-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VQKUym/1jJw9Jc92+1tw2n998748rbvx6CX4Xu21bhc3mgPQbx3qEAKWEqRzneKz ctz69WqNpcgUihpaSYD9Jg== 0000950130-01-500732.txt : 20010418 0000950130-01-500732.hdr.sgml : 20010418 ACCESSION NUMBER: 0000950130-01-500732 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010417 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BORDEN CHEMICALS & PLASTICS LIMITED PARTNERSHIP /DE/ CENTRAL INDEX KEY: 0000821202 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS [2821] IRS NUMBER: 311269627 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-09699 FILM NUMBER: 1604825 BUSINESS ADDRESS: STREET 1: HIGHWAY 73 CITY: GEISMAR STATE: LA ZIP: 70734 BUSINESS PHONE: 6142254482 MAIL ADDRESS: STREET 1: PO BOX 427 STREET 2: 180 EAST BROAD STREET 25TH FLOOR CITY: GERSMAR STATE: LA ZIP: 70734 FORMER COMPANY: FORMER CONFORMED NAME: BORDEN CHEMICALS & PLASTICS LIMITED PARTNERSHIP DATE OF NAME CHANGE: 19920703 10-K405 1 d10k405.txt FORM 10-K405 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 2000 Commission file number: 1-9699 ----------------- ------ BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP Delaware 31-1269627 - -------------------------- ------------------------------------ (State of organization) (I.R.S. Employer Identification No.) Highway 73, Geismar, Louisiana 70734 (614) 225-4482 - --------------------------------------- ------------------------------------ (Address of principal executive offices) (Registrant's telephone number) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Depositary Units Representing New York Stock Exchange Common Units SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE ________________________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____. ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by the referenced Part III and this Form 10-K or any amendment to this Form 10-K. [x] __________________________________ Aggregate market value in thousands of the Common Units held by non- affiliates of the Registrant based upon the closing price of such Units on April 3, 2001, was approximately $23.2 million. Number of Common Units outstanding as of the close of business on April 3, 2001: 36,750,000. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- The Exhibit Index is located herein at sequential page 33. PART I Item I. Business - ---------------- General Borden Chemicals and Plastics Limited Partnership (the "Company" or "Partnership") is a limited partnership formed in 1987 to acquire, own and operate polyvinyl chloride resins ("PVC"), methanol and other chemical plants located in Geismar, Louisiana, and Illiopolis, Illinois, that were previously owned and operated by Borden, Inc. ("Borden"). In 1995, the Company, through its subsidiary operating partnership Borden Chemicals and Plastics Operating Partnership (the "Operating Partnership"), purchased a PVC resin manufacturing facility, from Occidental Chemical Corporation ("OxyChem"), located in Addis, Louisiana ("Addis Facility"). Historically, the Company's principal product groups were PVC Polymers Products, which consist of PVC resins and feedstocks (such as vinyl chloride monomer ("VCM") and acetylene), Methanol and Derivatives, which consist of methanol and formaldehyde, and Nitrogen Products, which consist of ammonia and urea. As discussed below, the Company made the decision in 2000 to exit the Methanol and Derivatives and Nitrogen Products businesses. On April 3, 2001, the Operating Partnership and its subsidiary, BCP Finance Corporation, (collectively, the "Debtors") filed voluntary petitions for protection under Chapter 11 of the Bankruptcy Code, 11 U.S.C. Sections 101 - 1330 (the "Bankruptcy Code"), in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") under case number 01-1268(RRM) and 01-1269 (RRM) ("the Chapter 11 Cases"), respectively. The Company's production complex at Geismar, Louisiana, its plant at Illiopolis, Illinois, and the Addis Facility produce products for the following applications:
Products Location Principal Applications -------- -------- ---------------------- PVC POLYMERS PRODUCTS PVC Geismar Water distribution pipe, residential Illiopolis siding, wallcoverings, vinyl flooring Addis VCM Geismar Raw material for the Company's PVC operations
The Company's plants generally can be operated at rates in excess of stated capacity to take advantage of market opportunities without undue adverse effects. References to capacity assume normal operating conditions, including downtime and maintenance. The Company's objective is to operate the Geismar, Illiopolis and Addis plants at or near full capacity because of the reduced operating costs per unit of output at full operation. The integrated design of the Company's plants provides it with a high degree of flexibility to shift production volumes according to market conditions and efficiently utilize by-product streams. The Company's products are produced through the highly integrated lines described below. PVC Polymers Products PVC Resins - PVC is the second largest volume plastic material produced in the world. The Company produces general purpose and specialty purpose PVC resins at three plants - one located at the Geismar complex, one at Illiopolis and another at Addis - with stated annual capacities of 550 million, 400 million and 600 million pounds of PVC resins, respectively. The PVC resin plants operated at approximately 78% and 80% of combined capacity in 2000 and 1999, respectively. Although there have been year-to-year fluctuations in product mix, the Company has over time concentrated on 2 the higher margin grades of PVC resin and reduced its dependence on commodity pipe grade PVC resins, which have historically experienced lower margins. Based on data from the Society of the Plastics Industry, the Company believes its production currently accounts for approximately 9% of total industry domestic capacity of PVC resins. The PVC industry in both the United States and Europe has entered a consolidation and rationalization phase, evidenced by the mergers of OxyChem and Geon, Georgia Gulf and Condea Vista, BASF and Solvay, EVA and BSU Schkopag and Shin-Etso, Shell and Rovin in recent years. Production Process. PVC resins are produced through the polymerization of VCM, an ethylene and chlorine intermediate material internally produced by the Company. The Company's production of certain specialty PVC resin grades also involves the consumption of purchased vinyl acetate monomer. The Company purchases vinyl acetate monomer from unrelated third parties. All the VCM used by the Company's Geismar PVC resin plant and most of the VCM used by the Company's Illiopolis PVC resin plants is obtained from the Company's two Geismar VCM plants discussed below. Substantially all of the production of these VCM plants is consumed by the Company's PVC resins plants at Geismar and Illiopolis. The Geismar PVC resin plants obtain VCM from the Company's adjacent VCM plants in the Geismar complex and the Illiopolis PVC resin plant obtains VCM from the Company's Geismar plant via rail. The VCM requirement at the Addis Facility is currently supplied by OxyChem which has arranged for physical delivery to the Addis Facility by pipeline via exchange, but which may also be supplied by rail car from OxyChem's plant in Deer Park, Texas or from OxyChem's joint venture facility ("OxyMar") in Corpus Christi, Texas. VCM is principally used in the production of PVC resins. The Company has the capability of producing VCM by two processes: an ethylene process and an acetylene process. The finished product of both of these processes is essentially identical but the production costs vary depending on the cost of raw materials and energy. The ability to produce VCM by either process allows the Company the flexibility of favoring the process that results in the lower cost at any particular time. Ethylene-Based VCM. Ethylene-based VCM ("VCM-E") is produced by the Company at a 650 million pound stated annual capacity plant at the Geismar complex. The plant operated at approximately 86% and 79% of capacity during 2000 and 1999, respectively. All of the production of the VCM-E plant is consumed by the Company's PVC resin plants at the Geismar complex and Illiopolis. Ethylene and chlorine constitute the principal feedstocks used in the production of VCM-E. Both feedstocks are purchased by the Geismar plant from outside sources. Acetylene-Based VCM. Acetylene-based VCM ("VCM-A") is produced at a 320 million pound stated annual capacity plant at the Geismar complex. During 2000 and 1999, the plant operated at approximately 72% and 63% of capacity respectively. All of the VCM-A produced at the Geismar complex is consumed by the PVC resin plants at Geismar and Illiopolis. As discussed below under acetylene, the VCM-A plant was idled in December 2000 due to the high cost of raw material feedstock. Acetylene. Acetylene is primarily used as a feedstock for VCM-A and for other chemical intermediates. Until January 2000, the Company had a 50% interest in a 200 million pound stated annual capacity acetylene plant at the Geismar complex, with the remaining 50% interest held by BASF Corporation ("BASF"). In January 2000, the Partnership purchased BASF's interest in the acetylene plant. During 2000 and 1999, the plant operated at approximately 69% and 83%, respectively, of capacity, with all production being consumed by either the Company or BASF. 3 The principal feedstocks used in the production of acetylene are natural gas and oxygen. Oxygen is obtained from certain air separation units and related air compression systems, which are jointly owned by the Company, BASF (through December 31, 1999) and Air Liquide America Corporation. For a description of the Company's arrangements for the purchase of natural gas, see "Raw Materials". ------------- Due to the dramatic increase in the cost of natural gas during 2000, the acetylene and VCM-A production processes became uneconomical to operate. In December 2000, these units were idled, and the Partnership does not intend to operate these units unless and until natural gas returns to economically acceptable levels. Subject to the orders of the Bankruptcy Court in the Chapter 11 Cases, the Partnership plans to increase its purchases of VCM and its production of VCM-E to replace the idled VCM-A capacity. The Company's principal competitors in the sale of PVC include Shintech, Formosa Plastics, Oxyvinyl, L.P. and Georgia Gulf. Discontinued Operations In January 2000, the Partnership announced its intention to evolve into a focused PVC company and to explore ways to realize maximum value in the near term for its non-PVC businesses. On June 27, 2000, the Partnership announced its decision to exit the methanol and derivatives and nitrogen products business segments, as part of a process that included the sale of its formaldehyde and certain other assets for $48.5 million to a subsidiary of Borden. The sale of those assets was completed on July 28, 2000, with the Partnership receiving $38.8 million in cash and an interest-bearing note for $9.7 million which was paid in January 2001. The nitrogen products facilities were closed in July 2000, and the methanol production ceased in December 2000. Raw Materials A principal purchased raw material used historically in the Company's operations is natural gas. In 2000, the Company purchased 54.2 million BTUs of natural gas for feedstock and as an energy source. Natural gas can be supplied by pipeline to the Geismar complex by six major natural gas pipelines. The Company purchases the majority of its natural gas under fixed-term, market sensitive supply contracts. In 2000, the cost of purchasing natural gas increased to unprecedented levels, with natural gas increasing from an average of $2.25 per million BTU in 1999 to over $3.73 per million BTU, with monthly prices exceeding $6 per million BTU in December and $10 per million BTU in January 2001. As a consequence, the Company has idled or shutdown its production units that consume natural gas as a feedstock and currently is consuming gas only as an energy source. In this operating mode, annual consumption is approximately 12 million BTUs, and natural gas is currently being purchased from one supplier. There can be no assurance that the Company will in the future be able to purchase adequate supplies of natural gas at acceptable price levels to again utilize natural gas as a feedstock. The Company purchases other raw materials for its operations, principally ethylene and chlorine. Ethylene is currently supplied by pipeline to the Geismar facility by several suppliers. Chlorine is supplied by rail car and pipeline to the Geismar complex by various suppliers. The major raw material for the Illiopolis PVC plant, VCM, is supplied by rail car from the Geismar facility. In addition, in connection with the production of certain specialty grades of PVC resins, the Company purchases certain quantities of vinyl acetate monomer. See "PVC Polymers Products-Production Process". The Company purchases its VCM requirements for the Addis Facility under a VCM supply agreement entered into with Oxyvinyl, LP. Because raw materials have accounted for a high percentage of the Company's total 4 production costs, and are expected to continue to represent a high percentage of such costs for the Company, the Company's ability to pass on increases in costs of these raw material feedstocks will have a significant impact on operating results. The ability to pass on increases in feedstock and fuel costs is, to a large extent, dependent on the then existing market conditions. If the Company is unable to pass on increases in these costs, it could materially adversely affect the Company's income and cash flow from operations and its ability to service its debt obligations. Insurance The Company maintains property, business interruption and casualty insurance which it believes is in accordance with customary industry practices, but it is not fully insured against all potential hazards incident to its business. The Company also maintains pollution legal liability insurance coverage. However, because of the complex nature of environmental insurance coverage and the rapidly developing case law concerning such coverage, no assurance can be given concerning the extent to which its pollution legal liability insurance, or any other insurance that the Company has, may cover environmental claims against the Company. Insurance, however, generally does not cover penalties or the costs of obtaining permits. See "Item 3 - Legal Proceedings". Under its risk retention program, the Company maintains property damage and liability insurance deductibles of $2.5 million, $1.0 million and $1.0 million per occurrence for property and related damages at the Geismar, Illiopolis and Addis facilities, respectively, and