Accounts payable		0			(13,401	)
Other current liabilities		(1,042	)		(245	)
Inventory		(66	)		(358	)
Total		(2,887	)		(14,027	)
Non current Liabilities
Goodwill		(2	)		0
Property, plant and equipment		(24,727	)		(30,084	)
Additional taxes on unrepatriated earnings		(506	)		(353	)
Investments and other assets		0			(657	)
Intangibles assets		0			(1,708	)
Incentives and capital grants		(2,411	)		(2,410	)
Total		(27,646	)		(35,212	)
Gross deferred tax liabilities		(30,533	)		(49,239	)
Net deferred tax asset / (liability)	€	(19,472	)	€	(25,942	)

F-294

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

The reconciliation of income tax benefit (expense) computed at the statutory rate applicable in Germany to Bakelite’s income tax expense is as follows:

	2004			2003			2002
German statutory (expense) / benefit		592			14,751			(2,389	)
Effect of income tax rates of other countries		37			(74	)		258
Income not subject to tax		232			106			279
Goodwill		(1,673	)		77			(1,184	)
Expenses not deductible for tax purposes		(112	)		(269	)		(303	)
Additional tax payments / (refunds) from prior years		102			(1,291	)		2
Capital Investment Incentives		1,668			574			433
Change in valuation allowance		(1,634	)		(2,294	)		0
Foreign, local and municipal taxes		(587	)		148			(259	)
Changes in tax law and rates		651			(649	)		1
Purchase Price Adjustments and other differences		63			17			2
Total tax (expense) / benefit	€	(661	)	€	11,096		€	(3,160	)

Unrepatriated earnings—Bakelite has recorded all income taxes applicable to undistributed earnings of foreign and domestic subsidiaries that are not permanently reinvested. The total undistributed earnings for these subsidiaries are approximately €23,401 (2003: €17,741). From these earnings, 5 percent of the foreign dividends are non deductible expenses and are subject to both corporate and trade tax of approximately €506 (2003: €353).

Revaluation reserve—In Italy a new tax law was enacted in December 2000 which permits an entity to revalue certain assets that will require a payment of a tax on the revaluation at the rate of 19% for depreciable assets and 15% for non depreciable assets. This tax liability is paid over a 3 year period. As the revalued assets are depreciated or disposed off in the future, the tax benefit on the revaluation will be realized at the statutory tax rate of 40.25% for the years 2001 and 2002 and at 39.25% for 2003 and thereafter. For Italian financial reporting purposes, a separate equity account was credited for the revaluation of the assets and that equity account was charged for the recognition of the tax to be paid attributable to the revaluation. If the Company distribute this equity account, a tax of approximately €2,410 would be assessed. A deferred tax liability has been established for future tax on the amount included in equity.

Transfer pension liability—At December 31, 2003, Bakelite and Rütgers AG (“Rütgers”) agreed to transfer certain pension obligations to Rütgers (Note 7). The transfer for tax purposes took place in 2003, whereas under US GAAP these pensions were transferred in 2004. This resulted in temporary differences in pension obligations and accounts payables to affiliates between tax basis and US GAAP in 2003. As the transfer of the pension obligation took place in 2004 US GAAP and tax basis converged, which is the primary reason for the decrease of the deferred tax assets related to “liabilities and reserves” from €24,064 to €11,545 and the decrease in the deferred tax liabilities related to “accounts payable” from €(13,401) to €0.

This is one of the primary reason for the decrease of the deferred tax asset on the non current “Liabilities and reserves” and the corresponding decrease of the deferred tax liability on the current “Accounts payable” in 2003.

Net operating losses—At December 31, 2004, Bakelite had federal tax net operating losses (“NOLs”) amounting to approximately €3,098 (2003: €2,463) and state tax NOLs of €2,482 (2003: €2,414). The NOLs relate to losses in the USA, Korea and Italy. Approximately €783 of the total amount of these net operating losses expire in 2008 and 2009. The remaining NOLs expire in 18 to 20 years. A valuation allowance of €176 has been

F-295

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

recorded against net operating losses in the amount of €582 where it is more likely than not that they will expire before being utilized.

Valuation allowance—The valuation allowance increased €441 from December 31, 2003 to December 31, 2004. An increase in the valuation allowance of €1,616 went through income tax benefit (expense) while a decrease in the valuation allowance of €1,175 associated with the step down in the basis of assets at Korea was recognized in the balance sheet. A valuation allowance of €176 relates to the deferred tax asset on the NOL and a valuation allowance in the amount of €83 relates to the investment tax credit carry forward at Korea. Additionally, there is a valuation allowance of €3,482 recorded against certain deferred tax assets in Italy as a result of the impairment for those assets that will not be recovered by the reversal of deferred tax liabilities. A further valuation allowance of €191 has been placed against certain deferred tax assets in the USA as result of a related party transaction. In future periods management’s estimate of the amount of the deferred tax assets considered realizable may change, and hence the valuation allowances may increase or decrease.

Step down—In connection with the step down in the basis of the assets at Bakelite Korea described in Note 5, deferred tax assets, liabilities and related valuation allowances have been adjusted to reflect the step down of basis in the assets.

Tax audit – Bakelite has various open income tax years that have not been audited by the taxing authorities in various jurisdictions. Bakelite AG is currently under review by the tax authorities for the years 2000 until 2004. Furthermore, Bakelite received notification in March 2005 that an income tax audit in the USA will be forthcoming. The open years for other companies of Bakelite are not yet under examination. Bakelite believes it has adequately accrued for any future income taxes that may be owed for all open years and there has been no effect to the financial statements as a result of any audits.

F-296

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

Note 9—Debt and Lease Obligations

Debt and capital lease obligations outstanding at December 31, 2004 and 2003 are summarized as follows:

	December 31,
	2004				2003
	Long- term, net of current portion		Due within one year		Long- term, net of current portion		Due within one year
Nordea Bank, Finland PLC, loan to Bakelite OY, line of credit €21.000, due 2008, interest Euribor +0.65% per annum	€	10,800		—	€	10,800		—
Korea Exchange Bank, loans to Bakelite Korea original principal 4.95 bil Korean Won, due through 2007, interest 9.59% per annum, payable quarterly (certain land, building and equipment of Bakelite Korea pledged as collateral)		3,560		—		5,503		2,201
West LB, loan to Bakelite AG, original principal €8,813, due 2013, interest 4.25 % per annum, payable semi-annually		7,951		509		8,460		—
West LB, loan to MGS, original principal €4,000, due 2006, interest 5.10% per annum, payable quarterly		1,944		500		2,450		500
Long-term loans, various banks to Taro Plast S.p.A, due through 2007, variable interest, 2.5% to 4.0% per annum		976		2,607		3,592		2,647
Capital Lease Obligation of Bakelite AG, EVO steam plant, due 2020, interest 7,92% per annum, payable monthly—in 2004 transferred to Rütgers Chemicals AG		—		—		8,428		252
Various Capital Lease Obligations due through 2010		500		167		613		102
Other, primarily bank debt, due through 2011, average interest 3.4% and 4.3% per annum		2,473		789		3,474		1,343
Total current maturities of debt and capital lease obligations	€	28,204	€	4,572	€	43,320	€	7,045
Korea Exchange Bank revolving loans, Bakelite Korea, 17.3 bil Korean won line of credit, interest 6.5-7.0% per annum, payable monthly, accounts receivable of Bakelite Korea pledged as collateral				11,652				4,725
Working capital revolving loans, various banks, Taro Plast S.p.A, total available €16,200, variable interest rates, range of 2,3% to 7.4% per annum				6,378				7,800
Other				2,751				2,127
Total debt, capital lease obligations and revolving loans	€	28,204	€	25,353	€	43,320	€	21,697

Bakelite’s non-German entities have available lines of credit for an authorized total amount of €75,898. As of December 31, 2004, they had unused lines of credit amounting to €34,102. Bakelite’s German entities participate in a cash pooling arrangement with Rütgers to provide operating cash flow requirements (Note 15).

F-297

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

Rütgers and Bakelite AG provide letters of comfort to lenders of Bakelite’s non-German subsidiaries. Rütgers and Bakelite AG generally commit to use their influence as shareholders to assure that the subsidiaries adhere to the terms of each loan. In addition, Rütgers has provided letters of comfort to lenders of Bakelite AG and MGS. These letters generally provide that Rütgers will use its shareholder influence and maintain its profit sharing relationship to help assure that the subsidiaries adhere to the terms of each loan (Note 12). The profit sharing agreement between Rütgers and BAG and the above mentioned letters are intended to be terminated prior to the consummation of the sale of Bakelite to Borden Chemical, Inc. (Note 17).

Capital Lease—EVO steam plant. In January 2001, Bakelite entered into an arrangement with EVO, a third party utility supplier (the “lessor”), to lease certain steam generation facilities (the “steam plant”). The lease contract was classified as a capital lease due to the existence of a bargain purchase option. During 2003, Bakelite began construction of a separate manufacturing facility that would produce steam as a by-product in quantities sufficient to meet Bakelite’s prospective needs. The analysis performed by management did not indicate that an impairment existed as of the assessment date.

In April 2004, Bakelite, Rütgers Chemicals AG (“RC”), a wholly owned subsidiary of Rütgers, and the lessor entered into a tripartite agreement to transfer Bakelite’s obligations under the lease arrangement to RC. The steam plant, as an asset to be distributed to a subsidiary of Bakelite’s owners, was reduced to its fair value prior to the transfer. As such, an impairment loss of €2,317 was recognized at the time of transfer of the steam plant to RC, as the carrying amount of the asset exceeded its fair value. Upon execution of the transfer agreement, Bakelite derecognized the leased asset and the related lease obligation from its Combined Balance Sheets and made a cash payment of €700 to RC, the net impact of which has been reflected as a dividend to Rütgers in the Combined Financial Statements. Further, Bakelite paid a €400 termination penalty to the lessor, which was recorded as a General and administrative expense in the Combined Financial Statements in connection with the transfer.

Additionally, under the agreement, Bakelite will pay an annual service fee of €210 to RC allowing the continued use of the steam plant only during times when Bakelite’s plant that generates steam as a by-product undergoes maintenance. Such service fees are recognized as a component of cost of goods sold ratably in each annual period.

Aggregate maturities of debt and capital lease obligations at December 31, 2004 are as follows:

Year ending December 31,	Aggregate Maturities
2005	€	25,353
2006		6,867
2007		7,418
2008		8,365
2009		1,445
2010 and beyond		4,108
	€	53,556

Operating Lease Commitments. Bakelite leases certain land, buildings, cars and office equipment from unrelated parties. Rent expense was €1,553, €1,720 and €1,597 for the years ended December 31, 2004, 2003 and 2002, respectively.

F-298

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

Future minimum lease payments under all non-cancellable capital and operating leases as of December 31, 2004 are as follows:

Year ending December 31,	Capital leases			Operating leases
2005	€	214		€	1,486
2006		156			1,462
2007		123			1,418
2008		96			1,364
2009		97			1,397
2010 and thereafter		140			2,143
		826		€	9,270
Less: Interest (at rates ranging from 4% to 9%)		(159	)
Amounts reflected in debt summary
Present value of minimum lease payments		667
Less: Current portion		167
Long-term portion of obligations	€	500

Note 10—Derivative Financial Instruments

Strategy and objectives during the normal course of business. Bakelite is exposed to foreign currency risk, commodity price risk and interest rate risk. These risks create volatility in earnings and cash flows from period to period. Bakelite has, in the past, made use of derivative instruments in various strategies to eliminate or limit a portion of its foreign currency risk. Bakelite has also hedged its interest rate risk to a limited extent. Bakelite does not hedge commodity price risk. Bakelite is not always able to immediately pass through commodity price increases to the customers. As a result, in periods of rising commodity prices, Bakelite is exposed to short term commodity price risk. Bakelite does not use derivative instruments for speculative purposes.

Foreign currency derivatives. Bakelite has forecasted transactions denominated in foreign currencies (principally United States dollars, British pounds and Czech crown). Bakelite seeks to economically hedge a portion of the foreign currency risk arising from foreign exchange receivables and foreign currency-denominated forecasted transactions. Forwards and foreign exchange swaps are used to fix or protect the exchange rate to be used for foreign currency-denominated transactions. Hedge accounting is not applied in the Combined Financial Statements of Bakelite. At December 31, 2004 and 2003, the fair market value of the foreign exchange derivatives were €135 and €(268) respectively. At December 31, 2004, these were recorded within Other current liabilities and within Other current receivables in the Combined Balance Sheets. The changes in fair value were recorded in Other operating expense, net, in the Combined Statement of Operations.

Interest rate swap. Bakelite has managed it cash flow volatility a debt instrument with variable cash outflows through the use of an interest rate swap. Hedge accounting is not applied. At December 31, 2004 and 2003, the fair market values of the interest rate swap were €(567) and €(714) respectively, which were recorded within Other long-term liabilities in the Combined Balance Sheets. The changes in fair value were recorded in Other non-operating expense, net in the Combined Statements of Operations.

Embedded Derivatives. Bakelite has no material embedded derivative instruments.

F-299

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

Valuation of derivative instruments. The fair value of derivative instruments is sensitive to movements in the underlying market rates and variables. Bakelite monitors the fair value of derivative instruments on a periodic basis. Foreign currency forwards and interest rate swaps are valued using forward rates observed from quoted prices in the relevant markets when possible.

Counterparty risk from the use of derivative financial instruments. Bakelite is exposed to credit (or repayment) risk and market risk through the use of derivative instruments. If the counterparty fails to fulfill its performance obligations under a derivative contract, Bakelite’s credit risk will equal the fair value gain in a derivative. Currently, when the fair value of a derivative contract is positive, this indicates that the counterparty owes Bakelite, thus creating a repayment risk for Bakelite. When the fair value of a derivative contract is negative, Bakelite owes the counterparty and, therefore, assumes no repayment risk. In order to minimize the credit risk in derivative instruments, Bakelite enters into transactions with high-quality financial institution counterparties that satisfy Bakelite’s credit approval criteria.

Note 11—Fair Value of Financial Instruments

The fair value of a financial instrument is the estimated amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair values are determined from quoted market prices where available or based on other similar financial instruments.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and other accruals are considered reasonable estimates of their fair values. Management estimates that the carrying amount of debt and capital lease obligations are also reasonable estimates of their fair value based on discussions with Bakelite’s lenders.

The following table includes the notional amounts and fair values of Bakelite’s derivative financial instruments.

	December 31,
	2004					2003
	Notional Amount		Fair Value			Notional Amount		Fair Value
Derivatives relating to:
Foreign currency contracts	€	5,961	€	135		€	5,956	€	(268	)
Interest rate swaps	€	6,000	€	(567	)	€	6,250	€	(714	)

Note 12—Guarantees and Indemnifications

Standard Guarantees / Indemnifications: In the ordinary course of business, Bakelite enters into numerous agreements that contain standard guarantees and indemnities whereby Bakelite indemnifies another party for, among other things, breaches of representations and warranties. Such guarantees or indemnifications are granted under various agreements, including those governing (i) purchases and sales of assets or businesses, (ii) leases of real property, (iii) licenses of intellectual property, (iv) long-term supply agreements and (v) agreements with public authorities on subsidies received for designated research and development projects. The guarantees or indemnifications issued are for the benefit of the (i) buyers in sale agreements and sellers in purchase agreements, (ii) landlords or lessors in lease contracts, (iii) licensors or licensees in license agreements, (iv) vendors or customers in long-term supply agreements and (v) governments or agencies subsidizing research or development.

F-300

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

Bakelite has not entered into any significant agreements subsequent to January 1, 2003 that would require it, as a guarantor, to recognize a liability for the fair value of obligations it has undertaken in issuing the guarantee.

Subsidiary Guarantees: Bakelite AG has issued letters of comfort for €8,540 of bank debt of several non-German subsidiaries. In addition, Bakelite AG guarantees the open payables from certain vendors of Bakelite Korea and Bakelite s.r.o. related to the purchase of raw materials.

Furthermore, Rütgers has issued letters of comfort for bank and lease debt and other liabilities of Bakelite AG, Bakelite Italia, Bakelite Korea, Bakelite Oy and Bakelite UK for liabilities totalling €39,629 at December 31, 2004. These letters of comfort are intended to be terminated prior to the consummation of the sale of Bakelite to Borden Chemical, Inc. (Note 17).

Contingent Purchase Consideration: In 2002 the acquisition agreement of Bakelite Korea included a contingent purchase consideration provision based on achievement of certain targeted earnings before interest and taxes. The maximum payment amount was €4,181 (Note 5). In 2004, the contingent consideration was resolved as Bakelite Korea did not exceed the average earnings targets for three consecutive years as stipulated in the purchase agreement. The deferred credit was recognized as a pro-rata reduction of certain non-current assets.

The purchase agreement for the acquisition of order books from Neste-Meerbeck contained contingent considerations of €1,398 as of December 31, 2004.

Warranties: Bakelite does not make express warranties on its products, other than that they comply with Bakelite’s specifications; therefore, Bakelite does not record a warranty liability. Adjustments for product quality claims are not material and are charged against sales revenue.

Note 13—Commitments and Contingencies

Environmental commitments and contingencies. Bakelite has responsibilities for environmental cleanup under various state, local and federal laws in the countries in which it operates as a result of Bakelite’s operations that involve the use, handling, processing, storage, transportation and disposal of hazardous materials. Based on management’s estimates, which are determined through historical experience Bakelite has recorded liabilities of €288 and €760 at December 31, 2004 and 2003, respectively, for all probable and estimable environmental remediation activities. These accruals primarily represent two cases at the Solbiate, Italy site where remediation was performed for asbestos-containing materials identified on site and where remediation was assessed by local authorities for cumene contamination discovered. The removal of asbestos-containing materials for insulation on pipelines began in 2003 and was finalized in August 2004. This removal was not required under local law but was carried out voluntarily. The cumene contamination was discovered in 1998 and remediation began in 2000 after investigations by Bakelite and the authorities were finalized. During 2003, it was determined that the remediation procedures carried out since 1998 would be insufficient and further remediation would be required. Based on an agreement with the authorities, the current remediation measures are to be finalized by 2007 and will be performed in stages in the contaminated area. Parallel to the remediation measure, a groundwater monitoring program has been started in 1999 and is ongoing. The accrual contains costs for both the remediation and the monitoring program. For both of these cases management believes the accruals are sufficient to meet the remediation and monitoring activities. Furthermore, management believes it is remote that further remediation or assessments will be made with regard to these contaminations.

F-301

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

The following table summarizes the activity in Bakelite’s accrued obligations for environmental matters for the years ended December 31, 2004 and 2003:

	December 31,
	2004			2003			2002
Accrued obligations for environmental matters
Balance at January 1	€	760		€	72		€	253
Additional accruals		—			892			—
Charges against reserve		(472	)		(204	)		(153	)
Adjustments to reserve		—			—			(28	)
Total accrued obligations for environmental matters	€	288		€	760		€	72

At Bakelite’s site in Duisburg, Germany, a significant tar contamination is located underneath Bakelite’s facilities that are shared with Rütgers Chemicals AG, a subsidiary of Rütgers. This contamination resulted from the demolition of a tar distillation facility located on that site. Although Rütgers Chemicals AG and Bakelite are in discussion with local authorities concerning a proposed remediation plan, the scope and extent of that plan and the costs of its implementation are not yet reasonably estimable. Annually, Bakelite has incurred €45 to €60 for investigation activities. These costs have been contractually shared by Rütgers Chemicals AG (70%) and by Bakelite (30%). Pursuant to the sale of the Resin business of the Bakelite Group, Rütgers will assume all costs related to the investigation activities.

For all other environmental risks to which Bakelite is exposed, management believes it is remote that litigation, assessments or claims will be filed against Bakelite in the future. Management believes these environmental risks cannot be estimated as there has been no indication of required remediation or possible future litigation. However, if litigation or remediation is threatened, the assessment could have a material affect on Bakelite’s results of operations or cash flows in the period of assessment.

Pursuant to the sale of the Resin Business of the Bakelite Group, Rütgers intends to provide indemnifications to Borden Chemical, Inc. with respect to certain environmental liabilities. These indemnifications will be subject to exceptions and limitations. (Note 17).

Customer claims and other litigation. In addition to the environmental-related legal matters discussed above, Bakelite is subject to various product liability, commercial and employment litigation and other legal matters which are considered to be in the ordinary course of business. Bakelite has reserved €245 and €273 at December 31, 2004 and 2003, respectively, relating to an accident at a plant in Spain and the infringement of a patent in Finland.

A claim has been filed against the Spanish subsidiary regarding an accident at the Salcedo Plant which caused the death of an employee of an external contractor. Management has assessed that an unfavorable outcome is probable and has recorded an accrual for the pending claim. In 2001, Ruutteri Oy filed a claim against Bakelite Oy, for the infringement of a patent. Bakelite filed a lawsuit to nullify the patent, which was dismissed. Therefore an unfavorable outcome is probable, and an accrual has been recorded for the estimated settlement amount. Bakelite has not taken into consideration insurance coverage or any anticipated recoveries from third parties in determining the reserve for legal matters.

In Italy, there have been several civil law claims filed against Bakelite related to asbestos-containing materials that were used in production. Italian regulations provide a general fund to pay damages related to

F-302

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

asbestos claims by employees, former employees or surviving family members. The surviving family members of two former employees have initiated legal claims against Bakelite, in addition to their claim against the general fund. It is currently unclear whether a claim against Bakelite will be accepted by the Court, or to what damages Bakelite may be exposed. Furthermore, there is another asbestos related employee claim against the Spanish subsidiary. For all of the asbestos related claims, management has assessed the outcome of the litigation to be favorable, and therefore no accrual has been recorded by Bakelite.

For all other legal matters outstanding, most of which are related to product liability, management believes it is remote that the outcome will be unfavorable and thus has not recorded an accrual.

Non-cancellable purchase commitments. Bakelite has non-cancellable purchase agreements for raw materials on the basis of indexed price formulas to ensure market price, with a remaining period of one to three years. The non-cancellable purchase commitments as of December 31, 2004 are as follows:

Year ending December 31,	Amount
2005	€	136,925
2006		35,689
2007		0
Total purchase commitments	€	172,614

The Company has previously recorded expenses of €93,985, €56,646 and €63,588 for the year ended December 31, 2004, 2003, and 2002, respectively, in connection with these non-cancellable purchase commitment agreements. In 2004, the increase in recorded expenses mainly attributable to larger contracted volumes and increases in prices. Included in these expenses are commitments related to toll manufacturing arrangements with unconditional purchase obligations. Under these agreements, Bakelite contracts with a third party supplier to manufacture a minimum amount of raw materials into finished goods. During 2003, management terminated all tolling arrangements which included unconditional purchase obligations related to previous acquisition of orderbooks from competitors. The amount of purchases made for these tolling arrangements in 2003 and 2002 amounted to €2,591 and €4,623, respectively. The charges to terminate these contracts amounted to €800 and €300 during 2003 and 2002, respectively, and are recorded as Other operating expense. In 2004, the amount of purchases made under tolling arrangements with unconditional purchases obligations was €742 and was related to Bakelite Epoxy Polymers Corp. and Bakelite AG.

Note 14—Restructuring Provisions

Restructuring Project 2002. In 2002, Bakelite initiated restructuring activities designed to increase profitability through structural changes and process optimisations in Germany and Italy. The restructuring plan consists of 14 measures, including supplier changes, reducing headcount and streamlining processes. Bakelite achieved a total headcount reduction of 73 employees, as of December 31, 2003. The headcount reduction was achieved through involuntary terminations of 45 employees, 1 by early retirement, and the remainder by natural attrition.

The affected employees were terminated or left Bakelite throughout 2002 and 2003, with the last employee leaving in December 2003. The amount accrued at December 31, 2002 relates to severance costs for employees, who were notified in the fourth quarter of 2002 and paid in the first six months of 2003. Total costs incurred for involuntary terminations were €377 and €270 for the years ended December 31, 2003 and 2002, respectively. Only the costs incurred in Germany qualify as restructuring expenses.

F-303

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

Restructuring Project 2003. In November 2003, Bakelite initiated a restructuring program designed to improve operating efficiency of its worldwide facilities and reduce the fixed-cost base of primarily the German and Italian operations. This goal will be achieved by headcount reductions, salary adjustments and streamlining of manufacturing and general administrative functions. The headcount reduction measures in the plan require (i) involuntary terminations by transferring employees to a third party temporary employment agency and (ii) certain eligible employees to enter an early retirement plan, where a reduced work schedule is offered to employees who near retirement. Bakelite intends to achieve a total headcount reduction of 233 employees by the end of 2007 by involuntary terminations (134 employees), early retirement (36 employees) and leave through natural attrition (63 employees). The involuntary termination measures include 11 employees who refused the termination benefits offered by Bakelite and subsequently filed a lawsuit for reemployment. Of the measures to be used in this plan, only the expenses related to the 87 employees who accepted the involuntary termination qualify as restructuring expenses.

Management estimates the costs for the entire plan to be €7,173. The costs, to be incurred in Germany only, qualify as restructuring expenses and were estimated to be €1,846.

The estimated costs accrued for those employees who filed lawsuits as of December 31, 2004 were €40, relating to two remaining employees from the original eleven cases. This amount is recorded in other current liabilities. The comparative amount for 2003 was €420.

The following table reflects the changes in the restructuring provisions:

	Restructuring Project 2003			Restructuring Project 2002			Total
January 1, 2002	€	—		€	—		€	—
Additions		—			270			270
Utilization		—			(125	)		(125	)
December 31, 2002		—			145			145
Additions		1,273			377			1,650
Utilization		(390	)		(522	)		(912	)
December 31, 2003	€	883		€	—		€	883
Additions		573						573
Utilization		(1,040	)					(1,040	)
December 31, 2004	€	416		€	—		€	416

Note 15—Related Parties

As discussed in Note 1, certain expenses of Rütgers have been pushed down to Bakelite. The expenses relate to tax, environmental and administrative services provided to Bakelite by Rütgers, and are based on allocations of usage deemed reasonable by management. Total expenses recognized by Bakelite were €184, €181 and €181 for each of the years ended December 31, 2004, 2003 and 2002, and are included in General and administrative expense in the Combined Statements of Operations.

The German entities of Bakelite are direct or indirect parties to cash pooling arrangements with Rütgers. Under these agreements, any cash balance is cleared and transferred to Rütgers on a daily basis. The accumulated cash transferred to or from Rütgers bears interest at 3 months EURIBOR plus 0.5% on overdrafts and 3 months

F-304

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

EURIBOR minus 0.5% on excess cash balances of Bakelite. Net interest income (expense) recorded related to these arrangements was €621, €(661) and €(1,288) in 2004, 2003 and 2002, respectively, and is recorded in affiliated interest expense, net, in the Combined Statements of Operations.

Under German tax law, Bakelite is subject to an arrangement (the “profit sharing arrangement”) with Rütgers whereby annual net income or net loss is transferred to or compensated by Rütgers each year, in the form of a dividend if Bakelite has net income or in the form of a capital contribution if in a net loss position. Rütgers intends to dissolve this agreement upon the consummation of the sale of Bakelite to Borden Chemicals, Inc.

Rütgers also provides letters of comfort to lenders of certain of Bakelite’s entities. As discussed further in Notes 9 and 12, these letters generally commit Rütgers to use its influence as a shareholder to assure adherence to the terms of the loans.

As discussed in Note 7, at December 31, 2003, Bakelite and Rütgers agreed to transfer certain pensioners from Bakelite to Rütgers in 2004.

Bakelite held a 50% interest in Rütgers Plenco, a joint venture. Note 4 describes the transactions between Bakelite and the former joint venture. The joint venture was terminated in December 2003, and the legal entity was dissolved in 2004.

There are service agreements in place between Bakelite and other entities of RAG AG, primarily for information technology and infrastructure services. Fees paid by Bakelite for these services are recorded in General and administrative expense in the Combined Statements of Operations of €1,389, €1,443 and €1,473 for the years ended December 31, 2004, 2003 and 2002, respectively. In addition, Bakelite purchases certain production materials from related parties, including steam from Rütgers Chemicals AG, and sells products to other entities within Rütgers.

In July 2002, one of Bakelite’s subsidiaries, Bakelite Epoxy Polymers Corp. (“BUS”), entered into an arrangement with Rütgers Organics Corporation (“ROC”), a wholly owned subsidiary of Rütgers, to lease a specialty chemical manufacturing facility in Augusta, Georgia. BUS paid rent and fees for accounting, human resources and information technology services to ROC, net of a management fee received from ROC. BUS also entered into a toll manufacturing arrangement with ROC that allowed ROC to purchase specialty chemicals produced at the facility at direct cost plus allocated overhead.

During 2002, BUS constructed equipment at the facility enabling it to manufacture epoxy resins. These improvements were completed in December 2002, at which time depreciation commenced for the costs capitalized of €2,017. Given the change in plans for the equipment during February 2003, management made the decision to cease operating the equipment by December 31, 2003 and revised the useful life accordingly.

Under the arrangement existing in 2002 and 2003 Bakelite received tolling and management fees of €1,115 and €438, offset by expenses of €440 and €653, in 2003 and 2002 respectively. These net positions are classified within expenses.

Effective January 2004, both parties agreed to terminate the 2002 leasing arrangement and entered into a new arrangement, whereby ROC (i) will resume control of the facility and manufacture epoxy resins for BUS under a toll manufacturing arrangement and (ii) will lease the improvements made by BUS. The toll manufacturing arrangement has an original term of 2 years that can be extended by an additional year unless

F-305

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

either party terminates the arrangement. The toll manufacturing fee is based on ROC’s direct costs, allocated overhead and a 10% margin. The tolling arrangement will be accounted for as a service contract.

As part of the new arrangement, ROC will pay BUS €4 per month for the rent of the improvements that BUS constructed at the facility and ROC has the option to purchase the improvements at a bargain purchase price at the end of the original term of the arrangement. During the initial contract periods, Bakelite is required to purchase a minimum quantity of epoxy resins amounting to €263.

During 2004, under the new arrangement, BUS paid tolling fees of €314 and €11 for rent of office space and one vehicle and received lease payments of €48 in respect of the production equipment.

As a result of these transactions, Bakelite has €225 of accounts payable at December 31, 2004, and €141 and €111 of net accounts receivable from ROC at December 31, 2003 and 2002 respectively.

All transactions with related parties as of and for the year ended December 31, 2004, 2003 and 2002 are summarized as follows:

	December 31, 2004				December 31, 2003					December 31, 2002
	Purchases from		Revenues from		Purchases from			Revenues from		Purchases from		Revenues from
Rütgers	€	27	€	615	€	—		€	548	€	3	€	—
RAG Informatik		1,389		—		1,443			—		1,473		—
Rütgers Chemicals AG		609		7,906		2,609			—		5,623		—
Bozzetto		148		86		93			295		75		771
Rütgers Plenco LLC		—		—		—			1,281		—		1,311
Rütgers Organics Corp.*		277		—		(675	)		—		215		—
Other RAG AG Companies		1		133		43			71		43		135
Total related party activity	€	2,451	€	8,740	€	3,513		€	2,195	€	7,432	€	2,217

* revenue and expense are presented net

All balances with related parties as of and for the year ended December 31, 2004 and 2003 are summarized as follows:

	December 31, 2004				December 31, 2003
	Accounts payable to		Accounts receivable from		Accounts payable to		Accounts receivable from
Rütgers	€	—	€	17,260	€	20,026	€	708
RAG Informatik		—		14		85		—
Rütgers Chemicals AG		201		10		—		26
Bozzetto		—		—		—		93
Rütgers Plenco LLC		—		—		—		544
Rütgers Organics Corp.		225		—		—		141
Other RAG AG Companies		303		35		36		—
Total related party activity	€	729	€	17,319	€	20,147	€	1,512

F-306

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

As also discussed in Note 1, the Combined Financial Statements do not include Bozzetto. No dividends were received in 2004. Dividends received of €13,400 and €5,417 for the years ended December 31, 2003 and 2002, respectively, have been presented as capital contributions, net of related taxes.

It is anticipated that in the event of the sale of Bakelite, various agreements between Bakelite and Rütgers will be terminated, including profit sharing and letter of comfort arrangements.

Note 16—Cash Flow Information

Financing cash flows in the Combined Financial Statements include movements under the cash pooling arrangement, cash transactions related to Bozzetto and funding (dividends) received (paid) under the Rütgers profit sharing arrangements. Following is a summary of these financing transactions:

	December 31,
	2004			2003			2002
Transactions with Rütgers:
Cash pooling agreement	€	(36,920	)	€	(22,108	)	€	(3,363	)
Funding under loss transfers (dividends paid) from (to) Rütgers		(33,658	)		16,341			(10,715	)
	€	(70,578	)	€	(5,767	)	€	(14,078	)
Transactions related to Bozzetto:
Proceeds from sale of Bozzetto		101,685			—			—
Purchase of minority interest in Bozzetto		—			(10,397	)		—
Bozzetto dividends received, net of distribution to minorities		—			13,400			5,417
	€	101,685		€	3,003		€	5,417

Following is a summary of cash paid for:

	December 31,
	2004		2003		2002
Income taxes	€	1,473	€	6,086	€	4,337
Interest	€	3,735	€	3,841	€	2,889

Note 17—Subsequent Events

At the end of 2004, all appropriate corporate bodies of Bakelite approved an agreement for the sale of the shares of Bakelite AG to Borden Chemical, Inc. through its foreign subsidiary, National Borden Chemical Germany, GmbH. Subsequent to the consummation of such transaction, Bakelite does not expect to have material financial commitments, guarantees, or contingent liabilities to, or from, any RAG AG companies, including the non-resin businesses of Rütgers or Bozzetto. Concurrent with the closing, Rütgers has committed to indemnify Borden Chemical, Inc. and Bakelite against claims for certain environmental, legal and other matters, subject to terms and conditions specified in the agreement. Pursuant to the sale of Bakelite, Rütgers established a bonus arrangement with the executive management of Bakelite. The bonus arrangement is payable only upon closing by Rütgers.

With effect from January 2005 an agreement was reached between Rütgers, BAG and the Company’s workers council to cancel the old compensation agreement. Based on the new agreement, Rütgers will bear the total cost that will be paid out by Bakelite to its affected employees.

F-307

Resin Business of the Bakelite Group

Notes to the Combined Financial Statements—(Continued)

(Euro amounts in thousands unless otherwise stated)

On April 12, 2005 the European Commission cleared the proposed acquisition of Bakelite AG by the investment group Apollo, subject to conditions. The commission found that the proposed transaction could give rise to competition concerns in the fields of phenolic resins for refractory materials and reactive diluents for epoxy systems. However, the parties have offered remedies that alleviate the concerns identified by the Commission.

Specifically, the parties agreed to license a “technology package” to their customers, who could then sub-license it to alternative suppliers. In addition, the parties offered to enter into long term supply agreements to secure supply and pricing conditions for Cardura^™ , a specific type of diluent, with any direct customer which uses it in epoxy formulated systems.

F-308

PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 20. Indemnification of Directors and Officers

Section 145(a) of the Delaware General Corporation Law (the “DGCL”) provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of the corporation, by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful.

Section 145(b) of the DGCL provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper.

Further subsections of DGCL Section 145 provide that:

• to the extent a present or former director or officer of a corporation has been successful on the merits or otherwise in the defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145 or in the defense of any claim, issue or matter therein, such person shall be indemnified against expenses, including attorneys’ fees, actually and reasonably incurred by such person in connection therewith;

• the indemnification and advancement of expenses provided for pursuant to Section 145 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise; and

• the corporation shall have the power to purchase and maintain insurance of behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability under Section 145.

As used in this Item 20, the term “proceeding” means any threatened, pending, or completed action, suit, or proceeding, whether or not by or in the right of Registrant, and whether civil, criminal, administrative, investigative or otherwise.

Section 145 of the DGCL makes provision for the indemnification of officers and directors in terms sufficiently broad to indemnify officers and directors of Registrant under certain circumstances from liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the “Act”). Hexion U.S. Finance Corp. may, in its discretion, similarly indemnify its employees and agents. Hexion

II-1

U.S. Finance Corp.’s Bylaws provide, in effect, that, to the fullest extent and under the circumstances permitted by Section 145 of the DGCL, Registrant will indemnify any and all of its officers, directors, employees and agents. In addition, Hexion U.S. Finance Corp.’s Certificate of Incorporation relieves its directors from monetary damages to it or its stockholders for breach of such director’s fiduciary duty as a director to the fullest extent permitted by the DGCL. Under Section 102(b)(7) of the DGCL, a corporation may relieve its directors from personal liability to such corporation or its stockholders for monetary damages for any breach of their fiduciary duty as directors except (i) for a breach of the duty of loyalty, (ii) for failure to act in good faith, (iii) for intentional misconduct or knowing violation of law, (iv) for willful or negligent violations of certain provisions in the DGCL imposing certain requirements with respect to stock repurchases, redemptions and dividends, or (v) for any transactions from which the director derived an improper personal benefit.

Hexion U.S. Finance Corp. currently maintains an insurance policy which, within the limits and subject to the terms and conditions thereof, covers certain expenses and liabilities that may be incurred by directors and officers in connection with proceedings that may be brought against them as a result of an act or omission committed or suffered while acting as a director or officer of this Registrant.

Item 21. Exhibits and Financial Statement Schedules

(a) The following exhibits are attached hereto:

Exhibit   Number	Description of Document
2.1**†	Transaction Agreement dated as of April 22, 2005 among RPP Holdings LLC, Resolution Performance Products Inc., Resolution Performance Products LLC, Resolution Specialty Materials Holdings LLC, Resolution Specialty Materials LLC, Lawter International Inc., BHI Acquisition Corp., BHI Merger Sub Inc., and Borden Chemical Inc. (incorporated by reference to Exhibit 2.1 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
2.2**†	Amended and Restated Master Sale Agreement (US) dated as of November 14, 2000 among Shell Oil Company, Resin Acquisition, LLC and Resolution Performance Products Inc. (incorporated by reference to Exhibit 2.1 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
2.3**†	Amended and Restated SPNV Resins Sale Agreement dated as of November 14, 2000 between Shell Oil Company and Resolution Performance Products Inc. (incorporated by reference to Exhibit 2.2 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
2.4**	Assignment and Assumption Agreement dated November 13, 2000 between Resolution Performance Products Inc. and Resolution Performance Products LLC (incorporated by reference to Exhibit 2.3 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
2.5**	Assignment and Assumption Agreement dated November 14, 2000 between Resin Acquisition, LLC and RPP Holdings LLC (incorporated by reference to Exhibit 2.4 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
3.1	Certificate of Incorporation of Hexion U.S. Finance Corp.
3.2	Bylaws of Hexion U.S. Finance Corp.
3.3	Memorandum of Association of Hexion Nova Scotia Finance, ULC
3.4	Articles of Association of Hexion Nova Scotia Finance, ULC
3.5	Certificate of Incorporation of Hexion Specialty Chemicals, Inc.

II-2

Exhibit   Number	Description of Document
3.6**	Amended and Restated Bylaws of Borden Chemical dated December 15, 2004 (incorporated by reference to Exhibit (3)(ii) to the Form 10-K filed on March 24, 2005 (File No. 001-00071))
3.7	Certificate of Incorporation of BDS Two, Inc.
3.8	Bylaws of BDS Two, Inc.
3.9	Certificate of Incorporation of Borden Chemical Investments, Inc.
3.10	Bylaws of Borden Chemical Investments, Inc.
3.11	Certificate of Incorporation of Borden Chemical Foundry, Inc.
3.12	Bylaws of Borden Chemical Foundry, Inc.
3.13	Certificate of Incorporation of HSC Capital Corporation
3.14	Bylaws of HSC Capital Corporation
3.15	Certificate of Incorporation of Lawter International Inc.
3.16	Bylaws of Lawter International Inc.
3.17	Certificate of Incorporation of Borden Chemical International, Inc.
3.18	Bylaws of Borden Chemical International, Inc.
3.19	Certificate of Incorporation of Bakelite North America Holding Company
3.20	Bylaws of Bakelite North America Holding Company
3.21	Certificate of Incorporation of Bakelite Epoxy Polymers Corporation
3.22	Bylaws of Bakelite Epoxy Polymers Corporation
3.23	Certificate of Incorporation of Oilfield Technology Group, Inc.
3.24	Bylaws of Oilfield Technology Group, Inc.
3.25	Certificate of Formation of Hexion CI Holding Company (China) LLC
3.26	Limited Liability Company Agreement of Hexion CI Holding Company (China) LLC
4.1**	Form of Management Stockholder’s Agreement (incorporated by reference to Exhibit 4.4 to Borden Chemical’s Form S-8 filed on October 3, 2003 (File No. 333-109490))
4.2**	Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 4.5 to Borden Chemical’s Form S-8 filed on October 3, 2003 (File No. 333-109490))
4.3**	Form of Sale Participation Agreement (incorporated by reference to Exhibit 4.6 to Borden Chemical’s Form S-8 filed on October 3, 2003 (File No. 333-109490))
4.4**	Registration Rights Agreement, dated January 1, 2002, among Borden Chemical, Borden Holdings, Inc. and BDS Two, Inc. (incorporated by reference to Exhibit 4.7 to Borden Chemical’s Form S-8 filed on October 3, 2003 (File No. 333-109490))
4.5**	Form of Indenture between the Registrant and The First National Bank of Chicago, as Trustee, dated as of January 15, 1983, as supplemented by the First Supplemental Indenture dated as of March 31, 1986, and the Second Supplemental Indenture, dated as of June 26, 1996, relating to the $200,000,000 8 3/8% Sinking Fund Debentures due 2016, incorporated herein by reference from Exhibits (4)(a) and (b) to Amendment No. 1 to Registration Statement on Form S-3, File No. 33-4381 and Exhibit (4)(iv) to the June 30, 1996, Form 10-Q.

II-3

Exhibit   Number	Description of Document
4.6**	Form of Indenture between Borden Chemical and The Bank of New York, as Trustee, dated as of December 15, 1987, as supplemented by the First Supplemental Indenture dated as of December 15, 1987, and the Second Supplemental Indenture dated as of February 1, 1993, and the Third Supplemental Indenture dated as of June 26, 1996, (incorporated herein by reference from Exhibits (4)(a) through (d) to Borden Chemical’s Registration Statement on Form S-3, File No. 33-45770 and Exhibit (4)(iii) to the June 30, 1996, Form 10-Q filed on August 14, 1996 (File No. 001-00071)), relating to the following Debentures and Notes:
	(a) The $200,000,000 9 1/5% Debentures due 2021.
	(b) The $250,000,000 7 7/8% Debentures due 2023.
4.7**	Indenture dated as of August 12, 2004 among Borden U.S. Finance Corp. and Borden Nova Scotia Finance, ULC, as Issuers, Borden Chemical, and Wilmington Trust Company, as Trustee, relating to: (a) the $150,000,000 Second-Priority Senior Secured Floating Rate Notes due 2010 and (b) the $325,000,000 9% Second-Priority Senior Secured Notes due 2014 (incorporated by reference to Exhibit 4(i) to Borden Chemical’s Form 10-Q filed on November 15, 2004, File No. 001-00071)
4.8**	Form of Exchange Note (included in Exhibit 4.7)
4.9**	Indenture, dated as of November 14, 2000, among Resolution Performance Products LLC, RPP Capital Corporation and The Bank of New York, as trustee, relating to 13 1/2% Senior Subordinated Notes Due 2010 (incorporated by reference to Exhibit 4.1 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
4.10**	Form of 13 1/2% Senior Subordinated Note Due 2010 (included as Exhibit B to Exhibit 4.9)
4.11**	Indenture dated as of April 9, 2003 among Resolution Performance Products LLC, RPP Capital Corporation and Deutsche Bank Trust Company Americas, as trustee, relating to 9 1/2% Senior Second Secured Notes Due 2010 (incorporated by reference to Exhibit 4.6 to Resolution Performance’s Registration Statement on Form S-4 filed on April 25, 2003 (File No. 333-104750))
4.12**	Form of 9 1/2% Senior Second Secured Note due 2010 (included as Exhibit B to Exhibit 4.12)
4.13**	Indenture dated as of December 22, 2003 among Resolution Performance Products LLC, RPP Capital Corporation and The Bank of New York, as trustee, relating to 8% Senior Secured Notes due 2009 (incorporated by reference to exhibit 4.11 to Resolution Performance’s Registration Statement on Form S-4 filed on January 20, 2004 (File No. 333-112016))
4.14**	Form of exchange note for the 8% Senior Secured Notes due 2009 (included as Exhibit B to Exhibit 4.14)
4.15**	Indenture dated as of May 20, 2005 among BCI US Finance Corp., Borden 2 Nova Scotia Finance, ULC, as Issuers, Hexion Specialty Chemicals, Inc. and Wilmington Trust Company, as Trustee, relating to the $150,000,000 Second-Priority Senior Secured Floating Rate Notes due 2010 (incorporated by reference to Exhibit 4.15 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
4.16**	First Supplemental Indenture, dated as of May 31, 2005 among RPP Capital Corporation, Resolution Specialty Materials, LLC, Resolutions’ JV LLC, Lawter International, Inc., Resolution Specialty Materials Capital Corp., Borden Chemical International, Inc., Bakelite North America Holding Company, Bakelite Epoxy Polymers Corporation, Oilfield Technology Group, Inc. and Borden Services Company, as Additional Subsidiary Guarantors, Hexion Specialty Chemicals, Inc., Borden U.S. Finance Corp. and Borden Nova Scotia Finance, ULC and Wilmington Trust Company, as Trustee to the Indenture dated as of August 12, 2004 among Borden U.S. Finance Corp., Borden Nova Scotia Finance, ULC, as Issuers, Borden Chemical and Wilmington Trust Company, as Trustee relating to: (a) the $150,000,000 Second-Priority Senior Secured Floating Rate Notes due 2010 and (b) the $325,000,000 9% Second-Priority Senior Secured Notes due 2014 (incorporated by reference to Exhibit 4.16 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))

II-4

Exhibit   Number	Description of Document
4.17**	Supplemental Indenture dated as of May 31, 2005 among Borden U.S. Finance Corp., Borden Nova Scotia Finance, ULC, the guarantors named therein and Wilmington Trust Company, as Trustee to the Indenture dated May 20, 2005 among BCI US Finance Corp. and Borden 2 Nova Scotia Finance, ULC, as Issuers, Hexion Specialty Chemicals, Inc. and Wilmington Trust Company, as Trustee relating to the $150,000,000 Second-Priority Senior Secured Floating Rate Notes due 2010 (incorporated by reference to Exhibit 4.17 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
4.18**	First Supplemental Indenture dated as of May 31, 2005, among Resolution Performance Products Corp., RPP Capital Corporation, the guarantors named therein and The Bank of New York, as Trustee, to the Indenture dated as of November 14, 2000, among Resolution Performance Products LLC, RPP Capital Corporation and The Bank of New York, as Trustee, relating to 13 1/2% Senior Subordinated Notes Due 2010 (incorporated by reference to Exhibit 4.18 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
4.19**	First Supplemental Indenture dated as of May 31, 2005, among Resolution Performance Products Corp., RPP Capital Corporation, the guarantors named therein and Deutsche Bank Trust Company Americas, as Trustee, to the Indenture dated as of April 9, 2003, among Resolution Performance Products LLC, RPP Capital Corporation and Deutsche Bank Trust Company Americas, as Trustee, relating to 9 1/2% Senior Second Secured Notes Due 2010 (incorporated by reference to Exhibit 4.19 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
4.20**	First Supplemental Indenture dated as of May 31, 2005, among Resolution Performance Products Corp., RPP Capital Corporation, the guarantors named therein and The Bank of New York, as Trustee, to the Indenture dated as of December 22, 2003, among Resolution Performance Products LLC, RPP Capital Corporation and The Bank of New York, as Trustee, relating to 8% Senior Secured Notes due 2009 (incorporated by reference to Exhibit 4.20 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
4.21**	Second Supplemental Indenture dated as of May 31, 2005, among Hexion Specialty Chemicals, Inc., RPP Capital Corporation, the guarantors named therein and The Bank of New York, as Trustee, to the Indenture dated as of November 14, 2000, as supplemented, among Resolution Performance Products LLC, RPP Capital Corporation and The Bank of New York, as Trustee, relating to 13 1/2% Senior Subordinated Notes Due 2010 (incorporated by reference to Exhibit 4.21 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
4.22*	Second Supplemental Indenture dated as of May 31, 2005, among Hexion Specialty Chemicals, Inc., RPP Capital Corporation, the guarantors named therein and Deutsche Bank Trust Company Americas, as Trustee, to the Indenture dated as of April 9, 2003, as supplemented, among Resolution Performance Products LLC, RPP Capital Corporation and Deutsche Bank Trust Company Americas, as Trustee, relating to 9 1/2% Senior Second Secured Notes Due 2010 (incorporated by reference to Exhibit 4.22 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
4.23*	Second Supplemental Indenture dated as of May 31, 2005, among Hexion Specialty Chemicals, Inc., RPP Capital Corporation, the guarantors named therein and The Bank of New York, as Trustee, to the Indenture dated as of December 22, 2003, as supplemented, among Resolution Performance Products LLC, RPP Capital Corporation and The Bank of New York, as Trustee, relating to 8% Senior Secured Notes due 2009 (incorporated by reference to Exhibit 4.23 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))

II-5

Exhibit   Number	Description of Document
4.27	Second Supplemental Indenture, dated as of December 23, 2005 among Hexion CI Holding Company (China) LLC, as Additional Subsidiary Guarantor, Hexion Specialty Chemicals, Inc., Hexion U.S. Finance Corp., Hexion Nova Scotia Finance, ULC and Wilmington Trust Company, as Trustee, to the Indenture dated as of August 12, 2004 among Hexion U.S. Finance Corp., Hexion Nova Scotia Finance, ULC, as Issuers, Hexion Specialty Chemicals, Inc. and Wilmington Trust Company, as Trustee relating to: (a) the $150,000,000 Second-Priority Senior Secured Floating Rate Notes due 2010 and (b) the $325,000,000 9% Second-Priority Senior Secured Notes due 2014
4.28	Second Supplemental Indenture, dated as of December 23, 2005 among Hexion CI Holding Company (China) LLC, as Additional Subsidiary Guarantor, Hexion Specialty Chemicals, Inc., Hexion U.S. Finance Corp., Hexion Nova Scotia Finance, ULC and Wilmington Trust Company, as Trustee, to the Indenture dated as of May 20, 2005 among Hexion U.S. Finance Corp., Hexion Nova Scotia Finance, ULC, as Issuers, Hexion Specialty Chemicals, Inc. and Wilmington Trust Company, as Trustee relating to the $150,000,000 Second-Priority Senior Secured Floating Rate Notes due 2010
4.29	Third Supplemental Indenture, dated as of December 23, 2005 among Hexion Specialty Chemicals, Inc., HSC Capital Corporation, the guarantor named therein and The Bank of New York, as Trustee, to the Indenture dated as of November 14, 2000, as supplemented, among Hexion Specialty Chemicals, Inc., HSC Capital Corporation and The Bank of New York, as Trustee, relating to the 13 1/2% Senior Subordinated Notes Due 2010
4.30	Third Supplemental Indenture, dated as of December 23, 2005 among Hexion Specialty Chemicals, Inc., HSC Capital Corporation, the guarantor named therein and Deutsche Bank Trust Company Americas, as Trustee, to the Indenture dated as of April 9, 2003, as supplemented, among Hexion Specialty Chemicals, Inc., HSC Capital Corporation and Deutsche Bank Trust Company Americas, as Trustee, relating to the 9 1/2% Senior Second Secured Notes Due 2010
4.31	Third Supplemental Indenture, dated as of December 23, 2005 among Hexion Specialty Chemicals, Inc., HSC Capital Corporation, the guarantor named therein and The Bank of New York, as Trustee, to the Indenture dated as of December 22, 2003, as supplemented, among Hexion Specialty Chemicals, Inc., HSC Capital Corporation and The Bank of New York, as Trustee, relating to the 8% Senior Secured Notes due 2009
5.1	Opinion of O’Melveny & Myers LLP
5.2	Opinion of Connell Foley LLP
5.3	Opinion of Stewart McKelvey Stirling Scales
10.1**	Amended and Restated Executive Supplemental Pension Plan, dated as of January, 1996 (incorporated by reference to Exhibit (10)(xiii) to Borden Chemical’s December 31, 1998 Form 10-K filed on March 31, 1999 (File No. 001-00071))
10.2**	Advisory Directors Plan incorporated by reference to Exhibit 10(viii) to Borden Chemical’s 1989 Form 10-K Annual Report.
10.3**	Perquisite Benefits Policy (incorporated by reference to Exhibit (10)(xviii) to Borden Chemical’s December 31, 2001 Form 10-K filed on March 29, 2002 (File No. 001-00071))
10.4**	Master Asset Conveyance and Facility Support Agreement, dated as of December 20, 2002, between Borden Chemical and Borden Chemicals and Plastics Operating Limited Partnership (incorporated by reference to Exhibit (10)(xxvi) to Borden Chemical’s December 31, 2002 Form 10-K filed on March 28, 2003 (File No. 001-00071))

II-6

Exhibit   Number	Description of Document
10.5**	Environmental Servitude Agreement, dated as of December 20, 2002, between Borden Chemical and Borden Chemicals and Plastics Operating Limited Partnership (incorporated by reference to Exhibit (10)(xxvii) to Borden Chemical’s December 31, 2002 Form 10-K filed on March 28, 2003 (File No. 001-00071))
10.6**	Stock Purchase Agreement dated as of July 5, 2004 among BHI Investment, LLC, BW Holdings LLC, Borden Holdings, Inc. Borden Chemical, Inc. Craig O. Morrison and Joseph P. Bevilaqua (incorporated by reference to Exhibit (10)(i) to Borden Chemical’s June 30, 2004 Form 10-Q filed on July 26, 2004 (File No. 001-00071))
10.7**	Amended and Restated Employment Agreement dated as of August 12, 2004 between the Company and Craig O. Morrison (incorporated by reference to Exhibit 10(i) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071))
10.8**	Amended and Restated Employment Agreement dated as of August 12, 2004 between the Company and Joseph P. Bevilaqua (incorporated by reference to Exhibit 10(ii) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071))
10.9**	Amended and Restated Employment Agreement dated as of August 12, 2004 between the Company and William H. Carter. (incorporated by reference to Exhibit 10(iii) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071))
10.10**	BHI Acquisition Corp. 2004 Deferred Compensation Plan (incorporated by reference to Exhibit 10(iv) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071))
10.11**	BHI Acquisition Corp. 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10(v) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071))
10.12**	Investor Rights Agreement dated as of August 12, 2004 among BHI Acquisition Corp., and The Holders that are parties thereto (incorporated by reference to Exhibit 10(vi) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071))
10.13**	Registration Rights Agreement dated as of August 12, 2004 among BHI Acquisition Corp., BHI Investment, LC, and the Management Holders party thereto (incorporated by reference to Exhibit 10(vii) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071))
10.14**	Amendment No. 1 dated as of August 11, 2004, to the Stock Purchase Agreement dated July 5, 2004 by and among BHI Investment, LLC, Borden Holdings, Inc., Borden Chemical, Inc., Craig O. Morrison and Joseph P. Bevilaqua (incorporated by reference to Exhibit 10(viii) to the Form 10-Q filed on November 15, 2004 (File No. 001-00071))
10.15**	Management Consulting Agreement dated as of August 12, 2004 between Borden Chemical, Inc. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10(ix) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071))
10.16**	Amended and Restated Loan and Security Agreement dated as of August 12, 2004 among the Company, Borden Chemical Canada, Inc. Borden Chemical UK Limited, Borden Chemical GB Limited, the Lenders named therein, Credit Suisse First Boston, as Agent, and Fleet Capital Corporation, as U.S. Collateral Agent (incorporated by reference to Exhibit 10(x) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071)).
10.17**	Share Purchase Agreement dated October 6, 2004 among RÜTGERS AG, RÜTGERS Bakelite Projekt GmbH, National Borden Chemical Germany GmbH, and Borden Chemical, Inc. (incorporated by reference to Exhibit 10(xi) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071))

II-7

Exhibit   Number	Description of Document
10.18**	Secured Promissory Note dated August 10, 2001 from Jeffrey M. Nodland to Resolution Performance Product LLC (incorporated by reference to Exhibit 10.2 to Resolution Performance’s September 30, 2004 Form 10–Q filed on November 14, 2001 (File No. 333-57170))
10.19**	Pledge Agreement dated August 10, 2001 between Jeffrey M. Nodland and Resolution Performance Products LLC (incorporated by reference to Exhibit 10.3 to Resolution Performance’s September 30, 2001 Form 10–Q filed on November 14, 2001 (File No. 333-57170))
10.20**	Secured Promissory Note dated June 18, 2001 from Mark S. Antonvich to Resolution Performance Products LLC (incorporated by reference to Exhibit 10.4 to Resolution Performance’s September 30, 2001 Form 10–Q filed on November 14, 2001 (File No. 333-57170))
10.21**	Pledge Agreement dated June 18, 2001 between Mark S. Antonvich to Resolution Performance Products LLC (incorporated by reference to Exhibit 10.5 to Resolution Performance’s September 30, 2001 Form 10–Q filed on November 14, 2001 (File No. 333-57170))
10.22**	Intellectual Property Transfer and License Agreement and Contribution Agreement dated as of November 14, 2000 between Shell Oil Company and Resolution Performance Products LLC (incorporated by reference to Exhibit 10.13 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.23**	Intellectual Property Transfer and License Agreement and Contribution Agreement dated as of November 14, 2000 between Shell Internationale Research Maatschappij B.V. and Shell Epoxy Resins Research B.V (incorporated by reference to Exhibit 10.14 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170)).
10.24**	Management Consulting Agreement dated as of November 14, 2000 among Resolution Performance Products LLC and Apollo Management IV, L.P. (incorporated by reference to Exhibit 10.18 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.25**	First Amended and Restated Deer Park Site Services, Utilities, Materials and Facilities Agreement dated November 1, 2000 between Shell Chemical Company, for itself and as agent for Shell Oil Company, and Resolution Performance Products LLC (incorporated by reference to Exhibit 10.19 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.26**	First Amended and Restated Norco Site Services, Utilities, Materials and Facilities Agreement dated November 1, 2000 between Shell Chemical Company, for itself and as agent for Shell Oil Company, and Resolution Performance Products LLC (incorporated by reference to Exhibit 10.20 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.27**	First Amended and Restated Pernis Site Services, Utilities, Materials and Facilities Agreement dated November 1, 2000 between Resolution Europe B.V. (f/k/a Resolution Nederland B.V., f/k/a Shell Epoxy Resins Nederland B.V.) and Shell Nederland Raffinaderij B.V. (incorporated by reference to Exhibit 10.21 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.28**	First Amended and Restated Pernis Site Services, Utilities, Materials and Facilities Agreement dated November 1, 2000 between Resolution Europe B.V. (f/k/a Resolution Nederland B.V., f/k/a Shell Epoxy Resins Nederland B.V.) and Shell Nederland Chemie B.V. (incorporated by reference to Exhibit 10.22 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))

II-8

Exhibit   Number	Description of Document
10.29**	Deer Park Ground Lease and Grant of Easements dated as of November 1, 2000 between Shell Oil Company and Resolution Performance Products LLC (incorporated by reference to Exhibit 10.23 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.30**	Norco Ground Lease and Grant of Servitudes dated as of November 1, 2000 between Shell Oil Company and Resolution Performance Products LLC (incorporated by reference to Exhibit 10.24 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.31**	Amended and Restated Agreement of Sub—Lease (Pernis) dated as of November 1, 2000 between Resolution Europe B.V. (f/k/a Resolution Nederland B.V., f/k/a Shell Epoxy Resins Nederland B.V.) and Shell Nederland Raffinaderij B.V. (incorporated by reference to Exhibit 10.25 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.32**	Resolution Performance Products Inc. 2000 Stock Option Plan (incorporated by reference to Exhibit 10.26 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.33**	Resolution Performance Products Inc. 2000 Non—Employee Directors Stock Option Plan (incorporated by reference to Exhibit 10.27 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.34**	Amended and Restated Resolution Performance Products, Inc. Restricted Unit Plan (incorporated by reference to Exhibit 10.34 to Hexion’s Amendment No. 5 to the Registration Statement on Form S-1 filed on September 19, 2005 (File No. 333-124287))
10.35**	Amendment No. 1 dated March 15, 2002 to the Management Consulting Agreement dated November 14, 2000 between Resolution Performance Products LLC, a Delaware corporation, and Apollo Management IV, L.P., a Delaware limited partnership (incorporated by reference to Exhibit 10.1 to Resolution Performance’s March 31, 2002 Form 10–Q filed on May 8, 2002 (File No. 333-57170))
10.36**	Amendment No. 2 dated as of January 1, 2003 to the Management Consulting Agreement dated November 14, 2000, as amended, between Resolution Performance Products LLC, a Delaware limited liability company, and Apollo Management IV, L.P., a Delaware limited partnership (incorporated by reference to Exhibit No. 10.43 to Resolution Performance’s Amendment No. 1 to Registration Statement on Form S-4 filed on February 12, 2003 (File No. 333-57170))
10.37**	Amendment No. 3 dated February 17, 2003 to the Management Consulting Agreement dated November 14, 2000, as amended, between Resolution Performance Products LLC and Apollo Management IV, L.P., a Delaware limited partnership (incorporated by reference to Exhibit No. 10.50 to Resolution Performance’s December 31, 2002 Form 10–K filed on March 25, 2003 (File No. 333-57170))
10.38**	Employment Agreement dated as of May 10, 2004 by and between Resolution Performance Products LLC, and David S. Graziosi (incorporated by reference to Exhibit 10.3 to Resolution Performance’s Quarterly Report on Form 10-Q for the Quarter ended March 31, 2004 (file No. 333-571701))
10.39**	Letter Agreement dated December 3, 2004 between Borden Chemical, Inc. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.10 to Borden Chemical’s Registration Statement on Form S-4 filed on February 14, 2005 (File No. 333-1228626))
10.40**	Form of Non-Qualified Stock Option Agreement between BHI Acquisition Corp. and certain optionees (incorporated by reference to Exhibit 10.12 to Borden Chemical’s Registration Statement on Form S-4 filed on February 14, 2005 (File No. 333-1228626))

II-9

Exhibit   Number	Description of Document
10.41**	Terms of employment dated November 9, 2004 between Judy A. Sonnett and Borden Chemical, Inc. (incorporated by reference to Exhibit 10.9 to Borden Chemical’s form 10-K filed on March 24, 2005 (File No. 001-00071))
10.42**	Credit Agreement dated as of August 2, 2004 among Resolution Specialty Materials Inc., Resolution Specialty Materials LLC, the various lenders party thereto, JPMorgan Chase Bank, as Administrative Agent, and Bear Stearns Corporate Lending Inc., as Syndication Agent (incorporated by reference to Exhibit 10.43 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.43**	Credit Agreement dated as of January 24, 2005 among Resolution Performance Products Inc., Resolution Performance Products LLC, RPP Capital Corporation, Resolution Europe B.V., the various lender parties thereto, General Electric Capital Corporation, as a US Lender, Initial US L/C Issuer, Collateral Agent and as US Agent, and GE Leveraged Loans Limited, as Netherlands Agent, Netherlands L/C Issuer, Netherlands Security Trustee and a Netherlands Lender (incorporated by reference to Exhibit 10.1 to Resolution Performance’s Current Report on Form 8-K dated January 24, 2005 (File No. 333-571701))
10.44**	US Guaranty dated as of January 24, 2005 among Resolution Performance Products Inc., RPP Capital Corporation and General Electric Capital Corporation, on behalf of itself and US Lenders (incorporated by reference to Exhibit 10.2 to Resolution Performance’s Current Report on Form 8-K dated January 24, 2005 (File No. 333-571701))
10.45**	Second Amended and Restated Security Agreement dated as of January 24, 2005, by and among Resolution Performance Products Inc., Resolution Performance Products LLC, RPP Capital Corporation and General Electric Capital Corporation, on behalf of itself and Secured Creditors (incorporated by reference to Exhibit 10.3 to Resolution Performance’s Current Report on Form 8-K dated January 24, 2005 (File No. 333-571701))
10.46**	Second Amended and Restated Pledge Agreement dated as of January 24, 2005, by and among Resolution Performance Products Inc., Resolution Performance Products LLC, RPP Capital Corporation and General Electric Capital Corporation as Collateral Agent, on behalf of itself a Secured Creditors (incorporated by reference to Exhibit 10.4 to Resolution Performance’s Current Report on Form 8-K dated January 24, 2005 (File No. 333-571701))
10.47**	Amended and Restated Intercreditor Agreement dated as of January 24, 2005, among General Electric Capital Corporation as Collateral Agent for the benefit of the First Lien Creditors, General Electric Capital Corporation, as Administrative Agent for the Benefit of the Bank Lender Creditors, and The Bank of New York, as trustee for its benefit and the benefit of the holders from time to time of the Additional Senior Secured Notes, and acknowledged and agreed to by the US Credit Parties from time to time party hereto (incorporated by reference to Exhibit 10.5 to Resolution Performance’s Current Report on Form 8-K dated January 24, 2005 (File No. 333-571701))
10.48**	First Deed of Pledge of Shares in the capital of Resolution Holdings B.V. by Resolution Performance Products LLC in favor of General Electric Capital Corporation (incorporated by reference to Exhibit 10.6 to Resolution Performance’s Current Report on Form 8-K dated January 24, 2005 (File No. 333-571701))
10.49**	Second Deed of Pledge of Shares in the capital of Resolution Holdings B.V. by Resolution Performance Products LLC in favor of General Electric Capital Corporation (incorporated by reference to Exhibit 10.7 to Resolution Performance’s Current Report on Form 8-K dated January 24, 2005 (File No. 333-571701))

II-10

Exhibit   Number	Description of Document
10.50**	Indemnity Agreement dated as of March 29, 2005, among Resolution Performance Products Inc., Resolution Performance Products LLC and the indemnified party, Carl S. Stutts (incorporated by reference to Exhibit 10.73 to Resolution Performance’s Annual Report on Form 10-K for the Year ended December 31, 2004 (File No. 333-571701))
10.51**	Resolution Specialty Materials Inc. 2004 Stock Option Plan (incorporated by reference to Exhibit 10.52 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.52**	Form of Nonqualified Stock Option Agreement for Resolution Specialty Materials Inc. 2004 Stock Option Plan (incorporated by reference to Exhibit 10.53 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.53**	Form of Nonqualified Stock Option Agreement for Resolution Performance Products Inc. 2000 Stock Option Plan (incorporated by reference to Exhibit 10.54 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.54**	Form of Nonqualified Stock Option Agreement for Resolution Performance Products Inc. 2000 Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit 10.55 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.55**	Terms of employment dated January 21, 2005 between Sarah R. Coffin and the Company (incorporated by reference to Exhibit (10) to Borden Chemical’s Current Report on Form 8-K dated February 14, 2005 (File No. 001-00071)).
10.56**	Employment Agreement dated December 14, 2004 between Resolution Speciality Materials LLC and Jeffrey M. Nodland (incorporated by reference to Exhibit 10.56 to Hexion’s Amendment No. 6 to the Registration Statement on Form S-1 filed on November 21, 2005 (File No. 333-124287))
10.57**	Terms of employment dated December 31, 2003 between C.H. Morton and the Company (incorporated by reference to Exhibit 10(x) to Borden Chemical’s Annual Report on Form 10-K for the Year ended December 31, 2004 (File No. 001-00071)).
10.58**	Employment Agreement dated as of June 1, 2005 between Hexion Specialty Chemicals, Inc. and Marvin O. Schlanger (incorporated by reference to Exhibit 10.59 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.59**	Consulting Agreement dated as of June 1, 2005 between Hexion Specialty Chemicals, Inc. and Marvin O. Schlanger (incorporated by reference to Exhibit 10.60 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.60**	Employment Agreement dated as of June 1, 2005 between Hexion Specialty Chemicals, Inc. and Layle K. Smith (incorporated by reference to Exhibit 10.61 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.61**	Employment Agreement dated as of June 1, 2005 between Hexion Specialty Chemicals, Inc. and Mark S. Antonvich (incorporated by reference to Exhibit 10.62 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.62**	Amended and Restated Investor Rights Agreement dated as of May 31, 2005 between Hexion LLC, Hexion Specialty Chemicals, Inc. and the holders that are party thereto (incorporated by reference to Exhibit 10.63 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.63**	Registration Rights Agreement dated as of May 31, 2005 between Hexion Specialty Chemicals, Inc. and Hexion LLC (incorporated by reference to Exhibit 10.64 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))

II-11

Exhibit   Number	Description of Document
10.64**	Management Consulting Agreement dated as of May 31, 2005 between Resolution Specialty Materials LLC and Apollo Management IV, L.P. (incorporated by reference to Exhibit 10.65 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.65**	Amended and Restated Consulting Agreement dated as of May 31, 2005 between Borden Chemical, Inc. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.66 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.66**	Management Services Termination Agreement dated as of May 31, 2005 between Resolution Performance Products, LLC and Apollo Management IV, L.P. (incorporated by reference to Exhibit 10.67 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.67**†	Credit Agreement dated as of May 31, 2005 among Hexion LLC, Hexion Specialty Chemicals, Inc., Borden Chemical Canada, Inc., Resolution Europe B.V., Borden Chemical GB Limited, Borden Chemical UK Limited, Bakelite AG, the various lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Citicorp North America, Inc., as Syndication Agent, Credit Suisse, as Documentation Agent, and J.P. Morgan Securities Inc., Citigroup Global Markets Inc. and Credit Suisse, as Joint Lead Arrangers and Joint Bookrunners (incorporated by reference to Exhibit 10.68 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.68**	Second Amended and Restated Intercreditor Agreement dated as of May 31, 2005 among JPMorgan Chase Bank, N.A., as Intercreditor Agent, Wilmington Trust Company, as New Trustee, Hexion LLC, Hexion Specialty Chemicals, Inc., and each subsidiary of Hexion Specialty Chemicals, Inc. party thereto (incorporated by reference to Exhibit 10.69 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.69**	Second Amended and Restated Intercreditor Agreement dated as of May 31, 2005 among JPMorgan Chase Bank, N.A., as Collateral Agent, and acknowledged and agreed to by Hexion LLC, Hexion Specialty Chemicals, Inc., and each subsidiary of Hexion Specialty Chemicals, Inc. party thereto (incorporated by reference to Exhibit 10.70 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.70**	Registration Rights Agreement dated as of May 20, 2005, among Hexion Specialty Chemicals, Inc. and Credit Suisse First Boston LLC, Goldman, Sachs & Co., Lehman Brothers, Inc., Lehman Commercial Paper Inc. and J.P. Morgan Securities Inc., as Initial Purchasers (incorporated by reference to Exhibit 10.71 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.71**	Registration Rights Agreement dated as of May 20, 2005, among BCI US Finance Corp., Borden 2 Nova Scotia Finance ULC, as Issuers, Hexion Specialty Chemicals, Inc., and Credit Suisse First Boston LLC, J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated, as Initial Purchasers (incorporated by reference to Exhibit 10.72 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.72**	Form Offer Letter (incorporated by reference to Exhibit 10 to Borden Chemical’s March 31, 2004 10-Q filed on May 13, 2004 (File No. 001-00071))
10.73**	Borden Chemical, Inc. 2005 Management Incentive Plan (incorporated by reference to Exhibit 10(v).1 to Borden Chemical’s December 31, 2004 10-K/A filed on August 23, 2005 (File No. 001-00071))
10.74**	Long-Term Value Creation Reward Program (incorporated by reference to Exhibit 10.76 to Hexion’s Amendment No. 5 to the Registration Statement on Form S-1 filed on September 19, 2005 (File No. 333-124287))

II-12

Exhibit   Number	Description of Document
12.1	Statement regarding computation of ratios
21.1	List of Subsidiaries of the registrant
23.1	Consent of Deloitte & Touche LLP, an independent registered public accounting firm
23.2	Consent of PricewaterhouseCoopers LLP, an independent registered public accounting firm
23.3	Consent of PricewaterhouseCoopers LLP, an independent registered public accounting firm
23.4	Consent of PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft
24.1	Powers of Attorney of the directors and officers of the registrant (previously filed or attached to signature pages)
25.1	Form T-1 (Wilmington Trust Company)
99.1	Consent of Nigel D. T. Andrews
99.2	Consent of David C. House
99.3	Letter of Trasmittal
99.4	Notice of Guaranteed Delivery
99.5	Letter to Brokers
99.6	Letter to Clients

** Incorporated by reference

*** Previously filed

† The schedules and exhibits to these agreements are omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally to the SEC, upon request, a copy of any omitted schedule or exhibit.

II-13

(b) Financial Statement Schedules

HEXION SPECIALTY CHEMICALS, INC.

Schedule II – Valuation and Qualifying Accounts

	Balance December 31, 2001		Charged to Expense		Write- offs		Balance December 31, 2002
Allowance for doubtful accounts	$	3	$	—	$	1	$	2
	Balance December 31, 2002		Charged to Expense		Write- offs		Balance December 31, 2003
Allowance for doubtful accounts	$	2	$	1	$	—	$	3

	Balance December 31, 2003		Addition of RSM balance at August 1, 2004		Addition of BCI balance at August 12, 2004		Charged to Expense		Write- offs		Balance December 31, 2004
Allowance for doubtful accounts	$	3	$	3	$	13	$	1	$	5	$	15

II-14

To the Board of Directors

and Shareholder of Borden Chemical, Inc.:

We have audited the consolidated financial statements of Borden Chemical, Inc. (effective August 12, 2004, a wholly owned subsidiary of BHI Acquisition Corp., which is a majority owned subsidiary of BHI Investment, LLC; prior to August 12, 2004, a majority-owned subsidiary of Borden Holdings, Inc.) and subsidiaries as of December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003, and have issued our report thereon dated March 19, 2004, except for Note 24 as to which the date is August 5, 2004 (which report expresses an unqualified opinion and includes an explanatory paragraph regarding the Company’s adoption in 2002 of Statement of Financial Accounting Standards No. 142); such financial statements and report are included elsewhere in this registration statement. Our audits also included the financial statement schedule of Borden Chemical, Inc. and subsidiaries, listed in Item 21 of this registration statement. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

DELOITTE & TOUCHE LLP

Columbus, Ohio

March 19, 2004

II-15

BORDEN CHEMICAL, INC.

Schedule II – Valuation and Qualifying Accounts

	Balance December 31, 2000		Charged to Expense			Write-offs			Balance December 31, 2001
Allowance for doubtful accounts	$	13	$	5		$	(1	)	$	17
	Balance December 31, 2001		Charged to Expense			Write-offs			Balance December 31, 2002
Allowance for doubtful accounts	$	17	$	(1	)	$	(4	)	$	12
	Balance December 31, 2002		Charged to Expense			Write-offs			Balance December 31, 2003
Allowance for doubtful accounts	$	12	$	2		$	0		$	14

II-16

Item 22. Undertakings

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually of in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment 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.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(4) That, for purposes of determining liability under the Securities Act of 1933 to any purchaser:

(i) Each prospectus filed pursuant to Rule 424(b) as part of the registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of securities:

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

II-17

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 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.

The undersigned Registrants hereby undertake to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request.

The undersigned Registrants hereby undertake to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.

II-18

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Columbus, Ohio, on December 27, 2005.

HEXION U.S. FINANCE CORP.
By:	/s/    WILLIAM H. CARTER
	Name:	WILLIAM H. CARTER
	Title:	President

Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.

Signature	Title	Date
* Craig O. Morrison	Director	December 27, 2005
* William H. Carter	Director and President (Principal Executive Officer, Principal Financial and Principal Accounting Officer)	December 27, 2005

*By:	/s/    William H. Carter	December 27, 2005
	William H. Carter Attorney-in-fact

II-19

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Columbus, Ohio, on December 27, 2005.

HEXION NOVA SCOTIA FINANCE, ULC
By:	/s/    WILLIAM H. CARTER
	Name:	William H. Carter
	Title:	President

Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.

Signature	Title	Date
* Craig O. Morrison	Director	December 27, 2005
* William H. Carter	Director and President (Principal Executive Officer, Principal Financial and Principal Accounting Officer)	December 27, 2005

*By:	/s/    WILLIAM H. CARTER	December 27, 2005
	William H. Carter Attorney-in-fact

II-20

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Columbus Ohio, on December 27, 2005.

HEXION SPECIALTY CHEMICALS, INC.
By:	/s/    WILLIAM H. CARTER
	Name:	William H. Carter
	Title:	Executive Vice President and Chief Financial Officer

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints William H. Carter and Ellen G. Berndt, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and any registration statement relating to the offering covered by this Registration Statement and filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully so or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.

Signature	Title	Date
* Craig O. Morrison	Director, Chairman, President and Chief Executive Officer (Principal Executive Officer)	December 27, 2005
* William H. Carter	Director, Executive Vice President and Chief Financial Officer (Principal Financial and Principal Accounting Officer)	December 27, 2005
* Scott M. Kleinman	Director	December 27, 2005
* Joshua J. Harris	Director	December 27, 2005
* Robert V. Seminara	Director	December 27, 2005
/s/    Marvin O. Schlanger Marvin O. Schlanger	Director, Vice Chairman	December 27, 2005
/s/    Jordan C. Zaken Jordan C. Zaken	Director	December 27, 2005

*By:	/s/    William H. Carter	December 27, 2005
	William H. Carter Attorney-in-fact

II-21

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Columbus, Ohio, on December 27, 2005.

BDS TWO, INC.
By:	/s/    THOMAS V. BARR
	Name:	Thomas V. Barr
	Title:	President

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints William H. Carter and Ellen G. Berndt, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and any registration statement relating to the offering covered by this Registration Statement and filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully so or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.

Signature	Title	Date
/s/    WILLIAM H. CARTER William H. Carter	Director	December 27, 2005
/S/    THOMAS V. BARR Thomas V. Barr	President (Principal Executive Officer)	December 27, 2005
* Alyssa A. Anton	Vice President, Secretary and Treasurer (Principal Financial and Principal Accounting Officer)	December 27, 2005

*By:	/s/    William H. Carter	December 27, 2005
	William H. Carter Attorney-in-fact

II-22

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Newark, Delaware, on December 27, 2005.

BORDEN CHEMICAL INVESTMENTS, INC.
By:	/s/    ALYSSA A. ANTON
	Name:	Alyssa A. Anton
	Title:	President

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints William H. Carter and Ellen G. Berndt, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and any registration statement relating to the offering covered by this Registration Statement and filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully so or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.

Signature	Title	Date
* Alyssa A. Anton	President, Secretary and Treasurer (Principal Executive, Principal Financial and Principal Accounting Officer)	December 27, 2005
/s/    William H. Carter William H. Carter	Director, Vice President	December 27, 2005

*By:	/s/    William H. Carter	December 27, 2005
	William H. Carter Attorney-in-fact

II-23

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Columbus, Ohio, on December 27, 2005.

BORDEN CHEMICAL FOUNDRY, INC.
By:	/s/    SARAH R. COFFIN
	Name:	Sarah R. Coffin
	Title:	President

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints William H. Carter and Ellen G. Berndt, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and any registration statement relating to the offering covered by this Registration Statement and filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully so or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.

Signature	Title	Date
/s/    SARAH R. COFFIN Sarah R. Coffin	Director and President (Principal Executive officer)	December 27, 2005
* Craig O. Morrison	Director	December 27, 2005
/s/    WILLIAM H. CARTER William H. Carter	Director and Vice President (Principal Financial and Principal Accounting Officer)	December 27, 2005

*By:	/s/    WILLIAM H. CARTER	December 27, 2005
	William H. Carter Attorney-in-fact

II-24

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Columbus, Ohio, on December 27, 2005.

HSC CAPITAL CORPORATION
By:	/S/    WILLIAM H. CARTER
	Name:	William H. Carter
	Title:	President

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints William H. Carter and Ellen G. Berndt, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and any registration statement relating to the offering covered by this Registration Statement and filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully so or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.

Signature	Title	Date
/s/    WILLIAM H. CARTER William H. Carter	Director and President (Principal Executive Officer, Principal Financial and Principal Accounting Officer)	December 27, 2005
/s/    JOSHUA J. HARRIS Joshua J. Harris	Director	December 27, 2005

II-25

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Columbus, Ohio, on December 27, 2005.

LAWTER INTERNATIONAL INC.
By:	/s/    JEFFREY M. NODLAND
	Name:	Jeffrey M. Nodland
	Title:	President

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints William H. Carter and Ellen G. Berndt, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and any registration statement relating to the offering covered by this Registration Statement and filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully so or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.

Signature	Title	Date
/s/    WILLIAM H. CARTER William H. Carter	Director and Vice President	December 27, 2005
/s/    MATTHEW CONSTANTINO Matthew Constantino	Director	December 27, 2005
/s/    JEFFREY M. NODLAND Jeffrey M. Nodland	President (Principal Executive Officer)	December 27, 2005
/s/    GEORGE F. KNIGHT George F. Knight	Vice President and Treasurer (Principal Financial and Principal Accounting Officer)	December 27, 2005

II-26

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Columbus, Ohio, on December 27, 2005.

BORDEN CHEMICAL INTERNATIONAL INC.
By:	/s/    WILLIAM H. CARTER
	Name:	William H. Carter
	Title:	President

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints William H. Carter and Ellen G. Berndt, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and any registration statement relating to the offering covered by this Registration Statement and filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully so or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.

Signature	Title	Date
/s/    WILLIAM H. CARTER William H. Carter	Director and President (Principal Executive Officer, Principal Financial and Principal Accounting Officer)	December 27, 2005
/s/    SARAH R. COFFIN Sarah R. Coffin	Director	December 27, 2005

II-27

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Columbus, Ohio, on December 27, 2005.

BAKELITE NORTH AMERICA HOLDING COMPANY
By:	/s/    JULIA D. HARP
	Name:	Julia D. Harp
	Title:	President

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints William H. Carter and Ellen G. Berndt, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and any registration statement relating to the offering covered by this Registration Statement and filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully so or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.

Signature	Title	Date
/s/    WILLIAM H. CARTER William H. Carter	Director and Vice President	December 27, 2005
/s/    JULIA D. HARP Julia D. Harp	President (Principal Executive Officer)	December 27, 2005
/s/    GEORGE F. KNIGHT George F. Knight	Vice President and Treasurer (Principal Financial and Principal Accounting Officer)	December 27, 2005

II-28

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Columbus, Ohio, on December 27, 2005.

BAKELITE EPOXY POLYMERS CORPORATION
By:	/s/    JULIA D. HARP
	Name:	Julia D. Harp
	Title:	President

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints William H. Carter and Ellen G. Berndt, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and any registration statement relating to the offering covered by this Registration Statement and filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully so or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.

Signature	Title	Date
/s/    WILLIAM H. CARTER William H. Carter	Director and Vice President	December 27, 2005
/s/    JULIA D. HARP Julia D. Harp	President (Principal Executive Officer)	December 27, 2005
/s/    GEORGE F. KNIGHT George F. Knight	Vice President and Treasurer (Principal Financial and Principal Accounting Officer)	December 27, 2005

II-29

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Columbus, Ohio, on December 27, 2005.

OILFIELD TECHNOLOGY GROUP, INC.
By:	/s/    JERRY F. BORGES
	Name:	Jerry F. Borges
	Title:	President

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints William H. Carter and Ellen G. Berndt, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and any registration statement relating to the offering covered by this Registration Statement and filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully so or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.

Signature	Title	Date
/s/    WILLIAM H. CARTER William H. Carter	Director and Vice President, (Principal Financial and Principal Accounting Officer)	December 27, 2005
/s/    JERRY F. BORGES Jerry F. Borges	Director and President (Principal Executive Officer)	December 27, 2005
/s/    SARAH R. COFFIN Sarah R. Coffin	Director	December 27, 2005

II-30

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Columbus, Ohio, on December 27, 2005.

HEXION CI HOLDING COMPANY (CHINA) LLC
By:	/s/    JEFFREY M. NODLAND
	Name:	Jeffrey M. Nodland
	Title:	President

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints William H. Carter and Ellen G. Berndt, and each of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments, including post-effective amendments, to this Registration Statement, and any registration statement relating to the offering covered by this Registration Statement and filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that each of said attorneys-in-fact and agents or their substitute or substitutes may lawfully so or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, this Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated.

Signature	Title	Date
/s/    JEFFREY M. NODLAND Jeffrey M. Nodland	President (Principal Executive Officer)	December 27, 2005
/s/    GEORGE F. KNIGHT George F. Knight	Vice President and Treasurer (Principal Financial and Principal Accounting Officer)	December 27, 2005
LAWTER INTERNATIONAL INC.	Sole Managing Member	December 27, 2005

By: /s/    JEFFREY M. NODLAND Name: Jeffrey M. Nodland Title:   President

II-31

EXHIBIT INDEX

Exhibit   Number	Description of Document
2.1**†	Transaction Agreement dated as of April 22, 2005 among RPP Holdings LLC, Resolution Performance Products Inc., Resolution Performance Products LLC, Resolution Specialty Materials Holdings LLC, Resolution Specialty Materials LLC, Lawter International Inc., BHI Acquisition Corp., BHI Merger Sub Inc., and Borden Chemical Inc. (incorporated by reference to Exhibit 2.1 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
2.2**†	Amended and Restated Master Sale Agreement (US) dated as of November 14, 2000 among Shell Oil Company, Resin Acquisition, LLC and Resolution Performance Products Inc. (incorporated by reference to Exhibit 2.1 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
2.3**†	Amended and Restated SPNV Resins Sale Agreement dated as of November 14, 2000 between Shell Oil Company and Resolution Performance Products Inc. (incorporated by reference to Exhibit 2.2 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
2.4**	Assignment and Assumption Agreement dated November 13, 2000 between Resolution Performance Products Inc. and Resolution Performance Products LLC (incorporated by reference to Exhibit 2.3 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
2.5**	Assignment and Assumption Agreement dated November 14, 2000 between Resin Acquisition, LLC and RPP Holdings LLC (incorporated by reference to Exhibit 2.4 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
3.1	Certificate of Incorporation of Hexion U.S. Finance Corp.
3.2	Bylaws of Hexion U.S. Finance Corp.
3.3	Memorandum of Association of Hexion Nova Scotia Finance, ULC
3.4	Articles of Association of Hexion Nova Scotia Finance, ULC
3.5	Certificate of Incorporation of Hexion Specialty Chemicals, Inc.
3.6**	Amended and Restated Bylaws of Borden Chemical dated December 15, 2004 (incorporated by reference to Exhibit (3)(ii) to the Form 10-K filed on March 24, 2005 (File No. 001-00071))
3.7	Certificate of Incorporation of BDS Two, Inc.
3.8	Bylaws of BDS Two, Inc.
3.9	Certificate of Incorporation of Borden Chemical Investments, Inc.
3.10	Bylaws of Borden Chemical Investments, Inc.
3.11	Certificate of Incorporation of Borden Chemical Foundry, Inc.
3.12	Bylaws of Borden Chemical Foundry, Inc.
3.13	Certificate of Incorporation of HSC Capital Corporation
3.14	Bylaws of HSC Capital Corporation
3.15	Certificate of Incorporation of Lawter International Inc.
3.16	Bylaws of Lawter International Inc.
3.17	Certificate of Incorporation of Borden Chemical International, Inc.