deductibles ranging from $0.1 million to $2.0 million per event for liability insurance. In addition the Company is included in Borden's master excess insurance program. Marketing and Sales Marketing and sales activities are conducted by PVC sales and marketing department. This group is comprised of 16 people, including a Vice President of Sales and Marketing, a Director of Sales, two Product Managers, seven Regional Sales personnel, and three Service managers, along with a small, office support staff. The group is headquartered in Baton Rouge, LA with professional sales personnel geographically positioned throughout the United States. The Company's sales activities are based on frequent customer contact to secure and maintain long-term supply relationships. A substantial portion of the Company's sales are made under contracts with annual renegotiation provisions. The majority of the Company's sales are made in the United States, and a small portion in Canada. The Company has not historically participated in the export market, but retains access to these markets through third party specialists. Utilities The Geismar complex operates three high thermal efficiency co-generation units providing the site with low cost electricity and steam. Each unit is composed of a natural gas burning turbine/generator unit combined with a steam producing heat recovery system (i.e., the "co-generation" of electricity and steam). The co-generation units are designed to provide a significant portion of the electricity and steam, and a portion of the reformer combustion air requirements of the Geismar complex at full production levels. These units have electrical outputs of 20, 35 and 35 megawatts, respectively. The electricity is supplied by the units through a substation owned by Monochem, Inc. ("Monochem"), a corporation of which the Partnership 5 owns 50% of the capital stock. The Company's interest in Monochem is subject to certain rights of first refusal and limitations on transfer. Water requirements at the Geismar complex are obtained through Monochem from the Mississippi River. At Illiopolis, a municipal water company supplies the facility with its water requirements. Because the Illiopolis facility represents a significant portion of the demand for water supply from the municipal water company, the Company manages the operations of the water company on a cost-reimbursed basis. The Addis Facility obtains its electricity and water requirements from local public utilities. Natural gas can be supplied by pipeline from various suppliers. Purchase and Processing Agreements In connection with the formation of the Company in 1987, Borden entered into certain purchase agreements ("Purchase Agreements") and processing agreements ("Processing Agreements") with the Company covering the following products: PVC resins, methanol, ammonia, urea, formaldehyde and urea-formaldehyde concentrate. These agreements were transferred to Borden Chemical, Inc. ("BCI") in 1997 and the agreement to purchase PVC resins was assigned to and renegotiated with a third party in connection with the sale of certain businesses by Borden in 1996 and 1997. The Purchase Agreements and Processing Agreements with BCI were terminated in 2000 as part of the agreement for the Company to sell its formaldehyde and related assets to BCI. The agreements called for BCI to purchase most of its requirements for the applicable products based on pricing formulas. The Company believes that the pricing formulas set forth in the Purchase and Processing Agreements in the past provided aggregate prices and processing charges that BCI would have been able to obtain from unaffiliated suppliers, considering the magnitude of BCI's purchases, the long-term nature of such agreements and other factors. Competition The business in which the Company operates is highly competitive. The Company competes with major chemical manufacturers and diversified companies, a number of which have revenues and capital resources exceeding those of the Company. Because of the commodity nature of the Company's products, the Company is not in a position to protect its position by product differentiation and is not able to pass on cost increases to its customers to the extent its competitors do not pass on such costs. In addition to price, other significant factors in the marketing of the products are delivery, quality and, in the case of PVC resins, technical service. Borden has agreed that, so long as BCP Management, Inc. ("BCPM") is the general partner of the Company, Borden will not engage in the manufacture or sale in the United States of acetylene, VCM or PVC resins. However, if BCPM (i) is removed as general partner by the Unitholders under circumstances where cause exists or (ii) withdraws as general partner under circumstances where such withdrawal violates the existing partnership agreements ("Partnership Agreements"), Borden has agreed not to engage in such manufacture or sale for a period of two years from the date of such removal or withdrawal. If Borden were to sell any of its manufacturing facilities to an unaffiliated purchaser that is not a successor to Borden, the purchasers of such facilities would be free to compete with the Company. Trademarks The Company entered into a Use of Name and Trademark License Agreement ("Use of Name and Trademark License Agreement") with Borden pursuant to which the Company is 6 permitted to use in its name the Borden name and logo. The Use of Name and Trademark License Agreement and the right to use the Borden name and logo terminate in the event that BCPM ceases to be the General Partner. Management The General Partner, BCPM, manages and controls the activities of the Company and the Operating Partnership and the General Partner's activities are limited to such management and control. Unitholders do not participate in the management or control of the Company or the Operating Partnership. The General Partner has fiduciary duties to Unitholders, subject to the provisions of the Partnership Agreement. The General Partner is liable, as general partner, for all the debts of the Company (to the extent not paid by the Company) other than any debt incurred by the Company that is made specifically nonrecourse to the General Partner. The Company does not directly employ any of the persons responsible for managing or operating the business of the Company, but instead relies on the officers and employees of the General Partner and of Borden who provide support to or perform services for the General Partner and reimburses the General Partner or Borden (on its own or on the General Partner's behalf) for their services. Environmental and Safety Regulations General. The Company's operations are subject to federal, state and local environmental, health and safety laws and regulations, including laws relating to air quality, hazardous and solid wastes, chemical management and water quality. The Company has expended substantial resources, both financial and managerial, to comply with environmental regulations and permitting requirements, and anticipates that it will continue to do so in the future. Although the Company believes that its operations are in material compliance with these requirements, there can be no assurance that significant costs, civil and criminal penalties, and liabilities will not be incurred. The Company holds various environmental permits for operations at each of its plants. In the event a governmental agency were to deny a permit application or permit renewal, or revoke or substantially modify an existing permit, such agency action could have a material adverse effect on the Company's ability to continue the affected plant operations. Plant expansions are subject to securing necessary environmental permits. Environmental laws and regulations have changed in the past, and the Company anticipates continuing changes. Increasingly strict environmental regulations have resulted in increased operating costs for the Company, and it is possible that the costs of compliance with environmental, health and safety laws and regulations will continue to increase. The Company maintains an environmental and industrial safety and health compliance program and conducts internal regulatory audits at its Geismar, Illiopolis and Addis plants. The Company's plants have had a history of involvement in regulatory, enforcement and variance proceedings in connection with safety, health and environmental matters. Risks of substantial costs and liabilities are inherent in plant operations and products found at and produced by the plants, as they are with other enterprises engaged in the chemical business, and there can be no assurance that significant costs and liabilities will not be incurred. Air Quality. The Geismar, Illiopolis and Addis plants emit air contaminants and are subject to the requirements of the Clean Air Act and comparable state statutes. Many of the existing requirements under these laws are embodied in permits issued to the plants by state environmental agencies. The Company believes that the Geismar, Illiopolis and Addis plants generally are in material compliance with these requirements. The 1990 Amendments to the Clean Air Act (the "1990 Clean Air Act Amendments") 7 require stringent controls on volatile organic compounds ("VOC") emissions in ozone non-attainment areas and also require, subject to certain exceptions, the control of nitrogen oxide ("NOx") emissions in such areas. The Geismar and Addis plants are located in "nonattainment areas" for ozone under the 1990 Clean Air Act Amendments. Additional capital expenditures may be required at the Geismar and Addis plants in order to upgrade existing pollution control equipment and/or install additional control equipment to comply with the stringent regulations for VOC and NOx. The 1990 Clean Air Act Amendments and state laws and regulations also require certain sources to control emissions of hazardous air pollutants, including vinyl chloride. Additional capital expenditures may be necessary to comply with these control standards. The 1990 Clean Air Act Amendment further requires "enhanced monitoring" of the emissions from certain pieces of equipment. Although monitoring systems are already in place at the Geismar, Illiopolis and Addis plants, capital expenditures may be necessary to comply with the "enhanced monitoring" requirements. In late 1996 the Illiopolis plant discovered through emission stack testing that the actual emissions from a specific dryer were higher than calculated using emissions factors and engineering estimates. These new emission numbers were reported to the Illinois Environmental Protection Agency, and an air pollution control devise known as a baghouse was installed on the unit in 1998 at a cost of $1.3 million. Based on information currently available to the Company, the Company does not believe that the capital expenditures that may be required at the Geismar, Illiopolis and Addis plants to comply with the 1990 Clean Air Act Amendments and corresponding state regulations will be material. However, because the Company is continuing to evaluate the impact of such amendments on it, there can be no assurance that the actual costs will not exceed the Company's estimates. In March 1998, the United States Department of Justice ("DOJ") and the Company signed a consent decree (the "Consent Decree") to resolve an enforcement proceeding brought against the Company and BCPM, for alleged violations of the Clean Air Act and other environmental statutes at the Geismar facility. In June 1998, the U.S. District Court for the Middle District of Louisiana accepted the Consent Decree into record, and the proceedings were closed. See "Item 3 - Legal Proceedings". OSHA and Community Right to Know. The Geismar, Illiopolis and Addis plants are subject to the requirements of the federal Occupational Safety and Health Act ("OSHA") and comparable state statutes. The Company believes that the Geismar, Illiopolis, and Addis plants are in material compliance with OSHA requirements, including general industry standards, vinyl chloride exposure requirements, recordkeeping requirements and chemical process safety standards. It is possible that changes in safety and health regulations, or a finding of noncompliance with current regulations, could result in additional capital expenditures or operating expenses for the Geismar, Illiopolis and Addis plants. The OSHA hazard communication standard and the EPA community right-to-know regulations under the Emergency Planning and Community Right-to-Know Act ("EPCRA") require the Company to organize information about the hazardous materials in the plants and to communicate that information to employees and certain governmental authorities. The Company has a hazard communication program in place and will continue this program as a part of its industrial safety and health compliance program. The Company believes that it generally is in material compliance with EPCRA. Solid and Hazardous Waste. The Geismar, Illiopolis and Addis plants generate hazardous and nonhazardous solid waste and are subject to the requirements of the Resource Conservation and Recovery Act ("RCRA") and comparable state statutes. The Company believes that the Geismar, Illiopolis and Addis plants are in material 8 compliance with RCRA. However, see "Item 3 - Legal Proceedings". A primary trigger for RCRA requirements is the designation of a substance as a "hazardous waste". It is anticipated that additional substances will in the future be designated as "hazardous waste", which likely would result in additional capital expenditures or operating expenses for the Company. In accordance with the Consent Decree, the Company has applied for a RCRA permit for its valorization of chlorinated residuals ("VCR") unit. In addition, the settlement provides guidelines for future investigation and possible remediation of groundwater contamination. See "Item 3 - Legal Proceedings". Superfund. The Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"), also known as the "Superfund" law, imposes liability, without regard to fault or the legality of the original conduct, on classes of persons that are considered to have contributed to the release of a "hazardous substance" into the environment. These persons include the owner or operator of the disposal site or sites where the release occurred and the companies that disposed, or arranged for the disposal of, the hazardous substances found at the site. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to joint and several liability for the costs of cleaning up the hazardous substances and for damages to natural resources. In the ordinary course of the Company's operations, substances are generated that fall within the CERCLA definition of "hazardous substance". If such wastes have been disposed of at sites which are targeted for cleanup by federal or state regulatory authorities, the Company may be among those responsible under CERCLA or analogous state laws for all or part of the costs of such cleanup. The Geismar, Illiopolis and Addis plants have in the past and are expected to continue to generate hazardous substances and dispose of such hazardous substances at various offsite disposal sites. The Consent Decree signed by DOJ and the Company in March 1998 resolved an enforcement proceeding against the Company and BCPM for alleged violation of CERCLA's reporting and other environmental requirements at the Geismar facility. See "Item 3 - Legal Proceedings". Toxic Substances Control Act. The Company is subject to the Toxic Substances Control Act ("TSCA"), which regulates the development, manufacture, processing, distribution, importation, use, and disposal of thousands of chemicals. Among other requirements, TSCA provides that a chemical cannot be manufactured, processed, imported or distributed in the United States until it has been included on the TSCA Chemical Inventory. Other important TSCA requirements govern recordkeeping and reporting. For example, TSCA requires a company to maintain records of allegations of significant adverse reactions to health or the environment caused by chemicals or chemical processes. The Company believes that it generally is in material compliance with TSCA. Violations of TSCA can result in significant penalties. Water Quality. The Geismar, Illiopolis and Addis plants maintain wastewater discharge permits for their facilities pursuant to the Federal Water Pollution Control Act of 1972 and comparable state laws. Where required, the Company also applied for and received permits to discharge stormwater. The Company believes that the Geismar, Illiopolis and Addis plants are in material compliance with the Federal Water Pollution Act of 1972 and comparable state laws. In cases where there are excursions from the permit requirements, the Geismar and Illiopolis plants are taking action to achieve compliance, are working in cooperation with the appropriate agency to achieve compliance or are in good faith pursuing their procedural rights in the permitting process. The EPA has issued effluent regulations specifying amounts of pollutants allowable in direct discharges and in discharges to publicly owned treatment works. The Geismar, Illiopolis and Addis plants manufacture or use as raw materials a number of 9 chemicals subject to additional regulation. Both federal and state authorities continue to develop legislation and regulations to control the discharge of certain toxic water pollutants. Passage of such legislation or regulations could necessitate additional capital expenditures to reduce discharges of these substances into the environment either during routine or episodic events. The Company does not believe that these legislative developments would have a material adverse impact on the Company's operations. Areas of groundwater contamination have been identified at the Company's plants. It is the Company's policy, where possible and appropriate, to address and resolve groundwater contamination. The Company believes that environmental indemnities available to it would cover all, or a substantial portion of, known groundwater contamination. The Company does not believe that the known contamination will have a material adverse impact on the Company's operations. The Company believes that the Geismar, Illiopolis and Addis plants generally are in material compliance with all laws with respect to known groundwater contamination. At the Geismar complex, Borden and the Company have complied with the Settlement Agreement with the state of Louisiana and the Company is complying with the Consent Decree with DOJ, for groundwater remediation. See "Item 3 - Legal Proceedings". Present and Future Environmental Capital Expenditures. Although it is the Company's policy to comply with all applicable environmental, health and safety laws and regulations, all of the implementing regulations have not been finalized. Even where regulations or standards have been adopted, they are subject to varying and conflicting interpretations and implementation. In many cases, compliance with environmental regulations or standards can only be achieved by capital expenditures, some of which may be significant. Capital expenditures for environmental control facilities were approximately $3.1 million in 2000 and $2.8 million in 1999. Capital expenditures for environmental control facilities are expected to total approximately $2.0 million in 2001 (although such estimate could vary substantially depending on the outcome of the various proceedings and matters discussed herein, and no assurance can be given that greater expenditures on the part of the Company will not be required as to matters not covered by the environmental indemnity from Borden). Borden Environmental Indemnity Under the Environmental Indemnity Agreement, subject to certain conditions, Borden has agreed to indemnify the Company in respect of environmental liabilities arising from facts or circumstances that existed and requirements in effect prior to November 30, 1987, the date of the initial sale by Borden of the Geismar and Illiopolis plants to the Company (the "Transfer Date"). See "Item 3 - - Legal Proceedings". Addis Environmental Indemnity OxyChem has indemnified the Company for environmental liabilities arising from the manufacture, generation, treatment, storage, handling, processing, disposal, discharge, loss, leak, escape or spillage of any product, waste or substance generated or handled by OxyChem prior to the closing of the acquisition of the Addis facility from OxyChem in 1995, any condition resulting therefrom relating to acts, omissions or operations of OxyChem prior to such date, and any duty, obligation or responsibility imposed on OxyChem prior to such date under environmental laws in effect prior to such date to address such condition. However, except with regard to claims arising from OxyChem's disposal of waste at sites other than the Addis Facility, OxyChem has no indemnification obligation if the claim for indemnification is the result of a change in applicable law after the closing of the Acquisition. OxyChem's obligation to indemnify the Company for environmental liabilities is subject to certain limitations. There can be no assurance that the indemnification provided by OxyChem will be sufficient to cover all environmental liabilities existing or arising at the Addis Facility. 10 Product Liability and Regulation As a result of the Company's manufacture, distribution and use of different chemicals, the Company is, and in the future may be, subject to various lawsuits and claims, such as product liability and toxic tort claims, which arise in the ordinary course of business and which seek compensation for physical injury, pain and suffering, costs of medical monitoring, property damage, and other alleged harms. New or different types of claims arising from the Company's various chemical operations may be made in the future. Employees The Partnership does not directly employ any of the persons responsible for managing and operating the Partnership, but instead reimburses BCPM for their services. On December 31, 2000, BCPM employed approximately 650 individuals. Proceedings Under Chapter 11 of the Bankruptcy Code On April 3, 2001, the Debtors filed voluntary petitions for protection under Chapter 11 of the Bankruptcy Code. The Chapter 11 Cases have been procedurally consolidated for administrative purposes only. The Debtors are currently acting as debtors-in-possession pursuant to the Bankruptcy Code. Subsequent to the commencement of the Chapter 11 Cases, the Debtors sought and obtained several orders from the Bankruptcy Court which were intended to stabilize and continue business operations. The most significant of these orders (i) approved an amendment to the Operating Partnership's Credit Agreement dated as of March 31, 2000, (the "Year 2000 Revolving Credit Facility") with Fleet Capital Corporation ("Fleet") as agent for itself and other lenders party thereto (the "DIP Lenders"). The amendment (the "DIP Loan Agreement")provides up to $100 million debtor-in-possession financing, (ii) permits continued operation of their consolidated cash management system during the Chapter 11 Cases in substantially the same manner as it was operated prior to the commencement of the Chapter 11 Cases, and (iii) authorized payment of pre- petition wages, vacation pay and employee benefits and reimbursement of employee business expenses. The DIP Loan Agreement provides the Operating Partnership with a revolving line of credit in an aggregate amount not to exceed $100 million, subject to borrowing base limitations. The aggregate borrowing limit can be increased to an amount not to exceed $120 million at the discretion of the DIP Lenders. The Operating Partnership will use amounts borrowed under the DIP Loan Agreement for its ongoing working capital needs and for certain other purposes of the Operating Partnership as permitted by the DIP Loan Agreement. The Operating Partnership granted a security interest to the DIP Lenders in substantially all of the Operating Partnership's assets as security for its obligations under the DIP Loan Agreement. All obligations under the DIP Loan Agreement will be afforded "super-priority" administrative expense status in the Chapter 11 Cases. Cash Distributions Pursuant to its Amended and Restated Agreement of Limited Partnership, the Operating Partnership is required to distribute 100% of its Available Cash as of the end of each quarter on or about 45 days after the end of such quarter to Unitholders of record as of the applicable record date and to the General Partner. "Available Cash" means generally, with respect to any quarter, the sum of all cash receipts of the Partnership plus net reductions to reserves established in prior quarters, less cash disbursements and net additions to reserves in such quarter. The General Partner has broad discretion in establishing reserves, and its decisions regarding reserves could have a significant impact on the amount of Available Cash. The timing and 11 amounts of additions and reductions to reserves may impact the amount of incentive distributions, if any, payable to the General Partner. As a result, distributions to Unitholders may over time be reduced from levels which would have been distributed if the General Partner were not able to control the timing of additions and reductions to reserves. Since 1998, adverse business conditions have considerably reduced revenues and operating margins and caused the Company to incur net losses. Consequently, no cash distributions have been declared since the fourth quarter of 1997. It is also highly unlikely that the Company will declare any cash distributions in the future during the Chapter 11 process or upon its resolution. Forward-Looking Statements Certain statements in this Form 10-K, in particular, certain statements under "Item 1. Business", "Item 3. Legal proceedings" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation", are forward-looking. These can be identified by the use of forward-looking words or phrases such as "believe", "expect", "anticipate", "should", "plan", "estimate", "intend" and "potential" among others. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for such forward-looking statements. While these forward-looking statements are based on the Partnership's reasonable current expectations, a variety of risks, uncertainties and other factors, including many which are outside the control of the Partnership, could cause the Partnership's actual results to differ materially from the anticipated results or expectations expressed or implied in such forward-looking statements. The risks, uncertainties and other factors that may affect the operations, performance, development and results of the Partnership include changes in the demand or pricing of its commodity products, changes in industry production capacities, changes in the supply of and costs of natural gas and other significant raw materials, loss of business from major customers, continuing availability of post-petition financing, negative market and credit impact from the Chapter 11 filing, unanticipated expenses, substantial changes in the financial markets, labor unrest, foreign competition, major equipment failure, unanticipated results in pending legal proceedings, changes in applicable environmental, health and safety laws and regulations and other factors. Item 2. Properties - ------------------ Construction of the Geismar complex began over thirty years ago. Acetylene, methanol and VCM-A plants were completed in the early 1960s and ammonia and urea plants were added during the period 1965 to 1967. A VCM-E plant and a formaldehyde plant were added in the mid 1970s, a second formaldehyde plant was brought on stream in 1986, and a third formaldehyde plant was brought on stream in 1991. In 1983 Borden completed construction of a PVC resin plant at the Geismar complex. During the early 1980s, the methanol, ammonia, and urea plants were modernized, which reduced energy consumption and expanded capacity. The urea plant was further modified to produce granular rather than prill product in 1993. The PVC resin facility at Illiopolis became operational in 1962, and was significantly upgraded in the late 1980s. The Addis Facility began operations in 1979. The Geismar complex is located on approximately 490 acres in Ascension Parish, Louisiana, adjacent to the Mississippi River between Baton Rouge and New Orleans. The Illiopolis PVC resin facility is located on approximately 45 acres in central Illinois between Springfield and Decatur. The Addis Facility is located on approximately 40 acres of a 220 acre site adjacent to the Mississippi River, approximately 20 miles from the Geismar complex. In 2000, the three formaldehyde plants were sold to BCI, the acetylene and VCM-A 12 plants were idled, and the methanol, ammonia and urea plants were shut- down. The following table sets forth the approximate annual capacity of each of the principal manufacturing plants at the Geismar complex and the PVC plants at Illiopolis and Addis, all of which are owned by the Company except as noted. Annual Stated Capacity Plants (stated in millions) - ------ --------------------- Geismar, LA: PVC Resins ............................................ 550 lbs. Acetylene-based VCM ................................... 320 lbs. Ethylene-based VCM .................................... 650 lbs. Acetylene ............................................... 200 lbs. Illiopolis, IL: PVC Resins ............................................ 400 lbs. Addis, LA: PVC Resins ............................................ 