II-32

Exhibit   Number	Description of Document
3.18	Bylaws of Borden Chemical International, Inc.
3.19	Certificate of Incorporation of Bakelite North America Holding Company
3.20	Bylaws of Bakelite North America Holding Company
3.21	Certificate of Incorporation of Bakelite Epoxy Polymers Corporation
3.22	Bylaws of Bakelite Epoxy Polymers Corporation
3.23	Certificate of Incorporation of Oilfield Technology Group, Inc.
3.24	Bylaws of Oilfield Technology Group, Inc.
3.25	Certificate of Formation of Hexion CI Holding Company (China) LLC
3.26	Limited Liability Company Agreement of Hexion CI Holding Company (China) LLC
4.1**	Form of Management Stockholder’s Agreement (incorporated by reference to Exhibit 4.4 to Borden Chemical’s Form S-8 filed on October 3, 2003 (File No. 333-109490))
4.2**	Form of Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 4.5 to Borden Chemical’s Form S-8 filed on October 3, 2003 (File No. 333-109490))
4.3**	Form of Sale Participation Agreement (incorporated by reference to Exhibit 4.6 to Borden Chemical’s Form S-8 filed on October 3, 2003 (File No. 333-109490))
4.4**	Registration Rights Agreement, dated January 1, 2002, among Borden Chemical, Borden Holdings, Inc. and BDS Two, Inc. (incorporated by reference to Exhibit 4.7 to Borden Chemical’s Form S-8 filed on October 3, 2003 (File No. 333-109490))
4.5**	Form of Indenture between the Registrant and The First National Bank of Chicago, as Trustee, dated as of January 15, 1983, as supplemented by the First Supplemental Indenture dated as of March 31, 1986, and the Second Supplemental Indenture, dated as of June 26, 1996, relating to the $200,000,000 8 3/8% Sinking Fund Debentures due 2016, incorporated herein by reference from Exhibits (4)(a) and (b) to Amendment No. 1 to Registration Statement on Form S-3, File No. 33-4381 and Exhibit (4)(iv) to the June 30, 1996, Form 10-Q.
4.6**	Form of Indenture between Borden Chemical and The Bank of New York, as Trustee, dated as of December 15, 1987, as supplemented by the First Supplemental Indenture dated as of December 15, 1987, and the Second Supplemental Indenture dated as of February 1, 1993, and the Third Supplemental Indenture dated as of June 26, 1996, (incorporated herein by reference from Exhibits (4)(a) through (d) to Borden Chemical’s Registration Statement on Form S-3, File No. 33-45770 and Exhibit (4)(iii) to the June 30, 1996, Form 10-Q filed on August 14, 1996 (File No. 001-00071)), relating to the following Debentures and Notes:
	(a) The $200,000,000 9 1/5% Debentures due 2021.
	(b) The $250,000,000 7 7/8% Debentures due 2023.
4.7**	Indenture dated as of August 12, 2004 among Borden U.S. Finance Corp. and Borden Nova Scotia Finance, ULC, as Issuers, Borden Chemical, and Wilmington Trust Company, as Trustee, relating to: (a) the $150,000,000 Second-Priority Senior Secured Floating Rate Notes due 2010 and (b) the $325,000,000 9% Second-Priority Senior Secured Notes due 2014. (incorporated by reference to Exhibit 4(i) to Borden Chemical’s Form 10-Q filed on November 15, 2004, File No. 001-00071)
4.8**	Form of Exchange Note (included in Exhibit 4.7)
4.9**	Indenture, dated as of November 14, 2000, among Resolution Performance Products LLC, RPP Capital Corporation and The Bank of New York, as trustee, relating to 13 1/2% Senior Subordinated Notes Due 2010 (incorporated by reference to Exhibit 4.1 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
4.10**	Form of 13 1/2% Senior Subordinated Note Due 2010 (included as Exhibit B to Exhibit 4.9)

II-33

Exhibit   Number	Description of Document
4.11**	Indenture dated as of April 9, 2003 among Resolution Performance Products LLC, RPP Capital Corporation and Deutsche Bank Trust Company Americas, as trustee, relating to 9 1/2% Senior Second Secured Notes Due 2010 (incorporated by reference to Exhibit 4.6 to Resolution Performance’s Registration Statement on Form S-4 filed on April 25, 2003 (File No. 333-104750))
4.12**	Form of 9 1/2% Senior Second Secured Note due 2010 (included as Exhibit B to Exhibit 4.12)
4.13**	Indenture dated as of December 22, 2003 among Resolution Performance Products LLC, RPP Capital Corporation and The Bank of New York, as trustee, relating to 8% Senior Secured Notes due 2009 (incorporated by reference to exhibit 4.11 to Resolution Performance’s Registration Statement on Form S-4 filed on January 20, 2004 (File No. 333-112016))
4.14**	Form of exchange note for the 8% Senior Secured Notes due 2009 (included as Exhibit B to Exhibit 4.14)
4.15**	Indenture dated as of May 20, 2005 among BCI US Finance Corp., Borden 2 Nova Scotia Finance, ULC, as Issuers, Hexion Specialty Chemicals, Inc. and Wilmington Trust Company, as Trustee, relating to the $150,000,000 Second-Priority Senior Secured Floating Rate Notes due 2010 (incorporated by reference to Exhibit 4.15 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
4.16**	First Supplemental Indenture, dated as of May 31, 2005 among RPP Capital Corporation, Resolution Specialty Materials, LLC, Resolutions’ JV LLC, Lawter International, Inc., Resolution Specialty Materials Capital Corp., Borden Chemical International, Inc., Bakelite North America Holding Company, Bakelite Epoxy Polymers Corporation, Oilfield Technology Group, Inc. and Borden Services Company, as Additional Subsidiary Guarantors, Hexion Specialty Chemicals, Inc., Borden U.S. Finance Corp. and Borden Nova Scotia Finance, ULC and Wilmington Trust Company, as Trustee to the Indenture dated as of August 12, 2004 among Borden U.S. Finance Corp., Borden Nova Scotia Finance, ULC, as Issuers, Borden Chemical and Wilmington Trust Company, as Trustee relating to: (a) the $150,000,000 Second-Priority Senior Secured Floating Rate Notes due 2010 and (b) the $325,000,000 9% Second-Priority Senior Secured Notes due 2014 (incorporated by reference to Exhibit 4.16 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
4.17**	Supplemental Indenture dated as of May 31, 2005 among Borden U.S. Finance Corp., Borden Nova Scotia Finance, ULC, the guarantors named therein and Wilmington Trust Company, as Trustee to the Indenture dated May 20, 2005 among BCI US Finance Corp. and Borden 2 Nova Scotia Finance, ULC, as Issuers, Hexion Specialty Chemicals, Inc. and Wilmington Trust Company, as Trustee relating to the $150,000,000 Second-Priority Senior Secured Floating Rate Notes due 2010 (incorporated by reference to Exhibit 4.17 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
4.18**	First Supplemental Indenture dated as of May 31, 2005, among Resolution Performance Products Corp., RPP Capital Corporation, the guarantors named therein and The Bank of New York, as Trustee, to the Indenture dated as of November 14, 2000, among Resolution Performance Products LLC, RPP Capital Corporation and The Bank of New York, as Trustee, relating to 13 1/2% Senior Subordinated Notes Due 2010 (incorporated by reference to Exhibit 4.18 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
4.19**	First Supplemental Indenture dated as of May 31, 2005, among Resolution Performance Products Corp., RPP Capital Corporation, the guarantors named therein and Deutsche Bank Trust Company Americas, as Trustee, to the Indenture dated as of April 9, 2003, among Resolution Performance Products LLC, RPP Capital Corporation and Deutsche Bank Trust Company Americas, as Trustee, relating to 9 1/2% Senior Second Secured Notes Due 2010 (incorporated by reference to Exhibit 4.19 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))

II-34

Exhibit   Number	Description of Document
4.20**	First Supplemental Indenture dated as of May 31, 2005, among Resolution Performance Products Corp., RPP Capital Corporation, the guarantors named therein and The Bank of New York, as Trustee, to the Indenture dated as of December 22, 2003, among Resolution Performance Products LLC, RPP Capital Corporation and The Bank of New York, as Trustee, relating to 8% Senior Secured Notes due 2009 (incorporated by reference to Exhibit 4.20 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
4.21**	Second Supplemental Indenture dated as of May 31, 2005, among Hexion Specialty Chemicals, Inc., RPP Capital Corporation, the guarantors named therein and The Bank of New York, as Trustee, to the Indenture dated as of November 14, 2000, as supplemented, among Resolution Performance Products LLC, RPP Capital Corporation and The Bank of New York, as Trustee, relating to 13 1/2% Senior Subordinated Notes Due 2010 (incorporated by reference to Exhibit 4.21 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
4.22**	Second Supplemental Indenture dated as of May 31, 2005, among Hexion Specialty Chemicals, Inc., RPP Capital Corporation, the guarantors named therein and Deutsche Bank Trust Company Americas, as Trustee, to the Indenture dated as of April 9, 2003, as supplemented, among Resolution Performance Products LLC, RPP Capital Corporation and Deutsche Bank Trust Company Americas, as Trustee, relating to 9 1/2% Senior Second Secured Notes Due 2010 (incorporated by reference to Exhibit 4.22 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
4.23**	Second Supplemental Indenture dated as of May 31, 2005, among Hexion Specialty Chemicals, Inc., RPP Capital Corporation, the guarantors named therein and The Bank of New York, as Trustee, to the Indenture dated as of December 22, 2003, as supplemented, among Resolution Performance Products LLC, RPP Capital Corporation and The Bank of New York, as Trustee, relating to 8% Senior Secured Notes due 2009 (incorporated by reference to Exhibit 4.23 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
4.27	Second Supplemental Indenture, dated as of December 23, 2005 among Hexion CI Holding Company (China) LLC, as Additional Subsidiary Guarantor, Hexion Specialty Chemicals, Inc., Hexion U.S. Finance Corp., Hexion Nova Scotia Finance, ULC and Wilmington Trust Company, as Trustee, to the Indenture dated as of August 12, 2004 among Hexion U.S. Finance Corp., Hexion Nova Scotia Finance, ULC, as Issuers, Hexion Specialty Chemicals, Inc. and Wilmington Trust Company, as Trustee relating to: (a) the $150,000,000 Second-Priority Senior Secured Floating Rate Notes due 2010 and (b) the $325,000,000 9% Second-Priority Senior Secured Notes due 2014
4.28	Second Supplemental Indenture, dated as of December 23, 2005 among Hexion CI Holding Company (China) LLC, as Additional Subsidiary Guarantor, Hexion Specialty Chemicals, Inc., Hexion U.S. Finance Corp., Hexion Nova Scotia Finance, ULC and Wilmington Trust Company, as Trustee, to the Indenture dated as of May 20, 2005 among Hexion U.S. Finance Corp., Hexion Nova Scotia Finance, ULC, as Issuers, Hexion Specialty Chemicals, Inc. and Wilmington Trust Company, as Trustee relating to the $150,000,000 Second-Priority Senior Secured Floating Rate Notes due 2010
4.29	Third Supplemental Indenture, dated as of December 23, 2005 among Hexion Specialty Chemicals, Inc., HSC Capital Corporation, the guarantor named therein and The Bank of New York, as Trustee, to the Indenture dated as of November 14, 2000, as supplemented, among Hexion Specialty Chemicals, Inc., HSC Capital Corporation and The Bank of New York, as Trustee, relating to the 13 1/2% Senior Subordinated Notes Due 2010

II-35

Exhibit   Number	Description of Document
4.30	Third Supplemental Indenture, dated as of December 23, 2005 among Hexion Specialty Chemicals, Inc., HSC Capital Corporation, the guarantor named therein and Deutsche Bank Trust Company Americas, as Trustee, to the Indenture dated as of April 9, 2003, as supplemented, among Hexion Specialty Chemicals, Inc., HSC Capital Corporation and Deutsche Bank Trust Company Americas, as Trustee, relating to the 9 1/2% Senior Second Secured Notes Due 2010
4.31	Third Supplemental Indenture, dated as of December 23, 2005 among Hexion Specialty Chemicals, Inc., HSC Capital Corporation, the guarantor named therein and The Bank of New York, as Trustee, to the Indenture dated as of December 22, 2003, as supplemented, among Hexion Specialty Chemicals, Inc., HSC Capital Corporation and The Bank of New York, as Trustee, relating to the 8% Senior Secured Notes due 2009
5.1	Opinion of O’Melveny & Myers LLP
5.2	Opinion of Connell Foley LLP
5.3	Opinion of Stewart McKelvey Stirling Scales
10.1**	Amended and Restated Executive Supplemental Pension Plan, dated as of January, 1996 (incorporated by reference to Exhibit (10)(xiii) to Borden Chemical’s December 31, 1998 Form 10-K filed on March 31, 1999 (File No. 001-00071))
10.2**	Advisory Directors Plan incorporated by reference to Exhibit 10(viii) to Borden Chemical’s 1989 Form 10-K Annual Report.
10.3**	Perquisite Benefits Policy (incorporated by reference to Exhibit (10)(xviii) to Borden Chemical’s December 31, 2001 Form 10-K filed on March 29, 2002 (File No. 001-00071))
10.4**	Master Asset Conveyance and Facility Support Agreement, dated as of December 20, 2002, between Borden Chemical and Borden Chemicals and Plastics Operating Limited Partnership (incorporated by reference to Exhibit (10)(xxvi) to Borden Chemical’s December 31, 2002 Form 10-K filed on March 28, 2003 (File No. 001-00071))
10.5**	Environmental Servitude Agreement, dated as of December 20, 2002, between Borden Chemical and Borden Chemicals and Plastics Operating Limited Partnership (incorporated by reference to Exhibit (10)(xxvii) to Borden Chemical’s December 31, 2002 Form 10-K filed on March 28, 2003 (File No. 001-00071))
10.6**	Stock Purchase Agreement dated as of July 5, 2004 among BHI Investment, LLC, BW Holdings LLC, Borden Holdings, Inc. Borden Chemical, Inc. Craig O. Morrison and Joseph P. Bevilaqua. (incorporated by reference to Exhibit (10)(i) to Borden Chemical’s June 30, 2004 Form 10-Q filed on July 26, 2004 (File No. 001-00071))
10.7**	Amended and Restated Employment Agreement dated as of August 12, 2004 between the Company and Craig O. Morrison (incorporated by reference to Exhibit 10(i) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071))
10.8**	Amended and Restated Employment Agreement dated as of August 12, 2004 between the Company and Joseph P. Bevilaqua (incorporated by reference to Exhibit 10(ii) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071))
10.9**	Amended and Restated Employment Agreement dated as of August 12, 2004 between the Company and William H. Carter. (incorporated by reference to Exhibit 10(iii) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071))
10.10**	BHI Acquisition Corp. 2004 Deferred Compensation Plan (incorporated by reference to Exhibit 10(iv) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071))

II-36

Exhibit   Number	Description of Document
10.11**	BHI Acquisition Corp. 2004 Stock Incentive Plan (incorporated by reference to Exhibit 10(v) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071))
10.12**	Investor Rights Agreement dated as of August 12, 2004 among BHI Acquisition Corp., and The Holders that are parties thereto (incorporated by reference to Exhibit 10(vi) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071))
10.13**	Registration Rights Agreement dated as of August 12, 2004 among BHI Acquisition Corp., BHI Investment, LC, and the Management Holders party thereto (incorporated by reference to Exhibit 10(vii) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071))
10.14**	Amendment No. 1 dated as of August 11, 2004, to the Stock Purchase Agreement dated July 5, 2004 by and among BHI Investment, LLC, Borden Holdings, Inc., Borden Chemical, Inc., Craig O. Morrison and Joseph P. Bevilaqua (incorporated by reference to Exhibit 10(viii) to the Form 10-Q filed on November 15, 2004 (File No. 001-00071))
10.15**	Management Consulting Agreement dated as of August 12, 2004 between Borden Chemical, Inc. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10(ix) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071))
10.16**	Amended and Restated Loan and Security Agreement dated as of August 12, 2004 among the Company, Borden Chemical Canada, Inc. Borden Chemical UK Limited, Borden Chemical GB Limited, the Lenders named therein, Credit Suisse First Boston, as Agent, and Fleet Capital Corporation, as U.S. Collateral Agent (incorporated by reference to Exhibit 10(x) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071)).
10.17**	Share Purchase Agreement dated October 6, 2004 among RÜTGERS AG, RÜTGERS Bakelite Projekt GmbH, National Borden Chemical Germany GmbH, and Borden Chemical, Inc. (incorporated by reference to Exhibit 10(xi) to Borden Chemical’s September 30, 2004 Form 10-Q filed on November 15, 2004 (File No. 001-00071))
10.18**	Secured Promissory Note dated August 10, 2001 from Jeffrey M. Nodland to Resolution Performance Product LLC (incorporated by reference to Exhibit 10.2 to Resolution Performance’s September 30, 2004 Form 10-Q filed on November 14, 2001 (File No. 333-57170))
10.19**	Pledge Agreement dated August 10, 2001 between Jeffrey M. Nodland and Resolution Performance Products LLC (incorporated by reference to Exhibit 10.3 to Resolution Performance’s September 30, 2001 Form 10-Q filed on November 14, 2001 (File No. 333-57170))
10.20**	Secured Promissory Note dated June 18, 2001 from Mark S. Antonvich to Resolution Performance Products LLC (incorporated by reference to Exhibit 10.4 to Resolution Performance’s September 30, 2001 Form 10-Q filed on November 14, 2001 (File No. 333-57170))
10.21**	Pledge Agreement dated June 18, 2001 between Mark S. Antonvich to Resolution Performance Products LLC (incorporated by reference to Exhibit 10.5 to Resolution Performance’s September 30, 2001 Form 10-Q filed on November 14, 2001 (File No. 333-57170))
10.22**	Intellectual Property Transfer and License Agreement and Contribution Agreement dated as of November 14, 2000 between Shell Oil Company and Resolution Performance Products LLC (incorporated by reference to Exhibit 10.13 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.23**	Intellectual Property Transfer and License Agreement and Contribution Agreement dated as of November 14, 2000 between Shell Internationale Research Maatschappij B.V. and Shell Epoxy Resins Research B.V (incorporated by reference to Exhibit 10.14 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170)).

II-37

Exhibit   Number	Description of Document
10.24**	Management Consulting Agreement dated as of November 14, 2000 among Resolution Performance Products LLC and Apollo Management IV, L.P. (incorporated by reference to Exhibit 10.18 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.25**	First Amended and Restated Deer Park Site Services, Utilities, Materials and Facilities Agreement dated November 1, 2000 between Shell Chemical Company, for itself and as agent for Shell Oil Company, and Resolution Performance Products LLC (incorporated by reference to Exhibit 10.19 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.26**	First Amended and Restated Norco Site Services, Utilities, Materials and Facilities Agreement dated November 1, 2000 between Shell Chemical Company, for itself and as agent for Shell Oil Company, and Resolution Performance Products LLC (incorporated by reference to Exhibit 10.20 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.27**	First Amended and Restated Pernis Site Services, Utilities, Materials and Facilities Agreement dated November 1, 2000 between Resolution Europe B.V. (f/k/a Resolution Nederland B.V., f/k/a Shell Epoxy Resins Nederland B.V.) and Shell Nederland Raffinaderij B.V. (incorporated by reference to Exhibit 10.21 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.28**	First Amended and Restated Pernis Site Services, Utilities, Materials and Facilities Agreement dated November 1, 2000 between Resolution Europe B.V. (f/k/a Resolution Nederland B.V., f/k/a Shell Epoxy Resins Nederland B.V.) and Shell Nederland Chemie B.V. (incorporated by reference to Exhibit 10.22 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.29**	Deer Park Ground Lease and Grant of Easements dated as of November 1, 2000 between Shell Oil Company and Resolution Performance Products LLC (incorporated by reference to Exhibit 10.23 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.30**	Norco Ground Lease and Grant of Servitudes dated as of November 1, 2000 between Shell Oil Company and Resolution Performance Products LLC (incorporated by reference to Exhibit 10.24 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.31**	Amended and Restated Agreement of Sub—Lease (Pernis) dated as of November 1, 2000 between Resolution Europe B.V. (f/k/a Resolution Nederland B.V., f/k/a Shell Epoxy Resins Nederland B.V.) and Shell Nederland Raffinaderij B.V. (incorporated by reference to Exhibit 10.25 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.32**	Resolution Performance Products Inc. 2000 Stock Option Plan (incorporated by reference to Exhibit 10.26 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.33**	Resolution Performance Products Inc. 2000 Non—Employee Directors Stock Option Plan (incorporated by reference to Exhibit 10.27 to Resolution Performance’s Registration Statement on Form S-4 filed on March 16, 2001 (File No. 333-57170))
10.34**	Amended and Restated Resolution Performance Products, Inc. Restricted Unit Plan (incorporated by reference to Exhibit 10.34 to Hexion’s Amendment No. 5 to the Registration Statement on Form S-1 filed on September 19, 2005 (File No. 333-124287))

II-38

Exhibit   Number	Description of Document
10.35**	Amendment No. 1 dated March 15, 2002 to the Management Consulting Agreement dated November 14, 2000 between Resolution Performance Products LLC, a Delaware corporation, and Apollo Management IV, L.P., a Delaware limited partnership (incorporated by reference to Exhibit 10.1 to Resolution Performance’s March 31, 2002 Form 10-Q filed on May 8, 2002 (File No. 333-57170))
10.36**	Amendment No. 2 dated as of January 1, 2003 to the Management Consulting Agreement dated November 14, 2000, as amended, between Resolution Performance Products LLC, a Delaware limited liability company, and Apollo Management IV, L.P., a Delaware limited partnership (incorporated by reference to Exhibit No. 10.43 to Resolution Performance’s Amendment No. 1 to Registration Statement on Form S-4 filed on February 12, 2003 (File No. 333-57170))
10.37**	Amendment No. 3 dated February 17, 2003 to the Management Consulting Agreement dated November 14, 2000, as amended, between Resolution Performance Products LLC and Apollo Management IV, L.P., a Delaware limited partnership (incorporated by reference to Exhibit No. 10.50 to Resolution Performance’s December 31, 2002 Form 10-K filed on March 25, 2003 (File No. 333-57170))
10.38**	Employment Agreement dated as of May 10, 2004 by and between Resolution Performance Products LLC, and David S. Graziosi (incorporated by reference to Exhibit 10.3 to Resolution Performance’s Quarterly Report on Form 10-Q for the Quarter ended March 31, 2004 (file No. 333-571701))
10.39**	Letter Agreement dated December 3, 2004 between Borden Chemical, Inc. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.10 to Borden Chemical’s Registration Statement on Form S-4 filed on February 14, 2005 (File No. 333-1228626))
10.40**	Form of Non-Qualified Stock Option Agreement between BHI Acquisition Corp. and certain optionees (incorporated by reference to Exhibit 10.12 to Borden Chemical’s Registration Statement on Form S-4 filed on February 14, 2005 (File No. 333-1228626))
10.41**	Terms of employment dated November 9, 2004 between Judy A. Sonnett and Borden Chemical, Inc. (incorporated by reference to Exhibit 10.9 to Borden Chemical’s form 10-K filed on March 24, 2005 (File No. 001-00071))
10.42**	Credit Agreement dated as of August 2, 2004 among Resolution Specialty Materials Inc., Resolution Specialty Materials LLC, the various lenders party thereto, JPMorgan Chase Bank, as Administrative Agent, and Bear Stearns Corporate Lending Inc., as Syndication Agent (incorporated by reference to Exhibit 10.43 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.43**	Credit Agreement dated as of January 24, 2005 among Resolution Performance Products Inc., Resolution Performance Products LLC, RPP Capital Corporation, Resolution Europe B.V., the various lender parties thereto, General Electric Capital Corporation, as a US Lender, Initial US L/C Issuer, Collateral Agent and as US Agent, and GE Leveraged Loans Limited, as Netherlands Agent, Netherlands L/C Issuer, Netherlands Security Trustee and a Netherlands Lender (incorporated by reference to Exhibit 10.1 to Resolution Performance’s Current Report on Form 8-K dated January 24, 2005 (File No. 333-571701))
10.44**	US Guaranty dated as of January 24, 2005 among Resolution Performance Products Inc., RPP Capital Corporation and General Electric Capital Corporation, on behalf of itself and US Lenders (incorporated by reference to Exhibit 10.2 to Resolution Performance’s Current Report on Form 8-K dated January 24, 2005 (File No. 333-571701))

II-39

Exhibit   Number	Description of Document
10.45**	Second Amended and Restated Security Agreement dated as of January 24, 2005, by and among Resolution Performance Products Inc., Resolution Performance Products LLC, RPP Capital Corporation and General Electric Capital Corporation, on behalf of itself and Secured Creditors (incorporated by reference to Exhibit 10.3 to Resolution Performance’s Current Report on Form 8-K dated January 24, 2005 (File No. 333-571701))
10.46**	Second Amended and Restated Pledge Agreement dated as of January 24, 2005, by and among Resolution Performance Products Inc., Resolution Performance Products LLC, Resolution Performance Capital Corporation and General Electric Capital Corporation as Collateral Agent, on behalf of itself a Secured Creditors (incorporated by reference to Exhibit 10.4 to Resolution Performance’s Current Report on Form 8-K dated January 24, 2005 (File No. 333-571701))
10.47**	Amended and Restated Intercreditor Agreement dated as of January 24, 2005, among General Electric Capital Corporation as Collateral Agent for the benefit of the First Lien Creditors, General Electric Capital Corporation, as Administrative Agent for the Benefit of the Bank Lender Creditors, and The Bank of New York, as trustee for its benefit and the benefit of the holders from time to time of the Additional Senior Secured Notes, and acknowledged and agreed to by the US Credit Parties from time to time party hereto (incorporated by reference to Exhibit 10.5 to Resolution Performance’s Current Report on Form 8-K dated January 24, 2005 (File No. 333-571701))
10.48**	First Deed of Pledge of Shares in the capital of Resolution Holdings B.V. by Resolution Performance Products LLC in favor of General Electric Capital Corporation (incorporated by reference to Exhibit 10.6 to Resolution Performance’s Current Report on Form 8-K dated January 24, 2005 (File No. 333-571701))
10.49**	Second Deed of Pledge of Shares in the capital of Resolution Holdings B.V. by Resolution Performance Products LLC in favor of General Electric Capital Corporation (incorporated by reference to Exhibit 10.7 to Resolution Performance’s Current Report on Form 8-K dated January 24, 2005 (File No. 333-571701))
10.50**	Indemnity Agreement dated as of March 29, 2005, among Resolution Performance Products Inc., Resolution Performance Products LLC and the indemnified party, Carl S. Stutts (incorporated by reference to Exhibit 10.73 to Resolution Performance’s Annual Report on Form 10-K for the Year ended December 31, 2004 (File No. 333-571701))
10.51**	Resolution Specialty Materials Inc. 2004 Stock Option Plan (incorporated by reference to Exhibit 10.52 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.52**	Form of Nonqualified Stock Option Agreement for Resolution Specialty Materials Inc. 2004 Stock Option Plan (incorporated by reference to Exhibit 10.53 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.53**	Form of Nonqualified Stock Option Agreement for Resolution Performance Products Inc. 2000 Stock Option Plan (incorporated by reference to Exhibit 10.54 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.54**	Form of Nonqualified Stock Option Agreement for Resolution Performance Products Inc. 2000 Non-Employee Director Stock Option Plan (incorporated by reference to Exhibit 10.55 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.55**	Terms of employment dated January 21, 2005 between Sarah R. Coffin and the Company (incorporated by reference to Exhibit (10) to Borden Chemical’s Current Report on Form 8-K dated February 14, 2005 (File No. 001-00071)).

II-40

Exhibit   Number	Description of Document
10.56**	Employment Agreement dated December 14, 2004 between Resolution Specialty Materials LLC and Jeffrey M. Nodland (incorporated by reference to Exhibit to 10.56 Hexion’s Amendment No. 6 to the Registration Statement on Form S-1 filed on November 21, 2005 (File No. 333-124287))
10.57**	Terms of employment dated December 31, 2003 between C.H. Morton and the Company (incorporated by reference to Exhibit 10(x) to Borden Chemical’s Annual Report on Form 10-K for the Year ended December 31, 2004 (File No. 001-00071)).
10.58**	Employment Agreement dated as of June 1, 2005 between Hexion Specialty Chemicals, Inc. and Marvin O. Schlanger (incorporated by reference to Exhibit 10.59 to Hexion’s Amendment No.3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No.333-124287))
10.59**	Consulting Agreement dated as of June 1, 2005 between Hexion Specialty Chemicals, Inc. and Marvin O. Schlanger (incorporated by reference to Exhibit 10.60 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.60**	Employment Agreement dated as of June 1, 2005 between Hexion Specialty Chemicals, Inc. and Layle K. Smith (incorporated by reference to Exhibit 10.61 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.61**	Employment Agreement dated as of June 1, 2005 between Hexion Specialty Chemicals, Inc. and Mark S. Antonvich (incorporated by reference to Exhibit 10.62 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.62**	Amended and Restated Investor Rights Agreement dated as of May 31, 2005 between Hexion LLC, Hexion Specialty Chemicals, Inc. and the holders that are party thereto (incorporated by reference to Exhibit 10.63 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.63**	Registration Rights Agreement dated as of May 31, 2005 between Hexion Specialty Chemicals, Inc. and Hexion LLC (incorporated by reference to Exhibit 10.64 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.64**	Management Consulting Agreement dated as of May 31, 2005 between Resolution Specialty Materials LLC and Apollo Management IV, L.P. (incorporated by reference to Exhibit 10.65 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.65**	Amended and Restated Consulting Agreement dated as of May 31, 2005 between Borden Chemical, Inc. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.66 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.66**	Management Services Termination Agreement dated as of May 31, 2005 between Resolution Performance Products, LLC and Apollo Management IV, L.P. (incorporated by reference to Exhibit 10.67 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.67**†	Credit Agreement dated as of May 31, 2005 among Hexion LLC, Hexion Specialty Chemicals, Inc., Borden Chemical Canada, Inc., Resolution Europe B.V., Borden Chemical GB Limited, Borden Chemical UK Limited, Bakelite AG, the various lenders party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Citicorp North America, Inc., as Syndication Agent, Credit Suisse, as Documentation Agent, and J.P. Morgan Securities Inc., Citigroup Global Markets Inc. and Credit Suisse, as Joint Lead Arrangers and Joint Bookrunners (incorporated by reference to Exhibit 10.68 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))

II-41

Exhibit   Number	Description of Document
10.68**	Second Amended and Restated Intercreditor Agreement dated as of May 31, 2005 among JPMorgan Chase Bank, N.A., as Intercreditor Agent, Wilmington Trust Company, as New Trustee, Hexion LLC, Hexion Specialty Chemicals, Inc., and each subsidiary of Hexion Specialty Chemicals, Inc. party thereto (incorporated by reference to Exhibit 10.69 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.69**	Second Amended and Restated Intercreditor Agreement dated as of May 31, 2005 among JPMorgan Chase Bank, N.A., as Collateral Agent, and acknowledged and agreed to by Hexion LLC, Hexion Specialty Chemicals, Inc., and each subsidiary of Hexion Specialty Chemicals, Inc. party thereto (incorporated by reference to Exhibit 10.70 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.70**	Registration Rights Agreement dated as of May 20, 2005, among Hexion Specialty Chemicals, Inc. and Credit Suisse First Boston LLC, Goldman, Sachs & Co., Lehman Brothers, Inc., Lehman Commercial Paper Inc. and J.P. Morgan Securities Inc., as Initial Purchasers (incorporated by reference to Exhibit 10.71 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.71**	Registration Rights Agreement dated as of May 20, 2005, among BCI US Finance Corp., Borden 2 Nova Scotia Finance ULC, as Issuers, Hexion Specialty Chemicals, Inc., and Credit Suisse First Boston LLC, J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated, as Initial Purchasers (incorporated by reference to Exhibit 10.72 to Hexion’s Amendment No. 3 to the Registration Statement on Form S-1 filed on July 15, 2005 (File No. 333-124287))
10.72**	Form Offer Letter (incorporated by reference to Exhibit 10 to Borden Chemical’s March 31, 2004 10-Q filed on May 13, 2004 (File No. 001-00071))
10.73**	Borden Chemical, Inc. 2005 Management Incentive Plan (incorporated by reference to Exhibit 10(v).1 to Borden Chemical’s December 31, 2004 10-K/A filed on August 23, 2005 (File No. 001-00071))
10.74**	Long-Term Value Creation Reward Program (incorporated by reference to Exhibit 10.76 to Hexion’s Amendment No. 5 to the Registration Statement on Form S-1 filed on September 19, 2005 (File No. 333-124287))
12.1	Statement regarding computation of Ratios
21.1	List of Subsidiaries of the registrant
23.1	Consent of Deloitte & Touche LLP, an independent registered public accounting firm
23.2	Consent of PricewaterhouseCoopers LLP, an independent registered public accounting firm
23.3	Consent of PricewaterhouseCoopers LLP, an independent registered public accounting firm
23.4	Consent of PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft
24.1	Powers of Attorney of the directors and officers of the registrant (previously filed or attached to signature pages)
25.1	Form T-1 (Wilmington Trust Company)
99.1	Consent of Nigel D. T. Andrews
99.2	Consent of David C. House
99.3	Letter of Transmittal
99.4	Notice of Guaranteed Delivery

II-42

Exhibit   Number	Description of Document
99.5	Letter to Brokers
99.6	Letter to Clients

** Incorporated by reference

*** Previously filed

† The schedules and exhibits to these agreements are omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally to the SEC, upon request, a copy of any omitted schedule or exhibit.

II-43

EX-3.1

Exhibit 3.1

BORDEN U.S. FINANCE CORP.

CERTIFICATE OF INCORPORATION

FIRST: The name of this corporation shall be; BORDEN U.S. FINANCE CORP.

SECOND: Its registered office in the State of Delaware is to be located at 2711 Centerville Road, Suite 400, in the City of Wilmington, County of New Castle and its registered agent at such address is Corporation Service Company.

THIRD: The purpose or purposes of the corporation shall be:

To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

FOURTH: The total number of shares of stock which this corporation is authorized to issue is: five hundred (500) shares of Common Stock, par value $0.01 per share.

FIFTH: The name and address of the incorporator is as follows: Patricia A. Heslep, 180 East Broad Street, Columbus, Ohio 43215.

SIXTH: The Board of Directors shall have the power to adopt, amend or repeal the by-laws.

SEVENTH: No director shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law, (i) for breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article Seventh shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment.

IN WITNESS WHEREOF, the undersigned, being the incorporator herein before named, has executed signed and acknowledged this certificate of incorporation this 14^th day of July, 2004.

/s/ Patricia A. Heslep

Patricia A. Heslep, Incorporation

State of Delaware

Secretary of State

Division of Corporations

Delivered 05:44 PM 07/14/2004

FILED 05:35 PM 07/14/2004

SRV 040517908 – 3828955 FILE

State of Delaware

Secretary of State

Division of Corporations

Delivered 11:01 AM 05/31/2005

FILED 11:03 AM 05/31/2005

SRV 050448576 – 3828955 FILE

CERTIFICATE OF MERGER

MERGING

BCI US FINANCE CORP.

INTO

BORDEN U.S. FINANCE CORP.

Pursuant to Section 251 of the

Delaware General Corporation Law

Borden U.S. Finance Corp., a Delaware corporation, does hereby certify:

FIRST: That the name and state of incorporation of each of the constituent corporations in the merger are as follows:

NAME	STATE OF INCORPORATION
BCI US Finance Corp.	Delaware
Borden U.S. Finance Corp.	Delaware

SECOND: That an agreement and plan of merger (the “Merger Agreement”) between the parties to the merger has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with the requirements of Section 251 of the Delaware General Corporation Law.

THIRD: That Borden U.S. Finance Corp. shall be the surviving corporation in the merger.

FOURTH: That the name of the surviving corporation shall be Borden U.S. Finance Corp. and the Certificate of Incorporation of the surviving corporation as in effect on the date of the merger shall continue in full force and effect.

FIFTH: That the executed Merger Agreement is on file at an office of the surviving corporation, the address of which is 180 East Broad Street, Columbus, Ohio 43215.

SIXTH: That a copy of the Merger Agreement will be furnished by the surviving corporation, on request and without cost, to any stockholder of any constituent corporation.

SEVENTH: The merger shall be effective upon the filing of this Certificate of Merger with the Secretary of State of the State of Delaware.

* * * *

IN WITNESS WHEREOF, Borden U.S. Finance Corp. has caused this Certificate of Merger to be executed by its duly authorized officer this 31 day of May, 2005.

BORDEN U.S. FINANCE CORP.,
a Delaware corporation.
By:	/s/ George F. Knight
Name:	George Knight
Title:	Vice President and Treasurer

[CERTIFICATE OF MERGER]

State of Delaware

Secretary of State

Division of Corporations

Delivered 06:30 PM 07/08/2005

FILED 06:03 PM 07/08/2005

SRV 050569194 – 3828955 FILE

STATE OF DELAWARE

CERTIFICATE OF AMENDMENT

OF CERTIFICATE OF INCORPORATION

The corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware does hereby certify:

FIRST: That at a meeting of the Board of Directors of Borden U.S. Finance Corp. resolutions were duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows:

RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the Article thereof numbered “First” so that, as amended, said Article shall be and read as follows:

The name of this corporation shall be: Hexion US Finance Corp.

SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment.

THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

FOURTH: That the capital of said corporation shall not be reduced under or by reason of said amendment.

IN WITNESS WHEREOF, said corporation has caused this certificate to be signed this 30 day of June, 2005.

By:	/s/ George F. Knight
Title:	Authorized Officer
Name:	George F. Knight, VP
	Print or Type

EX-3.2

Exhibit 3.2

BORDEN U.S. FINANCE CORP.

BY-LAWS

ARTICLE I

MEETINGS OF STOCKHOLDERS

Section 1. Place of Meeting and Notice. Meetings of the stockholders of the Corporation shall be held at such place either within or without the State of Delaware as the Board of Directors may determine.

Section 2. Annual and Special Meetings. Annual meetings of stockholders shall be held, at a date, time and place fixed by the Board of Directors and stated in the notice of meeting, to elect a Board of Directors and to transact such other business as may properly come before the meeting. Special meetings of the stockholders may be called by the Chairman or President for any purpose and shall be called by the Chairman, President or Secretary if directed by the Board of Directors or requested in writing by the holders of not less than 25% of the capital stock of the Corporation. Each such stockholder request shall state the purpose of the proposed meeting.

Section 3. Notice. Except as otherwise provided by law, at least 10 and not more than 60 days before each meeting of stockholders, written notice of the time, date and place of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder.

Section 4. Quorum. At any meeting of stockholders, the holders of record, present in person or by proxy, of a majority of the Corporation’s issued and outstanding capital stock shall constitute a quorum for the transaction of business, except as otherwise provided by law. In the absence of a quorum, any officer entitled to preside at or to act as secretary of the meeting shall have power to adjourn the meeting from time to time until a quorum is present.

Section 5. Voting. Except as otherwise provided by law, all matters submitted to a meeting of stockholders shall be decided by vote of the holders of record, present in person or by proxy, of a majority of the Corporation’s issued and outstanding capital stock entitled to vote thereon.

ARTICLE II

DIRECTORS

Section 1. Number, Election and Removal of Directors. The number of Directors that shall constitute the Board of Directors shall be not less than one nor more than fifteen. The Directors shall be elected by stockholders at their annual meeting. Vacancies and newly created directorships resulting from any increase in the number of Directors may be filled by a majority of the Directors then in office, although less than a quorum, or by the sole remaining Director or by the stockholders. A Director may be removed with or without cause by the stockholders.

Section 2. Meetings. Regular meetings of the Board of Directors shall be held at such times and places as may from time to time be fixed by the Board of Directors or as may be specified in a notice of meeting. Special meetings of the Board of Directors may be held at any time upon the call of the Chairman or President and shall be called by the Chairman, President or Secretary if directed by the Board of Directors.

Section 3. Notice. At least one business day before each regular or special meeting of the Board of Directors, written or telephonic notice of the time, date and place of the meeting and the purpose or purposes for which the meeting is called, shall be given to each Director. Written notice shall be deemed to have been given to a Director in accordance with the preceding sentence when such notice is sent by facsimile transmission or otherwise delivered to the principal place of business of each such Director within the time restrictions as set forth in this Section herein.

Section 4. Quorum. A majority of the total number of Directors shall constitute a quorum for the transaction of business. If a quorum is not present at any meeting of the Board of Directors, the Directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until such a quorum is present. Except as otherwise provided by law, the Certificate of Incorporation of the Corporation, these By-Laws or any contract or agreement to which the Corporation is a party, the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors.

Section 5. Committees of Directors. The Board of Directors may, by resolution adopted by a majority of the whole Board, designate one or more committees, including, without limitation, an Executive Committee, to have and exercise such power and authority as the Board of Directors shall specify. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may unanimously appoint another Director to act at the meeting in place of any such absent or disqualified member.

ARTICLE III

OFFICERS

The officers of the Corporation shall consist of a President, a Secretary, a Treasurer, and may consist of Vice Presidents, Assistant Secretaries, Assistant Treasurers and such other additional officers with such titles as the Board of Directors shall determine, all of whom shall be chosen by and shall serve at the pleasure of the Board of Directors. All officers shall be subject to the supervision and direction of the Board of Directors. The authority, duties or responsibilities of any officer of the Corporation may be suspended by the Chairman or President with or without cause. Any officer elected or appointed by the Board of Directors may be removed by the Board of Directors with or without cause. In addition to the powers and duties set forth below, such officers shall have the usual powers and shall perform all the usual duties incident to their respective offices.

(a) President. The President shall be the chief executive officer of the Corporation; he shall preside at all meetings of the stockholders and of the Board of Directors; he shall have the management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect.

2

(b) Vice Presidents. During the absence or disability of the President, the Vice President, or if there are more than one, the Executive Vice President, shall have all the powers and function of the President. Each Vice President shall perform such other duties as the Board of Directors shall prescribe.

(c) Secretary. The Secretary shall: attend all meetings of the Board of Directors and all meetings of the stockholders; record all votes and minutes of all proceedings in a book to be kept for that purpose; give or cause to be given notice of all meetings of stockholders and of the special meetings of the Board of Directors; keep in safe custody the seal of the Corporation and affix it to any instrument when authorized by the Board of Directors; when required, prepare a list of stockholders or cause to be prepared and available at each meeting of stockholders entitled to vote thereat, indicating the number of shares of each respective class held by each; keep all the documents and records of the Corporation as required by law or otherwise in a proper and safe manner, and perform such other duties as may be prescribed by the Board of Directors.

(d) Assistant Secretaries. During the absence of disability of the Secretary, the Assistant Secretary, or if there are more than one, the one so designated by the Secretary or by the Board of Directors, shall have all the powers and functions of the Secretary.

(e) Treasurer. The Treasurer shall: have the custody of the corporate funds and securities; keep full and accurate accounts of receipts and disbursements in the corporate books; deposit all money and other valuables in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors; disburse the funds of the Corporation as may be ordered or authorized by the Board of Directors and preserve proper vouchers for such disbursements; render to the Chairman, President and Board of Directors at the regular meetings of the Board of Directors, or whenever they require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation; render a full financial report at the annual meetings of the stockholders if so requested; be furnished by all corporate officers and agents at his request, with such reports and statements as he may require as to all financial transactions of the Corporation; and perform such other duties as are given to him by the By-Laws or as from time to time are assigned to him by the Board of Directors or the President.

3

(f) Assistant Treasurers. During the absence or disability of the Treasurer, the Assistant Treasurer, or if there are more than one, the one so designated by the Secretary or by the Board of Directors, shall have all the powers and functions of the Treasurer.

ARTICLE IV

INDEMNIFICATION

To the fullest extent permitted by the Delaware General Corporation Law, the Corporation shall indemnify any current or former Director or officer of the Corporation and may, at the discretion of the Board of Directors, indemnify any current or former employee or agent of the Corporation against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with any threatened, pending or completed action, suit or proceeding brought by or in the right of the Corporation or otherwise, to which he or she was or is a party by reason of his or her current or former position with the Corporation or by reason of the fact that he or she is or was serving, at the request of the Corporation, as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise.

ARTICLE V

GENERAL PROVISIONS

Section 1. Notices. Whenever any statute, the Certificate of Incorporation or these By-Laws require notice to be given to any Director or stockholder, such notice may be given in writing by mail, addressed to such Director or stockholder at his or her address as it appears in the records of the Corporation, with postage thereon prepaid. Such notice shall be deemed to have been given when it is deposited in the United States mail. Notice to Directors may also be given by telegram or by facsimile transmission.

Section 2. Fiscal Year. The fiscal year of the Corporation shall be fixed by the Board of Directors.

4

EX-3.3

Exhibit 3.3

CERTIFICATE OF INCORPORATION

Companies Act

		I HEREBY CERTIFY that this is a true copy of a document filed in the office of the Registrar of Joint Stock Companies on the 20 day of July, 2004
Registry Number		/s/ Illegible
3091724	For	Registrar of Joint Stock Companies
		Dated 27 day of April, 2005

Name of Company

BORDEN NOVA SCOTIA FINANCE, ULC

I hereby certify that the above-mentioned company was incorporated this date under the Companies Act and that the liability of the members is unlimited.

Original Signed By:	July 20, 2004
Agent of the Registrar of Joint Stock Companies	Date of Incorporation

RECEIVED

July 20, 2004

Office of Registrar

of Joint Stock Companies

Nova Scotia

MEMORANDUM OF ASSOCIATION

OF

BORDEN NOVA SCOTIA FINANCE, ULC

1. The name of the Company is Borden Nova Scotia Finance, ULC.

2. There are no restrictions on the objects and powers of the Company and the Company shall expressly have the following powers:

(1) to sell or dispose of its undertaking, or a substantial part thereof;

(2) to distribute any of its property in specie among its members; and

(3) to amalgamate with any company or other body of persons.

3. The liability of the members is unlimited.

I, the undersigned, whose name, address and occupation are subscribed, am desirous of being formed into a company in pursuance of this Memorandum of Association, and I agree to take the number and kind of shares in the capital stock of the Company written below my name.

/s/ Charles S. Reagh

Name of Subscriber: Charles S. Reagh

800-1959 Upper Water Street, Halifax, NS B3J 2X2

Occupation: Solicitor

Number of shares subscribed: One common share

TOTAL SHARES TAKEN: one common share

Dated this 20th day of July, 2004.

Witness to above signature:	/s/ Amy Smith
	Name of Witness: Amy Smith
	800-1959 Upper Water Street, Halifax, NS B3J 2X2
	Occupation: Legal Assistant

I HEREBY CERTIFY that this is a true copy of a document filed in the office of the Registrar of Joint Stock Companies on the 20 day of July, 2004
	/s/ Illegible
For	Registrar of Joint Stock Companies
	Dated 25 day of April, 2005

RECEIVED

July 20, 2004

OFFICE OF REGISTRAR

OF JOINT STOCK COMPANIES

NOVA SCOTIA

MEMORANDUM OF ASSOCIATION

OF

BORDEN NOVA SCOTIA FINANCE, ULC

1. The name of the Company is Borden Nova Scotia Finance, ULC.

2. There are no restrictions on the objects and powers of the Company and the Company shall expressly have the following powers:

(1) to sell or dispose of its undertaking, or a substantial part thereof;

(2) to distribute any of its property in specie among its members; and

(3) to amalgamate with any company or other body of persons.

3. The liability of the members is unlimited.

I, the undersigned, whose name, address and occupation are subscribed, am desirous of being formed into a company in pursuance of this Memorandum of Association, and I agree to take the number and kind of shares in the capital stock of the Company written below my name.

/s/ Charles S. Reagh

Name of Subscriber: Charles S. Reagh

800-1959 Upper Water Street, Halifax, NS B3J 2X2

Occupation: Solicitor

Number of shares subscribed: One common share

TOTAL SHARES TAKEN: one common share.

Dated this 20th day of July, 2004.

Witness to above signature:	/s/ Amy Smith
	Name of Witness: Amy Smith
	800-1959 Upper Water Street, Halifax, NS B3J 2X2
	Occupation: Legal Assistant

I HEREBY CERTIFY that this is a true copy of a document filed in the office of the Registrar of Joint Stock Companies on the 20th day of July, 2004
	/s/ Kim Perrier
For	Registrar of Joint Stock Companies

CERTIFICATE OF NAME CHANGE

Companies Act

Registry Number

3102560

Name of Company

BORDEN NOVA SCOTIA FINANCE, ULC

I hereby certify that the above-mentioned company has with approval of the Registrar of Joint Stocks changed its name to:

HEXION NOVA SCOTIA FINANCE, ULC

/s/ Illegible	July 14, 2005
Agent of the Registrar of Joint Stock Companies	Date of Name Change

	1505 Barrington St., 9th Flr.	Bus: 902 424-7770
	PO Box 1529	Fax: 902 424-4633
	Halifax, Nova Scotia
	B3J 2Y4

I hereby certify that the attached document is a true copy of a document filed in an electronic format in the office of the Registrar of Joint Stock Companies on the 14 day of July, 2005

/s/ Illegible

(either Registrar of Joint Stock Companies or Agent for the Registrar of Joint Stock Companies)

Dated the 14 day of July, 2005

BORDEN NOVA SCOTIA FINANCE, ULC

SHAREHOLDER’S RESOLUTION

BE IT RESOLVED as a Special Resolution of the Company that the name of the Company be, with the approval of the Registrar of Joint Stock Companies, changed from

BORDEN NOVA SCOTIA FINANCE, ULC

to

HEXION NOVA SCOTIA FINANCE, ULC

effective immediately following approval thereof by the Registrar of Joint Stock Companies and that application be made to the Registrar of Joint Stock Companies to enter the said new name on the register of companies in the place of the present name of the Company.

* * * * * * * * * * * * * * * * * * * * * * * * * *

CERTIFICATE

I hereby certify that the foregoing Resolution is a true copy of a Special Resolution duly passed on the 8th day of July, 2005 by being signed by all of the shareholders of the Company who would be entitled to vote on the Resolution at a meeting, all in accordance with the provisions of sub-section (1) of Section 92 of the Companies Act of Nova Scotia, and that the Resolution is a Special Resolution in accordance with the Companies Act of Nova Scotia.

WITNESS my hand and seal of the Company this 8th day of July, 2005.

/s/ Ellen G. Berndt

Name: Ellen G. Berndt

Position: Secretary

BORDEN NOVA SCOTIA FINANCE, ULC

FILED ELECTRONICALLY
in the computer records maintained by the
Registry of Joint Stock Companies
JUL 14 2005
Per:	/s/ W.M.
	STEWART MCKELVEY STIRLING SCALES

EX-3.4

Exhibit 3.4

ARTICLES OF ASSOCIATION

OF

BORDEN NOVA SCOTIA FINANCE, ULC

INTERPRETATION

1. In these Articles, unless there be something in the subject or context inconsistent therewith:

(1) “Act” means the Companies Act (Nova Scotia);

(2) “Articles” means these Articles of Association of the Company and all amendments hereto;

(3) “Company” means the company named above;

(4) “director” means a director of the Company;

(5) “Memorandum” means the Memorandum of Association of the Company and all amendments thereto;

(6) “month” means calendar month;

(7) “Office” means the registered office of the Company;

(8) “person” includes a body corporate;

(9) “proxyholder” includes an alternate proxyholder;

(10) “Register” means the register of members kept pursuant to the Act, and where the context permits includes a branch register of members;

(11) “Registrar” means the Registrar as defined in the Act;

(12) “Secretary” includes any person appointed to perform the duties of the Secretary temporarily;

(13) “shareholder” means member as that term is used in the Act in connection with an unlimited company having share capital and as that term is used in the Memorandum;

(14) “special resolution” has the meaning assigned by the Act;

(15) “in writing” and “written” includes printing, lithography and other modes of representing or reproducing words in visible form;

(16) words importing number or gender include all numbers and genders unless the context otherwise requires.

2. The regulations in Table A in the First Schedule to the Act shall not apply to the Company.

3. The directors may enter into and carry into effect or adopt and carry into effect any agreement made by the promoters of the Company on behalf of the Company and may agree to any modification in the terms of any such agreement, either before or after its execution.

4. The directors may, out of the funds of the Company, pay all expenses incurred for the incorporation and organization of the Company.

5. The Company may commence business on the day following incorporation or so soon thereafter as the directors think fit, notwithstanding that part only of the shares has been allotted.

SHARES

6. The capital of the company shall consist of 100,000 common shares without nominal or par value, with the power to divide the shares in the capital for the time being into classes or series and to attach thereto respectively any preferred, deferred or qualified rights, privileges or conditions, including restrictions on voting rights and including redemption, purchase and other acquisition of such shares, subject, however, to the provisions of the Act.

7. The directors shall control the shares and, subject to the provisions of these Articles, may allot or otherwise dispose of them to such person at such times, on such terms and conditions and, if the shares have a par value, either at a premium or at par, as they think fit.

8. The directors may pay on behalf of the Company a reasonable commission to any person in consideration of subscribing or agreeing to subscribe (whether absolutely or conditionally) for any shares in the Company, or procuring or agreeing to procure subscriptions (whether absolute or conditional) for any shares in the Company. Subject to the Act, the commission may be paid or satisfied in shares of the Company.

9. On the issue of shares the Company may arrange among the holders thereof differences in the calls to be paid and in the times for their payment.

10. If the whole or part of the allotment price of any shares is, by the conditions of their allotment, payable in instalments, every such instalment shall, when due, be payable to the Company by the person who is at such time the registered holder of the shares.

11. Shares may be registered in the names of joint holders not exceeding three in number.

12. Joint holders of a share shall be jointly and severally liable for the payment of all instalments and calls due in respect of such share. On the death of one or more joint holders of shares the survivor or survivors of them shall alone be recognized by the Company as the registered holder or holders of the shares.

13. Save as herein otherwise provided, the Company may treat the registered holder of any share as the absolute owner thereof and accordingly shall not, except as ordered by a court of

- 2 -

competent jurisdiction or required by statute, be bound to recognize any equitable or other claim to or interest in such share on the part of any other person.

14. The Company is a private company, as such term is used in the Securities Act (Nova Scotia), and:

(1) no transfer of any share of the Company shall be effective unless or until approved by the directors;

(2) the number of holders of issued and outstanding shares of the Company, exclusive of persons who are in the employment of the Company or in the employment of an affiliate of the Company and exclusive of persons who, having been formerly in the employment of the Company or the employment of an affiliate of the Company, were, while in that employment, and have continued after termination of that employment, to own at least one prescribed security or share of the Company, shall not exceed 50 in number, two or more persons or companies who are the joint registered owners of one or more shares being counted as one holder; and

(3) the Company shall not invite the public to subscribe for any of its shares.

CERTIFICATES

15. Certificates of title to shares shall comply with the Act and may otherwise be in such form as the directors may from time to time determine. Unless the directors otherwise determine, every certificate of title to shares shall be signed manually by at least one of the Chairman, President, Secretary, Treasurer, a vice-president, an assistant secretary, any other officer of the Company or any director of the Company or by or on behalf of a share registrar transfer agent or branch transfer agent appointed by the Company or by any other person whom the directors may designate. When signatures of more than one person appear on a certificate all but one may be printed or otherwise mechanically reproduced. All such certificates when signed as provided in this Article shall be valid and binding upon the Company. If a certificate contains a printed or mechanically reproduced signature of a person, the Company may issue the certificate, notwithstanding that the person has ceased to be a director or an officer of the Company and the certificate is as valid as if such person were a director or an officer at the date of its issue.

16. Except as the directors may determine, each shareholder’s shares may be evidenced by any number of certificates so long as the aggregate of the shares stipulated in such certificates equals the aggregate registered in the name of the shareholder.

17. Where shares are registered in the names of two or more persons, the Company shall not be bound to issue more than one certificate or set of certificates, and such certificate or set of certificates shall be delivered to the person first named on the Register.

18. Any certificate that has become worn, damaged or defaced may, upon its surrender to the directors, be cancelled and replaced by a new certificate. Any certificate that has become lost

- 3 -

or destroyed may be replaced by a new certificate upon proof of such loss or destruction to the satisfaction of the directors and the furnishing to the Company of such undertakings of indemnity as the directors deem adequate.

19. The sum of one dollar or such other sum as the directors from time to time determine shall be paid to the Company for every certificate other than the first certificate issued to any holder in respect of any share or shares.

20. The directors may cause one or more branch Registers of shareholders to be kept in any place or places, whether inside or outside of Nova Scotia.

CALLS

21. The directors may make such calls upon the shareholders in respect of all amounts unpaid on the shares held by them respectively and not made payable at fixed times by the conditions on which such shares were allotted, and each shareholder shall pay the amount of every call so made to the person and at the times and places appointed by the directors. A call may be made payable by instalments.

22. A call shall be deemed to have been made at the time when the resolution of the directors authorizing such call was passed.

23. At least 14 days’ notice of any call shall be given, and such notice shall specify the time and place at which and the person to whom such call shall be paid.

24. If the sum payable in respect of any call or instalment is not paid on or before the day appointed for the payment thereof, the holder for the time being of the share in respect of which the call has been made or the instalment is due shall pay interest on such call or instalment at the rate of 9% per year or such other rate of interest as the directors may determine from the day appointed for the payment thereof up to the time of actual payment.

25. At the trial or hearing of any action for the recovery of any amount due for any call, it shall be sufficient to prove that the name of the shareholder sued is entered on the Register as the holder or one of the holders of the share or shares in respect of which such debt accrued, that the resolution making the call is duly recorded in the minute book and that such notice of such call was duly given to the shareholder sued in pursuance of these Articles. It shall not be necessary to prove the appointment of the directors who made such call or any other matters whatsoever and the proof of the matters stipulated shall be conclusive evidence of the debt.

FORFEITURE OF SHARES

26. If any shareholder fails to pay any call or instalment on or before the day appointed for payment, the directors may at any time thereafter while the call or instalment remains unpaid serve a notice on such shareholder requiring payment thereof together with any interest that may have accrued and all expenses that may have been incurred by the Company by reason of such non-payment.

- 4 -

27. The notice shall name a day (not being less than 14 days after the date of the notice) and a place or places on and at which such call or instalment and such interest and expenses are to be paid. The notice shall also state that, in the event of non-payment on or before the day and at the place or one of the places so named, the shares in respect of which the call was made or instalment is payable will be liable to be forfeited.

28. If the requirements of any such notice are not complied with, any shares in respect of which such notice has been given may at any time thereafter, before payment of all calls or instalments, interest and expenses due in respect thereof, be forfeited by a resolution of the directors to that effect. Such forfeiture shall include all dividends declared in respect of the forfeited shares and not actually paid before the forfeiture.

29. When any share has been so forfeited, notice of the resolution shall be given to the shareholder in whose name it stood immediately prior to the forfeiture and an entry of the forfeiture shall be made in the Register.

30. Any share so forfeited shall be deemed the property of the Company and the directors may sell, re-allot or otherwise dispose of it in such manner as they think fit.

31. The directors may at any time before any share so forfeited has been sold, re-allotted or otherwise disposed of, annul the forfeiture thereof upon such conditions as they think fit.

32. Any shareholder whose shares have been forfeited shall nevertheless be liable to pay and shall forthwith pay to the Company all calls, instalments, interest and expenses owing upon or in respect of such shares at the time of the forfeiture together with interest thereon at the rate of 9% per year or such other rate of interest as the directors may determine from the time of forfeiture until payment. The directors may enforce such payment if they think fit, but are under no obligation to do so.

33. A certificate signed by the Secretary stating that a share has been duly forfeited on a specified date in pursuance of these Articles and the time when it was forfeited shall be conclusive evidence of the facts therein stated as against any person who would have been entitled to the share but for such forfeiture.

LIEN ON SHARES

34. The Company shall have a first and paramount lien upon all shares (other than fully paid-up shares) registered in the name of a shareholder (whether solely or jointly with others) and upon the proceeds from the sale thereof for debts, liabilities and other engagements of the shareholder, solely or jointly with any other person, to or with the Company, whether or not the period for the payment, fulfilment or discharge thereof has actually arrived, and such lien shall extend to all dividends declared in respect of such shares. Unless otherwise agreed, the registration of a transfer of shares shall operate as a waiver of any lien of the Company on such shares.

- 5 -

35. For the purpose of enforcing such lien the directors may sell the shares subject to it in such manner as they think fit, but no sale shall be made until the period for the payment, fulfilment or discharge of such debts, liabilities or other engagements has arrived, and until notice in writing of the intention to sell has been given to such shareholder or the shareholder’s executors or administrators and default has been made by them in such payment, fulfilment or discharge for seven days after such notice.

36. The net proceeds of any such sale after the payment of all costs shall be applied in or towards the satisfaction of such debts, liabilities or engagements and the residue, if any, paid to such shareholder.

VALIDITY OF SALES

37. Upon any sale after forfeiture or to enforce a lien in purported exercise of the powers given by these Articles the directors may cause the purchaser’s name to be entered in the Register in respect of the shares sold, and the purchaser shall not be bound to see to the regularity of the proceedings or to the application of the purchase money, and after the purchaser’s name has been entered in the Register in respect of such shares the validity of the sale shall not be impeached by any person and the remedy of any person aggrieved by the sale shall be in damages only and against the Company exclusively.

TRANSFER OF SHARES

38. The instrument of transfer of any share in the Company shall be signed by the transferor. The transferor shall be deemed to remain the holder of such share until the name of the transferee is entered in the Register in respect thereof and shall be entitled to receive any dividend declared thereon before the registration of the transfer.

39. The instrument of transfer of any share shall be in writing in the following form or to the following effect:

For value received,          hereby sell, assign, and transfer unto             ,              shares in the capital of the Company represented by the within certificate, and do hereby irrevocably constitute and appoint              attorney to transfer such shares on the books of the Company with full power of substitution in the premises.

Dated the      day of             ,             

Witness:

40. The directors may, without assigning any reason therefor, decline to register any transfer of shares

(1) not fully paid-up or upon which the Company has a lien, or

(2) the transfer of which is restricted by any agreement to which the Company is a party.

- 6 -

41. Every instrument of transfer shall be left for registration at the Office of the Company, or at any office of its transfer agent where a Register is maintained, together with the certificate of the shares to be transferred and such other evidence as the Company may require to prove title to or the right to transfer the shares.

42. The directors may require that a fee determined by them be paid before or after registration of any transfer.

43. Every instrument of transfer shall, after its registration, remain in the custody of the Company. Any instrument of transfer that the directors decline to register shall, except in case of fraud, be returned to the person who deposited it.

TRANSMISSION OF SHARES

44. The executors or administrators of a deceased shareholder (not being one of several joint holders) shall be the only persons recognized by the Company as having any title to the shares registered in the name of such shareholder. When a share is registered in the names of two or more joint holders, the survivor or survivors or the executors or administrators of the deceased shareholder, shall be the only persons recognized by the Company as having any title to, or interest in, such share.

45. Notwithstanding anything in these Articles, if the Company has only one shareholder (not being one of several joint holders) and that shareholder dies, the executors or administrators of the deceased shareholder shall be entitled to register themselves in the Register as the holders of the shares registered in the name of the deceased shareholder whereupon they shall have all the rights given by these Articles and by law to shareholders.

46. Any person entitled to shares upon the death or bankruptcy of any shareholder or in any way other than by allotment or transfer, upon producing such evidence of entitlement as the directors require, may be registered as a shareholder in respect of such shares, or may, without being registered, transfer such shares subject to the provisions of these Articles respecting the transfer of shares. The directors shall have the same right to refuse registration as if the transferee were named in an ordinary transfer presented for registration.

SURRENDER OF SHARES

47. The directors may accept the surrender of any share by way of compromise of any question as to the holder being properly registered in respect thereof. Any share so surrendered may be disposed of in the same manner as a forfeited share.

INCREASE AND REDUCTION OF CAPITAL

48. Subject to the Act, the shareholders may by special resolution amend these Articles to increase or alter the share capital of the Company as they think expedient. Without prejudice to any special rights previously conferred on the holders of existing shares, any share may be issued with such preferred, deferred or other special rights, or with such restrictions, whether in

- 7 -

regard to dividends, voting, return of share capital or otherwise, as the shareholders may from time to time determine by special resolution. Except as otherwise provided by the conditions of issue, or by these Articles, any capital raised by the creation of new shares shall be considered part of the original capital and shall be subject to the provisions herein contained with reference to payment of calls and instalments, transfer and transmission, forfeiture, lien and otherwise.

49. The Company may, by special resolution where required, reduce its share capital in any way and with and subject to any incident authorized and consent required by law. Subject to the Act and any provisions attached to such shares, the Company may redeem, purchase or acquire any of its shares and the directors may determine the manner and the terms for redeeming, purchasing or acquiring such shares and may provide a sinking fund on such terms as they think fit for the redemption, purchase or acquisition of shares of any class or series.

MEETINGS AND VOTING BY CLASS OR SERIES

50. Where the holders of shares of a class or series have, under the Act, the terms or conditions attaching to such shares or otherwise, the right to vote separately as a class in respect of any matter then, except as provided in the Act, these Articles or such terms or conditions, all the provisions in these Articles concerning general meetings (including, without limitation, provisions respecting notice, quorum and procedure) shall, mutatis mutandis, apply to every meeting of holders of such class or series of shares convened for the purpose of such vote.

51. Unless the rights, privileges, terms or conditions attached to a class or series of shares provide otherwise, such class or series of shares shall not have the right to vote separately as a class or series upon an amendment to the Memorandum or Articles to:

(1) increase or decrease any maximum number of authorized shares of such class or series, or increase any maximum number of authorized shares of a class or series having rights or privileges equal or superior to the shares of such class or series;

(2) effect an exchange, reclassification or cancellation of all or part of the shares of such class or series; or

(3) create a new class or series of shares equal or superior to the shares of such class or series.

BORROWING POWERS

52. The directors on behalf of the Company may:

(1) raise or borrow money for the purposes of the Company or any of them;

(2) secure, subject to the sanction of a special resolution where required by the Act, the repayment of funds so raised or borrowed in such manner and upon such terms and conditions in all respects as they think fit, and in particular by the execution and

- 8 -

delivery of mortgages of the Company’s real or personal property, or by the issue of bonds, debentures or other securities of the Company secured by mortgage or other charge upon all or any part of the property of the Company, both present and future including its uncalled capital for the time being;

(3) sign or endorse bills, notes, acceptances, cheques, contracts, and other evidence of or securities for funds borrowed or to be borrowed for the purposes aforesaid;

(4) pledge debentures as security for loans;

(5) guarantee obligations of any person.

53. Bonds, debentures and other securities may be made assignable, free from any equities between the Company and the person to whom such securities were issued.

54. Any bonds, debentures and other securities may be issued at a discount, premium or otherwise and with special privileges as to redemption, surrender, drawings, allotment of shares, attending and voting at general meetings of the Company, appointment of directors and other matters.

GENERAL MEETINGS

55. Ordinary general meetings of the Company shall be held at least once in every calendar year at such time and place as may be determined by the directors and not later than 15 months after the preceding ordinary general meeting. All other meetings of the Company shall be called special general meetings. Ordinary or special general meetings may be held either within or without the Province of Nova Scotia.

56. The President, a vice-president or the directors may at any time convene a special general meeting, and the directors, upon the requisition of shareholders in accordance with the Act shall forthwith proceed to convene such meeting or meetings to be held at such time and place or times and places as the directors determine.

57. The requisition shall state the objects of the meeting requested, be signed by the requisitionists and deposited at the Office of the Company. It may consist of several documents in like form each signed by one or more of the requisitionists.

58. At least seven clear days’ notice, or such longer period of notice as may be required by the Act, of every general meeting, specifying the place, day and hour of the meeting and, when special business is to be considered, the general nature of such business, shall be given to the shareholders entitled to be present at such meeting by notice given as permitted by these Articles. With the consent in writing of all the shareholders entitled to vote at such meeting, a meeting may be convened by a shorter notice and in any manner they think fit, or notice of the time, place and purpose of the meeting may be waived by all of the shareholders.

- 9 -

59. When it is proposed to pass a special resolution, the two meetings may be convened by the same notice, and it shall be no objection to such notice that it only convenes the second meeting contingently upon the resolution being passed by the requisite majority at the first meeting.

60. The accidental omission to give notice to a shareholder, or non-receipt of notice by a shareholder, shall not invalidate any resolution passed at any general meeting.

RECORD DATES

61. (1)     The directors may fix in advance a date as the record date for the determination of shareholders

(a) entitled to receive payment of a dividend or entitled to receive any distribution;

(b) entitled to receive notice of a meeting; or

(c) for any other purpose.

(2) If no record date is fixed, the record date for the determination of shareholders

(a) entitled to receive notice of a meeting shall be the day immediately preceding the day on which the notice is given, or, if no notice is given, the day on which the meeting is held; and

(b) for any other purpose shall be the day on which the directors pass the resolution relating to the particular purpose.

PROCEEDINGS AT GENERAL MEETINGS

62. The business of an ordinary general meeting shall be to receive and consider the financial statements of the Company and the report of the directors and the report, if any, of the auditors, to elect directors in the place of those retiring and to transact any other business which under these Articles ought to be transacted at an ordinary general meeting.

63. No business shall be transacted at any general meeting unless the requisite quorum is present at the commencement of the business. A corporate shareholder of the Company that has a duly authorized agent or representative present at any such meeting shall for the purpose of this Article be deemed to be personally present at such meeting.

64. One person, being a shareholder, proxyholder or representative of a corporate shareholder, present and entitled to vote shall constitute a quorum for a general meeting, and may hold a meeting.

65. The Chairman shall be entitled to take the chair at every general meeting or, if there be no Chairman, or if the Chairman is not present within fifteen 15 minutes after the time appointed

- 10 -

for holding the meeting, the President or, failing the President, a vice-president shall be entitled to take the chair. If the Chairman, the President or a vice-president is not present within 15 minutes after the time appointed for holding the meeting or if all such persons present decline to take the chair, the shareholders present entitled to vote at the meeting shall choose another director as chairman and if no director is present or if all the directors present decline to take the chair, then such shareholders shall choose one of their number to be chairman.

66. If within half an hour from the time appointed for a general meeting a quorum is not present, the meeting, if it was convened pursuant to a requisition of shareholders, shall be dissolved; if it was convened in any other way, it shall stand adjourned to the same day, in the next week, at the same time and place. If at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting, the shareholders present shall be a quorum and may hold the meeting.

67. Subject to the Act, at any general meeting a resolution put to the meeting shall be decided by a show of hands unless, either before or on the declaration of the result of the show of hands, a poll is demanded by the chairman, a shareholder or a proxyholder; and unless a poll is so demanded, a declaration by the chairman that the resolution has been carried, carried by a particular majority, lost or not carried by a particular majority and an entry to that effect in the Company’s book of proceedings shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour or against such resolution.

68. When a poll is demanded, it shall be taken in such manner and at such time and place as the chairman directs, and either at once or after an interval or adjournment or otherwise. The result of the poll shall be the resolution of the meeting at which the poll was demanded. The demand of a poll may be withdrawn. When any dispute occurs over the admission or rejection of a vote, it shall be resolved by the chairman and such determination made in good faith shall be final and conclusive.

69. The chairman shall not have a casting vote in addition to any vote or votes that the chairman has as a shareholder.

70. The chairman of a general meeting may with the consent of the meeting adjourn the meeting from time to time and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting that was adjourned.

71. Any poll demanded on the election of a chairman or on a question of adjournment shall be taken forthwith without adjournment.

72. The demand of a poll shall not prevent the continuance of a meeting for the transaction of any business other than the question on which a poll has been demanded.

- 11 -

VOTES OF SHAREHOLDERS

73. Subject to the Act and to any provisions attached to any class or series of shares concerning or restricting voting rights:

(1) on a show of hands every shareholder entitled to vote present in person, every duly authorized representative of a corporate shareholder, and, if not prevented from voting by the Act, every proxyholder, shall have one vote; and

(2) on a poll every shareholder present in person, every duly authorized representative of a corporate shareholder, and every proxyholder, shall have one vote for every share held;

whether or not such representative or proxyholder is a shareholder.

74. Any person entitled to transfer shares upon the death or bankruptcy of any shareholder or in any way other than by allotment or transfer may vote at any general meeting in respect thereof in the same manner as if such person were the registered holder of such shares so long as the directors are satisfied at least 48 hours before the time of holding the meeting of such person’s right to transfer such shares.

75. Where there are joint registered holders of any share, any of such holders may vote such share at any meeting, either personally or by proxy, as if solely entitled to it. If more than one joint holder is present at any meeting, personally or by proxy, the one whose name stands first on the Register in respect of such share shall alone be entitled to vote it. Several executors or administrators of a deceased shareholder in whose name any share stands shall for the purpose of this Article be deemed joint holders thereof.

76. Votes may be cast either personally or by proxy or, in the case of a corporate shareholder by a representative duly authorized under the Act.

77. A proxy shall be in writing and executed in the manner provided in the Act. A proxy or other authority of a corporate shareholder does not require its seal.

78. A shareholder of unsound mind in respect of whom an order has been made by any court of competent jurisdiction may vote by guardian or other person in the nature of a guardian appointed by that court, and any such guardian or other person may vote by proxy.

79. A proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power or authority shall be deposited at the Office of the Company or at such other place as the directors may direct. The directors may, by resolution, fix a time not exceeding 48 hours excluding Saturdays and holidays preceding any meeting or adjourned meeting before which time proxies to be used at that meeting must be deposited with the Company at its Office or with an agent of the Company. Notice of the requirement for depositing proxies shall be given in the notice calling the meeting. The chairman of the meeting shall determine all questions as to validity of proxies and other instruments of authority.

- 12 -

80. A vote given in accordance with the terms of a proxy shall be valid notwithstanding the previous death of the principal, the revocation of the proxy, or the transfer of the share in respect of which the vote is given, provided no intimation in writing of the death, revocation or transfer is received at the Office of the Company before the meeting or by the chairman of the meeting before the vote is given.

81. Every form of proxy shall comply with the Act and its regulations and subject thereto may be in the following form:

I,              of              being a shareholder of                      hereby appoint                      of                  (or failing him/her                  of                  ) as my proxyholder to attend and to vote for me and on my behalf at the                  ordinary/special general meeting of the Company, to be held on the      day of              and at any adjournment thereof, or at any meeting of the Company which may be held prior to [insert specified date or event].

[If the proxy is solicited by or behalf of the management of the Company, insert a statement to that effect.]

Dated this          day of                      .

Shareholder

82. Subject to the Act, no shareholder shall be entitled to be present or to vote on any question, either personally or by proxy, at any general meeting or be reckoned in a quorum while any call is due and payable to the Company in respect of any of the shares of such shareholder.

83. Any resolution passed by the directors, notice of which has been given to the shareholders in the manner in which notices are hereinafter directed to be given and which is, within one month after it has been passed, ratified and confirmed in writing by shareholders entitled on a poll to three-fifths of the votes, shall be as valid and effectual as a resolution of a general meeting. This Article shall not apply to a resolution for winding up the Company or to a resolution dealing with any matter that by statute or these Articles ought to be dealt with by a special resolution or other method prescribed by statute.

84. A resolution, including a special resolution, in writing and signed by every shareholder who would be entitled to vote on the resolution at a meeting is as valid as if it were passed by such shareholders at a meeting and satisfies all of the requirements of the Act respecting meetings of shareholders.

- 13 -

DIRECTORS

85. Unless otherwise determined by resolution of shareholders, the number of directors shall not be less than one or more than ten.

- 14 -

86. Notwithstanding anything herein contained the subscribers to the Memorandum shall be the first directors of the Company.

87. The directors may be paid out of the funds of the Company as remuneration for their service such sums, if any, as the Company may by resolution of its shareholders determine, and such remuneration shall be divided among them in such proportions and manner as the directors determine. The directors may also be paid their reasonable travelling, hotel and other expenses incurred in attending meetings of directors and otherwise in the execution of their duties as directors.

88. The continuing directors may act notwithstanding any vacancy in their body, but if their number falls below the minimum permitted, the directors shall not, except in emergencies or for the purpose of filling vacancies, act so long as their number is below the minimum.

89. A director may, in conjunction with the office of director, and on such terms as to remuneration and otherwise as the directors arrange or determine, hold any other office or place of profit under the Company or under any company in which the Company is a shareholder or is otherwise interested.

90. the office of a director shall ipso facto be vacated, if the director:

(1) becomes bankrupt or makes an assignment for the benefit of creditors;

(2) is, or is found by a court of competent jurisdiction to be, of unsound mind;

(3) by notice in writing to the Company, resigns the office of director; or

(4) is removed in the manner provided by these Articles.

91. No director shall be disqualified by holding the office of director from contracting with the Company, either as vendor, purchaser, or otherwise, nor shall any such contract, or any contract or arrangement entered into or proposed to be entered into by or on behalf of the Company in which any director is in any way interested, either directly or indirectly, be avoided, nor shall any director so contracting or being so interested be liable to account to the Company for any profit realized by any such contract or arrangement by reason only of such director holding that office or of the fiduciary relations thereby established, provided the director makes a declaration or gives a general notice in accordance with the Act. No director shall, as a director, vote in respect of any contract or arrangement in which the director is so interested, and if the director does so vote, such vote shall not be counted. This prohibition may at any time or times be suspended or relaxed to any extent by a resolution of the shareholders and shall not apply to any contract by or on behalf of the Company to give to the directors or any of them any security for advances or by way of indemnity.

- 15 -

ELECTION OF DIRECTORS

92. At the dissolution of every ordinary general meeting at which their successors are elected, all the directors shall retire from office and be succeeded by the directors elected at such meeting. Retiring directors shall be eligible for re-election.

93. If at any ordinary general meeting at which an election of directors ought to take place no such election takes place, or if no ordinary general meeting is held in any year or period of years, the retiring directors shall continue in office until their successors are elected.

94. The Company may by resolution of its shareholders elect any number of directors permitted by these Articles and may determine or alter their qualification.

95. The Company may, by special resolution or in any other manner permitted by statute, remove any director before the expiration of such director’s period of office and may, if desired, appoint a replacement to hold office during such time only as the director so removed would have held office.

96. The directors may appoint any other person as a director so long as the total number of directors does not at any time exceed the maximum number permitted. No such appointment, except to fill a casual vacancy, shall be effective unless two-thirds of the directors concur in it. Any casual vacancy occurring among the directors maybe filled by the directors, but any person so chosen shall retain office only so long as the vacating director would have retained it if the vacating director had continued as director.

MANAGING DIRECTOR

97. The directors may appoint one or more of their body to be managing directors of the Company, either for a fixed term or otherwise , and may remove or dismiss them from office and appoint replacements.

98. Subject to the provisions of any contract between a managing director and the Company, a managing director shall be subject to the same provisions as to resignation and removal as the other directors of the Company. A managing director who for any reason ceases to hold the office of director shall ipso facto immediately cease to be a managing director.

99. The remuneration of a managing director shall from time to time be fixed by the directors and may be by way of any or all of salary, commission and participation in profits.

100. The directors may from time to time entrust to and confer upon a managing director such of the powers exercisable under these Articles by the directors as they think fit, and may confer such powers for such time, and to be exercised for such objects and purposes and upon such terms and conditions, and with such restrictions as they think expedient; and they may confer such powers either collaterally with, or to the exclusion of, and in substitution for, all or any of the powers of the directors in that behalf; and may from time to time revoke, withdraw, alter or vary all or any of such powers.

- 16 -

CHAIRMAN OF THE BOARD

101. The directors may elect one of their number to be Chairman and may determine the period during which the Chairman is to hold office. The Chairman shall perform such duties and receive such special remuneration as the directors may provide.

PRESIDENT AND VICE-PRESIDENTS

102. The directors shall elect the President of the Company, who need not be a director, and may determine the period for which the President is to hold office. The President shall have general supervision of the business of the Company and shall perform such duties as maybe assigned from time to time by the directors.

103. The directors may also elect vice-presidents, who need not be directors, and may determine the periods for which they are to hold office. A vice-president shall, at the request of the President or the directors and subject to the directions of the directors, perform the duties of the President during the absence, illness or incapacity of the President, and shall also perform such duties as may be assigned by the President or the directors.

SECRETARY AND TREASURER

104. The directors shall appoint a Secretary of the Company to keep minutes of shareholders’ and directors’ meetings and perform such other duties as may be assigned by the directors. The directors may also appoint a temporary substitute for the Secretary who shall, for the purposes of these Articles, be deemed to be the Secretary.

105. The directors may appoint a treasurer of the Company to carry out such duties as the directors may assign.

OFFICERS

106. The directors may elect or appoint such other officers of the Company, having such powers and duties, as they think fit.

107. If the directors so decide the same person may hold more than one of the offices provided for in these Articles.

PROCEEDINGS OF DIRECTORS

108. The directors may meet together for the dispatch of business, adjourn and otherwise regulate their meetings and proceedings, as they think fit, and may determine the quorum necessary for the transaction of business. Until otherwise determined, one director shall constitute a quorum and may hold a meeting.

- 17 -

109. If all directors of the Company entitled to attend a meeting either generally or specifically consent, a director may participate in a meeting of directors or of a committee of directors by means of such telephone or other communications facilities as permit all persons participating in the meeting to hear each other, and a director participating in such a meeting by such means is deemed to be present at that meeting for purposes of these Articles.

110. Meetings of directors may be held either within or without the Province of Nova Scotia and the directors may from time to time make arrangements relating to the time and place of holding directors’ meetings, the notices to be given for such meetings and what meetings may be held without notice. Unless otherwise provided by such arrangements:

(1) A meeting of directors may be held at the close of every ordinary general meeting of the Company without notice.

(2) Notice of every other directors’ meeting may be given as permitted by these Articles to each director at least 48 hours before the time fixed for the meeting.

(3) A meeting of directors may be held without formal notice if all the directors are present or if those absent have signified their assent to such meeting or their consent to the business transacted at such meeting.

111. The President or any director may at any time, and the Secretary, upon the request of the President or any director, shall summon a meeting of the directors to be held at the Office of the Company. The President, the Chairman or a majority of the directors may at any time, and the Secretary, upon the request of the President, the Chairman or a majority of the directors shall, summon a meeting to be held elsewhere.

112.  (1) Questions arising at any meeting of directors shall be decided by a majority of votes. The chairman of the meeting may vote as a director but shall not have a second or casting vote.

(2) At any meeting of directors the chairman shall receive and count the vote of any director not present in person at such meeting on any question or matter arising at such meeting whenever such absent director has indicated by telegram, letter or other writing lodged with the chairman of such meeting the manner in which the absent director desires to vote on such question or matter and such question or matter has been specifically mentioned in the notice calling the meeting as a question or matter to be discussed or decided thereat. In respect of any such question or matter so mentioned in such notice any director may give to any other director a proxy authorizing such other director to vote for such first named director at such meeting, and the chairman of such meeting, after such proxy has been so lodged, shall receive and count any vote given in pursuance thereof notwithstanding the absence of the director giving such proxy.

113. If no Chairman is elected, or if at any meeting of directors the Chairman is not present within five minutes after the time appointed for holding the meeting, or declines to take the chair, the

- 18 -

President, if a director, shall preside. If the President is not a director, is not present at such time or declines to take the chair, a vice-president who is also a director shall preside. If no person described above is present at such time and willing to take the chair, the directors present shall choose some one of their number to be chairman of the meeting.

114. A meeting of the directors at which a quorum is present shall be competent to exercise all or any of the authorities, powers and discretions for the time being vested in or exercisable by the directors generally.

115. The directors may delegate any of their powers to committees consisting of such number of directors as they think fit. Any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on them by the directors.

116. The meetings and proceedings of any committee of directors shall be governed by the provisions contained in these Articles for regulating the meetings and proceedings of the directors insofar as they are applicable and are not superseded by any regulations made by the directors.

117. All acts done at any meeting of the directors or of a committee of directors or by any person acting as a director shall, notwithstanding that it is afterwards discovered that there was some defect in the appointment of the director or person so acting, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a director.

118. A resolution in writing and signed by every director who would be entitled to vote on the resolution at a meeting is as valid as if it were passed by such directors at a meeting.

119. If any one or more of the directors is called upon to perform extra services or to make any special exertions in going or residing abroad or otherwise for any of the purposes of the Company or the business thereof, the Company may remunerate the director or directors so doing, either by a fixed sum or by a percentage of profits or otherwise. Such remuneration shall be determined by the directors and may be either in addition to or in substitution for remuneration otherwise authorized by these Articles.

REGISTERS

120. The directors shall cause to be kept at the Company’s Office in accordance with the provisions of the Act a Register of the shareholders of the Company, a register of the holders of bonds, debentures and other securities of the Company and a register of its directors. Branch registers of the shareholders and of the holders of bonds, debentures and other securities may be kept elsewhere, either within or without the Province of Nova Scotia, in accordance with the Act.