600 lbs. Item 3. Legal Proceedings - ------- ----------------- Federal Environmental Enforcement Proceeding - -------------------------------------------- On March 11, 1998, the Company and the DOJ signed a Consent Decree to resolve the enforcement action brought by the DOJ against the Company in October 1994. In June 1998, the U.S. District Court for the Middle District of Louisiana accepted the Consent Decree into record, which closed the proceedings. The Consent Decree provided for a specific and detailed program of groundwater and other remediation at the Geismar facility that is consistent with various actions undertaken previously, currently being undertaken, and planned to be undertaken in the future, by the Company. Under certain circumstances, the EPA and the LDEQ may require investigation and remediation beyond the specific terms of the Consent Decree. The Company, however, believes that the technical information and knowledge regarding the nature of contamination at the site, and the need for remediation, make it unlikely that investigation and remediation beyond that which the Company has already planned for and is contemplated by the Consent Decree will be required. Remediation costs incurred under the Consent Decree, which is expected to be several million dollars, will continue to be paid by Borden. In April 1996 and November 1997, adjoining landowners filed separate tort actions in state court asserting personal injury and property value diminution as a result of releases of hazardous materials from the Geismar complex. The Company has reached a tentative settlement with the adjoining landowners in the amount of $0.8 million. Because of the complex nature of environmental insurance coverage and the rapidly developing case law concerning such coverage, no assurance can be given concerning the extent to which insurance may cover environmental claims against the Company. Borden Environmental Indemnity - ------------------------------ Under the Environmental Indemnity Agreement ("EIA"), subject to certain conditions, Borden has agreed to indemnify the Company in respect of environmental liabilities arising from facts or circumstances that existed and requirements in effect prior to November 30, 1987, the date of the initial sale of the Geismar and Illiopolis plants to the Company (the "Transfer Date"). The Company is responsible for environmental liabilities arising from facts or circumstances that existed and 13 requirements in effect on or after the Transfer Date. With respect to certain environmental liabilities that may arise from facts or circumstances that existed and requirements in effect both prior to and after the Transfer Date, Borden and the Company will share liabilities on an equitable basis considering all of the facts and circumstances including, but not limited to, the relative contribution of each to the matter and the amount of time each has operated the asset in question (to the extent relevant). No claims can be made under the EIA after November 30, 2002. Chapter 11 Cases - ---------------- The Debtors commenced the Chapter 11 Cases on April 3, 2001. Additional information relating to the Chapter 11 Cases is set forth in Part 1, Item 1 of this Form 10-K under the caption "Proceedings under Chapter 11 of the Bankruptcy Code" and in Note 2 of the Notes to Consolidated Financial Statements under the caption "Proceedings under Chapter 11". Such information is incorporated herein by reference. Unsecured claims may be satisfied at less than 100% of their face value. It is impossible at this time to predict the actual recovery, if any, to which creditors of the company may be entitled. Management believes it is unlikely that the equity interests in the Company held by unitholders will have any value following resolution of the Chapter 11 process. Other Legal Proceedings - ----------------------- The Company manufactures, distributes and uses many different chemicals in its business. As a result of its chemical operations the Company is subject to various lawsuits in the ordinary course of business which seek compensation for physical injury, pain and suffering, costs of medical monitoring, property damage and other alleged harm. New or different damage claims arising from the Company's various chemical operations may be made in the future. In addition, the Company is subject to various other legal proceedings and claims which arise in the ordinary course of business. The management of the Company believes, based upon the information it presently possesses, that the realistic range of liability to the Company of these other matters, taking into account the Company's insurance coverage, including its risk retention program, and the Indemnity Agreement with Borden, would not have a material adverse effect on the financial position or results of operations of the Company. Many of the claims that are asserted in these other legal proceedings are subject to the automatic stay provided in the Bankruptcy Code and may eventually be resolved as part of the Chapter 11 Cases. Item 4. Submission of Matters to a Vote of Security Holders - ------- --------------------------------------------------- No matter was submitted during the fourth quarter of 2000 to a vote of security holders, through the solicitation of proxies or otherwise. Part II Item 5. Market for the Registrant's Common Equity and Related - ------- ----------------------------------------------------- Stockholder Matters ------------------- The Operating Partnership and its subsidiary, BCP Finance Corporation, filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code on April 3, 2001. The high and low sales prices for the Common Units, traded on the New York Stock Exchange on April 3, 2001 were $0.70 and $0.63, respectively. As of December 31, 2000 there were approximately 23,000 holders of record of Common Units. On April 4, 2001, the New York Stock Exchange notified the Partnership that the Exchange had suspended trading of the Common Units and intended to file an application to delist the Partnership's Common Units. At the present time, the 14 Partnership believes it is unlikely that the Common Units would have any value following resolution of the Chapter 11 Cases. The following table sets forth the 2000 and 1999 quarterly Common Unit data:
2000 Quarters -------------------------------------- First Second Third Fourth ------ ------ ----- ------ Cash distributions declared $0.00 $0.00 $0.00 $0.00 Market price range: High 6 1/4 5 4 5/8 2 1/8 Low 4 1/4 3 1/4 1 1/2 1/2 1999 Quarters -------------------------------------- First Second Third Fourth ------ ------ ----- ------ Cash distribution declared $0.00 $0.00 $0.00 $0.00 Market price range: High 8 9 7/16 7 3/8 6 3/16 Low 4 9/16 6 5/8 3 5/8 3 1/4
15 Item 6. Selected Financial Data - ------- ----------------------- The following table sets forth selected historical financial information for the Company for each of the five years ended December 31. (in thousands except per Unit data, which is net of 1% General Partner interest)
2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- Earnings Summary: Net revenues $491,055 $402,763 $372,854 $486,189 $464,496 Gross profit 37,031 43,557 8,425 4,398 9,602 (Loss) from continuing operations (75,117)(a) (12,260) (45,803) (42,581) (36,954) (Loss) income from discontinued operations (8,795) (11,731) 5,196 48,178 41,782 -------- -------- -------- -------- -------- Net (loss) income $(83,912)(a) $(23,991) $(40,607) $ 5,597 $ 4,828 ======== ======== ======== ======== ======== Per Unit data - basic and diluted: (Loss) per unit from continuing operations $ (2.02) $ (0.33) $ (1.23) $ (1.15) $ (1.00) (Loss) income from discontinued operations (0.24) (0.32) 0.14 1.30 1.13 -------- -------- -------- -------- -------- - - Net (loss) income $ (2.26) $ (0.65) $ (1.09) $ 0.15 $ 0.13 ======== ======== ======== ======== ======== Cash distributions declared per Unit $ 0.00 $ 0.00 $ 0.00 $ 0.15 $ 0.35 Financial Statistics: Current assets $156,890 $152,391 $110,485 $149,368 $152,463 Current liabilities 73,013 87,010 58,776 85,034 110,225 Property and equipment, net 190,415 269,260 288,300 290,200 319,471 Total assets 388,837 480,851 461,696 500,186 525,705 Long-term debt 272,410 263,200 251,800 225,000 200,000 Total partners' capital 34,568 118,480 142,471 183,078 208,200 Capital expenditures 13,587 18,328 31,788 19,426 14,558 Depreciation 36,350 36,514 33,369 48,569 49,092 Interest expense 27,516 25,040 23,084 20,898 21,696
(a) Includes a $58.1 million charge for impairment of long-lived assets. Item 7. Management's Discussion and Analysis of Financial - ------- ------------------------------------------------- Condition and Results of Operations ----------------------------------- Overview and Outlook On April 3, 2001, the Debtors commenced the Chapter 11 Cases. The Chapter 11 Cases have been procedurally consolidated for administrative purposes only. The Debtors are currently acting as debtors-in-possession pursuant to the Bankruptcy Code. As mentioned previously, the Partnership has exited the Methanol and Derivatives and the Nitrogen Products businesses in 2000, and its revenues are now derived principally from the sale of PVC resins. 16 The markets for and profitability of PVC resins have been, and are likely to continue to be, cyclical. Periods of high demand, high capacity utilization and increasing operating margins tend to result in new plant investment and increased production until supply exceeds demand, followed by periods of declining prices and declining capacity utilization and decreased margins until the cycle is repeated. In addition, markets for the Partnership's products are affected by general economic conditions and a downturn in the economy could have a material adverse effect on the Partnership, including, but not limited to, its ability to service its debt obligations. The demand for the Partnership's PVC products is primarily dependent on the construction and automotive industries. Historically, natural gas has been a principal raw material feedstock, the price of which has been volatile in recent years. The other principal feedstocks are ethylene and chlorine. Prices for these raw materials may change significantly from year to year. Prices for PVC improved somewhat during the first half of 1997, but then declined due to competitive market conditions experienced in the second half of 1997. Published prices for PVC during the fourth quarter of 1997 declined to an average of approximately $0.30 per pound. PVC continued to decline in 1998. General competitive conditions and reduced demand for PVC in the Far East kept downward pressure on selling prices through 1998 with the fourth quarter price in the $0.24 per pound range. Prices for PVC steadily increased each quarter in 1999, with the fourth quarter price averaging approximately $0.36 per pound. During the first half of 2000, selling prices continue to increased steadily, with prices reaching a high of approximately $0.42 per pound with strong volumes and profit margins. During the summer months, however, the demand for PVC resins declined significantly as customers took steps to control their inventory levels and due to seasonal customer plant shutdowns. Demand for PVC resins continued to be soft in the fourth quarter of 2000 as general economic conditions weakened the demand for construction and automotive applications. As a result, selling prices for PVC resins decreased every month over the second half of 2000. When combined with lower sales volumes due to decreased demand and increased raw material and energy costs due to the significant increases in the cost of natural gas, the Partnership incurred negative profit margins from PVC Products over the second half of the year. Results of Operations 2000 Compared to 1999 Total Revenues Total revenues for 2000 increased $88.3 million or 22% to $491.1 million from $402.8 million in 1999. This increase was the result of a 28% increase in selling prices, with sales volumes remaining relatively flat. The increase in selling prices occurred over the first half of the year, with prices declining during the second half as industry market conditions worsened. Cost of Goods Sold Total cost of goods sold increased to $454.0 in 2000 from $359.2 million in 1999. Expressed as a percentage of total revenues, cost of goods sold increased in 2000 to 92% compared to 89% in 1999. Gross profit for PVC Polymer Products declined to $37.0 million in 2000 from $43.6 million in 1999. Increased costs of chlorine and natural gas during 2000 more than 17 offset the increased average selling prices of PVC resins during the year. Impairment of Long-lived Assets In December 2000, the Partnership idled its acetylene plant and acetylene- based VCM plant due to unfavorable economic conditions. As a result, the fixed assets and other related assets of the idled facilities were reviewed for impairment and were determined to be impaired under SFAS No. 121. As a result, the Partnership recorded a $58.1 million charge in 2000 to write these assets down to fair value. Interest Expense Interest expense during 2000 increased $2.5 million to $27.5 million from $25.0 million in 1999 due to an increase in the average outstanding amounts borrowed under the Partnership's credit facility from 1999 to 2000, and due to the write-off of debt issuance costs associated with the Partnership's previous credit facility. Tax on Gross Margin Taxes on gross margin decreased $2.0 million to $0.7 million from $2.7 million in 1999. The decrease is directly attributable to the decline in profitability vs. the prior year. Loss from Continuing Operations The loss from continuing operations incurred by the Partnership was $75.1 million vs. $12.3 million in 1999. As discussed above, the loss was due to declines in gross margin and the impairment charge recorded to write-down the carrying value of long-lived assets. Loss from Discontinued Operations A net loss from discontinued operations of $10.2 million was incurred from discontinued operations in 2000 vs. a net loss of $11.7 million in 1999. Depressed selling prices for methanol, ammonia and urea, and high natural gas costs caused to the continued losses from the discontinued businesses. In 2000, a net gain of $1.4 million was recognized on the sale of the Partnership's formaldehyde and related assets. Net Loss The net loss incurred by the Partnership was $83.9 million vs. $24.0 million in 1999. As discussed above, the decline was attributable to lower profit margins from continuing operations and the charge for impairment of long-lived assets. 