- 19 -

MINUTES

121. The directors shall cause minutes to be entered in books designated for the purpose:

(1) of all appointments of officers;

(2) of the names of directors present at each meeting of directors and of any committees of directors;

(3) of all orders made by the directors and committees of directors; and

(4) of all resolutions and proceedings of meetings of shareholders and of directors.

Any such minutes of any meeting of directors or of any committee of directors or of shareholders, if purporting to be signed by the chairman of such meeting or by the chairman of the next succeeding meeting, shall be receivable as prima facie evidence of the matters stated in such minutes.

POWERS OF DIRECTORS

122. The management of the business of the Company is vested in the directors who, in addition to the powers and authorities by these Articles or otherwise expressly conferred upon them, may exercise all such powers and do all such acts and things as may be exercised or done by the Company and are not hereby or by statute expressly directed or required to be exercised or done by the shareholders, but subject nevertheless to the provisions of any statute, the Memorandum or these Articles. No modification of the Memorandum or these Articles shall invalidate any prior act of the directors that would have been valid if such modification had not been made.

123. Without restricting the generality of the terms of any of these Articles and without prejudice to the powers conferred thereby, the directors may:

(1) take such steps as they think fit to carry out any agreement or contract made by or on behalf of the Company;

(2) pay costs, charges and expenses preliminary and incidental to the promotion, formation, establishment, and registration of the Company;

(3) purchase or otherwise acquire for the Company any property, rights or privileges that the Company is authorized to acquire, at such price and generally on such terms and conditions as they think fit;

(4) pay for any property, rights or privileges acquired by, or services rendered to the Company either wholly or partially in cash or in shares (fully paid-up or otherwise), bonds, debentures or other securities of the Company;

(5) subject to the Act, secure the fulfilment of any contracts or engagements entered into by the Company by mortgaging or charging all or any of the property of the Company and its unpaid capital for the time being, or in such other manner as they think fit;

- 20 -

(6) appoint, remove or suspend at their discretion such experts, managers, secretaries, treasurers, officers, clerks, agents and servants for permanent, temporary or special services, as they from time to time think fit, and determine their powers and duties and fix their salaries or emoluments and require security in such instances and to such amounts as they think fit;

(7) accept a surrender of shares from any shareholder insofar as the law permits and on such terms and conditions as may be agreed;

(8) appoint any person or persons to accept and hold in trust for the Company any property belonging to the Company, or in which it is interested, execute and do all such deeds and things as may be required in relation to such trust, and provide for the remuneration of such trustee or trustees;

(9) institute, conduct, defend, compound or abandon any legal proceedings by and against the Company, its directors or its officers or otherwise concerning the affairs of the Company, and also compound and allow time for payment or satisfaction of any debts due and of any claims or demands by or against the Company;

(10) refer any claims or demands by or against the Company to arbitration and observe and perform the awards;

(11) make and give receipts, releases and other discharges for amounts payable to the Company and for claims and demands of the Company;

(12) determine who may exercise the borrowing powers of the Company and sign on the Company’s behalf bonds, debentures or other securities, bills, notes, receipts, acceptances, assignments, transfers, hypothecations, pledges, endorsements, cheques, drafts, releases, contracts, agreements and all other instruments and documents;

(13) provide for the management of the affairs of the Company abroad in such manner as they think fit, and in particular appoint any person to be the attorney or agent of the Company with such powers (including power to sub-delegate) and upon such terms as may be thought fit;

(14) invest and deal with any funds of the Company in such securities and in such manner as they think fit; and vary or realize such investments;

(15) subject to the Act, execute in the name and on behalf of the Company in favour of any director or other person who may incur or be about to incur any personal liability for the benefit of the Company such mortgages of the Company’s property, present and future, as they think fit;

(16) give any officer or employee of the Company a commission on the profits of any particular business or transaction or a share in the general profits of the Company;

- 21 -

(17) set aside out of the profits of the Company before declaring any dividend such amounts as they think proper as a reserve fund to meet contingencies or provide for dividends, depreciation, repairing, improving and maintaining any of the property of the Company and such other purposes as the directors may in their absolute discretion think in the interests of the Company; and invest such amounts in such investments as they think fit, and deal with and vary such investments, and dispose of all or any part of them for the benefit of the Company, and divide the reserve fund into such special funds as they think fit, with full power to employ the assets constituting the reserve fund in the business of the Company without being bound to keep them separate from the other assets;

(18) make, vary and repeal rules respecting the business of the Company, its officers and employees, the shareholders of the Company or any section or class of them;

(19) enter into all such negotiations and contracts, rescind and vary all such contracts, and execute and do all such acts, deeds and things in the name and on behalf of the Company as they consider expedient for or in relation to any of the matters aforesaid or otherwise for the purposes of the Company;

(20) provide for the management of the affairs of the Company in such manner as they think fit.

SOLICITORS

124. The Company may employ or retain solicitors any of whom may, at the request or on the instruction of the directors, the Chairman, the President or a managing director, attend meetings of the directors or shareholders, whether or not the solicitor is a shareholder or a director of the Company. A solicitor who is also a director may nevertheless charge for services rendered to the Company as a solicitor.

THE SEAL

125. The directors shall arrange for the safe custody of the common seal of the Company (the “Seal”). The Seal may be affixed to any instrument in the presence of and contemporaneously with the attesting signature of (i) any director or officer acting within such person’s authority or (ii) any person under the authority of a resolution of the directors or a committee thereof. For the purpose of certifying documents or proceedings the Seal may be affixed by any director or the President, a vice-president, the Secretary, an assistant secretary or any other officer of the Company without the authorization of a resolution of the directors.

126. The Company may have facsimiles of the Seal which may be used interchangeably with the Seal.

127. The Company may have for use at any place outside the Province of Nova Scotia, as to all matters to which the corporate existence and capacity of the Company extends, an official seal that is a facsimile of the Seal of the Company with the addition on its face of the name of the

- 22 -

place where it is to be used; and the Company may by writing under its Seal authorize any person to affix such official seal at such place to any document to which the Company is a party.

DIVIDENDS

128. The directors may from time to time declare such dividend as they deem proper upon shares of the Company according to the rights and restrictions attached to any class or series of shares, and may determine the date upon which such dividend will be payable and that it will be payable to the persons registered as the holders of the shares on which it is declared at the close of business upon a record date. No transfer of such shares registered after the record date shall pass any right to the dividend so declared.

129. Dividends may be paid as permitted by law and, without limitation, may be paid out of the profits, retained earnings or contributed surplus of the Company. No interest shall be payable on any dividend except insofar as the rights attached to any class or series of shares provide otherwise.

130. The declaration of the directors as to the amount of the profits, retained earnings or contributed surplus of the Company shall be conclusive.

131. The directors may from time to time pay to the shareholders such interim dividends as in their judgment the position of the Company justifies.

132. Subject to these Articles and the rights and restrictions attached to any class or series of shares, dividends may be declared and paid to the shareholders in proportion to the amount of capital paid-up on the shares (not including any capital paid-up bearing interest) held by them respectively.

133. The directors may deduct from the dividends payable to any shareholder amounts due and payable by the shareholder to the Company on account of calls, installments or otherwise, and may apply the same in or towards satisfaction of such amounts so due and payable.

134. The directors may retain any dividends on which the Company has a lien, and may apply the same in or towards satisfaction of the debts, liabilities or engagements in respect of which the lien exists.

135. The directors may retain the dividends payable upon shares to which a person is entitled or entitled to transfer upon the death or bankruptcy of a shareholder or in any way other than by allotment or transfer, until such person has become registered as the holder of such shares or has duly transferred such shares.

136. When the directors declare a dividend on a class or series of shares and also make a call on such shares payable on or before the date on which the dividend is payable, the directors may retain all or part of the dividend and set off the amount retained against the call.

- 23 -

137. The directors may declare that a dividend be paid by the distribution of cash, paid-up shares (at par or at a premium), debentures, bonds or other securities of the Company or of any other company or any other specific assets held or to be acquired by the Company or in any one or more of such ways.

138. The directors may settle any difficulty that may arise in regard to the distribution of a dividend as they think expedient, and in particular without restricting the generality of the foregoing may issue fractional certificates, may fix the value for distribution of any specific assets, may determine that cash payments will be made to any shareholders upon the footing of the value so fixed or that fractions may be disregarded in order to adjust the rights of all parties, and may vest cash or specific assets in trustees upon such trusts for the persons entitled to the dividend as may seem expedient to the directors.

139. Any person registered as a joint holder of any share may give effectual receipts for all dividends and payments on account of dividends in respect of such share.

140. Unless otherwise determined by the directors, any dividend may be paid by a cheque or warrant delivered to or sent through the post to the registered address of the shareholder entitled, or, when there are joint holders, to the registered address of that one whose name stands first on the register for the shares jointly held. Every cheque or warrant so delivered or sent shall be made payable to the order of the person to whom it is delivered or sent. The mailing or other transmission to a shareholder at the shareholder’s registered address (or, in the case of joint shareholders at the address of the holder whose name stands first on the register) of a cheque payable to the order of the person to whom it is addressed for the amount of any dividend payable in cash after the deduction of any tax which the Company has properly withheld, shall discharge the Company’s liability for the dividend unless the cheque is not paid on due presentation. If any cheque for a dividend payable in cash is not received, the Company shall issue to the shareholder a replacement cheque for the same amount on such terms as to indemnity and evidence of non-receipt as the directors may impose. No shareholder may recover by action or other legal process against the Company any dividend represented by a cheque that has not been duly presented to a banker of the Company for payment or that otherwise remains unclaimed for 6 years from the date on which it was payable.

ACCOUNTS

141. The directors shall cause proper books of account to be kept of the amounts received and expended by the Company, the matters in respect of which such receipts and expenditures take place, all sales and purchases of goods by the Company, and the assets, credits and liabilities of the Company.

142. The books of account shall be kept at the head office of the Company or at such other place or places as the directors may direct.

143. The directors shall from time to time determine whether and to what extent and at what times and places and under what conditions the accounts and books of the Company or any of them

- 24 -

shall be open to inspection of the shareholders, and no shareholder shall have any right to inspect any account or book or document of the Company except as conferred by statute or authorized by the directors or a resolution of the shareholders.

144. At the ordinary general meeting in every year the directors shall lay before the Company such financial statements and reports in connection therewith as may be required by the Act or other applicable statute or regulation thereunder and shall distribute copies thereof at such times and to such persons as maybe required by statute or regulation.

AUDITORS AND AUDIT

145. Except in respect of a financial year for which the Company is exempt from audit requirements in the Act, the Company shall at each ordinary general meeting appoint an auditor or auditors to hold office until the next ordinary general meeting. If at any general meeting at which the appointment of an auditor or auditors is to take place and no such appointment takes place, or if no ordinary general meeting is held in any year or period of years, the directors shall appoint an auditor or auditors to hold office until the next ordinary general meeting.

146. The first auditors of the Company may be appointed by the directors at any time before the first ordinary general meeting and the auditors so appointed shall hold office until such meeting unless previously removed by a resolution of the shareholders, in which event the shareholders may appoint auditors.

147. The directors may fill any casual vacancy in the office of the auditor but while any such vacancy continues the surviving or continuing auditor or auditors, if any, may act.

148. The Company may appoint as auditor any person, including a shareholder, not disqualified by statute.

149. An auditor may be removed or replaced in the circumstances and in the manner specified in the Act.

150. The remuneration of the auditors shall be fixed by the shareholders, or by the directors pursuant to authorization given by the shareholders, except that the remuneration of an auditor appointed to fill a casual vacancy may be fixed by the directors.

151. The auditors shall conduct such audit as may be required by the Act and their report, if any, shall be dealt with by the Company as required by the Act.

NOTICES

152. A notice (including any communication or document) shall be sufficiently given, delivered or served by the Company upon a shareholder, director, officer or auditor by personal delivery at such person’s registered address (or, in the case of a director, officer or auditor, last known

- 25 -

address) or by prepaid mail, telegraph, telex, facsimile machine or other electronic means of communication addressed to such person at such address.

153. Shareholders having no registered address shall not be entitled to receive notice.

154. All notices with respect to registered shares to which persons are jointly entitled may be sufficiently given to all joint holders thereof by notice given to whichever of such persons is named first in the Register for such shares.

155. Any notice sent by mail shall be deemed to be given, delivered or served on the earlier of actual receipt and the third business day following that upon which it is mailed, and in proving such service it shall be sufficient to prove that the notice was properly addressed and mailed with the postage prepaid thereon. Any notice given by electronic means of communication shall be deemed to be given when entered into the appropriate transmitting device for transmission. A certificate in writing signed on behalf of the Company that the notice was so addressed and mailed or transmitted shall be conclusive evidence thereof.

156. Every person who by operation of law, transfer or other means whatsoever becomes entitled to any share shall be bound by every notice in respect of such share that prior to such person’s name and address being entered on the Register was duly served in the manner hereinbefore provided upon the person from whom such person derived title to such share.

157. Any notice delivered, sent or transmitted to the registered address of any shareholder pursuant to these Articles, shall, notwithstanding that such shareholder is then deceased and that the Company has notice thereof, be deemed to have been served in respect of any registered shares, whether held by such deceased shareholder solely or jointly with other persons, until some other person is registered as the holder or joint holder thereof, and such service shall for all purposes of these Articles be deemed a sufficient service of such notice on the heirs, executors or administrators of the deceased shareholder and all joint holders of such shares.

158. Any notice may bear the name or signature, manual or reproduced, of the person giving the notice written or printed.

159. When a given number of days’ notice or notice extending over any other period is required to be given, the day of service and the day upon which such notice expires shall not, unless it is otherwise provided, be counted in such number of days or other period.

INDEMNITY

160. Every director or officer, former director or officer, or person who acts or acted at the Company’s request, as a director or officer of the Company, a body corporate, partnership or other association of which the Company is or was a shareholder, partner, member or creditor, and the heirs and legal representatives of such person, in the absence of any dishonesty on the part of such person, shall be indemnified by the Company against, and it shall be the duty of the directors out of the funds of the Company to pay, all costs, losses and expenses, including an amount paid to settle an action or claim or satisfy a judgment, that such director, officer or

- 26 -

person may incur or become liable to pay in respect of any claim made against such person or civil, criminal or administrative action or proceeding to which such person is made a party by reason of being or having been a director or officer of the Company or such body corporate, partnership or other association, whether the Company is a claimant or party to such action or proceeding or otherwise; and the amount for which such indemnity is proved shall immediately attach as a lien on the property of the Company and have priority as against the shareholders over all other claims.

161. No director or officer, former director or officer, or person who acts or acted at the Company’s request, as a director or officer of the Company, a body corporate, partnership or other association of which the Company is or was a shareholder, partner, member or creditor, in the absence of any dishonesty on such person’s part, shall be liable for the acts, receipts, neglects or defaults of any other director, officer or such person, or for joining in any receipt or other act for conformity, or for any loss, damage or expense happening to the Company through the insufficiency or deficiency of title to any property acquired for or on behalf of the Company, or through the insufficiency or deficiency of any security in or upon which any of the funds of the Company are invested, or for any loss or damage arising from the bankruptcy, insolvency or tortious acts of any person with whom any funds, securities or effects are deposited, or for any loss occasioned by error of judgment or oversight on the part of such person, or for any other loss, damage or misfortune whatsoever which happens in the execution of the duties of such person or in relation thereto.

EXECUTION OF DOCUMENTS AND INSTRUMENTS

162. Deeds, transfers, assignments, contracts, obligations, certificates and other instruments and documents of any description whatsoever shall be effectively authorized by and signed on behalf of the Company if signed by any director or officer acting within such person’s authority, whether under seal or otherwise as such signatories may see fit. In addition, the board of directors or the shareholders may from time to time by resolution direct the manner in which and the person or persons by whom any particular document or instrument or class of documents or instruments may or shall be signed. Any articles, notice, resolution, requisition, statement or other document or instrument required or permitted to be executed by more than one person may be executed in several documents or instruments of like form each of which is executed by one or more of such persons, and such documents or instruments, when duly executed by all persons required or permitted, as the case may be, to do so, shall be deemed to constitute one document for all relevant purposes. The secretary or any other officer or any director may sign certificates and similar instruments on the Company’s behalf with respect to any factual matters relating to the Company’s business and affairs, including certificates verifying copies of the constating documents, resolutions and minutes of meetings of the Company.

- 27 -

REMINDERS

163. The directors shall comply with the following provisions of the Act or the Corporations Registration Act (Nova Scotia) where indicated:

(1) Keep a current register of shareholders (Section 42).

(2) Keep a current register of directors, officers and managers, send to the Registrar a copy thereof and notice of all changes therein (Section 98).

(3) Keep a current register of holders of bonds, debentures and other securities (Section 111 and Third Schedule).

(4) Call a general meeting every year within the proper time (Section 83). Meetings must be held not later than 15 months after the preceding general meeting.

(5) Send to the Registrar copies of all special resolutions (Section 88).

(6) Send to the Registrar notice of the address of the Company’s Office and of all changes in such address (Section 79).

(7) Keep proper minutes of all shareholders’ meetings and directors’ meetings in the Company’s minute book kept at the Company’s Office (Sections 89 and 90).

(8) Obtain a certificate under the Corporations Registration Act (Nova Scotia) as soon as business is commenced.

(9) Send notice of recognized agent to the Registrar under the Corporations Registration Act (Nova Scotia).

- 28 -

Name of Subscriber

Charles S. Reagh

Dated at Halifax, Nova Scotia the 20th day of July, 2004.

Witness to above signature:

Amy Smith

Halifax, Nova Scotia

- 29 -

EX-3.5

Exhibit 3.5

RESTATED CERTIFICATE OF INCORPORATION

OF

BORDEN CHEMICAL, INC

Pursuant to New Jersey Business Corporation Act §14A:9-5

Borden Chemical, Inc. restates, integrates and further amends its Certificate of Incorporation to read in full as set forth below:

ARTICLE I

CORPORATE NAME

The name of the corporation is Borden Chemical, Inc.

ARTICLE II

PURPOSE

The purpose for which this corporation is organized is to engage in any activity within the purposes for which corporations may be organized under the New Jersey Business Corporation Act.

ARTICLE III

CAPITAL STOCK

1. The aggregate number of shares of all classes of stock which the corporation is authorized to issue is 300,000,000 shares of common stock, par value $0.01 per share.

2. The holders of common stock of the corporation shall be entitled to one vote per share of common stock on all matters which may be submitted to the holders of common stock of the corporation.

3. The shareholders of the corporation shall not have pre-emptive rights.

4. The affirmative vote of a majority of votes cast by the shareholders shall be required to authorize or approve any action or matter to be voted upon by the shareholders, except that directors shall be elected as provided in the corporation’s by-laws or as prescribed by the laws of its state of incorporation.

ARTICLE IV

REGISTERED OFFICE AND AGENT

The address of the corporation’s current registered office is 830 Bear Tavern Road, West Trenton, NJ 08628; the name of the corporation’s current registered agent at that address is Corporation Service Company.

ARTICLE V

CURRENT BOARD OF DIRECTORS

The number of directors constituting the current board of directors is five. The names and addresses of the current members of the board of directors are:

William H. Carter	180 East Broad Street Columbus, Ohio
Craig O. Morrison	180 East Broad Street Columbus, Ohio
Josh Harris	9 West 57th St. New York, NY
Robert Seminara	9 West 57th St. New York, NY
Scott Kleinman	9 West 57th St. New York, NY

The number of directors of the corporation shall be fixed from time to time as provided in, and in the manner prescribed by, the by-laws of the corporation.

ARTICLE VI

INDEMNIFICATION

Every person who is or was a director or an officer of the corporation, or of any corporation which he served as such at the request of the corporation, shall be indemnified by the corporation to the fullest extent allowed by law, including the indemnification permitted by New Jersey Business Corporation Act §14A:3-5, against all liabilities and expenses imposed upon or incurred by that person in connection with any proceeding in which that person may be made, or threatened to be made, a party, or in which that person may become involved by reason of that person being or having been a director or an officer of the corporation, or of such other corporation, whether or not that person is a director or an officer of the corporation, or of such other corporation, at the time the liabilities or expenses are imposed or incurred. During the pendency of any such proceeding, the corporation shall, to the fullest extent permitted by law, promptly advance expenses that are incurred from time to time by any such director or officer in connection with the proceeding, subject to the receipt by the corporation of an undertaking as required by law.

ARTICLE VII

PERSONAL LIABILITY OF DIRECTORS OR OFFICERS

A director or officer of the corporation shall not be personally liable to the corporation or its shareholders for damages for breach of any duty owed to the corporation or its shareholders except to the extent that an exemption from personal liability is not permitted by the New Jersey Business Corporation Act. Any repeal or modification of this Article VII by the stockholders of the corporation shall not adversely affect any right or protection of a director or an officer of the corporation hereunder or otherwise with respect to any act or omission occurring before such repeal or modification is effective.

IN WITNESS WHEREOF, the undersigned corporation has caused this Restated Certificate of Incorporation to be executed on its behalf by its duly authorized officer as of the 5^th day of January, 2005.

BORDEN CHEMICAL, INC.
By:	/s/ Craig O. Morrison
Name:	Craig O. Morrison
Title:	President and Chief Executive Officer

CERTIFICATE OF AMENDMENT

TO

RESTATED CERTIFICATE OF INCORPORATION OF

BORDEN CHEMICAL, INC.

(pursuant to N.J.S.A. 14A:9-2 and 14A:9-4)

In accordance with the provisions of N.J.S.A. 14A:9-2 and 14A:9-4, Borden Chemical, Inc. files this Amendment to its Restated Certificate of Incorporation, stating as follows:

1. The name of the corporation is Borden Chemical, Inc. (the “Corporation”).

2. Attached hereto as Exhibit A is a copy of the text of the resolution (the “Resolution”) adopted by the board of directors (the “Board”) and sole shareholder of the Corporation, by means of a joint unanimous written consent, approving an amendment to the Restated Certificate of Incorporation of the Corporation authorizing the issuance of 60,000,000 shares of preferred stock, all of which shall be designated as the Series A Floating Rate Preferred Stock (the “Series A Preferred Stock”), and fixing the voting powers and other designations, qualifications, rights, privileges, preferences, limitations and restrictions of such series.

3. The Resolution was duly adopted by the Board and sole shareholder on May 19, 2005.

4. The total number of shares entitled to vote on the amendment was 96,905,936 shares of common stock.

5. The number of shares voting for the amendment was 96,905,936 and no shares were voted against the amendment.

6. The effective date of the amendment to the Corporation’s Restated Certificate of Incorporation shall be the date of filing.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the undersigned, a duly authorized officer of the Corporation, has caused this Certificate of Amendment to be executed on May 19, 2005.

BORDEN CHEMICAL, INC.
By:	/s/ George F. Knight
Name:	George F. Knight
Title:	Vice President

2

EXHIBIT A

Resolution of the Board of Directors and Shareholder of

Borden Chemical, Inc. Providing for

Series A Floating Rate Preferred Stock

RESOLVED, that the Restated Certificate of Incorporation of Borden Chemical, Inc. (the “Corporation”) is hereby amended by amending and restating ARTICLE III - CAPITAL STOCK, as follows:

“ARTICLE III

CAPITAL STOCK

1. The aggregate number of shares of all classes of stock which the corporation is authorized to issued is 360,000,000 shares, consisting of 300,000,000 shares of common stock, par value $0.01 per share, and 60,000,000 shares of preferred stock, par value $0.01 per share, all of which shall be designated as the Series A Floating Rate Preferred Stock (the “Series A Preferred Stock”).

2. The holders of common stock of the corporation shall be entitled to one vote per share of common stock on all matters which may be submitted to the holders of common stock of the corporation.

3. The shareholders of the corporation shall not have pre-emptive rights.

4. The affirmative vote of a majority of votes cast by the common shareholders shall be required to authorize or approve any action or matter to be voted upon by the common shareholders, except that the directors entitled to be elected by the common shareholders shall be elected as provided in the corporation’s by-laws or as prescribed by the laws of its state of incorporation.

5. The voting powers and other designations, qualifications, rights, limitations, privileges, preferences and restrictions granted to and imposed on the Series A Preferred Stock are as set forth below.

(a) Definitions; Rules of Construction.

(A) Definitions. As used in this paragraph 5, the following terms shall have the definitions set forth below:

“Accrual Date” means May 20, 2005.

“Acquired Indebtedness” means, with respect to any specified Person:

(1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Restricted Subsidiary of such specified Person, and

3

(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person,

in each case, other than Indebtedness Incurred as consideration in, in contemplation of, or to provide all or any portion of the funds or credit support utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was otherwise acquired by such Person, or such asset was acquired by such Person, as applicable.

“Adjusted EBITDA” means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication, to the extent the same was deducted in calculating Consolidated Net Income:

(1) Consolidated Taxes; plus

(2) Consolidated Interest Expense; provided, however, such amount will be included in Adjusted EBITDA notwithstanding that such amount was not deducted in calculating Consolidated Net Income; plus

(3) Consolidated Non-cash Charges; plus

(4) the amount of management, monitoring, consulting and advisory fees and related expenses paid to the Sponsor or its predecessor (or any accruals relating to such fees and related expenses) during such period; provided, however, that such amount shall not exceed in any four-quarter period commencing after June 30, 2004 the amount determined in accordance with clause (3) of clause (h)(G) of this paragraph 5; plus

(5) plant closure and severance costs and charges; plus

(6) impairment charges, including the write-down of Investments; plus

(7) non-operating expenses; plus

(8) restructuring expenses and charges; plus

(9) the cost (or amortization of prior service cost) of subsidizing coverage for persons affected by amendments to medical benefit plans implemented prior to August 12, 2004; provided, however, such amount will be included in Adjusted EBITDA notwithstanding that such amount was not deducted in calculating Consolidate Net Income; plus

(10) the sum of (x) $1.625 million and (y) $925,000 for each of the six consecutive calendar quarters commencing with the calendar quarter ending September 30, 2003; provided, however, such sum will be included in Adjusted EBITDA for the referenced quarters notwithstanding that such amount was not deducted in calculating Consolidated Net Income; plus

4

(11) $1.0095 million for each of the two consecutive calendar quarters commencing with the calendar quarter ending March 31, 2004; provided, however, such amount will be included in Adjusted EBITDA for the referenced quarters notwithstanding that such amount was not deducted in calculating Consolidated Net Income; provided further, however, that the acquisitions of Fentak Pty. Ltd and Southern Adhesives Company are not given pro forma effect for purposes of determining the Fixed Charge Coverage Ratio;

less, without duplication,

(12) non-cash items increasing Consolidated Net Income for such period (excluding any items which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period, including the amortization of employee benefit plan prior service costs); minus

(13) non-operating income.

“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise.

“Affiliate Transaction” shall have the meaning assigned in clause (h) (G) of this paragraph 5.

“Applicable Premium” means, with respect to any share of Series A Preferred Stock on any applicable redemption date, the greater of:

(1) 1.0% of the then liquidation preference of such share of Series A Preferred Stock; and

(2) the excess of:

(A) the present value at such redemption date of the sum of (i) the redemption price of such share of Series A Preferred Stock at May 15, 2010 (such redemption price being set forth in the table in the third paragraph of clause (f)(A) of this paragraph 5) plus (ii) all accrued and unpaid dividend payments due on such share of Series A Preferred Stock through May 15, 2010 (excluding accrued but unpaid dividends), such present value to be computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points; over

(B) the then outstanding liquidation preference of such share of Series A Preferred Stock.

5

“Asset Sale” means:

(1) the sale, conveyance, transfer or other disposition (whether in a single transaction or a series of related transactions) of assets (including by way of a Sale/Leaseback Transaction) of BCI or any Restricted Subsidiary of BCI other than in the ordinary course of business (each referred to in this definition as a “disposition”) or

(2) the issuance or sale of Equity Interests of any Restricted Subsidiary (other than to BCI or another Restricted Subsidiary of BCI other than directors’ or other legally required qualifying shares) (whether in a single transaction or a series of related transactions),

in each case other than:

(a) a disposition of Cash Equivalents or Investment Grade Securities;

(b) disposition of obsolete, damaged or worn out equipment or disposals of equipment in connection with reinvestment in or replacement of equipment, in each case, in the ordinary course of business;

(c) the disposition of all or substantially all of the assets of BCI in a manner permitted pursuant to clause (l) of this paragraph 5 or any disposition that constitutes a Change of Control;

(d) any Restricted Payment or Permitted Investment that is permitted to be made, and is made, under the covenant described in clause (h)(D) of this paragraph 5;

(e) any disposition of assets or issuance or sale of Equity Interests of any Restricted Subsidiary, which disposition or issuance has an aggregate Fair Market Value of less than $5 million;

(f) any disposition of assets to BCI or any Restricted Subsidiary of BCI, including by way of merger;

(g) any exchange of assets for assets related to a Similar Business to the extent of comparable or better market value, as determined in good faith by BCI, which in the event of an exchange of assets with a Fair Market Value in excess of (1) $4 million shall be evidenced by an Officers’ Certificate of BCI, and (2) $15 million shall be set forth in a resolution approved in good faith by at least a majority of the Board of Directors of BCI;

(h) any disposition of assets received by BCI or any of its Restricted Subsidiaries upon the foreclosure on a Lien;

(i) any disposition of Equity Interests in, or Indebtedness or other securities of, an Unrestricted Subsidiary;

(j) any disposition of inventory in the ordinary course of business;

6

(k) the lease, assignment or sub-lease of any real or personal property in the ordinary course of business;

(l) any disposition of accounts receivable and related assets of the type specified in the definition of “Receivables Financing” to a Receivables Subsidiary in a Qualified Receivables Financing or in factoring or similar transactions;

(m) a transfer of accounts receivable and related assets of the type specified in the definition of “Receivables Financing” (or a fractional undivided interest therein) by a Receivables Subsidiary in a Qualified Receivables Financing;

(n) any agreement or arrangement involving, relating to or otherwise facilitating, (i) requirements contracts, (ii) tolling arrangements, (iii) the reservation or presale of production capacity of BCI or any of its Restricted Subsidiaries by one or more third parties;

(o) sales or grants of licenses or sublicenses to use BCI’s or any of its Restricted Subsidiaries’ patents, trade secrets, know-how and technology to the extent that such license does not prohibit the licensor from using the patent, trade secret, know-how or technology;

(p) any Sale/Leaseback Transaction pursuant to which BCI or any Restricted Subsidiary receives with respect to such transaction aggregate consideration of less than $15 million;

(q) the disposition of the Brisbane facility owned by Borden Chemical Company (Australia) Pty. Ltd., BCI or any of its Affiliates; and

(r) the disposition by BCI or any of its Affiliates of up to one-third of the Capital Stock of Borden Chemical (M.) Sdn. Bhd. owned, in the aggregate, by BCI or any of its Affiliates as of August 12, 2004.

“Asset Sale Offer” shall have the meaning assigned in the third paragraph of clause (h)(F) of this paragraph 5.

“Bank Indebtedness” means any and all amounts payable under or in respect of any Credit Agreement or the other Senior Credit Documents, as amended, restated, supplemented, waived, replaced, restructured, repaid, refunded, refinanced or otherwise modified from time to time (including after termination of the Credit Agreement), including principal, premium (if any), interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to BCI whether or not a claim for post-filing interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees and all other amounts payable thereunder or in respect thereof.

“BCI” means Borden Chemical, Inc., a New Jersey corporation, the name of which will be changed to Hexion on and after the consummation of the Combinations, and any successor in interest thereto.

7

“Board of Directors” means as to any Person, the board of directors or managers, as applicable, of such Person (or, if such Person is a partnership, the board of directors or other governing body of the general partner of such Person) or any duly authorized committee thereof.

“Business Day” means each day which is not a Legal Holiday.

“Calculation Agent” means the Transfer Agent or any successor calculation agent subsequently designated by BCI by notice to the Transfer Agent.

“Calculation Date” shall have the meaning assigned in the definition of “Fixed Charge Coverage Ratio”.

“Canadian Issuer” means Borden Nova Scotia Finance, ULC, a Nova Scotia unlimited liability company, and any successor in interest thereto.

“Capital Stock” means:

(1) in the case of a corporation, corporate stock;

(2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;

(3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and

(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.

“Capitalized Lease Obligation” means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized and reflected as a liability on a balance sheet (excluding the footnotes thereto) in accordance with GAAP.

“Cash Contribution Amount” means the aggregate amount of cash contributions made to the capital of BCI described in the definition of “Contribution Indebtedness.”

“Cash Equivalents” means:

(1) U.S. dollars, pounds sterling, euros, or, in the case of any Foreign Subsidiary that is a Restricted Subsidiary, such local currencies held by it from time to time in the ordinary course of business;

(2) securities issued or directly and fully guaranteed or insured by the government of, or any agency or instrumentality thereof, the United States of America, Australia, Great Britain, Canada, the Netherlands or any other member state of the European Union, in each case with maturities not exceeding two years after the date of acquisition;

8

(3) in the case of any Foreign Subsidiary, securities issued or directly and fully guaranteed or insured by the government of, or any agency or instrumentality thereof, Malaysia or Brazil, in each case with maturities not exceeding 270 days after the date of acquisition and held by it from time to time in the ordinary course of business;

(4) certificates of deposit, time deposits and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers’ acceptances, in each case with maturities not exceeding one year and overnight bank deposits and demand deposits (in their respective local currencies), in each case with any commercial bank having capital and surplus in excess of $500 million or the foreign currency equivalent thereof and whose long-term debt is rated “A” or the equivalent thereof by Moody’s or S&P (or, in the case of an obligor domiciled outside of the United States, reasonably equivalent ratings of another internationally recognized credit rating agency);

(5) repurchase obligations for underlying securities of the types described in clauses (2) and (4) above entered into with any financial institution meeting the qualifications specified in clause (4) above;

(6) commercial paper issued by a corporation (other than an Affiliate of BCI) rated at least “A-1” or the equivalent thereof by Moody’s or S&P (or, in the case of an obligor domiciled outside of the United States, reasonably equivalent ratings of another internationally recognized credit rating agency) and in each case maturing within one year after the date of acquisition;

(7) readily marketable direct obligations issued by any state of the United States of America or any political subdivision thereof having one of the two highest rating categories obtainable from either Moody’s or S&P in each case with maturities not exceeding two years from the date of acquisition;

(8) Indebtedness issued by Persons (other than the Sponsor or any of their Affiliates) with a rating of “A” or higher from S&P or “A-2” or higher from Moody’s (or, in the case of an obligor domiciled outside of the United States, reasonably equivalent ratings of another internationally recognized credit rating agency) in each case with maturities not exceeding two years from the date of acquisition; and

(9) investment funds investing at least 95% of their assets in securities of the types described in clauses (1) through (8) above.

“Change of Control” means:

(1) the sale, lease or transfer, in one or a series of related transactions, of all or substantially all of the assets of BCI and its Subsidiaries, taken as a whole, to a Person other than to Permitted Holders;

(2) BCI becomes aware (by way of a report or any other filing pursuant to Section 13(d) of the Exchange Act, proxy, vote, written notice or otherwise) of the acquisition by any Person or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act, or any successor provision), including any group

9

acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other than any of the Permitted Holders, in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision), of more than 50% of the total voting power of the Voting Stock of BCI; or

(3) individuals who on August 12, 2004, following consummation of the Original Transaction, constituted the Board of Directors of BCI (together with any new directors whose election by BCI’s Board of Directors or whose nomination for election by BCI’s shareholders was approved by (a) a vote of a majority of the directors of BCI then still in office who were either directors on August 12, 2004 or whose election or nomination for election was previously so approved or (b) the Permitted Holders) cease for any reason to constitute a majority of the Board of Directors of BCI then in office.

A “Change of Control Offer” means a notice mailed to each holder of the Series A Preferred Stock with a copy to the Transfer Agent:

(1) that a Change of Control has occurred and that such holder has the right to require BCI to purchase such holder’s Series A Preferred Stock at a purchase price in cash equal to 101% of the liquidation preference thereof, plus accrued and unpaid dividends and additional dividends, if any, to the date of purchase (subject to the right of holders of record on a record date to receive dividends on the relevant Dividend Payment Date);

(2) the circumstances and relevant facts and financial information regarding such Change of Control;

(3) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and

(4) the instructions determined by BCI, consistent with the covenant in clause (i) of this paragraph 5, that a holder must follow in order to have its Series A Preferred Stock purchased.

“Code” means the Internal Revenue Code of 1986, as amended.

“Collateral” means all the collateral described in the Security Documents.

“Combinations” means the combinations of RPP and RSM with and into BCI.

“consolidated” means, with respect to any Person, such Person consolidated with its Restricted Subsidiaries and shall not include any Unrestricted Subsidiary, but the interest of such Person in an Unrestricted Subsidiary shall be accounted for as an Investment.

10

“Consolidated Interest Expense” means, with respect to any Person (the “Specified Person”) for any period, the sum, without duplication, of:

(1) consolidated interest expense of the Specified Person and its Restricted Subsidiaries for such period, to the extent such expense was deducted in computing Consolidated Net Income (including amortization of original issue discount, the interest component of Capitalized Lease Obligations, and net payments and receipts (if any) pursuant to interest rate Hedging Obligations and excluding amortization of deferred financing fees and expensing of any bridge or other financing fees);

(2) consolidated capitalized interest of the Specified Person and its Restricted Subsidiaries for such period, whether paid or accrued;

(3) commissions, discounts, yield and other fees and charges Incurred for such period in connection with any Receivables Financing of the Specified Person or any of its Restricted Subsidiaries which are payable to Persons other than BCI and its Restricted Subsidiaries;

(4) dividends accrued for such period in respect of all Disqualified Stock of the Specified Person and any of its Restricted Subsidiaries and all Preferred Stock (including Designated Preferred Stock) of any such Restricted Subsidiaries, in each case held by Persons other than BCI or a Wholly Owned Subsidiary (in each such case other than (x) dividends payable solely in Capital Stock (other than Disqualified Stock) of BCI and (y) dividends that are payable only at such time as there are no Notes outstanding); and

(5) interest accruing for such period on any Indebtedness of any other Person to the extent such Indebtedness is guaranteed by (or secured by the assets of) the Specified Person or any of its Restricted Subsidiaries; less

(6) interest income of the Specified Person and its Restricted Subsidiaries for such period.

“Consolidated Net Income” means, with respect to any Person for any period, the aggregate Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis; provided, however, that:

(1) any net after-tax extraordinary or nonrecurring gains or losses or income or expenses, including any severance expenses and fees, expenses or charges related to any Equity Offering, Permitted Investment, acquisition or Indebtedness permitted to be Incurred hereunder (in each case, whether or not successful), including any such fees, expenses, charges or change in control payments related to the Original Transaction, in each case, shall be excluded; provided, however, that with respect to each nonrecurring item, BCI shall have delivered to the Transfer Agent an Officers’ Certificate of BCI specifying and quantifying such item and stating that such item is a nonrecurring item;

(2) any increase in amortization or depreciation or any one-time non-cash charges (such as purchased in-process research and development or capitalized manufacturing profit in inventory) resulting from purchase accounting in connection with any acquisition that is consummated after August 12, 2004 shall be excluded;

11

(3) the Net Income for such period shall not include the cumulative effect of a change in accounting principles during such period;

(4) any net after-tax income or loss from discontinued operations and any net after-tax gains or losses on disposal of discontinued operations shall be excluded;

(5) any net after-tax gains or losses, or any subsequent charges or expenses, attributable to business dispositions or asset dispositions having occurred at any time other than in the ordinary course of business (as determined in good faith by the Board of Directors of BCI) shall be excluded;

(6) any net after-tax gains or losses attributable to the early extinguishment of indebtedness shall be excluded;

(7) the Net Income for such period of any Person that is not a Subsidiary of such Person, or is an Unrestricted Subsidiary, or that is accounted for by the equity method of accounting, shall be included only to the extent of the amount of dividends or distributions or other payments paid in cash (or to the extent converted into cash) to the referent Person or a Restricted Subsidiary thereof in respect of such period;

(8) solely for the purpose of determining the amount available for Restricted Payments under clause (h)(D)(a)(iii)(1) of this paragraph 5, the Net Income for such period of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of its Net Income is not at the date of determination permitted without any prior governmental approval (which has not been obtained) or, directly or indirectly, by the operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, unless such restrictions with respect to the payment of dividends or similar distributions have been legally waived; provided, however, that the net loss of any such Restricted Subsidiary for such period shall be included;

(9) an amount equal to the amount of Tax Distributions actually made to the holders of Capital Stock of such Person or any parent company of such Person in respect of such period in accordance with clause (h)(D)(b)(12) of this paragraph 5 shall be included, to the extent not otherwise deducted, as though such amounts had been paid as income taxes directly by such Person for such period;

(10) any non-cash impairment charges resulting from the application of Statement of Financial Accounting Standards No. 142 shall be excluded;

(11) any non-cash compensation expense realized from any deferred stock compensation plan or grants of stock appreciation or similar rights, stock options, restricted stock or other rights to officers, directors and employees of such Person or any of its Restricted Subsidiaries shall be excluded;

12

(12) solely for purposes of calculating Adjusted EBITDA, (a) the Net Income of any Person and its Restricted Subsidiaries shall be calculated without deducting the income attributable to, or adding the losses attributable to, the minority equity interests of third parties in any non-wholly-owned Restricted Subsidiary except to the extent of dividends declared or paid in respect of such period or any prior period on the shares of Capital Stock of such Restricted Subsidiary held by such third parties and (b) any ordinary course dividend, distribution or other payment paid in cash and received from any Person in excess of amounts included in clause (7) above shall be included;

(13) non-cash gains, losses, income and expenses resulting from fair value accounting required by Statement of Financial Accounting Standards No. 133 shall be excluded;

(14) accruals and reserves that are established within twelve months after August 12, 2004 and that are so required to be established in accordance with GAAP shall be excluded; and

(15) non-cash charges for deferred tax asset valuation allowances shall be excluded.

Notwithstanding the foregoing, for the purpose of the covenant described in clause (h)(D) of this paragraph 5 only, there shall be excluded from Consolidated Net Income any dividends, repayments of loans or advances or other transfers of assets from Unrestricted Subsidiaries of BCI or a Restricted Subsidiary of BCI to the extent such dividends, repayments or transfers increase the amount of Restricted Payments permitted under such covenant pursuant to clauses (h)(D)(a)(iii)(4) and (5) of this paragraph 5.

“Consolidated Non-cash Charges” means, with respect to any Person for any period, the aggregate depreciation, amortization and other non-cash expenses of such Person and its Restricted Subsidiaries reducing Consolidated Net Income of such Person for such period on a consolidated basis and otherwise determined in accordance with GAAP, but excluding any such charge which consists of or requires an accrual of, or cash reserve for, anticipated cash charges for any future period.

“Consolidated Taxes” means provision for taxes based on income, profits or capital, including state, franchise and similar taxes and any Tax Distributions taken into account in calculating Consolidated Net Income.

“Contingent Obligation” means, with respect to any Person, any obligation of such Person guaranteeing any leases, dividends or other obligations that do not constitute Indebtedness (“primary obligation”) of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, including, without limitation, any obligation of such Person, whether or not contingent:

(1) to purchase any such primary obligation or any property constituting direct or indirect security therefor,

(2) to advance or supply funds:

(a) for the purchase or payment of any such primary obligation; or

13

(b) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor; or

(3) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation against loss in respect thereof.

“Contribution Indebtedness” means Indebtedness of BCI or any of its Restricted Subsidiaries that is a Guarantor in an aggregate principal amount not greater than twice the aggregate amount of cash contributions (other than Excluded Contributions) made to the capital of BCI by any stockholder of BCI (other than a Restricted Subsidiary) after August 12, 2004; provided, however, that:

(1) if the aggregate principal amount of such Contribution Indebtedness is greater than one times such cash contributions to the capital of BCI the amount in excess shall be Indebtedness (other than Indebtedness secured by a Lien) with a Stated Maturity later than the Stated Maturity of any Notes then outstanding,

(2) such Contribution Indebtedness (a) is Incurred within 180 days after the making of such cash contributions and (b) is so designated as Contribution Indebtedness pursuant to an Officers’ Certificate of BCI on the Incurrence date thereof, and

(3) such cash contribution is not and has not been included in the calculation of permitted Restricted Payments under the covenant described in clause (h)(D) of this paragraph 5.

“Credit Agreement” means (i) the amended and restated credit agreement among BCI, certain Subsidiaries of BCI, the financial institutions named therein, Credit Suisse First Boston, as Administrative Agent, and Fleet Capital Corporation, as Collateral Agent entered into in connection with the Original Transaction, as amended, restated, supplemented, waived, replaced (whether or not upon termination, and whether with the original agents, lenders or otherwise), renewed, restructured, repaid, refunded, refinanced or otherwise modified from time to time, including any agreement or indenture or multiple agreements and indentures extending the maturity thereof, refinancing, replacing or otherwise restructuring all or any portion of the Indebtedness under such agreement or agreements or indenture or indentures or any successor or replacement agreement or agreements or indenture or indentures or increasing the amount loaned or issued thereunder or altering the maturity thereof and adding Restricted Subsidiaries as additional borrowers, issuers or guarantors thereunder or (ii) whether or not the credit agreement referred to in clause (i) above remains outstanding, if designated by BCI to be included in the definition of “Credit Agreement,” one or more (A) debt facilities or commercial paper facilities, providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to lenders or to special purpose entities formed to borrow from lenders against such receivables) or letters of credit, (B) debt securities, indentures or other forms of debt financing (including convertible or exchangeable debt instruments), or (C) instruments or agreements evidencing any other Indebtedness in each case, as amended, supplemented, modified, extended, restructured, renewed, refinanced, restated, replaced or refunded in whole or in part from time to time.

14

“cross-acceleration provision” shall have the meaning assigned in clause (m)(6) of this paragraph 5.

“Designated Non-cash Consideration” means the Fair Market Value of non-cash consideration received by BCI or one of its Restricted Subsidiaries in connection with an Asset Sale that is so designated as Designated Non-cash Consideration pursuant to an Officers’ Certificate of BCI, setting forth the basis of such valuation, less the amount of Cash Equivalents received in connection with a subsequent sale of such Designated Non-cash Consideration.

“Depository” means The Depository Trust Company, its nominees and their respective successors.

“Designated Preferred Stock” means Preferred Stock of BCI or any direct or indirect parent company of BCI, as applicable (other than Disqualified Stock), that is issued for cash (other than to BCI or any of its Subsidiaries or an employee stock ownership plan or trust established by BCI or any of its Subsidiaries) and is so designated as Designated Preferred Stock, pursuant to an Officers’ Certificate of BCI, on the issuance date thereof, the cash proceeds of which are excluded from the calculation set forth in clause (h)(D)(a)(iii) of this paragraph 5.

“Determination Date” with respect to a Dividend Period will be the second London Banking Day preceding the first day of such Dividend Period.

“disposition” shall have the meaning assigned in the definition of “Asset Sale”.

“Disqualified Stock” means, with respect to any Person, any Capital Stock of such Person which, by its terms (or by the terms of any security into which it is convertible or for which it is redeemable or exchangeable), or upon the happening of any event:

(1) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise (other than as a result of a change of control or asset sale; provided, however, that the relevant asset sale or change of control provisions, taken as a whole, are no more favorable in any material respect to holders of such Capital Stock than the asset sale and change of control provisions applicable to the Series A Preferred Stock and any purchase requirement triggered thereby may not become operative until compliance with the asset sale and change of control provisions applicable to the Series A Preferred Stock (including the purchase of any Series A Preferred Stock tendered pursuant thereto)),

(2) is convertible or exchangeable for Indebtedness or Disqualified Stock, or

(3) is redeemable at the option of the holder thereof, in whole or in part,

in each case prior to 91 days after October 15, 2014;

provided, however, that only the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder

15

thereof prior to such date shall be deemed to be Disqualified Stock; provided further, however, that if such Capital Stock is issued to any employee or to any plan for the benefit of employees of BCI or its Subsidiaries or by any such plan to such employees, such Capital Stock shall not constitute Disqualified Stock solely because it may be required to be repurchased by BCI in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, death or disability; provided further, however, that any class of Capital Stock of such Person that by its terms authorizes such Person to satisfy its obligations thereunder by delivery of Capital Stock that is not Disqualified Stock shall not be deemed to be Disqualified Stock.

“Dividend Payment Date” shall have the meaning assigned in clause (c)(C) of this paragraph 5.

“Dividend Period” means the period commencing on and including a Dividend Payment Date and ending on and including the day immediately preceding the next succeeding Dividend Payment Date, with the exception that in the case of Holders receiving shares of Series A Preferred Stock on or prior to November 14, 2005, the first Dividend Period shall commence on and include the Accrual Date and end on and include November 14, 2005.

“EBITDA” means Adjusted EBITDA but without giving effect to clauses (9), (10) and (11) contained in the definition thereof set forth above.

“Equity Interests” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

“Equity Offering” means any public or private sale after August 12, 2004 of common stock or Preferred Stock of BCI or any direct or indirect parent company of BCI, as applicable (other than Disqualified Stock), other than:

(1) public offerings with respect to BCI’s or such direct or indirect parent company’s common stock registered on Form S-8;

(2) any such public or private sale that constitutes an Excluded Contribution; and

(3) any Cash Contribution Amount.

“Escrow Agent” means the party so designated in the Escrow Agreement.

“Escrow Agreement” means the escrow agreement among Hexion Escrow Corp., BCI and the Escrow Agent.

“Escrow Merger” means the merger of Hexion Escrow Corp. with and into BCI with BCI surviving such merger.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.

16

“Exchange Securities” means the Series A Preferred Stock in connection with the Registered Exchange Offer pursuant to the Registration Rights Agreement.

“Excluded Contributions” means the net cash proceeds received by BCI after August 12, 2004 from:

(1) contributions to its common equity capital, and

(2) the sale (other than to a Subsidiary of BCI or to any BCI or Subsidiary management equity plan or stock option plan or any other management or employee benefit plan or agreement) of Capital Stock (other than Disqualified Stock and Designated Preferred Stock) of BCI,

in each case designated as Excluded Contributions pursuant to an Officers’ Certificate of BCI, the cash proceeds of which are excluded from the calculation set forth in clause (h)(D)(a)(iii) of this paragraph 5.

“Existing Debentures” means BCI’s 7.875% Debentures due 2023, 8.375% Sinking Fund Debentures due 2016 and 9.2% Debentures due 2021 and the Parish of Ascension, State of Louisiana Pollution Control Revenue Refunding Bonds (Borden, Inc. Project Series 1992) (and the related guarantees of such Refunding Bonds).

“Existing Indenture” means the Indenture dated as of August 12, 2004, among the Issuers, the Guarantors and the Trustee.

“Fair Market Value” means, with respect to any asset or property, the price which could be negotiated in an arm’s-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction.

“Fixed Charge Coverage Ratio” means, with respect to any Person for any period, the ratio of Adjusted EBITDA of such Person for such period to the Consolidated Interest Expense of such Person for such period. In the event that BCI or any of its Restricted Subsidiaries Incurs or redeems any Indebtedness (other than in the case of revolving credit borrowings or revolving advances under any Qualified Receivables Financing, in which case interest expense shall be computed based upon the average daily balance of such Indebtedness during the applicable period) or issues or redeems Preferred Stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the event for which the calculation of the Fixed Charge Coverage Ratio is made (the “Calculation Date”), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such Incurrence or redemption of Indebtedness, or such issuance or redemption of Preferred Stock, as if the same had occurred at the beginning of the applicable four-quarter period.

For purposes of making the computation referred to above, Investments, acquisitions or dispositions of operating units of a business, mergers, consolidations, discontinued operations (as determined in accordance with GAAP), and business realignment projects and initiatives, restructurings and reorganizations (each a “pro forma event”) that BCI or

17

any of its Restricted Subsidiaries has both determined to make and made after August 12, 2004 and during the four-quarter reference period or subsequent to such reference period and on or prior to or simultaneously with the Calculation Date shall be calculated on a pro forma basis assuming that all such Investments, acquisitions or dispositions of an operating unit of a business, mergers, consolidations, discontinued operations and business realignment projects and initiatives, restructurings and reorganizations (and the change of any associated fixed charge obligations, Consolidated Interest Expense and the change in Adjusted EBITDA resulting therefrom) had occurred on the first day of the four-quarter reference period. If, since the beginning of such period any Person that subsequently became a Restricted Subsidiary of BCI or was merged with or into BCI or any Restricted Subsidiary of BCI since the beginning of such period shall have made any Investment, acquisition or disposition of an operating unit of a business, merger, consolidation, discontinued operation or business realignment project or initiative, restructuring or reorganization, that would have required adjustment pursuant to this definition, then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect thereto for such period as if such Investment, acquisition, disposition, discontinued operation, merger, consolidation, business realignment project or initiative, restructuring, or reorganization had occurred at the beginning of the applicable four-quarter period.

For purposes of this definition, whenever pro forma effect is to be given to any pro forma event, the pro forma calculations shall be made in good faith by a responsible financial or accounting officer of BCI. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest on such Indebtedness shall be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligations applicable to such Indebtedness if such Hedging Obligation has a remaining term in excess of 12 months). Any such pro forma calculation may include adjustments appropriate, in the reasonable good faith determination of BCI as set forth in an Officers’ Certificate of BCI, to reflect (i) operating expense reductions, other operating improvements or synergies reasonably expected to result from the applicable pro forma event (including, to the extent applicable, from the Transactions) and (ii) all adjustments used in connection with the calculation of “Adjusted EBITDA” as set forth in footnote (3) to the “Offering Circular Summary—Summary Historical, Pro Forma and Other Financial Data” in the Original Offering Circular to the extent such adjustments, without duplication, continue to be applicable to such four quarter period.

“Fixed Dividend Rate” shall have the meaning assigned in clause (c)(B) of this paragraph 5.

“Fixed Rate Option” shall have the meaning assigned in clause (c)(B) of this paragraph 5.

“Flow Through Entity” means an entity that is treated as a partnership not taxable as a corporation, a grantor trust or a disregarded entity for U.S. federal income tax purposes or subject to treatment on a comparable basis for purposes of state, local or foreign tax law.

“Foreign Subsidiary” means a Restricted Subsidiary not organized or existing under the laws of the United States of America or any state or territory thereof or the District of Columbia.

18

“GAAP” means generally accepted accounting principles set forth in (i) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, (ii) statements and pronouncements of the Financial Accounting Standards Board and (iii) in such other statements by such other entity as have been approved by a significant segment of the accounting profession, in each case which were in effect on August 12, 2004.

“Global Securities” means one or more permanent global securities in definitive, fully registered form for shares of Series A Preferred Stock.

“Global Securities Procedures” means the procedures for the transfer of Global Securities, as such provisions shall be delivered by BCI to the Transfer Agent from time to time.

“guarantee” means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness or other obligations.

“Guarantee” means any guarantee of the obligations of the Issuers under the Existing Indenture and the Notes by any Person in accordance with the provisions of the Existing Indenture.

“Guarantor” means any Person that Incurs a Guarantee with respect to the Notes; provided, however, that upon the release or discharge of such Person from its Guarantee in accordance with the Existing Indenture, such Person ceases to be a Guarantor.

“HAI” means HA-International, LLC, a Delaware limited liability company, and any successor in interest thereto.

“Hedging Obligations” means, with respect to any Person, the obligations of such Person under:

(1) currency exchange, interest rate or commodity swap agreements, currency exchange, interest rate or commodity cap agreements and currency exchange, interest rate or commodity collar agreements; and

(2) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange, interest rates or commodity prices.

“holder” or “Holder” means the Person in whose name a Note or share of Series A Preferred Stock, as the context requires, is registered on the applicable registrar’s books.

“Hexion” means Hexion Specialty Chemicals, Inc., a New Jersey corporation (formerly known as BCI prior to the consummation of the Combinations), and any successor in interest thereto.

“Hexion Escrow Corp.” means Hexion Escrow Corp., a New Jersey corporation, and any successor in interest thereto.

19

“Hexion LLC” means Hexion LLC, a Delaware limited liability company, and any successor in interest thereto.

“Incur” means issue, assume, guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such Person becomes a Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred by such Person at the time it becomes a Subsidiary.

“Indebtedness” means, with respect to any Person:

(1) the principal and premium (if any) of any indebtedness of such Person, whether or not contingent, (a) in respect of borrowed money, (b) evidenced by bonds, Notes, debentures or similar instruments or letters of credit or bankers’ acceptances (or, without duplication, reimbursement agreements in respect thereof), (c) representing the deferred and unpaid purchase price of any property, except any such balance that constitutes a trade payable or similar obligation to a trade creditor due within six months from the date on which it is Incurred, in each case Incurred in the ordinary course of business, which purchase price is due more than six months after the date of placing the property in service or taking delivery and title thereto, (d) in respect of Capitalized Lease Obligations, or (e) representing any Hedging Obligations, if and to the extent that any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability on a balance sheet (excluding the footnotes thereto) of such Person prepared in accordance with GAAP;

(2) to the extent not otherwise included, any obligation of such Person to be liable for, or to pay, as obligor, guarantor or otherwise, on the Indebtedness of another Person (other than by endorsement of negotiable instruments for collection in the ordinary course of business);

(3) to the extent not otherwise included, Indebtedness of another Person secured by a Lien on any asset owned by such Person (whether or not such Indebtedness is assumed by such Person); provided, however, that the amount of such Indebtedness will be the lesser of: (a) the Fair Market Value of such asset at such date of determination, and (b) the amount of such Indebtedness of such other Person; and

(4) to the extent not otherwise included, with respect to BCI and its Restricted Subsidiaries, the amount then outstanding (including amounts advanced, and received by, and available for use by, BCI or any of its Restricted Subsidiaries) under any Receivables Financing (as set forth in the books and records of BCI or any Restricted Subsidiary and confirmed by the agent, trustee or other representative of the institution or group providing such Receivables Financing);

provided, however, that Contingent Obligations incurred in the ordinary course of business shall be deemed not to constitute Indebtedness.

“Independent Financial Advisor” means an accounting, appraisal or investment banking firm or consultant to Persons engaged in a Similar Business, in each case of nationally recognized standing that is, in the good faith determination of BCI, qualified to perform the task for which it has been engaged.

20

“Initial Purchasers” means Credit Suisse First Boston LLC, Goldman, Sachs & Co., Lehman Brothers, Inc., Lehman Commercial Paper Inc. and J.P. Morgan Securities Inc.

“Initial Series A Preferred Stock” means the initial 14,000,000 shares of Series A Preferred Stock issued as provided pursuant to clause (b)(D)(1)(i) of this paragraph 5.

“Intercreditor Agreement” means the amended and restated intercreditor agreement among Fleet Capital Corporation, as agent under the Senior Credit Documents, the Trustee, the Issuers, BCI and each Subsidiary Guarantor, as it may be amended from time to time in accordance with the Existing Indenture.

“Investment Grade Securities” means:

(1) securities issued or directly and fully guaranteed or insured by the U.S. government or any agency or instrumentality thereof (other than Cash Equivalents) and in each case with maturities not exceeding two years from the date of acquisition,

(2) investments in any fund that invests exclusively in investments of the type described in clause (1) above which fund may also hold immaterial amounts of cash pending investment or distribution, and

(3) corresponding instruments in countries other than the United States customarily utilized for high quality investments and in each case with maturities not exceeding two years from the date of acquisition.

“Investments” means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of loans (including guarantees), advances or capital contributions (excluding accounts receivable, trade credit and advances to customers and commission, travel and similar advances to officers, employees and consultants made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities issued by any other Person and investments that are required by GAAP to be classified on the balance sheet of BCI in the same manner as the other investments included in this definition to the extent such transactions involve the transfer of cash or other property. For purposes of the definition of “Unrestricted Subsidiary” and the covenant described in clause (h)(D) of this paragraph 5:

(1) “Investments” shall include the portion (proportionate to BCI’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of a Subsidiary of BCI at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, BCI shall be deemed to continue to have a permanent “Investment” in an Unrestricted Subsidiary equal to an amount (if positive) equal to:

(A) BCI’s “Investment” in such Subsidiary at the time of such redesignation, less;

21

(B) the portion (proportionate to BCI’s equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time of such redesignation; and

(2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its Fair Market Value at the time of such transfer, in each case as determined in good faith by the Board of Directors of BCI.

“Issuers” means the U.S. Issuer and the Canadian Issuer.

“judgment default provision” shall have the meaning assigned in clause (m)(9) of this paragraph 5.

“Junior Stock” means any common stock of BCI and each class of capital stock or series of preferred stock, the terms of which expressly provide that such class or series ranks junior to the Series A Preferred Stock as to dividend rights or rights upon the BCI’s liquidation, winding-up or dissolution.

“Legal Holiday” means a Saturday, a Sunday or a day on which banking institutions are not required to be open in the State of New York.

“LIBOR,” with respect to a Dividend Period, will be the rate (expressed as a percentage per annum) for deposits in U.S. dollars for a six-month period beginning on the second London Banking Day after the Determination Date that appears on Telerate Page 3750 as of 11:00 a.m., London time, on the Determination Date. If Telerate Page 3750 does not include such a rate or is unavailable on a Determination Date, the Calculation Agent will request the principal London office of each of four major banks in the London interbank market, as selected by the Calculation Agent, to provide such bank’s offered quotation (expressed as a percentage per annum), as of approximately 11:00 a.m., London time, on such Determination Date, to prime banks in the London interbank market for deposits in a Representative Amount in U.S. dollars for a six-month period beginning on the second London Banking Day after the Determination Date. If at least two such offered quotations are so provided, the rate for the Dividend Period will be arithmetic mean of such quotations. If fewer than two such quotations are so provided, the Calculation Agent will request each of three major banks in New York City, as selected by the Calculation Agent, to provide such bank’s rate (expressed as a percentage per annum), as of approximately 11:00 a.m., New York City time, on such Determination Date, for loans in a Representative Amount in U.S. dollars to leading European banks for a six-month period beginning on the second London Banking Day after the Determination Date. If at least two such rates are so provided, the rate for the Dividend Period will be the arithmetic mean of such rates. If fewer than two such rates are so provided, then the rate for the Dividend Period will be the rate in effect with respect to the immediately preceding Dividend Period.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any other agreement to give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction); provided, however, that in no event shall an operating lease be deemed to constitute a Lien.

22

“London Banking Day” is any day on which dealings in U.S. dollars are transacted or, with respect to any future date, are expected to be transacted in the London interbank market.

“Management Group” means all of the individuals consisting of the directors, executive officers and other management personnel of BCI or any direct or indirect parent company of BCI, as the case may be, on August 12, 2004 together with (1) any new directors whose election by such boards of directors or whose nomination for election by the shareholders of BCI or any direct or indirect parent company of BCI, as the case may be, as applicable, was approved by (x) a vote of a majority of the directors of BCI or any direct or indirect parent of BCI as applicable, then still in office who were either directors on August 12, 2004 or whose election or nomination was previously so approved or (y) the Permitted Holders and (2) executive officers and other management personnel of BCI or any direct or indirect parent company of BCI, as the case may be, as applicable, hired at a time when the directors on August 12, 2004 together with the directors so approved constituted a majority of the directors of BCI or any direct or indirect parent company of BCI, as the case may be, as applicable.

“Moody’s” means Moody’s Investors Service, Inc. or any successor to the rating agency business thereof.

“Net Income” means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends.

“Net Proceeds” means the aggregate cash proceeds received by BCI or any of its Restricted Subsidiaries in respect of any Asset Sale (including any cash received in respect of or upon the sale or other disposition of any Designated Non-cash Consideration received in any Asset Sale and any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding the assumption by the acquiring Person of Indebtedness relating to the disposed assets or other consideration received in any other non-cash form), net of the direct costs relating to such Asset Sale and the sale or disposition of such Designated Non-cash Consideration (including legal, accounting and investment banking fees, and brokerage and sales commissions), and any relocation expenses Incurred as a result thereof, taxes paid or payable as a result thereof, amounts required to be applied to the repayment of principal, premium (if any) and interest on Indebtedness required (other than pursuant to the second paragraph of clause (h)(F) of this paragraph 5) to be paid as a result of such transaction (including to obtain any required consent therefore), and any deduction of appropriate amounts to be provided by BCI as a reserve in accordance with GAAP against any liabilities associated with the asset disposed of in such transaction and retained by BCI after such sale or other disposition thereof, including, without limitation, pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with such transaction.

23

“Notes” means any securities issued under the Existing Indenture.

“Obligations” means any principal, interest, penalties, fees, indemnifications, reimbursements (including, without limitation, reimbursement obligations with respect to letters of credit and bankers’ acceptances), damages and other liabilities payable under the documentation governing any Indebtedness; provided, however, that Obligations with respect to the Notes shall not include fees or indemnifications in favor of the Trustee and other third parties other than the holders of such Notes.

“Off-Balance Sheet Financing Amount” means, at any date, with respect to any Qualified Receivables Financing, the face or notional amount of any interest in assets of the type described in the definition of the term Qualified Receivables Financing transferred to a Receivables Subsidiary in connection with such Qualified Receivables Financing by or on behalf of BCI or any of its Subsidiaries.

“Offer Period” shall have the meaning assigned in clause (h)(F) of this paragraph 5.

“Offering Circular” means the offering circular dated May 16, 2005, with respect to the Preferred Stock of Hexion Escrow Corp.

“Officer” means the Chairman of the Board, Chief Executive Officer, President, any Executive Vice President, Senior Vice President or Vice President, the Treasurer or the Secretary of any Person.

“Officers’ Certificate” means a certificate signed on behalf of any Person by two Officers of such Person, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of such Person that meets the requirements set forth in the Existing Indenture.

“Opinion of Counsel” means a written opinion from legal counsel who is acceptable to the Transfer Agent. The counsel may be an employee of or counsel to BCI or the Transfer Agent.

“Original Offering Circular” means the offering circular dated August 4, 2004, with respect to the Notes issued August 12, 2004 under the Existing Indenture.

“Original Transaction” means the acquisition by BHI Investment, LLC, of all of the outstanding capital stock of Borden Holdings, Inc. pursuant to the Stock Purchase Agreement; the redemption or cancellation of all of the outstanding capital stock of BCI held by management; and the related corporate reorganization of BCI and BCI’s foreign subsidiaries.

“Parity Stock” means any class of capital stock or series of preferred stock, the terms of which expressly provide that such class or series will rank on a parity with the Series A Preferred Stock as to dividend rights or rights upon BCI’s liquidation, winding-up or dissolution.

“Paying Agent” shall have the meaning assigned in clause (b)(E)(1)(ii) of this paragraph 5.

24

“Permitted Holders” means, at any time, each of (i) the Sponsor and (ii) the Management Group. Any person or group whose acquisition of beneficial ownership constitutes a Change of Control in respect of which a Change of Control Offer is made in accordance with the requirements of this paragraph 5 will thereafter, together with its Affiliates, constitute an additional Permitted Holder.

“Permitted Investment” means:

(1) any Investment in BCI or any Restricted Subsidiary of BCI;

(2) any Investment in Cash Equivalents or Investment Grade Securities;

(3) any Investment by BCI or any Restricted Subsidiary of BCI in a Person that is primarily engaged, directly or indirectly, in a Similar Business if as a result of such Investment (a) such Person becomes a Restricted Subsidiary of BCI, or (b) such Person, in one transaction or a series of related transactions, is merged, consolidated or amalgamated with or into, or transfers or conveys all or substantially all of its assets to, or is liquidated into, BCI or a Restricted Subsidiary of BCI;

(4) any Investment in securities or other assets not constituting Cash Equivalents and received in connection with an Asset Sale made pursuant to the provisions of clause (h)(F) of this paragraph 5 or any other disposition of assets not constituting an Asset Sale;

(5) any Investment existing on August 12, 2004;

(6) advances to employees not in excess of $15 million outstanding at any one time in the aggregate;

(7) any Investment acquired by BCI or any of its Restricted Subsidiaries (a) in exchange for any other Investment or accounts receivable or claims held by BCI or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or accounts receivable or (b) as a result of foreclosure by BCI or any of its Restricted Subsidiaries with respect to any secured Investment or other transfer of title with respect to any secured Investment in default;

(8) Hedging Obligations permitted under clause (h)(C)(i) of this paragraph 5;

(9) any Investment by BCI or any of its Restricted Subsidiaries in a Similar Business (other than an Investment in an Unrestricted Subsidiary) having an aggregate Fair Market Value, taken together with all other Investments made pursuant to this clause (9), not to exceed $75 million (with the Fair Market Value of each Investment being measured at the time made and without giving effect to subsequent changes in value); provided, however, that if any Investment pursuant to this clause (9) is made in any Person that is not a Restricted Subsidiary of BCI at the date of the making of such Investment and such Person becomes a Restricted Subsidiary of BCI after such date, such Investment shall thereafter be deemed to have been made pursuant to clause (1) above and shall cease to have been made pursuant to this clause (9) for so long as such Person continues to be a Restricted Subsidiary;

25

(10) additional Investments by BCI or any of its Restricted Subsidiaries having an aggregate Fair Market Value, taken together with all other Investments made pursuant to this clause (10), not to exceed the greater of (a) $75 million and (b) 7.5% of Total Assets at the time of such Investment (with the Fair Market Value of each Investment being measured at the time made and without giving effect to subsequent changes in value);

(11) loans and advances to officers, directors and employees for business-related travel expenses, moving expenses and other similar expenses, in each case Incurred in the ordinary course of business;

(12) Investments the payment for which consists of Equity Interests (other than Disqualified Stock) of BCI or any direct or indirect parent company of BCI, as applicable; provided, however, that such Equity Interests will not increase the amount available for Restricted Payments under clause (h)(D)(a)(iii) of this paragraph 5;

(13) any transaction to the extent it constitutes an Investment that is permitted by and made in accordance with clause (h)(G) (except transactions described in clauses (2), (6), (7) and (11) thereof) of this paragraph 5;

(14) Investments consisting of the licensing or contribution of intellectual property pursuant to joint marketing arrangements with other Persons;

(15) guarantees issued in accordance with the covenants described in clause (h)(C) of this paragraph 5 and guarantees by future Restricted Subsidiaries of BCI for the benefit of the holders of the Notes;

(16) any Investment by Restricted Subsidiaries of BCI in other Restricted Subsidiaries of BCI and Investments by Subsidiaries that are not Restricted Subsidiaries in other Subsidiaries that are not Restricted Subsidiaries of BCI;

(17) Investments consisting of purchases and acquisitions of real estate, inventory, supplies, materials and equipment or purchases of contract rights or licenses or leases of intellectual property, in each case in the ordinary course of business;

(18) any Investment in a Receivables Subsidiary or any Investment by a Receivables Subsidiary in any other Person in connection with a Qualified Receivables Financing, including Investments of funds held in accounts permitted or required by the arrangements governing such Qualified Receivables Financing or any related Indebtedness; provided, however, that any Investment in a Receivables Subsidiary is in the form of a Purchase Money Note, contribution of additional receivables or an equity interest;

26

(19) Investments resulting from the receipt of non-cash consideration in an Asset Sale received in compliance with the covenant described in clause (h)(F) of this paragraph 5; and

(20) additional Investments in joint ventures of BCI or any of its Restricted Subsidiaries existing on August 12, 2004 in an aggregate amount not to exceed $15 million.

“Person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof or any other entity.

“Preferred Stock” means any Equity Interest with preferential right of payment of dividends or upon liquidation, dissolution, or winding up.

“Presumed Tax Rate” means the highest effective marginal statutory combined U.S. Federal, state and local income tax rate prescribed for an individual residing in New York City (taking into account (i) the deductibility of state and local income taxes for U.S. Federal income tax purposes, assuming the limitation of Section 68(a)(2) of the Code applies and taking into account any impact of Section 68(f) of the Code, and (ii) the character (long-term or short-term capital gain, dividend income or other ordinary income) of the applicable income).

“primary obligation” shall have the meaning assigned in the definition of “Contingent Obligations”.

“primary obligor” shall have the meaning assigned in the definition of “Contingent Obligations”.

“Private Exchange” means the offer by BCI, pursuant to the Registration Rights Agreement, to the Initial Purchasers to issue and deliver to each such Initial Purchaser, in exchange for the Initial Series A Preferred Stock held by such Initial Purchaser as part of the initial distribution of such Initial Series A Preferred Stock, a like aggregate number of shares of Private Exchange Securities.

“Private Exchange Securities” means any Series A Preferred Stock issued in connection with a Private Exchange.

“protected purchaser” shall have the meaning assigned in clause (b)(I)(1)(b) of this paragraph 5.

“Purchase Money Note” means a promissory note of a Receivables Subsidiary evidencing a line of credit, which may be irrevocable, from BCI or any Subsidiary of BCI to a Receivables Subsidiary in connection with a Qualified Receivables Financing, which note is intended to finance that portion of the purchase price that is not paid by cash or a contribution of equity.

27

“Qualified Receivables Financing” means any Receivables Financing of a Receivables Subsidiary that meets the following conditions:

(1) the Board of Directors of BCI shall have determined in good faith that such Qualified Receivables Financing (including financing terms, covenants, termination events and other provisions) is in the aggregate economically fair and reasonable to BCI and the Receivables Subsidiary,

(2) all sales of accounts receivable and related assets to the Receivables Subsidiary are made at Fair Market Value (as determined in good faith by BCI), and

(3) the financing terms, covenants, termination events and other provisions thereof shall be market terms (as determined in good faith by BCI) and may include Standard Securitization Undertakings.

The grant of a security interest in any accounts receivable of BCI or any of its Restricted Subsidiaries (other than a Receivables Subsidiary) to secure Bank Indebtedness shall not be deemed a Qualified Receivables Financing.

“Receivables Financing” means any transaction or series of transactions that may be entered into by BCI or any of its Subsidiaries pursuant to which BCI or any of its Subsidiaries may sell, convey or otherwise transfer to (a) a Receivables Subsidiary (in the case of a transfer by BCI or any of its Subsidiaries), and (b) any other Person (in the case of a transfer by a Receivables Subsidiary), or may grant a security interest in, any accounts receivable (whether now existing or arising in the future) of BCI or any of its Subsidiaries, and any assets related thereto including all collateral securing such accounts receivable, all contracts and all guarantees or other obligations in respect of such accounts receivable, proceeds of such accounts receivable and other assets which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving accounts receivable and any Hedging Obligations entered into by BCI or any such Subsidiary in connection with such accounts receivable.

“Receivables Repurchase Obligation” means any obligation of a seller of receivables in a Qualified Receivables Financing to repurchase receivables arising as a result of a breach of a representation, warranty or covenant or otherwise, including as a result of a receivable or portion thereof becoming subject to any asserted defense, dispute, off-set or counterclaim of any kind as a result of any action taken by, any failure to take action by or any other event relating to the seller.

“Receivables Subsidiary” means a Wholly Owned Restricted Subsidiary of BCI (or another Person formed for the purposes of engaging in a Qualified Receivables Financing with BCI in which BCI or any Subsidiary of BCI makes an Investment and to which BCI or any Subsidiary of BCI transfers accounts receivable and related assets) which engages in no activities other than in connection with the financing of accounts receivable of BCI and its Subsidiaries, all proceeds thereof and all rights (contractual or other), collateral and other assets relating thereto, and any business or activities incidental or related to such business, and which is designated by the Board of Directors of BCI (as provided below) as a Receivables Subsidiary and:

(a) no portion of the Indebtedness or any other obligations (contingent or otherwise) of which (i) is guaranteed by BCI or any other Subsidiary of BCI (excluding guarantees of obligations (other than the principal of, and interest on, Indebtedness) pursuant to Standard Securitization Undertakings), (ii) is recourse to or obligates BCI or any other Subsidiary of BCI in any way other than pursuant to Standard Securitization Undertakings, or (iii) subjects any property or asset of BCI or any other Subsidiary of BCI, directly or indirectly, contingently or otherwise, to the satisfaction thereof, other than pursuant to Standard Securitization Undertakings,

28

(b) with which neither BCI nor any other Subsidiary of BCI has any material contract, agreement, arrangement or understanding other than on terms which BCI reasonably believes to be no less favorable to BCI or such Subsidiary than those that might be obtained at the time from Persons that are not Affiliates of BCI, and

(c) to which neither BCI nor any other Subsidiary of BCI has any obligation to maintain or preserve such entity’s financial condition or cause such entity to achieve certain levels of operating results.

Any such designation by the Board of Directors of BCI shall be evidenced to the Transfer Agent by filing with the Transfer Agent a certified copy of the resolution of the Board of Directors of BCI giving effect to such designation and an Officers’ Certificate of BCI certifying that such designation complied with the foregoing conditions.

“Record Date” shall have the meaning assigned in clause (c)(C) of this paragraph 5.

“Refinancing Indebtedness” shall have the meaning assigned in clause (h)(C)(m) of this paragraph 5.

“Refunding Capital Stock” shall have the meaning assigned in clause h(D)(b)(2)(A) of this paragraph 5.

“Registered Exchange Offer” means the offer by BCI, pursuant to the Registration Rights Agreement, to certain Holders of Series A Preferred Stock, to issue and deliver to such Holders, in exchange for the Series A Preferred Stock, a like aggregate number of shares of Exchange Securities registered under the Securities Act.

“Registration Rights Agreement” means the Registration Rights Agreement dated May 20, 2005, among BCI and the Initial Purchasers.

“Representative Amount” means a principal amount of not less than $1,000,000 for a single transaction in the relevant market at the relevant time.

“Restricted Investment” means an Investment other than a Permitted Investment.

“Restricted Payments” shall have the meaning assigned in clause (h)(D) of this paragraph 5.

29

“Restricted Subsidiary” means, with respect to any Person, any Subsidiary of such Person other than an Unrestricted Subsidiary of such Person; provided, however, that, unless HAI would be a Subsidiary without giving effect to the specific 50% test for HAI as set forth in the definition of “Subsidiary,” HAI will not be treated as a Restricted Subsidiary that is subject to the covenants described in clause (h) of this paragraph 5. Unless otherwise indicated in this paragraph 5, all references to Restricted Subsidiaries shall mean Restricted Subsidiaries of BCI.

“Retired Capital Stock” shall have the meaning assigned in clause (h)(D)(b)(2)(A) of this paragraph 5.

“RPP” means Resolution Performance Products, Inc.

“RPP Indentures” means (a) the Indenture dated as of December 22, 2003 governing RPP’s 8% Senior Secured Notes due 2009, (b) the Indenture dated as of April 9, 2003, governing RPP’s 9 ¹/2% Senior Second Secured Notes due 2010 and (c) the Indenture dated as of November 14, 2000, governing RPP’s 13 ¹/2% Senior Subordinated Notes due 2010.

“RSM” means Resolution Specialty Materials, Inc.

“S&P” means Standard & Poor’s Ratings Group or any successor to the rating agency business thereof.

“Sale/Leaseback Transaction” means an arrangement relating to property now owned or hereafter acquired by BCI or a Restricted Subsidiary whereby BCI or a Restricted Subsidiary transfers such property to a Person and BCI or such Restricted Subsidiary leases it from such Person, other than leases between BCI and a Restricted Subsidiary of BCI or between Restricted Subsidiaries of BCI.

“SEC” means the Securities and Exchange Commission.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.

“Security Documents” means the security agreements, pledge agreements, collateral assignments and related agreements, as amended, supplemented, restated, renewed, refunded, replaced, restructured, repaid, refinanced or otherwise modified from time to time, creating the security interests in the Collateral as contemplated by the Existing Indenture.

“Senior Credit Documents” means the collective reference to the Credit Agreement, the notes issued pursuant thereto and the guarantees thereof, and the collateral documents relating thereto, as amended, supplemented, restated, renewed, refunded, replaced, restructured, repaid, refinanced or otherwise modified from time to time.

“Senior Stock” means each class of capital stock or series of preferred stock, the terms of which expressly provide that such class or series will rank senior to the Series A Preferred Stock as to dividend rights or rights upon BCI’s liquidation, winding-up or dissolution.

30

“Series A Preferred Stock” means the Series A Floating Rate Preferred Stock of BCI established pursuant to this paragraph 5.

“Significant Subsidiary” means any Restricted Subsidiary that would be a “Significant Subsidiary” of BCI within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC.

“Similar Business” means a business, the majority of whose revenues are derived from the activities of BCI and its Subsidiaries as of the date of the acquisition of BCI pursuant to the Stock Purchase Agreement or any business or activity that is reasonably similar thereto or a reasonable extension, development or expansion thereof or ancillary thereto.

“Special Redemption Provision” shall have the meaning assigned in clause (f)(C) of this paragraph 5.

“Specified Person” shall have the meaning assigned in the definition of “Consolidated Interest Expense”.

“Sponsor” means Apollo Management, L.P., one or more investment funds controlled by Apollo Management, L.P. and any of their respective Affiliates.

“Standard Securitization Undertakings” means representations, warranties, covenants, indemnities and guarantees of performance entered into by BCI or any Subsidiary of BCI which BCI has determined in good faith to be customary in a Receivables Financing including those relating to the servicing of the assets of a Receivables Subsidiary, it being understood that any Receivables Repurchase Obligation shall be deemed to be a Standard Securitization Undertaking.

“Stated Maturity” means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred).

“Stock Purchase Agreement” means the Stock Purchase Agreement dated as of July 5, 2004, among BHI Investment, LLC, a Delaware limited liability company, BW Holdings LLC, a Delaware limited liability company, Borden Holdings, Inc., BCI, Craig O. Morrison and Joseph P. Bevilaqua, as amended up to and including August 12, 2004.

“Subordinated Indebtedness” means (a) with respect to the Issuers, any Indebtedness of such Issuer which is by its terms subordinated in right of payment to the Notes, and (b) with respect to any Guarantor, any Indebtedness of such Guarantor which is by its terms subordinated in right of payment to its Guarantee.

“Subsidiary” means, with respect to any Person (1) any corporation, association or other business entity (other than a partnership, joint venture or limited liability company) of which more than 50% of the total voting power of shares of Capital Stock entitled (without

31

regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time of determination owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof, and (2) any partnership, joint venture or limited liability company of which (x) more than 50% of the capital accounts, distribution rights, total equity and voting interests or general and limited partnership interests, as applicable, are owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of that Person or a combination thereof, whether in the form of membership, general, special or limited partnership interests or otherwise, and (y) such Person or any Restricted Subsidiary of such Person is a controlling general partner or otherwise controls such entity (or, in the case of HAI, such Person or any Restricted Subsidiary of such Person has the right to designate at least 50% of the members of the board of directors of such entity).

“Subsidiary Guarantor” means any Restricted Subsidiary that Incurs a Guarantee; provided, however, that upon the release or discharge of such Restricted Subsidiary from its Guarantee in accordance with the Existing Indenture, such Restricted Subsidiary will cease to be a Subsidiary Guarantor.

“Tax Distributions” means any dividends and distributions described in the covenant described in clause (h)(D)(b)(12) of this paragraph 5.

“termination option” shall have the meaning assigned in clause (p) of this paragraph 5.

“Total Assets” means the total consolidated assets of BCI and its Restricted Subsidiaries, as shown on the most recent balance sheet of BCI.

“Transfer Agent” means UMB Bank, N.A., until a successor replaces it and, thereafter, means the successor.

“Transaction Agreement” means the Transaction Agreement dated as of April 22, 2005, among RPP Holdings LLC, a Delaware limited liability company, Resolution Specialty Materials Holdings LLC, a Delaware limited liability company, BHI Acquisition Corp., BHI Merger Sub One Inc., BHI Merger Sub Two Inc. and BCI.

“Transactions” will have the meaning ascribed thereto in the Offering Circular, including the refinancing of the bridge loans Incurred to finance the acquisition of Bakelite Aktiengesellschaft.

“Treasury Rate” means with respect to the Series A Preferred Stock, as of the applicable redemption date, the yield to maturity as of such redemption date of constant maturity United States Treasury securities (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to such redemption date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from such redemption date to May 15, 2010; provided, however, that if no published maturity exactly corresponds with such date, then the Treasury Rate shall be interpolated or extrapolated on a straight-line basis from the arithmetic mean of the yields for the next shortest and next longest published

32

maturities; provided further, however, that if the period from such redemption date to May 15, 2010 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.

“Trigger” means any event which is, or after notice or passage of time or both would be, a Trigger Event.

“Trigger Event” shall have the meaning assigned in clause (m) of this paragraph 5 and as further described in this paragraph 5.

“Trustee” means the respective party named as such in the Existing Indenture until a successor replaces it and, thereafter, means the successor.

“Unrestricted Subsidiary” means:

(1) any Subsidiary of BCI that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors of BCI in the manner provided below; and

(2) any Subsidiary of an Unrestricted Subsidiary.

The Board of Directors of BCI may designate any Subsidiary of BCI (including any newly acquired or newly formed Subsidiary of BCI but excluding the Issuers) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Equity Interests or Indebtedness of, or owns or holds any Lien on any property of, BCI or any other Subsidiary of BCI that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that the Subsidiary to be so designated and its Subsidiaries do not at the time of designation have and do not thereafter Incur any Indebtedness pursuant to which the lender has recourse to any of the assets of BCI or any of its Restricted Subsidiaries; provided further, however, that either:

(a) the Subsidiary to be so designated has total consolidated assets of $1,000 or less; or

(b) if such Subsidiary has consolidated assets greater than $1,000, then such designation would be permitted under the covenant described in clause (h)(D) of this paragraph 5.

The Board of Directors of BCI may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation:

(x) (1) BCI could Incur $1.00 of additional Indebtedness pursuant to the Fixed Coverage Ratio test described in clause (h)(C) of this paragraph 5 or (2) the Fixed Charge Coverage Ratio for BCI and its Restricted Subsidiaries would be greater than such ratio for BCI and its Restricted Subsidiaries immediately prior to such designation, in each case on a pro forma basis taking into account such designation, and

33

(y) no Trigger Event shall have occurred and be continuing.

Any such designation by the Board of Directors of BCI shall be evidenced to the Transfer Agent by promptly filing with the Transfer Agent a copy of the resolution of the Board of Directors of BCI giving effect to such designation and an Officers’ Certificate of BCI certifying that such designation complied with the foregoing provisions.

“U.S. Issuer” means Borden U.S. Finance Corp., a Delaware corporation, and any successor in interest thereto.

“Voting Stock” of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.

“Weighted Average Life to Maturity” means, when applied to any Indebtedness or Disqualified Stock, as the case may be, at any date, the quotient obtained by dividing (1) the sum of the products of the number of years from the date of determination to the date of each successive scheduled principal payment of such Indebtedness or redemption or similar payment with respect to such Disqualified Stock multiplied by the amount of such payment, by (2) the sum of all such payments.

“Wholly Owned Restricted Subsidiary” is any Wholly Owned Subsidiary that is a Restricted Subsidiary.

“Wholly Owned Subsidiary” of any Person means a Subsidiary of such Person 100% of the outstanding Capital Stock or other ownership interests of which (other than directors’ qualifying shares) shall at the time be owned by such Person or by one or more Wholly Owned Subsidiaries of such Person and one or more Wholly Owned Subsidiaries of such Person.

(B) Rules of Construction. Unless the context otherwise requires:

(1) a term has the meaning assigned to it;

(2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;

(3) “or” is not exclusive;

(4) “including” means including without limitation;

(5) words in the singular include the plural and words in the plural include the singular;

(6) unsecured Indebtedness shall not be deemed to be subordinate or junior to Secured Indebtedness merely by virtue of its nature as unsecured Indebtedness;

(7) the principal amount of any non-interest bearing or other discount security at any date shall be the principal amount thereof that would be shown on a balance sheet of the issuer dated such date prepared in accordance with GAAP;

34

(8) unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made and all financial statements required to be delivered hereunder shall be prepared in accordance with GAAP; and

(9) any calculation (after consummation of the Escrow Merger) relating to the period beginning on August 12, 2004 will include BCI and its applicable Restricted Subsidiaries.

(b) General.

(A) Designation and Amount. The 60,000,000 shares designated as “Series A Preferred Stock” shall have a par value of $0.01 per share.

(B) Ranking. The Series A Preferred Stock will, with respect to dividend rights and rights upon BCI’s liquidation, winding-up or dissolution, rank (i) senior to all classes of any Junior Stock (including common stock); (ii) on a parity, in all respects, with any Parity Stock; and (iii) junior to any Senior Stock.

(C) Form and Dating. The Series A Preferred Stock may have notations, legends or endorsements required by law, stock exchange rule, agreements to which BCI is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to BCI). Each share of Series A Preferred Stock shall be dated the date of its issue. The Series A Preferred Stock shall be issuable only in registered form.

(D) Execution and Authentication. (1) BCI shall cause the Transfer Agent to authenticate and make available for delivery, upon a written order of BCI signed by one Officer of BCI, (i) one or more share certificates evidencing Series A Preferred Stock for original issue on the effective date of the Escrow Merger in an aggregate number of shares of 14,000,000, (ii) one or more share certificates evidencing any additional shares of Series A Preferred Stock to be issued pursuant to clause (c) of this paragraph 5 and (iii) one or more share certificates evidencing Exchange Securities for issue in a Registered Exchange Offer or Private Exchange pursuant to a Registration Rights Agreement for a like number of shares of Series A Preferred Stock the outstanding, which Exchange Securities will replace such outstanding Series A Preferred Stock. Each such order shall specify the number of shares of the Series A Preferred Stock for which share certificates are to be authenticated and the date on which such certificates evidencing shares of Series A Preferred Stock are to be authenticated.

(2) One Officer of BCI shall sign certificates evidencing the Series A Preferred Stock for BCI by manual signature.

(3) If an Officer of BCI whose signature is on a certificate evidencing any shares of the Series A Preferred Stock no longer holds that office at the time the Transfer Agent authenticates such certificate evidencing shares of the Series A Preferred Stock, such certificate evidencing such shares of the Series A Preferred Stock shall be valid nevertheless.

35

(4) A certificate evidencing shares of the Series A Preferred Stock shall not be valid until an authorized signatory of the Transfer Agent manually signs the certificate of authentication for such certificate evidencing such shares of the Series A Preferred Stock. The signature shall be conclusive evidence that the Series A Preferred Stock has been authenticated under this paragraph 5.

(5) The Transfer Agent may appoint one or more authenticating agents reasonably acceptable to BCI to authenticate certificates evidencing shares of the Series A Preferred Stock. Any such appointment shall be evidenced by an instrument signed by the Transfer Agent, a copy of which shall be furnished to BCI Unless limited by the terms of such appointment, an authenticating agent may authenticate certificates evidencing shares of the Series A Preferred Stock whenever the Transfer Agent may do so. Each reference in this paragraph 5 to authentication by the Transfer Agent includes authentication by such agent. An authenticating agent has the same rights as any Registrar, Paying Agent or agent for service of notices and demands.

(E) Transfer Agent and Paying Agent. (1) BCI shall maintain (i) an office or agency where certificates evidencing shares of Series A Preferred Stock may be presented for registration of transfer or for exchange, and (ii) an office or agency in the Borough of Manhattan, the City of New York, the State of New York where certificates evidencing shares of Series A Preferred Stock may be presented for payment (the “Paying Agent”). BCI shall cause the Transfer Agent to keep a register of the Series A Preferred Stock and of their transfer and exchange. BCI may have one or more co-transfer agents and one or more additional paying agents. The term “Transfer Agent” includes any co-transfer agents. BCI initially appoints UMB Bank, N.A. as (i) Transfer Agent and Paying Agent in connection with the Series A Preferred Stock and (ii) the custodian with respect to the Global Securities.

(2) BCI shall enter into an appropriate agency agreement with any Transfer Agent or Paying Agent, which shall implement the provisions of this paragraph 5 that relate to such agent.

(3) BCI may remove any Transfer Agent or Paying Agent upon written notice to such Transfer Agent or Paying Agent; provided, however, that no such removal shall become effective until if applicable, acceptance of an appointment by a successor as evidenced by an appropriate agreement entered into by BCI and such successor Transfer Agent or Paying Agent, as the case may be. The Transfer Agent or Paying Agent may resign at any time upon written notice to BCI; provided, however, that the Transfer Agent may resign as Paying Agent only if the Transfer Agent also resigns as Transfer Agent.

36

(F) Paying Agent To Hold Money in Trust. Subject to legally available funds, prior to the redemption or repurchase of any shares of Series A Preferred Stock on each Dividend Payment Date, BCI shall deposit with each Paying Agent a sum sufficient to redeem or repurchase such shares or pay such dividends when so becoming due. BCI shall require each Paying Agent (other than the Transfer Agent) to agree in writing that a Paying Agent shall hold in trust for the benefit of Holders or the Transfer Agent all money held by a Paying Agent for the redemption or repurchase of any shares of Series A Preferred Stock or payment of dividends on the Series A Preferred Stock, and shall notify the Transfer Agent of any failure by BCI in making any such payment. BCI at any time may require a Paying Agent to pay all money held by it to the Transfer Agent and to account for any funds disbursed by such Paying Agent. Upon complying with this clause (F), a Paying Agent shall have no further liability for the money delivered to the Transfer Agent.

(G) Holder Lists. BCI shall cause the Transfer Agent to preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Holders. If the Transfer Agent is not the Paying Agent, BCI shall furnish, or cause the Transfer Agent to furnish, to the Paying Agent, in writing at least five Business Days before each Dividend Payment Date and at such other times as the Paying Agent may request in writing, a list in such form and as of such date as the Paying Agent may reasonably require of the names and addresses of Holders.

(H) Transfer and Exchange. (1) Certificates evidencing shares of the Series A Preferred Stock shall be issued in registered form and shall be transferable on BCI’s stock register only upon the surrender of such certificate evidencing shares of the Series A Preferred Stock for registration of transfer and in compliance with the Global Securities Procedures. When a certificate evidencing shares of Series A Preferred Stock is presented to the Transfer Agent with a request to register a transfer, the Transfer Agent shall register the transfer as requested if its requirements therefor are met. When certificates evidencing shares of Series A Preferred Stock are presented to the Transfer Agent with a request to exchange them for certificates evidencing an equal number of shares of Series A Preferred Stock of other denominations, the Transfer Agent shall make the exchange as requested if the same requirements are met. To permit registration of transfers and exchanges, BCI shall issue certificates evidencing shares of the Series A Preferred Stock at the Transfer Agent’s request and the Transfer Agent shall authenticate such certificates evidencing shares from time to time. BCI may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with any transfer or exchange pursuant to this clause (H). BCI shall not be required to make, and the Transfer Agent need not register, transfers or exchanges of shares of the Series A Preferred Stock selected for redemption (except, in the case of shares of the Series A

37

Preferred Stock to be redeemed in part, the portion thereof not to be redeemed) or of any shares of Series A Preferred Stock for a period of 15 days before a selection of Series A Preferred Stock to be redeemed.

(2) Prior to the due presentation for registration of transfer of any certificate evidencing shares of Series A Preferred Stock, BCI, the Transfer Agent and each Paying Agent may deem and treat the Person in whose name a share of Series A Preferred Stock is registered as the absolute owner of such share of Series A Preferred Stock for the purpose of redeeming or repurchasing such share of Series A Preferred Stock or receiving payment of dividends, if any, on such share of Series A Preferred Stock and for all other purposes whatsoever, whether or not such dividends on share of Series A Preferred Stock is overdue, and none of BCI, the Transfer Agent or a Paying Agent shall be affected by notice to the contrary.

(3) Any Holder of a beneficial interest in a Global Security shall, by acceptance of such beneficial interest, agree that transfers of beneficial interests in such Global Security may be effected only through a book-entry system maintained by (a) the Holder of such Global Security (or its agent) or (b) any Holder of a beneficial interest in such Global Security, and that ownership of a beneficial interest in such Global Security shall be required to be reflected in a book entry.

(4) All shares of Series A Preferred Stock issued upon any transfer or exchange pursuant to the terms of this paragraph 5 shall evidence the same securities and shall be entitled to the same benefits under this paragraph 5 as the shares of Series A Preferred Stock surrendered upon such transfer or exchange.

(I) Replacement Certificate. (1) If a mutilated certificate evidencing shares of Series A Preferred Stock is surrendered to the Transfer Agent or if the Holder of a certificate evidencing shares of Series A Preferred Stock claims that such certificate has been lost, destroyed or wrongfully taken, BCI shall issue and the Transfer Agent shall authenticate a replacement certificate if the requirements of the Uniform Commercial Code are met, such that the Holder (a) satisfies BCI or the Transfer Agent within a reasonable time after such Holder has notice of such loss, destruction or wrongful taking and the Transfer Agent does not register a transfer prior to receiving such notification, (b) makes such request to BCI or the Transfer Agent prior to the certificate being acquired by a protected purchaser as defined in Section 8—303 of the Uniform Commercial Code (a “protected purchaser”) and (c) satisfies any other reasonable requirements of the Transfer Agent. If required by the Transfer Agent or BCI, such Holder shall furnish an indemnity bond sufficient in the judgment of the Transfer Agent to protect BCI, the Transfer Agent and any Paying Agent from any loss that any of them may suffer if a certificate is replaced. BCI and the Transfer Agent may charge the Holder for their expenses in replacing a certificate (including attorneys’ fees and

38

disbursements in replacing such certificate). In the event any such mutilated, lost, destroyed or wrongfully taken certificate has become or is about to become due and payable, BCI in its discretion may repurchase such shares of Series A Preferred Stock instead of issuing a new certificate in replacement thereof.

(2) Every replacement certificate evidencing shares of Series A Preferred Stock is an additional obligation of BCI

(3) The provisions of this clause (I) are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, lost, destroyed or wrongfully taken certificates evidencing shares of Series A Preferred Stock.

(J) Outstanding Series A Preferred Stock. (1) Shares of Series A Preferred Stock outstanding at any time are all the shares of Series A Preferred Stock in respect of which the Transfer Agent has authenticated share certificates except for those canceled by the Transfer Agent, those delivered to the Transfer Agent for cancelation, those repurchased and those described in this clause (J) as not outstanding. Shares of Series A Preferred Stock do not cease to be outstanding because BCI or an Affiliate of BCI holds the shares of Series A Preferred Stock.

(2) If a certificate evidencing shares of Series A Preferred Stock is replaced (other than a mutilated certificate evidencing shares of Series A Preferred Stock surrendered for replacement), such shares cease to be outstanding unless the Transfer Agent and BCI receive proof satisfactory to them that the replaced certificate evidencing shares of Series A Preferred Stock is held by a protected purchaser. A mutilated certificate evidencing shares of Series A Preferred Stock ceases to be outstanding upon surrender of such certificate and replacement thereof.

(3) If a Paying Agent segregates and holds in trust, in accordance with this paragraph 5, on a repurchase date or redemption date money sufficient to repurchase or redeem, as the case may be, shares of Series A Preferred Stock and pay all dividends payable on that date with respect to the shares of the Series A Preferred Stock (or portions thereof) to be repurchased or redeemed, as the case may be, then on and after that date such shares of Series A Preferred Stock (or portions thereof) cease to be outstanding and dividends on them cease to accrue.

(K) Cancellation. BCI at any time may deliver certificates evidencing shares of Series A Preferred Stock to the Transfer Agent for cancellation. Each Paying Agent shall forward to the Transfer Agent any certificates evidencing shares of Series A Preferred Stock surrendered to them for registration of transfer, exchange or payment. The Transfer Agent and no one else shall cancel all certificates evidencing shares of Series A Preferred Stock surrendered for registration of transfer, exchange, payment or cancellation and shall dispose of

39

canceled certificates evidencing shares of Series A Preferred Stock in accordance with its customary procedures or deliver canceled certificates evidencing shares of Series A Preferred Stock to BCI pursuant to written direction by an Officer of BCI. BCI may not issue new shares of Series A Preferred Stock to replace shares of Series A Preferred Stock it has redeemed, repurchased or delivered to the Transfer Agent for cancellation. The Transfer Agent shall not authenticate shares of Series A Preferred Stock in place of canceled shares of Series A Preferred Stock other than pursuant to the terms of this paragraph 5.

(L) Failure to Pay Dividends. If BCI fails to pay dividends on the Series A Preferred Stock, BCI shall pay such dividends then borne by the Series A Preferred Stock, as the case may be, in any lawful manner. BCI may pay such dividends to the Persons who are Holders on a subsequent special record date. BCI shall fix or cause to be fixed any such special record date and payment date to the reasonable satisfaction of the Transfer Agent and shall promptly mail or cause to be mailed to each affected Holder a notice that states the special record date, the payment date and the amount of such dividends that BCI failed to pay.

(M) CUSIP Numbers, ISINs, etc. BCI in issuing the Series A Preferred Stock may use CUSIP numbers, ISINs and “Common Code” numbers (if then generally in use) and, if so, the Transfer Agent shall use CUSIP numbers, ISINs and “Common Code” numbers in notices of redemption as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers, either as printed on the Series A Preferred Stock or as contained in any notice of a redemption, that reliance may be placed only on the other identification numbers printed on the Series A Preferred Stock and that any such redemption shall not be affected by any defect in or omission of such numbers. BCI shall advise the Transfer Agent of any change in the CUSIP numbers, ISINs and “Common Code” numbers.

(N) Calculation of Number of Shares of Series A Preferred Stock. The aggregate number of shares of the Series A Preferred Stock, at any date of determination, shall be the number of shares of the Series A Preferred Stock outstanding at such date of determination. With respect to any matter requiring consent, waiver, approval or other action of the Holders of a specified percentage of the number of shares of all the Series A Preferred Stock then outstanding, such percentage shall be calculated, on the relevant date of determination, by dividing (a) the number of shares, as of such date of determination, of Series A Preferred Stock, the Holders of which have so consented by (b) the aggregate number of shares, as of such date of determination, of the Series A Preferred Stock then outstanding. Any such calculation made pursuant to this clause (N) shall be made by BCI and delivered to the Transfer Agent pursuant to an Officers’ Certificate of BCI

(O) Without Consent of the Holders. BCI and the Transfer Agent may amend this paragraph 5 without notice to or consent of any Holder:

(1) to cure any ambiguity, omission, defect, mistake or inconsistency;

40

(2) to comply with clause (i) of this paragraph 5;

(3) to provide for uncertificated Series A Preferred Stock in addition to or in place of certificated Series A Preferred Stock; provided, however, that the uncertificated shares of Series A Preferred Stock are issued in registered form for purposes of Section 163(f) of the Code or in a manner such that the uncertificated Series A Preferred Stock are described in Section 163(f)(2)(B) of the Code;

(4) to add to the covenants of BCI or BCI for the benefit of the Holders or to surrender any right or power herein conferred upon BCI;

(5) to make any change that does not adversely affect the rights of any Holder;

(6) to provide for the issuance of the Exchange Securities, which shall have terms substantially identical in all material respects to the Initial Series A Preferred Stock; or

(7) to make any amendment to the provisions of this paragraph 5 relating to the transfer and legending of Series A Preferred Stock; provided, however, that (a) compliance with this paragraph 5 as so amended would not result in Series A Preferred Stock being transferred in violation of the Securities Act or any other applicable securities law and (b) such amendment does not materially and adversely affect the rights of holders to transfer Series A Preferred Stock.

(P) Notation on or Exchange of Series A Preferred Stock. If an amendment, supplement or waiver changes the terms of the Series A Preferred Stock, BCI may require the Holder of the Series A Preferred Stock to deliver the certificate evidencing such Series A Preferred Stock to the Transfer Agent. The Transfer Agent may place an appropriate notation on the certificate evidencing such Series A Preferred Stock regarding the changed terms and return it to the Holder. Alternatively, if BCI or the Transfer Agent so determines, BCI in exchange for the certificate evidencing such Series A Preferred Stock shall issue and the Transfer Agent shall authenticate a new certificate evidencing such Series A Preferred Stock that reflects the changed terms. Failure to make the appropriate notation or to issue a new certificate evidencing such Series A Preferred Stock shall not affect the validity of such amendment, supplement or waiver. After an amendment under this clause (P) becomes effective, BCI shall mail to Holders a notice briefly describing such amendment. The failure to give such notice to all Holders, or any defect therein, shall not impair or affect the validity of an amendment under this clause (P).

41

(Q) Legal Holidays. If a Dividend Payment Date is not a Business Day, payment shall be made on the next succeeding day that is a Business Day, and no additional dividends shall accrue on any amount that would have been otherwise payable on such Dividend Payment Date if it were a Business Day for the intervening period. If a regular record date is not a Business Day, the record date shall not be affected.

(c) Dividends.

(A) Dividend Rate. The Series A Preferred Stock will accumulate cumulative preferential dividends from the date of issue or, in the case of Holders receiving shares of Series A Preferred Stock as a result of the Escrow Merger, the Accrual Date accruing on the amount of the liquidation preference, at the rates and during the time periods set forth below (subject to increase as described under clause (F) below):

Period	Dividend Rate
From Accrual Date through and including November 14, 2005	LIBOR plus 800 basis points
From November 15, 2005 through and including May 14, 2006	LIBOR plus 875 basis points
From May 15, 2006 through and including November 14, 2006	LIBOR plus 950 basis points
From November 15, 2006 through and including May 14, 2007	LIBOR plus 1,025 basis points
From May 15, 2007 and thereafter	LIBOR plus 1,100 basis points

(B) Accrual and Payment of Dividends. Dividends, whether or not declared, accumulate and compound semiannually on each Dividend Payment Date until declared and paid. BCI may, at its option (the “Fixed Rate Option”), on or after May 15, 2007, convert the Preferred Stock from a floating rate security to a fixed rate security at an annual dividend rate equal to 14% (the “Fixed Dividend Rate”). Until and including May 15, 2010, dividends, if and when declared, will be payable through the issuance of a number of additional shares of Series A Preferred Stock with an aggregate liquidation preference equal to the dividend amount payable on the applicable Dividend Payment Date. After May 15, 2010, all dividends, if and when declared, will be payable solely in cash.

(C) Payment Dates. Dividends on the Series A Preferred Stock will be payable semiannually on May 15 and November 15 of each year, commencing November 15, 2005 (each, a “Dividend Payment Date”), and shall accumulate from the most recent date as to which dividends shall have been paid or, if no dividends have been paid, from the Accrual Date in the case of Holders receiving shares of Series A Preferred Stock as a result of the Escrow Merger, or the applicable issuance date thereafter, of the Series A Preferred Stock, whether or not on any scheduled Dividend Payment Date BCI could have legally paid such dividends. Dividends will be payable to holders of record as they appear on

42

BCI’s stock register for the Series A Preferred Stock on the immediately preceding May 1 and November 1 (each, a “Record Date”). Dividends payable on the Series A Preferred Stock for any period less than a full dividend period (based upon the number of days elapsed during the period) are computed on the basis of a 360-day year consisting of twelve 30-day months.

(D) Payments. No dividend will be declared or paid upon, or any sum set apart for the payment of dividends upon, any outstanding share of the Series A Preferred Stock with respect to any dividend period unless all dividends for all preceding dividend periods have been declared and paid or declared and a sufficient sum set apart for the payment of such dividend, upon all outstanding shares of Series A Preferred Stock.

(E) Limitations on Dividends. Other than any dividends or distributions declared, made or paid, or set apart for payment,

(i) in an aggregate amount not to exceed $550,000,000 paid using the proceeds of Hexion Escrow Corp.’s Series A Preferred Stock offering, borrowings or other available cash,

(ii) to fund payments by the direct or indirect parent company of BCI of any appraisal rights exercised in connection with the transactions contemplated by the Transaction Agreement,

(iii) as permitted to be made pursuant to clause (h)(D)(b)(2), (h)(D)(b)(4) (but excluding clause (A) thereof), (h)(D)(b)(12)(B) or (h)(D)(b)(13)(A) of this paragraph 5; provided, however, that any Equity Interests issued in exchange for any Retired Capital Stock pursuant to clause (h)(D)(b)(2) and any Equity Interests the proceeds of which are used to repurchase, retire or otherwise acquire any Retired Capital Stock pursuant to clause (h)(D)(b)(2), may not be issued in connection with an investment, direct or indirect, in BCI by any Person other than the Sponsor or the Management Group (it being understood that the foregoing proviso will not apply to the exchange by Hexion LLC of all or substantially all of its assets in exchange for common stock of Hexion in connection with the proposed initial public offering of Hexion),

(iv) fees and expenses incurred in connection with the Transactions or the exchange offers, if applicable, in an aggregate amount not to exceed $15,000,000 or

(v) as required with respect to the Series A Preferred Stock pursuant to its terms,

no dividends or other distributions may be declared, made or paid, or set apart for payment upon, any Senior Stock, Parity Stock or Junior Stock, nor may any Senior Stock, Parity Stock or Junior Stock be redeemed, purchased or otherwise acquired for any consideration (or any money paid to or made available for a

43

sinking fund for the redemption of any Senior Stock, Parity Stock or Junior Stock) by or on behalf of BCI prior to the redemption in full of the Series A Preferred Stock. Holders of shares of the Series A Preferred Stock will not be entitled to any dividend, whether payable in cash, property or stock, in excess of full cumulative dividends.

(F) Additional Dividends. The dividend rate on the Series A Preferred Stock will be increased from time to time to the extent required (x) pursuant to the Registration Rights Agreement or (y) upon a Trigger Event, as described in clause (m) of this paragraph 5.

(d) Preference on Liquidation.

(A) Liquidation Preference for Series A Preferred Stock. In the event of BCI’s voluntary or involuntary liquidation, winding-up or dissolution, each holder of Series A Preferred Stock will be entitled to receive and to be paid out of BCI’s assets available for distribution to BCI’s stockholders, before any payment or distribution is made to holders of Junior Stock (including common stock), a liquidation preference in an amount of $25 per share of the Series A Preferred Stock, plus accrued and unpaid dividends on the shares to the date fixed for liquidation, winding-up or dissolution.

(B) Pro Rata Payments. If, upon BCI’s voluntary or involuntary liquidation, winding-up or dissolution, the amounts payable with respect to the liquidation preference of the Series A Preferred Stock and all Parity Stock plus accrued and unpaid dividends are not paid in full, the holders of the Series A Preferred Stock and the Parity Stock will share equally and ratably in any distribution of BCI’s assets available for distribution to BCI’s stockholders in proportion to the full liquidation preference and accrued and unpaid dividends to which they are entitled. After payment of the full amount of the liquidation preference and accrued and unpaid dividends to which they are entitled, the holders of the Series A Preferred Stock will have no right or claim to any of BCI’s remaining assets.

(C) Sale Not a Liquidation. Neither the sale of all or substantially all the BCI’s assets or business (other than in connection with BCI’s liquidation, winding-up or dissolution), nor BCI’s merger or consolidation into or with any other person, will be deemed to be BCI’s voluntary or involuntary liquidation, winding-up or dissolution.

(e) Voting.

(A) Right to Vote. The holders of the Series A Preferred Stock will have no voting rights except as set forth below or as otherwise required by New Jersey law from time to time.

(B) Voting Rights in Default. Upon the occurrence of any Trigger Event, the holders of the Series A Preferred Stock will be entitled at BCI’s next regular

44

or special meeting of stockholders to elect one director to the Board of Directors of BCI by the affirmative vote of a majority of the votes cast. The voting rights and the term of the director so elected will continue until such time as all Trigger Events have been cured or waived.

(C) Senior Stock. The affirmative vote or written consent of the holders of at least 66 ²/3% of the outstanding Series A Preferred Stock will be required for the authorization or issuance of any class or series of Senior Stock (or any security convertible into Senior Stock) and for amendments to the Certificate of Incorporation of BCI that would affect adversely the rights of holders of the Series A Preferred Stock.

(D) Parity Stock and Junior Stock. The authorization of, the increase in the authorized amount of, or the issuance of any shares of any class or series of Series A Preferred Stock or Parity Stock or Junior Stock will not require the consent of the holders of the Series A Preferred Stock, and will not be deemed to affect adversely the rights of the holders of the Series A Preferred Stock.

(E) IPO. Each holder of Series A Preferred Stock acknowledges that such holder will not be entitled to vote or take other action on (i) any amendment to the Certificate of Incorporation of BCI to be made and as disclosed in the S-1 filed by BCI with the SEC on April 25, 2005, (ii) any amendment to the Certificate of Incorporation of BCI to effect a stock split or authorize additional shares of common stock or (iii) any other amendment to the Certificate of Incorporation of BCI in connection with the initial public offering of BCI.

(F) Number of Votes. In all cases in which the holders of Series A Preferred Stock shall be entitled to vote or take other action as set forth in this clause (e) of paragraph 5, each share of Series A Preferred Stock shall be entitled to one vote.

(f) Redemption.

(A) Optional Redemption. Prior to May 15, 2007 and at any time thereafter if the Fixed Rate Option has not been exercised by BCI, BCI may redeem the Series A Preferred Stock at its option, in whole or in part, at any time or from time to time, upon not less than 5 nor more than 60 Business Days’ prior notice mailed by first-class mail to each holder’s registered address at the following redemption prices (expressed as percentages of the liquidation preference on the redemption date), plus accrued and unpaid dividends, if any, to the applicable redemption date (subject to the right of holders of record on the relevant record date to receive dividends due on the relevant Dividend Payment Date):

Period	Redemption Price
From the effective date of the Escrow Merger through and including November 14, 2005	100	%
From November 15, 2005 through and including May 14, 2006	101	%
From May 15, 2006 through and including May 14, 2007	102	%
From May 15, 2007 and thereafter	103	%

45

If the Fixed Rate Option has been exercised by BCI, prior to May 15, 2010, BCI may redeem the Series A Preferred Stock at its option, in whole or in part, at any time or from time to time, upon not less than 30 nor more than 90 days’ prior notice mailed by first-class mail to each holder’s registered address at a redemption price equal to 100% of the liquidation preference on the redemption date, plus the Applicable Premium as of, and accrued and unpaid dividends, if any, to the applicable redemption date (subject to the right of holders of record on the relevant record date to receive dividends due on the relevant Dividend Payment Date).

If the Fixed Rate Option has been exercised by BCI, on or after May 15, 2010, BCI may redeem the Series A Preferred Stock at its option, in whole or in part, at any time or from time to time, upon not less than 30 nor more than 90 days’ prior notice mailed by first-class mail to each holder’s registered address at the following redemption prices (expressed as a percentage of liquidation preference at the redemption date), plus accrued and unpaid dividends, if any, to the applicable redemption date (subject to the right of holders of record on the relevant record date to receive dividends due on the relevant Dividend Payment Date), if redeemed during the 12-month period commencing on May 15 of the years set forth below:

Period	Redemption Price
2010	107.0000	%
2011	104.6667	%
2012	102.3333	%
2013 and thereafter	100.0000	%

At least 30 days but not more than 60 days before a redemption date (or such shorter period as is provided for in a redemption pursuant to this clause (f)(A), BCI shall mail or cause to be mailed by first-class mail a notice of redemption to each Holder whose Series A Preferred Stock is to be redeemed.

Any such notice shall identify the Series A Preferred Stock to be redeemed and shall state:

(1) the redemption date;

(2) the redemption price and the amount of accrued and unpaid dividends to the redemption date;

(3) the name and address of a Paying Agent;

(4) that Series A Preferred Stock called for redemption must be surrendered to a Paying Agent to collect the redemption price, plus accrued and unpaid dividends;

46

(5) if fewer than all the outstanding shares of Series A Preferred Stock are to be redeemed, the number of shares and certificate numbers of the particular shares of Series A Preferred Stock to be redeemed, the aggregate number of shares of Series A Preferred Stock to be redeemed and the aggregate number of shares of Series A Preferred Stock to be outstanding after such partial redemption;

(6) that, unless BCI fails to make such redemption payment or set apart funds for such redemption payment, dividends on shares of Series A Preferred Stock (or portion thereof) called for redemption cease to accrue on and after the redemption date;

(7) the CUSIP number, ISIN or “Common Code” number, if any, printed on shares of Series A Preferred Stock being redeemed;

(8) that no representation is made as to the correctness or accuracy of the CUSIP number or ISIN or “Common Code” number, if any, listed in such notice or printed on the shares of Series A Preferred Stock; and

(9) the applicable provision in this paragraph 5 pursuant to which BCI is redeeming such shares of Series A Preferred Stock.

At BCI’s request, BCI shall give the notice of redemption in BCI’s name and at BCI’s expense. In such event, BCI shall provide the Transfer Agent with the information required by this clause (f)(A).

Once notice of redemption is mailed in accordance with the paragraph above, shares of Series A Preferred Stock called for redemption become due and payable on the redemption date at the applicable redemption price. Upon surrender to any Paying Agent, such shares of Series A Preferred Stock shall be paid the redemption price, plus accrued and unpaid dividends to the redemption date; provided, however, that if the redemption date is after a regular record date and on or prior to the Dividends Payment Date, the accrued and unpaid dividends shall be payable to the Holder of the redeemed shares of Series A Preferred Stock registered on the relevant record date. Failure to give notice or any defect in the notice to any Holder shall not affect the validity of the notice to any other Holder.

With respect to any shares of Series A Preferred Stock, prior to 10:00 a.m., New York City time, on the redemption date, BCI shall deposit with the Paying Agent money sufficient to pay the redemption price of and accrued and unpaid dividends on all shares of Series A Preferred Stock or portions thereof to be redeemed on that date other than Shares of Series A Preferred Stock or portions of shares of Series A Preferred Stock called for redemption that have been delivered by BCI to the Transfer Agent for cancellation. On and after the redemption date, dividends shall cease to accrue on shares of Series A Preferred Stock or portions thereof called for redemption so long as BCI has deposited with the Paying Agent funds sufficient to pay the redemption price of, plus accrued and unpaid dividends on, the shares of Series A Preferred Stock to be redeemed.

(B) Selection. In the case of any partial redemption of the Series A Preferred Stock, selection of the Series A Preferred Stock for redemption will be made by BCI on a pro rata basis to the extent practicable; provided, however, that BCI may redeem all of the shares of

47

Series A Preferred Stock held by holders of fewer than 100 shares (or all of the shares held by holders who would hold less than 100 shares as a result of such redemption) as may be determined by BCI On and after the redemption date, dividends will cease to accrue on Series A Preferred Stock or portions thereof called for redemption so long as BCI has deposited with the Transfer Agent funds sufficient to pay the liquidation preference of, plus accrued and unpaid dividends, if any, on, the Series A Preferred Stock to be redeemed.

(g) Put Option. Subject to legally available funds, each holder of the Series A Preferred Stock (excluding Hexion LLC, if applicable) may, at its option, upon 30 days’ prior notice to BCI, on October 15, 2014, require BCI to purchase all of the Series A Preferred Stock then outstanding for an amount equal to the liquidation preference on such purchase date plus accrued and unpaid dividends, if any, to the applicable purchase date (subject to the right of holders of record on the relevant record date to receive dividends due on the relevant Dividend Payment Date). BCI must notify the holders of the Series A Preferred Stock at least 60 days prior to October 15, 2014 of their right to cause BCI to purchase the Series A Preferred Stock owned by such holder and the procedures for exercising such right and comply with any applicable securities laws with respect to such right.

(h) Covenants.

(A) [RESERVED]

(B) Reports and Other Information. Notwithstanding that BCI may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act or otherwise report on an annual and quarterly basis on forms provided for such annual and quarterly reporting pursuant to rules and regulations promulgated by the SEC, BCI will file with the SEC (and provide the holders of the Series A Preferred Stock with copies thereof, without cost to each holder, within 15 days after it files them with the SEC),

(i) within 90 days after the end of each fiscal year (or such shorter period as may be required by the SEC), annual reports on Form 10-K (or any successor or comparable form) containing the information required to be contained therein (or required in such successor or comparable form),

(ii) within 45 days after the end of each of the first three fiscal quarters of each fiscal year (or such shorter period as may be required by the SEC), reports on Form 10-Q (or any successor or comparable form),

(iii) promptly from time to time after the occurrence of an event required to be therein reported (and in any event within the time period specified for filing current reports on Form 8-K by the SEC), such other reports on Form 8-K (or any successor or comparable form), and

48

(iv) any other information, documents and other reports which BCI would be required to file with the SEC if it were subject to Section 13 or 15(d) of the Exchange Act;

provided, however, that BCI shall not be so obligated to file such reports with the SEC if the SEC does not permit such filing, in which event BCI will post the reports specified in the first sentence of this paragraph on its website within the time periods that would apply if BCI were required to file those reports with the SEC. In addition, BCI will make available such information to prospective purchasers of Series A Preferred Stock, in addition to providing such information to the holders of the Series A Preferred Stock, in each case within 15 days after the time BCI would be required to file such information with the SEC if it were subject to Section 13 or 15(d) of the Exchange Act.

In the event that:

(a) the rules and regulations of the SEC permit BCI and any direct or indirect parent company of BCI to report at such parent entity’s level on a consolidated basis and

(b) such parent entity of BCI is not engaged in any business in any material respect other than incidental to its ownership, directly or indirectly, of the Capital Stock of BCI,

such consolidated reporting at such parent entity’s level in a manner consistent with that described in this clause (h)(B) of paragraph 5 for BCI will satisfy this clause (h)(B) of paragraph 5.

(C) Limitation on Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock. BCI will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness (including Acquired Indebtedness) or issue any shares of Disqualified Stock and BCI will not permit any of its Restricted Subsidiaries to issue any shares of Preferred Stock; provided, however, that BCI and any Restricted Subsidiary may Incur Indebtedness (including Acquired Indebtedness) or issue shares of Disqualified Stock and any Restricted Subsidiary may issue shares of Preferred Stock, in each case if the Fixed Charge Coverage Ratio of BCI for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is Incurred or such Disqualified Stock or Preferred Stock is issued would have been at least 2.00 to 1.00 determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been Incurred, or the Disqualified Stock or Preferred Stock had been issued, as the case may be, and the application of proceeds therefrom had occurred at the beginning of such four-quarter period.

The foregoing limitations will not apply to:

(a) the Incurrence by BCI or its Restricted Subsidiaries of Indebtedness under any Credit Agreement and the issuance and creation of letters of credit and bankers’ acceptances

49

thereunder (with letters of credit and bankers’ acceptances being deemed to have a principal amount equal to the face amount thereof) up to an aggregate principal amount then outstanding equal to the greater of (i) $175 million less the sum of (A) the amount of any such Indebtedness Incurred pursuant to this clause (a) that is permanently retired with the Net Proceeds from any Asset Sale applied from and after August 12, 2004 to reduce the outstanding amounts pursuant to the covenant described in clause (h)(F) of this paragraph 5 and (B) the aggregate Off-Balance Sheet Financing Amount attributable to all Qualified Receivables Financings then outstanding and (ii) 100% of the book value of the accounts receivables of BCI and its Restricted Subsidiaries (other than HAI);

(b) Indebtedness existing on August 12, 2004 (other than Indebtedness described in clause (a) of this clause (h)(C) above), including the Notes and the Existing Debentures;

(c) Indebtedness (including Capitalized Lease Obligations) Incurred by BCI or any of its Restricted Subsidiaries to finance the purchase, lease or improvement of property (real or personal) or equipment (whether through the direct purchase of assets or the Capital Stock of any Person owning such assets (but no other material assets)) in an aggregate principal amount which, when aggregated with the principal amount of all other Indebtedness then outstanding that was Incurred (or deemed Incurred as provided under clause (m) of this clause (h)(C) below) pursuant to this clause (c), does not exceed $75 million;

(d) Indebtedness Incurred by BCI or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including letters of credit in respect of workers’ compensation claims, health, disability or other employee benefits or property, casualty or liability insurance or self-insurance, or other Indebtedness with respect to reimbursement type obligations regarding workers’ compensation claims; provided, however, that upon the drawing of such letters of credit, such obligations are reimbursed within 30 days following such drawing;

(e) Indebtedness arising from agreements of BCI or any of its Restricted Subsidiaries providing for adjustment of purchase price or similar obligations, in each case, Incurred in connection with the disposition of any business, assets or a Subsidiary of BCI in accordance with the terms of this paragraph 5, other than guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Subsidiary for the purpose of financing such acquisition; provided, however, that, at the time of closing, the amount of such Indebtedness is not determinable and, to the extent such Indebtedness thereafter becomes fixed and determined, the Indebtedness is paid within 60 days thereafter;

(f) Indebtedness of BCI to a Restricted Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such Indebtedness (except to another Restricted Subsidiary) shall be deemed, in each case to be an Incurrence of such Indebtedness;

(g) shares of Preferred Stock of a Restricted Subsidiary issued to BCI or another Restricted Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock or any other event which results in any Restricted Subsidiary that holds such shares of

50

Preferred Stock of another Restricted Subsidiary ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such shares of Preferred Stock (except to BCI or another Restricted Subsidiary) shall be deemed, in each case, to be an issuance of shares of Preferred Stock;

(h) Indebtedness of a Restricted Subsidiary to BCI or another Restricted Subsidiary; provided, however, that any such Indebtedness is made pursuant to an intercompany note; provided further, however, that any subsequent issuance or transfer of any Capital Stock or any other event which results in any Restricted Subsidiary holding such Indebtedness ceasing to be a Restricted Subsidiary or any other subsequent transfer of any such Indebtedness (except to another Restricted Subsidiary) shall be deemed, in each case, to be an Incurrence of such Indebtedness;

(i) Hedging Obligations that are Incurred in the ordinary course of business (and not for speculative purposes): (1) for the purpose of fixing or hedging interest rate risk with respect to any Indebtedness that is permitted by the terms of this paragraph 5 to be outstanding; (2) for the purpose of fixing or hedging currency exchange rate risk with respect to any currency exchanges; or (3) for the purpose of fixing or hedging commodity price risk with respect to any commodity purchases;

(j) obligations in respect of performance, bid and surety bonds, including surety bonds issued in respect of workers’ compensation claims, and completion guarantees provided by BCI or any Restricted Subsidiary in the ordinary course of business;

(k) Indebtedness or Disqualified Stock of BCI or any Restricted Subsidiary not otherwise permitted hereunder in an aggregate principal amount or liquidation preference, as applicable, which when aggregated with the principal amount or liquidation preference of all other Indebtedness and Disqualified Stock then outstanding and Incurred pursuant to this clause (k), does not exceed $100 million at any one time outstanding (it being understood that any Indebtedness Incurred under this clause (k) shall cease to be deemed Incurred or outstanding for purposes of this clause (k) but shall be deemed Incurred for purposes of the first paragraph of this covenant from and after the first date on which BCI, or the Restricted Subsidiary, as the case may be, could have Incurred such Indebtedness under the first paragraph of this covenant without reliance upon this clause (k));

(l) any guarantee by BCI or any of its Restricted Subsidiaries of Indebtedness or other obligations of BCI or any of its Restricted Subsidiaries so long as the Incurrence of such Indebtedness Incurred by BCI or such Restricted Subsidiary is permitted under the terms of this paragraph 5;

(m) the Incurrence by BCI or any of its Restricted Subsidiaries of Indebtedness which serves to refund, refinance or defease any Indebtedness Incurred under the first paragraph of this clause (h)(C) or clauses (b), (c), (m), (n) or (r) of the second paragraph of this clause (h)(C) (subject to the following proviso, “Refinancing Indebtedness”); provided, however, that such Refinancing Indebtedness:

(1) has a Weighted Average Life to Maturity at the time such Refinancing Indebtedness is Incurred which is not less than the shorter of (x) the remaining Weighted Average Life to Maturity of the Indebtedness being refunded or refinanced and (y) the Weighted Average Life to Maturity that would result if all payments of principal on the Indebtedness being refunded or refinanced that were due on or after the date one year following the mandatory redemption date of any Notes then outstanding were instead due on such date one year following;

51

(2) has a Stated Maturity which is no earlier than the earlier of (x) the Stated Maturity of the Indebtedness being refunded or refinanced or (y) the date one year following the mandatory redemption date of any Notes then outstanding;

(3) is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding of the Indebtedness being refinanced plus premium and fees Incurred in connection with such refinancing;

(4) shall not include Indebtedness of BCI or a Restricted Subsidiary that refinances Indebtedness of an Unrestricted Subsidiary; and

(5) in the case of any Refinancing Indebtedness Incurred to refinance Indebtedness outstanding under clause (c) or (r) of the second paragraph of this clause (h)(C), shall be deemed to have been Incurred and to be outstanding under such clause (c) or (r) of the second paragraph of this clause (h)(C), as applicable, and not this clause (m) for purposes of determining amounts outstanding under such clauses (c) and (r) of the second paragraph of this clause (h)(C);

provided further, however, that clauses (1), (2) and (3) of this clause (m) will not apply to any refunding or refinancing of (A) the Notes or the Series A Preferred Stock, (B) any Indebtedness secured by a Lien, or (C) any Existing Debentures consisting of pollution control bonds;

(n) Indebtedness or Disqualified Stock of Persons that are acquired by BCI or any of its Restricted Subsidiaries or merged into BCI or a Restricted Subsidiary in accordance with the terms of this paragraph 5; provided, however, that such Indebtedness or Disqualified Stock is not Incurred in contemplation of such acquisition or merger or to provide all or a portion of the funds or credit support required to consummate such acquisition or merger; provided further, however, that after giving effect to such acquisition and the Incurrence of such Indebtedness either:

(1) BCI would be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first sentence of this clause (h)(C); or

(2) the Fixed Charge Coverage Ratio would be greater than immediately prior to such acquisition;

52

(o) Indebtedness Incurred by a Receivables Subsidiary in a Qualified Receivables Financing that is not recourse to BCI or any Restricted Subsidiary other than a Receivables Subsidiary (except for Standard Securitization Undertakings);

(p) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided, however, that such Indebtedness is extinguished within two Business Days of its Incurrence;

(q) Indebtedness of BCI or any Restricted Subsidiary supported by a letter of credit issued pursuant to the Credit Agreement, in a principal amount not in excess of the stated amount of such letter of credit;

(r) Contribution Indebtedness;

(s) Indebtedness of Foreign Subsidiaries of BCI Incurred for working capital purposes;

(t) Indebtedness of BCI or any Restricted Subsidiary consisting of (x) the financing of insurance premiums or (y) take or pay obligations contained in supply arrangements, in each case, entered into in the ordinary course of business; and

(u) Indebtedness incurred to repay the bridge loans Incurred to finance the acquisition of Bakelite Aktiengesellschaft.

For purposes of determining compliance with this covenant, (A) Indebtedness need not be Incurred solely by reference to one category of permitted Indebtedness described in clauses (a) through (u) above or pursuant to the first paragraph of this clause (h)(C) but is permitted to be Incurred in part under any combination thereof and (B) in the event that an item of Indebtedness (or any portion thereof) meets the criteria of one or more of the categories of permitted Indebtedness described in clauses (a) through (u) above or is entitled to be Incurred pursuant to the first paragraph of this clause (h)(C), BCI shall, in its sole discretion, classify or reclassify such item of Indebtedness (or any portion thereof) in any manner that complies with this covenant and will only be required to include the amount and type of such item of Indebtedness in one of the above clauses and such item of Indebtedness will be treated as having been Incurred pursuant to only one of such clauses or pursuant to the first paragraph of clause (h)(C); provided, however, that all Indebtedness under the Credit Agreement outstanding on August 12, 2004 shall be deemed to have been Incurred pursuant to clause (a) of the second paragraph of this clause (h)(C) and BCI shall not be permitted to reclassify all or any portion of such Indebtedness. Accrual of interest, the accretion of accreted value, amortization of original issue discount, the payment of interest in the form of additional Indebtedness with the same terms or in the form of common stock of BCI, the payment of dividends on Preferred Stock in the form of additional shares of Preferred Stock of the same class, the accretion of liquidation preference and increases in the amount of Indebtedness outstanding solely as a result of fluctuations in the exchange rate of currencies or increases in the value of property securing Indebtedness described in clause (3) of the definition of “Indebtedness” will not be deemed to be an Incurrence of Indebtedness for purposes of this covenant. Guarantees of, or obligations in

53

respect of letters of credit relating to, Indebtedness which is otherwise included in the determination of a particular amount of Indebtedness shall not be included in the determination of such amount of Indebtedness; provided, however, that the Incurrence of the Indebtedness represented by such guarantee or letter of credit, as the case may be, was in compliance with this covenant.

(D) Limitation on Restricted Payments.

(a) BCI will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:

(1) declare or pay any dividend or make any distribution on account of BCI’s or any of its Restricted Subsidiaries’ Equity Interests, including any payment with respect to such Equity Interests made in connection with any merger or consolidation (other than (A) dividends or distributions payable solely in Equity Interests (other than Disqualified Stock) of BCI; or (B) dividends or distributions by a Restricted Subsidiary; provided, however, that, in the case of any dividend or distribution payable on or in respect of any Equity Interests issued by a Restricted Subsidiary other than a Wholly Owned Restricted Subsidiary, BCI or a Restricted Subsidiary receives at least its pro rata share of such dividend or distribution in accordance with its ownership percentage of such Equity Interests);

(2) purchase or otherwise acquire or retire for value any Equity Interests (other than any shares of Series A Preferred Stock) of BCI or any direct or indirect parent company of BCI;

(3) make any principal payment on, or redeem, repurchase, defease or otherwise acquire or retire for value, in each case prior to any scheduled repayment or scheduled maturity, any Subordinated Indebtedness of BCI or any Subsidiary Guarantor (other than the payment, redemption, repurchase, defeasance, acquisition or retirement of (A) Subordinated Indebtedness in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of such payment, redemption, repurchase, defeasance, acquisition or retirement and (B) Indebtedness permitted under clauses (h)(C)(f) and (h) of this paragraph 5; or

(4) make any Restricted Investment

(all such payments and other actions set forth in clauses (1) through (4) above being collectively referred to as “Restricted Payments”), unless, at the time of such Restricted Payment:

(i) no Trigger shall have occurred and be continuing or would occur as a consequence thereof;

(ii) immediately after giving effect to such transaction on a pro forma basis, BCI could Incur $1.00 of additional Indebtedness under the provisions of the first paragraph of the covenant described under clause (h)(C) of this paragraph 5; and

54

(iii) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by BCI and its Restricted Subsidiaries after August 12, 2004 (including Restricted Payments permitted by clauses (1), (4) (only to the extent of one-half of the amounts paid pursuant to such clause), (6) and (8) of clause (b) below, but excluding all other Restricted Payments permitted by clause (b) below), is less than the sum of, without duplication,

(1) 50% of the Consolidated Net Income of BCI for the period (taken as one accounting period) from June 30, 2004 to the end of BCI’s most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, in the case such Consolidated Net Income for such period is a deficit, minus 100% of such deficit), plus

(2) 100% of the aggregate net proceeds, including cash and the Fair Market Value (as determined in accordance with the next succeeding sentence) of property other than cash, received by BCI after August 12, 2004 from the issue or sale of Equity Interests of BCI (excluding Refunding Capital Stock, Designated Preferred Stock, Cash Contribution Amounts, Excluded Contributions and Disqualified Stock), including Equity Interests issued upon conversion of Indebtedness or upon exercise of warrants or options (other than an issuance or sale to a Subsidiary of BCI or an employee stock ownership plan or trust established by BCI or any of its Subsidiaries), plus

(3) 100% of the aggregate amount of cash contributions to the capital of BCI, and the Fair Market Value (as determined in accordance with the next succeeding sentence) of property other than cash, received after August 12, 2004 (other than Refunding Capital Stock, Designated Preferred Stock, contributions from the issuance of Designated Preferred Stock, Cash Contribution Amounts, Excluded Contributions and Disqualified Stock), plus

(4) 100% of the aggregate amount received by BCI or any Restricted Subsidiary in cash and the Fair Market Value (as determined in accordance with the next succeeding sentence) of property other than cash received by BCI or any Restricted Subsidiary, in each case subsequent to August 12, 2004, from:

(A) the sale or other disposition (other than to BCI or a Restricted Subsidiary of BCI) of Restricted Investments made by BCI and its Restricted Subsidiaries and from repurchases and redemptions of such Restricted Investments from BCI and its Restricted Subsidiaries by any Person (other than BCI or any of its Subsidiaries) and

55

from repayments of loans or advances which constituted Restricted Investments (other than in each case to the extent that the Restricted Investment was made pursuant to clause (7) or (10) of paragraph (b) below),

(B) the sale (other than to BCI or a Restricted Subsidiary of BCI) of the Capital Stock of an Unrestricted Subsidiary or

(C) a distribution or dividend from an Unrestricted Subsidiary, plus

(5) in the event any Unrestricted Subsidiary of BCI has been redesignated as a Restricted Subsidiary or has been merged, consolidated or amalgamated with or into, or transfers or conveys its assets to, or is liquidated into, BCI or a Restricted Subsidiary of BCI, in each case subsequent to August 12, 2004, the Fair Market Value (as determined in accordance with the next succeeding sentence) of the Investment of BCI in such Unrestricted Subsidiary at the time of such redesignation, combination or transfer (or of the assets transferred or conveyed, as applicable), after deducting any Indebtedness associated with the Unrestricted Subsidiary so designated or combined or any Indebtedness associated with the assets so transferred or conveyed (other than in each case to the extent that the designation of such Subsidiary as an Unrestricted Subsidiary was made pursuant to clause (7) or (10) of paragraph (b) below or constituted a Permitted Investment).

The Fair Market Value of property other than cash covered by clauses (h)(D)(a)(iii)(2), (3), (4) and (5) above shall be determined in good faith by BCI and

(A) in the event of property with a Fair Market Value in excess of $4 million, shall be set forth in an Officers’ Certificate of BCI or

(B) in the event of property with a Fair Market Value in excess of $15 million, shall be set forth in a resolution approved by at least a majority of the Board of Directors of BCI.

(b) The foregoing provisions will not prohibit:

(1) the payment of any dividend or distribution within 60 days after the date of declaration thereof, if at the date of declaration such payment would have complied with the provisions of this paragraph 5;

(2) (A) the repurchase, retirement or other acquisition of any Equity Interests (“Retired Capital Stock”) of BCI or any direct or indirect parent company of BCI or Subordinated Indebtedness of BCI or any Subsidiary Guarantor in exchange for, or out of the proceeds of the substantially concurrent sale of, Equity Interests of BCI or any direct

56

or indirect parent company of BCI or contributions to the equity capital of BCI (other than Designated Preferred Stock, Cash Contribution Amounts, Excluded Contributions and Disqualified Stock or any Equity Interests sold to a Subsidiary of BCI or to an employee stock ownership plan or any trust established by BCI or any of its Subsidiaries) (collectively, including any such contributions, “Refunding Capital Stock”) and

(B) the declaration and payment of accrued dividends on the Retired Capital Stock out of the proceeds of the substantially concurrent sale (other than to a Subsidiary of BCI or to an employee stock ownership plan or any trust established by BCI or any of its Subsidiaries) of Refunding Capital Stock;

(3) the redemption, repurchase or other acquisition or retirement of Subordinated Indebtedness of BCI or any Subsidiary Guarantor made by exchange for, or out of the proceeds of the substantially concurrent sale of new Indebtedness of BCI or such Subsidiary Guarantor, respectively, which is Incurred in accordance with the covenant described under clause (h)(C) of this paragraph 5 so long as

(A) the principal amount of such new Indebtedness does not exceed the principal amount of the Subordinated Indebtedness being so redeemed, repurchased, acquired or retired for value (plus the amount of any premium required to be paid under the terms of the instrument governing the Subordinated Indebtedness being so redeemed, repurchased, acquired or retired plus any fees incurred in connection therewith),

(B) such Indebtedness has a Stated Maturity which is no earlier than the earlier of (x) the Stated Maturity of the Subordinated Indebtedness being redeemed, repurchased, acquired or retired or (y) one year following the last maturity date of any Notes then outstanding; and

(C) such Indebtedness has a Weighted Average Life to Maturity at the time Incurred which is not less than the shorter of (x) the remaining Weighted Average Life to Maturity of the Subordinated Indebtedness being redeemed, repurchased, acquired or retired and (y) the Weighted Average Life to Maturity that would result of all payments of principal on the Subordinated Indebtedness being redeemed, repurchased, acquired or retired that were due on or after one year following the last maturity date of any Notes then outstanding were instead due on such date;

(4) the repurchase, retirement or other acquisition (or dividends to any direct or indirect parent company of BCI to finance any such repurchase, retirement or other acquisition) for value of Equity Interests of BCI or any direct or indirect parent company of BCI held by any future, present or former employee, director or consultant of BCI or any direct or indirect parent company of BCI or any Subsidiary of BCI pursuant to any management equity plan or stock option plan or any other management or employee benefit plan or other agreement or arrangement; provided, however, that the aggregate amounts paid under this clause (4) do not exceed $12.5 million in any calendar year (with unused amounts in any calendar year being permitted to be carried over for the next

57

succeeding calendar year); provided further, however, that such amount in any calendar year may be increased by an amount not to exceed:

(A) the cash proceeds received by BCI or any of its Restricted Subsidiaries from the sale of Equity Interests (excluding Refunding Capital Stock, Designated Preferred Stock, Cash Contribution Amounts, Excluded Contributions and Disqualified Stock) of BCI or any direct or indirect parent company of BCI (to the extent contributed to BCI) to members of management, directors or consultants of BCI and its Restricted Subsidiaries or any direct or indirect parent company of BCI that occurs after August 12, 2004; provided, however, that the amount of such cash proceeds utilized for any such repurchase, retirement, other acquisition or dividend will not increase the amount available for Restricted Payments under clause (h)(D)(a)(iii) above); plus

(B) the cash proceeds of key man life insurance policies received by BCI or any direct or indirect parent company of BCI (to the extent contributed to BCI) and its Restricted Subsidiaries after August 12, 2004;

(provided, however, that BCI may elect to apply all or any portion of the aggregate increase contemplated by clauses (A) and (B) above in any calendar year and, to the extent any payment described under this clause (4) is made by delivery of Indebtedness and not in cash, such payment shall be deemed to occur only when, and to the extent, the obligor on such Indebtedness makes payments with respect to such Indebtedness);

(5) the declaration and payment of dividends or distributions to holders of any class or series of Disqualified Stock of BCI or any of its Restricted Subsidiaries issued or incurred in accordance with the covenant described under clause (h)(C) of this paragraph 5;

(6) the declaration and payment of dividends or distributions to holders of any class or series of Designated Preferred Stock (other than Disqualified Stock) issued after August 12, 2004 and the declaration and payment of dividends to any direct or indirect parent company of BCI, the proceeds of which will be used to fund the payment of dividends to holders of any class or series of Designated Preferred Stock (other than Disqualified Stock) of any direct or indirect parent company of BCI issued after August 12, 2004 the proceeds of which were contributed to BCI; provided, however, that (A) for the most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date of issuance of such Designated Preferred Stock, after giving effect to such issuance (and the payment of dividends or distributions) on a pro forma basis, BCI would have had a Fixed Charge Coverage Ratio of at least 2.25 to 1.00 and (B) the aggregate amount of dividends declared and paid pursuant to this clause (6) does not exceed the net cash proceeds actually received by BCI from the issuance of Designated Preferred Stock (other than Disqualified Stock) issued after August 12, 2004;

58

(7) Investments in Unrestricted Subsidiaries having an aggregate Fair Market Value, taken together with all other Investments made pursuant to this clause (7) that are at that time outstanding, not to exceed $25 million at the time of such Investment (with the Fair Market Value of each Investment being measured at the time made and without giving effect to subsequent changes in value);

(8) the payment of dividends on BCI’s common stock (or the payment of dividends to any direct or indirect parent of BCI to fund the payment by any direct or indirect parent of BCI of dividends on such entity’s common stock) of up to 6.0% per annum of the net proceeds received by BCI from any public offering of common stock or contributed to BCI by any direct or indirect parent of BCI from any public offering of common stock;

(9) Investments that are made with Excluded Contributions;

(10) other Restricted Payments in an aggregate amount not to exceed $30 million;

(11) the distribution, as a dividend or otherwise, of shares of Capital Stock of, or Indebtedness owed to BCI or a Restricted Subsidiary of BCI by, Unrestricted Subsidiaries;

(12) (A) with respect to each tax year or portion thereof that any direct or indirect parent of BCI qualifies as a Flow Through Entity, the distribution by BCI to the holders of Capital Stock of such direct or indirect parent of BCI of an amount equal to the product of (i) the amount of aggregate net taxable income of BCI allocated to the holders of Capital Stock of BCI for such period and (ii) the Presumed Tax Rate for such period; and

(B) with respect to any tax year or portion thereof that any direct or indirect parent of BCI does not qualify as a Flow Through Entity, the payment of dividends or other distributions to any direct or indirect parent company of BCI that files a consolidated U.S. federal tax return that includes BCI and its subsidiaries in an amount not to exceed the amount that BCI and its Restricted Subsidiaries would have been required to pay in respect of federal, state or local taxes (as the case may be) in respect of such year if BCI and its Restricted Subsidiaries paid such taxes directly as a stand-alone taxpayer (or stand-alone group);

(13) the payment of dividends, other distributions or other amounts by BCI:

(A) in amounts equal to the amounts required for any direct or indirect parent of BCI to pay fees and expenses (including franchise or similar taxes) required to maintain its corporate existence, customary salary, bonus and other benefits payable to, and indemnity provided on behalf of, officers and employees of any direct or indirect parent of BCI, and general corporate overhead expenses of any direct or indirect parent of BCI, in each case to the extent such fees, expenses, salaries, bonuses, benefits and indemnities are attributable to the

59

ownership or operation of BCI and its respective Subsidiaries; provided, however, that any such dividends, distributions or other amounts are treated as an operating expense of BCI for purposes of determining the Consolidated Net Income of BCI; and

(B) in amounts equal to amounts required for any direct or indirect parent of BCI, to pay interest or principal on Indebtedness the proceeds of which have been contributed to BCI or any of its Restricted Subsidiaries and that has been guaranteed by, or is otherwise considered Indebtedness of, BCI Incurred in accordance with the covenant described under clause (h)(C) of this paragraph 5; provided, however, that any such contribution will not increase the amount available for Restricted Payments under clause (h)(D)(a)(iii) above or be used to incur Contribution Indebtedness or to make a Restricted Payment pursuant to clause (b) of this covenant (other than payments permitted by this clause (13); provided further, however, any such dividends, other distributions or other amounts used to pay interest are treated as interest payments of BCI for purposes of this paragraph 5;

(14) cash dividends or other distributions on BCI’s Capital Stock used to, or the making of loans to any direct or indirect parent of BCI to, fund the payment of fees and expenses incurred in connection with the Original Transaction or owed by BCI or any Restricted Subsidiary of BCI to Affiliates, in each case to the extent permitted by the covenant described under clause (h)(G) of this paragraph 5;

(15) repurchases of Equity Interests deemed to occur upon exercise of stock options if such Equity Interests represent a portion of the exercise price of such options;

(16) purchases of receivables pursuant to a Receivables Repurchase Obligation in connection with a Qualified Receivables Financing;

(17) in the event of a Change of Control, the payment, purchase, redemption, defeasance or other acquisition or retirement of Subordinated Indebtedness or Disqualified Stock of BCI or Subordinated Indebtedness of any Guarantor or Disqualified Stock or Preferred Stock of any Restricted Subsidiary, in each case, at a purchase price not greater than 101% of the principal amount or liquidation preference, as applicable (or, if such Subordinated Indebtedness was issued with original issue discount, 101% of the accreted value), of such Subordinated Indebtedness, Disqualified Stock or Preferred Stock, plus any accrued and unpaid interest or dividends thereon; provided, however, that prior to such payment, purchase, redemption, defeasance or other acquisition or retirement, BCI (or a third party to the extent permitted by this paragraph 5) has made a Change of Control Offer with respect to the Series A Preferred Stock as a result of such Change of Control and have repurchased all Series A Preferred Stock validly tendered and not withdrawn in connection with such Change of Control Offer; and

(18) in the event of an Asset Sale that requires BCI to offer to purchase the Series A Preferred Stock pursuant to the covenant described under clause (h)(F) of this paragraph 5 the payment, purchase, redemption, defeasance or other acquisition or

60

retirement of Subordinated Indebtedness or Disqualified Stock of BCI or Subordinated Indebtedness of any Guarantor or Disqualified Stock or Preferred Stock of any Restricted Subsidiary, in each case, at a purchase price not greater than 100% of the principal amount or liquidation preference, as applicable (or, if such Subordinated Indebtedness was issued with original issue discount, 100% of the accreted value), of such Subordinated Indebtedness, Disqualified Stock or Preferred Stock, plus any accrued and unpaid interest or dividends thereon; provided, however, that (i) prior to such payment, purchase, redemption, defeasance or other acquisition or retirement, BCI (or a third party to the extent permitted by this paragraph 5) has made an Asset Sale Offer with respect to the Series A Preferred Stock as a result of such Asset Sale and have repurchased all Series A Preferred Stock validly tendered and not withdrawn in connection with such Asset Sale Offer and (ii) the aggregate amount of all such payments, purchases, redemptions, defeasances or other acquisitions or retirements of all such Subordinated Indebtedness, Disqualified Stock and Preferred Stock may not exceed the amount of the Excess Proceeds used to determine the aggregate purchase price of the Series A Preferred Stock tendered for in such Asset Sale Offer less the aggregate amount applied in connection with such Asset Sale Offer;

(19) any Restricted Payments made in connection with the consummation of the Original Transaction, the redemption of BCI’s 9 ¹/4% Debentures Due 2019, the repayment or repurchase of the Parish of Ascension, Louisiana Industrial Revenue Bonds of BCI, the repayment of BCI’s senior secured credit facility in effect immediately prior to August 12, 2004 or as contemplated by the Stock Purchase Agreement, including any payments or loans made to any direct or indirect parent to enable it to make any such payments;

(20) payments of cash, or dividends, distributions or advances by BCI or any Restricted Subsidiary to allow any such entity to make payments of cash, in lieu of the issuance of fractional shares upon the exercise of warrants or upon the conversion or exchange of Capital Stock of any such Person; provided, however, the aggregate amount of such payments, dividends, distributions or advances does not exceed $3 million; and

(21) the declaration and payment of dividends or distributions to holders of Series A Preferred Stock or the repurchase or redemption of any shares of Series A Preferred Stock;

provided, however, that at the time of, and after giving effect to, any Restricted Payment permitted under clauses (h)(D)(b)(6), (7), (10), (11), (17) and (18) above, no Trigger shall have occurred and be continuing or would occur as a consequence thereof.

As of the Accrual Date, all of BCI’s Subsidiaries will be Restricted Subsidiaries, except (a) HAI will not be subject to the covenants described in clause (h) of this paragraph 5, (b) Hexion Escrow Corp. will be designated as an Unrestricted Subsidiary prior to the Accrual Date and (c) the Subsidiaries of BCI that issue Indebtedness in connection with the Transactions may be designated as Unrestricted Subsidiaries so long as the proceeds from such Indebtedness are being held in escrow pending consummation of the Combinations. BCI will not permit any Unrestricted Subsidiary to become a Restricted Subsidiary except pursuant to the definition of

61

“Unrestricted Subsidiary.” For purposes of designating any Restricted Subsidiary as an Unrestricted Subsidiary, all outstanding Investments by BCI and its Restricted Subsidiaries (except to the extent repaid) in the Subsidiary so designated will be deemed to be Restricted Payments in an amount determined as set forth in the last sentence of the definition of “Investments.” Such designation will only be permitted if a Restricted Payment in such amount would be permitted at such time and if such Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.

(E) Dividend and Other Payment Restrictions Affecting Subsidiaries. BCI will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary to:

(a) (i) pay dividends or make any other distributions to BCI or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or by, its profits or (ii) pay any Indebtedness owed to BCI or any of its Restricted Subsidiaries;

(b) make loans or advances to BCI or any of its Restricted Subsidiaries; or

(c) sell, lease or transfer any of its properties or assets to BCI or any of its Restricted Subsidiaries;

except in each case for such encumbrances or restrictions existing under or by reason of:

(1) contractual encumbrances or restrictions in effect on August 12, 2004, including pursuant to the Credit Agreement and the other Senior Credit Documents;

(2) this paragraph 5, the Existing Indenture, the Notes, the Security Documents and the Intercreditor Agreement;

(3) applicable law or any applicable rule, regulation or order;

(4) any agreement or other instrument relating to Indebtedness of a Person acquired by BCI or any Restricted Subsidiary which was in existence at the time of such acquisition (but not created in contemplation thereof or to provide all or any portion of the funds or credit support utilized to consummate such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired;

(5) any restriction with respect to a Restricted Subsidiary imposed pursuant to an agreement entered into for the sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary pending the closing of such sale or disposition;

62

(6) Indebtedness otherwise permitted to be Incurred pursuant to the covenants described under clause (h)(C) of this paragraph 5 that limit the right of the debtor to dispose of the assets securing such Indebtedness;

(7) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business;

(8) customary provisions in joint venture agreements and other similar agreements entered into in the ordinary course of business;

(9) purchase money obligations for property acquired in the ordinary course of business or Capitalized Lease Obligations that impose restrictions of the nature discussed in clause (h)(E)(c) above on the property so acquired;

(10) customary provisions contained in leases and other similar agreements entered into in the ordinary course of business that impose restrictions of the type described in clause (c) above on the property subject to such lease;

(11) any encumbrance or restriction of a Receivables Subsidiary effected in connection with a Qualified Receivables Financing; provided, however, that such restrictions apply only to such Receivables Subsidiary;

(12) other Indebtedness

(i) of (A) BCI or (B) any Restricted Subsidiary of BCI, in each case that (x) is Incurred subsequent to August 12, 2004 pursuant to the covenant described under clause (h)(C) of this paragraph 5 and (y) an Officer of BCI reasonably and in good faith determines at the time such Indebtedness is Incurred (and at the time of any modification of the terms of any such encumbrance or restriction) that any such encumbrance or restriction will not materially adversely affect BCI’s ability to honor its Guarantee of the Notes and any other Indebtedness that is an obligation of BCI and such determination is set forth in an Officers’ Certificate of BCI delivered to the Transfer Agent, or

(ii) that is Incurred by a Foreign Subsidiary of BCI subsequent to August 12, 2004 pursuant to clauses (h)(C)(c), (k), or (l) (but limited to guarantees of Indebtedness of other Foreign Subsidiaries described in this clause (h)(E)(12)(ii)), (m) (but only to the extent such Indebtedness refunds, refinances or decreases Indebtedness of such Foreign Subsidiary Incurred pursuant to clause (h)(C)(c) or (k)) or (s) of this paragraph 5; provided, however, that such encumbrance or restriction applies only to Foreign Subsidiaries of BCI; or

(13) any encumbrances or restrictions of the type referred to in clauses (h)(E)(a), (b) and (c) above imposed by any amendments, modifications, restatements, renewals,

63

increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (1) through (12) above; provided, however, that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are, in the good faith judgment of BCI, no more restrictive with respect to such dividend and other payment restrictions than those contained in the dividend or other payment restrictions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing.

For purposes of determining compliance with this covenant, (i) the priority of any Preferred Stock in receiving dividends or liquidating distributions prior to dividends or liquidating distributions being paid on common stock shall not be deemed a restriction on the ability to make distributions on Capital Stock and (ii) the subordination of loans or advances made to BCI to other Indebtedness Incurred by BCI shall not be deemed a restriction on the ability to make loans or advances.

(F) Asset Sales. BCI will not, and will not permit any of its Restricted Subsidiaries to, cause or make an Asset Sale, unless (x) BCI or any of its Restricted Subsidiaries, as the case may be, receives consideration at the time of such Asset Sale at least equal to the Fair Market Value (as determined in good faith by BCI) of the assets sold or otherwise disposed of, and (y) at least 75% of the consideration therefor received by BCI or such Restricted Subsidiary, as the case may be, is in the form of Cash Equivalents; provided, however, that the amount of:

(a) any liabilities (as shown on BCI’s or such Restricted Subsidiary’s most recent balance sheet or in the notes thereto) of BCI or any Restricted Subsidiary of BCI that are assumed by the transferee of any such assets,

(b) any notes or other obligations or other securities or assets received by BCI or such Restricted Subsidiary from such transferee that are converted by BCI or such Restricted Subsidiary into cash within 180 days of the receipt thereof (to the extent of the cash received), and

(c) any Designated Non-cash Consideration received by BCI or any of its Restricted Subsidiaries in such Asset Sale having an aggregate Fair Market Value, taken together with all other Designated Non-cash Consideration received pursuant to this clause (c) that is at that time outstanding, not to exceed the greater of 3% of Total Assets and $25 million at the time of the receipt of such Designated Non-cash Consideration (with the Fair Market Value of each

64

item of Designated Non-cash Consideration being measured at the time received and without giving effect to subsequent changes in value)

shall be deemed to be Cash Equivalents for the purposes of this provision.

Within 365 days after BCI’s or any Restricted Subsidiary of BCI’s receipt of the Net Proceeds of any Asset Sale, BCI or such Restricted Subsidiary may apply the Net Proceeds from such Asset Sale at its option to any one or more of the following:

(1) to permanently reduce any Indebtedness of BCI or any Subsidiary (and, in the case of revolving Obligations, to correspondingly reduce commitments with respect thereto), other than Indebtedness owed to BCI or an Affiliate of BCI; or

(2) to an investment in any one or more businesses or capital expenditures, in each case used or useful in a Similar Business; provided, however, that if such investment is in the form of the acquisition of Capital Stock of a Person, such acquisition results in such Person becoming a Restricted Subsidiary of BCI or, if such Person is a Restricted Subsidiary of BCI, in an increase in the percentage ownership of such Person by BCI or any Restricted Subsidiary of BCI; or

(3) to make an investment in any one or more businesses; provided, however, that if such investment is in the form of the acquisition of Capital Stock of a Person, such acquisition results in such Person becoming a Restricted Subsidiary of BCI or, if such Person is a Restricted Subsidiary of BCI, in an increase in the percentage ownership of such Person by BCI or any Restricted Subsidiary of BCI).

Subject to legally available funds, pending the final application of any such Net Proceeds, BCI or such Restricted Subsidiary of BCI may temporarily reduce Indebtedness under a revolving credit facility, if any, or otherwise invest such Net Proceeds in Cash Equivalents or Investment Grade Securities. Any Net Proceeds from any Asset Sale that are not applied as provided above and within the time period set forth in the first sentence of the immediately preceding paragraph plus, the time period for any offer or offers to purchase any Notes (or any other required time period imposed by any indenture or other agreement with respect to any other Indebtedness) as described below, will be deemed to constitute “Excess Proceeds.” When the aggregate amount of Excess Proceeds exceeds $15 million, BCI shall make an offer to all holders of Series A Preferred Stock (an “Asset Sale Offer”) to purchase the maximum amount of Series A Preferred Stock that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the then applicable liquidation preference, plus accrued and unpaid dividends, if any, to the date fixed for the closing of such offer, in accordance with the procedures set forth in this clause (h)(F) of this paragraph 5. Notwithstanding the foregoing (i) no Asset Sale Offer shall be required to be commenced with respect to the Series A Preferred Stock until the Business Day following the final payment date with respect to the offer or offers to purchase any Notes (or any other Indebtedness) and need not be commenced if the Excess Proceeds remaining after application to the Notes (or any other Indebtedness) purchased in such offer to purchase applicable thereto are less than $15 million, (ii) no Series A Preferred Stock may be purchased under this paragraph of clause (h)(F) unless BCI shall have purchased all

65

Notes and other Indebtedness tendered pursuant to such offer or offers and (iii) BCI shall not be required to make an Asset Sale Offer (but instead will deposit the related funds with an escrow agent for the benefit of the holders of the Series A Preferred Stock and, at BCI’s option, any Indebtedness described in clause (1) of the preceding paragraph then outstanding) in the event that the obligation to make an Asset Sale Offer would cause the Series A Preferred Stock to be deemed (as reasonably determined in good faith by BCI) “Disqualified Capital Stock” as such term is defined under the RPP Indentures (and there is Indebtedness outstanding under such RPP Indentures); provided, however, that a failure to make an Asset Sale Offer or to repurchase tendered shares for any of the foregoing reasons will constitute a Trigger Event (which in the case of clause (i) above will be deemed to have occurred on the 90th day following the notice of the date BCI is required to make an Asset Sale Offer).

BCI will commence an Asset Sale Offer with respect to Excess Proceeds within ten Business Days after the date that Excess Proceeds exceeds $15 million (subject to the provisos in the immediately preceding paragraph) by mailing the notice required pursuant to the terms of this paragraph 5. To the extent that the aggregate amount of Series A Preferred Stock tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, BCI may use any remaining Excess Proceeds for general corporate purposes but subject to the other provisions of this paragraph 5. If the aggregate principal amount of Series A Preferred Stock surrendered by holders thereof exceeds the amount of Excess Proceeds, the Series A Preferred Stock shall be purchased on a pro rata basis to the extent practicable. Upon completion of any such Asset Sale Offer, the amount of Excess Proceeds which served as the basis for such Asset Sale Offer shall be reduced to zero.

BCI will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations to the extent such laws or regulations are applicable in connection with the repurchase of the Series A Preferred Stock pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this paragraph 5, BCI will comply with the applicable securities laws and regulations and shall not be deemed to have breached their obligations described in this paragraph 5 by virtue thereof.

Notices of an Asset Sale Offer shall be mailed by first class mail, postage prepaid, at least 30 but not more than 60 days before the purchase date to each holder of Series A Preferred Stock at such holder’s registered address. If any shares of Series A Preferred Stock are to be purchased in part only, any notice of purchase that relates to such Series A Preferred Stock shall state the number of shares that are to be purchased.

A new certificate evidencing the unpurchased shares of Series A Preferred Stock will be issued in the name of the holder thereof upon cancellation of the original certificate evidencing such Series A Preferred Stock. On and after the purchase date, unless BCI fails to pay the purchase price, dividends shall cease to accrue on Series A Preferred Stock or portions thereof purchased.

Not later than the date upon which written notice of an Asset Sale Offer is delivered as provided above, BCI shall deliver to the Transfer Agent an Officers’ Certificate of BCI as to (i) the amount of the Excess Proceeds, (ii) the allocation of the Net Proceeds from the

66

Asset Sales pursuant to which such Asset Sale Offer is being made and (iii) the compliance of such allocation with the provisions of this clause (h)(F). On such date, BCI shall also irrevocably deposit with the Transfer Agent or with the Paying Agent an amount equal to the Excess Proceeds to be invested in Cash Equivalents, and to be held for payment in accordance with the provisions of this clause (h)(F). Upon the expiration of the period for which the Asset Sale Offer remains open (the “Offer Period”), BCI shall deliver to the Transfer Agent for cancellation the Series A Preferred Stock that have been properly tendered to and are to be accepted by BCI. The Transfer Agent (or the Paying Agent, if not the Transfer Agent) shall, on the date of purchase, mail or deliver payment to each tendering Holder in the amount of the purchase price. In the event that the Excess Proceeds delivered by BCI to the Transfer Agent is greater than the purchase price of the Series A Preferred Stock tendered, the Transfer Agent shall deliver the excess to BCI immediately after the expiration of the Offer Period for application in accordance with this clause (h)(F).

Holders electing to have Series A Preferred Stock purchased shall be required to surrender such share, with an appropriate form duly completed, to BCI at the address specified in the notice at least three Business Days prior to the purchase date. Holders shall be entitled to withdraw their election if the Transfer Agent or BCI receive not later than one Business Day prior to the purchase date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the number of shares of the Series A Preferred Stock which was delivered by the Holder for purchase and a statement that such Holder is withdrawing his election to have such Series A Preferred Stock purchased. If at the end of the Offer Period more Series A Preferred Stock are tendered pursuant to an Asset Sale Offer than BCI is required to purchase, the number of shares of the Series A Preferred Stock to be purchased will be determined pro rata based on the number of shares so tendered and the selection of the actual Series A Preferred Stock for purchase shall be made by the Transfer Agent on a pro rata basis to the extent practicable; provided, however, that no portion of an individual share of Series A Preferred Stock shall be purchased.

(G) Transactions with Affiliates. BCI will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction or series of transactions, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of BCI (each of the foregoing, an “Affiliate Transaction”) involving aggregate consideration in excess of $2.5 million, unless:

(a) such Affiliate Transaction is on terms that are not materially less favorable to BCI or the relevant Restricted Subsidiary than those that could reasonably have been obtained in a comparable transaction by BCI or such Restricted Subsidiary with an unaffiliated party; and

(b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate

67

consideration in excess of $20 million, BCI delivers to the Transfer Agent a resolution adopted in good faith by the majority of the Board of Directors of BCI approving such Affiliate Transaction and set forth in an Officers’ Certificate of BCI certifying that such Affiliate Transaction complies with clause (a) above.

The foregoing provisions will not apply to the following:

(1) (x) transactions between or among BCI or any of its Restricted Subsidiaries and (y) any merger of BCI and any direct parent company of BCI; provided, however, that such parent shall have no material liabilities and no material assets other than cash, Cash Equivalents and the Capital Stock of BCI and such merger is otherwise in compliance with the terms of this paragraph 5 and effected for a bona fide business purpose;

(2) Restricted Payments permitted under the covenant in clause (h)(D) of this paragraph 5;

(3) the entering into of any agreement to pay, and the payment of, annual management, consulting, monitoring and advisory fees and expenses to the Sponsor in an aggregate amount in any fiscal year not to exceed the greater of (x) $3 million and (y) 2% of EBITDA of BCI and its Restricted Subsidiaries for the immediately preceding fiscal year; provided, however, any payment not made in any fiscal year may be carried forward and paid in the following fiscal year;

(4) the payment of reasonable and customary fees paid to, and indemnity provided on behalf of, officers, directors, employees or consultants of BCI or any Restricted Subsidiary or any direct or indirect parent company of BCI;

(5) payments by BCI or any of its Restricted Subsidiaries to the Sponsor made for any financial advisory, financing, underwriting or placement services or in respect of other investment banking activities, including in connection with acquisitions or divestitures, which payments are (x) approved by a majority of the Board of Directors of BCI in good faith or (y) made pursuant to any agreement described under the caption “Certain Relationships and Related Party Transactions” in the Original Offering Circular;

(6) transactions in which BCI or any of its Restricted Subsidiaries, as the case may be, delivers to the Transfer Agent from an Independent Financial Advisor stating that such transaction is fair to BCI or such Restricted Subsidiary from a financial point of view or meets the requirements of clause (a) above;

(7) payments or loans to employees or consultants in the ordinary course of business which are approved by a majority of the Board of Directors of BCI in good faith;

68

(8) the existence of, or the performance by BCI or any of its Restricted Subsidiaries under the terms of, any agreement or instrument (other than with the Sponsor, except to the extent the Sponsor includes BCI, any of its direct or indirect parents, Borden Holdings, Inc. or any Subsidiary of BCI) as in effect as of August 12, 2004 or any amendment thereto (so long as any such agreement or instrument together with all amendments thereto, taken as a whole, is not more disadvantageous to the holders of the Series A Preferred Stock in any material respect than the original agreement or instrument as in effect on August 12, 2004) or any transaction contemplated thereby;

(9) the existence of, or the performance by BCI or any of its Restricted Subsidiaries of its obligations under the terms of, the Stock Purchase Agreement, any stockholders agreement or investor rights agreement (including any registration rights agreement or purchase agreement related thereto) to which it was a party as of August 12, 2004 and any amendment thereto or similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by BCI or any of its Restricted Subsidiaries of its obligations under, any future amendment to any such existing agreement or under any similar agreement entered into after August 12, 2004 shall only be permitted by this clause (9) to the extent that the terms of any such existing agreement together with all amendments thereto, taken as a whole, or new agreement are not otherwise more disadvantageous to the holders of the Series A Preferred Stock in any material respect than the original agreement as in effect on August 12, 2004;

(10) the payment of all fees and expenses related to the Original Transaction, including fees to the Sponsor, which are described in the Original Offering Circular;

(11) (a) transactions with customers, clients, suppliers, toll manufacturers or purchasers or sellers of goods or services, in each case in the ordinary course of business and otherwise in compliance with the terms of this paragraph 5, on terms at least as favorable as could reasonably have been obtained at such time from an unaffiliated party or (b) transactions with joint ventures or Unrestricted Subsidiaries for the purchase or sale of chemicals, equipment and services entered into in the ordinary course of business;

(12) any transaction effected as part of a Qualified Receivables Financing;

(13) the issuance of Equity Interests (other than Disqualified Stock) of BCI;

(14) the issuances of securities or other payments, awards or grants in cash, securities or otherwise pursuant to or the funding of, employment arrangements, stock option and stock ownership plans or similar employee benefit plans approved by the Board of Directors of BCI or of a Restricted Subsidiary, as appropriate, in good faith;

(15) the entering into of any tax sharing agreement or arrangement and any payments permitted by the covenant described under clause (h)(D) of this paragraph 5; and

(16) any contribution to the capital of BCI.

69

(i) Change of Control.

Within 3 Business Days following notice to BCI of a Change of Control, BCI will make a Change of Control Offer to each holder of Series A Preferred Stock to purchase each share owned by such holder in cash at a purchase price equal to (a) 101% of the liquidation preference thereof plus (b) all accrued and unpaid dividends, if any, on each such share in accordance with this paragraph 5, subject to legally available funds. Notwithstanding the foregoing (i) no Change of Control Offer shall be required to be commenced with respect to the Series A Preferred Stock until the Business Day following the payment date with respect to the offer or offers to purchase any Notes or other Indebtedness in accordance with change of control provisions of the Existing Indenture or other agreements relating to Indebtedness, (ii) no Series A Preferred Stock may be purchased under this covenant unless BCI shall have purchased all Notes and other Indebtedness tendered pursuant to such offer or offers and (iii) BCI shall not be required to make a Change of Control Offer (but instead will deposit the related funds with an escrow agent for the benefit of the holders of the Series A Preferred Stock) in the event that the obligation to make a Change of Control Offer would cause the Series A Preferred Stock to be deemed (as reasonably determined in good faith by BCI) “Disqualified Capital Stock” as such term is defined under the RPP Indentures (and there is Indebtedness outstanding under such RPP Indentures); provided, however, that a failure to make a Change of Control Offer or to repurchase tendered shares for any of the foregoing reasons will constitute a Trigger Event (which in the case of clause (i) above will be deemed to have occurred on the 90^th day following the date BCI is required to make a Change of Control Offer).

Notwithstanding the foregoing, BCI is not required to purchase the Series A Preferred Stock if it elects to redeem all of the Series A Preferred Stock.

BCI will be deemed to have made a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this paragraph 5 applicable to a Change of Control Offer made by BCI and purchases all Series A Preferred Stock validly tendered and not withdrawn under such Change of Control Offer.

BCI will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Series A Preferred Stock pursuant to a Change of Control Offer. To the extent that the provisions of any securities laws or regulations conflict with provisions in this paragraph 5 applicable to a Change of Control Offer, BCI will comply with the applicable securities laws and regulations and will not be deemed to have failed to make a Change of Control Offer or purchase Series A Preferred Stock pursuant thereto as described above by virtue thereof.

The provisions under this paragraph 5 relative to a Change of Control may be waived or modified upon the affirmative vote or written consent of the holders of a majority of the outstanding Series A Preferred Stock until such time as tendered Series A Preferred Stock must be purchased.

Holders electing to have Series A Preferred Stock purchased shall be required to surrender the Series A Preferred Stock, with an appropriate form duly completed, to BCI at the

70

address specified in the notice at least three Business Days prior to the purchase date. The holders shall be entitled to withdraw their election if the Transfer Agent or BCI receive not later than one Business Day prior to the purchase date a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the number of shares of the Series A Preferred Stock which was delivered for purchase by the holder and a statement that such holder is withdrawing his election to have such Series A Preferred Stock purchased. Holders who surrender certificates evidencing shares of Series A Preferred Stock purchased only in part shall be issued new certificates evidencing a number of shares of Series A Preferred Stock equal to the unpurchased shares of the Series A Preferred Stock.

On the purchase date, all Series A Preferred Stock purchased by BCI under this clause shall be delivered to the Transfer Agent for cancellation, and BCI shall pay the purchase price plus accrued and unpaid dividends to the holders entitled thereto.

At the time BCI delivers Series A Preferred Stock to the Transfer Agent which is to be accepted for purchase, BCI shall also deliver an Officers’ Certificate of BCI stating that such Series A Preferred Stock is to be accepted by BCI pursuant to and in accordance with the terms of this clause. Series A Preferred Stock shall be deemed to have been accepted for purchase at the time the Transfer Agent, directly or through an agent, mails or delivers payment therefor to the surrendering holder.

(j) [RESERVED]

(k) Authorized Shares of Preferred Stock.

The board of directors of BCI shall at all times be authorized, without further stockholder action, to issue such number of additional shares of preferred stock as are sufficient to make dividend payments and to consummate the exchange offer contemplated by the Registration Rights Agreement, if applicable, in each case, in accordance with the terms of this paragraph 5.