1999 Compared to 1998 Total Revenues Total revenues for 1999 increased $29.9 million or 8% to $402.8 million from $372.9 million in 1998. This increase was the net result of a 21% increase in selling prices, offset by a 10% decrease in sales volumes. The increase in selling prices was primarily due to improved industry market conditions in the second half of 1999. Cost of Goods Sold Total cost of goods sold decreased to $359.2 million in 1999 from $364.4 million in 18 1998. Expressed as a percentage of total revenues, cost of goods sold decreased in 1999 to 89% compared to 98% in 1998. Gross profit for PVC Polymer Products increased to $43.6 million in 1999 from the $8.4 million recorded in 1998. Sales price increases more than offset increased raw material costs and lower volumes. Interest Expense Interest expense during 1999 increased $1.9 million to $25.0 million from $23.1 million in 1998 due to an increase in the average outstanding amounts borrowed under the Partnership's credit facility from 1998 to 1999. Tax on Gross Margin Taxes on gross margin decreased to $2.7 million from $6.8 million in 1998. As a result of changes in partnership tax laws, a one-time charge of $5.8 million to record a deferred tax provision is reflected in 1998. Loss from Continuing Operations The loss from continuing operations incurred by the Partnership was reduced to $12.3 million in 1999 from $45.8 million in 1998. As discussed above, this improvement is attributable to improvements in gross profits as increased selling prices in PVC more than offset increased raw material costs and lower volumes Loss/Income from Discontinued Operations A loss of $11.7 million was incurred from discontinued operations in 1999 vs. income of $5.2 million in 1998. The decline in results was due to declines in selling prices for methanol, ammonia and urea, lower sales volumes for methanol, and increased costs for raw materials, primarily natural gas. Net Loss The net loss incurred by the Partnership was reduced to $24.0 million in 1999 from $40.6 million in 1998. As discussed above, this improvement was attributable to improved margins from continuing operations offset by losses from discontinued operations. Liquidity and Capital Resources Cash Flows from Operations. Cash used by operations in 2000 totaled $19.2 million, vs. cash provided by operations of $1.5 million in 1999, due to the increase in the Partnership's net loss as well as an increase in working capital requirements and other requirements. Cash provided by operations decreased $9.4 million from 1999 to 1998 as the reduction in the Partnership's net loss was offset by an increase in working capital requirements. Cash Flows from Investing Activities. Capital expenditures totaled $13.6 million and $18.3 million for 2000 and 1999, respectively. These expenditures were primarily for environmental projects, the Partnership's enterprise system and other non-discretionary capital expenditures. In 2000, the Partnership purchased the remaining 50% ownership in its acetylene plant for $15.9 million. Cash proceeds from the sale of its formaldehyde plant and related assets totaled $38.8 million in 2000, with a $9.7 million note receivable that was due and received in January 2001. Cash Flows from Financing Activities. Cash flows from financing activities were 19 $8.1 million in 2000 and $11.4 million in 1999, which were primarily the result of net increases in borrowings under its credit facilities. Pursuant to its Amended and Restated Agreement of Limited Partnership, the Partnership is required to make quarterly distributions to Unitholders and the General Partner of 100% of its Available Cash, if any. Available Cash means generally, with respect to any quarter, the sum of all cash receipts of the Partnership plus net reductions to reserves established in prior quarters, less all of its cash disbursements and net additions to reserves in such quarter. The General Partner may establish such reserves, as it deems necessary or appropriate in its reasonable discretion, to provide for the proper conduct of the business of the Partnership or the Operating Partnership and to stabilize distributions of cash to Unitholders and the General Partner and such other reserves as are necessary to comply with the terms of any agreement or obligation of the Partnership. No cash distribution was made during 2000 or 1999; a cash distribution of $3.7 million was made during the first quarter of 1998. It is highly unlikely that the Company will declare any cash distributions in the future during the Chapter 11 process or upon resolution. Liquidity The Partnership has incurred net losses of $83.9 million, $23.9 million and $40.6 million in 2000, 1999, and 1998, respectively. During 2000, the Partnership exited its Methanol and Derivatives and Nitrogen Products operations that were dependent on natural gas as a raw material feedstock. Increased production capacities outside of the United States that take advantage of low cost supplies of natural gas had resulted in the Partnership incurring significant losses from these businesses competing against low cost global producers. During the second half of 2000, the Partnership incurred significant losses from continuing operations, as market conditions in the PVC resin industry deteriorated. Industry resin capacity increases combined with a significant downturn in consumption from PVC converters, which was a result of inventory control efforts by the converters and reduced demand from end users due to sluggish economic conditions, caused the Partnership's sales volume and selling prices to fall well below profitable levels. Further, the cost of natural gas increased to unprecedented levels during the second half of the year. This caused the Partnership's production costs to rise dramatically, as natural gas affected both raw material costs and energy costs. The Debtors elected to commence the Chapter 11 Cases because, despite management's continuing efforts to reduce the exposure to natural gas, depressed resin prices and demand converged with sharply increased energy costs in the first quarter of 2001 to create a critical debt and liquidity situation. Management is in the process of developing strategies to restructure the Operating Partnership's financial affairs and allow it to emerge from bankruptcy. These strategies could include seeking strategic investors, lenders, and/or joint venture partners, selling substantial assets or pursuing other strategic transactions including a merger, joint venture or asset sale. There can be no assurance that management's efforts in this regard will be successful. The support of vendors, customers, lenders, unitholders and employees will continue to be key to the Operating Partnership's future success. Management has undertaken several initiatives to improve liquidity, including idling unprofitable or high cost assets and production facilities, wage freezes, reductions-in-force and entering into the DIP Loan Agreement. However, given current business and market conditions, there can be no assurance that the Operating Partnership will be able to meet its financial obligations in the future. The Operating Partnership entered into the DIP Loan Agreement subsequent to the commencement of the Chapter 11 Cases. The DIP Loan Agreement will terminate upon the 20 earlier of an Event of Default (as such term is defined in the DIP Loan Agreement) or December 28, 2001. The DIP Loan Agreement provides the Operating Partnership with a revolving line of credit for loans in an aggregate amount not to exceed $100 million subject to borrowing base limitations. The aggregate borrowing limit can be increased to an amount not to exceed $120 million at the DIP Lenders' discretion. The Operating Partnership granted a security interest in substantially all of the Operating Partnership's assets to the DIP Lenders as security for the Operating Partnership's obligations under the DIP Loan Agreement. The availability of borrowings under the DIP Loan Agreement is reduced by borrowings outstanding under the Year 2000 Revolving Credit Facility. The Operating Partnership will use all amounts borrowed under the DIP Loan Agreement for its ongoing working capital needs and for certain other purposes of the Operating Partnership as permitted by the DIP Loan Agreement. Under the DIP Loan Agreement, the Operating Partnership, at its option, may make either LIBOR based or Base Rate Borrowings. The applicable interest rate for LIBOR based borrowings is LIBOR plus 3.00%, and for Base Rate Borrowings, is Base Rate plus 1.25%. Prior to the commencement of the Chapter 11 Cases, the Operating Partnership and the DIP Lenders were parties to the Year 2000 Revolving Credit Facility, which provided for a revolving credit facility of up to $100 million subject to borrowing base limitations. As of December 31, 2000, the Operating Partnership had $72.4 million outstanding under the Year 2000 Revolving Credit Facility. See Note 6. "Debt" of the Notes to the Consolidated Financial Statements. The Operating Partnership's obligations under the Year 2000 Revolving Credit Agreement are among the liabilities of the Operating Partnership subject to settlement under the Chapter 11 Cases. The DIP Loan Agreement contains covenants that place significant restrictions on, among other things, the ability of the Operating Partnership to incur additional indebtedness, make distributions, engage in certain transactions with affiliates, create liens or other encumbrances, merge or consolidate with other entities, make certain acquisitions, make certain capital expenditures, and sell or otherwise dispose of assets. In addition, a change in control of the General Partner, the Partnership or the Operating Partnership are events of default under the DIP Loan Agreement. On May 1, 1995, the Operating Partnership issued $200 million aggregate principal amount of 9.5% Notes due 2005 (the "Notes") pursuant to an Indenture dated as of May 1, 1995 (the "Indenture"). The Notes are senior unsecured obligations of the Operating Partnership. As a result of the filing of the Chapter 11 Cases, no principal or interest payments will be made on any pre-petition debt except as approved by the Bankruptcy Court. Capital Expenditures The Partnership currently believes that the level of annual base capital expenditures for 2001 will be in the range of $9 to $12 million, with the expenditures to be mainly for required environmental, safety and other non- discretionary projects. This estimate reflects limitations placed on capital expenditures by the DIP Loan Agreement. 21 Item 7-A Quantitative and Qualitative Disclosure About Market Risk - ------------------------------------------------------------------ Interest Rate Risk - The Year 2000 Credit Facility provided up to $100 million under a revolving credit agreement with Fleet Capital Corporation. Interest on borrowings under the revolving credit facility was determined, at the Operating Partnership's option, based on the applicable LIBOR rate (one, two, three or six month periods) plus a margin or the Base Rate. The Base Rate borrowing rate is the greater of (a) the prime rate as announced or quoted by Fleet Bank or (b) Federal Funds Effective rate plus .50%. At December 31, 2000, borrowings under the facility were $72.4 million and bore interest at an average rate of 9.5%. The Partnership is exposed to fluctuations in the LIBOR rate or the Base Rate. A change of 1% in the applicable rate would change the Partnership's annual interest cost by approximately $0.7 million based on the borrowings at December 31, 2000. Commodity Risk - The Partnership generally does not use derivatives or other financial instruments such as futures contracts to manage commodity price risk. However, at certain times of the year the Partnership will enter into contracts whereby it agrees to purchase a specified quantity of natural gas (the Partnership's principal raw material) at a fixed price. Such contracts are generally not in excess of three months forward, and the Partnership generally limits such forward purchases to 60% of a month's requirements. In addition, the Partnership has entered into a fifteen year supply agreement (commencing in 1997) to provide a long-term supply of ethylene, a raw material, and minimize price volatility. The purchase price for product varies with the supplier's raw material and variable costs, which are market-driven, as well as its fixed processing costs. The Partnership evaluates all such contracts on the basis of whether committed costs are expected to be realized in light of current and expected selling prices when the commodities are consumed in manufacturing products. Foreign Exchange and Equity Risk - The Partnership is not exposed to significant foreign exchange or equity market risk. 22 Item 8. Financial Statements and Supplementary Data - ------- ------------------------------------------- Sequential Index to Financial Statements Page - ----------------------------- ---------- Report of Independent Accountants 39 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 40 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 41 Consolidated Balance Sheets as of December 31, 2000 and 1999 42 Consolidated Statements of Changes in Partners' Capital for the years ended December 31, 2000, 1999 and 1998 43 Notes to Consolidated Financial Statements 44-54 Financial Statement Schedule: II - Valuation and Qualifying Accounts for the years ended December 31,2000, 1999 and 1998 55 Item 9. Changes in and Disagreements with Accountants on Accounting and - ------------------------------------------------------------------------ Financial Disclosure - -------------------- None. 23 PART III Item 10. Directors and Executive Officers of the Registrant - -------- -------------------------------------------------- The Partnership is a limited partnership (of which BCPM is the General Partner) and has no directors or officers. The directors, officers and employees of the General Partner and Borden perform management and non-supervisory functions for the Partnership. Independent Committee - BCPM is required to maintain an Independent Committee of its Board of Directors, which shall be composed of at least three directors, each of whom is neither an officer, employee or director of Borden nor an officer or employee of BCPM. Certain actions require special approval from the Independent Committee. Such actions include an expansion of the scope of business of the Partnership, the making of material capital expenditures, the material curtailment of operations of any plant, the material expansion of capacity of any plant, and the amendment of or entry into by the Partnership of any agreement with Borden. The members of the Independent Committee are Edward H. Jennings, George W. Koch, and E. Linn Draper, Jr. As sole stockholder of BCPM, Borden elects directors of BCPM on an annual basis. Set forth below is certain information concerning the Directors and Executive Officers of BCPM as of March 1, 2001. Their terms of office extend to the next annual meeting of BCMP or until their earlier resignation or replacement.