(l) Merger, Consolidation or Sale of All or Substantially All Assets.

(A) Covenant Against Fundamental Changes. BCI will not consolidate or merge with or into or wind up into (whether or not BCI is the surviving corporation) or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all BCI’s properties or assets in one or more related transactions, to any Person unless: (1) BCI is the surviving corporation or the Person formed by or surviving any such consolidation or merger (if other than BCI) or to which such sale, assignment, transfer, lease, conveyance or other disposition will have been made is a corporation, partnership or limited liability company organized or existing under the laws of the United States, any state thereof, the District of Columbia, or any territory thereof (BCI or such Person, as the case may be, being herein called the “Successor Company”); (2) the shares of Series A Preferred Stock will become shares of the Successor Company (if other than BCI), having in respect of such Successor Company (if other than BCI) the same powers, preferences and relative participating, optional or other special rights and the

71

qualification, limitations or restrictions thereon, the Series A Preferred Stock had immediately prior to such transaction; (3) immediately after giving effect to such transaction no Trigger shall have occurred and be continuing; (4) immediately after giving pro forma effect to such transaction, as if such transaction had occurred at the beginning of the applicable four-quarter period (and treating any Indebtedness which becomes an obligation of the Successor Company or any of its Restricted Subsidiaries as a result of such transaction as having been Incurred by the Successor Company or such Restricted Subsidiary at the time of such transaction), either (A) the Successor Company would be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in clause (h)(C) of this paragraph 5 or (B) the Fixed Charge Coverage Ratio for the Successor Company and its Restricted Subsidiaries would be greater than the Fixed Charge Coverage Ratio for BCI and its Restricted Subsidiaries immediately prior to such transaction; and (5) BCI shall have delivered to the Transfer Agent an Officers’ Certificate of BCI and an Opinion of Counsel, each stating that such consolidation, merger or transfer comply with this paragraph 5.

(B) Permitted Fundamental Changes. Notwithstanding clauses (3) and (4) of paragraph (l)(A) above, (1) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to BCI or to another Restricted Subsidiary, (2) BCI may merge with an Affiliate incorporated solely for the purpose of reincorporating BCI in another state of the United States so long as the amount of Indebtedness of BCI and its Restricted Subsidiaries is not increased thereby, and (3) the Escrow Merger may be consummated.

Under any consolidation by BCI with, or merger by BCI into, any other Person or any sale, assignment, conveyance, transfer or lease of all or substantially all BCI’s assets as described in the preceding paragraph, the Successor Company, will succeed to, and be substituted for, and may exercise every right and power of, ours under the shares of Series A Preferred Stock, and thereafter, except in the case of a lease, the predecessor (if still in existence) will be released from its obligations and covenants with respect to the Series A Preferred Stock.

(m) Triggers and Remedies.

A “Trigger Event” with respect to all the Series A Preferred Stock occurs in connection with any of the following events:

(1) a failure to pay full cumulative dividends on any Series A Preferred Stock on any Dividend Payment Date and such failure continues uncured for 30 days,

(2) a failure to pay the redemption price or purchase price with respect to any Series A Preferred Stock when required upon optional redemption, exercise of a holder’s put option, required purchase or otherwise, or failure to redeem the Series A Preferred Stock when required under the covenant described under clause (f)(C) of this paragraph 5;

72

(3) the failure by BCI to comply with its obligations under the covenant described under clause (l) of this paragraph 5, or the failure by BCI to comply with its obligations under the Escrow Agreement,

(4) the failure by BCI or any of its Restricted Subsidiaries to comply for 30 days after notice with any of its obligations under the covenants described above under clause (i) of this paragraph 5 (other than a failure to purchase Series A Preferred Stock when required thereunder) or under clause (h) of this paragraph 5 (other than a failure to purchase the Series A Preferred Stock when required under the covenant described in clause (h)(F) of this paragraph 5),

(5) the failure by BCI or any of its Restricted Subsidiaries to comply for 60 days after notice with its other agreements contained in this paragraph 5 (other than those referred to in (1), (2), (3) or (4) above),

(6) the failure by BCI or any Significant Subsidiary to pay any Indebtedness (other than Indebtedness owing to BCI or a Restricted Subsidiary of BCI) within any applicable grace period after final maturity or the acceleration of any such Indebtedness (or, with respect to the pollution control bonds constituting Existing Debentures, failure to pay under the guarantees of BCI and its applicable Restricted Subsidiaries related thereto) by the holders thereof because of a default, in each case, if the total amount of such Indebtedness unpaid or accelerated exceeds $20 million or its foreign currency equivalent (the “cross-acceleration provision”),

(7) BCI, either Issuer or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law:

(i) commences a voluntary case;

(ii) consents to the entry of an order for relief against it in an involuntary case;

(iii) consents to the appointment of a Custodian of it or for any substantial part of its property; or

(iv) makes a general assignment for the benefit of its creditors or takes any comparable action under any foreign laws relating to insolvency,

(8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:

(i) is for relief against Issuer, BCI or any Significant Subsidiary in an involuntary case;

(ii) appoints a Custodian of BCI, the Issuer or any Significant Subsidiary or for any substantial part of its property; or

73

(iii) orders the winding up or liquidation of BCI, either Issuer or any Significant Subsidiary;

or any similar relief is granted under any foreign laws and the order or decree remains unstayed and in effect for 60 days,

(9) failure by BCI or any Significant Subsidiary to pay final judgments aggregating in excess of $20 million or its foreign currency equivalent (net of any amounts which are covered by enforceable insurance policies issued by solvent carriers), which judgments are not discharged, waived or stayed for a period of 60 days following the entry thereof (the “judgment default provision”), or

(10) failure by BCI to comply with its obligations under Section 5(a) of the Purchase Agreement dated as of May 16, 2005, among Hexion Escrow Corp., BCI, Credit Suisse First Boston LLC, Goldman Sachs & Co., Lehman Brothers Inc., Lehman Commercial Paper Inc. and J.P. Morgan Securities Inc. and continuance of such failure for five Business Days after notice to BCI pursuant to such Purchase Agreement.

The foregoing will constitute Trigger Events whatever the reason for any such Trigger Event and whether it is voluntary or involuntary or is effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body.

However, the occurrence of the failure described under clause (4) or (5) above will not constitute a Trigger Event until the holders of at least 25% of the outstanding Series A Preferred Stock notify BCI of the failure and BCI does not cure such failure within the time specified in clauses (4) and (5) hereof after receipt of such notice.

If a Trigger Event occurs and is continuing, dividends will accumulate on the Series A Preferred Stock at the rate that is 200 basis points above the then applicable rate, from and including the date on which any Trigger Event shall occur to but excluding the date on which all Trigger Events have been cured; provided, however, that, if a Trigger Event occurs and is continuing with respect to clause (m)(10) of this paragraph 5, dividends will accumulate on the Series A Preferred Stock at a rate equal to LIBOR plus 1200 basis points; provided further, however, that if multiple Trigger Events shall have occurred and be continuing, the dividend rate shall only be increased by a maximum of 200 basis points with respect to all such Trigger Events if the immediately preceding proviso is not applicable or to LIBOR plus 1200 basis points if the immediately preceding proviso is applicable. At all other times, dividends will accumulate on the Series A Preferred Stock at the then applicable rate.

(n) Limitation of Liability.

No affiliate, director, officer, employee, incorporator or holder of any Equity Interests in BCI or any direct or indirect parent corporation of BCI, as such, will have any liability for any obligations of BCI, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each holder of Series A Preferred Stock by accepting a Series A Preferred Stock waives and releases all such liability, The waiver and release are part of the consideration for issuance of the Series A Preferred Stock. The waiver may not be effective to waive liabilities under the federal securities laws.

74

(o) Depository.

The provisions relating to the Depository Trust Company are set forth in the Global Securities Procedures.

(p) Termination.

BCI, at any time after it has elected to redeem all of the Series A Preferred Stock, as described in clause (f)(A) of this paragraph, may terminate its obligations (the “termination option”) with respect to Holders, except for the obligations set forth in clauses (b), (f) and (p) of this paragraph 5 and the Global Securities Procedures. If BCI has exercised its termination option, additional dividends will not accrue on the Series A Preferred Stock, and the Holders will not be entitled to designate a director, in either case, because of a Trigger Event. In order to exercise its termination option, BCI must irrevocably deposit in trust with the Paying Agent, for the sole benefit of the holders of Series A Preferred Stock, cash for the payment of the full redemption price and accrued and unpaid dividends to the redemption date.”

RESOLVED, that the Corporation, acting through its Vice President, is hereby authorized and directed to execute and file a Certificate of Amendment to the Certificate of Incorporation in accordance with N.J.S.A. 14A:9-2 and 14A:9-4, including the text of this resolution, as soon as practicable following the date hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

75

IN WITNESS WHEREOF, the undersigned have signed this written consent this 19th day of May, 2005.

/s/ Craig O. Morrison

Name: Craig O. Morrison

/s/ William H. Carter

Name: William H. Carter

/s/ Joshua Harris

Name: Joshua Harris

/s/ Scott M. Kleinman

Name: Scott M. Kleinman

/s/ Robert V. Seminara

Name: Robert V. Seminara

IN WITNESS WHEREOF, the undersigned has executed and signed this written consent as of this 19th day of May, 2005.

Sole Shareholder
BHI ACQUISITION CORP.
By:	/s/ Craig O. Morrison
Name:	Craig O. Morrison
Title:	President and Chief Executive Officer

CERTIFICATE OF MERGER

of

RESOLUTION PERFORMANCE PRODUCTS CORP.

(a Delaware corporation)

with and into

BORDEN CHEMICAL, INC.

(a New Jersey corporation)

To the Department of the Treasury

State of New Jersey

Pursuant to the provisions of Section 14A:10-7 of the New Jersey Business Corporation Act, Borden Chemical, Inc., a New Jersey corporation, does hereby certify that:

1. The names of the merging corporations are RESOLUTION PERFORMANCE PRODUCTS CORP., a Delaware Corporation (“RPP Corp.”), and BORDEN CHEMICAL, INC. (the “Survivor”). The Survivor shall be the surviving corporation in the merger (The “Merger”) and will continue its existence under the name Hexion Specialty Chemicals, Inc.

2. The agreement and plan of merger (the “Transaction Agreement”) is attached hereto as Exhibit A.

3. The Transaction Agreement was approved by the shareholders of (i) the Survivor on April 22, 2005 and (ii) RPP Corp. on May 31, 2005.

4. The following sets forth the number of shares entitled to vote on the Merger: (i) ninety-six million nine hundred five thousand nine hundred thirty-six (96,905,936) shares of common stock, $0.01 par value per share, of the Survivor (the “Survivor Common Stock”); and (ii) one million (1,000,000) shares of common stock, $0.01 par value per share, of RPP Corp. (the “RPP Corp. Common Stock”).

5. All 96,905,936 shares of Survivor Common Stock entitled to vote on the Merger voted in favor thereof. All 1,000,000 shares of RPP Corp. Common Stock entitled to vote on the Merger voted in favor thereof.

6. The applicable provisions of the laws of the jurisdiction of organization of RPP Corp. relating to the Merger have been complied with or will have been complied with upon compliance with any of the filing and recording requirements thereof.

* * * * *

Dated as of May 31, 2005.

RESOLUTION PERFORMANCE PRODUCTS CORP.
By:	/s/ William Carter
	Name: William Carter Title:   Vice President
BORDEN CHEMICAL, INC.
By:	/s/ William Carter
	Name: William Carter Title:   Executive Vice President and             Chief Financial Officer

EX-3.7

Exhibit 3.7

CERTIFICATE OF INCORPORATION

OF

B D S TWO, INC.

The undersigned, a natural person, for the purpose of organizing a corporation for conducting the business and provisions and subject to the requirements of the State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the acts amendatory thereof and supplemental thereto, and known, identified, and referred to as the “General Corporation Law of the State of Delaware”), hereby certifies that:

First: The name of the corporation (hereinafter called the (corporation”) is B D S Two, Inc.

Second: The address, including street, number, city, and county, of the registered office of the corporation in the State of Delaware is Suite L-100, 32 Loockerman Square, City of Dover, 19901, County of Kent; and the name of the registered agent of the corporation in the State of Delaware at such address is The Prentice-Hall Corporation System, Inc.

Third: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

Fourth: The total number of shares of stock which the corporation shall have authority to issue is 1,000, all of which are without par value.

Fifth: The name and the mailing address of the incorporator are as follows:

Michael Donovan	33 North La Salle Street
	Chicago, IL 60602

Sixth: The corporation is to have perpetual existence.

Seventh: Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the corporation or of any creditor or stockholder thereof or on the

application of any receiver or receivers appointed for this corporation under the provisions of § 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of § 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation.

EIGHTH: For the management of the business and for the conduct of the affairs of the corporation, and in further definition, limitation, and regulation of the powers of the corporation and of its directors and of its stockholders or any class thereof, as the case may be, it is further provided:

1. The management of the business and the conduct of the affairs of the corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed by, or in the manner provided in, the Bylaws. The phrase “whole Board” and the phrase “total number of directors” shall be deemed to have the same meaning, to wit, the total number of directors which the corporation would have if there were no vacancies. No election of directors need be by written ballot.

2. After the original or other Bylaws of the corporation have been adopted, amended, or repealed, as the case may be, in accordance with the provisions of § 109 of the General Corporation Law of the State of Delaware, and, after the

corporation has received any payment for any of its stock, the power to adopt, amend, or repeal the Bylaws of the corporation may be exercised by the Board of Directors of the corporation; provided, however, that any provision for the classification of directors of the corporation for staggered terms pursuant to the provisions of subsection (d) of § 141 of the General Corporation Law of the State of Delaware shall be set forth in an initial Bylaw or in a Bylaw adopted by the stockholders entitled to vote of the corporation unless provisions for such classification shall be set forth in this certificate of incorporation.

3. Whenever the corporation shall be authorized to issue only one class of stock, each outstanding share shall entitle the holder thereof to notice of, and the right to vote at, any meeting of stockholders. Whenever the corporation shall be authorized to issue more than one class of stock, no outstanding share of any class of stock which is denied voting power under the provisions of the certificate of incorporation shall entitle the holder thereof to the right to vote at any meeting of stockholders except as the provisions of paragraph (2) of subsection (b) of § 242 of the General Corporation Law of the State of Delaware shall otherwise require; provided, that no share of any such class which is otherwise denied voting power shall entitle the holder thereof to vote upon the increase or decrease in the number of authorized shares of said class.

NINTH: The personal liability of the directors of the corporation is hereby eliminated to the fullest extent permitted by the provisions of paragraph (7) of subsection (b) of § 102 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented.

TENTH: The corporation shall, to the fullest extent permitted by the provisions of § 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all persons whom it shall have power to indemnify under said section from and against any and all of the expenses, liabilities, or other matters referred to in or covered by said section, and the

indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.

ELEVENTH: From time to time any of the provisions of this certificate of incorporation may be amended, altered, or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the corporation by this certificate of incorporation are granted subject to the provisions of this Article ELEVENTH.

Signed on October 24, 1991.

/s/ Michael Donovan

Michael Donovan, Incorporator

CERTIFICATE OF MERGER

OF

B D S ONE, INC.

AND

B D S TWO, INC.

It is hereby certified that:

1. The constituent business corporations participating in the merger herein certified are:

(i) B D S One, Inc., which is incorporated under the laws of the State of Delaware; and

(ii) B D S Two, Inc., which is incorporated under the laws of the State of Delaware.

2. An Agreement of Merger has been approved, adopted, certified, executed, and acknowledged by each of the aforesaid constituent corporations in accordance with the provisions of subsection (c) of Section 251 of the General Corporation Law of the State of Delaware.

3. The name of the surviving corporation in the merger herein certified is B D S Two, Inc., which will continue its existence as said surviving corporation under its present name upon the effective date of said merger pursuant to the provisions of the General Corporation Law of the State of Delaware.

4. The Certificate of Incorporation of B D S Two, Inc., as now in force and effect, shall continue to be the Certificate of Incorporation of said surviving corporation until amended and changed pursuant to the provisions of the General Corporation Law of the State of Delaware.

5. The executed Agreement of Merger between the aforesaid constituent corporations is on file at an office of the aforesaid surviving corporation, the address of which is as follows:

2711 Centerville Road

Suite 202

Wilmington, DE 19808

6. A copy of the aforesaid Agreement of Merger will be furnished by the aforesaid surviving corporation, on request, and without cost, to any stockholder of each of the aforesaid constituent corporations.

7. The Agreement of Merger between the aforesaid constituent corporations provides that the merger herein certified shall be effective on December 27, 2000.

Dated: December 27, 2000

B D S One, Inc.
By:	/s/ Alyssa A. Anton
	Alyssa A. Anton, Vice President

Dated: December 27, 2000

B D S Two, Inc.
By:	/s/ Alyssa A. Anton
	Alyssa A. Anton, Vice President

CERTIFICATE OF OWNERSHIP AND MERGER

OF

B D S THREE, INC.

(a Delaware corporation)

INTO

B D S TWO, INC.

(a Delaware corporation)

It is hereby certified that:

1. B D S Two, Inc. hereinafter sometimes referred to as the “Corporation” is a business corporation of the State of Delaware.

2. The Corporation is the owner of all of the outstanding shares of the stock of B D S Three, Inc., which is also a business corporation of the State of Delaware.

3. On December 22, 2000, the Board of Directors of the Corporation adopted the following resolutions to merge B D S Three, Inc., into the Corporation:

RESOLVED that B D S Three, Inc. be merged into this Corporation, and that all of the estate, property, rights, privileges, powers and franchises of B D S Three, Inc. be vested in and held and enjoyed by this Corporation as fully and entirely and without change or diminution as the same were before held and enjoyed by B D S Three, Inc. in its name.

RESOLVED that this Corporation shall assume all of the obligations of B D S Three, Inc.

RESOLVED that this Corporation shall cause to be executed and filed and/or recorded the documents prescribed by the laws of the State of Delaware and by the laws of any other appropriate jurisdiction and will cause to be performed all necessary acts within the State of Delaware and within any other appropriate jurisdiction.

RESOLVED that the effective time of the Certificate of Ownership and Merger setting forth a copy of these resolutions, and the time when the merger therein provided for, shall become effective shall be December 27, 2000.

Dated: December 27, 2000

B D S TWO, INC.
By:	/s/ Alyssa A. Anton
	Alyssa A. Anton, Vice President

CERTIFICATE OF MERGER

OF

B D S FOUR, INC.

AND

B D S TWO, INC.

It is hereby certified that:

1. The constituent business corporations participating in the merger herein certified are:

(i) B D S Four, Inc., which is incorporated under the laws of the State of Delaware; and

(ii) B D S Two, Inc., which is incorporated under the laws of the State of Delaware.

2. An Agreement of Merger has been approved, adopted, certified, executed, and acknowledged by each of the aforesaid constituent corporations in accordance with the provisions of subsection (c) of Section 251 of the General Corporation Law of the State of Delaware.

3. The name of the surviving corporation in the merger herein certified is B D S Two, Inc., which will continue its existence as said surviving corporation under its present name upon the effective date of said merger pursuant to the provisions of the General Corporation Law of the State of Delaware.

4. The Certificate of Incorporation of B D S Two, Inc., as now in force and effect, shall continue to be the Certificate of Incorporation of said surviving corporation until amended and changed pursuant to the provisions of the General Corporation Law of the State of Delaware.

5. The executed Agreement of Merger between the aforesaid constituent corporations is on file at an office of the aforesaid surviving corporation, the address of which is as follows:

2711 Centerville Road

Suite 202

Wilmington, DE 19808

6. A copy of the aforesaid Agreement of Merger will be furnished by the aforesaid surviving corporation, on request, and without cost, to any stockholder of each of the aforesaid constituent corporations.

7. The Agreement of Merger between the aforesaid constituent corporations provides that the merger herein certified shall be effective on December 27, 2000.

Dated: December 27, 2000

B D S Four. Inc.
By:	/s/ Alyssa A. Anton
	Alyssa A. Anton, Vice President

Dated: December 27, 2000

B D S Two, Inc.
By:	/s/ Alyssa A. Anton
	Alyssa A. Anton, Vice President

CERTIFICATE OF MERGER

OF

BDH TWO, INC.

AND

B D S TWO, INC.

It is hereby certified that:

1. The constituent business corporations participating in the merger herein certified are:

(i) BDH Two. Inc., which is incorporated under the laws of the State of Delaware; and

(ii) B D S Two, Inc., which is incorporated under the laws of the State of Delaware.

2. An Agreement of Merger has been approved, adopted, certified, executed, and acknowledged by each of the aforesaid constituent corporations in accordance with the provisions of subsection (c) of Section 251 of the General Corporation Law of the State of Delaware.

3. The name of the surviving corporation in the merger herein certified is B D S Two, Inc., which will continue its existence as said surviving corporation under its present name upon the effective date of said merger pursuant to the provisions of the General Corporation Law of the State of Delaware.

4. The Certificate of Incorporation of B D S Two, Inc., as now in force and effect, shall continue to be the Certificate of Incorporation of said surviving corporation until amended and changed pursuant to the provisions of the General Corporation Law of the State of Delaware.

5. The executed Agreement of Merger between the aforesaid constituent corporations is on file at an office of the aforesaid surviving corporation, the address of which is as follows:

2711 Centerville Road

Suite 202

Wilmington, DE 19808

6. A copy of the aforesaid Agreement of Merger will be furnished by the aforesaid surviving corporation, on request, and without cost, to any stockholder of each of the aforesaid constituent corporations.

7. The Agreement of Merger between the aforesaid constituent corporations provides that the merger herein certified shall be effective on December 27, 2000.

Dated: December 27, 2000

BDH Two, Inc.
By:	/s/ Alyssa A. Anton
	Alyssa A. Anton, Vice President

Dated: December 27, 2000

B D S Two, Inc.
By:	/s/ Alyssa A. Anton
	Alyssa A. Anton, Vice President

CERTIFICATE OF OWNERSHIP AND MERGER

OF

BORDEN PACKAGING U.K. IHC, INC.

(a Delaware corporation)

INTO

B D S TWO, INC.

(a Delaware corporation)

It is hereby certified that:

1. B D S Two, Inc. hereinafter sometimes referred to as the “Corporation” is a business corporation of the State of Delaware.

2. Following the merger of BDH One, Inc. into B D S Two, Inc. on December 28, 2000, the Corporation is now the owner of all of the outstanding shares of the stock of Borden Packaging U.K. IHC, Inc., which is also a business corporation of the State of Delaware.

3. On January 5, 2001, the Board of Directors of the Corporation adopted the following resolutions to merge Borden Packaging U.K. IHC, Inc., into the Corporation:

RESOLVED that Borden Packaging U.K. IHC, Inc. be merged into this Corporation, and that all of the estate, property, rights, privileges, powers and franchises of Borden Packaging U.K. IHC, Inc. be vested in and held and enjoyed by this Corporation as fully and entirely and without change or diminution as the same were before held and enjoyed by Borden Packaging U.K. IHC, Inc. in its name.

RESOLVED that this Corporation shall assume all of the obligations of Borden Packaging U.K. IHC, Inc.

RESOLVED that this Corporation shall cause to be executed and filed and/or recorded the documents prescribed by the laws of the State of Delaware and by the laws of any other appropriate jurisdiction and will cause to be performed all necessary acts within the State of Delaware and within any other appropriate jurisdiction.

RESOLVED that the effective time of the Certificate of Ownership and Merger setting forth a copy of these resolutions, and the time when the merger therein provided for, shall become effective upon filing.

Dated: January 17, 2001.

B D S TWO, INC.
By:	/s/ Alyssa A. Anton
	Alyssa A. Anton, Vice President

CERTIFICATE OF OWNERSHIP AND MERGER

OF

BFE CORP.

(a Delaware corporation)

INTO

BDS TWO, INC.

(a Delaware corporation)

It is hereby certified that:

1. BDS Two, Inc., the (“Corporation”) is a business corporation of the State of Delaware.

2. The Corporation is the owner of all of the outstanding shares of the stock of BFE Corp., which is also a business corporation of the State of Delaware.

3. On September 2, 2004, the Board of Directors of the Corporation adopted the following resolutions to merge BFE Corp. the Corporation:

RESOLVED that BFE Corp. be merged into this Corporation, and that all of the estate, property, rights, privileges, powers and franchises of BFE Corp. be vested in and held and enjoyed by this Corporation as fully and entirely and without change or diminution as the same were before held and enjoyed by BFE Corp. in its name.

RESOLVED that this Corporation shall assume all of the obligations of BFE Corp.

RESOLVED that this Corporation shall cause to be executed and filed and/or recorded the documents prescribed by the laws of the State of Delaware and by the laws of any other appropriate jurisdiction and will cause to be performed all necessary acts within the State of Delaware and within any other appropriate jurisdiction.

RESOLVED that the effective time of the Certificate of Ownership and Merger setting forth a copy of these resolutions, and the time when the merger therein provided for, shall become effective shall be September 30, 2004.

Executed on September 2, 2004.

B D S TWO, INC.
By:	/s/ Alyssa A. Anton
	Alyssa A. Anton, Vice President

CERTIFICATE OF OWNERSHIP AND MERGER

OF

BDH ONE, INC.

(a Delaware corporation)

INTO

B D S TWO, INC.

(a Delaware corporation)

It is hereby certified that:

1. B D S TWO, INC. hereinafter sometimes referred to as the “Corporation” is a business corporation of the State of Delaware.

2. The Corporation is the owner of all of the outstanding shares of the stock of BDH One, Inc., which is also a business corporation of the State of Delaware.

3. On December 26, 2000, the Board of Directors of the Corporation adopted the following resolutions to merge BDH One, Inc., into the Corporation:

RESOLVED that BDH One, Inc. be merged into this Corporation, and that all of the estate, property, rights, privileges, powers and franchises of BDH One, Inc. be vested in and held and enjoyed by this Corporation as fully and entirely and without change or diminution as the same were before held and enjoyed by BDH One, Inc. in its name.

RESOLVED that this Corporation shall assume all of the obligations of BDH One, Inc.

RESOLVED that this Corporation shall cause to be executed and filed and/or recorded the documents prescribed by the laws of the State of Delaware and by the laws of any other appropriate jurisdiction and will cause to be performed all necessary acts within the State of Delaware and within any other appropriate jurisdiction.

RESOLVED that the effective time of the Certificate of Ownership and Merger setting forth a copy of these resolutions, and the time when the merger therein provided for, shall become effective shall be December 28, 2000.

Dated: December 28, 2000

B D S TWO, INC.
By:	/s/ Alyssa A. Anton
	Alyssa A. Anton, Vice President

EX-3.8

Exhibit 3.8

BYLAWS

OF

BDS TWO, INC.

ARTICLE I

STOCKHOLDERS

1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in the corporation shall be signed by, or in the name of, the corporation by the Chairman or Vice-Chairman of the Board of Directors, if any, or by the President or a Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the corporation. Any or all the signatures on any such certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of issue.

Whenever the corporation shall be authorized to issue more than one class of stock or more than one series of any class of stock, and whenever the corporation shall issue any shares of its stock as partly paid stock, the certificates representing shares of any such class or series or of any such partly paid stock shall set forth thereon the statements prescribed by the General Corporation Law. Any restrictions on the transfer or registration of transfer of any shares of stock of any class or series shall be noted conspicuously on the certificate representing such shares.

The corporation may issue a new certificate of stock or uncertificated shares in place of any certificate theretofore issued by it, alleged to have been lost, stolen, or destroyed, and the Board of Directors may require the owner of the lost, stolen, or destroyed certificate, or his legal representative, to give the corporation a bond sufficient to indemnify the corporation against any claim that may be made against it on account of the alleged loss, theft, or destruction of any such certificate or the issuance of any such new certificate or uncertificated shares.

2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the General Corporation Law, the Board of Directors of the corporation may provide by resolution or resolutions that some

-1-

or all of any or all classes or series of the stock of the corporation shall be uncertificated shares. Within a reasonable time after the issuance or transfer of any uncertificated shares, the corporation shall send to the registered owner thereof any written notice prescribed by the General Corporation Law.

3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be required to, issue fractions of a share. If the corporation does not issue fractions of a share, it shall (1) arrange for the disposition of fractional interests by those entitled thereto, (2) pay in cash the fair value of fractions of a share as of the time when those entitled to receive such fractions are determined, or (3) issue scrip or warrants in registered form (either represented by a certificate or uncertificated) or bearer form (represented by a certificate) which shall entitle the holder to receive a full share upon the surrender of such scrip or warrants aggregating a full share. A certificate for a fractional share or an uncertificated fractional share shall, but scrip or warrants shall not unless otherwise provided therein, entitle the holder to exercise voting rights, to receive dividends thereon, and to participate in any of the assets of the corporation in the event of liquidation. The Board of Directors may cause scrip or warrants to be issued subject to the conditions that they shall become void if not exchanged for certificates representing the full shares or uncertificated full shares before a specified date, or subject to the conditions that the shares for which scrip or warrants are exchangeable may be sold by the corporation and the proceeds thereof distributed to the holders of scrip or warrants, or subject to any other conditions which the Board of Directors may impose.

4. STOCK TRANSFERS. Upon compliance with provisions restricting the transfer or registration of transfer of shares of stock, if any, transfers or registration of transfers of shares of stock of the corporation shall be made only on the stock ledger of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the corporation or with a transfer agent or a registrar, if any, and, in the case of shares represented by certificates, on surrender of the certificate or certificates for such shares of stock properly endorsed and the payment of all taxes due thereon.

5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of

-2-

Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining the stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by the General Corporation Law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by the General Corporation Law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion, or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to notice of a meeting of stockholders or a waiver thereof or to participate or vote thereat or to consent or dissent

-3-

in writing in lieu of a meeting, as the case may be, the term “share” or “shares” or “share of stock” or “shares of stock” or “stockholder” or “stockholders” refers to an outstanding share or shares of stock and to a holder or holders of record of outstanding shares of stock when the corporation is authorized to issue only one class of shares of stock, and said reference is also intended to include any outstanding share or shares of stock and any holder or holders of record of outstanding shares of stock of any class upon which or upon whom the certificate of incorporation confers such rights where there are two or more classes or series of shares of stock or upon which or upon whom the General Corporation Law confers such rights notwithstanding that the certificate of incorporation may provide for more than one class or series of shares of stock, one or more of which are limited or denied such rights thereunder; provided, however, that no such right shall vest in the event of an increase or a decrease in the authorized number of shares of stock of any class or series which is otherwise denied voting rights under the provisions of the certificate of incorporation, except as any provision of law may otherwise require.

7. STOCKHOLDER MEETINGS.

- TIME. The annual meeting shall be held on the date and at the time fixed, from time to time, by the directors, provided, that the first annual meeting shall be held on a date within thirteen months after the organization of the corporation, and each successive annual meeting shall be held on a date within thirteen months after the date of the preceding annual meeting. A special meeting shall be held on the date and at the time fixed by the directors.

- PLACE. Annual meetings and special meetings shall be held at such place, within or without the State of Delaware, as the directors may, from time to time, fix. Whenever the directors shall fail to fix such place, the meeting shall be held at the registered office of the corporation in the State of Delaware.

- CALL. Annual meetings and special meetings may be called by the directors or by any officer instructed by the directors to call the meeting.

- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be given, stating the place, date, and hour of the meeting and stating the place within the city or other municipality or community at which the list of stockholders of the corporation may be examined. The notice of an annual meeting shall state that the meeting is called for the election of directors and for the transaction of other business which may properly come before the meeting, and shall (if any other action which could be taken at a

-4-

special meeting is to be taken at such annual meeting) state the purpose or purposes. The notice of a special meeting shall in all instances state the purpose or purposes for which the meeting is called. The notice of any meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by the General Corporation Law. Except as otherwise provided by the General Corporation Law, a copy of the notice of any meeting shall be given, personally or by mail, not less than ten days nor more than sixty days before the date of the meeting, unless the lapse of the prescribed period of time shall have been waived, and directed to each stockholder at his record address or at such other address which he may have furnished by request in writing to the Secretary of the corporation. Notice by mail shall be deemed to be given when deposited, with postage thereon prepaid, in the United States Mail. If a meeting is adjourned to another time, not more than thirty days hence, and/or to another place, and if an announcement of the adjourned time and/or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the directors, after adjournment, fix a new record date for the adjourned meeting. Notice need not be given to any stockholder who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of a stockholder at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice.

- STOCKHOLDER LIST. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city or other municipality or community where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the corporation, or to vote at any meeting of stockholders.

-5-

- CONDUCT OF MEETING. Meetings of the stockholders shall be presided over by one of the following officers in the order of seniority and if present and acting - the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, the President, a Vice-President, or, if none of the foregoing is in office and present and acting, by a chairman to be chosen by the stockholders. The Secretary of the corporation, or in his absence, an Assistant Secretary, shall act as secretary of every meeting, but if neither the Secretary nor an Assistant Secretary is present the Chairman of the meeting shall appoint a secretary of the meeting.

- PROXY REPRESENTATION. Every stockholder may authorize another person or persons to act for him by proxy in all matters in which a stockholder is entitled to participate, whether by waiving notice of any meeting, voting or participating at a meeting, or expressing consent or dissent without a meeting. Every proxy must be signed by the stockholder or by his attorney-in-fact. No proxy shall be voted or acted upon after three years from its date unless such proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and, if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally.

- INSPECTORS. The directors, in advance of any meeting, may, but need not, appoint one or more inspectors of election to act at the meeting or any adjournment thereof. If an inspector or inspectors are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors. In case any person who may be appointed as an inspector fails to appear or act, the vacancy may be filled by appointment made by the directors in advance of the meeting or at the meeting by the person presiding thereat. Each inspector, if any, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspectors at such meeting with strict impartiality and according to the best of his ability. The inspectors, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots, or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots, or consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all stockholders. On request of the person presiding at the meeting, the inspector or inspectors, if any, shall make a report in writing of any challenge, question, or matter determined by him or them and execute a certificate of any fact found by him or them.

-6-

- QUORUM. The holders of a majority of the outstanding shares of stock shall constitute a quorum at a meeting of stockholders for the transaction of any business. The stockholders present may adjourn the meeting despite the absence of a quorum.

- VOTING. Each share of stock shall entitle the holders thereof to one vote. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Any other action shall be authorized by a majority of the votes cast except where the General Corporation Law prescribes a different percentage of votes and/or a different exercise of voting power, and except as may be otherwise prescribed by the provisions of the certificate of incorporation and these Bylaws. In the election of directors, and for any other action, voting need not be by ballot.

8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the General Corporation Law to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Action taken pursuant to this paragraph shall be subject to the provisions of Section 228 of the General Corporation Law.

ARTICLE II

DIRECTORS

1. FUNCTIONS AND DEFINITION. The business and affairs of the corporation shall be managed by or under the direction of the Board of Directors of the corporation. The Board of Directors shall have the authority to fix the compensation of the members thereof. The use of the phrase “whole board” herein refers to the total number of directors which the corporation would have if there were no vacancies.

2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a citizen of the United States, or a resident of the State of Delaware. The initial Board of Directors shall consist of one person. Thereafter the number of directors constituting the whole board shall be at least one. Subject to the foregoing

-7-

limitation and except for the first Board of Directors, such number may be fixed from time to time by action of the stockholders or of the directors, or, if the number is not fixed, the number shall be one. The number of directors may be increased or decreased by action of the stockholders or of the directors.

3. ELECTION AND TERM. The first Board of Directors, unless the members thereof shall have been named in the certificate of incorporation, shall be elected by the incorporator or incorporators and shall hold office until the first annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. Any director may resign at any time upon written notice to the corporation. Thereafter, directors who are elected at an annual meeting of stockholders, and directors who are elected in the interim to fill vacancies and newly created directorships, shall hold office until the next annual meeting of stockholders and until their successors are elected and qualified or until their earlier resignation or removal. Except as the General Corporation Law may otherwise require, in the interim between annual meetings of stockholders or of special meetings of stockholders called for the election of directors and/or for the removal of one or more directors and for the filling of any vacancy in that connection, newly created directorships and any vacancies in the Board of Directors, including unfilled vacancies resulting from the removal of directors for cause or without cause, may be filled by the vote of a majority of the remaining directors then in office, although less than a quorum, or by the sole remaining director.

-8-

4. MEETINGS.

- TIME. Meetings shall be held at such time as the Board shall fix, except that the first meeting of a newly elected Board shall be held as soon after its election as the directors may conveniently assemble.

- PLACE. Meetings shall be held at such place within or without the State of Delaware as shall be fixed by the Board.

- CALL. No call shall be required for regular meetings for which the time and place have been fixed. Special meetings may be called by or at the direction of the Chairman of the Board, if any, the Vice-Chairman of the Board, if any, of the President, or of a majority of the directors in office.

- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be required for regular meetings for which the time and place have been fixed. Written, oral, or any other mode of notice of the time and place shall be given for special meetings in sufficient time for the convenient assembly of the directors thereat. Notice need not be given to any director or to any member of a committee of directors who submits a written waiver of notice signed by him before or after the time stated therein. Attendance of any such person at a meeting shall constitute a waiver of notice of such meeting, except when he attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors need be specified in any written waiver of notice.

- QUORUM AND ACTION. A majority of the whole Board shall constitute a quorum except when a vacancy or vacancies prevents such majority, whereupon a majority of the directors in office shall constitute a quorum, provided, that such majority shall constitute at least one-third of the whole Board. A majority of the directors present, whether or not a quorum is present, may adjourn a meeting to another time and place. Except as herein otherwise provided, and except as otherwise provided by the General Corporation Law, the vote of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board. The quorum and voting provisions herein stated shall not be construed as conflicting with any provisions of the General Corporation Law and these Bylaws which govern a meeting of directors held to fill vacancies and newly created directorships in the Board or action of disinterested directors.

Any member or members of the Board of Directors or of any committee designated by the Board, may participate in a meeting of

-9-

the Board, or any such committee, as the case may be, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other.

- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and if present and acting, shall preside at all meetings. Otherwise, the Vice-Chairman of the Board, if any and if present and acting, or the President, if present and acting, or any other director chosen by the Board, shall preside.

5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the General Corporation Law, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors.

6. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of any such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board, shall have and may exercise the powers and authority of the Board of Directors in the management of the business and affairs of the corporation with the exception of any authority the delegation of which is prohibited by Section 141 of the General Corporation Law, and may authorize the seal of the corporation to be affixed to all papers which may require it.

7. WRITTEN ACTION. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee.

ARTICLE III

OFFICERS

The officers of the corporation shall consist of a President, a Secretary, a Treasurer, and, if deemed necessary,

-10-

expedient, or desirable by the Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an Executive Vice-President, one or more other Vice-Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers with such titles as the resolution of the Board of Directors choosing them shall designate. Except as may otherwise be provided in the resolution of the Board of Directors choosing him, no officer other than the Chairman or Vice-Chairman of the Board, if any, need be a director. Any number of offices may be held by the same person, as the directors may determine.

Unless otherwise provided in the resolution choosing him, each officer shall be chosen for a term which shall continue until the meeting of the Board of Directors following the next annual meeting of stockholders and until his successor shall have been chosen and qualified.

All officers of the corporation shall have such authority and perform such duties in the management and operation of the corporation as shall be prescribed in the resolutions of the Board of Directors designating and choosing such officers and prescribing their authority and duties, and shall have such additional authority and duties as are incident to their office except to the extent that such resolutions may be inconsistent therewith. The Secretary or an Assistant Secretary of the corporation shall record all of the proceedings of all meetings and actions in writing of stockholders, directors, and committees of directors, and shall exercise such additional authority and perform such additional duties as the Board shall assign to him. Any officer may be removed, with or without cause, by the Board of Directors. Any vacancy in any office may be filled by the Board of Directors.

ARTICLE IV

CORPORATE SEAL

The corporate seal shall be in such form as the Board of Directors shall prescribe.

ARTICLE V

FISCAL YEAR

The fiscal year of the corporation shall be fixed, and shall be subject to change, by the Board of Directors.

-11-

ARTICLE VI

CONTROL OVER BYLAWS

Subject to the provisions of the certificate of incorporation and the provisions of the General Corporation Law, the power to amend, alter, or repeal these Bylaws and to adopt new Bylaws may be exercised by the Board of Directors or by the stockholders.

-12-

EX-3.9

Exhibit 3.9

CERTIFICATE OF INCORPORATION

OF

BORDEN CHEMICAL INVESTMENTS, INC.

The undersigned, in order to form a corporation for the purpose hereinafter stated, under and pursuant to the provisions of the Delaware General Corporation Law, hereby certifies that:

FIRST: The name of the Corporation is Borden Chemical Investments, Inc.

SECOND: The registered office and registered agent of the Corporation is The Prentice-Hall Corporation System, Inc., 32 Loockerman Square, Suite L-100, Dover, Kent County, Delaware 19904.

THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

FOURTH: The total number of shares of stock that the Corporation is authorized to issue is 100 shares of Common Stock, par value $0.01 per share.

FIFTH: The name and address of the incorporator is Patricia A. Heslep, 180 East Broad Street, Columbus, Ohio 43215.

SIXTH: The Board of Directors of the Corporation, acting by majority vote, may alter, amend or repeal the By-Laws of the Corporation.

SEVENTH: Except as otherwise provided by the Delaware General Corporation Law as the same exists or may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of this Article SEVENTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.

IN WITNESS WHEREOF, the undersigned has signed this Certificate of Incorporation on October 30, 1995.

/s/ Patricia A. Heslep

Patricia A. Heslep

Sole Incorporator

EX-3.10

Exhibit 3.10

BORDEN CHEMICAL INVESTMENTS, INC.

BY-LAWS

ARTICLE I

MEETINGS OF STOCKHOLDERS

Section 1. Place of Meeting and Notice. Meetings of the stockholders of the Corporation shall be held at such place either within or without the State of Delaware as the Board of Directors may determine.

Section 2. Annual and Special Meetings. Annual meetings of stockholders shall be held, at a date, time and place fixed by the Board of Directors and stated in the notice of meeting, to elect a Board of Directors and to transact such other business as may properly come before the meeting. Special meetings of the stockholders may be called by the President for any purpose and shall be called by the President or Secretary if directed by the Board of Directors or requested in writing by the holders of not less than 25% of the capital stock of the Corporation. Each such stockholder request shall state the purpose of the proposed meeting.

Section 3. Notice. Except as otherwise provided by law, at least 10 and not more than 60 days before each meeting of stockholders, written notice of the time, date and place of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder.

Section 4. Quorum. At any meeting of stockholders, the holders of record, present in person or by proxy, of a majority of the Corporation’s issued and outstanding capital stock shall constitute a quorum for the transaction of business, except as otherwise provided by law. In the absence of a quorum, any officer entitled to preside at or to act as secretary of the meeting shall have power to adjourn the meeting from time to time until a quorum is present.

Section 5. Voting. Except as otherwise provided by law, all matters submitted to a meeting of stockholders shall be decided by vote of the holders of record, present in person or by proxy, of a majority of the Corporation’s issued and outstanding capital stock entitled to vote thereon.

2

ARTICLE II

DIRECTORS

Section 1. Number, Election and Removal of Directors. The number of Directors that shall constitute the Board of Directors shall be not less than one nor more than fifteen. The Directors shall be elected by stockholders at their annual meeting. Vacancies and newly created directorships resulting from any increase in the number of Directors may be filled by a majority of the Directors then in office, although less than a quorum, or by the sole remaining Director or by the stockholders. A Director may be removed with or without cause by the stockholders.

Section 2. Meetings. Regular meetings of the Board of Directors shall be held at such times and places as may from time to time be fixed by the Board of Directors or as may be specified in a notice of meeting. Special meetings of the Board of Directors may be held at any time upon the call of the President and shall be called by the President or Secretary if directed by the Board of Directors.

Section 3. Notice. At least one business day before each regular or special meeting of the Board of Directors, written or telephonic notice of the time, date and place of the meeting and the purpose or purposes for which the meeting is called, shall be given to each Director. Written notice shall be deemed to have been given to a Director in accordance with the preceding sentence when such notice is sent by facsimile transmission or otherwise delivered to the principal place of business of each such Director within the time restrictions as set forth in this Section herein.

Section 4. Quorum. A majority of the total number of Directors shall constitute a quorum for the transaction of business. If a quorum is not present at any meeting of the Board of Directors, the Directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until such a quorum is present. Except as otherwise provided by law, the Certificate of Incorporation of the Corporation, these By-Laws or any contract or agreement to which the Corporation is a party, the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors.

Section 5. Committees of Directors. The Board of Directors may, by resolution adopted by a majority of the whole Board, designate one or more committees, including, without limitation, an Executive Committee, to have and exercise such power and authority as the Board of Directors shall specify. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or she or they

3

constitute a quorum, may unanimously appoint another Director to act at the meeting in place of any such absent or disqualified member.

ARTICLE III

OFFICERS

The officers of the Corporation shall consist of a President, a Secretary, a Treasurer, and may consist of Vice Presidents, Assistant Secretaries, Assistant Treasurers and such other additional officers with such titles as the Board of Directors shall determine, all of whom shall be chosen by and shall serve at the pleasure of the Board of Directors. All officers shall be subject to the supervision and direction of the Board of Directors. The authority, duties or responsibilities of any officer of the Corporation may be suspended by the President with or without cause. Any officer elected or appointed by the Board of Directors may be removed by the Board of Directors with or without cause. In addition to the powers and duties set forth below, such officers shall have the usual powers and shall perform all the usual duties incident to their respective offices.

(a) President. The President shall be the chief executive officer of the Corporation; he shall preside at all meetings of the stockholders and of the Board of Directors; he shall have the management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect.

(b) Vice Presidents. During the absence or disability of the President, the Vice President, or if there are more than one, the Executive Vice President, shall have all the powers and function of the President. Each Vice President shall perform such other duties as the Board of Directors shall prescribe.

(c) Secretary. The Secretary shall: attend all meetings of the Board of Directors and all meetings of the stockholders; record all votes and minutes of all proceedings in a book to be kept for that purpose; give or cause to be given notice of all meetings of stockholders and of the special meetings of the Board of Directors; keep in safe custody the seal of the Corporation and affix it to any instrument when authorized by the Board of Directors; when required, prepare a list of stockholders or cause to be prepared and available at each meeting of stockholders entitled to vote thereat, indicating the number of shares of each respective class held by each; keep all the documents and records of the Corporation as required by law or otherwise in a proper and safe manner; and perform such other duties as may be prescribed by the Board of Directors.

4

(d) Assistant Secretaries. During the absence of disability of the Secretary, the Assistant Secretary, or if there are more than one, the one so designated by the Secretary or by the Board of Directors, shall have all the powers and functions of the Secretary.

(e) Treasurer. The Treasurer shall: have the custody of the corporate funds and securities; keep full and accurate accounts of receipts and disbursements in the corporate books; deposit all money and other valuables in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors; disburse the funds of the Corporation as may be ordered or authorized by the Board of Directors and preserve proper vouchers for such disbursements; render to the President and Board of Directors at the regular meetings of the Board of Directors, or whenever they require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation; render a full financial report at the annual meetings of the stockholders if so requested; be furnished by all corporate officers and agents at his request, with such reports and statements as he may require as to all financial transactions of the Corporation; and perform such other duties as are given to him by the By-Laws or as from time to time are assigned to him by the Board of Directors or the President.

(f) Assistant Treasurers. During the absence or disability of the Treasurer, the Assistant Treasurer, or if there are more than one, the one so designated by the Secretary or by the Board of Directors, shall have all the powers and functions of the Treasurer.

ARTICLE IV

INDEMNIFICATION

To the fullest extent permitted by the Delaware General Corporation Law, the Corporation shall indemnify any current or former Director or officer of the Corporation and may, at the discretion of the Board of Directors, indemnify any current or former employee or agent of the Corporation against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with any threatened, pending or completed action, suit or proceeding brought by or in the right of the Corporation or otherwise, to which he or she was or is a party by reason of his or her current or former position with the Corporation or by reason of the fact that he or she is or was serving, at the request of the Corporation, as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise.

ARTICLE V

GENERAL PROVISIONS

Section 1. Notices. Whenever any statute, the Certificate of Incorporation or these By-Laws require notice to be given to any Director or stockholder, such notice may be given in writing by mail, addressed to such Director or stockholder at his or her address as it appears in the records of the corporation, with postage thereon prepaid. Such notice shall be deemed to have been given when it is deposited in the United States mail. Notice to Directors may also be given by telegram or by facsimile transmission.

Section 2. Fiscal Year. The fiscal year of the corporation shall be fixed by the Board of Directors.

EX-3.11

Exhibit 3.11

CERTIFICATE OF INCORPORATION

of

BORDEN CHEMICAL FOUNDRY, INC.

The undersigned, in order to form a corporation for the purpose hereinafter stated, under and pursuant to the provisions of the Delaware General Corporation Law, hereby certifies that:

1. The name of the Corporation is Borden Chemical Foundry, Inc.

2. The registered office and registered agent of the Corporation in the State of Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801.

3. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law.

4. The total number of shares of stock that the Corporation is authorized to issue is 1,000 shares of Common Stock, par value $.01 each.

5. The name and mailing address of the incorporator is Steven Teichman, 425 Lexington Avenue, New York, New York 10017.

6. The Board of Directors of the Corporation, acting by majority vote, may adopt, alter, amend or repeal the By-Laws of the Corporation.

7. Except as otherwise provided by the Delaware General Corporation Law as the same exists or may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of this Article SEVENTH by the stockholders of the Corporation shall not adversely affect any right of protection of a director of the Corporation existing at the time of such repeal or modification.

8. Unless and except to the extent that the By-Laws of the Corporation shall so require, the election of the Directors of the Corporation need not be by written ballot.

IN WITNESS WHEREOF, the undersigned has signed this Certificate of Incorporation on April 2, 2001.

/s/ Steven Teichman

Steven Teichman

Sole Incorporator

EX-3.12

Exhibit 3.12

BORDEN CHEMICAL FOUNDRY, INC.

BY-LAWS

ARTICLE I

MEETINGS OF STOCKHOLDERS

Section 1. Place of Meeting and Notice. Meetings of the stockholders of the Corporation shall be held at such place either within or without the State of Delaware as the Board of Directors may determine.

Section 2. Annual and Special Meetings. Annual meetings of stockholders shall be held, at a date, time and place fixed by the Board of Directors and stated in the notice of meeting, to elect a Board of Directors and to transact such other business as may properly come before the meeting. Special meetings of the stockholders shall be called by the President or Secretary if directed by the Board of Directors. Unless otherwise determined by the Board of Directors prior to any meeting of stockholders, the presiding officer of such meeting shall determine the order of business and shall have the authority in his or her discretion to regulate the conduct of any such meeting, including, without limitation, by imposing restrictions on the persons (other than stockholders of the Corporation or their duly appointed proxies) who may attend any such meeting, whether any stockholder or stockholders’ proxy may be excluded from any meeting of stockholders based upon any determination by the presiding officer, in his or her sole discretion, that any such person has unduly disrupted or is likely to disrupt the proceedings thereat, and the circumstances in which any person may make a statement or ask questions at any meeting of stockholders.

Section 3. Notice. Except as otherwise provided by law, at least 10 and not more than 60 days before each meeting of stockholders, written notice of the time, date and place of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder.

Section 4. Quorum. At any meeting of stockholders, the holders of record, present in person or by proxy, of a majority of the Corporation’s issued and outstanding capital stock shall constitute a quorum for the transaction of business, except as otherwise provided by law. In the absence of a quorum, any officer entitled to preside at or to act as secretary of the meeting shall have power to adjourn the meeting from time to time until a quorum is present.

Section 5. Voting. Except as otherwise provided by law, all matters submitted to a meeting of stockholders shall be decided by vote of the holders of record, present in person or by proxy, of a majority of the Corporation’s issued and outstanding capital stock.

Section 6. Notice of Stockholder Nominees. Only persons who are nominated in accordance with the following procedures shall be eligible for election as Directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors, by any nominating committee or person appointed to make such nominations by the Board of Directors, or by any stockholder of the Corporation entitled to vote for the election of Directors at the meeting who complies with the notice procedures set forth in this Section 6. Such nominations, if made by a stockholder of the Corporation as such, shall be made pursuant to timely notice in writing addressed to the Secretary of the Corporation. To be timely, a stockholder’s notice shall be

delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting at which Directors are to be elected; provided, however, that in the event that less than 70 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received no later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder’s notice shall set forth: (a) as to each person whom the stockholder proposes to nominate for election or re-election as a Director (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of stock of the Corporation which are beneficially owned by the person and (iv) any other information relating to the person that would be required to be disclosed in solicitations for proxies for election of Directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, or any successor rule thereto; and (b) as to the stockholder giving the notice (i) the name and record address of the stockholder and (ii) the class and number of shares of the Corporation which are beneficially owned by the stockholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a Director of the Corporation. No person shall be eligible for election as a Director of the Corporation unless nominated in accordance with the procedures set forth herein.

The presiding officer at the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and following any such determination, the presiding officer shall so declare to the meeting and the defective nomination shall be disregarded.

Section 7. Notice of Stockholder Proposals. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder entitled to vote on such business at the meeting who complies with the notice provisions set forth in this Section 7. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing addressed to the Secretary of the Corporation. To be timely, a stockholder’s notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 60 days nor more than 90 days prior to the meeting at which the business would be acted upon; provided, however, that in the event that less than 70 days’ notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received no later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder’s notice shall set forth: (a) as to each matter the stockholder proposes to bring before the annual meeting a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting and (b) as to the stockholder proposing such business (i) the name and record address of the stockholder, (ii) the class and number of shares of the Corporation which are beneficially owned by the stockholder and (iii) any material interest of the stockholder in such business. No business shall be conducted at any annual meeting except in accordance with the procedures set forth herein.

2

The presiding officer at the annual meeting shall, if the facts warrant, determine and declare to the meeting that any stockholder proposal was not properly brought before the meeting and in accordance with the provisions of this Section 7, and following any such determination, the presiding officer shall so declare to the meeting and any such stockholder proposal shall not be acted upon.

Section 8. Voting Procedures and Inspectors of Elections. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties in accordance with the provisions of the General Corporation Law of the State of Delaware, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability.

The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls except as provided under the General Corporation Law of the State of Delaware.

In determining the validity and counting of proxies and ballots, the inspector shall be limited to an examination of the proxies, any envelopes submitted with those proxies, any information provided in accordance with the provisions of the General Corporation Law of the State of Delaware, ballots and the regular books and records of the Corporation, except that the inspectors may consider other reliable information for the limited purpose of reconciling proxies and ballots submitted by or on behalf of banks, brokers, their nominees or similar persons which represent more votes than the holder of a proxy is authorized by the record owner to cast or more votes than the stockholder holds of record. If the inspectors consider other reliable information for the limited purpose permitted herein, the inspectors at the time they make their certification shall specify the precise information considered by them, including the person or persons from whom they obtained the information, when the information was obtained and the basis for the inspectors’ belief that such information is accurate and reliable.

Section 9. Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporations’s notice of meeting pursuant to Article I, Section 3 of these By-Laws.

3

ARTICLE II

DIRECTORS

Section 1. Number, Election and Removal of Directors. The number of Directors that shall constitute the Board of Directors shall not be less than two or more than seven. The number of Directors of the Board of Directors on the date of the adoption and effectiveness of these By-Laws shall be two. Thereafter, within the limits specified above, the number of Directors shall be determined by the Board of Directors or the stockholders. The Directors shall be elected by stockholders at their annual meeting. Vacancies and newly created directorships resulting from any increase in the number of Directors may be filled by a majority of the Directors then in office, although less than a quorum, or by the sole remaining Director or by the stockholders. Directors may be removed from office in the manner provided in the Certificate of Incorporation of the Corporation.

Section 2. Meetings. Regular meetings of the Board of Directors shall be held at such times and places as may from time to time be fixed by the Board of Directors or as may be specified in a notice of meeting. Special meetings of the Board of Directors may be held at any time upon the call of the President and shall be called by the President or Secretary if directed by the Board of Directors. Telegraphic or written notice of each special meeting of the Board of Directors shall be sent to each Director not less than twenty-four hours before such meeting. A meeting of the Board of Directors may be held without notice immediately after the annual meeting of the stockholders. Notice need not be given of regular meetings of the Board of Directors.

Section 3. Quorum. A majority of the total number of Directors shall constitute a quorum for the transaction of business. If a quorum is not present at any meeting of the Board of Directors, the Directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until such a quorum is present. Except as otherwise provided by law, the Certificate of Incorporation of the Corporation, these By-Laws or any contract or agreement to which the Corporation is a party, the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors.

Section 4. Committees. The Board of Directors may, by resolution adopted by a majority of the whole Board, designate one or more committees, including, without limitation, an Executive Committee, to have and exercise such power and authority as the Board of Directors shall specify. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another Director to act in the place of any such absent or disqualified member.

Section 5. Compensation of Directors. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, the Board of Directors shall have the authority to fix the compensation of Directors provided that Directors who are serving the Corporation as employees, and who receive compensation for their services as such, shall not receive any salary or other compensation for their services as Directors of the Corporation. Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors. Except as

4

provided above, Directors may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.

Section 6. Manner of Participation. Directors may participate in meetings of the Board of Directors by means of conference telephone or similar communications equipment by means of which all Directors participating in the meeting can hear each other, and participation in a meeting in accordance herewith shall constitute presence in person at such meeting for purposes of these By-laws.

ARTICLE III

OFFICERS

The officers of the Corporation shall consist of a President, a Vice President, a Secretary, a Treasurer, an Assistant Secretary, an Assistant Treasurer and such other additional officers with such titles as the Board of Directors shall determine, all of which shall be chosen by and shall serve at the pleasure of the Board of Directors. Such officers shall have the usual powers and shall perform all the usual duties incident to their respective offices. All officers shall be subject to the supervision and direction of the Board of Directors. The authority, duties or responsibilities of any officer of the Corporation may be suspended by the President with or without cause. Any officer elected or appointed by the Board of Directors may be removed by the Board of Directors with or without cause.

ARTICLE IV

INDEMNIFICATION

Section 1. Power to Indemnify in Actions, Suits or Proceedings Other Than Those by or in the Right of the Corporation. Subject to Section 3 of this Article IV, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of the Corporation, by reason of the fact that he is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.

5

Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Section 3 of this Article IV, the Corporation shall indemnify any person who was or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that the Court of Chancery or the Court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

Section 3. Authorization of Indemnification. Any indemnification under this Article IV (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the Director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article IV, as the case may be. Such determination shall be made (i) by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to such action, suit or proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested Directors so directs, by independent legal counsel in a written opinion, or (iii) by the stockholders. To the extent, however, that a Director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith, without the necessity for authorization in the specific case.

Section 4. Good Faith Defined. For purposes of any determination under Section 3 of this Article IV, a person shall be deemed to have acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have no reasonable cause to believe his conduct was unlawful, if his action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to him by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term “another enterprise” as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust or other enterprise of which such person is or was serving at the request of the Corporation as Director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Sections 1 or 2 of this Article IV, as the case may be.

6

Section 5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this Article IV, and notwithstanding the absence of any determination thereunder, any Director, officer, employee or agent may apply to any court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article IV. The basis of such indemnification by a court shall be a determination by such court that indemnification of the Director, officer, employee or agent is proper in the circumstances because he had met the applicable standards of conduct set forth in Sections 1 or 2 of this Article IV, as the case may be. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application.

Section 6. Expenses Payable in Advance. Expenses incurred in defending or investigating a threatened or pending action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the Director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this Article IV.

Section 7. Non-exclusivity and Survival of Indemnification. The indemnification provided by this Article IV shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any By-Law, agreement, contract, vote of stockholders or disinterested Directors or pursuant to the direction (howsoever embodied) of any court of competent jurisdiction or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 1 or 2 of this Article IV shall be made to the fullest extent permitted by law. The provisions of this Article IV shall not be deemed to preclude the indemnification of any person who is not specified in Sections 1 or 2 of this Article IV but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise. The indemnification provided by this Article IV shall continue as to a person who has ceased to be a Director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person.

Section 8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power or the obligation to indemnify him against such liability under the provisions of this Article IV.

Section 9. Meaning of “Corporation” for Purposes of Article IV. For purposes of this Article IV, references to “the Corporation” shall include, in addition to the resulting Corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued would have

7

had power and authority to indemnify its Directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article IV with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.

ARTICLE V

GENERAL PROVISIONS

Section 1. Notices. Whenever any statute, the Certificate of Incorporation or these By-Laws require notice to be given to any Director or stockholder, such notice may be given in writing by mail, addressed to such Director or stockholder at his address as it appears in the records of the Corporation, with postage thereon prepaid. Such notice shall be deemed to have been given when it is deposited in the United States mail. Notice to Directors may also be given by telegram. A waiver of such notice in writing signed by the person or persons entitled thereto, whether before or after the time stated in such notice, shall be equivalent to the giving of such notice. Attendance of a Director at a meeting shall constitute a waiver of notice of such meeting except where a Director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened.

Section 2. Fiscal Year. The fiscal year of the Corporation shall be fixed by the Board of Directors.

ARTICLE VI

AMENDMENTS

(a) Amendment by Directors. Except as provided otherwise by law, these By-laws may be amended or repealed by the Board of Directors.

(b) Amendment by Stockholders. These By-laws may be amended or repealed at any annual meeting of stockholders, or special meeting of stockholders called for such purpose, by the affirmative vote of at least two-thirds of the total votes eligible to be cast on such amendment or repeal by holders of voting stock, voting together as a single class; provided, however, that if the Board of Directors recommends that stockholders approve such amendment or repeal at such meeting of stockholders, such amendment or repeal shall only require the affirmative vote of a majority of the total votes eligible to be cast on such amendment or repeal by holders of voting stock, voting together as a single class.

8

EX-3.13

Exhibit 3.13

CERTIFICATE OF INCORPORATION

OF

RPP CAPITAL CORPORATION

FIRST: The name of the corporation is RPP CAPITAL CORPORATION (hereinafter called “the Corporation” or “this Corporation”).

SECOND: The address of its registered office in the State of Delaware is 2711 Centerville Road, Suite 400, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is Corporation Service Company.

THIRD: The nature of the business purposes to be conducted or promoted is:

To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware, including, but not limited to, conducting its business and affairs, carrying on its operations, and having offices and exercising its powers in foreign countries.

FOURTH: The election of directors need not be by written ballot unless the By-Laws of the Corporation shall so provide.

FIFTH: The total number of shares of stock which the Corporation shall have authority to issue is One Thousand (1,000) shares of Common Stock with a par value of One Dollar ($1.00) per share.

SIXTH: The name and mailing address of the incorporator is as follows:

NAME	MAILING ADDRESS
E.V. Phillips	P.O. Box 2463
	Houston, Texas 77252-2463

SEVENTH: The Board of Directors of the Corporation shall direct the management of the business and the conduct of the affairs of the Corporation and shall establish policies, procedures and controls which shall govern the conduct of the Corporation and which shall preserve the separate legal Identity of the Corporation.

In addition to the powers conferred here or by the General Corporation Law of Delaware, the Board of Directors shall have the power from time to time to make, alter, amend, and repeal the By-Laws, subject to the power of the holders of the Common Stock to alter or repeal the By-Laws made by the Board of Directors.

EIGHTH: A director of this Corporation, or any person serving as a director of another corporation at the request of this Corporation, shall not be personally liable to this Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to this Corporation (or such other corporation) or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit.

This Corporation shall have the authority to the full extent not prohibited by law, as provided in the By-Laws of this Corporation or otherwise authorized by the Board of Directors or by the stockholders of this Corporation, to indemnify any person who is or was a director, officer, employee or agent of this Corporation or is or was serving at the request of this Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise or entity from and against any and all expenses, liabilities or losses asserted against, or incurred by any such person in any such capacity, or arising out of his status as such; and the indemnification authorized herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action

in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

This Corporation shall have the authority to the full extent not prohibited by law, as provided in the By-Laws of this Corporation or otherwise authorized by the Board of Directors or by the stockholders of this Corporation, to purchase and maintain insurance in any form from any arrangements (including, without limitation, trust funds, security interests or surety arrangements) to protect itself or any person who is or was a director, officer, employee or agent of this Corporation or serving at the request of this Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise or entity against any expense, liability or loss asserted against, or incurred by any such person in any such capacity, or arising out of his or her status as such, whether or not this Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.

THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, does make this certificate, hereby declaring and certifying that this is her act and deed and the facts herein stated are true, and accordingly has hereunto set her hand this 23^rd day of October 2000.

/s/ E.V. Phillips

E.V. Phillips, Sole Incorporator

STATE OF DELAWARE

CERTIFICATE OF AMENDMENT

OF CERTIFICATE OF INCORPORATION

The corporation organized and existing under any by virtue of the General Corporation Law of the State of Delaware does hereby certify:

FIRST: That at a meeting of the Board of Directors of RPP Capital Corporation a resolution was duly adopted setting forth a proposed amendment of the Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a meeting of the Stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as follows:

RESOLVED, that the Corporation shall amend its Certificate of Incorporation with the Delaware Secretary of State by deleting Article First thereof and by substituting in lieu of said Article, the following new Article:

“FIRST: The name of the corporation is: HSC CAPITAL

CORPORATION (hereinafter called the “the Corporation” or (“this Corporation”).”

SECOND: That thereafter, pursuant to resolution of its Board of Directors, a meeting of the stockholders of said corporation was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment.

THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

FOURTH: That the capital of said corporation shall not be reduced under or by reason of said amendment.

IN WITNESS WHEREOF, said corporation has caused this certificate to be signed this 30^th day of June, 2005.

By:	/s/ Mark S. Antonvich
	Authorized Officer
Title:	Senior Vice President
Name:	Mark S. Antonvich
	Print or Type

EX-3.14

Exhibit 3.14

RPP CAPITAL CORPORATION

Incorporated under the laws

of the State of Delaware

AMENDED AND RESTATED BY-LAWS

As adopted on November 14, 2000

AMENDED AND RESTATED BY-LAWS OF

RPP CAPITAL CORPORATION

ARTICLE I

OFFICES

1.1 Registered Office.

The registered office of RPP CAPITAL CORPORATION (the “Corporation”) in the State of Delaware shall be at 9 East Loockerman Street, City of Dover, County of Kent 19901, and the registered agent in charge thereof shall be National Registered Agents, Inc.

1.2 Other Offices.

The Corporation may also have an office or offices at any other place or places within or outside the State of Delaware.

ARTICLE II

MEETING OF STOCKHOLDERS; STOCKHOLDERS’

CONSENT IN LIEU OF MEETING

2.1 Annual Meetings.

The annual meeting of the stockholders for the election of directors, and for the transaction of such other business as may properly come before the meeting, shall be held at such place, date and hour as shall be fixed by the Board of Directors (the “Board”) and designated in the notice or waiver of notice thereof, except that no annual meeting need be held if all actions, including the election of directors, required by the General Corporation Law of the State of Delaware (the “Delaware Statute”) to be taken at a stockholders’ annual meeting are taken by written consent in lieu of meeting pursuant to Section 2.10 of this Article II.

2.2 Special Meetings.

A special meeting of the stockholders for any purpose or purposes may be called by the Board, the Chairman, the President or the record holders of at least a majority of the issued and outstanding shares of Common Stock of the Corporation, to be held at such place, date and hour as shall be designated in the notice or waiver of notice thereof.

1

2.3 Notice of Meetings.

Except as otherwise required by statute, the Certificate of Incorporation of the Corporation (the “Certificate”) or these By-laws, notice of each annual or special meeting of the stockholders shall be given to each stockholder of record entitled to vote at such meeting not less than 10 nor more than 60 days before the day on which the meeting is to be held, by delivering written notice thereof to him personally, or by mailing a copy of such notice, postage prepaid, directly to him at his address as it appears in the records of the Corporation, or by transmitting such notice thereof to him at such address by telegraph, cable or other telephonic transmission. Every such notice shall state the place, the date and hour of the meeting, and, in case of a special meeting, the purpose or purposes for which the meeting is called. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy, or who shall, in person or by his attorney thereunto authorized, waive such notice in writing, either before or after such meeting. Except as otherwise provided in these By-laws, neither the business to be transacted at, nor the purpose of, any meeting of the stockholders need be specified in any such notice or waiver of notice. Notice of any adjourned meeting of stockholders shall not be required to be given, except when expressly required by law.

2.4 Quorum.

At each meeting of the stockholders, except where otherwise provided by the Certificate or these By-laws, the holders of a majority of the issued and outstanding shares of Common Stock of the Corporation entitled to vote at such meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business. In the absence of a quorum, a majority in interest of the stockholders present in person or represented by proxy and entitled to vote, or, in the absence of all the stockholders entitled to vote, any officer entitled to preside at, or act as secretary of, such meeting, shall have the power to adjourn the meeting from time to time, until stockholders holding the requisite amount of stock to constitute a quorum shall be present or represented. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called.

2.5 Organization.

Unless otherwise determined by the Board, at each meeting of the stockholders, one of the following shall act as chairman of the meeting and preside thereat, in the following order of precedence:

(a) the Chairman, if any;

(b) the President;

(c) any director, officer or stockholder of the Corporation designated by the Board to act as chairman of such meeting and to preside thereat if the Chairman or the President shall be absent from such meeting; or

2

(d) a stockholder of record who shall be chosen chairman of such meeting by a majority in voting interest of the stockholders present in person or by proxy and entitled to vote thereat.

The Secretary or, if he shall be presiding over such meeting in accordance with the provisions of this Section 2.5 or if he shall be absent from such meeting, the person (who shall be an Assistant Secretary, if an Assistant Secretary has been appointed and is present) whom the chairman of such meeting shall appoint, shall act as secretary of such meeting and keep the minutes thereof.

2.6 Order of Business.

The order of business at each meeting of the stockholders shall be determined by the chairman of such meeting, but such order of business may be changed by a majority in voting interest of those present in person or by proxy at such meeting and entitled to vote thereat.

2.7 Voting.

Except as otherwise provided by law, the Certificate or these By-laws, at each meeting of the stockholders, every stockholder of the Corporation shall be entitled to one vote in person or by proxy for each share of Common Stock of the Corporation held by him and registered in his name on the books of the Corporation on the date fixed pursuant to Section 6.7 of Article VI as the record date for the determination of stockholders entitled to vote at such meeting. Persons holding stock in a fiduciary capacity shall be entitled to vote the shares so held. A person whose stock is pledged shall be entitled to vote, unless, in the transfer by the pledgor on the books of the Corporation, he has expressly empowered the pledgee to vote thereon, in which case only the pledgee or his proxy may represent such stock and vote thereon. If shares or other securities having voting power stand in the record of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary shall be given written notice to the contrary and furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect:

(a) if only one votes, his act binds all;

(b) if more than one votes, the act of the majority so voting binds all; and

(c) if more than one votes, but the vote is evenly split on any particular matter, such shares shall be voted in the manner provided by law.

If the instrument so filed shows that any such tenancy is held in unequal interests, a majority or even-split for the purposes of this Section 2.7 shall be a majority or even-split in interest. The Corporation shall not vote directly or indirectly any share of its own capital stock. Any vote of stock may be given by the stockholder entitled thereto in person or by his proxy appointed by an instrument in writing, subscribed by such stockholder or by his attorney thereunto authorized, delivered to the secretary of the meeting; provided, however, that no proxy shall be voted after three years from its date, unless said proxy provides for a longer period. At all meetings of the

3

stockholders, all matters (except where other provision is made by law, the Certificate or these By-laws) shall be decided by the vote of a majority in interest of the stockholders present in person or by proxy at such meeting and entitled to vote thereon, a quorum being present. Unless demanded by a stockholder present in person or by proxy at any meeting and entitled to vote thereon, the vote on any question need not be by ballot. Upon a demand by any such stockholder for a vote by ballot upon any question, such vote by ballot shall be taken. On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there be such proxy, and shall state the number of shares voted.

2.8 Inspection.

The chairman of the meeting may at any time appoint one or more inspectors to serve at any meeting of the stockholders. Any inspector may be removed, and a new inspector or inspectors appointed, by the Board at any time. Such inspectors shall decide upon the qualifications of voters, accept and count votes, declare the results of such vote, and subscribe and deliver to the secretary of the meeting a certificate stating the number of shares of stock issued and outstanding and entitled to vote thereon and the number of shares voted for and against the question, respectively. The inspectors need not be stockholders of the Corporation, and any director or officer of the Corporation may be an inspector on any question other than a vote for or against his election to any position with the Corporation or on any other matter in which he may be directly interested. Before acting as herein provided, each inspector shall subscribe an oath faithfully to execute the duties of an inspector with strict impartiality and according to the best of his ability.

2.9 List of Stockholders.

It shall be the duty of the Secretary or other officer of the Corporation who shall have charge of its stock ledger to prepare and make, at least 10 days before every meeting of the stockholders, a complete list of the stockholders entitled to vote thereat, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to any such meeting, during ordinary business hours, for a period of at least 10 days prior to such meeting, either at a place within the city where such meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. Such list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

2.10 Stockholders’ Consent in Lieu of Meeting.

Any action required by the Delaware Statute to be taken at any annual or special meeting of the stockholders of the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, by a consent in writing, as permitted by the Delaware Statute.

4

ARTICLE III

BOARD OF DIRECTORS

3.1 General Powers.

The business, property and affairs of the Corporation shall be managed by or under the direction of the Board, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law or by the Certificate directed or required to be exercised or done by the stockholders.

3.2 Number and Term of Office.

The number of directors shall be fixed from time to time by the Board. Directors need not be stockholders. Each director shall hold office until his successor is elected and qualified, or until his earlier death or resignation or removal in the manner hereinafter provided.

3.3 Election of Directors.

At each meeting of the stockholders for the election of directors at which a quorum is present, the persons receiving the greatest number of votes, up to the number of directors to be elected, of the stockholders present in person or by proxy and entitled to vote thereon shall be the directors; provided, however, that for purposes of such vote no stockholder shall be allowed to cumulate his votes. Unless an election by ballot shall be demanded as provided in Section 2.7 of Article II, election of directors may be conducted in any manner approved at such meeting.

3.4 Resignation, Removal and Vacancies.

Any director may resign at any time by giving written notice to the Board, the Chairman, the President or the Secretary. Such resignation shall take effect at the time specified therein or, if the time be not specified, upon receipt thereof; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Any director or the entire Board may be removed, with or without cause, at any time, by vote of the holders of a majority of the shares then entitled to vote at an election of directors or by written consent of the stockholders pursuant to Section 2.10 of Article II.

Vacancies occurring on the Board for any reason may be filled by vote of the stockholders or by the stockholders’ written consent pursuant to Section 2.10 of Article II, or by vote of the Board or by the directors’ written consent pursuant to Section 3.6 of this Article III. If the number of directors then in office is less than a quorum, such vacancies may be filled by a vote of a majority of the directors then in office.

3.5 Meetings.

(a) Annual Meetings. As soon as practicable after each annual election of directors, the Board shall meet for the purpose of organization and the transaction of other business, unless it shall have transacted all such business by written consent pursuant to Section 3.6 of this Article III.

5

(b) Other Meetings. Other meetings of the Board shall be held at such times and at such places as the Board, the Chairman, the President or any director shall from time to time determine.

(c) Notice of Meetings. Notice shall be given to each director of each meeting, including the time, place and purpose of such meeting. Notice of each such meeting shall be mailed to each director, addressed to him at his residence or usual place of business, at least two days before the date on which such meeting is to be held, or shall be sent to him at such place by telegraph, cable, wireless or other form of recorded communication, or be delivered personally or by telephone not later than the day before the day on which such meeting is to be held, but notice need not be given to any director who shall attend such meeting. A written waiver of notice, signed by the person entitled thereto, whether before or after the time of the meeting stated therein, shall be deemed equivalent to notice.

(d) Place of Meetings. The Board may hold its meetings at such place or places within or outside the State of Delaware as the Board may from time to time determine, or as shall be designated in the respective notices or waivers of notice thereof.

(e) Quorum and Manner of Acting. A majority of the total number of directors then in office shall be present in person at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting, and the vote of a majority of those directors present at any such meeting at which a quorum is present shall be necessary for the passage of any resolution or act of the Board, except as otherwise expressly required by law or these By-laws. In the absence of a quorum for any such meeting, a majority of the directors present thereat may adjourn such meeting from time to time until a quorum shall be present.

(f) Organization. At each meeting of the Board, one of the following shall act as chairman of the meeting and preside thereat, in the following order of precedence:

(i) the Chairman, if any;

(ii) the President (if a director); or

(iii) any director designated by a majority of the directors present.

The Secretary or, in the case of his absence, an Assistant Secretary, if an Assistant Secretary has been appointed and is present, or any person whom the chairman of the meeting shall appoint shall act as secretary of such meeting and keep the minutes thereof.

3.6 Directors’ Consent in Lieu of Meeting.

Any action required or permitted to be taken at any meeting of the Board may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by all of the directors then in office and such consent is filed with the minutes of the proceedings of the Board.

6

3.7 Action by Means of Conference Telephone or Similar Communications Equipment.

Any one or more members of the Board may participate in a meeting of the Board by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.

3.8 Committees.

The Board may, by resolution or resolutions passed by a majority of the whole Board, designate one or more committees, such committee or committees to have such name or names as may be determined from time to time by resolution adopted by the Board, and each such committee to consist of one or more directors of the Corporation, which to the extent provided in said resolution or resolutions shall have and may exercise the powers of the Board in the management of the business and affairs of the Corporation and may authorize the seal of the Corporation to be affixed to all papers which may require it. A majority of all the members of any such committee may determine its action and fix the time and place of its meetings, unless the Board shall otherwise provide. The Board shall have power to change the members of any such committee at any time, to fill vacancies and to discharge any such committee, either with or without cause, at any time.

ARTICLE IV

OFFICERS

4.1 Executive Officers.

The principal officers of the Corporation shall be a Chairman, if one is appointed (and any references to the Chairman shall not apply if a Chairman has not been appointed), a President, a Secretary and a Treasurer, and may include such other officers as the Board may appoint pursuant to Section 4.3 of this Article IV. Any two or more offices may be held by the same person.

4.2 Authority and Duties.

All officers, as between themselves and the Corporation, shall have such authority and perform such duties in the management of the Corporation as may be provided in these By-laws or, to the extent so provided, by the Board.

4.3 Other Officers.

The Corporation may have such other officers, agents and employees as the Board may deem necessary, including one or more Assistant Secretaries, one or more Assistant Treasurers and one or more Vice Presidents, each of whom shall hold office for such period, have such authority and perform such duties as the Board, the Chairman or the President may from time to time determine. The Board may delegate to any principal officer the power to appoint and define the authority and duties of, or remove, any such officers, agents or employees.

7

4.4 Term of Office, Resignation and Removal.

All officers shall be elected or appointed by the Board and shall hold office for such term as may be prescribed by the Board. Each officer shall hold office until his successor has been elected or appointed and qualified or until his earlier death or resignation or removal in the manner hereinafter provided. The Board may require any officer to give security for the faithful performance of his duties.

Any officer may resign at any time by giving written notice to the Board, the Chairman, the President or the Secretary. Such resignation shall take effect at the time specified therein or, if the time be not specified, at the time it is accepted by action of the Board. Except as aforesaid, the acceptance of such resignation shall not be necessary to make it effective.

All officers and agents elected or appointed by the Board shall be subject to removal at any time by the Board or by the stockholders of the Corporation with or without cause.

4.5 Vacancies.

If the office of Chairman, President, Secretary or Treasurer becomes vacant for any reason, the Board shall fill such vacancy, and if any other office becomes vacant, the Board may fill such vacancy. Any officer so appointed or elected by the Board shall serve only until such time as the unexpired term of his predecessor shall have expired, unless reelected or reappointed by the Board.

4.6 The Chairman.

The Chairman shall give counsel and advice to the Board and the officers of the Corporation on all subjects concerning the welfare of the Corporation and the conduct of its business and shall perform such other duties as the Board may from time to time determine. Unless otherwise determined by the Board, he shall preside at meetings of the Board and of the Stockholders at which he is present.

4.7 The President.

Unless otherwise determined by the Board, the President shall be the chief executive officer of the Corporation. The President shall have general and active management and control of the business and affairs of the Corporation subject to the control of the Board and shall see that all orders and resolutions of the Board are carried into effect. The President shall from time to time make such reports of the affairs of the Corporation as the Board of Directors may require and shall perform such other duties as the Board may from time to time determine.

4.8 The Secretary.

The Secretary shall, to the extent practicable, attend all meetings of the Board and all meetings of the stockholders and shall record all votes and the minutes of all proceedings in a book to be kept for that purpose. He may give, or cause to be given, notice of all meetings of the stockholders and of the Board, and shall perform such other duties as may be prescribed by the

8

Board, the Chairman or the President, under whose supervision he shall act. He shall keep in safe custody the seal of the Corporation and affix the same to any duly authorized instrument requiring it and, when so affixed, it shall be attested by his signature or by the signature of the Treasurer or, if appointed, an Assistant Secretary or an Assistant Treasurer. He shall keep in safe custody the certificate books and stockholder records and such other books and records as the Board may direct, and shall perform all other duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board, the Chairman or the President.

4.9 The Treasurer.

The Treasurer shall have the care and custody of the corporate funds and other valuable effects, including securities, shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board, taking proper vouchers for such disbursements, shall render to the Chairman, President and directors, at the regular meetings of the Board or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation and shall perform all other duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board, the Chairman or the President.

ARTICLE V

CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.

5.1 Execution of Documents.

The Board shall designate, by either specific or general resolution, the officers, employees and agents of the Corporation who shall have the power to execute and deliver deeds, contracts, mortgages, bonds, debentures, checks, drafts and other orders for the payment of money and other documents for and in the name of the Corporation, and may authorize such officers, employees and agents to delegate such power (including authority to redelegate) by written instrument to other officers, employees or agents of the Corporation. Unless so designated or expressly authorized by these By-laws, no officer, employee or agent shall have any power or authority to bind the Corporation by any contract or engagement, to pledge its credit or to render it liable pecuniarily for any purpose or amount.

5.2 Deposits.

All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation or otherwise as the Board or Treasurer, or any other officer of the Corporation to whom power in this respect shall have been given by the Board, shall select.

9

5.3 Proxies with Respect to Stock or Other Securities of Other Corporations.

The Board shall designate the officers of the Corporation who shall have authority from time to time to appoint an agent or agents of the Corporation to exercise in the name and on behalf of the Corporation the powers and rights which the Corporation may have as the holder of stock or other securities in any other corporation, and to vote or consent with respect to such stock or securities. Such designated officers may instruct the person or persons so appointed as to the manner of exercising such powers and rights, and such designated officers may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal or otherwise, such written proxies, powers of attorney or other instruments as they may deem necessary or proper in order that the Corporation may exercise its powers and rights.

ARTICLE VI

SHARES AND THEIR TRANSFER; FIXING RECORD DATE

6.1 Certificates for Shares.

Every owner of stock of the Corporation shall be entitled to have a certificate certifying the number and class of shares owned by him in the Corporation, which shall be in such form as shall be prescribed by the Board. Certificates shall be numbered and issued in consecutive order and shall be signed by, or in the name of, the Corporation by the Chairman, the President or any Vice President, and by the Treasurer (or an Assistant Treasurer, if appointed) or the Secretary (or an Assistant Secretary, if appointed). In case any officer or officers who shall have signed any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed such certificate had not ceased to be such officer or officers of the Corporation.

6.2 Record.

A record in one or more counterparts shall be kept of the name of the person, firm or corporation owning the shares represented by each certificate for stock of the Corporation issued, the number of shares represented by each such certificate, the date thereof and, in the case of cancellation, the date of cancellation. Except as otherwise expressly required by law, the person in whose name shares of stock stand on the stock record of the Corporation shall be deemed the owner thereof for all purposes regarding the Corporation.

6.3 Transfer and Registration of Stock.

The transfer of stock and certificates which represent the stock of the Corporation shall be governed by Article 8 of Subtitle 1 of Title 6 of the Delaware Code (the Uniform Commercial Code), as amended from time to time.

Registration of transfers of shares of the Corporation shall be made only on the books of the Corporation upon request of the registered holder thereof, or of his attorney

10

thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation, and upon the surrender of the certificate or certificates for such shares properly endorsed or accompanied by a stock power duly executed.

6.4 Addresses of Stockholders.

Each stockholder shall designate to the Secretary an address at which notices of meetings and all other corporate notices may be served or mailed to him, and, if any stockholder shall fail to designate such address, corporate notices may be served upon him by mail directed to him at his post-office address, if any, as the same appears on the share record books of the Corporation or at his last known post-office address.

6.5 Lost, Destroyed and Mutilated Certificates.

The holder of any shares of the Corporation shall immediately notify the Corporation of any loss, destruction or mutilation of the certificate therefor, and the Board may, in its discretion, cause to be issued to him a new certificate or certificates for such shares, upon the surrender of the mutilated certificates or, in the case of loss or destruction of the certificate, upon satisfactory proof of such loss or destruction, and the Board may, in its discretion, require the owner of the lost or destroyed certificate or his legal representative to give the Corporation a bond in such sum and with such surety or sureties as it may direct to indemnify the Corporation against any claim that may be made against it on account of the alleged loss or destruction of any such certificate.

6.6 Regulations.

The Board may make such rules and regulations as it may deem expedient, not inconsistent with these By-laws, concerning the issue, transfer and registration of certificates for stock of the Corporation.

6.7 Fixing Date for Determination of Stockholders of Record.

(a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall be not more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.

(b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which date shall be not more than 10 days after the date upon which the

11

resolution fixing the record date is adopted by the Board. If no record date has been fixed by the Board, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board is required by the Delaware Statute, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board and prior action by the Board is required by the Delaware Statute, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board adopts the resolution taking such prior action.

(c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

ARTICLE VII

SEAL

The Board may provide a corporate seal, which shall be in the form of a circle and shall bear the full name of the Corporation, the year of incorporation of the Corporation and the words and figures “Corporate Seal - Delaware.”

ARTICLE VIII

FISCAL YEAR

The fiscal year of the Corporation shall be the calendar year unless otherwise determined by the Board.

ARTICLE IX

INDEMNIFICATION AND INSURANCE

9.1 Indemnification.

(a) As provided in the Certificate, to the fullest extent permitted by the Delaware Statute as the same exists or may hereafter be amended, a director of the Corporation shall not be liable to the Corporation or its stockholders for breach of fiduciary duty as a director.

12

(b) Without limitation of any right conferred by paragraph (a) of this Section 9.1, each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she is or was a director, officer or employee of the Corporation or is or was serving at the request of the Corporation as a director, officer or employee of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an “indemnitee”), whether the basis of such proceeding is alleged action in an official capacity while serving as a director, officer or employee or in any other capacity while serving as a director, officer or employee, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware Statute, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability and loss (including attorneys’ fees, judgments, fines, excise taxes or amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer or employee and shall inure to the benefit of the indemnitee’s heirs, testators, intestates, executors and administrators; provided, however, that such person acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and with respect to a criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful; provided further, however, that no indemnification shall be made in the case of an action, suit or proceeding by or in the right of the Corporation in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such director, officer, employee or agent is liable to the Corporation, unless a court having jurisdiction shall determine that, despite such adjudication, such person is fairly and reasonably entitled to indemnification; provided further, however, that, except as provided in Section 9.1(c) of this Article IX with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) initiated by such indemnitee was authorized by the Board of Directors of the Corporation. The right to indemnification conferred in this Article IX shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an “advancement of expenses”); provided, however, that, if the Delaware Statute requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an “undertaking”), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a “final adjudication”) that such indemnitee is not entitled to be indemnified for such expenses under this Section or otherwise.

(c) If a claim under Section 9.1 (b) of this Article IX is not paid in full by the Corporation with 60 days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit

13

brought by the Corporation to recover an advancement of expenses pursuant to the terms of any undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met the applicable standard of conduct set forth in the Delaware Statute. Neither the failure of the Corporation (including the Board, independent legal counsel, or the stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware Statute, nor an actual determination by the Corporation (including the Board, independent legal counsel or the stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Section or otherwise shall be on the Corporation.

(d) The rights to indemnification and to the advancement of expenses conferred in this Article IX shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Certificate, agreement, vote of stockholders or disinterested directors or otherwise.

9.2 Insurance.

The Corporation may purchase and maintain insurance, at its expense, to protect itself and any person who is or was a director, officer, employee or agent of the Corporation or any person who is or was serving at the request of the Corporation as a director, officer, employer or agent of another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware Statute.

ARTICLE X

AMENDMENT

Any by-law (including these By-laws) may be adopted, amended or repealed by the vote of the holders of a majority of the shares then entitled to vote or by the stockholders’ written consent pursuant to Section 2.10 of Article II, or by the vote of the Board or by the directors’ written consent pursuant to Section 3.6 of Article III.

*    *    *    *    *

14

EX-3.15

Exhibit 3.15

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

EASTMAN RESINS, INC.

Eastman Resins, Inc., a Delaware corporation (the “Corporation”), does hereby certify that:

FIRST: The present name of the Corporation is “Eastman Resins, Inc.” The Corporation was originally incorporated by the filing of its original Certificate of Incorporation with the Secretary of State of the State of Delaware on January 6, 1958 under the name “Krumbhaar Chemicals, Inc.” The Corporation’s original Certificate of Incorporation was amended on April 23, 1962; April 21, 1965; May 11, 1966; June 24, 1968; April 23, 1970; May 1, 1972; May 10, 1973; May 6, 1976; April 29, 1981; May 6, 1987; May 24, 1993; February 9, 2000; and July 1, 2002. A certificate of merger was filed January 4, 1960. A certificate of ownership was filed December 31, 1980 and June 9, 1999. A certificate of change of registered agent was filed on April 19, 2002 (collectively, the “Certificate of Incorporation”).

SECOND: This Amended and Restated Certificate of Incorporation (the “Restated Certificate”) amends and restates in its entirety the present Certificate of Incorporation of the Corporation, and has been approved in accordance with Sections 141, 228, 242 and 245 of the General Corporation Law of the State of Delaware.

THIRD: This Restated Certificate shall become effective immediately upon its filing with the Secretary of State of the State of Delaware.

FOURTH: Upon the filing of this Restated Certificate with the Secretary of State of the State of Delaware, the Certificate of Incorporation of the Corporation shall be amended and restated in its entirety to read as set forth on Exhibit A attached hereto.

*    *    *    *    *

IN WITNESS WHEREOF, the undersigned, being the Assistant Secretary of the Corporation hereinabove named, DOES HEREBY CERTIFY, under penalties of perjury, that the facts herein above stated are truly set forth and, accordingly, such officer has hereunto set his hand as of August 2, 2004.

/s/ Matthew Constantino
Name:	Matthew Constantino
Title:	Assistant Secretary

Amended and Restated Certificate of Incorporation

EXHIBIT A

AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

LAWTER INTERNATIONAL INC.

ARTICLE FIRST

The name of the corporation (the “Corporation”) is Lawter International Inc.

ARTICLE SECOND

The address of the registered office of the Corporation in the State of Delaware is 9 East Loockerman Street, Suite 1B, City of Dover, County of Kent, 19901. The name of the registered agent of the Corporation at such address is National Registered Agents, Inc.

ARTICLE THIRD

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “DGCL”).

ARTICLE FOURTH

The total number of shares of all classes of stock that the Corporation shall have authority to issue is one hundred (100) shares, all of which shall be of one class, shall be designated Common Stock and shall have a par value of $0.01 per share.

ARTICLE FIFTH

The number of directors of the Corporation shall be such as from time to time shall be fixed in the manner provided in the By-laws of the Corporation. The election of directors of the Corporation need not be by ballot unless the By-laws so require.

ARTICLE SIXTH

A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived any improper personal benefit. If the DGCL is amended after the date of incorporation of the Corporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL, as so amended.

Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.

1

ARTICLE SEVENTH

For the management of the business and for the conduct of the affairs of the Corporation, and in further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders, it is further provided:

(a) In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized and empowered:

(i) to make, alter, amend or repeal the By-laws in any manner not inconsistent with the laws of the State of Delaware or this Certificate of Incorporation;

(ii) without the assent or vote of the stockholders, to authorize and issue securities and obligations of the Corporation, secured or unsecured, and to include therein such provisions as to redemption, conversion or other terms thereof as the Board of Directors in its sole discretion may determine, and to authorize the mortgaging or pledging, as security therefor, of any property of the Corporation, real or personal, including after-acquired property;

(iii) to determine whether any, and if any, what part, of the net profits of the Corporation or of its surplus shall be declared in dividends and paid to the stockholders, and to direct and determine the use and disposition of any such net profits or such surplus; and

(iv) to fix from time to time the amount of net profits of the Corporation or of its surplus to be reserved as working capital or for any other lawful purpose.

In addition to the powers and authorities herein or by statute expressly conferred upon it, the Board of Directors may exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the laws of the State of Delaware, of this Certificate of Incorporation and of the By-laws of the Corporation.

(b) Any director or any officer elected or appointed by the stockholders or by the Board of Directors may be removed at any time in such manner as shall be provided in the By-laws of the Corporation.

(c) From time to time any of the provisions of this Certificate of Incorporation may be altered, amended or repealed, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner and at the time prescribed by said laws, and all rights at any time conferred upon the stockholders of the Corporation by this Certificate of Incorporation are granted subject to the provisions of this paragraph (c).

ARTICLE EIGHTH

Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way

2

of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of the Delaware General Corporation Law or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of the Delaware General Corporation Law order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree on any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation.

ARTICLE NINTH

The Corporation elects not to be governed by Section 203 of the DGCL.

*    *    *    *    *

3

EX-3.16

Exhibit 3.16

BY-LAWS

OF

LIPSTICK ACQUISITION CORP.

(hereinafter called the “Corporation”)

ARTICLE I

OFFICES

Section 1. Registered Office. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware.

Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine.

ARTICLE II

MEETINGS OF STOCKHOLDERS

Section 1. Place of Meetings. Meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware as shall be designated from time to time by the Board of Directors.

Section 2. Annual Meetings. The Annual Meetings of Stockholders for the election of directors shall be held on such date and at such time as shall be designated from time to time by the Board of Directors. Any other proper business may be transacted at the Annual Meeting of Stockholders.

Section 3. Special Meetings. Unless otherwise required by law or by the certificate of incorporation of the Corporation, as amended and restated from time to time (the “Certificate of Incorporation”), Special Meetings of

Stockholders, for any purpose or purposes, may be called by either (i) the Chairman, if there be one, or (ii) the President, (iii) any Vice President, if there be one, (iv) the Secretary or (v) any Assistant Secretary, if there be one, and shall be called by any such officer at the request in writing of (i) the Board of Directors, (ii) a committee of the Board of Directors that has been duly designated by the Board of Directors and whose powers and authority include the power to call such meetings or (iii) stockholders owning a majority of the capital stock of the Corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. At a Special Meeting of Stockholders, only such business shall be conducted as shall be specified in the notice of meeting (or any supplement thereto).

Section 4. Notice. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise required by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting.

Section 5. Adjournments. Any meeting of the stockholders may be adjourned from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

2

Section 6. Quorum. Unless otherwise required by law or the Certificate of Incorporation, the holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. A quorum, once established, shall not be broken by the withdrawal of enough votes to leave less than a quorum. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, in the manner provided in Section 5, until a quorum shall be present or represented.

Section 7. Voting. Unless otherwise required by law, the Certificate of Incorporation or these By-laws, any question brought before any meeting of stockholders, other than the election of directors, shall be decided by the vote of the holders of a majority of the total number of votes of the capital stock represented and entitled to vote thereat, voting as a single class. Unless otherwise provided in the Certificate of Incorporation, and subject to Section 5 of Article V hereof, each stockholder represented at a meeting of stockholders shall be entitled to cast one vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy but no proxy shall be voted on or after three years from its date, unless such proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in such officer’s discretion, may require that any votes cast at such meeting shall be cast by written ballot.

3

Section 8. Consent of Stockholders in Lieu of Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required or permitted to be taken at any Annual or Special Meeting of Stockholders of the Corporation, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required by this Section 8 to the Corporation, written consents signed by a sufficient number of holders to take action are delivered to the Corporation by delivery to its registered office in the state of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Corporation as provided above in this section.

4

Section 9. List of Stockholders Entitled to Vote. The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present.

Section 10. Stock Ledger. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 9 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.

ARTICLE III

DIRECTORS

Section 1. Number and Election of Directors. The Board of Directors shall consist of not less than one nor more than fifteen members, the exact number of which shall initially be fixed by the Incorporator and thereafter from time to time by the Board of Directors. Except as provided in Section 2 of this Article III, directors shall be elected by a plurality of the votes cast at the

5

Annual Meetings of Stockholders and each director so elected shall hold office until the next Annual Meeting of Stockholders and until such director’s successor is duly elected and qualified, or until such director’s earlier death, resignation or removal. Any director may resign at any time upon written notice to the Corporation. Directors need not be stockholders.

Section 2. Vacancies. Unless otherwise required by law or the Certificate of Incorporation, vacancies arising through death, resignation, removal, an increase in the number of directors or otherwise may be filled only by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and qualified, or until their earlier death, resignation or removal.

Section 3. Duties and Powers. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these By-Laws required to be exercised or done by the stockholders.

Section 4. Meetings. The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chairman, if there be one, the President, or by any director. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone or telegram on twenty-four (24) hours’ notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances.

6

Section 5. Quorum. Except as otherwise required by law or the Certificate of Incorporation, at all meetings of the Board of Directors, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present.

Section 6. Actions by Written Consent. Unless otherwise provided in the Certificate of Incorporation, or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.

Section 7. Meetings by Means of Conference Telephone. Unless otherwise provided in the Certificate of Incorporation, members of the Board of Directors of the Corporation, or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this Section 7 shall constitute presence in person at such meeting.

7

Section 8. Committees. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the Corporation. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. In the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any absent or disqualified member. Any committee, to the extent permitted by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it. Each committee shall keep regular minutes and report to the Board of Directors when required.

Section 9. Compensation. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director, payable in cash or securities. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.

8

Section 10. Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because the director or officer’s vote is counted for such purpose if (i) the material facts as to the director or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to the director or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

ARTICLE IV

OFFICERS

Section 1. General. The officers of the Corporation shall be chosen by the Board of Directors and shall be a President, a Secretary and a

9

Treasurer. The Board of Directors, in its discretion, also may choose a Chairman of the Board of Directors (who must be a director) and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law or the Certificate of Incorporation. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors, need such officers be directors of the Corporation.

Section 2. Election. The Board of Directors, at its first meeting held after each Annual Meeting of Stockholders (or action by written consent of stockholders in lieu of the Annual Meeting of Stockholders), shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier death, resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the affirmative vote of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers of the Corporation shall be fixed by the Board of Directors.

Section 3. Voting Securities Owned by the Corporation. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice President or any other officer authorized to do so by the Board of Directors and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities

10

and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons.

Section 4. Chairman of the Board of Directors. The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board of Directors shall be the Chief Executive Officer of the Corporation, unless the Board of Directors designates the President as the Chief Executive Officer, and, except where by law the signature of the President is required, the Chairman of the Board of Directors shall possess the same power as the President to sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. During the absence or disability of the President, the Chairman of the Board of Directors shall exercise all the powers and discharge all the duties of the President. The Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers as may from time to time be assigned by these By-Laws or by the Board of Directors.

Section 5. President. The President shall, subject to the control of the Board of Directors and, if there be one, the Chairman of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so

11

authorized by these By-Laws, the Board of Directors or the President. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the President shall preside at all meetings of the stockholders and the Board of Directors. If there be no Chairman of the Board of Directors, or if the Board of Directors shall otherwise designate, the President shall be the Chief Executive Officer of the Corporation. The President shall also perform such other duties and may exercise such other powers as may from time to time be assigned to such officer by these By-Laws or by the Board of Directors.

Section 6. Vice Presidents. At the request of the President or in the President’s absence or in the event of the President’s inability or refusal to act (and if there be no Chairman of the Board of Directors), the Vice President, or the Vice Presidents if there is more than one in the order designated by the Board of Directors), shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Chairman of the Board of Directors and no Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President.

Section 7. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for committees of the Board of Directors when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders

12

and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board of Directors or the President, under whose supervision the Secretary shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest to the affixing by such officer’s signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be.

Section 8. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with

13

such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of the Treasurer and for the restoration to the Corporation, in case of the Treasurer’s death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Treasurer’s possession or under the Treasurer’s control belonging to the Corporation.

Section 9. Assistant Secretaries. Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of the Secretary’s disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary.

Section 10. Assistant Treasurers. Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the President, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of the Treasurer’s disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of the office of Assistant Treasurer and for the restoration to the Corporation, in case of the Assistant Treasurer’s death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in the Assistant Treasurer’s possession or under the Assistant Treasurer’s control belonging to the Corporation.

14

Section 11. Other Officers. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers.

ARTICLE V

STOCK

Section 1. Form of Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed, in the name of the Corporation (i) by the Chairman of the Board of Directors, the President or a Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by such stockholder in the Corporation.

Section 2. Signatures. Any or all of the signatures on a certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.

Section 3. Lost Certificates. The Board of Directors may direct a new certificate to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate, the Board of

15

Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or the owner’s legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed or the issuance of such new certificate.

Section 4. Transfers. Stock of the Corporation shall be transferable in the manner prescribed by law and in these BY-Laws. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by such person’s attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be cancelled before a new certificate shall be issued. No transfer of stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred.

Section 5. Record Date.

(a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.

16

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; providing, however, that the Board of Directors may fix a new record date for the adjourned meeting.

(b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in this State, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolutions taking such prior action.

(c) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any

17

rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

Section 6. Record Owners. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by law.

ARTICLE VI

NOTICES

Section 1. Notices. Whenever written notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at such person’s address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Written notice may also be given personally or by telegram, telex or cable.

18

Section 2. Waivers of Notice. Whenever any notice is required by law, the Certificate of Incorporation or these By-Laws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed, by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting, present in person or represented by proxy, shall constitute a waiver of notice of such meeting, except where the person attends the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened.

ARTICLE VII

GENERAL PROVISIONS

Section 1. Dividends. Dividends upon the capital stock of the Corporation, subject to the requirements of the DGCL and the provisions of the Certificate of Incorporation if any, may be declared by the Board of Directors at any regular or special meeting of the Board of Directors (or any action by written consent in lien thereof in accordance with Section 6 of Article III hereof), and may be paid in cash, in property, or in shares of the Corporation’s capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve.

Section 2. Disbursements. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.

19

Section 3. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.

Section 4. Corporate Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal, Delaware”. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.

ARTICLE VIII

INDEMNIFICATION

Section 1. Power to Indemnify in Actions Suits or Proceedings other than Those by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director or officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in

20

good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’s conduct was unlawful.

Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation. Subject to Section 3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnify for such expenses which the Court of Chancery or such other court shall deem proper.

Section 3. Authorization of Indemnification. Any indemnification under this Article VIII (unless ordered by a court) shall be made by the

21

Corporation only as authorized in the specific case upon a determination that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 1 or Section 2 of this Article VIII, as the case may be. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (iv) by the stockholders. Such determination shall be made, with respect to former directors and officers, by any person or persons having the authority to act on the matter on behalf of the Corporation. To the extent, however, that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.

Section 4. Good Faith Defined. For purposes of any determination under Section 3 of this Article VIII, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person’s conduct was unlawful, if such person’s action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, or on

22

the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The term “another enterprise” as used in this Section 4 shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. The provisions of this Section 4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be.

Section 5. Indemnification by a Court. Notwithstanding any contrary determination in the specific case under Section 3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director or officer may apply to the Court of Chancery in the State of Delaware for indemnification to the extent otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standards of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be. Neither a contrary determination in the specific case under Section 3 of this Article VIII nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application.

23

Section 6. Expenses Payable in Advance. Expenses incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article VIII.

Section 7. Nonexclusivity of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by or granted pursuant to this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation, any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of the persons specified in Sections 1 and 2 of this Article VIII shall be made to the fullest extent permitted by law. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Section 1 or 2 of this Article VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the General Corporation Law of the State of Delaware, or otherwise.

Section 8. Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the

24

request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article VIII.

Section 9. Certain Definitions. For purposes of this Article VIII, references to “the Corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article VIII, references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article VIII.

25

Section 10. Survival of Indemnification and Advancement of Expenses. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.

Section 11. Limitation on Indemnification. Notwithstanding anything contained in this Article VIII to the contrary except for proceedings to enforce rights to indemnification (which shall be governed by Section 5 hereof), the Corporation shall not be obligated to indemnify any director or officer in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation.

Section 12. Indemnification of Employees and Agents. The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VIII to directors and officers of the Corporation.

ARTICLE IX

AMENDMENTS

Section 1. Amendments. These By-Laws may be altered, amended or repealed, in whole or in part, or new By-Laws may be adopted by the stockholders or by the Board of Directors, provided, however, that notice of such alteration, amendment, repeal or adoption of new By-Laws be contained in the

26

notice of such meeting of stockholders or Board of Directors as the case may be. All such amendments must be approved by either the holders of a majority of the outstanding capital stock entitled to vote thereon or by a majority of the entire Board of Directors then in office.

Section 2. Entire Board of Directors. As used in this Article IX and in these By-Laws generally, the term “entire Board of Directors” means the total number of directors which the Corporation would have if there were no vacancies.

27

EX-3.17

Exhibit 3.17

BORDEN CHEMICAL INTERNATIONAL, INC.

CERTIFICATE OF INCORPORATION

FIRST: The name of this corporation shall be: Borden Chemical International, Inc.

SECOND: Its registered office in the State of Delaware is to be located at 2711 Centerville Road, Suite 400, in the City of Wilmington, County of New Castle and its registered agent at such address is Corporation Service Company.

THIRD: The purpose or purposes of the corporation shall be:

To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

FOURTH: The total number of shares of stock which this corporation is authorized to issue is: five hundred (500) shares of Common Stock, par value $0.01 per share.

FIFTH: The name and address of the incorporator is as follows: Patricia A. Heslep, 180 East Broad Street, Columbus, Ohio 43215.

SIXTH: The Board of Directors shall have the power to adopt, amend or repeal the by-laws.

SEVENTH: No director shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law, (i) for breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article Seventh shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment.

IN WITNESS WHEREOF, the undersigned, being the incorporator herein before named, has executed signed and acknowledged this certificate of incorporation this 7^th day of January, 2005.

/s/ Patricia A. Heslep

Patricia A. Heslep, Incorporator

EX-3.18

Exhibit 3.18

BORDEN CHEMICAL INTERNATIONAL, INC.

BY-LAWS

ARTICLE I

MEETINGS OF STOCKHOLDERS

Section 1. Place of Meeting and Notice. Meetings of the stockholders of the Corporation shall be held at such place either within or without the State of Delaware as the Board of Directors may determine.

Section 2. Annual and Special Meetings. Annual meetings of stockholders shall be held, at a date, time and place fixed by the Board of Directors and stated in the notice of meeting, to elect a Board of Directors and to transact such other business as may properly come before the meeting. Special meetings of the stockholders may be called by the Chairman or President for any purpose and shall be called by the Chairman, President or Secretary if directed by the Board of Directors or requested in writing by the holders of not less than 25% of the capital stock of the Corporation. Each such stockholder request shall state the purpose of the proposed meeting.

Section 3. Notice. Except as otherwise provided by law, at least 10 and not more than 60 days before each meeting of stockholders, written notice of the time, date and place of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder.

Section 4. Quorum. At any meeting of stockholders, the holders of record, present in person or by proxy, of a majority of the Corporation’s issued and outstanding capital stock shall constitute a quorum for the transaction of business, except as otherwise provided by law. In the absence of a quorum, any officer entitled to preside at or to act as secretary of the meeting shall have power to adjourn the meeting from time to time until a quorum is present.

Section 5. Voting. Except as otherwise provided by law, all matters submitted to a meeting of stockholders shall be decided by vote of the holders of record, present in person or by proxy, of a majority of the Corporation’s issued and outstanding capital stock entitled to vote thereon.

ARTICLE II

DIRECTORS

Section 1. Number, Election and Removal of Directors. The number of Directors that shall constitute the Board of Directors shall be not less than one nor more than fifteen. The Directors shall be elected by stockholders at their annual meeting. Vacancies and newly created directorships resulting from any increase in the number of Directors may be filled by a majority of the Directors then in office, although less than a quorum, or by the sole remaining Director or by the stockholders. A Director may be removed with or without cause by the stockholders.

Section 2. Meetings. Regular meetings of the Board of Directors shall be held at such times and places as may from time to time be fixed by the Board of Directors or as may be specified in a notice of meeting. Special meetings of the Board of Directors may be held at any time upon the call of the Chairman or President and shall be called by the Chairman, President or Secretary if directed by the Board of Directors.

Section 3. Notice. At least one business day before each regular or special meeting of the Board of Directors, written or telephonic notice of the time, date and place of the meeting and the purpose or purposes for which the meeting is called, shall be given to each Director. Written notice shall be deemed to have been given to a Director in accordance with the preceding sentence when such notice is sent by facsimile transmission or otherwise delivered to the principal place of business of each such Director within the time restrictions as set forth in this Section herein.

Section 4. Quorum. A majority of the total number of Directors shall constitute a quorum for the transaction of business. If a quorum is not present at any meeting of the Board of Directors, the Directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until such a quorum is present. Except as otherwise provided by law, the Certificate of Incorporation of the Corporation, these By-Laws or any contract or agreement to which the Corporation is a party, the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors.

Section 5. Committees of Directors. The Board of Directors may, by resolution adopted by a majority of the whole Board, designate one or more committees, including, without limitation, an Executive Committee, to have and exercise such power and authority as the Board of Directors shall specify. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may unanimously appoint another Director to act at the meeting in place of any such absent or disqualified member.

ARTICLE III

OFFICERS

The officers of the Corporation shall consist of a President, a Secretary, a Treasurer, and may consist of Vice Presidents, Assistant Secretaries, Assistant Treasurers and such other additional officers with such titles as the Board of Directors shall determine, all of whom shall be chosen by and shall serve at the pleasure of the Board of Directors. All officers shall be subject to the supervision and direction of the Board of Directors. The authority, duties or responsibilities of any officer of the Corporation may be suspended by the Chairman or President with or without cause. Any officer elected or appointed by the Board of Directors may be removed by the Board of Directors with or without cause. In addition to the powers and duties set forth below, such officers shall have the usual powers and shall perform all the usual duties incident to their respective offices.

2

(a) President. The President shall be the chief executive officer of the Corporation; he shall preside at all meetings of the stockholders and of the Board of Directors; he shall have the management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect.

(b) Vice Presidents. During the absence or disability of the President, the Vice President, or if there are more than one, the Executive Vice President, shall have all the powers and function of the President. Each Vice President shall perform such other duties as the Board of Directors shall prescribe.

(c) Secretary. The Secretary shall: attend all meetings of the Board of Directors and all meetings of the stockholders; record all votes and minutes of all proceedings in a book to be kept for that purpose; give or cause to be given notice of all meetings of stockholders and of the special meetings of the Board of Directors; keep in safe custody the seal of the Corporation and affix it to any instrument when authorized by the Board of Directors; when required, prepare a list of stockholders or cause to be prepared and available at each meeting of stockholders entitled to vote thereat, indicating the number of shares of each respective class held by each; keep all the documents and records of the Corporation as required by law or otherwise in a proper and safe manner; and perform such other duties as may be prescribed by the Board of Directors.

(d) Assistant Secretaries. During the absence of disability of the Secretary, the Assistant Secretary, or if there are more than one, the one so designated by the Secretary or by the Board of Directors, shall have all the powers and functions of the Secretary.

(e) Treasurer. The Treasurer shall: have the custody of the corporate funds and securities; keep full and accurate accounts of receipts and disbursements in the corporate books; deposit all money and other valuables in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors; disburse the funds of the Corporation as may be ordered or authorized by the Board of Directors and preserve proper vouchers for such disbursements; render to the Chairman, President and Board of Directors at the regular meetings of the Board of Directors, or whenever they require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation; render a full financial report at the annual meetings of the stockholders if so requested; be furnished by all corporate officers and agents at his request, with such reports and statements as he may require as to all financial transactions of the Corporation; and perform such other duties as are given to him by the By-Laws or as from time to time are assigned to him by the Board of Directors or the President.

3

(f) Assistant Treasurers. During the absence or disability of the Treasurer, the Assistant Treasurer, or if there are more than one, the one so designated by the Secretary or by the Board of Directors, shall have all the powers and functions of the Treasurer.

ARTICLE IV

INDEMNIFICATION

To the fullest extent permitted by the Delaware General Corporation Law, the Corporation shall indemnify any current or former Director or officer of the Corporation and may, at the discretion of the Board of Directors, indemnify any current or former employee or agent of the Corporation against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with any threatened, pending or completed action, suit or proceeding brought by or in the right of the Corporation or otherwise, to which he or she was or is a party by reason of his or her current or former position with the Corporation or by reason of the fact that he or she is or was serving, at the request of the Corporation, as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise.

ARTICLE V

GENERAL PROVISIONS

Section 1. Notices. Whenever any statute, the Certificate of Incorporation or these By-Laws require notice to be given to any Director or stockholder, such notice may be given in writing by mail, addressed to such Director or stockholder at his or her address as it appears in the records of the Corporation, with postage thereon prepaid. Such notice shall be deemed to have been given when it is deposited in the United States mail. Notice to Directors may also be given by telegram or by facsimile transmission.

Section 2. Fiscal Year. The fiscal year of the Corporation shall be fixed by the Board of Directors.

4

EX-3.19

Exhibit 3.19

CERTIFICATE OF INCORPORATION

OF

BAKELITE NORTH AMERICA HOLDING COMPANY

ARTICLE 1

The name of the corporation is:

Bakelite North America Holding Company

ARTICLE 2

The address of the corporation’s registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the corporation’s registered agent at such address is The Corporation Trust Company.

ARTICLE 3

The nature of the business or the objects or purposes to be conducted or promoted by the corporation are to engage in any part of the world and in any capacity in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware as now in force or as hereafter amended and to possess, exercise and enjoy all the powers, rights and privileges granted by the General Corporation Law of the State of Delaware, including all powers, rights and privileges related, directly or indirectly, to the objects of the corporation.

ARTICLE 4

The total number of shares of stock which the corporation shall have authority to issue is 3,000, all of which shall be common stock having no par value per share.

ARTICLE 5

The name and mailing address of the sole incorporator are as follows:

NAME	MAILING ADDRESS
Robert J. Willson, Jr.	Baker & McKenzie
	130 East Randolph Drive, Suite 3500
	Chicago, Illinois 60601

- 2 -

ARTICLE 6

The corporation shall have perpetual existence.

ARTICLE 7

In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized to adopt, amend or repeal the by-laws of the corporation; provided, however, that such authorization shall not divest the stockholders of the power or limit the power of the stockholders to adopt, amend or repeal the by-laws of the corporation.

ARTICLE 8

Meetings of stockholders may be held within or without the State of Delaware, as the by-laws of the corporation may provide. The books of the corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the corporation. Election of directors need not be by written ballot unless the by-laws of the corporation so provide.

ARTICLE 9

The corporation shall have the power to indemnify its directors, officers, employees or agents to the full extent permitted by the General Corporation Law of the State of Delaware as now in force or hereafter amended.

ARTICLE 10

No director shall be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except as provided for in Section 102(b)(7) of the General Corporation Law of the State of Delaware as now in force or as hereafter amended. Any repeal or modification of this Article 10 shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification.

ARTICLE 11

Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the

- 3 -

application of any receiver or receivers appointed for this corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation.

ARTICLE 12

The corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation in the manner now or hereafter prescribed by the laws of the State of Delaware, and all rights and powers conferred upon stockholders herein are granted subject to this reservation.

I, THE UNDERSIGNED, being the sole incorporator, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do hereby make this certificate, declaring and certifying that this is my act and deed and the facts stated herein are true, and accordingly have hereunto set my hand on January 29, 1998.

/s/ Robert J. Willson, Jr.

Robert J. Willson, Jr.

Sole Incorporator

EX-3.20

Exhibit 3.20

BY-LAWS

OF

BAKELITE NORTH AMERICA HOLDING COMPANY

a Delaware corporation

ARTICLE I

OFFICES

SECTION 1.1. Registered Office. The registered office of the corporation in the State of Delaware shall be located at 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the corporation’s registered agent at such address shall be The Corporation Trust Company. The registered office and registered agent of the corporation may be changed from time to time by action of the registered agent or the board of directors in accordance with the laws of the State of Delaware.

SECTION 1.2. Other Offices. The corporation may also have offices at such other places both within or without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require.

ARTICLE II

MEETINGS OF STOCKHOLDERS

SECTION 2.1. Annual Meeting. The annual meeting of the stockholders shall be held each year on the second Friday in March, commencing with the year 1999, at the corporation’s principal place of business or at such other time and place as may be determined by the board of directors or the president, for the purposes of electing directors and for the transaction of such other business as may come before the meeting. If such day should fall on a legal holiday, the meeting shall be held on the next succeeding business day that is not a legal holiday.

If the election of directors shall not be held on the day hereinbefore designated for the annual meeting, or at any adjournment thereof, the board of directors shall cause such election to be held at a special meeting of stockholders as soon thereafter as convenient.

SECTION 2.2. Special Meetings. Except as otherwise prescribed by statute, special meetings of the stockholders for any purpose or purposes may be called and the location thereof designated by the board of directors or the president.

SECTION 2.3. Place of Meetings. Each meeting of the stockholders shall be held at the principal executive office of the corporation, unless the board of directors by resolution,

- 2 -

or the president, designate any other place, within or without the State of Delaware, as the place of such meeting.

SECTION 2.4. Notice. Written or printed notice stating the place, date and time of each annual or special meeting of the stockholders and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder entitled to vote thereat not less than 10 days nor more than 60 days, unless otherwise provided by statute, before the date of the meeting. Whenever under the provisions of the statute, the certificate of incorporation or these by-laws notice is required to be given to any stockholder, director or member of any committee designated by the board of directors, it shall not be construed to require personal delivery and such notice may be given in writing by depositing it in the United States mails, air mail or first class, postage prepaid, by telefax, or by express overnight courier addressed to such stockholder, director or member either at the address of such stockholder, director or member as it appears on the books of the corporation or, in the case of such a director or member, at his or her business address; and such notice shall be deemed to be given at the time when it is thus deposited in the United States mails delivered by telefax over the telephone lines, or delivered to the overnight courier service, as the case may be. Such requirement for notice shall be deemed satisfied, except in the case of a stockholder meeting with respect to which written notice is mandatorily required by law, if actual notice is received orally or in writing by the person entitled thereto as far in advance of the event with respect to which notice is given as the minimum notice period required by law or these by-laws.

SECTION 2.5. Waiver of Notice. Whenever any notice is required to be given under the provisions of the statute, the certificate of incorporation, or these by-laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before, at or after the time stated therein, shall be deemed equivalent thereto. Attendance by a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or committee of directors need be specified in any written waiver of notice unless so required by statute, the certificate of incorporation or these by-laws.

SECTION 2.6. Stockholders List. At least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order, and showing the address of each such stockholder and the number of shares registered in the name of each such stockholder, shall be prepared by the officer having charge of the stock ledger. Such list shall be open to examination of any stockholder of the corporation during ordinary business hours, for any purpose germane to the meeting, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine

- 3 -

the stock ledger, the list required by this section or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders.

SECTION 2.7. Quorum. The holders of a majority of the outstanding shares of capital stock entitled to vote, present in person or represented by proxy, shall be requisite for, and shall constitute, a quorum at all meetings of the stockholders of the corporation for the transaction of business, except as otherwise provided by statute, the certificate of incorporation or these by-laws. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat present in person or represented by proxy shall have power to adjourn the meeting from time to time until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified.

SECTION 2.8. Adjourned Meetings. When a meeting is adjourned to another time and place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

SECTION 2.9. Vote Required. When a quorum is present, the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the question is one upon which by express provisions of an applicable law or of the certificate of incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question.

SECTION 2.10. Voting Rights. Except as otherwise provided by these by-laws, or by the General Corporation Law of the State of Delaware or by the certificate of incorporation of the corporation or any amendments thereto and subject to Section 7.6 of ARTICLE VII hereof, every stockholder shall be entitled to one vote for each share of common stock held by such stockholder.

SECTION 2.11. Proxies. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. At each meeting of the stockholders, and before any voting commences, all proxies filed at or before the meeting shall be submitted to and examined by the secretary or a person designated by the secretary, and no shares may be represented or voted under a proxy that has been found to be invalid or irregular.

- 4 -

SECTION 2.12. Voting of Certain Shares. Shares standing in the name of another corporation, domestic or foreign, and entitled to vote may be voted by such officer, agent, or proxy as the by-laws of such corporation may prescribe or, in the absence of such provision, as the board of directors of such corporation may determine. Shares standing in the name of a deceased person, a minor or an incompetent and entitled to vote may be voted by his or her administrator, executor, guardian or conservator, as the case may be, either in person or by proxy. Shares standing in the name of a trustee, receiver or pledgee and entitled to vote may be voted by such trustee, receiver or pledgee either in person or by proxy as provided by Delaware law.

SECTION 2.13. Action by Written Consent. Any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken and bearing the dates of signature of the stockholders who signed the consent or consents, shall be signed by the holders of outstanding capital stock of the corporation having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in the state of Delaware, the principal place of business of the corporation, or an officer or agent of the corporation having custody of the book or books in which proceedings of meetings of the stockholders are recorded. Delivery made to the registered office of the corporation shall be by hand or by certified or registered mail, return receipt requested provided, however, that no consent or consents delivered by certified or registered mail shall be deemed delivered until such consent or consents are actually received at the registered office. All consents properly delivered in accordance with this section shall be deemed to be recorded when so delivered. No written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered to the corporation as required by this section, written consents signed by the holders of a sufficient number of shares to take such corporate action are so recorded. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Any action taken pursuant to such written consent or consents of the stockholders shall have the same force and effect as if taken by the stockholders at a meeting thereof.

SECTION 2.14. Treasury Stock. Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by such corporation, shall not be entitled to vote nor counted for quorum purposes. Nothing in this section shall be construed to limit the right of this corporation to vote shares of its own stock held by it in a fiduciary capacity.

- 5 -

ARTICLE III

DIRECTORS

SECTION 3.1. Number, Election and Term of Office. The board of directors of the corporation shall consist of three members. The number of directors may be changed from time to time by amendment to these by-laws. A decrease in the number of directors does not shorten an incumbent director’s term.

Directors shall be elected by the stockholders at each annual meeting. Each director shall hold office until a successor is duly elected and qualified, or until his or her earlier death, resignation or removal as hereinafter provided.

SECTION 3.2. Management of Affairs of Corporation. The property and business of the corporation shall be managed by or under the direction of its board of directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by stockholders. In case the corporation shall transact any business or enter into any contract with a director, or with any firm of which one or more of its directors are members, or with any trust, firm, corporation or association in which any director is a stockholder, director or officer or otherwise interested, the officers of the corporation and directors in question shall be severally under the duty of disclosing all material facts as to their interest to the remaining directors promptly if and when such interested officers or such interested directors in question shall become advised of the circumstances. In the case of continuing relationships in the normal course of business such disclosure shall be deemed effective, when once given, as to all transactions and contracts subsequently entered into.

SECTION 3.3 Resignations and Vacancies. Any director may resign at any time by giving written notice to the board of directors or to the president. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. If, at any other time than the annual meeting of the stockholders, any vacancy occurs in the board of directors caused by resignation, death, retirement, disqualification or removal from office of any director or otherwise, or any new directorship is created by an increase in the authorized number of directors, a majority of the directors then in office, may choose a successor, or fill the newly created directorship, and the director so chosen shall hold office until the next annual election of directors by the stockholders and until his or her successor shall be duly elected and qualified, unless sooner displaced.

SECTION 3.4. Removal. A director or the entire board of directors may be removed, with or without cause, by the affirmative vote of the holders of a majority of the shares then entitled to vote at an election of directors. If less than the entire board is to be removed and the certificate of incorporation provides for cumulative voting, no director may be removed without cause if the votes cast against his or her removal would be sufficient to elect

- 6 -

him or her if then cumulatively voted at an election of the entire board of directors, or, if there be classes of directors, at an election of the class of directors of which he or she is a part. Whenever the holders of any class or series are entitled to elect one or more directors by the provisions of the certificate of incorporation, the provisions of this section shall apply, in respect to the removal without cause of a director or directors so elected, to the vote of the holders of the outstanding shares of that class or series and not to the vote of the outstanding shares as a whole.

SECTION 3.5. Annual Meetings. The annual meeting of the board of directors shall be held, without other notice than this by-law, immediately after, and at the same place as, the annual meeting of the stockholders.

SECTION 3.6. Special Meetings. Special meetings of the board of directors may be called by the president and shall be called by the secretary or any other officer at the request of a majority of the directors, to be held at such time and place, either within or without the State of Delaware, as shall be designated by the call and specified in the notice of such meeting. Notice thereof shall be given as provided in Section 3.7 of these by-laws.

SECTION 3.7. Notice of Meetings. Regular meetings, other than the annual meeting, of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by resolution of the board. Special meetings of the board of directors may be called on notice to each director, either personally, by telephone, by mail or by telefax not less than twenty-four (24) hours’ before the date of the meeting. Any director may waive notice of any meeting. Except as otherwise provided by law or by these by-laws, a director’s attendance at a regular or special meeting shall constitute a waiver of notice of such meeting.

SECTION 3.8. Quorum Required, Vote and Adjournment. At each meeting of the board of directors, the presence of not less than a majority of the whole board shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or these by-laws. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

SECTION 3.9. Communications Equipment. Unless otherwise restricted by the certificate of incorporation, any member of the board of directors or of any committee designated by the board may participate in a meeting of the directors or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by means of such equipment shall constitute presence in person at such meeting.

- 7 -

SECTION 3.10. Presumption of Assent. Unless otherwise provided by statute, a director of the corporation who is present at a meeting of the board of directors at which action is taken on any corporate matter shall be presumed to have assented to the action taken unless his or her dissent shall be entered in the minutes of the meeting or unless he or she shall file his or her written dissent to such action with the person acting as secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action.

SECTION 3.11. Action By Written Consent. Any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting, if a written consent thereto is signed by all members of the board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the board or committee.

SECTION 3.12. Presiding Officer. The presiding officer at any meeting of the board of directors shall be the president or, in his or her absence, any director elected chairman by vote of a majority of the directors present at the meeting.

SECTION 3.13. Executive Committee. The board of directors may, by resolution passed by a majority of the whole board, designate two or more directors of the corporation to constitute an executive committee, which, to the extent provided in the resolution and by Delaware law, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it.

SECTION 3.14. Other Committees. The board of directors may, by resolution passed by a majority of the whole board, designate such other committees as it may from time to time determine. Each such committee shall consist of one or more directors and shall serve for such term and shall have and may exercise, during intervals between meetings of the board of directors, such duties, functions and powers as the board of directors may from time to time prescribe, subject to the limitations of Delaware law.

SECTION 3.15. Alternates. The board of directors may from time to time designate from among the directors alternates to serve on one or more committees as occasion may require. Whenever a quorum cannot be secured for any meeting of any committee from among the regular members thereof and designated alternates, the member or members of such committee present at such meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in place of such absent or disqualified member.

SECTION 3.16. Quorum and Manner of Acting - Committees. The presence of a majority of the members of any committee shall constitute a quorum for the transaction of business at any meeting of such committee, and the act of a majority of those present shall be necessary for the taking of any action thereat.

- 8 -

SECTION 3.17. Committee Chairman, Books and Records, Etc. The chairman of each committee shall be selected from among the members of the committee by the board of directors.

Each committee shall keep a record of its acts and proceedings, and all actions of each committee shall be reported to the board of directors at its next meeting.

Each committee shall fix its own rules of procedure not inconsistent with these by-laws or the resolution of the board of directors designating such committee and shall meet at such times and places and upon such call or notice as shall be provided by such rules.

SECTION 3.18. Fees and Compensation of Directors. Directors shall not receive any stated salary for their services as such; but, by resolution of the board of directors, a fixed fee, with or without expenses of attendance, may be allowed for attendance at each regular or special meeting of the board. Members of the board shall be allowed their reasonable traveling expenses when actually engaged in the business of the corporation. Members of any committee may be allowed like fees and expenses for attending committee meetings. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor.

SECTION 3.19. Reliance Upon Records. Every director of the corporation, or member of any committee designated by the board of directors, shall, in the performance of his or her duties, be fully protected in relying in good faith upon the records of the corporation and upon such information, opinions, reports or statements presented to the corporation by any of the corporation’s officers or employees, or committees of the board of directors, or by any other person as to matters the director reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the corporation.

SECTION 3.20. Dividends and Reserves. Dividends upon stock of the corporation may be declared by the board of directors at any regular or special meeting. Dividends may be paid in cash, in property, in shares of stock or otherwise in the form, and to the extent, permitted by law. The board of directors may set apart, out of any funds of the corporation available for dividends, a reserve or reserves for working capital or for any other lawful purpose, and also may abolish any such reserve in the manner in which it was created.

- 9 -

ARTICLE IV

OFFICERS

SECTION 4.1. Offices and Official Positions. The officers of the corporation shall consist of a president, a treasurer, a secretary and an assistant secretary. The president shall be the chief executive officer. In addition to the foregoing, the officers may consist of one or more vice presidents, assistant secretaries, assistant treasurers, and other officers as the board of directors shall determine. Any two or more offices may be held by the same person. The board of directors may choose not to fill any office for any period as it may deem advisable, except that the offices of president and secretary shall be filled as expeditiously as possible. None of the officers need be a director, a stockholder of the corporation or a resident of the State of Delaware. The board of directors may from time to time establish, and abolish, official positions within the divisions into which the business and operations of the corporation are divided, pursuant to Section 5.1 of these by-laws, and assign titles and duties to such positions. Those appointed to official positions within divisions may, but need not, be officers of the corporation. The board of directors shall appoint officers to official positions within a division and may with or without cause remove from such a position any person appointed to it. In any event, the authority incident to an official position within a division shall be limited to acts and transactions within the scope of the business and operations of such division.

SECTION 4.2. Election and Term of Office. The officers of the corporation shall be elected at the organizational meeting of the board of directors, and thereafter, annually by the board of directors at their first meeting held after each regular annual meeting of the stockholders. If the election of officers shall not be held at such meeting of the board, such election shall be held at a regular or special meeting of the board of directors as soon thereafter as may be convenient. Each officer shall hold office until his or her successor is elected and qualified or until his or her death, resignation or removal as hereinafter provided.

SECTION 4.3. Removal and Resignation. Any officer may be removed, either with or without cause, by a majority of the directors then in office at any regular or special meeting of the board; but such removal shall be without prejudice to the contract rights, if any, of such person so removed. Any officer may resign at any time by giving written notice to the board of directors, to the president or to the secretary of the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

SECTION 4.4. Vacancies. A vacancy in any office because of death, resignation, removal, or any other cause may be filled for the unexpired portion of the term by the board of directors.

SECTION 4.5. President. The president shall be the chief executive officer of the corporation, and may be referred to as president, chief executive officer, or both. He or she

- 10 -

shall have the overall supervision of the business of the corporation and shall direct the affairs and policies of the corporation, subject to such policies and directions as may be provided by the board of directors. He or she shall have authority to designate the duties and powers of other officers and delegate special powers and duties to specified officers, so long as such designation shall not be inconsistent with the statutes, these by-laws or action of the board of directors. He or she shall also have power to execute, and shall execute, deeds, mortgages, bonds, contracts or other instruments of the corporation except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. The president in general shall have all other powers and shall perform all other duties which are incident to the chief executive office of a corporation or as may be prescribed by the board of directors from time to time.

SECTION 4.6. Vice Presidents. In the absence of the president, at his or her request or in the event of his or her inability or refusal to act, the vice presidents in order of their rank as fixed by the board of directors or, if not ranked, the vice president designated by the board of directors or the president, shall perform all duties of the president and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties, not inconsistent with the statutes, these by-laws, or action of the board of directors, as from time to time may be prescribed for them, respectively, by the board of directors or the president. Any vice president may sign, with the secretary or an assistant secretary, or the treasurer or an assistant treasurer, certificates for shares of stock of the corporation the issuance of which shall have been duly authorized by the board of directors.

SECTION 4.7. Secretary. The secretary shall: (a) keep the minutes of the meetings of the stockholders, the board of directors and committees of directors, in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these by-laws or as required by law; (c) have charge of the corporate records and of the seal of the corporation; (d) affix the seal of the corporation, if any, or a facsimile thereof, or cause it to be affixed, to all certificates for shares prior to the issue thereof and to all documents the execution of which on behalf of the corporation under its seal is duly authorized by the board of directors or otherwise in accordance with the provisions of these by-laws; (e) keep a register of the post office address of each stockholder, director and committee member which shall from time to time be furnished to the secretary by such stockholder, director or member; (f) sign with the president or any vice president, certificates for shares of stock of the corporation, the issuance of which shall have been duly authorized by resolution of the board of directors; (g) have general charge of the stock transfer books of the corporation; and (h) in general, perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him or her by the president or by the board of directors. He or she may delegate such details of the performance of duties of his or her office as may be appropriate in the exercise of reasonable care to one or more persons in his or her stead, but shall not thereby be relieved of responsibility for the performance of such duties.

- 11 -

SECTION 4.8. Treasurer. The treasurer, if there is a treasurer, shall: (a) be responsible to the board of directors for the receipt, custody and disbursement of all funds and securities of the corporation; (b) receive and give receipts for monies due and payable to the corporation from any source whatsoever and deposit all such monies in the name of the corporation in such banks, trust companies or other depositories as shall from time to time be selected in accordance with the provisions of Section 6.4. of these by-laws; (c) disburse the funds of the corporation as ordered by the board of directors or the president or as otherwise required in the conduct of the business of the corporation; (d) render to the president or the board of directors, upon request, an account of all his or her transactions as treasurer and on the financial condition of the corporation; and (e) in general, perform all the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him or her by the president, the board of directors or these by-laws. He or she may sign, with the president, or a vice president, certificates for shares of stock of the corporation, the issuance of which shall have been duly authorized by resolution of the board of directors. He or she may delegate such details of the performance of duties of his or her office as may be appropriate in the exercise of reasonable care to one or more persons in his or her stead, but shall not thereby be relieved of responsibility for the performance of such duties. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his or her duties in such sum, and with such surety or sureties, as the board of directors shall determine.

SECTION 4.9. Assistant Treasurers and Assistant Secretaries. The assistant treasurers and assistant secretaries shall perform all functions and duties which the secretary or treasurer, as the case may be, may assign or delegate; but such assignment or delegation shall not relieve the principal officer from the responsibilities and liabilities of his or her office. In addition, an assistant secretary or an assistant treasurer, as thereto authorized by the board of directors, may sign with the president, or a vice president, certificates for shares of the corporation, the issuance of which shall have been duly authorized by resolution of the board of directors; and the assistant secretaries and assistant treasurers shall, in general, perform such duties as shall be assigned to them by the secretary or the treasurer, respectively, or by the president or by the board of directors. The assistant treasurers shall, if required by the board of directors, give bonds for the faithful discharge of their duties in such sums, and with such surety or sureties, as the board of directors shall determine.

SECTION 4.10. Salaries. The salaries of the officers may be fixed from time to time by the board of directors or by such officer as it shall designate for such purpose or as it shall otherwise direct. No officer shall be prevented from receiving a salary or other compensation by reason of the fact that he or she is also a director of the corporation.

- 12 -

ARTICLE V

DIVISIONS

SECTION 5.1. Divisions of the Corporation. The board of directors shall have the power to create and establish such operating divisions of the corporation as it may from time to time deem advisable.

SECTION 5.2. Official Positions Within a Division. The president may appoint individuals, whether or not they are officers of the corporation, to, and may, with or without cause, remove them from, official positions established within a division, but not filled by the board of directors. (See also Section 4.1 of these by-laws.)

ARTICLE VI

CONTRACTS, LOANS, CHECKS AND DEPOSITS

SECTION 6.1. Contracts and Other Instruments. The board of directors may authorize any officer(s), agent(s) or employee(s) to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, or of any division thereof, and such authority may be general or confined to specific instances.

SECTION 6.2. Loans. No loans shall be contracted on behalf of the corporation, or any division thereof, and no evidence of indebtedness shall be issued in the name of the corporation, or any division thereof, unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances.

SECTION 6.3. Checks, Drafts, etc. All checks, demands, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, or any division thereof, shall be signed by such officer or officers, agent or agents of the corporation, and in such manner, as shall from time to time be authorized by the board of directors.

SECTION 6.4. Deposits. All funds of the corporation, or any division thereof, not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the board of directors may select.

- 13 -

ARTICLE VII

CERTIFICATES OF STOCK AND THEIR TRANSFER

SECTION 7.1. Certificates of Stock. The certificates of stock of the corporation shall be in such form as may be determined by the board of directors, shall be numbered and shall be entered in the books of the corporation as they are issued. They shall exhibit the holder’s name and number of shares and shall be signed by the president or vice president and by the treasurer or an assistant treasurer or the secretary or an assistant secretary. If any stock certificate is signed (a) by a transfer agent or an assistant transfer agent or (b) by a transfer clerk acting on behalf of the corporation and a registrar, the signature of any officer of the corporation may be facsimile. In case any such officer whose facsimile signature has thus been used on any such certificate shall cease to be such officer, whether because of death, resignation or otherwise, before such certificate has been issued, such certificate may nevertheless be issued with the same effect as if he or she were such officer at the date of issue. All certificates properly surrendered to the corporation for transfer shall be cancelled and no new certificate shall be issued to evidence transferred shares until the former certificate for at least a like number of shares shall have been surrendered and cancelled and the corporation reimbursed for any applicable taxes on the transfer, except that in the case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms, and with such indemnity (if any) to the corporation, as the board of directors may prescribe specifically or in general terms or by delegation to a transfer agent for the corporation. (See Section 7.2.)

SECTION 7.2. Lost, Stolen or Destroyed Certificates. The board of directors in individual cases, or by general resolution or by delegation to the transfer agent, may direct a new certificate or certificates or uncertificated shares to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificates, or his or her legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond sufficient to indemnify it against any claim that may be made against the corporation on account of the alleged loss, theft or destruction of such certificate or the issuance of a new certificate or uncertificated shares.

SECTION 7.3. Transfers of Stock. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and upon payment of applicable taxes with respect to such transfer, and in compliance with any restrictions on transfer applicable to the certificate or shares represented thereby of which the corporation shall have notice and subject to such rules and regulations as the board of directors may from time to time deem advisable concerning the transfer and registration of certificates for shares of capital stock of the corporation, the corporation shall issue a new certificate to the person entitled thereto,

- 14 -

cancel the old certificate and record the transaction upon its books. Transfers of shares shall be made only on the books of the corporation by the registered holder thereof or by his or her attorney or successor duly authorized as evidenced by documents filed with the secretary or transfer agent of the corporation.

SECTION 7.4. Restrictions on Transfer. Any stockholder may enter into an agreement with other stockholders or with the corporation providing for reasonable limitation or restriction on the right of such stockholder to transfer shares of capital stock of the corporation held by him, including, without limiting the generality of the foregoing, agreements granting to such other stockholders or to the corporation the right to purchase for a given period of time any of such shares on terms equal to terms offered such stockholders by any third party. Any such limitation or restriction on the transfer of shares of this corporation must be set forth conspicuously on certificates representing shares of capital stock or, in the case of uncertificated shares, contained in a notice sent pursuant to Section 151(f) of the General Corporation Law of Delaware, in which case the corporation or the transfer agent shall not be required to transfer such shares upon the books of the corporation without receipt of satisfactory evidence of compliance with the terms of such limitation or restriction.

SECTION 7.5. Fixing Record Date. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting.

In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date has been fixed by the board of directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded.

- 15 -

In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto.

SECTION 7.6. Stockholders of Record. The corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

ARTICLE VIII

INDEMNIFICATION

SECTION 8.1. In General. Each person who at any time is or shall have been a director, officer, employee or agent of the corporation, or is or shall have been serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, and his or her heirs, executors and administrators, shall be indemnified by this corporation in accordance with and to the full extent permitted by the Delaware General Corporation Law as in effect at the time of adoption of this by-law or as amended from time to time. The foregoing right of indemnification shall not be deemed exclusive of any other rights to which a person seeking indemnification may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise.

The corporation shall, in its discretion, pay the expenses (including attorneys’ fees) incurred in defending any proceeding in advance of its final disposition, provided, however, that the payment of expenses incurred by a director or officer in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the director or officer to repay all amounts advanced if it should be ultimately determined that the director or officer is not entitled to be indemnified under this Article or otherwise.

SECTION 8.2. Insurance. If authorized by the board of directors, the corporation may purchase and maintain insurance on behalf of any person to the full extent permitted by the General Corporation Law of Delaware as in effect at the time of the adoption of this by-law or as amended from time to time.

- 16 -

ARTICLE IX

GENERAL PROVISIONS

SECTION 9.1. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the board of directors.

SECTION 9.2. Corporate Seal. The board of directors may adopt a corporate seal which shall have inscribed thereon the name of the corporation, and the words “CORPORATE SEAL” and “DELAWARE;” and it shall otherwise be in the form approved by the board of directors. Such seal may be used by causing it, or a facsimile thereof, to be impressed or affixed or otherwise reproduced.

ARTICLE X

AMENDMENTS

SECTION 10.1. In General. Any provision of these by-laws (except as provided in Section 10.2 hereof) may be altered, amended or repealed from time to time by the affirmative vote of a majority of the stock having voting power present in person or by proxy at any annual meeting of stockholders at which a quorum is present, or at any special meeting of stockholders at which a quorum is present, if notice of the proposed alteration, amendment or repeal be contained in the notice of such special meeting, or by the affirmative vote of a majority of the directors then qualified and acting at any regular or special meeting of the board; provided, however, that the stockholders may provide specifically for limitations on the power of directors to amend particular by-laws and, in such event, the directors’ power of amendment shall be so limited; and further provided that no reduction in the number of directors shall have the effect of removing any director prior to the expiration of his or her term of office.

SECTION 10.2 Required Vote. Notwithstanding anything contained in Section 10.1 of this ARTICLE X, the affirmative vote of a majority of shares entitled to vote therefor at a stockholder’s meeting, or, subject to such limitations as the stockholders may from time to time prescribe, shall be required to alter, amend or repeal, or adopt any provisions inconsistent with Section 3.1 of ARTICLE III of these by-laws, to fix or change (including by increase or decrease) the number of directors of the corporation.

*    *    *

EX-3.21

Exhibit 3.21

CERTIFICATE OF FORMATION

OF

RÜTGERS EPOXY POLYMERS LLC

This Certificate of Formation of Rütgers Epoxy Polymers LLC, dated as of November 28, 2001, is being duly executed and filed by Robert J. Willson, Jr., an authorized person, to form a limited liability company under the Delaware Limited Liability Company Act (6 Del. C. §18-101, et seq.)

FIRST:	The name of the limited liability company is Rütgers Epoxy Polymers LLC (the “Company”).
SECOND:	The address of the registered office of the Company in the State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, New Castle County.
THIRD:	The name and address of the registered agent for service of process on the Company in the State of Delaware is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801, New Castle County.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation as of the date first above written.

/s/ Robert J. Willson, Jr.

Robert J. Willson, Jr.

Authorized Person

STATE OF DELAWARE

SECRETARY OF STATE

DIVISION OF CORPORATIONS

FILED 05:00 PM 03/06/2002

020152843 – 3461146

CERTIFICATE OF CONVERSION

OF

RÜTGERS EPOXY POLYMERS LLC

a Delaware limited liability company

INTO

RÜTGERS EPOXY POLYMERS CORPORATION

a Delaware corporation

Adopted in accordance with Section

265 of the General Corporation Law

of the State of Delaware and Section 18-216

of the Delaware Limited Liability Company Act

Rütgers Epoxy Polymers LLC, a limited liability company organized and existing under and by virtue of the Delaware Limited Liability Company Act (the “LLC”), DOES HEREBY CERTIFY THAT:

1. The LLC was first formed on November 28, 2001.

2. The name of the LLC immediately prior to the filing of this Certificate of Conversion is Rütgers Epoxy Polymers LLC.

3. The name of the corporation into which the LLC is converted, as set forth in the corporation’s certificate of incorporation filed in accordance with Section 265(b) of the General Corporation Law of the State of Delaware is:

Rütgers Epoxy Polymers Corporation

4. The LLC is a limited liability company organized and existing under the laws of the State of Delaware.

5. The conversion of the LLC into Rütgers Epoxy Polymers Corporation was approved by the Board of Directors and Member of the LLC in accordance with Section 265(g) of the General Corporation Law of the State of Delaware and Section 18-216 of the Delaware Limited Liability Company Act.

IN WITNESS WHEREOF, the LLC has caused this Certificate of Conversion to be signed as of February 25, 2002 by a duly authorized officer, declaring that the facts stated herein are true.

RÜTGERS EPOXY POLYMERS LLC
By:	/s/ Dr. Jürgen Schillgalies
	Dr. Jürgen Schillgalies
	President

STATE OF DELAWARE

SECRETARY OF STATE

DIVISION OF CORPORATIONS

FILED 05:00 PM 03/06/2002

020152843 – 3461146

CERTIFICATE OF INCORPORATION

OF

RÜTGERS EPOXY POLYMERS CORPORATION

ARTICLE 1

The name of the corporation is:

Rütgers Epoxy Polymers Corporation

ARTICLE 2

The address of the corporation’s registered office in the State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, New Castle County. The name of the corporation’s registered agent at such address is The Corporation Trust Company.

ARTICLE 3

The purpose of the corporation is to engage in any part of the world in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.

ARTICLE 4

The total number of shares of stock which the corporation shall have authority to issue is 3,000, all of which shall be common stock having a par value of $0.01 per share.

ARTICLE 5

The name and mailing address of the sole incorporator are as follows:

NAME	MAILING ADDRESS
Robert J. Willson, Jr.	Baker & McKenzie
	130 East Randolph Drive, Suite 3500
	Chicago, Illinois 60601

ARTICLE 6

In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized to adopt, amend or repeal the by-laws of the corporation; provided, however, that such authorization shall not divest the stockholders of the power or limit the power of the stockholders to adopt, amend or repeal the by-laws of the corporation.

ARTICLE 7

Meetings of stockholders may be held within or without the State of Delaware, as the by-laws of the corporation may provide. The books of the corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the corporation. Election of directors need not be by written ballot unless the by-laws of the corporation so provide.

ARTICLE 8

The corporation shall have the power to indemnify its directors, officers, employees and agents to the full extent permitted by the General Corporation Law of the State of Delaware as now in force or hereafter amended.

ARTICLE 9

No director shall be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except as provided for in Section 102(b)(7) of the General Corporation Law of the State of Delaware as now in force or as hereafter amended. Any repeal or modification of this Article shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification.

ARTICLE 10

Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on

- 2 -

all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation.

ARTICLE 11

The following individuals are the initial directors of the corporation, each to serve until their respective successors are elected and qualified at or before the first annual meeting of the stockholders of the corporation:

Paul J.F. Miller

Dr. René Wollert

Dr. Júrgen Schillgalies

ARTICLE 12

The corporation reserves the right to amend, alter, change or repeal any provision contained in this certificate of incorporation in the manner now or hereafter prescribed by the laws of the State of Delaware, and all rights and powers conferred upon stockholders herein are granted subject to this reservation.

ARTICLE 13

This certificate of incorporation is executed and filed in connection with the conversion of Rútgers Epoxy Polymers LLC from a Delaware-limited liability company into the within named corporation, in accordance with Section 265 of the General Corporation Law of the State of Delaware. The certificate of incorporation shall be effective in accordance with said Section 265.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Incorporation this 25th day of February, 2002.

/s/ Robert J. Willson, Jr.

Robert J. Willson, Jr.

Sole Incorporator

- 3 -

CERTIFICATE OF AMENDMENT

OF

CERTIFICATE OF INCORPORATION

OF

RÜTGERS EPOXY POLYMERS CORPORATION

Adopted in accordance with Section

242 of the General Corporation Law

of the State of Delaware

Rütgers Epoxy Polymers Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “Corporation”), DOES HEREBY CERTIFY THAT:

1. The Board of Directors of the Corporation, pursuant to written consent and in accordance with Sections 141(f) and 242 of the General Corporation Law of the State of Delaware, adopted a resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation of the Corporation:

RESOLVED, that the Certificate of Incorporation of the Corporation be amended by striking out Article 1 thereof, and inserting the following language in lieu thereof, so that, as amended, the text of said Article 1 shall read as follows:

“The name of the corporation is: Bakelite Epoxy Polymers Corporation”

2. In lieu of a meeting and vote of the stockholders, the stockholders, pursuant to written consent, approved and adopted the amendment in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware.

3. The foregoing amendment was duly adopted in accordance with the applicable provisions of Section 242 and 228 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed as of May 22, 2002 by a duly authorized officer, declaring that the facts stated herein are true.

RÜTGERS EPOXY POLYMERS CORPORATION
By:	/s/ Dr. Jürgen Schillgalies
	Dr. Jürgen Schillgalies
	President and Secretary

STATE OF DELAWARE

SECRETARY OF STATE

DIVISION OF CORPORATIONS

FILED 04:15 AM 06/05/2002

020361458 – 3461146

EX-3.22

Exhibit 3.22

BYLAWS

OF

RÜTGERS EPOXY POLYMERS CORPORATION

(a Delaware corporation)

ARTICLE 1

OFFICES

1.1 REGISTERED OFFICE

The corporation shall maintain a registered office and registered agent in the state of Delaware. The registered office and/or registered agent of the corporation may be changed from time to time by action of the board of directors.

1.2 OTHER OFFICES

The corporation may also have offices at such other places both within or outside the state of Delaware as the board of directors may from time to time determine or the business of the corporation may require.

ARTICLE 2

MEETINGS OF STOCKHOLDERS

2.1 ANNUAL MEETING; ELECTION OF DIRECTORS

(a) An annual meeting of the stockholders shall be held on the first Tuesday in April each year commencing in the year 2003. If such day should fall on a legal holiday, the meeting shall be held on the next succeeding business day that is not a legal holiday. Any other proper business may also be transacted at the annual meeting.

(b) The stockholders may elect the board of directors by written consent in lieu of the annual meeting. If the consent is less than unanimous, it will constitute a consent in lieu of the annual meeting only if all of the directorships to which directors could be elected at an annual meeting held at the effective time of the consent were (i) vacant at the effective time and (ii) filled by action of the consent.

(c) If the annual meeting is not held on the date designated for it or if the board of directors has not been elected by written consent in lieu of an annual meeting, the standing directors shall cause the meeting to be held as soon as is convenient.

2.2 SPECIAL MEETINGS

Except as otherwise required by law, special meetings of the stockholders for any purpose may be called and the location of the meeting designated by the board of directors, the chairman of the board, or the president. Holders of shares entitled to cast not less than one-third of the votes entitled to be cast at the meeting may also call a special meeting by written request. The written request must state the purposes of the meeting and must be delivered to the chairman of the board or the president. The chairman of the board or the president, as the case may be, shall fix a date, time and place for the meeting as promptly as practicable following receipt of the written request.

2.3 REMOTE COMMUNICATION

The board of directors may, in its sole discretion, determine that a stockholders meeting shall not be held at any place, but may instead be held solely by means of remote communication. Further, the board of directors may, in its sole discretion, authorize stockholders and proxyholders not physically present at a meeting of stockholders to, by means of remote communication and subject to such guidelines and procedures as the board of directors may adopt: (a) participate in a meeting of stockholders and (b) be deemed present in person and vote at a meeting of stockholders, whether such meeting is to be held at a designated place or solely by means of remote communication. If the board of directors authorizes a meeting solely by remote communication or authorizes presence, participation and voting at a meeting by means of remote communication, the corporation must (i) implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (ii) implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) maintain a record of any vote or other action taken at the meeting by means of remote communication by any stockholder or proxyholder.

2.4 NOTICE OF MEETINGS

Except as provided in Section 230 of the General Corporation Law of the State of Delaware (the “Delaware GCL”), written or printed notice of each annual or special meeting of the stockholders shall be given to each stockholder entitled to vote at the meeting. The notice (i) shall state the place, if any, date, time, means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, (ii) shall be given not less than 10 days nor more than 60 days before the date of the meeting, and (iii) shall be given in a manner provided by and subject to Article 9 of these bylaws.

2.5 STOCKHOLDERS LIST

At least ten days before every meeting of stockholders, the officer having charge of the stock ledger shall prepare a complete list of the stockholders entitled to vote at the meeting. The list must be arranged in alphabetical order and show the address of each such stockholder and the

- 2 -

number of shares registered in the name of the stockholder. Electronic mail addresses or other electronic contact information need not be included on the list. The list shall be open to the examination of any stockholder for any purpose germane to the meeting for a period of at least ten days prior to the meeting: (a) on a reasonably accessible electronic network, provided that the information required to gain access to the list is provided with the notice of the meeting or (b) during ordinary business hours, at the principal place of business of the corporation. In the event the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the place of the meeting during the whole time of the meeting, and may be inspected by any stockholder present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.

2.6 QUORUM

The holders of a majority of the outstanding shares of capital stock entitled to vote, present in person or represented by proxy, shall be requisite for, and shall constitute, a quorum at all meetings of the stockholders of the corporation for the transaction of business, except as otherwise required by law, the certificate of incorporation or these bylaws. If, however, a separate vote by class or series is required with respect to any matter, the holders of a majority of the shares of such class or series, as the case may be, shall constitute a quorum (as to such class or series) with respect to the matter. If a quorum is not present or represented at any meeting of the stockholders, the stockholders entitled to vote at the meeting present in person or represented by proxy shall have power to adjourn the meeting from time to time until a quorum is present or represented.

2.7 ADJOURNED MEETINGS

When a meeting is adjourned to another time and place, notice need not be given of the adjourned meeting if its time and place, if any, and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at the adjourned meeting, are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

2.8 VOTE REQUIRED

Except as otherwise required by law, the certificate of incorporation, or these bylaws, when a quorum is present at a meeting: (a) the affirmative vote of a majority of shares present in person or represented by proxy and entitled to vote on the subject matter shall be the act of the stockholders; and (b) where a separate vote by class or series is required, the affirmative vote of the majority of shares of such class or series present in person or represented by proxy shall be the act of such class or series.

- 3 -

2.9 PROXIES

Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy. No proxy may be voted or acted upon after three years from its date, unless the proxy provides for a longer period. At each meeting of the stockholders, and before any voting commences, all proxies filed at or before the meeting shall be submitted to and examined by the secretary or a person designated by the secretary. No shares may be represented or voted under a proxy that has been found to be invalid or irregular.

Without limiting the manner in which a stockholder may authorize a proxy, the following shall constitute valid means of doing so:

a) A stockholder may execute a writing authorizing another person to act for the stockholder as proxy. Either the stockholder or the stockholder’s authorized officer, director, employee or agent may sign the writing. Alternatively, such person may cause his or her signature to be affixed to the writing by any reasonable means, including facsimile signature.

b) A stockholder may authorize another person to act for the stockholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission. Any such transmission must either set forth or be submitted with information from which it can be determined that the stockholder authorized the transmission. If it is determined that the transmission is valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied.

Any copy, facsimile telecommunication or other reliable reproduction of such writing or transmission may be substituted or used in lieu of the original writing or transmission for all purposes for which the original writing or transmission could be used, provided that the reproduction is a complete reproduction of the entire original writing or transmission.

2.10 VOTING OF CERTAIN SHARES

With respect to shares entitled to vote:

(a) Shares standing in the name of another corporation or other entity, domestic or foreign, may be voted by such officer, agent, or proxy as the (i) bylaws or other governing document of such corporation or entity may prescribe or, (ii) in the absence of such provision, as the board of directors or other governing body of such corporation or entity may determine.

(b) Shares held in a fiduciary capacity may be voted by the fiduciary.

(c) Shares standing in the name of a trustee, receiver or pledgee may be voted by such trustee, receiver or pledgee either in person or by proxy as provided by statute.

- 4 -

If the shares stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the secretary of the corporation is given written notice to the contrary and is furnished with a copy of the instrument or order appointing such persons or creating the relationship, their acts with respect to voting shall have the following effect:

(d) if only one votes, the voter’s act binds all;

(e) if more than one vote, the act of the majority so voting binds all;

(f) if more than one vote, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionately unless otherwise ordered by a court having jurisdiction.

If the instrument so filed shows that any such tenancy is held in unequal interests, a majority or even split shall be a majority or even split in interest.

2.11 ACTION BY WRITTEN CONSENT OR ELECTRONIC TRANSMISSION

(a) Unless otherwise restricted by the certificate of incorporation, any action required or permitted to be taken at an annual or special meeting of stockholders may be taken by written consent without a meeting, without prior notice and without a vote, as follows:

(i) The holders of outstanding capital stock of the corporation having not less than the minimum number of votes that would be necessary to take such action at a meeting at which all shares entitled to vote thereon were present and voted must sign and date the written consent setting forth the action so taken. Consents may be executed in counterparts.

(ii) The consent(s) must be delivered to the corporation’s registered office in Delaware, to its principal place of business, or to an officer or agent of the corporation having custody of the book(s) in which proceedings of meetings of the stockholders are recorded. Delivery made to the registered office must be by hand or by certified or registered mail, return receipt requested, and will be deemed delivered upon actual receipt by the registered office.

(b) All consents properly delivered in accordance with this section shall be deemed to be recorded when so delivered. No written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered to the corporation as required by this section, written consents signed by the holders of a sufficient number of shares to take such corporate action are so recorded.

(c) A stockholder or proxyholder may consent to action by means of a telegram, cablegram or other electronic transmission. The stockholder, the proxyholder or a person or persons authorized to act for the stockholder or proxyholder must transmit the consent. The consent shall be deemed to be written, signed and dated if the transmission sets forth or is delivered with information from which the corporation can determine (i) that the transmission

- 5 -

was transmitted by the stockholder, proxyholder or authorized person(s), and (ii) the date on which it was transmitted. The date on which the transmission is transmitted shall be deemed to be the date on which the consent was signed. No consent given by electronic transmission shall be deemed to have been delivered until it is reproduced in a paper form and delivered in accordance with Section 2.11(a), provided, however, that it may be otherwise delivered to the principal place of business of the corporation or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded if, to the extent and in the manner provided by the board of directors.

(d) Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for all purposes for which the original writing could be used, provided that the reproduction is of the entire original writing.

(e) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the corporation as provided above.

2.12 TREASURY STOCK

Shares of its own stock belonging to the corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held, directly or indirectly, by such corporation, shall not be entitled to vote nor counted for quorum purposes. Notwithstanding the foregoing, the corporation may vote shares of its own stock that it holds in a fiduciary capacity.

ARTICLE 3

DIRECTORS

3.1 NUMBER, ELECTION AND TERM OF OFFICE

The board of directors shall consist of three members, which number may be changed from time to time by action of the board of directors or the stockholders. Except as provided in Sections 3.3 and 3.4, the directors shall be elected at the annual meeting of stockholders. Elections of directors need not be by written ballot unless the board of directors votes to require a written ballet. If the election is to be by written ballot, then, if the board of directors authorizes it, a ballot submitted by electronic transmission may satisfy the requirement of a written ballot. Any such electronic transmission must either set forth or be submitted with information from which the corporation can determine that it was authorized by the stockholder or proxyholder. The directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote in the election of directors. Each director shall hold office until such director’s successor is duly elected and qualified or until such director’s earlier death, resignation or removal as hereinafter provided.

- 6 -

3.2 MANAGEMENT OF AFFAIRS OF CORPORATION

The property and business of the corporation shall be managed by or under the direction of its board of directors. The board of directors may exercise all such powers of the corporation and do all such lawful acts and things as are not reserved exclusively to the stockholders by law, the certificate of incorporation or these bylaws.

3.3 RESIGNATIONS AND VACANCIES

Any director may resign at any time by giving notice to the board of directors, the chairman of the board or the president in writing or by electronic transmission. Any such resignation shall take effect on the date of the receipt of the notice or at any later time specified in the notice. Acceptance of the resignation shall not be necessary to make it effective. If, at any time other than the annual meeting of the stockholders, any vacancy occurs in the board of directors or any new directorship is created by an increase in the authorized number of directors, a majority of the directors then in office (even if less than a quorum) may choose a successor or fill the newly created directorship. Unless removed sooner, the director so chosen shall hold office until the next annual election of directors by the stockholders and until such director’s successor is duly elected and qualified. Whenever the certificate of incorporation entitles holders of any class or series of stock to elect one or more directors, vacancies and newly created directorships of such class or series may be filled by a majority of the directors elected by such class or series then in office, or by a sole remaining director so elected.

3.4 REMOVAL AND VACANCIES

Any director or the entire board of directors may be removed by the holders of a majority of the shares then entitled to vote at an election of directors except as follows: (a) if the stockholders are entitled to exercise cumulative voting rights, then no director may be removed without cause if the votes cast against such director’s removal would be sufficient to elect such director if then cumulatively voted at an election of the entire board of directors, and (b) if there are classes of directors, then the stockholders may effect such removal only for cause. The successor to any director so removed may be elected at the meeting at which the removal was effectuated. The remaining directors may fill any remaining vacancies created by the removal. Whenever the holders of any class or series are entitled to elect one or more directors by the provisions of the certificate of incorporation, the provisions of this section shall apply, in respect to the removal without cause of a director or directors so elected, to the vote of the holders of the outstanding shares of that class or series and not to the vote of the outstanding shares as a whole.

3.5 ANNUAL AND REGULAR MEETINGS

The annual meeting of the board of directors shall be held, without other notice than this bylaw, immediately after, and at the same place as, the annual meeting of the stockholders. Regular meetings of the board of directors, other than the annual meeting, may be held at such time and at such place as the board may from time to time fix by resolution and no notice (other than the resolution) need be given as to any regular meeting.

- 7 -

3.6 SPECIAL MEETINGS

Special meetings of the board of directors may be called by the chairman of the board or the president and shall be called by the secretary at the request of any director, to be held at such time and place, either within or outside Delaware, as shall be designated by the call and specified in the notice of such meeting.

3.7 NOTICE OF MEETINGS

Notice of special meetings of the board of directors shall be provided to each director pursuant to Article 9 of these bylaws. If such notice is mailed, it shall be deposited in the United States mail, postage prepaid, at least eight calendar days before such meeting. If such notice is given by overnight courier, it shall be given to the overnight courier service for delivery at least four calendar days before such meeting. If such notice is given personally or by electronic transmission, it shall be delivered or transmitted at least two calendar days before the time of the meeting. Notwithstanding the provisions of this Section 3.7 or Article 9 of these bylaws, notice to a director whose address is outside of the United States must be by overnight courier or electronic transmission. Except as otherwise provided by law or these bylaws, meetings may be held at any time without notice if all of the directors are present or if, at any time before or after the meeting, those not present waive notice of the meeting in writing.

3.8 QUORUM REQUIRED, VOTE AND ADJOURNMENT

Except as otherwise provided by law or these bylaws: (a) at each meeting of the board of directors, the presence of not less than a majority of the whole board shall be necessary and sufficient to constitute a quorum for the transaction of business; and (b) the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors. If a quorum is not present at any meeting of directors, the directors present may adjourn the meeting, without notice other than announcement at the meeting, until a quorum is present.

3.9 COMMUNICATIONS EQUIPMENT

Unless otherwise restricted by the certificate of incorporation, any member of the board of directors or of any committee designated by the board may participate in a meeting of the directors or committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by means of such equipment shall constitute presence in person at such meeting.

3.10 PRESUMPTION OF ASSENT

Unless applicable law provides otherwise, a director of the corporation who is present at a meeting of the board of directors at which action is taken on any corporate matter shall be presumed to have assented to the action taken unless: (a) the director’s dissent is entered in the minutes of the meeting; or (b) the director files a written dissent to the action with the person acting as secretary of the meeting before the adjournment thereof or forwards the dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of any action.

- 8 -

3.11 ACTION BY WRITTEN CONSENT

Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting, if all members of the board or of such committee, as the case may be, consent to the action in writing or by electronic transmission, and the writing or electronic transmission is filed with the minutes of proceedings of the board or committee. The filing shall be in paper form if the minutes are maintained in paper form and in electronic form if the minutes are maintained in electronic form.

3.12 EXECUTIVE COMMITTEE

The board of directors may designate one or more directors of the corporation to constitute an executive committee, which, to the extent provided in the resolution and except as otherwise provided by law, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation.

3.13 OTHER COMMITTEES

The board of directors may designate other committees consisting of one or more directors. Each member of a committee shall serve for such term and the committee shall have and may exercise such duties, functions and powers as these bylaws and the board of directors may provide, except as otherwise restricted by law.

3.14 ALTERNATES

The board of directors may designate one or more directors as alternate members of any committee to replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the members present at any meeting and not disqualified from voting, whether or not such members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in place of the absent or disqualified member.

3.15 QUORUM AND MANNER OF ACTING - COMMITTEES

The presence of a majority of members of any committee shall constitute a quorum for the transaction of business at any meeting of such committee, and the act of a majority of those present shall be necessary for the taking of any action at the meeting.

3.16 COMMITTEE CHAIRMAN, BOOKS AND RECORDS, ETC.

The chairman of each committee shall be selected by the board of directors from among the members of the committee. Each committee shall fix its own rules of procedure not inconsistent with these bylaws or the resolution of the board of directors designating the committee. Each committee shall meet at such times and places and upon such call or notice as shall be provided by such rules. Each committee shall keep a record of its actions and proceedings and shall report on them to the board of directors at the board’s next meeting.

- 9 -

3.17 FEES AND COMPENSATION OF DIRECTORS

Directors shall not receive any stated salary for their services as such, but by resolution of the board of directors a fixed fee, with or without expenses of attendance, may be allowed for attendance at each regular or special meeting of the board. Members of the board shall be allowed their reasonable traveling expenses when actually engaged in the business of the corporation. Members of any committee may be allowed like fees and expenses for attending committee meetings. Nothing in these bylaws shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor.

3.18 RELIANCE UPON RECORDS

Every director of the corporation, or member of any committee designated by the board of directors, shall, in the performance of such director’s duties, be fully protected in relying in good faith upon the records of the corporation and upon such information, opinions, reports or statements presented to the corporation by any of the corporation’s officers or employees, or committees of the board of directors, or by any other person as to matters the director reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the corporation.

3.19 DIVIDENDS AND RESERVES

Except as otherwise provided by law or the certificate of incorporation, the board of directors may declare dividends upon stock of the corporation at any regular or special meeting. Dividends may be paid in cash, in property, in shares of stock or otherwise in the form, and to the extent, permitted by law. The board of directors may set apart, out of any funds of the corporation available for dividends, a reserve or reserves for working capital or for any other lawful purpose, and also may abolish any such reserve in the manner in which it was created.

ARTICLE 4

OFFICERS

4.1 OFFICES AND OFFICIAL POSITIONS

The officers of the corporation shall consist of a president and a secretary, and may consist of a chairman of the board, a treasurer, one or more vice presidents, and such assistant secretaries, assistant treasurers, and other officers as the board of directors shall determine. The same person may hold any two or more offices. The board of directors may choose not to fill any office for any period as it may deem advisable. None of the officers need be a director, a stockholder of the corporation or a resident of Delaware. The board of directors may from time to time establish, and abolish, official positions within the divisions into which the business and operations of the corporation are divided, pursuant to Article 5 of these bylaws, and assign titles and duties to such positions. Those appointed to official positions within divisions may, but need not, be officers of the corporation. The board of directors shall appoint persons to official

- 10 -

positions within a division and may with or without cause remove from such a position any person appointed to it. In any event, the authority incident to an official position within a division shall be limited to acts and transactions within the scope of the business and operations of such division.

4.2 ELECTION AND TERM OF OFFICE

The board of directors shall elect the officers of the corporation at its annual meeting. If the election of officers is not held at such meeting, the election shall be held at a regular or special meeting of the board of directors as soon thereafter as may be convenient. Each officer shall hold office until such officer’s successor is elected and qualified or until such officer’s death, resignation or removal.

4.3 REMOVAL

The board of directors may remove an officer at any time, either with or without cause; but such removal shall be without prejudice to the contract rights, if any, of the officer.

4.4 VACANCIES

The board of directors may fill a vacancy in any office for the unexpired portion of the term.

4.5 CHAIRMAN OF THE BOARD

The chairman of the board, if a chairman of the board has been elected and is serving, shall preside at all meetings of the stockholders and the board of directors. The chairman of the board shall also have power to execute, and shall execute, deeds, mortgages, bonds, contracts and other instruments of the corporation except where required or permitted by law to be otherwise executed and except where the board of directors or president expressly delegates the execution to some other officer or agent of the corporation. The chairman of the board shall perform such other duties and have such other powers as the board of directors may from time to time assign to him or her. The chairman may sign with the secretary or an assistant secretary, or the treasurer or an assistant treasurer, certificates for shares of stock of the corporation the board of directors has authorized for issuance.

4.6 PRESIDENT

The president shall be the chief executive officer of the corporation and, in the absence of the chairman of the board, shall preside at all meetings of the stockholders, the board of directors or any committee of the board of which the president is a member. The president shall have the overall supervision of the business of the corporation and shall direct the affairs and policies of the corporation, subject to such policies and directions as the board of directors may provide. The president shall have authority to designate the duties and powers of other officers and delegate special powers and duties to specified officers, so long as such designation is not inconsistent with applicable law, these bylaws or action of the board of directors. The president shall also have power to execute, and shall execute, deeds, mortgages, bonds, contracts and other instruments of the corporation except where required or permitted by law to be otherwise

- 11 -

executed and except where the board of directors or president expressly delegates the execution to some other officer or agent of the corporation. The president may sign with the secretary or an assistant secretary, or the treasurer or an assistant treasurer, certificates for shares of stock of the corporation the board of directors has authorized for issuance. The president shall vote, or give a proxy, power of attorney or other delegation of authority to any other person to vote, all equity interests of any other entity standing in the name of the corporation. The president in general shall have all other powers and shall perform all other duties incident to the chief executive office of a corporation or as the board of directors may from time to time assign to the president.

4.7 VICE PRESIDENTS

In the absence of the president, at the president’s request or in the event of the president’s inability or refusal to act, the vice presidents in order of their rank as fixed by the board of directors or, if not ranked, the vice president designated by the board of directors or the president shall perform all duties of the president, including the duties of the chairman of the board if and as assumed by the president, and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties, not inconsistent with applicable laws, these bylaws, or action of the board of directors, as the board of directors or the president may from time to time assign to them. Any vice president may sign, with the secretary or an assistant secretary, or the treasurer or an assistant treasurer, certificates for shares of stock of the corporation the board of directors has authorized for issuance.

4.8 SECRETARY

The secretary shall: (a) keep the minutes of the meetings of the stockholders, the board of directors and committees of directors in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these bylaws or as required by law; (c) have charge of the corporate records and of the seal of the corporation; (d) keep a register of the post office address of each stockholder, director and committee member which shall from time to time be furnished to the secretary by such stockholder, director or member; (e) sign with the chairman of the board, the president or a vice president, certificates for shares of stock of the corporation the board of directors has authorized for issuance; (f) have general charge of the stock transfer books of the corporation; and (g) in general, perform all duties incident to the office of secretary and such other duties as the board of directors, the chairman of the board, or president may from time to time assign to the secretary. The secretary may delegate such details of the performance of duties of the secretary’s office as may be appropriate in the exercise of reasonable care to one or more persons in his or her stead, but shall not thereby be relieved of responsibility for the performance of such duties.