Name Position and Office with Age on Dec. 31 Served in Present General Partner 2000 Position Since - ------------------------------------------------------------------------------------------------------------ William H. Carter Director and Chairman 47 2000 Mark J. Schneider Director, President and Chief Executive Officer 55 2000 William F. Stoll, Jr. Director and Vice Chairman 52 2001 E. Linn Draper, Jr. Director 58 1996 Edward H. Jennings Director 63 1989 George W. Koch Director 74 1987 Ronald P. Starkman Director 46 1998 Ronald Bryan Vice President- Sales and Marketing 48 2000 Marshall D. Owens, Jr. Vice President - Manufacturing 57 1997 Robert R. Whitlow, Jr. Vice President, Treasurer and Chief Financial Officer 52 2001
William H. Carter, Chairman, has been a director of BCPM since 1995. He was named Chairman of the Board of Directors in January 2000 and acted as interim President and Chief Executive Officer from January to June 2000. He is also Executive Vice President and Chief Financial Officer of Borden, a position he has held since April 1995. He is also a Director of AEP Industries, Inc. Mark J. Schneider was elected a Director, President and Chief Executive Officer of BCMP June, 2000. Prior to that, from 1992 to September 1999, he was Vice President Olefins and Vinyls for CONDEA Vista Company. William F. Stoll, Jr. has been a director of BCPM since 1996. He was elected Vice Chairman of BCMP in February 2001. He is Senior Vice President and General Counsel of Borden, Inc., a position he has held since July 1996. Prior to joining Borden, he was Vice President and Deputy General Counsel of Westinghouse Electric Corporation, a position he held since January 1993. He is also a Director of AEP Industries, Inc. 24 E. Linn Draper, Jr. has been a director of BCPM since 1996. He is Chairman, President and Chief Executive Officer of American Electric Power Company, Inc. and American Electric Power Service Corporation, positions he has held since 1993. Edward H. Jennings has been a director of BCPM since 1989. He is also a professor and President Emeritus of The Ohio State University. He served as president of The Ohio State University from 1981 to 1990. Dr. Jennings is also a director of Lancaster Colony, Inc. George W. Koch has been a director of BCPM since 1987. He has been Of Counsel, in the law firm of Kirkpatrick & Lockhart since January 1992. From April 1990 through December 1991, he was a partner in Kirkpatrick & Lockhart. Ronald P. Starkman has been a director of BCPM since 1998. He is Senior Vice President and Treasurer of Borden, Inc., a position he has held since November 1995. Prior to that, he was Senior Managing Director of Claremont Capital Group, Inc. from December 1994 to November 1995. Ronald Bryan was elected Vice President Sales and Marketing of BCPM effective October 25, 2000. Prior thereto he held various management positions with CONDEA Vista Company from July 1996 to October 2000. Marshall D. Owens, Jr. is Vice President of Manufacturing for BCPM, a position he has held since October 1997. Prior thereto, he served as Director of Manufacturing since 1993. Robert R. Whitlow, Jr. was elected a Vice President, Chief Financial Officer and Treasurer of BCPM effective February 5, 2001. Prior to joining the Company he was a consultant with Paul L. Comstock Co., investment advisors. From 1994 to 1999 he was Manager of Finance and Treasurer of CONDEA Vista Company. Section 16(a) Beneficial Ownership Reporting Compliance - ------------------------------------------------------- No Disclosure Required. 25 Item 11. Executive Compensation - -------- ---------------------- The Partnership has no directors or officers. The directors and officers of BCPM receive no direct compensation from the Partnership for services to the Partnership. The Partnership reimburses BCPM for all direct and indirect costs incurred in managing the Partnership. The following table sets forth all cash compensation paid and accrued by Borden or BCPM and reimbursed by the Partnership for services rendered during the periods indicated by each Chief Executive Officer and three other executive officers of BCPM whose remuneration exceeded $100,000 as of December 31, 2000 (the "Named Executive Officers").
================================================================================================================================ SUMMARY COMPENSATION TABLE - -------------------------------------------------------------------------------------------------------------------------------- ANNUAL COMPENSATION LONG TERM COMPENSATION ========================================================================== AWARDS ALL OTHER ============================ OTHER NAME AND ANNUAL SECURITIES UNDERLYING COMPENSATION PRINCIPAL COMPENSATION OPTIONS/LSAR (e) POSITION YEAR SALARY ($) BONUS ($) ($) (#) ($) - -------------------------------------------------------------------------------------------------------------------------------- M.J. SCHNEIDER 2000 161,538 86,735 (a) 43,790 (d) 225,000 12,532 President and CEO - -------------------------------------------------------------------------------------------------------------------------------- J.M. SAGGESE (1) 2000 0 0 0 0 0 Former Chairman, President & 1999 510,000 (b) 512,710 0 14,000 CEO 1998 100,000 (b) 0 0 7,000 - -------------------------------------------------------------------------------------------------------------------------------- W.H. CARTER 2000 0 (c) 0 (c) 0 0 0 (c) Chairman and Former Acting President and CEO - -------------------------------------------------------------------------------------------------------------------------------- W.P. LEONARD (2) 2000 242,000 0 0 46,500 36,666 Former Executive V.P. and 1999 242,000 278,285 13,000 Chief Operating Officer 1998 227,108 52,272 6,500 - -------------------------------------------------------------------------------------------------------------------------------- M.D. OWENS, JR. 2000 193,475 25,000 0 109,000 18,082 V.P. - Manufacturing 1999 172,425 160,474 8,000 1998 165,285 25,728 4,000 - -------------------------------------------------------------------------------------------------------------------------------- J.O. STEVNING (3) 2000 153,678 100,000 (f) 0 105,000 16,683 Former V.P. and Chief Financial Officer ================================================================================================================================
(a) Mr. Schneider's signing bonus was used to purchase units of the company. (b) Represents approximate amount of reimbursement paid to Borden by the Partnership in consideration for services provided by Mr. Saggese to the Partnership. Mr. Saggese received aggregate salary from Borden of $519,808 and $496,461 for the years 1999 and 1998, respectively. Additionally Mr. Saggese received certain bonuses and other compensation in consideration for his services rendered to Borden for which the Partnership did not have any reimbursement obligations. (c) No compensation was paid by the Partnership to Mr. Carter for his services. (d) Reimbursement for tax payments. (e) All Other Compensation is identified in the table below. (f) Signing bonus paid to Mr. Stevning under the terms of his employment. (1) Mr. Saggese retired as Chairman, President and CEO January 25, 2000. (2) Mr. Leonard retired December 31, 2000. (3) Mr. Stevning resigned as Chief Financial Officer effective February 5, 2001. 26
MATCHING CONTRIBUTIONS (RSP RELOCATION UNUSED YEAR AND ESP)(a) EXPENSE VACATION PAID TOTAL ---- ----------- ------- ------------- ----- Schneider, M.J. 2000 4,063 8,469 0 12,532 Saggese, J.M. 2000 0 0 0 0 Carter, W.H. 2000 0 0 0 0 Leonard, W.P. 2000 26,815 0 9,851 36,666 Owens, M.D. 2000 18,082 0 0 18,082 Stevning, J.O. 2000 16,683 0 0 16,683
(a) RSP and ESP refer to the Company's Retirement Savings Plan and the executive supplemental benefit plans. 27 The following table sets forth information concerning individual grants of stock options and free standing unit appreciation rights ("UARs") made during 2000 to each of the Named Executive Officers. Option/UAR(a) Grants in Last Fiscal Year ----------------------------------------
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation Individual Grants For Option Term (a) ----------------------------- -------------------- Number Of Percent Of Securities Total Option Underlying SARs Granted Exercise Or Option/SARs To Employees Base price Expiration Name Granted (#) In Fiscal Year ($/Sh) Date 5%($) 10%($) - ----------------------- ----------- -------------- ----------- ---------- ------------------- ---------------- Carter, W.H. 0 0 - - - - Saggese, J.M. 0 0 - - - - Schneider, M.J. 225,000 21.5% 3.75 18-Apr-07 344,250 800,482 Leonard, W.P. 46,500 4.4% 3.75 31-Dec-03 27,486 57,718 Stevning, J.O. 105,000 10% 3.75 18-Apr-07 160,293 373,559 Owens, M.D. 109,000 10.4% 3.75 18-Apr-07 166,399 387,789
(a) UARs are unit appreciation rights which, in the event the fair market value of one Unit equals or exceeds the Base Price of such UAR at the time of exercise of such UAR, entitles the holder thereof to receive, upon exercise of such UAR, cash in an amount equal to the excess of the Fair Market Value of one Unit on the date of exercise over the exercise price of such UAR. Based on a December 29, 2000 unit price of $0.625, none of the UARs were in-the-money. The UAR's vest 50% after two years, with the balance vesting after three years. 28 The following table provides information on unit appreciation rights (UARs) exercised during 2000 by the Named Executive Officers and the value of their unexercised UAR's and phantom units at December 31, 2000. Aggregated Options/SAR Exercises in Last Fiscal Year ---------------------------------------------------- and Fiscal Year-End Options/SAR Values --------------------------------------
Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options/UARs At Options/UARs Fiscal Year-End (#) At Fiscal Year-End ($) ==================================================================================================== Name Exercisable(1) Unexercisable(1) Exercisable Unexercisable ==================================================================================================== M.J. Schneider 0 225,000 (2) (2) - ---------------------------------------------------------------------------------------------------- W.H. Carter 0 0 (2) (2) - ---------------------------------------------------------------------------------------------------- J.M. Saggese 17,837 17,500 (2) (2) - ---------------------------------------------------------------------------------------------------- W.P. Leonard 24,067 62,750 (2) (2) - ---------------------------------------------------------------------------------------------------- J.O. Stevning 10,103 105,000 (2) (2) - ---------------------------------------------------------------------------------------------------- M.D. Owens 11,018 121,000 (2) (2) ====================================================================================================
(1) Includes UARs and phantom units. (2) Based on a December 29, 2000 unit price of $0.625, none of the UARs were in- the-money. Pension Plan The executive officers named above are employees of the General Partner or Borden and participate in Borden's pension plans. The Borden Employees Retirement Income Plan ("ERIP") for salaried employees was amended as of January 1, 1987, to provide benefit credits of 3% of earnings which are less than the Social Security wage base for the year plus 6% of 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 2000, the interest rate was 5.54% as determined in accordance with the plan language. Benefits vest after completion of five years of employment for employees hired on or after July 1, 1990. Borden's supplemental pension plan provides for a grandfathering of benefits for certain key employees as of January 1, 1983, that, generally speaking, provide for the payment of any shortfall if the sum of (a) the pension actually payable on retirement under the ERIP (and any excess of supplemental plans), together with (b) the amount (converted to a pension equivalent) attributable to Borden contributions that would be standing to the employee's credit at retirement under Borden's Retirement Savings Plan if the employee had contributed at the maximum permitted rate eligible for Company matching from December 31, 1983 until retirement, does not equal or exceed the sum of 29 (c) the retirement income calculated on the basis of the December 31, 1982, ERIP pension formula (with certain adjustments), and (d) the amount (converted to a pension equivalent) attributable to company contributions (equal to 3.3% of compensation) that would be standing to the employee's credit at retirement had the Borden's Retirement Savings Plan as in effect on January 1, 1983, been in effect continuously to retirement. The projected pension figure for J.M. Saggese appearing at the end of this section includes the effect of the foregoing grandfathering. Borden has supplemental plans which will provide those benefits which are otherwise produced by application of the ERIP formula, but which, under Section 415 or Section 401(a)(17) of the Internal Revenue Code, are not permitted to be paid through a qualified plan and its related trust. The supplemental plan also provides a pension benefit using the ERIP formula based on deferred incentive compensation awards and certain other deferred compensation, which are not considered as part of compensation under the ERIP. The total projected annual benefits payable under the formulas of the ERIP at age 65 without regard to the Section 415 or 401(a)(17) limits and recognizing supplemental pensions as described above, are as follows for the above Named Executive Officers: M.J. Schneider - $21,652, J. M. Saggese - $367,215, (as of February 29, 2000), W. P. Leonard - $58,426, W.H. Carter - $125,843, J.O. Stevning - $90,349, and M. D. Owens, Jr. - $37,830. Compensation Committee Interlocks and Insider Participation W. H. Carter, who acted as Interim Chief Executive Officer from January to June, and M.J. Schneider, President and Chief Executive Officer, participate in deliberations concerning executive officer compensation; however, all executive compensation decisions are made by the Independent Committee of the Board of Directors of BCPM. Compensation of Directors During 2000 the three independent directors of BCPM received a retainer of $15,000 per year plus a fee of $1,000 for each BCPM Board meeting attended. The Board functions in part through its Independent Committee. The three non- employee members of this committee are paid a meeting fee of $800 for each committee meeting attended. In addition, the three independent directors of BCPM were each granted 8,000 unit appreciation rights during 2000, pursuant to BCPM's Long Term Incentive Plan. During 2000, the Board met nine times, the Independent Committee met six times, and the Audit Committee met four times. Employment Contracts, Termination of Employment and Changes-in-Control Arrangements Mr. Schneider's terms of employment provide him with severance and medical/dental benefits for 12 months in the event he is terminated without cause within 24 months of his employment date. Mr. Stevning's terms of employment provide him with severance, medical/dental benefits and executive outplacement for 12 months, and relocation benefits of up to $150,000, in the event his employment is terminated without cause within 24 months of his employment date. In addition, in the event that, following a change of control of the company, Mr. Stevning's base salary is decreased, he is asked to relocate, or his position or responsibilities are decreased, he will be eligible for 12 months severance benefits. 30 Item 12. Security Ownership of Certain Beneficial Owners and Management - -------- -------------------------------------------------------------- Since the Partnership is managed by its General Partner and has no Board of Directors, there are no "voting securities" of the Partnership outstanding within the meaning of Item 403(a) of Regulation S-K and Rule 12b-2 under the Securities Exchange Act of 1934. Based solely on a Form 13-D and amendments thereto filed with the SEC (the "Form 13-D), the partnership understands that as of December 15, 2000, the following individuals and entities (collectively, the "Holders") owned 2,249,324 common units or 6.1% of all outstanding units.