4.9 TREASURER

The treasurer shall: (a) be responsible to the board of directors for the receipt, custody and disbursement of all funds and securities of the corporation; (b) receive and give receipts for monies due and payable to the corporation from any source and deposit all such monies in the name of the corporation in such banks, trust companies or other depositories as shall from time

- 12 -

to time be selected in accordance with these bylaws; (c) disburse the funds of the corporation as ordered by the board of directors or the president or as otherwise required in the conduct of the business of the corporation; (d) render to the president or the board of directors, upon request, an account of all his or her transactions as treasurer and on the financial condition of the corporation; and (e) in general, perform all duties incident to the office of treasurer and such other duties as the board of directors, the chairman of the board, or the president may from time to time may assign to the treasurer. The treasurer may sign, with the chairman of the board, the president, or a vice president, certificates for shares of stock of the corporation the board of directors has authorized for issuance. The treasurer may delegate such details of the performance of duties of such office as may be appropriate in the exercise of reasonable care to one or more persons in his or her stead, but shall not thereby be relieved of responsibility for the performance of such duties. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his or her duties in such sum, and with such surety or sureties, as the board of directors shall determine.

4.10 ASSISTANT TREASURERS AND ASSISTANT SECRETARIES

The assistant treasurers and assistant secretaries shall perform all functions and duties which the secretary or treasurer, as the case may be, may assign or delegate; but such assignment or delegation shall not relieve the principal officer from the responsibilities and liabilities of his or her office. In addition, an assistant secretary or an assistant treasurer may sign with the chairman of the board, the president, or a vice president, certificates for shares of stock the board of directors has authorized for issuance; and the assistant secretaries and assistant treasurers shall, in general, perform such duties as the secretary or the treasurer, respectively, or the president or board of directors may from time to time assign to them. The assistant treasurers shall, if required by the board of directors, give bonds for the faithful discharge of their duties in such sums, and with such surety or sureties, as the board of directors shall determine.

4.11 SALARIES

The salaries of the officers shall be fixed from time to time by the board of directors, by such officer as it shall designate for such purpose or as it shall otherwise direct. No officer shall be prevented from receiving a salary or other compensation by reason of the fact that the officer is also a director of the corporation.

ARTICLE 5

DIVISIONS

5.1 DIVISIONS OF THE CORPORATION

The board of directors shall have the power to create and establish such operating divisions of the corporation as it may from time to time deem advisable.

- 13 -

5.2 OFFICIAL POSITIONS WITHIN A DIVISION

The chairman of the board or the president may appoint individuals to, and may, with or without cause, remove them from, official positions established within a division but not filled by the board of directors. The individuals appointed need not be officers of the corporation. Neither the chairman of the board nor the president may remove any individual appointed by the board of directors.

ARTICLE 6

CONTRACTS, LOANS, CHECKS AND DEPOSITS

6.1 CONTRACTS AND OTHER INSTRUMENTS

The board of directors may authorize any officer(s), agent(s) or employee(s) to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, or of any division thereof, subject to applicable law. Such authority may be general or confined to specific instances.

6.2 LOANS

No loans shall be contracted on behalf of the corporation, or any division thereof, and no evidence of indebtedness, other than in the ordinary course of business, shall be issued in the name of the corporation, or any division thereof, unless authorized by the board of directors. Such authorization may be general or confined to specific instances.

6.3 CHECKS, DRAFTS, ETC.

All checks, demands, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, or any division thereof, outside of the ordinary course of business shall be signed by such officers or agents of the corporation, and in such manner, as the board of directors may from time to time authorize.

6.4 DEPOSITS

All funds of the corporation, or any division thereof, not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the board of directors may select.

ARTICLE 7

CERTIFICATES OF STOCK AND THEIR TRANSFER

7.1 CERTIFICATES OF STOCK

The certificates of stock of the corporation shall be in a form approved by the board of directors, shall be numbered and shall be entered in the books of the corporation as they are issued. They shall exhibit the holder’s name and number of shares and shall be signed by the

- 14 -

chairman of the board, the president or a vice president and by the treasurer or an assistant treasurer or the secretary or an assistant secretary. If any stock certificate is signed (a) by a transfer agent or an assistant transfer agent or (b) by a transfer clerk acting on behalf of the corporation and a registrar, the signature of any officer of the corporation may be facsimile. In case any officer whose facsimile signature has thus been used on any such certificate shall cease to be such officer before the certificate has been issued, the certificate may nevertheless be issued with the same effect as if he or she were such officer at the date of issue. All certificates properly surrendered to the corporation for transfer shall be cancelled and, except as set forth in Section 7.2 below, no new certificate shall be issued to evidence transferred shares until the former certificate for at least a like number of shares has been surrendered and cancelled and the corporation reimbursed for any applicable taxes on the transfer.

7.2 LOST, STOLEN OR DESTROYED CERTIFICATES

The corporation may direct a new certificate or uncertificated shares to be issued in place of any certificate theretofore issued by the corporation alleged to have been lost, stolen or destroyed, and may also require the owner of the lost, stolen or destroyed certificate, or the owner’s legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against the corporation on account of the alleged loss, theft or destruction of such certificate or the issuance of a new certificate or uncertificated shares.

7.3 TRANSFERS OF STOCK

Transfers of shares of stock shall be made only on the books of the corporation by the registered holder thereof or by its attorney or successor duly authorized as evidenced by documents filed with the secretary or transfer agent of the corporation. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, and in compliance with any restrictions on transfer of which the corporation has notice applicable to the certificate or shares represented thereby, the corporation shall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. The board of directors may adopt such additional rules and regulations as it deems advisable concerning the transfer and registration of certificates of stock of the corporation.

7.4 RESTRICTIONS ON TRANSFER

Any stockholder may enter into an agreement with other stockholders or with the corporation providing for any reasonable restriction on the right of such stockholder to transfer shares of stock of the corporation held by such stockholder. If such restriction is set forth conspicuously on the certificates representing the shares or, in the case of uncertificated shares, is contained in a notice sent pursuant to Section 151(f) of the Delaware GCL, the corporation or the transfer agent shall not be required to transfer such shares upon the books of the corporation without receipt of satisfactory evidence of compliance with the terms of such restriction.

7.5 FIXING RECORD DATE

(a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may

- 15 -

fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting.

(b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date has been fixed by the board of directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. If no record date has been fixed by the board of directors and prior action by the board of directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day the board of directors adopts the resolution taking such prior action.

(c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto.

7.6 STOCKHOLDERS OF RECORD

The corporation shall be entitled to treat the holder of record of any shares of stock as the holder in fact of such shares. Accordingly, the corporation shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it has express or other notice thereof, except as otherwise provided by Delaware law.

- 16 -

ARTICLE 8

INDEMNIFICATION

8.1 IN GENERAL

The corporation shall have the power to indemnify any person who is or was a director, officer, employee or agent of the corporation, or who is or has served at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, in accordance with and to the full extent permitted by the Delaware GCL as in effect at the time of adoption of this bylaw or as amended from time to time.

8.2 INSURANCE

If authorized by the board of directors, the corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or who is or has served at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, to the full extent permitted by the Delaware GCL as in effect at the time of the adoption of this bylaw or as amended from time to time.

ARTICLE 9

NOTICE

9.1 MANNER OF NOTICE

Whenever under law, the certificate of incorporation or these bylaws notice is required to be given to any stockholder, director or member of any committee of the board of directors, it shall not be construed to require personal delivery. Except as otherwise provided in Section 3.7 of these bylaws, such notice also may be given in writing by depositing it in the United States mail (postage prepaid), by express overnight courier, or by facsimile or other electronic transmission. For purposes of these bylaws, “electronic transmission” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by the recipient through an automated process.

9.2 NOTICE TO STOCKHOLDERS BY ELECTRONIC TRANSMISSION

Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the corporation shall be effective if given by a form of electronic transmission consented to by the stockholder to whom notice is given. Any such consent shall be revocable by the stockholder by written notice to the corporation. Any such consent shall be deemed revoked if (a) the corporation is unable to deliver by electronic transmission two consecutive notices given by the corporation in accordance with such consent and (b) such inability becomes known to the secretary or an assistant secretary of the corporation or the transfer agent, or other person responsible for giving of notice; provided, however, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.

- 17 -

9.3 EFFECTIVENESS OF NOTICE

Notice given by mail shall be deemed to be given at the time it is deposited in the United States mail. Notice given by overnight courier service shall be deemed to be given when delivered to the overnight courier service for delivery. Notice given by facsimile or other electronic transmission shall be deemed given: (a) if by facsimile transmission, when directed to a number at recipient has consented to receive notice; (b) if by electronic mail, when directed to an electronic mail address at which the recipient has consented to receive notice; (c) if by a posting on an electronic network together with separate notice to the recipient of such specific posting, upon the later of (i) such posting and (ii) the giving of such separate notice; and (d) if by any other form of electronic transmission, when directed to the recipient. An affidavit of the secretary or an assistant secretary or of the transfer agent or other agent of the corporation that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein. The requirement for notice shall be deemed satisfied, except in the case of a stockholder meeting with respect to which written notice is required by law, if actual notice is received orally or in writing by the person entitled thereto as far in advance of the event with respect to which notice is given as the minimum notice period required by law or these bylaws.

9.4 WAIVER OF NOTICE

Whenever under law, the certificate of incorporation or these bylaws notice is required to be given, a waiver thereof in writing signed by the person or persons entitled to such notice, or a waiver by electronic transmission by the person entitled to notice, whether before, at or after the time stated therein, shall be deemed equivalent to notice. Attendance by a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or committee of directors need be specified in any written waiver of notice or any waiver by electronic transmission, unless so required by law, the certificate of incorporation or these bylaws.

ARTICLE 10

GENERAL PROVISIONS

10.1 FISCAL YEAR

The fiscal year of the corporation shall be fixed by resolution of the board of directors. In the absence of such a resolution, the fiscal year of the corporation shall be the calendar year.

- 18 -

10.2 CORPORATE SEAL

The board of directors may adopt a corporate seal inscribed with the name of the corporation and the words “CORPORATE SEAL” and “DELAWARE” and otherwise in the form approved by the board.

10.3 AMENDMENTS

These bylaws may be altered, amended or repealed (a) by the affirmative vote of a majority of the stock having voting power present in person or by proxy at any annual meeting of stockholders at which a quorum is present, or at any special meeting of stockholders at which a quorum is present, if notice of the proposed alteration, amendment or repeal is contained in the notice of such special meeting, or (b) by the affirmative vote of a majority of the directors then qualified and acting at any regular or special meeting of the board, if the certificate of incorporation confers such power upon the board; provided, however, that the stockholders may provide specifically for limitations on the power of directors to amend particular bylaws and, in such event, the directors’ power of amendment shall be so limited; and further provided that no reduction in the number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.

- 19 -

EX-3.23

Exhibit 3.23

OILFIELD TECHNOLOGY GROUP, INC.

CERTIFICATE OF INCORPORATION

FIRST: The name of this corporation shall be: OILFIELD TECHNOLOGY GROUP, INC.

SECOND: Its registered office in the State of Delaware is to be located at 2711 Centerville Road, Suite 400, in the City of Wilmington, County of New Castle and its registered agent at such address is Corporation Service Company.

THIRD: The purpose or purposes of the corporation shall be:

To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

FOURTH: The total number of shares of stock which this corporation is authorized to issue is: five hundred (500) shares of Common Stock, par value $0.01 per share.

FIFTH: The name and address of the incorporator is as follows: Patricia A. Heslep, 180 East Broad Street, Columbus, Ohio 43215.

SIXTH: The Board of Directors shall have the power to adopt, amend or repeal the by-laws.

SEVENTH: No director shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law, (i) for breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article Seventh shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment.

IN WITNESS WHEREOF, the undersigned, being the incorporation herein before named, has executed signed and acknowledged this certificate of incorporation this 31^st day of August, 2004.

/s/ Patricia A. Heslep

Patricia A. Heslep, Incorporator

EX-3.24

Exhibit 3.24

OILFIELD TECHNOLOGY GROUP, INC.

BY-LAWS

ARTICLE I

MEETINGS OF STOCKHOLDERS

Section 1. Place of Meeting and Notice. Meetings of the stockholders of the Corporation shall be held at such place either within or without the State of Delaware as the Board of Directors may determine.

Section 2. Annual and Special Meetings. Annual meetings of stockholders shall be held, at a date, time and place fixed by the Board of Directors and stated in the notice of meeting, to elect a Board of Directors and to transact such other business as may properly come before the meeting. Special meetings of the stockholders may be called by the Chairman or President for any purpose and shall be called by the Chairman, President or Secretary if directed by the Board of Directors or requested in writing by the holders of not less than 25% of the capital stock of the Corporation. Each such stockholder request shall state the purpose of the proposed meeting.

Section 3. Notice. Except as otherwise provided by law, at least 10 and not more than 60 days before each meeting of stockholders, written notice of the time, date and place of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder.

Section 4. Quorum. At any meeting of stockholders, the holders of record, present in person or by proxy, of a majority of the Corporation’s issued and outstanding capital stock shall constitute a quorum for the transaction of business, except as otherwise provided by law. In the absence of a quorum, any officer entitled to preside at or to act as secretary of the meeting shall have power to adjourn the meeting from time to time until a quorum is present.

Section 5. Voting. Except as otherwise provided by law, all matters submitted to a meeting of stockholders shall be decided by vote of the holders of record, present in person or by proxy, of a majority of the Corporation’s issued and outstanding capital stock entitled to vote thereon.

ARTICLE II

DIRECTORS

Section 1. Number Election and Removal of Directors. The number of Directors that shall constitute the Board of Directors shall be not less than one nor more than fifteen. The Directors shall be elected by stockholders at their annual meeting. Vacancies and newly created directorships resulting from any increase in the number of Directors may be filled by a majority of the Directors then in office, although less than a quorum, or by the sole remaining Director or by the stockholders. A Director may be removed with or without cause by the stockholders.

Section 2. Meetings. Regular meetings of the Board of Directors shall be held at such times and places as may from time to time be fixed by the Board of Directors or as may be specified in a notice of meeting. Special meetings of the Board of Directors may be held at any time upon the call of the Chairman or President and shall be called by the Chairman, President or Secretary if directed by the Board of Directors.

Section 3. Notice. At least one business day before each regular or special meeting of the Board of Directors, written or telephonic notice of the time, date and place of the meeting and the purpose or purposes for which the meeting is called, shall be given to each Director. Written notice shall be deemed to have been given to a Director in accordance with the preceding sentence when such notice is sent by facsimile transmission or otherwise delivered to the principal place of business of each such Director within the time restrictions as set forth in this Section herein.

Section 4. Quorum. A majority of the total number of Directors shall constitute a quorum for the transaction of business. If a quorum is not present at any meeting of the Board of Directors, the Directors present may adjourn the meeting from time to time, without notice other than announcement at the meeting, until such a quorum is present. Except as otherwise provided by law, the Certificate of Incorporation of the Corporation, these By-Laws or any contract or agreement to which the Corporation is a party, the act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors.

Section 5. Committees of Directors. The Board of Directors may, by resolution adopted by a majority of the whole Board, designate one or more committees, including, without limitation, an Executive Committee, to have and exercise such power and authority as the Board of Directors shall specify. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may unanimously appoint another Director to act at the meeting in place of any such absent or disqualified member.

ARTICLE III

OFFICERS

The officers of the Corporation shall consist of a President, a Secretary, a Treasurer, and may consist of Vice Presidents, Assistant Secretaries, Assistant Treasurers and such other additional officers with such titles as the Board of Directors shall determine, all of whom shall be chosen by and shall serve at the pleasure of the Board of Directors. All officers shall be subject to the supervision and direction of the Board of Directors. The authority, duties or responsibilities of any officer of the Corporation may be suspended by the Chairman or President with or without cause. Any officer elected or appointed by the Board of Directors may be removed by the Board of Directors with or without cause. In addition to the powers and duties set forth below, such officers shall have the usual powers and shall perform all the usual duties incident to their respective offices.

2

(a) President. The President shall be the chief executive officer of the Corporation; he shall preside at all meetings of the stockholders and of the Board of Directors; he shall have the management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect.

(b) Vice Presidents. During the absence or disability of the President, the Vice President, or if there are more than one, the Executive Vice President, shall have all the powers and function of the President. Each Vice President shall perform such other duties as the Board of Directors shall prescribe.

(c) Secretary. The Secretary shall: attend all meetings of the Board of Directors and all meetings of the stockholders; record all votes and minutes of all proceedings in a book to be kept for that purpose; give or cause to be given notice of all meetings of stockholders and of the special meetings of the Board of Directors; keep in safe custody the seal of the Corporation and affix it to any instrument when authorized by the Board of Directors; when required, prepare a list of stockholders or cause to be prepared and available at each meeting of stockholders entitled to vote thereat, indicating the number of shares of each respective class held by each; keep all the documents and records of the Corporation as required by law or otherwise in a proper and safe manner; and perform such other duties as may be prescribed by the Board of Directors.

(d) Assistant Secretaries. During the absence of disability of the Secretary, the Assistant Secretary, or if there are more than one, the one so designated by the Secretary or by the Board of Directors, shall have all the powers and functions of the Secretary.

(e) Treasurer. The Treasurer shall: have the custody of the corporate funds and securities; keep full and accurate accounts of receipts and disbursements in the corporate books; deposit all money and other valuables in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors; disburse the funds of the Corporation as may be ordered or authorized by the Board of Directors and preserve proper vouchers for such disbursements; render to the Chairman, President and Board of Directors at the regular meetings of the Board of Directors, or whenever they require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation; render a full financial report at the annual meetings of the stockholders if so requested; be furnished by all corporate officers and agents at his request, with such reports and statements as he may require as to all financial transactions of the Corporation; and perform such other duties as are given to him by the By-Laws or as from time to time are assigned to him by the Board of Directors or the President.

3

(f) Assistant Treasurers. During the absence or disability of the Treasurer, the Assistant Treasurer, or if there are more than one, the one so designated by the Secretary or by the Board of Directors, shall have all the powers and functions of the Treasurer.

ARTICLE IV

INDEMNIFICATION

To the fullest extent permitted by the Delaware General Corporation Law, the Corporation shall indemnify any current or former Director or officer of the Corporation and may, at the discretion of the Board of Directors, indemnify any current or former employee or agent of the Corporation against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with any threatened, pending or completed action, suit or proceeding brought by or in the right of the Corporation or otherwise, to which he or she was or is a party by reason of his or her current or former position with the Corporation or by reason of the fact that he or she is or was serving, at the request of the Corporation, as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise.

ARTICLE V

GENERAL PROVISIONS

Section 1. Notices. Whenever any statute, the Certificate of Incorporation or these By-Laws require notice to be given to any Director or stockholder, such notice may be given in writing by mail, addressed to such Director or stockholder at his or her address as it appears in the records of the Corporation, with postage thereon prepaid. Such notice shall be deemed to have been given when it is deposited in the United States mail. Notice to Directors may also be given by telegram or by facsimile transmission.

Section 2. Fiscal Year. The fiscal year of the Corporation shall be fixed by the Board of Directors.

4

EX-3.25

Exhibit 3.25

CERTIFICATE OF FORMATION

OF

HEXION CI HOLDING COMPANY (CHINA) LLC

This Certificate of Formation is being filed pursuant to Section 201 of the Delaware Limited Liability Company Act.

The undersigned, being duly authorized to execute and file this Certificate of Formation, does hereby certify as follows:

FIRST: The Name of the limited liability company is Hexion CI Holding Company (China) LLC.

SECOND: The Company’s registered office in the State of Delaware is 2711 Centerville Road, Suite 400 in the City of Wilmington, Delaware. The registered agent of the Company for service of process at such address is Corporation Service Company.

THIRD: The Certificate of Formation shall be effective upon its filing in the Office of the Secretary of State of the State of Delaware.

IN WITNESS WHEREOF, the undersigned has duly executed this Certificate of Formation as of the 30th day of September, 2005.

/s/ Patricia A. Heslep

Patricia A. Heslep

Authorized Person

EX-3.26

Exhibit 3.26

LIMITED LIABILITY COMPANY AGREEMENT

OF

HEXION CI HOLDING COMPANY (CHINA) LLC

THE UNDERSIGNED is executing this Limited Liability Company Agreement (this “Agreement”) for the purpose of forming a limited liability company (the “Company”) pursuant to the provisions of the Delaware Limited Liability Company Act (6 Del.C. § 18-101, et seq.), as amended from time to time (the “Act”), and does hereby certify and agree as follows:

1. Name; Certificate of Formation. The name of the limited liability company is Hexion CI Holdings Company LLC, or such other name as the Managing Member may from time to time hereafter designate.

2. Definitions. In addition to terms otherwise defined herein, the following terms are used herein as defined below, all capitalized terms not defined herein shall have the meaning ascribed to them in Section 18.101 of the Act:

“Managing Member” Means Lawter International, Inc. and all other persons or entities admitted as additional or substitute Managing Members pursuant to this Agreement, so long as they remain Managing Members.

“Non Managing Members” means any person or entities admitted as additional or substitute Non-Managing Members pursuant to this Agreement, so long as they remain Non-managing Members.

“Members” means those person or entities who from time to time are the Managing Member and the Non-Managing Members.

3. Purpose. The Company is formed for the object and purpose of, and the nature of the business to be conducted and promoted by the Company is, engaging in any lawful act or activity for which limited liability companies may be formed under the Act and engaging in any and all activities necessary or incidental to the foregoing.

4. Offices.

(a) The principal place of business and office of the Company shall be located at and the Company’s business shall be conducted from such place or places as the Managing Member may from time to time designate to the Non-Managing Members.

1

(b) Designated Agent for Service of Process shall be Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, DE 19808.

5. Officers. The Managing Member hereby appoints the following named persons to be officers of the Company (the “Officers”) and to serve with the title indicated:

NAME	TITLE
Jeffrey M. Nodland	President
William H. Carter	Vice President
George F. Knight	Vice President & Treasurer
Scott A. Craycraft	Assistant Treasurer
Thomas P. Bausch	Assistant Treasurer
Ellen German Berndt	Secretary

6. Powers. Each of the Officers (and, with respect only to the certificate of formation and any amendments and/or restatements thereof, Patricia A. Heslep) are hereby each designated as an authorized person, within the meaning of the Act, to execute, deliver and file the certificate of formation of the Company (and any amendments and/or restatements thereof) and any other certificates (and any amendments and/or restatements thereof) necessary for the Company to qualify to do business in a jurisdiction in which the Company may wish to conduct business.

7. Members. The name and business or residence of each Member of the Company is set forth on Schedule A attached hereto. As of the date hereof, the Managing Member is the sole Member of the Company.

8. Term. The term of the Company commenced on the date of filing of the Certificate of Formation of the Company in accordance with the Act and shall continue until dissolution of the Company in Accordance with this agreement.

9. Management.

(a) The Managing Member shall have the sole and exclusive power and authority to act for and bind the Company. The Managing Member shall have the exclusive right to manage the business and affairs of the Company and may delegate such management rights, powers, duties and responsibilities to one or more Officers or such other person or persons designated by them as they may determine, provided that such delegation by the Managing Member shall not cause the Managing Member to cease being a Member. Pursuant to its discretion to do so under this Section, the Managing Member hereby delegates to each of the Officers the nonexclusive power and authority to act as an agent of the Company and, in such capacity, to bind the Company in the ordinary course of the

2

Company’s business and to execute any and all documents to be signed by the Company. Notwithstanding the foregoing delegation of power, no Officer shall have the authority to make any distributions or sell any assets of the Company without the written consent of the Managing Member.

(b) No Non-Managing Member, in his status as such, shall have the right to take part in the management or control of the business of the Company or to act for or bind the Company or otherwise to transact any business on behalf of the Company.

10. Liability of Members; Indemnification. The Members shall not have any liability to the Company, any other Members or any third party for the obligations or liabilities of the Company except to the extent required by the Act. The Company shall, to the full extent permitted by applicable law, indemnify and hold harmless each Member and each Officer against liabilities incurred by it in connection with any action, suit or proceeding to which it may be made a party or otherwise involved or with which such Member or such Officer shall be threatened by reason of its being a Member or Officer or while acting as a Member or Officer on behalf of the Company or in its interest.

11. Capital Contributions. The Members shall make capital contributions to the Company from time to time, in cash, securities or other property, in amounts and at times as determined by the Senior Member, and in proportion to their respective Membership Percentages.

12. Assignments. No Non-Managing Member may sell, assign, pledge or otherwise transfer or encumber (collectively “transfer”) all or any part its limited liability company interest without the consent of the other Member, which consent may be granted or withheld in such Member’s sole and absolute discretion.

13. Withdrawal. No Non-Managing Member shall have the right to withdraw from the Company except with the consent of the Managing Member and upon such terms and conditions as may be specifically agreed upon between the Managing Member and the withdrawing Non-Managing Member. The provisions hereof with respect to distributions upon withdrawal are exclusive and no Non-Managing Member shall be entitled to claim any further or different distribution upon withdrawal under Section 18-604 of the Act or otherwise. The Managing Member may withdraw from the Company at any time, thereby causing its dissolution, without the consent of any other Member.

14. Additional Members. The Managing Member shall have the right to admit Non-Managing Members upon such terms and conditions at such time or times, and for such capital contributions as shall be determined by the Managing Member; and in connection with any such admission, the Managing Member shall have the right to amend Schedule A hereof to reflect the name, address and capital contribution of the admitted Non-Managing Member.

3

15. Allocation of Profits and losses. The Company’s profits and losses shall be allocated among the Members in proportion to their respective Membership Percentages.

16. Distributions. Distributions shall be made to the Members at the times and in the amounts determined by the Managing Member. Such distributions shall be allocated among the Members in proportion to their respective Membership Percentages.

17. Dissolution. The Company shall be dissolved and its affairs wound up and terminated upon the first to occur of the following:

(a) The determination of the Managing Member to dissolve the Company; or

(b) The death, retirement, resignation, expulsion, bankruptcy or dissolution of the Managing Member or the occurrence of any other event which terminates the continued membership of the Managing Member in the Company, provided, however, the Company shall not be dissolved if, within ninety (90) days after the occurrence of such event, all remaining members agree in writing to continue the business of the Company and to the appointment, effective as of the date of such event, of one or more additional managing members of the Company.

18. Governing Law. This Agreement shall be governed by, and construed under, the laws of the State of Delaware, all rights and remedies being governed by said laws.

19. Amendment. This Agreement may only be amended by a writing duly signed by the Senior Member, except that any such amendment which directly and materially affects any Member shall require the consent of each such Member so affected.

20. Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart shall for all purposes be deemed an original, and all such counterparts shall together constitute but one and the same agreement.

21. Entire Agreement. This Agreement constitutes the entire agreement among the Members and supersedes all prior agreements and understandings among the Members with respect to the matters contemplated hereby. There are no restrictions, warranties, covenants, agreements, promises or undertakings other than those expressly set forth in this Agreement.

4

IN WITNESS WHEREOF, the undersigned, intending to be legally bound hereby, have duly executed this Limited Liability Company Agreement as of the date first written above.

Executed as of the 30th day of September, 2005.

LAWTER INTERNATIONAL, INC.
By:	/s/ George F. Knight
Name:	George F. Knight
Title:	Vice President

5

SCHEDULE A

Managing Member                                                              100%

Lawter International, Inc.

1600 Smith Street

Houston, Texas 77002

6

EX-4.27

Exhibit 4.27

SECOND SUPPLEMENTAL INDENTURE (this “Second Supplemental Indenture”), dated as of December 23, 2005 among Hexion Specialty Chemicals, Inc. (formerly known as Borden Chemical, Inc., or its permitted successor), a New Jersey corporation (“Holdings”), Hexion CI Holding Company (China) LLC, a Delaware limited liability company and an indirect subsidiary of Holdings (the “Additional Subsidiary Guarantor”), Hexion U.S. Finance Corp. (formerly known as Borden U.S. Finance Corp.), a Delaware corporation (“Hexion U.S.”) and Hexion Nova Scotia Finance, ULC (formerly known as Borden Nova Scotia Finance, ULC), a Nova Scotia unlimited liability company (“Hexion Nova Scotia”, and together with Hexion U.S., the “Issuers”), and Wilmington Trust Company, as Trustee under the Indenture (the “Trustee”).

W I T N E S S E T H :

WHEREAS, the Issuers, Holdings and the Subsidiary Guarantors have heretofore executed and delivered to the Trustee an Indenture dated as of August 12, 2004 (as amended by the First Supplemental Indenture dated as of May 31, 2005, the “Indenture”), providing for the issuance of Floating Rate Notes and Fixed Rate Notes (the “Notes”);

WHEREAS, pursuant to Section 4.11 and 10.06 of the Indenture, Holdings has agreed to cause the Additional Subsidiary Guarantor to execute and deliver to the Trustee a supplemental indenture pursuant to which such Additional Subsidiary Guarantor will Guarantee payment on the Notes on the terms set forth in the Indenture; and

WHEREAS, pursuant to Section 9.01(iv) of the Indenture, the Trustee and the Issuers are authorized to execute and deliver this Second Supplemental Indenture.

NOW THEREFORE, in consideration of the foregoing and for good and valuable consideration, the receipt of which is hereby acknowledged, the Issuers, the Additional Subsidiary Guarantor and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

SECTION 1. Capitalized Terms. Capitalized terms used herein but not defined shall have the meanings assigned to them in the Indenture.

SECTION 2. Guarantees. The Additional Subsidiary Guarantor hereby agrees, jointly and severally with all other Guarantors, to guarantee the Issuers’ obligations under the Notes on the terms and subject to the conditions set forth in Article 10 of the Indenture and to be bound by all other applicable provisions of the Indenture (including Article 11).

SECTION 3. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Second Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.

SECTION 4. Notices. For purposes of the Indenture, the address for notice to Hexion U.S., Hexion Nova Scotia and the Additional Subsidiary Guarantor shall be the address for the Issuers and Guarantors set forth in Section 13.02 of the Indenture.

1

SECTION 5. Governing Law. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

SECTION 6. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Second Supplemental Indenture or for or in respect of the recitals contained herein, all of which are made solely by the Issuers and the Additional Subsidiary Guarantor. The Trustee makes no representation as to the validity or sufficiency of this Second Supplemental Indenture. Except as otherwise expressly provided herein, no duties, responsibilities or liabilities are assumed, or shall be construed to be assumed by the Trustee by reason of this Second Supplemental Indenture. This Second Supplemental Indenture is executed and accepted by the Trustee subject to all the terms and conditions set forth in the Indenture with the same force and effect as if those terms and conditions were repeated at length herein and made applicable to the Trustee with respect hereto. In entering into this Second Supplemental Indenture, the Trustee shall be entitled to the benefit of every provision of the Indenture relating to the conduct or affecting the liability or affording protection to the Trustee, whether or not elsewhere herein so provided.

SECTION 7. Counterparts. The parties may sign any number of copies of this Second Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

SECTION 8. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction of this Second Supplemental Indenture.

2

IN WITNESS WHEREOF, the parties have caused this Second Supplemental Indenture to be duly executed as of the date first written above.

ISSUERS
HEXION U.S. FINANCE CORP.
HEXION NOVA SCOTIA FINANCE, ULC
By:	/s/ George F. Knight
	Name:	George F. Knight
	Title:	Senior Vice President
HOLDINGS
HEXION SPECIALTY CHEMICALS, INC.
By:	/s/ George F. Knight
	Name:	George F. Knight
	Title:	Senior Vice President
ADDITIONAL SUBSIDIARY GUARANTOR
HEXION CI HOLDING COMPANY (CHINA) LLC
By:	/s/ George F. Knight
	Name:	George F. Knight
	Title:	Senior Vice President

Second Supplemental Indenture to Borden August 2004 Indenture S-1

IN WITNESS WHEREOF, the parties have caused this Second Supplemental Indenture to be duly executed as of the date first written above.

TRUSTEE
WILMINGTON TRUST COMPANY, as trustee
By:	/s/ Mary St. Amand
	Name:	Mary St. Amand
	Title:	Assistant Vice President

Second Supplemental Indenture to Borden August 2004 Indenture S-2

EX-4.28

Exhibit 4.28

SECOND SUPPLEMENTAL INDENTURE, dated as of December 23, 2005 (this “Second Supplemental Indenture”), is by and among Hexion U.S. Finance Corp. (formerly known as Borden U.S. Finance Corp., and as successor to BCI US Finance Corp.), a Delaware corporation (“Hexion U.S.”), Hexion Nova Scotia Finance, ULC (formerly known as Borden Nova Scotia Finance, ULC, and as successor to Borden 2 Nova Scotia Finance, ULC), a Nova Scotia unlimited liability company (“Hexion Nova Scotia”, and together with Hexion U.S., the “Issuers”), Hexion Specialty Chemicals, Inc. (formerly known as Borden Chemical, Inc. or its permitted successor), a New Jersey corporation (“Holdings”), Hexion CI Holding Company (China) LLC, a Delaware limited liability company and an indirect subsidiary of Holdings (the “Additional Subsidiary Guarantor”) and Wilmington Trust Company, as trustee (the “Trustee”).

W I T N E S S E T H:

WHEREAS, the Issuers, Holdings and the Trustee are parties to an indenture dated as of May 20, 2005 (as amended by the First Supplemental Indenture dated as of May 31, 2005, the “Indenture”), providing for the issuance of the Issuers’ Second-Priority Senior Secured Floating Rate Notes due 2010 (the “Notes”);

WHEREAS, pursuant to Section 4.11 and 10.06 of the Indenture, Holdings has agreed to cause the Additional Subsidiary Guarantor to execute and deliver to the Trustee a supplemental indenture pursuant to which such Additional Subsidiary Guarantor will Guarantee payment on the Notes on the terms set forth in the Indenture; and

WHEREAS, pursuant to Section 9.01(iv) of the Indenture, the Trustee and the Issuers are authorized to execute and deliver this Second Supplemental Indenture.

NOW, THEREFORE, in consideration of the foregoing and for good and valuable consideration, the receipt of which is hereby acknowledged, the Issuers, the Additional Subsidiary Guarantor and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

1. Capitalized Terms. Capitalized terms used herein but not defined shall have the meanings assigned to them in the Indenture.

2. Guarantees. The Additional Subsidiary Guarantor hereby agrees, jointly and severally with all other Guarantors, to guarantee the Issuers’ obligations under the Notes on the terms and subject to the conditions set forth in Article 10 of the Indenture and to be bound by all other applicable provisions of the Indenture (including Article 11).

3. Ratification of Indenture; Supplemental Indentures Part of Indenture. Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Second Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Notes heretofore or hereafter authenticated and delivered shall be bound hereby.

4. Notices. For purposes of the Indenture, the address for notices to Hexion U.S., Hexion Nova Scotia and the Additional Subsidiary Guarantor shall be the address for the Issuers and Guarantors set forth in Section 13.02 of the Indenture.

5. Governing Law. THIS SECOND SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

6. Counterparts. The parties may sign any number of copies of this Second Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

7. Effect of Headings. The section headings herein are for convenience only and shall not affect the construction hereof.

8. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Second Supplemental Indenture for or in respect of the recitals contained herein, all of which are made solely by Hexion U.S., Hexion Nova Scotia and the Additional Subsidiary Guarantor. The Trustee makes no representation as to the validity or sufficiency of this Second Supplemental Indenture. Except as otherwise expressly provided herein, no duties, responsibilities or liabilities are assumed, or shall be construed to be assumed, by the Trustee by reason of this Second Supplemental Indenture. This Second Supplemental Indenture is executed and accepted by the Trustee subject to all the terms and conditions set forth in the Indenture with the same force and effect as if those terms and conditions were repeated at length herein and made applicable to the Trustee with respect hereto. In entering into this Second Supplemental Indenture, the Trustee shall be entitled to the benefit of every provision of the Indenture relating to the conduct or affecting the liability or affording protection to the Trustee, whether or not elsewhere herein so provided.

2

IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed, all as of the date first above written.

ISSUERS
HEXION U.S. FINANCE CORP.
HEXION NOVA SCOTIA FINANCE, ULC
By:	/s/ George F. Knight
	Name:	George F. Knight
	Title:	Vice President
HOLDINGS
HEXION SPECIALTY CHEMICALS, INC.
By:	/s/ George F. Knight
	Name:	William H. Carter
	Title:	Vice President
SUBSIDIARY GUARANTOR
HEXION CI HOLDING COMPANY (CHINA) LLC
By:	/s/ George F. Knight
	Name:	George F. Knight
	Title:	Vice President

Second Supplemental Indenture	S-1
to Borden May 2005 Indenture

IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be duly executed, all as of the date first above written.

TRUSTEE
WILMINGTON TRUST COMPANY, as Trustee
By:	/s/ Mary St. Amand
Name:	Mary St. Amand
Title:	Assistant Vice President

Second Supplemental Indenture	S-2
to Borden May 2005 Indenture

EX-4.29

Exhibit 4.29

THIRD SUPPLEMENTAL INDENTURE, dated as of December 23, 2005 (this “Third Supplemental Indenture”), by and between Hexion Specialty Chemicals, Inc. (formerly known as Borden Chemical, Inc. and as successor to Resolution Performance Products Corp. (formerly known as Resolution Performance Products LLC)), a New Jersey corporation (“Hexion”), HSC Capital Corporation (formerly known as RPP Capital Corporation), a Delaware corporation (“HSC Capital” and, together with Hexion, the “Issuers”), Hexion CI Holding Company (China) LLC, a Delaware limited liability company (the “New Guarantor”), and The Bank of New York (as successor in interest to the corporate trust business of United States Trust Company of New York), as Trustee (the “Trustee”) under the Indenture (as defined below).

W I T N E S S E T H:

WHEREAS, the Issuers and the Trustee have entered into that certain Indenture dated as of November 14, 2000 (as amended by the First Supplemental Indenture dated as of May 31, 2005 and the Second Supplemental Indenture dated as of May 31, 2005, the “Indenture”) providing for the issuance of 13 ¹/2% Senior Subordinated Notes due 2010 (the “Securities”);

WHEREAS, Section 4.21 of the Indenture provides that if Hexion organizes or acquires any Domestic Restricted Subsidiary after the Issue Date, under certain circumstances, Hexion shall, among other things, (i) execute and deliver to the Trustee a supplemental indenture pursuant to which such New Domestic Restricted Subsidiary shall unconditionally guarantee all of Hexion’s obligations under the Securities and the Indenture and (ii) cause such New Domestic Restricted Subsidiary to promptly execute and deliver to the Trustee a Subsidiary Guarantee;

WHEREAS, the New Guarantor is a Domestic Restricted Subsidiary of Hexion that was not previously required to become a Guarantor under the Indenture prior to the date hereof, but which is required to become a Guarantor under the Indenture on the date hereof;

WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee and the Issuers are authorized to execute and deliver this Third Supplemental Indenture; and

NOW, THEREFORE, in consideration of the foregoing and for good and valuable consideration, the receipt of which is hereby acknowledged, the Issuers, Hexion, the New Guarantor and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Securities as follows:

ARTICLE I

GUARANTEES

1.1 Guarantees by the New Guarantor

The New Guarantor hereby agrees, jointly and severally with all other Guarantors, to unconditionally guarantee on a senior subordinated basis all of the Issuers’ obligations under the Securities and the Indenture on the terms and subject to the conditions set forth in Article XI of the Indenture and to be bound by all other applicable provisions of the Indenture (including Article XII).

1

ARTICLE II

MISCELLANEOUS

2.1 Ratification of Indenture; Third Supplemental Indenture Part of Indenture

Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Third Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby.

2.2 Severability

In case any provision in this Third Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

2.3 Capitalized Terms

Capitalized terms used herein but not defined shall have the meanings assigned to them in the Indenture.

2.4 Effect of Headings

The Article and Section headings of herein are for convenience only and shall not effect the construction of this Third Supplemental Indenture.

2.5 Trustee Makes No Representations

The Trustee makes no representation as to the validity or sufficiency of this Third Supplemental Indenture.

2.6 Certain Duties and Responsibilities of the Trustee

In entering into this Third Supplemental Indenture, the Trustee shall be entitled to the benefit of every provision of the Indenture relating to the conduct or affecting the liability or affording protection to the Trustee, whether or not elsewhere herein so provided.

2.7 Governing Law

THIS THIRD SUPPLEMENTAL INDENTURE, THE SECURITIES AND THE SUBSIDIARY GUARANTEES WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of, or relating to, this Third Supplemental Indenture, the Securities or the Subsidiary Guarantees.

2

2.8 Counterparts

The parties may sign any number of copies of this Third Supplemental Indenture. Each signed copy shall be an original, but all of them together represent one and the same agreement.

[signature page follows]

3

IN WITNESS WHEREOF, the parties have caused this Third Supplemental Indenture to be duly executed as of the date first above written.

ISSUERS
HEXION SPECIALTY CHEMICALS, INC.
By:	/s/ George F. Knight
	Name:	George F. Knight
	Title:	Vice President
HSC CAPITAL CORPORATION
By:	/s/ George F. Knight
	Name:	George F. Knight
	Title:	Vice President
NEW GUARANTOR
HEXION CI HOLDING COMPANY (CHINA) LLC
By:	/s/ George F. Knight
	Name:	George F. Knight
	Title:	Vice President

Third Supplemental Indenture 4

to RPP November 2000 Indenture

TRUSTEE
THE BANK OF NEW YORK, as trustee
By:	/S/ MARY LAGUMINA
	Name:	Mary LaGumina
	Title:	Vice President

Third Supplemental Indenture to RPP November 2000 Indenture 5

EX-4.30

Exhibit 4.30

THIRD SUPPLEMENTAL INDENTURE, dated as of December 23, 2005 (this “Third Supplemental Indenture”), by and between Hexion Specialty Chemicals, Inc. (formerly known as Borden Chemical, Inc. and as successor to Resolution Performance Products Corp. (formerly known as Resolution Performance Products LLC)), a New Jersey corporation (“Hexion”), HSC Capital Corporation (formerly known as RPP Capital Corporation), a Delaware corporation (“HSC Capital” and, together with Hexion, the “Issuers”), Hexion CI Holding Company (China) LLC, a Delaware limited liability company (the “New Guarantor”), and Deutsche Bank Trust Company Americas, as Trustee (the “Trustee”) under the Indenture (as defined below).

W I T N E S S E T H:

WHEREAS, the Issuers and the Trustee have entered into that certain Indenture dated as of April 9, 2003 (as amended by the First Supplemental Indenture dated as of May, 31, 2005 and the Second Supplemental Indenture dated as of May 31, 2005, the “Indenture”) providing for the issuance of 9 ¹/2% Senior Second Secured Notes due 2010 (the “Securities”);

WHEREAS, Section 4.21 of the Indenture provides that if Hexion organizes or acquires any Domestic Restricted Subsidiary after the Issue Date, under certain circumstances, Hexion shall, among other things, (i) execute and deliver to the Trustee a supplemental indenture pursuant to which such New Domestic Restricted Subsidiary shall unconditionally guarantee all of Hexion’s obligations under the Securities and the Indenture and (ii) cause such New Domestic Restricted Subsidiary to promptly execute and deliver to the Trustee a Subsidiary Guarantee;

WHEREAS, the New Guarantor is a Domestic Restricted Subsidiary of Hexion that was not previously required to become a Guarantor under the Indenture prior to the date hereof, but which is required to become a Guarantor under the Indenture on the date hereof;

WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee and the Issuers are authorized to execute and deliver this Third Supplemental Indenture; and

NOW, THEREFORE, in consideration of the foregoing and for good and valuable consideration, the receipt of which is hereby acknowledged, the Issuers, Hexion, the New Guarantor and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Securities as follows:

ARTICLE I

GUARANTEES

1.1 Guarantees by the New Guarantor

The New Guarantor hereby agrees, jointly and severally with all other Guarantors, to unconditionally guarantee on a senior subordinated basis all of the Issuers’ obligations under the Securities and the Indenture on the terms and subject to the conditions set forth in Article XI of the Indenture and to be bound by all other applicable provisions of the Indenture.

ARTICLE II

MISCELLANEOUS

2.1 Ratification of Indenture; Third Supplemental Indenture Part of Indenture

Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Third Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby.

2.2 Severability

In case any provision in this Third Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

2.3 Capitalized Terms

Capitalized terms used herein but not defined shall have the meanings assigned to them in the Indenture.

2.4 Effect of Headings

The Article and Section headings of herein are for convenience only and shall not effect the construction of this Third Supplemental Indenture.

2.5 Trustee Makes No Representations

The Trustee makes no representation as to the validity or sufficiency of this Third Supplemental Indenture.

2.6 Certain Duties and Responsibilities of the Trustee

In entering into this Third Supplemental Indenture, the Trustee shall be entitled to the benefit of every provision of the Indenture relating to the conduct or affecting the liability or affording protection to the Trustee, whether or not elsewhere herein so provided.

2.7 Governing Law

THIS THIRD SUPPLEMENTAL INDENTURE, THE SECURITIES AND THE SUBSIDIARY GUARANTEES WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of, or relating to, this Third Supplemental Indenture, the Securities or the Subsidiary Guarantees.

2

2.8 Counterparts

The parties may sign any number of copies of this Third Supplemental Indenture. Each signed copy shall be an original, but all of them together represent one and the same agreement.

[signature page follows]

3

IN WITNESS WHEREOF, the parties have caused this Third Supplemental Indenture to be duly executed as of the date first above written.

ISSUERS
HEXION SPECIALTY CHEMICALS, INC.
By:	/s/ George F. Knight
	Name:	George F. Knight
	Title:	Vice President
HSC CAPITAL CORPORATION
By:	/s/ George F. Knight
	Name:	George F. Knight
	Title:	Vice President
NEW GUARANTOR
HEXION CI HOLDING COMPANY (CHINA) LLC
By:	/s/ George F. Knight
	Name:	George F. Knight
	Title:	Vice President

Third Supplemental Indenture to RPP April 2003 Indenture S-1

TRUSTEE
DEUTSCHE BANK TRUST COMPANY AMERICAS, as trustee
By:	/S/ ANNIE JAGHATSPANYAN
	Name:	Annie Jaghatspanyan
	Title:	Assistant Vice President

Third Supplemental Indenture to RPP April 2003 Indenture S-2

EX-4.31

Exhibit 4.31

THIRD SUPPLEMENTAL INDENTURE, dated as of December 23, 2005 (this “Third Supplemental Indenture”), by and between Hexion Specialty Chemicals, Inc. (formerly known as Borden Chemical, Inc. and as successor to Resolution Performance Products Corp. (formerly known as Resolution Performance Products LLC)), a New Jersey corporation (“Hexion”), HSC Capital Corporation (formerly known as RPP Capital Corporation), a Delaware corporation (“HSC Capital” and, together with Hexion, the “Issuers”), Hexion CI Holding Company (China) LLC, a Delaware limited liability company (the “New Guarantor”), and The Bank of New York, as Trustee (the “Trustee”) under the Indenture (as defined below).

W I T N E S S E T H:

WHEREAS, the Issuers and the Trustee have entered into that certain Indenture dated as of December 22, 2003 (as amended by the First Supplemental Indenture dated as of May 31, 2005 and the Second Supplemental Indenture dated as of May 31, 2005 the “Indenture”) providing for the issuance of 8% Senior Secured Notes due 2009 (the “Securities”);

WHEREAS, Section 4.21 of the Indenture provides that if Hexion organizes or acquires any Domestic Restricted Subsidiary after the Issue Date, under certain circumstances, Hexion shall, among other things, (i) execute and deliver to the Trustee a supplemental indenture pursuant to which such New Domestic Restricted Subsidiary shall unconditionally guarantee all of Hexion’s obligations under the Securities and the Indenture and (ii) cause such New Domestic Restricted Subsidiary to promptly execute and deliver to the Trustee a Subsidiary Guarantee;

WHEREAS, the New Guarantor is a Domestic Restricted Subsidiary of Hexion that was not previously required to become a Guarantor under the Indenture prior to the date hereof, but which is required to become a Guarantor under the Indenture on the date hereof;

WHEREAS, pursuant to Section 9.1 of the Indenture, the Trustee and the Issuers are authorized to execute and deliver this Third Supplemental Indenture; and

NOW, THEREFORE, in consideration of the foregoing and for good and valuable consideration, the receipt of which is hereby acknowledged, the Issuers, Hexion, the New Guarantor and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Securities as follows:

ARTICLE I

GUARANTEES

1.1 Guarantees by the New Guarantor

The New Guarantor hereby agrees, jointly and severally with all other Guarantors, to unconditionally guarantee on an unsubordinated basis all of the Issuers’ obligations under the Securities and the Indenture on the terms and subject to the conditions set forth in Article XI of the Indenture and to be bound by all other applicable provisions of the Indenture.

ARTICLE II

MISCELLANEOUS

2.1 Ratification of Indenture; Third Supplemental Indenture Part of Indenture

Except as expressly amended hereby, the Indenture is in all respects ratified and confirmed and all the terms, conditions and provisions thereof shall remain in full force and effect. This Third Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Securities heretofore or hereafter authenticated and delivered shall be bound hereby.

2.2 Severability

In case any provision in this Third Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

2.3 Capitalized Terms

Capitalized terms used herein but not defined shall have the meanings assigned to them in the Indenture.

2.4 Effect of Headings

The Article and Section headings of herein are for convenience only and shall not effect the construction of this Third Supplemental Indenture.

2.5 Trustee Makes No Representations

The Trustee makes no representation as to the validity or sufficiency of this Third Supplemental Indenture.

2.6 Certain Duties and Responsibilities of the Trustee

In entering into this Third Supplemental Indenture, the Trustee shall be entitled to the benefit of every provision of the Indenture relating to the conduct or affecting the liability or affording protection to the Trustee, whether or not elsewhere herein so provided.

2.7 Governing Law

THIS THIRD SUPPLEMENTAL INDENTURE, THE SECURITIES AND THE SUBSIDIARY GUARANTEES WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to the jurisdiction of the courts of the State of New York in any action or proceeding arising out of, or relating to, this Third Supplemental Indenture, the Securities or the Subsidiary Guarantees.

2

2.8 Counterparts

The parties may sign any number of copies of this Third Supplemental Indenture. Each signed copy shall be an original, but all of them together represent one and the same agreement.

[signature page follows]

3

IN WITNESS WHEREOF, the parties have caused this Third Supplemental Indenture to be duly executed as of the date first above written.

ISSUERS
HEXION SPECIALTY CHEMICALS, INC.
By:	/s/ George F. Knight
	Name:	George F. Knight
	Title:	Senior Vice President
HSC CAPITAL CORPORATION
By:	/s/ George F. Knight
	Name:	George F. Knight
	Title:	Senior Vice President
NEW GUARANTOR
HEXION CI HOLDING COMPANY (CHINA) LLC
By:	/s/ George F. Knight
	Name:	George F. Knight
	Title:	Senior Vice President

Third Supplemental Indenture S-1

to RPP December 2003 Indenture

TRUSTEE
THE BANK OF NEW YORK, as trustee
By:	/S/ MARY LAGUMINA
	Name:	Mary LaGumina
	Title:	Vice President

Third Supplemental Indenture to RPP December 2003 Indenture S-2

EX-5.1

Exhibit 5.1

	O O’MELVENY & MYERS LLP
BEIJING	Times Sguare Tower	NEWPORT BEACH
BRUSSELS	7 Times Square	SAN FRANCISCO
CENTURY CITY	New York, New York 10036	SHANGHAI
HONG KONG		SILICON VALLEY
LONDON	TELEPHONE (212) 326-2000	TOKYO
LOS ANGELES	FACSIMILE (212) 326-2061	WASHINGTON, D.C.
	www.omm.com

December 27, 2005

Hexion U.S. Finance Corp.

180 East Broad Street

Columbus, OH 43215

Hexion Nova Scotia Finance, ULC

180 East Broad Street

Columbus, OH 43215

Re: Registration of Securities of Hexion U.S. Finance Corp. and Hexion Nova Scotia Finance, ULC

Ladies and Gentlemen:

At your request, we have examined the Registration Statement on Form S-4 (File No. 333-122826), as amended (the “Registration Statement”), of Hexion U.S. Finance Corp., a Delaware corporation, and Hexion Nova Scotia Finance, ULC, a Nova Scotia unlimited liability company, (each an “Issuer”, and together, the “Issuers”), in connection with the Issuers’ offer to exchange up to (i) $150,000,000 aggregate principal amount of the Issuers’ Second-Priority Senior Secured Floating Rate Notes due 2010, which have been registered under the Securities Act of 1933 (the “Exchange Floating Rate Notes”), for a like principal amount of the Issuers’ outstanding Second-Priority Senior Secured Floating Rate Notes due 2010 (the “Old Floating Rate Notes”) and (ii) $325,000,000 aggregate principal amount of the Issuers’ 9% Second-Priority Senior Secured Notes due 2014, which have been registered under the Securities Act of 1933 (the “Exchange Fixed Rate Notes” and, together with the Exchange Floating Rate Notes, the “Exchange Notes”), for a like principal amount of the Issuers’ outstanding 9% Second-Priority Senior Secured Notes due 2014 (the “Old Fixed Rate Notes” and, together with the Old Floating Rate Notes, the “Old Notes”), with the Exchange Notes to be guaranteed (the “Guarantees”) by each of the parties listed on Schedule I attached hereto (each a “Guarantor” and collectively, the “Guarantors”).

Hexion U.S. Finance Corp.

Hexion Nova Scotia Finance, ULC

December 27, 2005

Page 2

We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate and unlimited liability company records, certificates of public officials and other instruments as we have deemed necessary or advisable for the purpose of rendering this opinion.

On the basis of such examination, our reliance upon the assumptions in this opinion and our consideration of those questions of law we considered relevant, and subject to the limitations and qualifications in this opinion, we are of the opinion that:

1. Assuming the due authorization by Hexion Nova Scotia Finance, ULC, when issued, executed, delivered and authenticated in accordance with the terms of the Registered Exchange Offer and the Indenture (each as defined in the Registration Rights Agreement dated as of August 12, 2004, among the Issuers, Hexion Specialty Chemicals, Inc., certain subsidiaries of Hexion Specialty Chemicals, Inc. listed on a schedule thereto, Credit Suisse First Boston LLC, J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated), the Exchange Notes will be the legally valid and binding obligations of the Issuers, enforceable against the Issuers in accordance with their terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors’ rights generally (including, without limitation, fraudulent conveyance laws) and by general principles of equity including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law and possible judicial action giving effect to governmental actions or foreign laws affecting creditors’ rights generally.

2. Assuming due authorization of the Guarantees and due authorization of the Indenture by Hexion Specialty Chemicals Inc., when the Exchange Notes have been issued, executed and authenticated in accordance with the terms of the Registered Exchange Offer and the Indenture, the Guarantees of each Guarantor with respect to the Exchange Notes will be the legally valid and binding obligation of such Guarantor, enforceable against such Guarantor, as the case may be, in accordance with their terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors’ rights generally (including, without limitation, fraudulent conveyance laws), the effect of the seventh article of the certificate of incorporation of BDS Two, Inc., the effect of the eighth article of the certificate of incorporation of Lawter International Inc., the effect of the eleventh article of the certificate of incorporation of Bakelite North America Holding Company, the effect of the tenth article of the certificate of

Hexion U.S. Finance Corp.

Hexion Nova Scotia Finance, ULC

December 27, 2005

Page 3

incorporation of Bakelite Epoxy Polymers Corporation, and by general principles of equity including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law and possible judicial action giving effect to governmental actions or foreign laws affecting creditors’ rights generally.

The law governed by this opinion is limited to the present federal law of the United States, the present law of the State of New York, and the present General Corporation Law of the State of Delaware. We express no opinion as to the laws of any other jurisdiction and no opinion regarding the statutes, administrative decisions, rules, regulations or requirements of any county, municipality, subdivision or local authority or any jurisdiction.

We hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to this firm under the heading “Legal Matters” in the Prospectus constituting part of the Registration Statement. In giving this consent, we do not thereby admit that we are included in the category of persons whose consent is required under Section 7 of the Securities Act of 1933 or the rules and regulations promulgated thereunder.

Respectfully submitted,

/s/ O’Melveny & Myers LLP

O’Melveny & Myers LLP

SCHEDULE I

GUARANTORS

Name	State of Incorporation / Organization
Hexion Specialty Chemicals, Inc.	New Jersey
BDS Two, Inc.	Delaware
Borden Chemical Investments, Inc.	Delaware
Borden Chemical Foundry, Inc.	Delaware
HSC Capital Corporation	Delaware
Lawter International Inc.	Delaware
Borden Chemical International, Inc.	Delaware
Bakelite North America Holding Company	Delaware
Bakelite Epoxy Polymers Corporation	Delaware
Oilfield Technology Group, Inc.	Delaware
Hexion CI Holding Company (China) LLC	Delaware

EX-5.2

Exhibit 5.2

	CONNELL FOLEY LLP ATTORNEYS AT LAW
JOHN A. PINDAR (1969) GEORGE W. CONNELL (2005) ADRIAN M. FOLEY, JR. GEORGE J. KENNY* KENNETH F. KUNZMAN SAMUEL D. LORD RICHARD D. CATENACCI RICHARD J. BADOLATO* PETER D. MANAHAN JOHN B. MURRAY MARK L. FLEDER KEVIN J. COAKLEY WILLIAM H. GRAHAM1 THOMAS S. COSMA KATHLEEN S. MURPHY PATRICK J. MCAULEY PETER J. PIZZI* KEVIN R. GARDNER ROBERT E. RYAN MICHAEL X. MCBRIDE* JEFFREY W. MORYAN JOHN K. BENNETT PETER J. SMITH* *  ALSO ADMITTED IN NEW YORK 1   ALSO ADMITTED IN PENNSYLVANIA	BRIAN G. STELLER PHILIP F. MCGOVERN, JR. KAREN PAINTER RANDALL LIZA M. WALSH JOHN P. LACEY TIMOTHY E. CORRISTON* ERNEST W. SCHOELLKOPFF1 PATRICK J. HUGHES1 JAMES C. MCCANN JOHN D. CROMIE ANGELA A. IUSO* GLENN T. DYER WILLIAM T. MCGLOIN* BRENDAN JUDGE DAREN S. MCNALLY* STEPHEN V. FALANGA* JEFFREY L. O’HARA TRICIA O’REILLY* ANTHONY F. VITIELLO* MARC D. HAEFNER JONATHAN P. MCHENRY JAMES P. RHATICAN*	85 LIVINGSTON AVENUE ROSELAND, N.J. 07068-3702 (973) 535-0500 FAX: (973) 535-9217 JERSEY CITY OFFICE HARBORSIDE FINANCIAL CENTER 2510 PLAZA FIVE JERSEY CITY, N.J. 07311-4029 (201) 521-1000 FAX: (201) 521-0100 NEW YORK OFFICE 888 SEVENTH AVENUE NEW YORK, N.Y. 10106 (212) 262-2390 FAX: (212) 262-3118 PHILADELPHIA OFFICE 1500 MARKET STREET PHILADELPHIA, PA 19102 (215) 246-3403 FAX: (215) 665-5727	COUNSEL JOHN B. LA VECCHIA VIRGINIA M. EDWARDS* FRANCIS E. SCHILLER EUGENE P. SQUEO BERNARD M. HARTNETT, JR. NOEL D. HUMPHREYS ANTHONY ROMANO II CHARLES J. HARRINGTON III1 ——— KARIN I. SPALDING* MATTHEW W. BAUER* JOSEPH C. DEBLASIO JODI ANNE HUDSON* RICHARD A. JAGEN JOHN S. STOLZ* W. NEVINS MCCANN* MITCHELL W. TARASCHI BRAD D. SHALIT* THOMAS J. O’LEARY* DAVID J. MAIRO* WALTER J. DORGAN III* AGNES ANTONIAN* BRYAN P. COUCH* GREGORY E. PETERSON MICHELE T. TANTALLA* PHILIP N. FLUHR THOMAS J. PASUIT* PATRICK S. BRANNIGAN*	MATTHEW I. GENNARO M. TREVOR LYONS* MICHAEL A. SHADIACK JOHN T. FOJUT OWEN C. MCCARTHY PATRICIA A. LEE1 PETER Y. LEE1 NEIL V. MODY JENNIFER C. CRITCHLEY* MELISSA A. DIDATO* MATTHEW S. SCHULTZ* CRAIG A. ROSEN RYAN A. MCGONIGLE* DANIA M. BILLINGS* GEORGE M. PATTERSON* ANTONIO CELII* ALEXIS E. LAZZARA TED P. CASTELL RONAK R. CHOKSHI1 CHRISTINE I. GANNON* DOUGLAS J. SHORT* ELIZABETH A. BARROW MICHAEL A. BASELUOS CATHERINE G. BRYAN1 AYANNA A. CAGE MICHAEL P. DAVIS JAMES C. HAYNIE LAURIE B. KACHONICK MAIDA PEREZ WILLIAM D. DEVEAU* THOMAS A. TELESCA* VINCENT A. ANTONIELLO
WRITER’S DIRECT DIAL			PLEASE REPLY TO ROSELAND, N.J.

December 27, 2005

Hexion U.S. Finance Corp.

180 East Broad Street

Columbus, OH 43215

Hexion Nova Scotia Finance, ULC

180 East Broad Street

Columbus, OH 43215

Re: Registration of Securities of Hexion U.S. Finance Corp. and Hexion Nova Scotia Finance, ULC

Ladies and Gentlemen:

At your request, we have examined the Registration Statement on Form S-4 (File No. 333-122826), as amended (the “Registration Statement”), of Hexion U.S. Finance Corp., a Delaware corporation, and Hexion Nova Scotia Finance, ULC, a Nova Scotia unlimited liability company, (each an “Issuer”, and together, the “Issuers”), in connection with the Issuers’ offer to exchange up to (i) $150,000,000 aggregate principal amount of the Issuers’ Second-Priority Senior Secured Floating Rate Notes due 2010, which have been registered under the Securities Act of 1933 (the “Exchange Floating Rate Notes”), for a like principal amount of the Issuers’ outstanding Second-Priority Senior Secured Floating Rate Notes due 2010 (the “Old Floating Rate Notes”) and (ii) $325,000,000 aggregate principal amount of the Issuers’ 9% Second-

Hexion U.S. Finance Corp.

Hexion Nova Scotia Finance, ULC

December 27, 2005

Page 2

Priority Senior Secured Notes due 2014, which have been registered under the Securities Act of 1933 (the “Exchange Fixed Rate Notes” and, together with the Exchange Floating Rate Notes, the “Exchange Notes”), for a like principal amount of the Issuers’ outstanding 9% Second-Priority Senior Secured Notes due 2014 (the “Old Fixed Rate Notes” and, together with the Old Floating Rate Notes, the “Old Notes”), with the Exchange Notes to be guaranteed (the “Guarantees”) by Hexion Specialty Chemicals, Inc. (f/k/a Borden Chemical, Inc.) (“Hexion”), and certain other subsidiaries of Hexion. Except as otherwise indicated, capitalized terms used in this opinion and defined in the indenture (the “Indenture”), dated as of August 12, 2004, governing the Exchange Notes and Old Notes, have the meanings given in the Indenture.

In rendering this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate and unlimited liability company records, certificates of public officials and other instruments as we have deemed necessary or advisable for the purpose of rendering this opinion.

In such examination, we have assumed, with your consent and without independent investigation, that: (a) each document submitted to us for review is authentic, accurate, and complete, each such document that is a copy conforms to an authentic original, and all signatures on each such document are genuine; and (b) each certificate issued by a governmental official, office, or agency concerning an entity’s status, including but not limited to certificates of corporate status, is accurate, complete, and authentic.

The opinions expressed herein are subject to, and may be limited or affected by, the following:

A. (i) bankruptcy, insolvency, reorganization, moratorium, receivership and/or other laws relating to or affecting the rights of creditors generally; (ii) general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing (whether considered in a proceeding in equity or an action at law); and (iii) public policy considerations.

B. The invalidity or unenforceability, under certain circumstances, under state or federal law or court decisions, of provisions indemnifying a party against liability for its own wrongful or negligent acts or where such indemnification is contrary to public policy.

Notwithstanding anything contained herein which may be construed to the contrary, this opinion is based, as to matters of law, solely on the laws of the State of New Jersey. We express no opinion relating to: (a) the laws or regulations of any jurisdiction other than the State of New Jersey (including but not limited to the federal laws of the United States); (b) the creation, perfection, priority, or constructive notice of any security interest or lien; (c) the existence of any liens, charges, or encumbrances; (d) rights in or title to any property; (e) any insolvency or fraudulent transfer laws; (f) any securities or Blue Sky laws or regulations; (g) any tax laws or regulations; (h) any usury laws; or (i) compliance with any fiduciary laws.

Hexion U.S. Finance Corp.

Hexion Nova Scotia Finance, ULC

December 27, 2005

Page 3

This opinion is rendered as of the date hereof, and we express no opinion as to any event, fact, circumstance, or development subsequent to the date of this opinion. We undertake no, and hereby disclaim any, obligation to advise you of any change in any matter set forth in this opinion that may result from any change of law or fact that may arise after the date of this opinion. Our opinion is limited tot he matters stated herein, and no opinion is to be implied or inferred beyond the matters stated herein.

Based upon and subject to the foregoing, we are of the opinion that:

1. Hexion has been duly incorporated and is validly existing in good standing under the laws of the State of New Jersey;

2. The execution, delivery and performance of the Indenture has been duly authorized by all necessary corporate action on the part of Hexion, and the Indenture has been duly executed and delivered by Hexion;

3. The Guarantee by Hexion with respect to the Exchange Notes has been duly authorized by Hexion;

4. Hexion’s execution and delivery of, and performance of its obligations under, the Indenture, the Stock Purchase Agreement, the Registration Rights Agreement and the Security Documents, and the issuance of the Guarantee by Hexion to be endorsed on the Exchange Notes do not and will not (a) violate the provisions of the charter or bylaws of Hexion or (b) violate any applicable New Jersey statute, rule or regulation.

This opinion is given as of the date hereof, is given solely for your benefit and the benefit of your counsel, and of O’Melveny & Myers LLP and may not be relied upon by any other person or entity without our prior written consent. We hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to this firm under the heading “Legal Matters” in the Prospectus constituting part of the Registration Statement. In giving this consent, we do not thereby admit that we are included in the category of persons whose consent is required under Section 7 of the Securities Act of 1933 or the rules and regulations promulgated thereunder.

Respectfully submitted,

/s/ Connell Foley, LLP

Connell Foley, LLP

EX-5.3

Exhibit 5.3

Suite 900 Purdy’s Wharf Tower One 1959 Upper Water Street Halifax, NS Canada B3J 3N2 Correspondence: P.O. Box 997 Halifax, NS Canada B3J 2X2 Telephone: 902.420.3200 Fax:            902.420.1417 halifax@smss.com www.smss.com Charles S. Reagh Direct Dial: 902.420.3335 Direct Fax:  902.496.6173 csr@smss.com

File Reference: NS2807-1248

December 27, 2005

Hexion Nova Scotia Finance, ULC

180 East Broad Street

Columbus, OH 43215

Dear Sirs:

We render this opinion in connection with the Registration Statement on Form S-4 (File No. 333-122826), as amended (the “Registration Statement”), of Hexion U.S. Finance Corp., a Delaware corporation (“Hexion”), and Hexion Nova Scotia Finance, ULC, a Nova Scotia unlimited company, (“Hexion ULC”, and together, the “Issuers”), in connection with the Issuers’ offer to exchange up to (i) $150,000,000 aggregate principal amount of the Issuers’ Second-Priority Senior Secured Floating Rate Notes due 2010, which have been registered under the Securities Act of 1933 (the “Exchange Floating Rate Notes”), for a like principal amount of the Issuers’ outstanding Second-Priority Senior Secured Floating Rate Notes due 2010 (the “Old Floating Rate Notes”) and (ii) $325,000,000 aggregate principal amount of the Issuers’ 9% Second-Priority Senior Secured Notes due 2014, which have been registered under the Securities Act of 1933 (the “Exchange Fixed Rate Notes” and, together with the Exchange Floating Rate Notes, the “Exchange Notes”), for a like principal amount of the Issuers’ outstanding 9% Second-Priority Senior Secured Notes due 2014 (the “Old Fixed Rate Notes” and, together with the Old Floating Rate Notes, the “Old Notes”), with the Exchange Notes to be guaranteed (the “Guarantees”) by certain other subsidiaries of Hexion (collectively, the “Guarantors”).

We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate and unlimited liability company records, certificates of public officials and other instruments as we have deemed necessary or advisable for the purpose of rendering this opinion.

To enable us to render the opinion set forth below, we have examined and relied upon executed originals, counterparts or copies of such documents, records and certificates (as we considered necessary or appropriate for enabling us to express the opinions set forth below including, without limitation:

(a) the indenture (the “Indenture”) made by Hexion together with Borden Nova Scotia Finance, ULC, a predecessor by amalgamation of Hexion ULC (“Old Borden”) and the Guarantors in favour of Wilmington Trust Company, as Trustee (in such capacity, the “Trustee”) dated August 12, 2004 providing for the issuance of and the form of the Old Notes and the Exchange Notes;

-2-

(b) a certificate of status (the “Certificate of Status”) pertaining to Hexion ULC issued on behalf of the Registrar of Joint Stock Companies for the Province, dated December 23, 2005;

(c) the memorandum of association, articles of association, records of corporate proceedings, written resolutions and registers of Hexion ULC contained in the minute book of Hexion ULC;

(d) the Preliminary Offering Circular of Hexion and Old Borden dated July 23, 2004 and the Offering Circular of Hexion and Old Borden dated August 4, 2004 (the “Offering Circular”);

(e) a resolution of the board of directors of Hexion ULC and of Old Borden authorizing, among other things, the execution, delivery and performance of the Indenture and issuance of the Exchange Notes; and

(f) a certificate of an officer of Hexion ULC dated the date hereof (the “Officer’s Certificate”).

As a basis for our opinions expressed below, we have assumed the completeness, truth, currency and accuracy of all facts in official public records, indices, registers and filing systems and certificates and other documents supplied by public officials, including, without limitation, the Certificate of Status and that all facts addressed and statements made in certificates supplied to us by an officer of Hexion ULC, including the Officer’s Certificate, are complete, true and accurate as of, and at all material times prior to, the date of this letter. In all such examinations, we have assumed the authenticity and completeness of all documents submitted to us as originals and the conformity to originals and completeness of all documents submitted to us as photostatic, conformed, notarized or certified copies.

Our opinions herein reflect only the application of applicable laws of the Province of Nova Scotia including the federal laws of Canada applicable therein (“Applicable Laws”). The opinions set forth herein are made as of the date hereof and are subject to, and may be limited by, future changes in the factual matters set forth herein, and we undertake no duty to advise you of the same. The opinions expressed herein are based upon the law in effect (and published or otherwise generally available) on the date hereof, and we assume no obligation to revise or supplement these opinions should such law be changed by legislative action, judicial decision or otherwise. In rendering our opinions, we have not considered, and hereby disclaim any opinion as to, the application or affect of any laws, decisions, rules or regulations of any other jurisdiction, court or administrative agency.

On the basis of such examination, our reliance upon the assumptions in this opinion and our consideration of those questions of law we considered relevant, and subject to the limitations and qualifications in this opinion, we are of the opinion that:

1. Hexion ULC has been duly amalgamated and is validly existing in good standing as to the payment of annual fees and filing of annual returns under the laws of the Province of Nova Scotia, with corporate power to own its properties and assets and to carry on the business of its predecessor by amalgamation as described in the Offering Circular.

-3-

2. The execution, delivery and performance of the Indenture has been duly authorized by all necessary corporate action of Hexion ULC and Old Borden, and the Indenture has been duly executed and delivered by Old Borden.

3. The Exchange Notes have been duly authorized by all necessary corporate action of Hexion ULC and Old Borden.

4. Upon the amalgamation of Old Borden to form Hexion ULC, the enforceable obligations of Old Borden under the Indenture became obligations of Hexion ULC.

5. The execution and delivery of, and performance of obligations under the Indenture, and the issuance and sale of the Exchange Notes by Hexion ULC do not and will not (a) violate the provisions of the memorandum of association or articles of association of Hexion ULC or (b) violate any Applicable Laws.

We hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to this firm under the heading “Legal Matters” in the Prospectus constituting part of the Registration Statement. In giving this consent, we do not thereby admit that we are included in the category of persons whose consent is required under Section 7 of the United States Securities Act of 1933 or the rules and regulations promulgated thereunder.

Respectfully submitted,

/S/    STEWART MCKELVEY STIRLING SCALES

Stewart McKelvey Stirling Scales

EX-12.1

Exhibit 12.1

HEXION SPECIALTY CHEMICALS, INC.

Statement regarding Computation of Ratios

(Amounts in millions of dollars)

	Pro forma Nine months ended September 30,			Nine months ended September 30,						Year ended December 31,
	2005			2005(1)			2004(2)			2004(2)			2003			2002			2001			2000(3)
Pre-tax income (loss) from continuing operations	$	11		$	(17	)	$	(105	)	$	(113	)	$	(100	)	$	(24	)	$	(6	)	$	(24	)
Add back
Minority interest expense (income)		(4	)		(3	)		7			8			13			3			1			1
Loss (gain) from equity investees		(1	)		(1	)		—			(1	)		(2	)		(1	)		—			1
Pre-tax income (loss) from continuing operations before adjustment for minority interests in consolidated subsidiaries or income or loss from equity investees		6			(21	)		(98	)		(106	)		(89	)		(22	)		(5	)		(22	)
Fixed charges:
Interest expense		166			169			73			118			77			65			70			9
Interest element of lease costs (4)		4			4			3			5			3			3			2			—
Preferred stock dividend requirements of consolidated subsidiaries		43			18			—			—			—			—			—			—
Total fixed charges		213			191			76			123			80			68			72			9
Pre-tax income (loss) from continuing operations before adjustment for minority interests in consolidated subsidiaries or income or loss from equity investees plus fixed charges, less preferred stock dividend requirements of consolidated subsidiaries		176			152			(22	)		17			(9	)		46			67			(13	)
Ratio of earnings to fixed charges (5)		N/A			N/A			N/A			N/A			N/A			N/A			N/A			N/A

(1) Includes data for Bakelite from date of acquisition by Borden Chemical on April 29, 2005.

(2) Includes data for Resolution Specialty from August 2, 2004 and for Borden Chemical from August 12, 2004, their respective dates of acquisition by Apollo.

(3) Data from date of acquisition by Apollo on November 14, 2000 through December 31, 2000.

(4) The interest element of lease costs has been calculated as 1/3 of the rental expense relating to operating leases as management believes this represents the interest portion hereof.

(5) Our earnings were insufficient to cover fixed charges and preferred stock dividend requirements by $39, $98, $106, $89, $22, $5 and $22 for the nine months ended September 30, 2005 and 2004 and for the years ended December 31, 2004, 2003, 2002, 2001 and for the two months ended December 31, 2000. On a pro forma basis, our earnings were insufficient to cover fixed charges and preferred stock dividend requirements by $37 for the nine months ended September 30, 2005.

EX-21.1

Exhibit 21.1

Subsidiary	Jurisdiction of Organization
Borden Chemical Investments, Inc.	DE
BDS Two, Inc.	DE
Borden Chemical Foundry, Inc.	DE
HA-International, LLC	DE
Hexion CI Holding Company (China) LLC	DE
Borden Chemical International, Inc.	DE
Hexion U.S. Finance Corp.	DE
Hexion Nova Scotia Finance, ULC	Nova Scotia
Borden Chimie S.A.	France
Borden Chemical Philippines, Inc.	Philippines
Oilfield Technology Group, Inc.	DE
Alisa S.A.	Colombia
BCMP Colombia S.A.	Colombia
Hexion Specialty Chemicals Canada, Inc.	Canada
Borden Chemical Holdings (Panama) S.A.	Panama
Borden Luxemburg S.a.r.l	Luxemburg
Hattrick (Barbados) Finco SRL	Barbados
Quimica Borden Argentina S.A.1	Argentina
Bexley Finance, S.A.	Panama
Hexion Quimica Industria E Comercio Ltda.	Brazil
Borden Chemical Resinas, Panama, S.R.L.	Panama
Alba Adesivos Industria E Comercio Ltda.	Brazil
Hexion Specialty Chemicals SDN. BHD.	Malaysia
Hexion Specialty Chemicals Pty. Ltd.	Australia
Hexion Specialty Chemicals Somersby Pty. Ltd.	Australia
Hexion Specialty Chemicals SG. Petani SDN. BHD	Malaysia
Borden International Holdings Limited	UK
Hexion Specialty Chemicals UK Limited	UK
Compania Quimira Borden, S.A.	Panama

¹ Quimica Borden Argentina S.A. is being dissolved.

Subsidiary	Jurisdiction of Organization
Bakelite North America Holding Company	DE
Bakelite Epoxy Polymers Corporation	DE
Borden Chemical Holdings (China) Ltd.	Hong Kong
Borden Industrial Resins Trading (Shanghai) Co., Ltd.	China
Borden Chemical Holdings (Caojing) Limited	Hong Kong
Borden UV Coating Holdings (Shanghai) Limited	Hong Kong
Borden UV Coatings (Shanghai) Limited	Hong Kong
Borden Chemical Holdings (Heyuan) Limited	Hong Kong
Asia Dekor Borden (Hong Kong) Chemical Co., Ltd.	China
Asia Dekor Borden (Heyuan) Chemical Co., Ltd.	Hong Kong
HSC Capital Corporation3	DE
Resolution Holdings B.V.	The Netherlands
Resolution Research Belgium S.A.	Belgium
Resolution Research Nederland B.V.	The Netherlands
Resolution Japan K.K.	Japan
Resolution Iberica Performance Products S.A.	Spain
Servicios Factoria Barbastro S.A.	Spain
Hexion Specialty Chemicals Singapore Pte. Ltd.4	Singapore
Resolution Deutschland GmbH	Germany
Hexion Specialty Chemicals B.V.5	The Netherlands
Hexion Specialty Chemicals Stanlow Limited	UK
Resolution France S.A.S.6	France
Resolution Switzerland S.A.7	Switzerland
Resolution Italia S.r.l.8	Italy
Lawter International Inc.	DE
Jiangsu Funing Lawter International Co., Ltd.	China
Lawter (Tianjin) Chemical Co., Ltd.	China
Fujian Nanping Lawter International Co., Ltd.	China

³ Formerly known as APP Capital Corp.

⁴ Formerly known as Resolution Performance Products Pte. Ltd.

⁵ Formerly known as Resolution Europe B.V.

⁶ Resolution France S.A.S. is being dissolved.

⁷ Resolution Switzerland S.A. is being dissolved.

⁸ Resolution Italia S.r.l. is being dissolved

Subsidiary	Jurisdiction of Organization
RSM Europe B.V.	The Netherlands
Resolution Specialty Materials Canada, Inc.9	New Brunswick, Canada
Resolution Specialty Materials Rotterdam B.V.	The Netherlands
Resolution Specialty Materials Chemacryl a.s.	Czech Republic
Hexion Specialty Chemicals, S.r.l.	Italy
Hexion Specialty Chemicals Hamburg GmbH	Germany
Resolution Specialty Materials Mexico S.de R.L.de C.V.	Mexico
Lawter International BVBA	Belgium
Resolution Specialty Materials Sweden Holdings AB	Sweden
Hexion Specialty Chemicals Sweden AB	Sweden

⁹ Resolution Specialty Materials Canada, Inc. is being dissolved.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the use in this Amendment No. 1 to Registration Statement No. 333-122826 on Form S-4 of (1) our report dated March 19, 2004, except for Note 24, as to which the date is August 5, 2004 (which report expresses an unqualified opinion and includes an explanatory paragraph referring to the adoption of Statement of Financial Accounting Standards No. 142) relating to the consolidated financial statements of Borden Chemical, Inc. as of December 31, 2003 and 2002, and for each of the three years in the period ended December 31, 2003, (2) our report dated April 24, 2005, except for the effects of Notes 20 and 21, as to which the dates are April 27, 2005 and August 18, 2005, respectively (which report expresses an unqualified opinion and includes an explanatory paragraph regarding the restatement of the balance sheet) relating to the consolidated financial statements of Borden Chemical, Inc. as of December 31, 2004, and for the period from August 12, 2004 to December 31, 2004, not presented separately herein, (3) our report dated March 24, 2005, except for the effects of Note 18, as to which the date is August 18, 2005 (which report expresses an unqualified opinion and includes an explanatory paragraph referring to the adoption of Statement of Financial Accounting Standards No. 142) relating to the consolidated/combined financial statements of Borden Chemical Canada, Inc. and Affiliates, all such reports appearing in the Prospectus, which is part of this Registration Statement, and (4) our report dated March 19, 2004, relating to the financial statement schedule of Borden Chemical, Inc. appearing elsewhere in this Registration Statement.

We also consent to the reference to us under the heading “Experts” in such Prospectus.

Deloitte & Touche LLP

Columbus, Ohio

December 23, 2005

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in this Amendment No. 1 to Registration Statement (No. 333-122826) on Form S-4 of Hexion U.S. Finance Corp. and Hexion Nova Scotia Finance, ULC of our report dated August 25, 2005, except for Note 17h as to which the date is September 19, 2005 and Note 17i as to which the date is September 21, 2005 relating to the financial statements and financial statement schedule of Hexion Specialty Chemicals, Inc., which appear in such Registration Statement. We also consent to the reference to us under the headings “Experts” in such Registration Statement.

PricewaterhouseCoopers LLP

Columbus, Ohio

December 27, 2005

EX-23.3

Exhibit 23.3

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in this Amendment No. 1 to Registration Statement (No. 333-122826) on Form S-4 of Hexion U.S. Finance Corp. and Hexion Nova Scotia Finance, ULC of our report dated April 22, 2005 relating to the financial statements of the Resins, Inks and Monomers Business of Eastman Chemical Company, which appears in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

PRICEWATERHOUSECOOPERS LLP

Philadelphia, Pennsylvania

December 27, 2005

EX-23.4

Exhibit 23.4

CONSENT OF INDEPENDENT AUDITORS

We hereby consent to the use in this Amendment No. 1 to the Registration Statement (No. 333-122826) on Form S-4 of Hexion U.S. Finance Corp. and Hexion Nova Scotia Finance, ULC of our report dated April 29, 2005 relating to the combined financial statements of the Resin Business of the Bakelite Group, which appears in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

Cologne, December 23, 2005

PricewaterhouseCoopers

Aktiengesellschaft

Wirtschaftsprüfungsgesellschaft

/S/ HANS-PETER KREIBICH Hans-Peter Kreibich Wirtschaftsprufer [German Public Accountant] /s/ Klaus Mosco ppa Klaus Mosko Wirtschaftsprufer [German Public Accountant]

EX-25.1

Exhibit 25.1

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM T-1

STATEMENT OF ELIGIBILITY

UNDER THE TRUST INDENTURE ACT OF 1939

OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE

Check if an Application to Determine Eligibility of a Trustee Pursuant to Section 305(b)(2)     

WILMINGTON TRUST COMPANY

(Exact name of Trustee as specified in its charter)

Delaware	51-0055023
(Jurisdiction of incorporation of organization if not a U.S. national bank)	(I.R.S. Employer Identification No.)

1100 North Market Street

Wilmington, Delaware 19890-0001

(302) 651-1000

(Address of principal executive offices, including zip code)

Cynthia L. Corliss

Vice President and Assistant General Counsel

Wilmington Trust Company

1100 North Market Street

Wilmington, Delaware 19890-0001

(302) 651-8516

(Name, address, including zip code, and telephone number, including area code, of agent of service)

HEXION U.S. FINANCE CORP.

(Exact name of obligor as specified in its charter)

Delaware	20-1362484
(State or other jurisdiction or incorporation or organization)	(I.R.S. Employer Identification No.)

180 East Broad Street

Columbus, Ohio 43215

(614) 225-4000

(Address of principal executive offices, including zip code)

HEXION NOVA SCOTIA FINANCE, ULC

(Exact name of obligor as specified in its charter)

Nova Scotia, Canada	None
(State or other jurisdiction or incorporation or organization)	(I.R.S. Employer Identification No.)

180 East Broad Street

Columbus, Ohio 43215

(614) 225-4000

(Address of principal executive offices, including zip code)

GUARANTORS LISTED ON SCHEDULE A HERETO

Second-Priority Senior Secured Floating Rate Notes Due 2010

Guarantees of Second-Priority Senior Secured Floating Rate Notes Due 2010

9% Second-Priority Senior Secured Note Due 2014

Guarantees of 9% Second-Priority Senior Secured Notes Due 2014

(Title of the indenture securities)

SCHEDULE A

Guarantor	State or Other Jurisdiction of Incorporation or Organization	Address of Registrant’s Principal Executive Offices	I.R.S. Employer Identification Number
Hexion Specialty Chemical, Inc.	New Jersey	180 East Broad Street Columbus, Ohio 43215 (614) 225-4000	13-0511250
BDS Two, Inc.	Delaware	Plaza 273, Suite 211 56 West Main Street, Newark, Delaware 19702 (302) 737-6466	52-1752422
Borden Chemical Investments, Inc.	Delaware	Plaza 273, Suite 211 56 West Main Street, Newark, Delaware 19702 (302) 737-6466	51-0370359
Borden Chemical Foundry, Inc.	Delaware	180 East Broad Street Columbus, Ohio 43215 (614) 225-4000	31-1766429
HSC Capital Corporation	Delaware	1600 Smith St., 24th Floor Houston, TX 77002 (832) 366-2300	76-0660306
Lawter International Inc.	Delaware	1600 Smith St., 24th Floor Houston, TX 77002 (832) 366-2300	36-1370818
Borden Chemical International, Inc.	Delaware	56 West Main Street, Newark, Delaware 19702 (302) 737-6466	20-2833048

2

Guarantor	State or Other Jurisdiction of Incorporation or Organization	Address of Registrant’s Principal Executive Offices	I.R.S. Employer Identification Number
Bakelite North America Holding Company	Delaware	180 East Broad Street Columbus, Ohio 43215 (614) 225-4000	36-4209280
Bakelite Epoxy Polymers Corporation	Delaware	180 East Broad Street Columbus, Ohio 43215 (614) 225-4000	26-0051749
Oilfield Technology Group, Inc.	Delaware	15115 Park Row, Ste. 110 Houston, TX 77084 (218) 646-2800	20-2873694
Hexion CI Holding Company (China) LLC	Delaware	180 East Broad Street Columbus, Ohio 43215 (614) 225-4000	20-3907441

3

ITEM 1. GENERAL INFORMATION.

Furnish the following information as to the trustee:

(a) Name and address of each examining or supervising authority to which it is subject.

Federal Deposit Insurance Corp.	State Bank Commissioner
20 Exchange Place, Room 6014	555 East Loockerman Street, Suite 210
New York, New York 10005	Dover, Delaware 19901

(b) Whether it is authorized to exercise corporate trust powers.

The trustee is authorized to exercise corporate trust powers.

ITEM 2. AFFILIATIONS WITH THE OBLIGOR.

If the obligor is an affiliate of the trustee, describe each affiliation:

Based upon an examination of the books and records of the trustee and information available to the trustee, the obligor is not an affiliate of the trustee.

ITEM 16. LIST OF EXHIBITS.

List below all exhibits filed as part of this Statement of Eligibility and Qualification.

• A copy of the Charter of Wilmington Trust Company (Exhibit 1), which includes the certificate of authority of Wilmington Trust Company to commence business (Exhibit 2) and the authorization of Wilmington Trust Company to exercise corporate trust powers (Exhibit 3).

• A copy of the existing By-Laws of Wilmington Trust Company (Exhibit 4).

• Consent of Wilmington Trust Company required by Section 321(b) of the Trust Indenture Act (Exhibit 6).

• A copy of the latest Report of Condition of Wilmington Trust Company (Exhibit 7).

Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, Wilmington Trust Company, a corporation organized and existing under the laws of Delaware, has duly caused this Statement of Eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Wilmington and State of Delaware on the 20th day of December, 2005.

[SEAL]		WILMINGTON TRUST COMPANY
Attest:	/s/ Michael G. Oller, Jr	By:	/s/ Mary St. Amand
	Assistant Secretary	Name:	Mary St. Amand
		Title:	Vice President

4

EXHIBIT 1

AMENDED CHARTER

Wilmington Trust Company

Wilmington, Delaware

As existing on May 9, 1987

5

Amended Charter

or

Act of Incorporation

of

Wilmington Trust Company

Wilmington Trust Company, originally incorporated by an Act of the General Assembly of the State of Delaware, entitled “An Act to Incorporate the Delaware Guarantee and Trust Company”, approved March 2, A.D. 1901, and the name of which company was changed to “Wilmington Trust Company” by an amendment filed in the Office of the Secretary of State on March 18, A.D. 1903, and the Charter or Act of Incorporation of which company has been from time to time amended and changed by merger agreements pursuant to the corporation law for state banks and trust companies of the State of Delaware, does hereby alter and amend its Charter or Act of Incorporation so that the same as so altered and amended shall in its entirety read as follows:

First: - The name of this corporation is Wilmington Trust Company.

Second: - The location of its principal office in the State of Delaware is at Rodney Square North, in the City of Wilmington, County of New Castle; the name of its resident agent is Wilmington Trust Company whose address is Rodney Square North, in said City. In addition to such principal office, the said corporation maintains and operates branch offices in the City of Newark, New Castle County, Delaware, the Town of Newport, New Castle County, Delaware, at Claymont, New Castle County, Delaware, at Greenville, New Castle County Delaware, and at Milford Cross Roads, New Castle County, Delaware, and shall be empowered to open, maintain and operate branch offices at Ninth and Shipley Streets, 418 Delaware Avenue, 2120 Market Street, and 3605 Market Street, all in the City of Wilmington, New Castle County, Delaware, and such other branch offices or places of business as may be authorized from time to time by the agency or agencies of the government of the State of Delaware empowered to confer such authority.

Third: - (a) The nature of the business and the objects and purposes proposed to be transacted, promoted or carried on by this Corporation are to do any or all of the things herein mentioned as fully and to the same extent as natural persons might or could do and in any part of the world, viz.:

(1) To sue and be sued, complain and defend in any Court of law or equity and to make and use a common seal, and alter the seal at pleasure, to hold, purchase, convey, mortgage or otherwise deal in real and personal estate and property, and to appoint such officers and agents as the business of the Corporation shall require, to make by-laws not inconsistent with the Constitution or laws of the United States or of this State, to discount bills, notes or other evidences of debt, to receive deposits of money, or securities for money, to buy gold and silver bullion and foreign coins, to buy and sell bills of exchange, and generally to use, exercise and enjoy all the powers, rights, privileges and franchises incident to a corporation which are proper or necessary for the transaction of the business of the Corporation hereby created.

(2) To insure titles to real and personal property, or any estate or interests therein, and to guarantee the holder of such property, real or personal, against any claim or claims, adverse to his interest therein, and to prepare and give certificates of title for any lands or premises in the State of Delaware, or elsewhere.

6

(3) To act as factor, agent, broker or attorney in the receipt, collection, custody, investment and management of funds, and the purchase, sale, management and disposal of property of all descriptions, and to prepare and execute all papers which may be necessary or proper in such business.

(4) To prepare and draw agreements, contracts, deeds, leases, conveyances, mortgages, bonds and legal papers of every description, and to carry on the business of conveyancing in all its branches.

(5) To receive upon deposit for safekeeping money, jewelry, plate, deeds, bonds and any and all other personal property of every sort and kind, from executors, administrators, guardians, public officers, courts, receivers, assignees, trustees, and from all fiduciaries, and from all other persons and individuals, and from all corporations whether state, municipal, corporate or private, and to rent boxes, safes, vaults and other receptacles for such property.

(6) To act as agent or otherwise for the purpose of registering, issuing, certificating, countersigning, transferring or underwriting the stock, bonds or other obligations of any corporation, association, state or municipality, and may receive and manage any sinking fund therefor on such terms as may be agreed upon between the two parties, and in like manner may act as Treasurer of any corporation or municipality.

(7) To act as Trustee under any deed of trust, mortgage, bond or other instrument issued by any state, municipality, body politic, corporation, association or person, either alone or in conjunction with any other person or persons, corporation or corporations.

(8) To guarantee the validity, performance or effect of any contract or agreement, and the fidelity of persons holding places of responsibility or trust; to become surety for any person, or persons, for the faithful performance of any trust, office, duty, contract or agreement, either by itself or in conjunction with any other person, or persons, corporation, or corporations, or in like manner become surety upon any bond, recognizance, obligation, judgment, suit, order, or decree to be entered in any court of record within the State of Delaware or elsewhere, or which may now or hereafter be required by any law, judge, officer or court in the State of Delaware or elsewhere.

(9) To act by any and every method of appointment as trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity in the receiving, holding, managing, and disposing of any and all estates and property, real, personal or mixed, and to be appointed as such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian or bailee by any persons, corporations, court, officer, or authority, in the State of Delaware or elsewhere;

7

and whenever this Corporation is so appointed by any person, corporation, court, officer or authority such trustee, trustee in bankruptcy, receiver, assignee, assignee in bankruptcy, executor, administrator, guardian, bailee, or in any other trust capacity, it shall not be required to give bond with surety, but its capital stock shall be taken and held as security for the performance of the duties devolving upon it by such appointment.

(10) And for its care, management and trouble, and the exercise of any of its powers hereby given, or for the performance of any of the duties which it may undertake or be called upon to perform, or for the assumption of any responsibility the said Corporation may be entitled to receive a proper compensation.

(11) To purchase, receive, hold and own bonds, mortgages, debentures, shares of capital stock, and other securities, obligations, contracts and evidences of indebtedness, of any private, public or municipal corporation within and without the State of Delaware, or of the Government of the United States, or of any state, territory, colony, or possession thereof, or of any foreign government or country; to receive, collect, receipt for, and dispose of interest, dividends and income upon and from any of the bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property held and owned by it, and to exercise in respect of all such bonds, mortgages, debentures, notes, shares of capital stock, securities, obligations, contracts, evidences of indebtedness and other property, any and all the rights, powers and privileges of individual owners thereof, including the right to vote thereon; to invest and deal in and with any of the moneys of the Corporation upon such securities and in such manner as it may think fit and proper, and from time to time to vary or realize such investments; to issue bonds and secure the same by pledges or deeds of trust or mortgages of or upon the whole or any part of the property held or owned by the Corporation, and to sell and pledge such bonds, as and when the Board of Directors shall determine, and in the promotion of its said corporate business of investment and to the extent authorized by law, to lease, purchase, hold, sell, assign, transfer, pledge, mortgage and convey real and personal property of any name and nature and any estate or interest therein.

(b) In furtherance of, and not in limitation, of the powers conferred by the laws of the State of Delaware, it is hereby expressly provided that the said Corporation shall also have the following powers:

(1) To do any or all of the things herein set forth, to the same extent as natural persons might or could do, and in any part of the world.

(2) To acquire the good will, rights, property and franchises and to undertake the whole or any part of the assets and liabilities of any person, firm, association or corporation, and to pay for the same in cash, stock of this Corporation, bonds or otherwise; to hold or in any manner to dispose of the whole or any part of the property so purchased; to conduct in any lawful manner the whole or any part of any business so acquired, and to exercise all the powers necessary or convenient in and about the conduct and management of such business.

8

(3) To take, hold, own, deal in, mortgage or otherwise lien, and to lease, sell, exchange, transfer, or in any manner whatever dispose of property, real, personal or mixed, wherever situated.

(4) To enter into, make, perform and carry out contracts of every kind with any person, firm, association or corporation, and, without limit as to amount, to draw, make, accept, endorse, discount, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures, and other negotiable or transferable instruments.

(5) To have one or more offices, to carry on all or any of its operations and businesses, without restriction to the same extent as natural persons might or could do, to purchase or otherwise acquire, to hold, own, to mortgage, sell, convey or otherwise dispose of, real and personal property, of every class and description, in any State, District, Territory or Colony of the United States, and in any foreign country or place.

(6) It is the intention that the objects, purposes and powers specified and clauses contained in this paragraph shall (except where otherwise expressed in said paragraph) be nowise limited or restricted by reference to or inference from the terms of any other clause of this or any other paragraph in this charter, but that the objects, purposes and powers specified in each of the clauses of this paragraph shall be regarded as independent objects, purposes and powers.

Fourth: - (a) The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty-one million (41,000,000) shares, consisting of:

(1) One million (1,000,000) shares of Preferred stock, par value $10.00 per share (hereinafter referred to as “Preferred Stock”); and

(2) Forty million (40,000,000) shares of Common Stock, par value $1.00 per share (hereinafter referred to as “Common Stock”).

(b) Shares of Preferred Stock may be issued from time to time in one or more series as may from time to time be determined by the Board of Directors each of said series to be distinctly designated. All shares of any one series of Preferred Stock shall be alike in every particular, except that there may be different dates from which dividends, if any, thereon shall be cumulative, if made cumulative. The voting powers and the preferences and relative, participating, optional and other special rights of each such series, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding; and, subject to the provisions of subparagraph 1 of Paragraph (c) of this Article Fourth, the Board of Directors of the Corporation is hereby expressly granted authority to fix by resolution or resolutions adopted prior to the issuance of any shares of a particular series of Preferred Stock, the voting powers and the designations, preferences and relative, optional and other special rights, and the qualifications, limitations and restrictions of such series, including, but without limiting the generality of the foregoing, the following:

9

(1) The distinctive designation of, and the number of shares of Preferred Stock which shall constitute such series, which number may be increased (except where otherwise provided by the Board of Directors) or decreased (but not below the number of shares thereof then outstanding) from time to time by like action of the Board of Directors;

(2) The rate and times at which, and the terms and conditions on which, dividends, if any, on Preferred Stock of such series shall be paid, the extent of the preference or relation, if any, of such dividends to the dividends payable on any other class or classes, or series of the same or other class of stock and whether such dividends shall be cumulative or non-cumulative;

(3) The right, if any, of the holders of Preferred Stock of such series to convert the same into or exchange the same for, shares of any other class or classes or of any series of the same or any other class or classes of stock of the Corporation and the terms and conditions of such conversion or exchange;

(4) Whether or not Preferred Stock of such series shall be subject to redemption, and the redemption price or prices and the time or times at which, and the terms and conditions on which, Preferred Stock of such series may be redeemed.

(5) The rights, if any, of the holders of Preferred Stock of such series upon the voluntary or involuntary liquidation, merger, consolidation, distribution or sale of assets, dissolution or winding-up, of the Corporation.

(6) The terms of the sinking fund or redemption or purchase account, if any, to be provided for the Preferred Stock of such series; and

(7) The voting powers, if any, of the holders of such series of Preferred Stock which may, without limiting the generality of the foregoing include the right, voting as a series or by itself or together with other series of Preferred Stock or all series of Preferred Stock as a class, to elect one or more directors of the Corporation if there shall have been a default in the payment of dividends on any one or more series of Preferred Stock or under such circumstances and on such conditions as the Board of Directors may determine.

(c)  (1) After the requirements with respect to preferential dividends on the Preferred Stock (fixed in accordance with the provisions of section (b) of this Article Fourth), if any, shall have been met and after the Corporation shall have complied with all the requirements, if any, with respect to the setting aside of sums as sinking funds or redemption or purchase accounts (fixed in accordance with the provisions of section (b) of this Article Fourth), and subject further to any conditions which may be fixed in accordance with the provisions of section (b) of this Article Fourth, then and not otherwise the holders of Common Stock shall be entitled to receive such dividends as may be declared from time to time by the Board of Directors.

(2) After distribution in full of the preferential amount, if any, (fixed in accordance

10

with the provisions of section (b) of this Article Fourth), to be distributed to the holders of Preferred Stock in the event of voluntary or involuntary liquidation, distribution or sale of assets, dissolution or winding-up, of the Corporation, the holders of the Common Stock shall be entitled to receive all of the remaining assets of the Corporation, tangible and intangible, of whatever kind available for distribution to stockholders ratably in proportion to the number of shares of Common Stock held by them respectively.

(3) Except as may otherwise be required by law or by the provisions of such resolution or resolutions as may be adopted by the Board of Directors pursuant to section (b) of this Article Fourth, each holder of Common Stock shall have one vote in respect of each share of Common Stock held on all matters voted upon by the stockholders.

(d) No holder of any of the shares of any class or series of stock or of options, warrants or other rights to purchase shares of any class or series of stock or of other securities of the Corporation shall have any preemptive right to purchase or subscribe for any unissued stock of any class or series or any additional shares of any class or series to be issued by reason of any increase of the authorized capital stock of the Corporation of any class or series, or bonds, certificates of indebtedness, debentures or other securities convertible into or exchangeable for stock of the Corporation of any class or series, or carrying any right to purchase stock of any class or series, but any such unissued stock, additional authorized issue of shares of any class or series of stock or securities convertible into or exchangeable for stock, or carrying any right to purchase stock, may be issued and disposed of pursuant to resolution of the Board of Directors to such persons, firms, corporations or associations, whether such holders or others, and upon such terms as may be deemed advisable by the Board of Directors in the exercise of its sole discretion.

(e) The relative powers, preferences and rights of each series of Preferred Stock in relation to the relative powers, preferences and rights of each other series of Preferred Stock shall, in each case, be as fixed from time to time by the Board of Directors in the resolution or resolutions adopted pursuant to authority granted in section (b) of this Article Fourth and the consent, by class or series vote or otherwise, of the holders of such of the series of Preferred Stock as are from time to time outstanding shall not be required for the issuance by the Board of Directors of any other series of Preferred Stock whether or not the powers, preferences and rights of such other series shall be fixed by the Board of Directors as senior to, or on a parity with, the powers, preferences and rights of such outstanding series, or any of them; provided, however, that the Board of Directors may provide in the resolution or resolutions as to any series of Preferred Stock adopted pursuant to section (b) of this Article Fourth that the consent of the holders of a majority (or such greater proportion as shall be therein fixed) of the outstanding shares of such series voting thereon shall be required for the issuance of any or all other series of Preferred Stock.

(f) Subject to the provisions of section (e), shares of any series of Preferred Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors.

(g) Shares of Common Stock may be issued from time to time as the Board of Directors of the Corporation shall determine and on such terms and for such consideration as shall be fixed by the Board of Directors.

11

(h) The authorized amount of shares of Common Stock and of Preferred Stock may, without a class or series vote, be increased or decreased from time to time by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote thereon.

Fifth: - (a) The business and affairs of the Corporation shall be conducted and managed by a Board of Directors. The number of directors constituting the entire Board shall be not less than five nor more than twenty-five as fixed from time to time by vote of a majority of the whole Board, provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and provided further, that the number of directors constituting the whole Board shall be twenty-four until otherwise fixed by a majority of the whole Board.

(b) The Board of Directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the whole Board permits, with the term of office of one class expiring each year. At the annual meeting of stockholders in 1982, directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting. Any vacancies in the Board of Directors for any reason, and any newly created directorships resulting from any increase in the directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next annual election of directors. At such election, the stockholders shall elect a successor to such director to hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualified. No decrease in the number of directors shall shorten the term of any incumbent director.

(c) Notwithstanding any other provisions of this Charter or Act of Incorporation or the By-Laws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Charter or Act of Incorporation or the By-Laws of the Corporation), any director or the entire Board of Directors of the Corporation may be removed at any time without cause, but only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders called for that purpose.

(d) Nominations for the election of directors may be made by the Board of Directors or by any stockholder entitled to vote for the election of directors. Such nominations shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than 14 days nor more than 50 days prior to any meeting of the stockholders called for the election of directors; provided, however, that if less than 21 days’ notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary of the Corporation not later than the close of the seventh day following the day on which notice of the meeting was mailed to stockholders. Notice of nominations which are proposed by the Board of Directors shall be given by the Chairman on behalf of the Board.

(e) Each notice under subsection (d) shall set forth (i) the name, age, business address

12

and, if known, residence address of each nominee proposed in such notice, (ii) the principal occupation or employment of such nominee and (iii) the number of shares of stock of the Corporation which are beneficially owned by each such nominee.

(f) The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.

(g) No action required to be taken or which may be taken at any annual or special meeting of stockholders of the Corporation may be taken without a meeting, and the power of stockholders to consent in writing, without a meeting, to the taking of any action is specifically denied.

Sixth: - The Directors shall choose such officers, agents and servants as may be provided in the By-Laws as they may from time to time find necessary or proper.

Seventh: - The Corporation hereby created is hereby given the same powers, rights and privileges as may be conferred upon corporations organized under the Act entitled “An Act Providing a General Corporation Law”, approved March 10, 1899, as from time to time amended.

Eighth: - This Act shall be deemed and taken to be a private Act.

Ninth: - This Corporation is to have perpetual existence.

Tenth: - The Board of Directors, by resolution passed by a majority of the whole Board, may designate any of their number to constitute an Executive Committee, which Committee, to the extent provided in said resolution, or in the By-Laws of the Company, shall have and may exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it.

Eleventh: - The private property of the stockholders shall not be liable for the payment of corporate debts to any extent whatever.

Twelfth: - The Corporation may transact business in any part of the world.

Thirteenth: - The Board of Directors of the Corporation is expressly authorized to make, alter or repeal the By-Laws of the Corporation by a vote of the majority of the entire Board. The stockholders may make, alter or repeal any By-Law whether or not adopted by them, provided however, that any such additional By-Laws, alterations or repeal may be adopted only by the affirmative vote of the holders of two-thirds or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class).

Fourteenth: - Meetings of the Directors may be held outside of the State of Delaware at such places as may be from time to time designated by the Board, and the Directors may keep the books of the Company outside of the State of Delaware at such places as may be from time to time designated by them.

13

Fifteenth: - (a) (1) In addition to any affirmative vote required by law, and except as otherwise expressly provided in sections (b) and (c) of this Article Fifteenth:

(A) any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with or into (i) any Interested Stockholder (as hereinafter defined) or (ii) any other corporation (whether or not itself an Interested Stockholder), which, after such merger or consolidation, would be an Affiliate (as hereinafter defined) of an Interested Stockholder, or

(B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of related transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate fair market value of $1,000,000 or more, or

(C) the issuance or transfer by the Corporation or any Subsidiary (in one transaction or a series of related transactions) of any securities of the Corporation or any Subsidiary to any Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate fair market value of $1,000,000 or more, or

(D) the adoption of any plan or proposal for the liquidation or dissolution of the Corporation, or

(E) any reclassification of securities (including any reverse stock split), or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries or any similar transaction (whether or not with or into or otherwise involving an Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder, or any Affiliate of any Interested Stockholder,

shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, considered for the purpose of this Article Fifteenth as one class (“Voting Shares”). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that some lesser percentage may be specified, by law or in any agreement with any national securities exchange or otherwise.

(2) The term “business combination” as used in this Article Fifteenth shall mean any transaction which is referred to in any one or more of clauses (A) through (E) of paragraph 1 of the section (a).

(b) The provisions of section (a) of this Article Fifteenth shall not be applicable to any particular business combination and such business combination shall require only such

14

affirmative vote as is required by law and any other provisions of the Charter or Act of Incorporation or By-Laws if such business combination has been approved by a majority of the whole Board.

(c) For the purposes of this Article Fifteenth:

(1) A “person” shall mean any individual, firm, corporation or other entity.

(2) “Interested Stockholder” shall mean, in respect of any business combination, any person (other than the Corporation or any Subsidiary) who or which as of the record date for the determination of stockholders entitled to notice of and to vote on such business combination, or immediately prior to the consummation of any such transaction:

(A) is the beneficial owner, directly or indirectly, of more than 10% of the Voting Shares, or

(B) is an Affiliate of the Corporation and at any time within two years prior thereto was the beneficial owner, directly or indirectly, of not less than 10% of the then outstanding voting Shares, or

(C) is an assignee of or has otherwise succeeded in any share of capital stock of the Corporation which were at any time within two years prior thereto beneficially owned by any Interested Stockholder, and such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933.

(3) A person shall be the “beneficial owner” of any Voting Shares:

(A) which such person or any of its Affiliates and Associates (as hereafter defined) beneficially own, directly or indirectly, or

(B) which such person or any of its Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any agreement, arrangement or understanding, or

(C) which are beneficially owned, directly or indirectly, by any other person with which such first mentioned person or any of its Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of the Corporation.

(4) The outstanding Voting Shares shall include shares deemed owned through application of paragraph (3) above but shall not include any other Voting Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights, warrants or options or otherwise.

15

(5) “Affiliate” and “Associate” shall have the respective meanings given those terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981.

(6) “Subsidiary” shall mean any corporation of which a majority of any class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on December 31, 1981) is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Investment Stockholder set forth in paragraph (2) of this section (c), the term “Subsidiary” shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation.

(d) majority of the directors shall have the power and duty to determine for the purposes of this Article Fifteenth on the basis of information known to them, (1) the number of Voting Shares beneficially owned by any person (2) whether a person is an Affiliate or Associate of another, (3) whether a person has an agreement, arrangement or understanding with another as to the matters referred to in paragraph (3) of section (c), or (4) whether the assets subject to any business combination or the consideration received for the issuance or transfer of securities by the Corporation, or any Subsidiary has an aggregate fair market value of $1,000,000 or more.

(e) Nothing contained in this Article Fifteenth shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law.

Sixteenth: Notwithstanding any other provision of this Charter or Act of Incorporation or the By-Laws of the Corporation (and in addition to any other vote that may be required by law, this Charter or Act of Incorporation by the By-Laws), the affirmative vote of the holders of at least two-thirds of the outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (considered for this purpose as one class) shall be required to amend, alter or repeal any provision of Articles Fifth, Thirteenth, Fifteenth or Sixteenth of this Charter or Act of Incorporation.

Seventeenth:

(a) a Director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Laws as the same exists or may hereafter be amended.

(b) Any repeal or modification of the foregoing paragraph shall not adversely affect any right or protection of a Director of the Corporation existing hereunder with respect to any act or omission occurring prior to the time of such repeal or modification.”

16

EXHIBIT 4

BY-LAWS

WILMINGTON TRUST COMPANY

WILMINGTON, DELAWARE

As existing on December 16, 2004

17

BY-LAWS OF WILMINGTON TRUST COMPANY

ARTICLE 1

Stockholders’ Meetings

Section 1. Annual Meeting. The annual meeting of stockholders shall be held on the third Thursday in April each year at the principal office at the Company or at such other date, time or place as may be designated by resolution by the Board of Directors.

Section 2. Special Meetings. Special meetings of stockholders may be called at any time by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President.

Section 3. Notice. Notice of all meetings of the stockholders shall be given by mailing to each stockholder at least ten (10) days before said meeting, at his last known address, a written or printed notice fixing the time and place of such meeting.

Section 4. Quorum. A majority in the amount of the capital stock of the Company issued and outstanding on the record date, as herein determined, shall constitute a quorum at all meetings of stockholders for the transaction of any business, but the holders of a smaller number of shares may adjourn from time to time, without further notice, until a quorum is secured. At each annual or special meeting of stockholders, each stockholder shall be entitled to one vote, either in person or by proxy, for each share of stock registered in the stockholder’s name on the books of the Company on the record date for any such meeting as determined herein.

ARTICLE 2

Directors

Section 1. Management. The affairs and business of the Company shall be managed by or under the direction of the Board of Directors.

Section 2. Number. The authorized number of directors that shall constitute the Board of Directors shall be fixed from time to time by or pursuant to a resolution passed by a majority of the Board of Directors within the parameters set by the Charter of the Company. No more than two directors may also be employees of the Company or any affiliate thereof.

Section 3. Qualification. In addition to any other provisions of these Bylaws, to be qualified for nomination for election or appointment to the Board of Directors, a person must have not attained the age of sixty-nine years at the time of such election or appointment, provided however, the Nominating and Corporate Governance Committee may waive such qualification as to a particular candidate otherwise qualified to serve as a director upon a good faith determination by such committee that such a waiver is in the best interests of the Company and its stockholders. The Chairman of the Board and the Chief Executive Officer shall not be qualified to continue to serve as directors upon the termination of their service in those offices for any reason.

18

Section 4. Meetings. The Board of Directors shall meet at the principal office of the Company or elsewhere in its discretion at such times to be determined by a majority of its members, or at the call of the Chairman of the Board of Directors, the Chief Executive Officer or the President.

Section 5. Special Meetings. Special meetings of the Board of Directors may be called at any time by the Chairman of the Board, the Chief Executive Officer or the President, and shall be called upon the written request of a majority of the directors.

Section 6. Quorum. A majority of the directors elected and qualified shall be necessary to constitute a quorum for the transaction of business at any meeting of the Board of Directors.

Section 7. Notice. Written notice shall be sent by mail to each director of any special meeting of the Board of Directors, and of any change in the time or place of any regular meeting, stating the time and place of such meeting, which shall be mailed not less than two days before the time of holding such meeting.

Section 8. Vacancies. In the event of the death, resignation, removal, inability to act or disqualification of any director, the Board of Directors, although less than a quorum, shall have the right to elect the successor who shall hold office for the remainder of the full term of the class of directors in which the vacancy occurred, and until such director’s successor shall have been duly elected and qualified.

Section 9. Organization Meeting. The Board of Directors at its first meeting after its election by the stockholders shall appoint an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee, and shall elect from its own members a Chairman of the Board, a Chief Executive Officer and a President, who may be the same person. The Board of Directors shall also elect at such meeting a Secretary and a Chief Financial Officer, who may be the same person, and may appoint at any time such committees as it may deem advisable. The Board of Directors may also elect at such meeting one or more Associate Directors. The Board of Directors, or a committee designated by the Board of Directors may elect or appoint such other officers as they may deem advisable.

Section 10. Removal. The Board of Directors may at any time remove, with or without cause, any member of any committee appointed by it or any associate director or officer elected by it and may appoint or elect his successor.

Section 11. Responsibility of Officers. The Board of Directors may designate an officer to be in charge of such departments or divisions of the Company as it may deem advisable.

Section 12. Participation in Meetings. The Board of Directors or any committee of the Board of Directors may participate in a meeting of the Board of Directors or such committee, as the case may be, by conference telephone, video facilities or other communications equipment. Any action required or permitted to be taken at any meeting of the Board of Directors or any committee thereof may be taken without a meeting if all of the members of the Board of Directors or the committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the Board of Directors or such committee.

19

ARTICLE 3

Committees of the Board of Directors

Section 1. Audit Committee.

(A) The Audit Committee shall be composed of not more than five (5) members, who shall be selected by the Board of Directors from its own members, none of whom shall be an officer or employee of the Company, and shall hold office at the pleasure of the Board.

(B) The Audit Committee shall have general supervision over the Audit Services Division in all matters however subject to the approval of the Board of Directors; it shall consider all matters brought to its attention by the officer in charge of the Audit Services Division, review all reports of examination of the Company made by any governmental agency or such independent auditor employed for that purpose, and make such recommendations to the Board of Directors with respect thereto or with respect to any other matters pertaining to auditing the Company as it shall deem desirable.

(C) The Audit Committee shall meet whenever and wherever its Chairperson, the Chairman of the Board, the Chief Executive Officer, the President or a majority of the Committee’s members shall deem it to be proper for the transaction of its business. A majority of the Committee’s members shall constitute a quorum for the transaction of business. The acts of the majority at a meeting at which a quorum is present shall constitute action by the Committee.

Section 2. Compensation Committee.

(A) The Compensation Committee shall be composed of not more than five (5) members, who shall be selected by the Board of Directors from its own members, none of whom shall be an officer or employee of the Company, and shall hold office at the pleasure of the Board of Directors.

(B) The Compensation Committee shall in general advise upon all matters of policy concerning compensation, including salaries and employee benefits.

(C) The Compensation Committee shall meet whenever and wherever its Chairperson, the Chairman of the Board, the Chief Executive Officer, the President or a majority of the Committee’s members shall deem it to be proper for the transaction of its business. A majority of the Committee’s members shall constitute a quorum for the transaction of business. The acts of the majority at a meeting at which a quorum is present shall constitute action by the Committee.

Section 3. Nominating and Corporate Governance Committee.

(A) The Nominating and Corporate Governance Committee shall be composed of not more than five members, who shall be selected by the Board of Directors from its own members, none of whom shall be an officer or employee of the Company, and shall hold office at the pleasure of the Board of Directors.

(B) The Nominating and Corporate Governance Committee shall provide counsel and make recommendations to the Chairman of the Board and the full Board with respect to the performance of the Chairman of the Board and the Chief Executive Officer, candidates for membership on the Board of Directors and its committees, matters of corporate governance, succession planning for the Company’s executive management and significant shareholder relations issues.

(C) The Nominating and Corporate Governance Committee shall meet whenever and

20

wherever its Chairperson, the Chairman of the Board, the Chief Executive Officer, the President, or a majority of the Committee’s members shall deem it to be proper for the transaction of its business. A majority of the Committee’s members shall constitute a quorum for the transaction of business. The acts of the majority at a meeting at which a quorum is present shall constitute action by the Committee.

Section 4. Other Committees. The Company may have such other committees with such powers as the Board may designate from time to time by resolution or by an amendment to these Bylaws.

Section 5. Associate Directors.

(A) Any person who has served as a director may be elected by the Board of Directors as an associate director, to serve at the pleasure of the Board of Directors.

(B) Associate directors shall be entitled to attend all meetings of directors and participate in the discussion of all matters brought to the Board of Directors, but will not have a right to vote.

Section 6. Absence or Disqualification of Any Member of a Committee. In the absence or disqualification of any member of any committee created under Article III of these Bylaws, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

ARTICLE 4

Officers

Section 1. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the Board of Directors and shall have such further authority and powers and shall perform such duties the Board of Directors may assign to him from time to time.

Section 2. Chief Executive Officer. The Chief Executive Officer shall have the powers and duties pertaining to the office of Chief Executive Officer conferred or imposed upon him by statute, incident to his office or as the Board of Directors may assign to him from time to time. In the absence of the Chairman of the Board, the Chief Executive Officer shall have the powers and duties of the Chairman of the Board.

Section 3. President. The President shall have the powers and duties pertaining to the office of the President conferred or imposed upon him by statute, incident to his office or as the Board of Directors may assign to him from time to time. In the absence of the Chairman of the Board and the Chief Executive Officer, the President shall have the powers and duties of the Chairman of the Board.

Section 4. Duties. The Chairman of the Board, the Chief Executive Officer or the President, as designated by the Board of Directors, shall carry into effect all legal directions of the Board of Directors and shall at all times exercise general supervision over the interest, affairs and operations of the Company and perform all duties incident to his office.

Section 5. Vice Presidents. There may be one or more Vice Presidents, however denominated by the Board of Directors, who may at any time perform all of the duties of the Chairman of the Board, the Chief Executive Officer and/or the President and such other powers and duties incident to their respective offices or

21

as the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President or the officer in charge of the department or division to which they are assigned may assign to them from time to time.

Section 6. Secretary. The Secretary shall attend to the giving of notice of meetings of the stockholders and the Board of Directors, as well as the committees thereof, to the keeping of accurate minutes of all such meetings, recording the same in the minute books of the Company and in general notifying the Board of Directors of material matters affecting the Company on a timely basis. In addition to the other notice requirements of these Bylaws and as may be practicable under the circumstances, all such notices shall be in writing and mailed well in advance of the scheduled date of any such meeting. He shall have custody of the corporate seal, affix the same to any documents requiring such corporate seal, attest the same and perform other duties incident to his office.

Section 7. Chief Financial Officer. The Chief Financial Officer shall have general supervision over all assets and liabilities of the Company. He shall be custodian of and responsible for all monies, funds and valuables of the Company and for the keeping of proper records of the evidence of property or indebtedness and of all transactions of the Company. He shall have general supervision of the expenditures of the Company and periodically shall report to the Board of Directors the condition of the Company, and perform such other duties incident to his office or as the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President may assign to him from time to time.

Section 8. Controller. There may be a Controller who shall exercise general supervision over the internal operations of the Company, including accounting, and shall render to the Board of Directors or the Audit Committee at appropriate times a report relating to the general condition and internal operations of the Company and perform other duties incident to his office.

There may be one or more subordinate accounting or controller officers however denominated, who may perform the duties of the Controller and such duties as may be prescribed by the Controller.

Section 9. Audit Officers. The officer designated by the Board of Directors to be in charge of the Audit Services Division of the Company, with such title as the Board of Directors shall prescribe, shall report to and be directly responsible to the Audit Committee and the Board of Directors.

There shall be an Auditor and there may be one or more Audit Officers, however denominated, who may perform all the duties of the Auditor and such duties as may be prescribed by the officer in charge of the Audit Services Division.

Section 10. Other Officers. There may be one or more officers, subordinate in rank to all Vice Presidents with such functional titles as shall be determined from time to time by the Board of Directors, who shall ex officio hold the office of Assistant Secretary of the Company and who may perform such duties as may be prescribed by the officer in charge of the department or division to which they are assigned.

Section 11. Powers and Duties of Other Officers. The powers and duties of all other officers of the Company shall be those usually pertaining to their respective offices, subject to the direction of the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President and the officer in charge of the department or division to which they are assigned.

22

Section 12. Number of Offices. Any one or more offices of the Company may be held by the same person, except that (A) no individual may hold more than one of the offices of Chief Financial Officer, Controller or Audit Officer and (B) none of the Chairman of the Board, the Chief Executive Officer or the President may hold any office mentioned in Section 12(A).

ARTICLE 5

Stock and Stock Certificates

Section 1. Transfer. Shares of stock shall be transferable on the books of the Company and a transfer book shall be kept in which all transfers of stock shall be recorded.

Section 2. Certificates. Every holder of stock shall be entitled to have a certificate signed by or in the name of the Company by the Chairman of the Board, the Chief Executive Officer or the President or a Vice President, and by the Secretary or an Assistant Secretary, of the Company, certifying the number of shares owned by him in the Company. The corporate seal affixed thereto, and any of or all the signatures on the certificate, may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Duplicate certificates of stock shall be issued only upon giving such security as may be satisfactory to the Board of Directors.

Section 3. Record Date. The Board of Directors is authorized to fix in advance a record date for the determination of the stockholders entitled to notice of, and to vote at, any meeting of stockholders and any adjournment thereof, or entitled to receive payment of any dividend, or to any allotment of rights, or to exercise any rights in respect of any change, conversion or exchange of capital stock, or in connection with obtaining the consent of stockholders for any purpose, which record date shall not be more than 60 nor less than 10 days preceding the date of any meeting of stockholders or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent.

ARTICLE 6

Seal

The corporate seal of the Company shall be in the following form:

Between two concentric circles the words “Wilmington Trust Company” within the inner circle the words “Wilmington, Delaware.”

ARTICLE 7

Fiscal Year

The fiscal year of the Company shall be the calendar year.

23

ARTICLE 8

Execution of Instruments of the Company

The Chairman of the Board, the Chief Executive Officer, the President or any Vice President, however denominated by the Board of Directors, shall have full power and authority to enter into, make, sign, execute, acknowledge and/or deliver and the Secretary or any Assistant Secretary shall have full power and authority to attest and affix the corporate seal of the Company to any and all deeds, conveyances, assignments, releases, contracts, agreements, bonds, notes, mortgages and all other instruments incident to the business of this Company or in acting as executor, administrator, guardian, trustee, agent or in any other fiduciary or representative capacity by any and every method of appointment or by whatever person, corporation, court officer or authority in the State of Delaware, or elsewhere, without any specific authority, ratification, approval or confirmation by the Board of Directors, and any and all such instruments shall have the same force and validity as though expressly authorized by the Board of Directors.

ARTICLE 9

Compensation of Directors and Members of Committees

Directors and associate directors of the Company, other than salaried officers of the Company, shall be paid such reasonable honoraria or fees for attending meetings of the Board of Directors as the Board of Directors may from time to time determine. Directors and associate directors who serve as members of committees, other than salaried employees of the Company, shall be paid such reasonable honoraria or fees for services as members of committees as the Board of Directors shall from time to time determine and directors and associate directors may be authorized by the Company to perform such special services as the Board of Directors may from time to time determine in accordance with any guidelines the Board of Directors may adopt for such services, and shall be paid for such special services so performed reasonable compensation as may be determined by the Board of Directors.

ARTICLE 10

Indemnification

Section 1. Persons Covered. The Company shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding”) by reason of the fact that he, or a person for whom he is the legal representative, is or was a director or associate director of the Company, a member of an advisory board the Board of Directors of the Company or any of its subsidiaries may appoint from time to time or is or was serving at the request of the Company as a director, officer, employee, fiduciary or agent of another corporation, partnership, limited liability company, joint venture, trust, enterprise or non-profit entity that is not a subsidiary or affiliate of the Company, including service with respect to employee benefit plans, against all liability and loss suffered and expenses reasonably incurred by such person. The Company shall be required to indemnify such a person in connection with a proceeding initiated by such person only if the proceeding was authorized by the Board of Directors.

The Company may indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or threatened to be made a party or is otherwise involved in any proceeding by reason of the fact that he, or a person for whom he is the legal representative, is or was an officer, employee or agent of the Company or a director, officer, employee or agent of a subsidiary or affiliate of the Company, against all liability and loss suffered and expenses reasonably incurred by such person. The Company may indemnify any such person in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors.

24

Section 2. Advance of Expenses. The Company shall pay the expenses incurred in defending any proceeding involving a person who is or may be indemnified pursuant to Section 1 in advance of its final disposition, provided, however, that the payment of expenses incurred by such a person in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by that person to repay all amounts advanced if it should be ultimately determined that the person is not entitled to be indemnified under this Article 10 or otherwise.

Section 3. Certain Rights. If a claim under this Article 10 for (A) payment of expenses or (B) indemnification by a director, associate director, member of an advisory board the Board of Directors of the Company or any of its subsidiaries may appoint from time to time or a person who is or was serving at the request of the Company as a director, officer, employee, fiduciary or agent of another corporation, partnership, limited liability company, joint venture, trust, enterprise or nonprofit entity that is not a subsidiary or affiliate of the Company, including service with respect to employee benefit plans, is not paid in full within sixty days after a written claim therefor has been received by the Company, the claimant may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action, the Company shall have the burden of proving that the claimant was not entitled to the requested indemnification or payment of expenses under applicable law.

Section 4. Non-Exclusive. The rights conferred on any person by this Article 10 shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Charter or Act of Incorporation, these Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.

Section 5. Reduction of Amount. The Company’s obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or nonprofit entity.

Section 6. Effect of Modification. Any amendment, repeal or modification of the foregoing provisions of this Article 10 shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such amendment, repeal or modification.

ARTICLE 11

Amendments to the Bylaws

These Bylaws may be altered, amended or repealed, in whole or in part, and any new Bylaw or Bylaws adopted at any regular or special meeting of the Board of Directors by a vote of a majority of all the members of the Board of Directors then in office.

ARTICLE 12

Miscellaneous

Whenever used in these Bylaws, the singular shall include the plural, the plural shall include the singular unless the context requires otherwise and the use of either gender shall include both genders.

25

EXHIBIT 6

Section 321(b) Consent

Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended, Wilmington Trust Company hereby consents that reports of examinations by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor.

	WILMINGTON TRUST COMPANY
Dated: December 20, 2005	By:	/s/ Mary St. Amand
	Name:	Mary St. Amand
	Title:	Vice President

26

EXHIBIT 7

NOTICE

This form is intended to assist state nonmember banks and savings banks with state publication requirements. It has not been approved by any state banking authorities. Refer to your appropriate state banking authorities for your state publication requirements.

REPORT OF CONDITION

Consolidating domestic subsidiaries of the

WILMINGTON TRUST COMPANY	of	WILMINGTON
Name of Bank		City

in the State of DELAWARE , at the close of business on September 30, 2005.

	Thousands of dollars
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coins	246,525
Interest-bearing balances	0
Held-to-maturity securities	2,472
Available-for-sale securities	1,587,116
Federal funds sold in domestic offices	385,754
Securities purchased under agreements to resell	63,385
Loans and lease financing receivables:
Loans and leases held for sale	0
Loans and leases, net of unearned income	6,695,164
LESS: Allowance for loan and lease losses	83,852
Loans and leases, net of unearned income, allowance, and reserve	6,611,312
Assets held in trading accounts	0
Premises and fixed assets (including capitalized leases)	136,049
Other real estate owned	199
Investments in unconsolidated subsidiaries and associated companies	2,550
Customers’ liability to this bank on acceptances outstanding	0
Intangible assets:
a. Goodwill	1,116
b. Other intangible assets	9,628
Other assets	196,569
Total assets	9,242,675
LIABILITIES
Deposits:
In domestic offices	7,392,517
Noninterest-bearing	1,054,682
Interest-bearing	6,337,835
Federal funds purchased in domestic offices	246,375
Securities sold under agreements to repurchase	354,404
Trading liabilities (from Schedule RC-D)	0
Other borrowed money (includes mortgage indebtedness and obligations under capitalized leases:	378,739
Bank’s liability on acceptances executed and outstanding	0
Subordinated notes and debentures	0
Other liabilities (from Schedule RC-G)	144,486
Total liabilities	8,516,521
EQUITY CAPITAL
Perpetual preferred stock and related surplus	0
Common Stock	500
Surplus (exclude all surplus related to preferred stock)	112,358
a. Retained earnings	647,388
b. Accumulated other comprehensive income	(34,092	)
Total equity capital	726,154
Total liabilities, limited-life preferred stock, and equity capital	9,242,675

2

EX-99.1

Exhibit 99.1

Nigel D. T. Andrews

c/o HEXION SPECIALTY CHEMICALS, INC.

180 East Broad Street

Columbus, Ohio 43215

December 27, 2005

William H. Carter

Hexion Specialty Chemicals, Inc.

180 East Broad Street

Columbus, Ohio 43215

Dear Mr. Carter:

As we have discussed, I have agreed to serve as a member of the Board of Directors of Hexion Specialty Chemicals, Inc., a New Jersey corporation (the “Company”). I understand I may be elected as a director of the Company prior to the Company’s initial public offering of its common stock. I consent to being named as a future Board member of the Company in the Form S-4 registration statement and any amendments thereto filed in connection with the Company’s offer to exchange up to $150,000,000 aggregate principal amount of its registered Second-Priority Senior Secured Floating Rate Notes Due 2010 for a like principal amount of its outstanding Second-Priority Senior Secured Floating Rate Notes Due 2010 and up to $325,000,000 aggregate principal amount of its registered 9% Second-Priority Senior Secured Notes Due 2014 for a like principal amount of its outstanding 9% Second-Priority Senior Secured Notes Due 2014.

Very truly yours,

/s/ Nigel D. T. Andrews

Nigel D. T. Andrews

EX-99.2

Exhibit 99.2

David C. House

c/o HEXION SPECIALTY CHEMICALS, INC.

180 East Broad Street

Columbus, Ohio 43215

December 16, 2005

William H. Carter

Hexion Specialty Chemicals, Inc.

180 East Broad Street

Columbus, Ohio 43215

Dear Mr. Carter:

As we have discussed, I have agreed to serve as a member of the Board of Directors of Hexion Specialty Chemicals, Inc., a New Jersey corporation (the “Company”). I understand I may be elected as a director of the Company prior to the Company’s initial public offering of its common stock. I consent to being named as a future Board member of the Company in the Form S-4 registration statement and any amendments thereto filed in connection with the Company’s offer to exchange up to $150,000,000 aggregate principal amount of its registered Second-Priority Senior Secured Floating Rate Notes Due 2010 for a like principal amount of its outstanding Second-Priority Senior Secured Floating Rate Notes Due 2010 and up to $325,000,000 aggregate principal amount of its registered 9% Second-Priority Senior Secured Notes Due 2014 for a like principal amount of its outstanding 9% Second-Priority Senior Secured Notes Due 2014.

Very truly yours,

/s/ David C. House

David C. House

EX-99.3

Exhibit 99.3

LETTER OF TRANSMITTAL

for

Second-Priority Senior Secured Floating Rate Notes Due 2010

and

9% Second-Priority Senior Secured Notes Due 2014

of

HEXION U.S. FINANCE CORP.

and

HEXION NOVA SCOTIA FINANCE, ULC

THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW

YORK CITY TIME, ON                     , 2006 (THE “EXPIRATION DATE”), UNLESS EXTENDED.

The Exchange Agent for the Exchange Offer is:

WILMINGTON TRUST COMPANY

By Certified or Registered Mail:

Wilmington Trust Company

DC-1626 Processing Unit

P.O. Box 8861

Wilmington, DE 19889-8861

Attention: Alisha Clendaniel

By Overnight Delivery, Courier or Hand:

Wilmington Trust Company

Corporate Capital Markets

1100 North Market Street

Wilmington, Delaware 19890-1626

Attention: Alisha Clendaniel

By Facsimile Transmission (for eligible institutions only):

(302) 636-4139

To Confirm by Telephone or for Information Call:

(302) 636-6470

Delivery of this Letter of Transmittal to an Address other than as set forth above or transmission via facsimile to a number other than as set forth above does not constitute a valid delivery.

The undersigned acknowledges receipt of the Prospectus dated                     , 2005 (the “Prospectus”) of Hexion U.S. Finance Corp. and Hexion Nova Scotia Finance, ULC (the “Issuers”), and this Letter of Transmittal (the “Letter of Transmittal”), which together describe the Issuers’ offer (the “Exchange Offer”) to (i) exchange their Second-Priority Senior Secured Floating Rate Notes Due 2010 (the “New Floating Rate Notes”) which have been registered under the Securities Act of 1933, as amended (the “Securities Act”), for an equal aggregate principal amount of their outstanding Second-Priority Senior Secured Floating Rate Notes Due 2010 ( the “Old Floating Rate Notes”) and (ii) exchange their 9% Second-Priority Senior Secured Notes Due 2014 which have been registered under the Securities Act (the “New Fixed Rate Notes” and, together with the New Floating Rate Notes, the “Exchange Notes”) for an equal aggregate principal amount of their outstanding 9% Second-Priority Senior Secured Notes Due 2014 (the “Old Fixed Rate Notes” and, together with the Old Floating Rate Notes, the “Old Notes”). The Old Notes were issued on August 12, 2004.

The terms of the Exchange Notes are identical in all material respects (including principal amount, interest rate and maturity) to the terms of the Old Notes for which they may be exchanged pursuant to the Exchange Offer, except that the Exchange Notes are freely tradable by holders thereof (except as provided herein or in the Prospectus).

Capitalized terms used but not defined herein shall have the same meaning given them in the Prospectus.

YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.

The undersigned has checked the appropriate boxes below and signed this Letter of Transmittal to indicate the action the undersigned desires to take with respect to the Exchange Offer.

PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND

THE PROSPECTUS CAREFULLY BEFORE CHECKING ANY BOX BELOW.

List below the Old Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, the certificate numbers and aggregate principal amounts should be listed on a separate signed schedule affixed hereto.

DESCRIPTION OF OLD NOTES TENDERED HEREWITH
Name(s) and Address(es) of Registered Holder(s) (Please fill in)	Certificate Number(s)*	Aggregate Principal Amount Represented by Old Notes*	Principal Amount Tendered**
	Total
*     Need not be completed by book-entry holders. **     Unless otherwise indicated, the holder will be deemed to have tendered the full aggregate principal amount represented by such Old Notes. See instruction 2.

Holders of Old Notes whose Old Notes are not immediately available or who cannot deliver all other required documents to the Exchange Agent on or prior to the Expiration Date or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Old Notes according to the guaranteed delivery procedures set forth in the Prospectus.

Unless the context otherwise requires, the term “holder” for purposes of this Letter of Transmittal means any person in whose name Old Notes are registered or any other person who has obtained a properly completed bond power from the registered holder or any person whose Old Notes are held of record by The Depository Trust Company (“DTC”).

2

If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Old Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. A broker-dealer may not participate in the Exchange Offer with respect to Old Notes acquired other than as a result of market-making activities or other trading activities. Any holder who is an “affiliate” of the Issuers or who has an arrangement or understanding with respect to the distribution of the Exchange Notes to be acquired pursuant to the Exchange Offer, or any broker-dealer who purchased Old Notes from the Issuers to resell pursuant to Rule 144A under the Securities Act or any other available exemption under the Securities Act must comply with the registration and prospectus delivery requirements under the Securities Act.

¨ CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING:

Name(s) of Registered Holder(s)                                                                                                                                                    

Window Ticket Number (if any)                                                                                                                                                    

Date of Execution of Notice of Guaranteed Delivery                                                                                                             

Name of Eligible Institution that Guaranteed Delivery                                                                                                          

¨ CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO AND COMPLETE THE FOLLOWING:

Name(s)                                                                                                                                                                                                   

Address                                                                                                                                                                                                    

SPECIAL EXCHANGE INSTRUCTIONS (See Instructions 3, 4 and 5) To be completed ONLY if certificates for Old
Notes in a principal amount not tendered, or
Exchange Notes issued in exchange for Old Notes
accepted for exchange, are to be issued in the name
of someone other than the undersigned. Issue certificate(s) to: Name                                                                                             (Please Print) Address                                                                                         (Include Zip Code) (Tax Identification or Social Security No.) SPECIAL DELIVERY INSTRUCTIONS (See Instructions 3, 4 and 5) To be completed ONLY if certificates for Old
Notes in a principal amount not tendered, or
Exchange Notes issued in exchange for Old Notes
accepted for exchange, are to be sent to someone
other than the undersigned, or to the undersigned at
an address other than that shown above. Deliver Certificate(s) to: Name                                                                                                  (Please Print) Address                                                                                      (Include Zip Code) (Tax Identification or Social Security No.)

3

PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY

Ladies and Gentlemen:

Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Issuers the principal amount of the Old Notes indicated above. Subject to, and effective upon, the acceptance for exchange of all or any portion of the Old Notes tendered herewith in accordance with the terms and conditions of the Exchange Offer (including, if the Exchange Offer is extended or amended, the terms and conditions of any such extension or amendment), the undersigned hereby exchanges, assigns and transfers to, or upon the order of, the Issuers all right, title and interest in and to such Old Notes as are being tendered herewith. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as its true and lawful agent and attorney-in-fact of the undersigned (with full knowledge that the Exchange Agent also acts as the agent of the Issuers, in connection with the Exchange Offer) to cause the Old Notes to be assigned, transferred and exchanged.

The undersigned represents and warrants that it has full power and authority to tender, exchange, assign and transfer the Old Notes and to acquire Exchange Notes issuable upon the exchange of such tendered Old Notes, and that, when the same are accepted for exchange, the Issuers will acquire good and unencumbered title to the tendered Old Notes, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim. The undersigned and any beneficial owner of the Old Notes tendered hereby further represent and warrant that (i) the Exchange Notes acquired by the undersigned and any such beneficial owner of Old Notes pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Notes, (ii) neither the undersigned nor any such beneficial owner has an arrangement with any person to participate in the distribution of such Exchange Notes, (iii) neither the undersigned nor any such beneficial owner nor any such other person is engaging in or intends to engage in a distribution of such Exchange Notes and (iv) neither the undersigned nor any such other person is an “affiliate,” as defined under Rule 405 promulgated under the Securities Act, of the Issuers. The undersigned and each beneficial owner acknowledge and agree that any person who is an affiliate of the Issuers or who tenders in the Exchange Offer for the purpose of participating in a distribution of the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a resale transaction of the Exchange Notes acquired by such person and may not rely on the position of the staff of the Securities and Exchange Commission set forth in the no-action letters discussed in the Prospectus under the caption “The Exchange Offer—Purpose and Effect of the Exchange Offer.” The undersigned and each beneficial owner will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Issuers to be necessary or desirable to complete the sale, assignment and transfer of the Old Notes tendered hereby.

For purposes of the Exchange Offer, the Issuers shall be deemed to have accepted validly tendered Old Notes when, as and if the Issuers had given oral notice (confirmed in writing) or written notice thereof to the Exchange Agent.

If any tendered Old Notes are not accepted for exchange pursuant to the Exchange Offer because of an invalid tender, the occurrence of certain other events set forth in the Prospectus or otherwise, any such unaccepted Old Notes will be returned, without expense, to the undersigned at the address shown below or at a different address as may be indicated herein under “Special Delivery Instructions” as promptly as practicable after the Expiration Date.

All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned.

The undersigned understands that tenders of Old Notes pursuant to the procedures described under the caption “The Exchange Offer—Procedures for Tendering” in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Issuers upon the terms and subject to the conditions of the Exchange Offer, subject only to withdrawal of such tenders on the terms set forth in the Prospectus under the caption “The Exchange Offer—Withdrawal of Tenders.”

4

Unless otherwise indicated under “Special Exchange Instructions,” please cause the Exchange Notes to be issued, and return any Old Notes not tendered or not accepted for exchange, in the name(s) of the undersigned (and, in the case of Old Notes tendered by book-entry transfer, by credit to the account at DTC). Similarly unless otherwise indicated under “Special Delivery Instructions,” please mail any certificates for Old Notes not tendered or not accepted for exchange (and accompanying documents, as appropriate), and any certificates for Exchange Notes, to the undersigned at the address shown below the undersigned’s signature(s). If both “Special Exchange Instructions” and “Special Delivery Instructions” are completed, please cause the Exchange Notes to be issued, and return any Old Notes not tendered or not accepted for exchange, in the name(s) of, and deliver any certificates for such Old Notes or Exchange Notes to, the person(s) so indicated (and in the case of Old Notes tendered by book-entry transfer, by credit to the account at DTC so indicated). The undersigned recognizes that the Issuers have no obligation, pursuant to the “Special Exchange Instructions,” to transfer any Old Notes from the name of the registered holder(s) thereof if the Issuers do not accept for exchange any of the Old Notes so tendered.

Holders of Old Notes whose Old Notes are not immediately available or who cannot deliver all other required documents to the Exchange Agent on or prior to the Expiration Date or who cannot complete the procedures for book-entry transfer on a timely basis, must tender their Old Notes according to the guaranteed delivery procedures set forth in the Prospectus.

5

TENDERING HOLDER(S) SIGN HERE

	Date:
	Date:
(Signature of Registered Holder(s) or Authorized Signatory)

(Must be signed by registered holder(s) exactly as name(s) appear(s) on certificate(s) for Old Notes hereby tendered or in whose name Old Notes are registered on the books of DTC or one of its participants, or by any person(s) authorized to become the registered holder(s) by endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, please set forth the full title of such person. See instruction 3.)

Name(s):                                                                                                                                                                                                     

(Please Print)

Capacity (full title):                                                                                                                                                                                 

Address:                                                                                                                                                                                                      

(Including Zip Code)

Area Code and

Telephone Number:                                                                                                                                                                                 

Taxpayer Identification No.:                                                                                                                                                                

GUARANTEE OF SIGNATURE(S)

(IF REQUIRED—SEE INSTRUCTION 3)

Authorized Signature:                                                                                                                                                                             

Name:                                                                                                                                                                                                            

Title:                                                                                                                                                                                                              

Address:                                                                                                                                                                                                      

(Including Zip Code)

Name of Firm:                                                                                                                                                                                           

Area Code and

Telephone Number:                                                                                                                                                                                 

Dated:                     , 2006

6

INSTRUCTIONS

FORMING PART OF THE TERMS AND CONDITIONS

OF THE EXCHANGE OFFER

1. Delivery of This Letter of Transmittal and Certificates; Guaranteed Delivery Procedures.

A holder of Old Notes may tender the same by (i) properly completing, dating and signing this Letter of Transmittal or a facsimile hereof (all references in the Prospectus to the Letter of Transmittal shall be deemed to include a facsimile thereof) and mailing or delivering the same, together with the certificate or certificates, if applicable, representing the Old Notes being tendered and any required signature guarantees and any other documents required by this Letter of Transmittal, to the Exchange Agent at its address set forth above prior to the Expiration Date, or (ii) complying with the procedure for book-entry transfer described below, or (iii) complying with the guaranteed delivery procedures described below.

Holders of Old Notes may tender Old Notes by book-entry transfer by crediting the Old Notes to the Exchange Agent’s account at DTC in accordance with DTC’s Automated Tender Offer Program (“ATOP”) and by complying with applicable ATOP procedures with respect to the Exchange Offer. DTC participants that are accepting the Exchange Offer should transmit their acceptance to DTC, which will edit and verify the acceptance and execute a book-entry delivery to the Exchange Agent’s account at DTC. DTC will then send a computer-generated message (an “Agent’s Message”) to the Exchange Agent for its acceptance in which the holder of the Old Notes acknowledges and agrees to be bound by the terms of, and makes the representations and warranties contained in, this Letter of Transmittal; the DTC participant confirms on behalf of itself and the beneficial owners of such Old Notes all provisions of this Letter of Transmittal (including any representations and warranties) applicable to it and such beneficial owner as fully as if it had completed the information required herein and executed and transmitted this Letter of Transmittal to the Exchange Agent. Delivery of the Agent’s Message by DTC will satisfy the terms of the Exchange Offer as to execution and delivery of a Letter of Transmittal by the participant identified in the Agent’s Message. DTC participants may also accept the Exchange Offer by submitting a Notice of Guaranteed Delivery through ATOP.

THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE HOLDER’S ELECTION AND RISK. RATHER THAN MAIL THESE ITEMS, WE RECOMMEND THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, HOLDERS SHOULD ALLOW SUFFICIENT TIME TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. HOLDERS SHOULD NOT SEND US THE LETTER OF TRANSMITTAL OR OLD NOTES. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR THEM.

Holders whose Old Notes are not immediately available or who cannot deliver their Old Notes and all other required documents to the Exchange Agent on or prior to the Expiration Date or comply with book-entry transfer procedures on a timely basis must tender their Old Notes pursuant to the guaranteed delivery procedure set forth in the Prospectus. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution (as defined below); (ii) on or prior to the Expiration Date, the Exchange Agent must have received from such Eligible Institution a properly completed and duly executed notice of guaranteed delivery by facsimile transmission, mail or hand delivery or a properly transmitted Agent’s Message and notice of guaranteed delivery setting forth the name and address of the tendering holder, the registered numbers of the Old Notes, the principal amount of Old Notes tendered; stating that the tender is being made thereby, and guaranteeing that, within three (3) New York Stock Exchange trading days after the expiration date, this Letter of Transmittal or facsimile thereof together with the Old Notes or a book-entry confirmation, and any other documents required by this Letter of Transmittal will be deposited by the eligible institution with the exchange agent; and (iii) all tendered Old Notes (or a confirmation of any book-entry transfer of such Old Notes into the Exchange Agent’s account at

7

a book-entry transfer facility) as well as this Letter of Transmittal and all other documents required by this Letter of Transmittal, must be received by the Exchange Agent within three New York Stock Exchange trading days after the Expiration Date, all as provided in the Prospectus.

No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders, by execution of this Letter of Transmittal (or facsimile thereof), shall waive any right to receive notice of the acceptance of the Old Notes for exchange.

2. Partial Tenders; Withdrawals.

If less than the entire principal amount of Old Notes evidenced by a submitted certificate is tendered, the tendering holder must fill in the aggregate principal amount of Old Notes tendered in the box entitled “Description of Old Notes Tendered Herewith.” A newly issued certificate for the Old Notes submitted but not tendered will be sent to such holder as soon as practicable after the Expiration Date. All Old Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise clearly indicated.

A tender pursuant to the Exchange Offer may be withdrawn at any time prior to the Expiration Date.

To be effective with respect to the tender of Old Notes, (i) a written notice of withdrawal, which notice may be by telegram, telex, facsimile transmission or letter, must be received by the Exchange Agent at the address for the Exchange Agent set forth above; or (ii) holders must comply with the appropriate procedures of DTC’s Automated Tender Offer Program system. For a notice of withdrawal to be effective, it must (i) specify the name of the person who tendered the Old Notes to be withdrawn; (ii) identify the Old Notes to be withdrawn (including the principal amount of such Old Notes, or, if applicable, the serial numbers shown on the particular certificates evidencing such Old Notes and the principal amount of Old Notes represented by such certificates); (iii) where certificates for Old Notes have been transmitted, specify the name in which such Old Notes were registered, if different from that of the withdrawing holder; (iv) include a statement that such holder is withdrawing its election to have such Old Notes exchanged; and (v) be signed by the holder in the same manner as the original signature on this Letter of Transmittal (with signatures guaranteed by an eligible institution unless such holder is an eligible institution). The Exchange Agent will return the properly withdrawn Old Notes promptly following receipt of notice of withdrawal. If Old Notes have been tendered pursuant to the procedure for book-entry transfer, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility. All questions as to the validity of notices of withdrawals, including time of receipt, will be determined by the Issuers, and such determination will be final and binding on all parties.

Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer. Any Old Notes which have been tendered for exchange but which are not exchanged for any reason will be returned to the holder thereof without cost to such holder (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent’s account at DTC pursuant to the procedures described above, such Old Notes will be credited to an account maintained with DTC for Old Notes) promptly after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following one of the procedures described under the caption “The exchange offer—Procedures for tendering” in the Prospectus at any time prior to the Expiration Date.

3. Signature on this Letter of Transmittal; Written Instruments and Endorsements; Guarantee of Signatures.

If this Letter of Transmittal is signed by the registered holder(s) of the Old Notes tendered hereby, the signature must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever.

If any of the Old Notes tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal.

8

If a number of Old Notes registered in different names are tendered, it will be necessary to complete, sign and submit as many separate copies of this Letter of Transmittal as there are different registrations of Old Notes.

When this Letter of Transmittal is signed by the registered holder or holders (which term, for the purposes described herein, shall include DTC) of Old Notes listed and tendered hereby, no endorsements of certificates or separate written instruments of transfer or exchange are required unless Exchange Notes issued in exchange therefor are to be issued, or Old Notes are not tendered or not exchanged are to be returned, in the name of any person other than the registered holder. Signatures on any such certificates or separate written instruments of transfer or exchange must be guaranteed by an Eligible Institution.

Signatures on this Letter of Transmittal must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or another “eligible institution” within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, unless the Old Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on this Letter of Transmittal or (ii) for the account of an eligible institution.

If this Letter of Transmittal is signed by a person other than the registered holder of any Old Notes listed on the Old Notes, such Old Notes must be endorsed or accompanied by a properly completed bond power. The bond power must be signed by the registered holder as the registered holder’s name appears on the Old Notes and an eligible institution must guarantee the signature on the bond power.

If this Letter of Transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing. Unless waived by us, they should also submit evidence satisfactory to us of their authority to deliver this Letter of Transmittal.

4. Special Exchange and Delivery Instructions.

Tendering holders should indicate, as applicable, the name and address to which the Exchange Notes or certificates for Old Notes not tendered or not accepted for exchange are to be issued or sent, if different from the name and address of the person signing this Letter of Transmittal. In the case of issuance in a different name, the tax identification number of the person named must also be indicated. Holders tendering Old Notes by book-entry transfer may request that Old Notes not exchanged be credited to such account maintained at the book-entry transfer facility as such holder may designate.

5. Transfer Taxes.

The Issuers shall pay all transfer taxes, if any, applicable to the exchange of Old Notes under the Exchange Offer. If, however, certificates representing Old Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of any person other than the registered holder of the Old Notes tendered hereby, or if tendered Old Notes are registered in the name of any person other than the person signing this Letter of Transmittal, or if a transfer tax is imposed for any reason other than the exchange of Old Notes under the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered holder or any other person) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes is not submitted herewith, the amount of such transfer taxes will be billed to that tendering holder.

6. Waiver of Conditions.

The Issuers reserve the absolute right to waive, in whole or in part, any of the conditions to the Exchange Offer set forth in the Prospectus.

9

7. Mutilated, Lost, Stolen or Destroyed Securities.

Any holder whose Old Notes have been mutilated, lost, stolen or destroyed, should contact the Exchange Agent at the address indicated above for further instructions.

8. Irregularities.

All questions as to the validity, form, eligibility (including time of receipt), and acceptance of Letters of Transmittals or Old Notes will be resolved by the Issuers whose determination will be final and binding. The Issuers reserve the absolute right to reject any or all Letters of Transmittal or tenders that are not in proper form or the acceptance of which would, in the opinion of the Issuers’ counsel, be unlawful. The Issuers also reserve the right to waive any irregularities or conditions of tender as to the particular Old Notes covered by any Letter of Transmittal or tendered pursuant to such letter. None of the Issuers, the Exchange Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. The Issuers’ interpretation of the terms and conditions of the Exchange Offer shall be final and binding.

9. Substitute Form W-9.

Each holder of Old Notes whose Old Notes are accepted for exchange (or other payee) is required to provide a correct taxpayer identification number (“TIN”), generally the holder’s Social Security or federal employer identification number, and certain other information, on Substitute Form W-9, which is provided under “Important Tax Information” below, and to certify that the holder (or other payee) is not subject to backup withholding. Failure to provide the information on the Substitute Form W-9 may subject the holder (or other payee) to a $50 penalty imposed by the Internal Revenue Service and 28% federal income tax backup withholding on payments made in connection with the Old Notes. The box in Part 3 of the Substitute Form W-9 may be checked if the holder (or other payee) has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked and a TIN is not provided by the time any payment is made in connection with the Old Notes, 28% of all such payments will be withheld until a TIN is provided.

10. Requests for Assistance or Additional Copies.

Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent at the address and telephone number set forth above. In addition, all questions relating to the Exchange Offer, as well as requests for assistance or additional copies of the Prospectus and this Letter of Transmittal, may be directed to the Exchange Agent at the address and telephone number indicated above.

IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE OR COPY THEREOF (TOGETHER WITH CERTIFICATES OF OLD NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.

10

IMPORTANT TAX INFORMATION

Substitute Form W-9

Each tendering holder or other payee (“Payee”) that is a U.S. Person is required to provide a correct taxpayer identification number (“TIN”) and certain other information on Substitute Form W-9, which is provided below. If the Payee is receiving payment for a tendered Note, the Payee must certify that the Payee is not subject to backup withholding by signing and dating the Form pursuant to the instructions in Part 3. A taxpayer’s TIN generally is the taxpayer’s Social Security or federal Employer Identification Number.

If the tendering Payee has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future write “APPLIED FOR” in Part I. In such case if a TIN has not been provided by the time of payment, tax will be withheld on all payments, until a TIN is provided.

Certain Payees, including, among others, all corporations, are not subject to backup withholding tax. See the enclosed “Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9” for additional information. Such Payees should enter the correct TIN in Part 1 of the Substitute Form W-9, check the box in Part 2 of the Substitute W-9 and sign and date form.

Payments to a Payee that is not a U.S. Person will not be subject to backup withholding tax if the Payee submits a properly completed IRS Form W-8BEN, IRS Form W-8ECI, IRS Form W-8 EXP or IRS Form W-8IMY.

Consequences of Failure to File Substitute Form W-9

Failure to provide the information on the Substitute Form W-9 may subject the Payee to a $50 penalty imposed by the Internal Revenues Service and federal income tax backup withholding on any payment. Backup withholding is not an additional Federal income tax. Rather, the Federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, the Payee may claim a refund from the Internal Revenue Service.

11

SUBSTITUTE Form W-9 Department of the Treasury Internal Revenue Service Payor’s Request for Taxpayer Identification Number (TIN) and Certification	Part 1—PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING AND DATING BELOW	Social Security Number(s) or Employer Identification Number(s)
	Part 2—For payees exempt from backup withholding, check the following box    ¨. Part 3—Under penalties of perjury, I certify that: (1)    The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued for me); (2)    I am not subject to backup withholding because: (a) I am exempt from backup withholding; (b) I have not been notified by the Internal Revenue Service (“IRS”) that I am subject to backup withholding as a result of a failure to report all interest or dividends; or (c) the IRS has notified me that I am no longer subject to backup withholding; and (3)    I am a U.S. Person (including a U.S. resident alien).
	Certification Instructions—You must cross out item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of under reporting interest or dividends on your tax returns.
	Signature                                                                                     Name                                                                                            (please print)	Date

NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 30% OF THE VALUE OF DEBT/EQUITY SECURITIES OR 10% SENIOR SECURED NOTES, AS APPLICABLE, DELIVERABLE TO YOU PURSUANT TO THE EXCHANGE OFFER AND THE CONSENT SOLICITATION. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER INDEMNIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.

YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE “APPLIED FOR” INSTEAD OF A TIN

IN

THE SUBSTITUTE FORM W-9.

CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (i) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (ii) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number in the near future 28% of all reportable payments made to me will be withheld until a taxpayer identification number is provided.
Signature	Date
Name
(please print)

12

EX-99.4

Exhibit 99.4

NOTICE OF GUARANTEED DELIVERY

for

Tender of All Outstanding

Second-Priority Senior Secured Floating Rate Notes Due 2010

and

9% Second-Priority Senior Secured Notes Due 2014

In Exchange for

New Second-Priority Senior Secured Floating Rate Notes Due 2010

and

New 9% Second-Priority Senior Secured Notes Due 2014

of

HEXION U.S. FINANCE CORP.

AND

HEXION NOVA SCOTIA FINANCE, ULC

Registered holders of (i) outstanding Second-Priority Senior Secured Floating Rate Notes Due 2010 (the “Old Floating Rate Notes”) who wish to tender their Old Floating Rate Notes for a like principal amount of new Second-Priority Senior Secured Floating Rate Notes Due 2010 (the “New Floating Rate Notes”) which have been registered under the Securities Act of 1933, as amended (the “Securities Act”) or (ii) outstanding 9% Second-Priority Senior Secured Notes Due 2014 (the “Old Fixed Rate Notes” and, together with the Old Floating Rate Notes, the “Old Notes”) who wish to tender their Old Fixed Rate Notes for a like principal amount of 9% Second-Priority Senior Secured Notes Due 2014 (the “New Fixed Rate Notes” and, together with the New Floating Rate Notes, the “Exchange Notes”) which have been registered under the Securities Act, in each case, whose Old Notes are not immediately available or who cannot deliver their Old Notes and Letter of Transmittal (and any other documents required by the Letter of Transmittal) to Wilmington Trust Company (the “Exchange Agent”) prior to the Expiration Date, may use this Notice of Guaranteed Delivery or one substantially equivalent hereto. This Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile transmission (receipt confirmed by telephone and an original delivered by guaranteed overnight courier) or mail to the Exchange Agent. See “The Exchange Offer—Procedures for Tendering” in the Prospectus dated                     , 2005 of Hexion U.S. Finance Corp. and Hexion Nova Scotia Finance, ULC (the “Prospectus”).

The Exchange Agent for the Exchange Offer is:

WILMINGTON TRUST COMPANY:

By Certified or Registered Mail:

Wilmington Trust Company

DC-1626 Processing Unit

P.O. Box 8861

Wilmington, Delaware 19889-8861

Attention: Alisha Clendaniel

For Delivery by Overnight Courier or Hand:	By Facsimile Transmission
	(for eligible institutions only):
Wilmington Trust Company	(302) 636-4139
Corporate Capital Markets
1100 North Market Street	To Confirm by Telephone
Wilmington, Delaware 19890-1626	or for Information Call:
Attention: Alisha Clendaniel	(302) 636-6470

Delivery of this notice of guaranteed delivery to an address other than as set forth above or transmission via facsimile to a number other than as set forth above does not constitute a valid delivery.

This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an eligible institution (as defined in the Prospectus), such signature guarantee must appear in the applicable space provided on the Letter of Transmittal for Guarantee of Signatures.

Ladies and Gentlemen:

The undersigned hereby tenders for exchange to Hexion U.S. Finance Corp. and Hexion Nova Scotia Finance, ULC (the “Issuers”), upon the terms and subject to the conditions set forth in the Prospectus and the Letter of Transmittal, receipt of which is hereby acknowledged, the principal amount of Old Notes set forth below pursuant to the guaranteed delivery procedures set forth in the Prospectus under the caption “The Exchange Offer—Guaranteed Delivery Procedures.”

The undersigned understands and acknowledges that the Exchange Offer will expire at 5:00 p.m., New York City time, on                     , 2006, unless extended by the Issuers. The term “Expiration Date” shall mean 5:00 p.m., New York City time, on                     , 2006 unless the Exchange Offer is extended as provided in the Prospectus, in which case the term “Expiration Date” shall mean the latest date and time to which the Exchange Offer is extended.

All authority conferred or agreed to be conferred by this Notice of Guaranteed Delivery shall survive the death, incapacity or dissolution of the undersigned, and every obligation of the undersigned under this Notice of Guaranteed Delivery shall be binding upon the undersigned’s heirs, personal representatives, successors and assigns.

SIGNATURE

	Date:
	Date:
(Signature(s) of Holder(s) or Authorized Signatory)
Area Code and Telephone Number: (            )         -
Name(s):
(Please Print)
Capacity (full title), if signing in a fiduciary or representative capacity:
Address:
Taxpayer Identification or Social Security No.:
Principal Amount of Old Notes Tendered:
Certificate Number(s) of Old Notes (if available):
Aggregate Principal Amount Represented by Certificate(s):
IF OLD NOTES WILL BE TENDERED BY BOOK-ENTRY TRANSFER, PROVIDE THE FOLLOWING INFORMATION:
DTC Account Number:
Transaction Number:

2

GUARANTEE OF DELIVERY

(Not to be used for signature guarantee)

The undersigned, a member of a recognized signature guarantee medallion program within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, hereby guarantees to deliver to the Exchange Agent at one of its addresses set forth on the reverse hereof, the certificates representing the Old Notes (or a confirmation of book-entry transfer of such Old Notes into the Exchange Agent’s account at the book-entry transfer facility), together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, and any other documents required by the Letter of Transmittal within three New York Stock Exchange trading days after the Expiration Date (as defined in the Letter of Transmittal).
Name of Firm:	Area Code and Telephone No.: (        )         -
	Name:
(Authorized Signature)	(Please Type or Print)
Address:
	Title:
	Date:
(Zip Code)

NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. OLD NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.

3

EX-99.5

Exhibit 99.5

Hexion U.S. Finance Corp.

and

Hexion Nova Scotia Finance, ULC

Offer to Exchange up to $150,000,000

Aggregate Principal Amount of their

Second-Priority Senior Secured Floating Rate Notes Due 2010

For Any and All of their Outstanding

Second-Priority Senior Secured Floating Rate Notes Due 2010

and up to $325,000,000

Aggregate Principal Amount of their

9% Second-Priority Senior Secured Notes Due 2014

For Any and All of their Outstanding

9% Second-Priority Senior Secured Notes Due 2014

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,

NEW YORK CITY TIME, ON                     , 2006, UNLESS EXTENDED.

                    , 2005

To Brokers, Dealers, Commercial Banks,

Trust Companies and Other Nominees:

Hexion U.S. Finance Corp. and Hexion Nova Scotia Finance, ULC (the “Issuers”) are offering, upon the terms and subject to the conditions set forth in the Prospectus dated                     , 2005 (the “Prospectus”) and the accompanying Letter of Transmittal enclosed herewith (which together constitute the “Exchange Offer”), (i) exchange their Second-Priority Senior Secured Floating Rate Notes Due 2010 (the “New Floating Rate Notes”) which have been registered under the Securities Act of 1933, as amended (the “Securities Act”), for an equal aggregate principal amount of their outstanding Second-Priority Senior Secured Floating Rate Notes Due 2010 (the “Old Floating Rate Notes”) and (ii) exchange their 9% Second-Priority Senior Secured Notes Due 2014 which have been registered under the Securities Act (the “New Fixed Rate Notes” and, together with the New Floating Rate Notes, the “Exchange Notes”) for an equal aggregate principal amount of their outstanding 9% Second-Priority Senior Secured Notes Due 2014 (the “Old Fixed Rate Notes” and, together with the Old Floating Rate Notes, the “Old Notes”). As set forth in the Prospectus, the terms of the Exchange Notes are identical in all material respects to the Old Notes, except that the Exchange Notes have been registered under the Securities Act, and therefore will not bear legends restricting their transfer and will not contain certain provisions providing for the payment of additional interest to the holders of the Old Notes under certain circumstances relating to the Registration Rights Agreements, dated August 12, 2004, among the Issuers and the initial purchasers of the Old Notes.

THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CUSTOMARY CONDITIONS. SEE “THE EXCHANGE OFFER—CERTAIN CONDITIONS TO THE EXCHANGE OFFER” IN THE PROSPECTUS.

Enclosed herewith for your information and forwarding to your clients are copies of the following documents:

1. The Prospectus, dated                     , 2005;

2. The Letter of Transmittal for your use (unless Old Notes are tendered by an Agent’s Message) and for the information of your clients (facsimile copies of the Letter of Transmittal may be used to tender Old Notes);

3. A form of letter which may be sent to your clients for whose accounts you hold Old Notes registered in your name or in the name of your nominee, with space provided for obtaining such clients’ instructions with regard to the Exchange Offer;

4. A Notice of Guaranteed Delivery;

5. Guidelines of the Internal Revenue Service for Certification of Taxpayer Identification Number on Substitute Form W-9; and

6. A return envelope addressed to Wilmington Trust Company, the Exchange Agent.

YOUR PROMPT ACTION IS REQUESTED. PLEASE NOTE THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON                     , 2006, UNLESS EXTENDED. PLEASE FURNISH COPIES OF THE ENCLOSED MATERIALS TO THOSE OF YOUR CLIENTS FOR WHOM YOU HOLD OLD NOTES REGISTERED IN YOUR NAME OR IN THE NAME OF YOUR NOMINEE AS QUICKLY AS POSSIBLE.

In all cases, exchanges of Old Notes accepted for exchange pursuant to the Exchange Offer will be made only after timely receipt by the Exchange Agent of (a) certificates representing such Old Notes, or confirmation of book entry transfer of such Old Notes, as the case may be, (b) the Letter of Transmittal (or facsimile thereof), properly completed and duly executed, or an Agent’s Message and (c) any other required documents.

Holders who wish to tender their Old Notes and (i) whose Old Notes are not immediately available or (ii) who cannot deliver their Old Notes, the Letter of Transmittal or an Agent’s Message and in either case together with any other documents required by the Letter of Transmittal to the Exchange Agent prior to the Expiration Date must tender their Old Notes according to the guaranteed delivery procedures set forth under the caption “The Exchange Offer—Guaranteed Delivery Procedures” in the Prospectus.

The Exchange Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Old Notes residing in any jurisdiction in which the making of the Exchange Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction.

The Issuers will not pay any fees or commissions to brokers, dealers or other persons for soliciting exchanges of Notes pursuant to the Exchange Offer. The Issuers will, however, upon request, reimburse you for customary clerical and mailing expenses incurred by you in forwarding any of the enclosed materials to your clients. The Issuers will pay or cause to be paid any transfer taxes payable on the transfer of Notes to them except as otherwise provided in Instruction 5 of the Letter of Transmittal.

Questions and requests for assistance with respect to the Exchange Offer or for copies of the Prospectus and Letter of Transmittal may be directed to the Exchange Agent by telephone at (302) 636-6470 (Attention: Alisha Clendaniel) or by facsimile (for eligible institutions only) at (302) 636-4139 (Attention: Alisha Clendaniel).

Very truly yours,

HEXION U.S. FINANCE CORP.

HEXION NOVA SCOTIA FINANCE, ULC

NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY OTHER PERSON AS THE AGENT, OF THE ISSUERS OR ANY AFFILIATE THEREOF, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS OR USE ANY DOCUMENT ON BEHALF OF ANY OF THE ISSUERS IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.

2

EX-99.6

Exhibit 99.6

HEXION U.S. FINANCE CORP.

AND

HEXION NOVA SCOTIA FINANCE, ULC

Offer to Exchange up to $150,000,000

Aggregate Principal Amount of their

Second-Priority Senior Secured Floating Rate Notes Due 2010

For Any and All of their Outstanding

Second-Priority Senior Secured Floating Rate Notes Due 2010

and up to $325,000,000

Aggregate Principal Amount of their

9% Second-Priority Senior Secured Notes Due 2014

For Any and All of their Outstanding

9% Second-Priority Senior Secured Notes Due 2014

THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,

NEW YORK CITY TIME, ON                     , 2006 UNLESS EXTENDED.

To Our Clients:

Enclosed for your consideration is a Prospectus dated                     , 2005 (the “Prospectus”) and a Letter of Transmittal (which together constitute the “Exchange Offer”) relating to the offer by Hexion U.S. Finance Corp. and Hexion Nova Scotia Finance, ULC (the “Issuers”) to (i) exchange their Second-Priority Senior Secured Floating Rate Notes Due 2010 (the “New Floating Rate Notes”) which have been registered under the Securities Act of 1933, as amended (the “Securities Act”), for an equal aggregate principal amount of their outstanding Second-Priority Senior Secured Floating Rate Notes Due 2010 ( the “Old Floating Rate Notes”) and (ii) exchange their 9% Second-Priority Senior Secured Notes Due 2014 which have been registered under the Securities Act (the “New Fixed Rate Notes” and, together with the New Floating Rate Notes, the “Exchange Notes”) for an equal aggregate principal amount of their outstanding 9% Second-Priority Senior Secured Notes Due 2014 (the “Old Fixed Rate Notes” and, together with the Old Floating Rate Notes, the “Old Notes”). As set forth in the Prospectus, the terms of the Exchange Notes are identical in all material respects to the Old Notes, except that the Exchange Notes have been registered under the Securities Act, and therefore will not bear legends restricting their transfer and will not contain certain provisions providing for the payment of additional interest to the holders of the Old Notes under certain circumstances relating to the Registration Rights Agreements, dated August 12, 2004, among the Issuers and the initial purchasers of the Old Notes (the “Registration Rights Agreements”).

The enclosed material is being forwarded to you as the beneficial owner of Old Notes carried by us for your account or benefit but not registered in your name. An exchange of any Old Notes may only be made by us as the registered Holder and pursuant to your instructions. Therefore, we urge beneficial owners of Old Notes registered in the name of a broker, dealer, commercial bank, trust company or other nominee to contact such Holder promptly if they wish to exchange Old Notes in the Exchange Offer.

Accordingly, we request instructions as to whether you wish us to exchange any or all such Old Notes held by us for your account or benefit, pursuant to the terms and conditions set forth in the Prospectus and Letter of Transmittal. We urge you to read carefully the Prospectus and Letter of Transmittal before instructing us to exchange your Old Notes.

Your instructions to us should be forwarded as promptly as possible in order to permit us to exchange Old Notes on your behalf in accordance with the provisions of the Exchange Offer. The Exchange Offer expires at 5:00 p.m., New York City time, on                     , 2006, unless extended. The term “Expiration Date” shall mean 5:00 p.m., New York City time, on                     , 2006, unless the Exchange Offer is extended as provided in the Prospectus, in which case the term “Expiration Date” shall mean the latest date and time to which the Exchange Offer is extended. A tender of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date.

Your attention is directed to the following:

1. The Issuers will issue a like principal amount of Exchange Notes in exchange for the principal amount of Old Notes surrendered pursuant to the Exchange Offer, of which $475,000,000 aggregate principal amount of Old Notes was outstanding as of the date of the Prospectus. The terms of the Exchange Notes are identical in all respects to the Old Notes, except that the Exchange Notes have been registered under the Securities Act, and therefore will not bear legends restricting their transfer and will not contain certain provisions providing for the payment of additional interest to the holders of the Old Notes under certain circumstances relating to the Registration Rights Agreements.

2. THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CUSTOMARY CONDITIONS. SEE “THE EXCHANGE OFFER—CERTAIN CONDITIONS TO THE EXCHANGE OFFER” IN THE PROSPECTUS.

3. The Exchange Offer and withdrawal rights will expire at 5:00 p.m., New York City time, on                     , 2006, unless extended.

4. The Issuers have agreed to pay the expenses of the Exchange Offer.

5. Any transfer taxes incident to the transfer of Old Notes from the tendering Holder to us will be paid by the Issuers, except as provided in the Prospectus and the Letter of Transmittal.

The Exchange Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Old Notes residing in any jurisdiction in which the making of the Exchange Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction.

If you wish us to tender any or all of your Old Notes held by us for your account or benefit, please so instruct us by completing, executing and returning to us the attached instruction form. The accompanying Letter of Transmittal is furnished to you for informational purposes only and may not be used by you to exchange Old Notes held by us and registered in our name for your account or benefit.

2

INSTRUCTIONS

The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Exchange Offer of Hexion U.S. Finance Corp. and Hexion Nova Scotia Finance, ULC.

This will instruct you to tender for exchange the aggregate principal amount of Old Notes indicated below (or, if no aggregate principal amount is indicated below, all Old Notes) held by you for the account or benefit of the undersigned, pursuant to the terms of and conditions set forth in the Prospectus and the Letter of Transmittal.

Aggregate Principal Amount of Old Notes to be tendered for exchange:

$             

* I (we) understand that if I (we) sign this instruction form without indicating an aggregate principal amount of Old Notes in the space above, all Old Notes held by you for my (our) account will be tendered for exchange.

Signature(s)

Capacity (full title), if signing in a fiduciary or representative capacity

Name(s) and address, including zip code

Date:                                                                                                    

Area Code and Telephone Number

Taxpayer Identification or Social Security No.

3