Name of Beneficial Owner Number of Common Units Percentage of Class - ------------------------ ---------------------- ------------------- Marc H. Kozberg1 140,000 0.4% Dr. Demetre Nicoloff1 363,387 1.0% Robert H. Paymar1 175,000 0.5% James A. Potter1 116,837 0.3% Curtis L. Carlson Foundation2 71,300 0.2% NAFCO Insurance Company Ltd. Of Bermuda1 71,400 0.2% Revocable Trust of Glen D. Nelson1 50,000 0.1% Curtis L. Carlson Octagon Trust1 42,300 0.1% Scott C. Gage1 15,000 less than 0.1% Richard C. Gage1 10,000 less than 0.1% Revocable Trust of Diana Nelson1 5,000 less than 0.1% Geoffrey C. Gage1 5,000 less than 0.1% Wendy M. Nelson1 10,000 less than 0.1% Jennifer L. Nelson Trust1 7,500 less than 0.1% Juliet A. Nelson Trust1 7,000 less than 0.1% Revocable Trust of Edwin C. Gage1 12,500 less than 0.1% Revocable Trust of Barbara C. Gage1 12,500 less than 0.1% BCU Investments, L.L.C.3 1,134,100 3.1% Nanser J. Kazeminy3 **1,134,100 3.1%
** Includes 1,134,100 Common Units owned by BCU Investments, L.L.C. 1 According to the Form 13-D, the business address for the members of the Group is Dougherty Summit Securities LLC, 90 South Seventy Street, Suite 4000, Minneapolis, MN 55402. 2 According to the Form 13-D, the business address for these members of the Group is 701 Carlson Parkway, Minneapolis, MN 55459-8215. 3 According to the Form 13-D, the business address for these members of the Group is c/o BCU Investments, L.L.C., 7803 Glenroy Road, Bloomington, MN, 55459-8215. 31 Securities Ownership of Management - ---------------------------------- The following table shows for (i) each director, (ii) each Named Executive Officer and (iii) all directors and executive officers as a group, the beneficial ownership of Units as of December 31, 2000. Name of Beneficial Owner Units Percent of Units Held - ------------------------ ----- --------------------- Mark J. Schneider 50,700 * Joseph M. Saggese 20,000 * George W. Koch 20,700 * Edward H. Jennings 1,000 * William H. Carter 1,000 * Ronald P. Starkman 6,000 * E. Linn Draper, Jr. 0 * William F. Stoll, Jr. 0 * Wayne P. Leonard 25,000 * Marshall D. Owens, Jr. 30 * James O. Stevning 0 * All directors and executive officers as a group 124,430 * * Represents less than 1% of the outstanding units. Item 13. Certain Relationships and Related Transactions - -------- ---------------------------------------------- The Partnership is managed by BCPM pursuant to the Partnership Agreement. Subject to the orders of the Bankruptcy Court in the Chapter 11 cases, the Partnership Agreement entitles BCPM to reimbursement of certain costs of managing the Partnership. These costs include compensation and benefits payable to officers and employees of BCPM, payroll taxes, general and administrative costs and legal and professional fees. Note 5 of Notes in Consolidated Financial Statements of the Partnership contained on pages 44-53 of this Form 10-K Annual Report contains information regarding relationships and related transactions. Mr. Koch is Of Counsel, retired, with Kirkpatrick & Lockhart, a law firm which represents the Partnership and its affiliate Borden Chemical, Inc., in connection with environmental, insurance, and other matters. The Partnership believes that the terms of such services are on terms no less favorable to the Partnership and its affiliates than if such services were procured from any other law firm competent to handle the same matters. 32 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports - -------- ---------------------------------------------------- on Form 8-K ----------- (a) 1. Financial Statements -------------------- a. The Consolidated Financial Statements, together with the report thereon of PricewaterhouseCoopers LLP dated April 5, 2001 are contained on pages 39 through 54 of this Form 10-K Annual Report. 2. Financial Statement Schedule ---------------------------- II - Valuation and Qualifying Accounts for the years ended December 31, 2000, 1999 and 1998, are contained on page 55 of this Form 10-K annual report. 3. Exhibits -------- Management contracts, compensatory plans and arrangements are listed herein at Exhibit 10.40. 2.1(1) Asset Transfer Agreement dated as of August 12, 1994 and amended as of January 10, 1995, and March 16, 1995, between the Borden Chemicals and Plastics Operating Limited Partnership (the "Operating Partnership") and Occidental Chemical Corporation ("OxyChem") and the forms of VCM Supply Agreement and PVC Tolling Agreement annexed thereto 3.1(2) Restated Certificate of Incorporation of BCPM 3.2(3) Amended by-laws of BCPM 3.3(4) Amended and Restated Certificate of Limited Partnership of the Partnership 3.4(4) Amended and Restated Certificate of Limited Partnership of the Operating Partnership 3.5(4) Amended and Restated Agreement of Limited Partnership of the Partnership dated as of December 15, 1988 3.6(5) First Amendment to the Amended and Restated Agreement of Limited Partnership of the Partnership dated as of April 9, 1997. 3.7(6) Second Amendment to the Amended and Restated Agreement of Limited Partnership of the Partnership dated August 14, 1997. 3.8(7) Amended and Restated Agreement of Limited Partnership of the Operating Partnership, dated as of November 30, 1987 4.1(8) Form of Depository Receipt for Common Units 4.2(9) Indenture dated as of May 1, 1995 of 9.5% Notes due 2005 between the Operating Partnership and The Chase Manhattan 33 Bank (National Association), as Trustee 4.3(5) Rights Agreement between the Partnership and Harris Trust and Savings Bank, as Rights Agent, dated as of April 8, 1997. 4.4(6) First Amendment to Rights Agreement between the Partnership and Harris Trust and Savings Bank, as Rights Agent, dated as of August 14, 1997. 10.1(10) Revolving Credit Agreement, dated March 31, 2000, between the Operating Partnership and Fleet Capital Corporation, as Agent and as a lender, and other lenders. 10.2(3) Conveyance and Transfer Agreement Dated as of June 27, 2000 by and between the Operating Partnership and Borden Chemical, Inc. 10.3 Utilities and Service Agreement dated as of July 28, 2000 by and between Borden Chemical, Inc. and the Partnership 10.4 Barge Dock Agreement dated as of July 28, 2000 by and between Borden Chemical, Inc. and the Partnership 10.5 Environmental Indemnity Agreement dated as of July 28, 2000 by and between Borden Chemical, Inc. and the Partnership 10.6 Control Room Agreement dated as of July 28, 2000 by and between Borden Chemical, Inc. and the Partnership 10.7 Amendment to Intercompany Agreement dated July 28, 2000 by and among the Partnership, the Company, Borden, Inc. and the General Partner 10.8 Ground Lease dated as of July 28, 2000 by and between Borden Chemical, Inc. and the Partnership 10.9 Mutual Release and Termination Agreement dated as of July 28, 2000 by and between Borden Chemical, Inc. and the Partnership 10.10 Act of Declaration of Separate Ownership dated as of July 28, 2000 and recorded as of August 2, 2000 executed by the Partnership and acknowledged by Borden Chemical, Inc. 10.12(7) Service Agreement, dated as of November 30, 1987, between Borden and the Operating Partnership 10.13(7) Intercompany Agreement, dated as of November 30, 1987, among Borden, BCPM, the Partnership and the Operating Partnership 10.14(4) Borden and BCPM Covenant Agreement, dated as of December 34 15, 1988, among Borden and the Partnership 10.15(7) Use of Name and Trademark License Agreement, dated as of November 30, 1987, among Borden, the Partnership and the Operating Partnership 10.16(7) Patent and Know-how Agreement, dated November 30, 1987, among Borden, the Partnership and the Operating Partnership 10.17(7) Environmental Indemnity Agreement, dated as of November 30, 1987, among the Partnership, the Operating Partnership and Borden 10.18(7) Lease Agreement, dated as of November 30, 1987, between the Operating Partnership and Borden 10.19(11) Restructuring Agreement, dated as of December 9, 1980, among Borden, Uniroyal Chemical Company, Inc. (as successor to Uniroyal, Inc.) and Monochem, Inc. 10.20(11) Amendment to Restructuring Agreement, dated as of December 31, 1981, among Borden, Uniroyal Chemical Company, Inc. (as successor to Uniroyal, Inc.) and Monochem, Inc. 10.21(11) Restated Basic Agreement, dated as of January 1, 1982, between Borden and Uniroyal Chemical Company, Inc. (as successor to Uniroyal, Inc.) 10.2211) Restated Operating Agreement, dated as of January 1, 1982, among Borden, Uniroyal Chemical Company, Inc. (as successor to Uniroyal, Inc.) and Monochem, Inc. 10.23(11) Restated Agreement to Amend Operating Agreement, dated as of January 1, 1983, among Borden, Uniroyal Chemical Company, Inc. (as successor to Uniroyal, Inc.) and Monochem, Inc. 10.24(11) Operating Agreement, dated December 14, 1984 among Borden, BASF, Liquid Air Corporation ("LAC") and LAI Properties, Inc. ("LAI") 10.25(11) Amendment No. 1 to Operating Agreement, dated October 2, 1985, among Borden, BASF, LAC and LAI 10.26(4) Amendment No. 2 to the Operating Agreement, dated February 11, 1988, among Borden, the Operating Partnership, BASF, LAC and LAI 10.27(11) Second Operating Agreement, dated October 2, 1985, among Borden, BASF, LAC and LAI 10.29(4) Restated Second Operating Agreement, dated February 11, 1988 among Borden, the Operating Partnership, BASF, LAC and LAI 10.30(7) Railroad Car Master Sublease Agreement, dated as of November 30, 1987, between Borden and the Operating Partnership, relating to ACF Industries, Incorporated 35 Master Service Contract 10.31(7) Railroad Car Master Sublease Agreement, dated as of November 30, 1987, between Borden and the Operating Partnership, relating to Pullman Leasing Company Lease of Railroad Equipment 10.32(7) Railroad Car Master Sublease Agreement, dated as of November 30, 1987, between Borden and the Operating Partnership, relating to Union Tank Car Company Service Agreement 10.33(7) Railroad Car Master Sublease Agreement, dated as of November 30, 1987, between Borden and the Operating Partnership, relating to General Electric Railroad Service Corporation Car Leasing Agreement 10.34(7) Railroad Car Master Sublease Agreement, dated as of November 30, 1987, between Borden and the Operating Partnership, relating to General American Transportation Corporation Tank Car Service Contract 10.35(7) Railroad Car Sublease Agreement, dated as of November 30, 1987, between Borden and the Operating Partnership, relating to EHF Leasing Corporation Railroad Equipment Lease 10.36(7) Railroad Car Sublease Agreement, dated as of November 30, 1987, between Borden and the Operating Partnership, relating to Bank of New York Lease of Railroad Equipment (as amended) 10.37(11) Form of Rail Service Agreement between Borden and the Operating Partnership 10.38(12) Form of Letter Agreement with Directors 10.39(7) Illiopolis Indemnity Agreement 10.40 Amended and Restated Long-Term Incentive Plan, as of April 18, 2000 10.41 Amended Agreed Interim and Proposed Final Order Authorizing Debtor: (a) To use Cash Collateral; (b) To incur Postpetition Debt; and (c) To Grant Adequate Protection and Provide Security to Fleet Capital Corporation, as Agent 27 Financial Data Schedule __________________ (1) Filed as an exhibit to Borden Chemicals and Plastics Limited Partnership's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. Confidential treatment has been granted as to certain provisions. (2) Filed as an exhibit to Borden Chemicals and Plastics Limited Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995 and is incorporated herein by reference in this Form 10-K Annual Report. (3) Filed as an exhibit to Borden Chemicals and Plastics Limited Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 and is incorporated herein by reference in this Form 10-K Annual Report. (4) Filed as an exhibit to the joint Registration Statement on Form S-1 and Form S-3 36 of the Partnership, Borden, Inc. and Borden Delaware Holdings, Inc. (File No. 33-25371) and is incorporated herein by reference in this Form 10-K Annual Report. (5) Filed as exhibit 99.4 to the Registrant's Current Report on Form 8-K dated April 8, 1997 (filed April 15, 1997) ( File No. 1-9699) and incorporated herein by reference. (6) Filed as exhibit 99.3 to the Registrant's Current Report on Form 8-K dated August 14, 1997 (filed August 18, 1997) (File No. 1-9699) and incorporated herein by reference. (7) Filed as an exhibit to the Partnership's Registration Statement on Form S-1 (File No. 33-18938) and is incorporated herein by reference in this Form 10-K Annual Report. (8) Filed as an exhibit to the Registrant's 1992 Form 10-K Annual Report and is incorporated herein by reference in this Form 10-K Annual Report. (9) Filed as an exhibit to the Registrant's 1995 Form 10-K Annual Report and is incorporated herein by reference in this Form 10-K Annual Report. (10) Filed as an exhibit to Borden Chemicals and Plastics Limited Partnership's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 and is incorporated herein by reference in this Form 10-K Annual Report. (11) Filed as an exhibit to the Partnership's Registration Statement on Form S-1 (File No. 33-17057) and is incorporated herein by reference in this Form 10-K Annual Report. (12) Filed as an exhibit to the Registrant's 1989 Form 10-K Annual Report and is incorporated herein by reference in this Form 10-K Annual Report. (13) Exhibits 10.17, 10.18 and 10.19, which were previously filed, contain information which has been deleted pursuant to an application for confidential treatment pursuant to Rule 406 of the Securities Act of 1933, with respect to which an order has been granted by the Commission. 37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP By BCP Management, Inc., General Partner By /s/ Robert R. Whitlow --------------------------- Robert R. Whitlow Chief Financial Officer and Treasurer Date: April 17, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities (with BCP Management, Inc., General Partner) indicated, on the date set forth above. Signature Title --------- ----- /s/ William H. Carter Director, Chairman - -------------------------- William H. Carter /s/ E. Linn Draper, Jr. Director - -------------------------- E. Linn Draper, Jr. /s/ Edward H. Jennings Director - -------------------------- Edward H. Jennings Director - -------------------------- George W. Koch /s/ Mark J. Schneider Director, President and Chief Executive Officer - -------------------------- Mark J. Schneider /s/ Ronald P. Starkman Director - -------------------------- Ronald P. Starkman /s/ William F. Stoll, Jr. Director, Vice-Chairman - -------------------------- William F. Stoll, Jr. 38 REPORT OF INDEPENDENT ACCOUNTANTS TO THE PARTNERS OF BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Borden Chemicals and Plastics Limited Partnership at December 31, 2000 and December 31, 1999, and the results of its operations and its cash flows for the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, 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 Partnership's 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, which 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. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 1 and Note 2 to the consolidated financial statements, the Partnership has experienced recurring net losses and its principal operating subsidiary has on April 3, 2001 filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. These matters raise substantial doubt about the Partnership's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1 and Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. PricewaterhouseCoopers LLP Columbus, Ohio April 5, 2001 39 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per Unit data)
Year Ended December 31, ------------------------------ 2000 1999 1998 -------- -------- -------- Revenues Net trade sales $468,434 $383,071 $351,038 Net sales to related parties 22,621 19,692 21,816 -------- -------- -------- Total revenues 491,055 402,763 372,854 -------- -------- -------- Expenses Cost of goods sold Trade 435,292 344,445 341,294 Related parties 18,732 14,761 23,135 Marketing, general & administrative expense 26,719 27,016 23,513 Impairment of long-lived assets 58,083 Interest expense 27,516 25,040 23,084 Tax on gross margin 702 2,673 6,802 Equity in loss of affiliate 1,200 905 1,683 Other (income) expense, including minority interest (2,072) 183 (854) -------- -------- -------- Total expenses 566,172 415,023 418,657 -------- -------- -------- (Loss) from continuing operations (75,117) (12,260) (45,803) Discontinued operations: (Loss)income from discontinued operations, net (10,192) (11,731) 5,196 Gain on disposal of discontinued operations, net 1,397 -------- -------- -------- Net (loss) (83,912) (23,991) (40,607) Less 1% General Partner interest 839 240 406 -------- -------- -------- Net (loss) applicable to Limited Partners' interest $(83,073) $(23,751) $(40,201) ======== ======== ======== Per Unit Data, net of 1% General Partner interest: (Loss) from continuing operations per Unit $ (2.02) $ (0.33) $ (1.23) (Loss)income from discontinued operations per Unit (0.24) (0.32) 0.14 -------- -------- -------- Net (loss) per Unit $ (2.26) $ (0.65) $ (1.09) ======== ======== ======== Average number of Units outstanding during the year 36,750 36,750 36,750 ======== ======== ======== Cash distributions declared per Unit $ 0.00 $ 0.00 $ 0.00 ======== ======== ========
See notes to consolidated financial statements 40 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended December 31, ------------------------------- 2000 1999 1998 --------- -------- -------- Cash Flows from Operations Net (loss) (83,912) ($23,991) ($40,607) Adjustments to reconcile net (loss) to net cash provided (used in) by operating activities: (Gain) on disposal of discontinued operations, net (1,397) Impairment of long-lived assets 52,533 Depreciation 36,350 36,514 33,369 Amortization 1,671 1,428 804 Deferred tax on gross margin (2,507) 840 5,800 Increase (decrease) in cash from changes in certain assets and liabilities: Accounts receivables 9,884 (20,120) 23,923 Inventories (5,455) (22,981) 14,449 Accounts payables (16,217) 24,633 (15,118) Accrued interest 264 219 ( 19) Other, net (10,447) 4,957 (11,662) --------- -------- -------- (19,233) 1,499 10,939 --------- -------- -------- Cash Flows from Investing Activities Capital expenditures (13,587) (18,328) (31,788) Proceeds from sale of business segments 38,800 Proceeds from sale of equipment 3,297 Capital contribution to affiliate (714) ( 812) ( 1,064) Plant acquisition (15,880) --------- -------- -------- 8,619 (15,843) (32,852) --------- -------- -------- Cash Flows from Financing Activities Proceeds from long-term borrowings 139,831 33,800 53,700 Repayments of long-term borrowings (130,621) (22,400) (26,900) Payment of debt issuance costs (1,132) Cash distribution paid (3,712) --------- -------- -------- 8,078 11,400 23,088 --------- -------- -------- (Decrease) increase in cash and equivalents (2,536) ( 2,944) 1,175 Cash and equivalents at beginning of year 5,759 8,703 7,528 --------- -------- -------- Cash and equivalents at end of year $ 3,223 $ 5,759 $ 8,703 ========= ======== ======== - ----------------------------------------------------------------------------------------- Supplemental Disclosures of Cash Flow Information Interest paid during the year $ 25,247 $ 23,393 $ 23,103 Gross margin taxes paid during the year 1,938 1,348 - ----------------------------------------------------------------------------------------- Supplemental Schedule of Non-Cash Investing and Financing Activities Note receivable in partial payment of asset sale $ 9,700 - -----------------------------------------------------------------------------------------
See notes to consolidated financial statements 41 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS (In thousands) December 31, December 31, 2000 1999 --------- --------- ASSETS Cash and equivalents $ 3,223 $ 5,759 Accounts receivable (less allowance for doubtful accounts of $1,843 and $456, respectively) Trade 58,444 75,794 Related parties 22,328 14,862 Inventories Finished and in process goods 44,024 36,041 Raw materials and supplies 12,964 15,492 Note receivable 9,700 Other current assets 6,207 4,443 --------- --------- Total current assets 156,890 152,391 --------- --------- Investments in and advances to affiliated companies 4,124 8,521 Other assets 37,408 50,679 --------- --------- 41,532 59,200 --------- --------- Property, plant and equipment, at cost 486,410 766,185 Less accumulated depreciation (295,995) (496,925) --------- --------- Property, plant and equipment, net 190,415 269,260 --------- --------- Total assets $ 388,837 $ 480,851 ========= ========= LIABILITIES AND PARTNERS' CAPITAL Accounts payable $ 50,300 $ 66,517 Accrued interest 3,673 3,409 Other accrued liabilities 19,040 17,084 --------- --------- Total current liabilities 73,013 87,010 Long-term debt 272,410 263,200 Deferred tax on gross margin 4,133 6,640 Other liabilities 4,713 5,521 --------- --------- Total liabilities 354,269 362,371 --------- --------- Commitments and contingencies (Note 12) Partners' capital Limited Partners 35,693 118,766 General Partner (1,125) (286) --------- --------- Total partners' capital 34,568 118,480 --------- --------- Total liabilities and partners' capital $ 388,837 $ 480,851 ========= ========= See notes to consolidated financial statements 42 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (In thousands) Limited General Partners Partner Total ---------- -------- ---------- Balances at December 31, 1997 $ 182,718 $ 360 $ 183,078 Net loss (40,201) (406) (40,607) Balances at December 31, 1998 142,517 ( 46) 142,471 Net loss ( 23,751) ( 240) ( 23,991) Balances at December 31, 1999 118,766 ( 286) 118,480 Net loss (83,073) (839) (83,912) --------- ------- --------- Balances at December 31, 2000 $ 35,693 $(1,125) $ 34,568 ========= ======= ========= See notes to consolidated financial statements 43 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP ------------------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (In thousands except Unit and per Unit data) 1. Organization and Business Borden Chemicals and Plastics Limited Partnership (the "Company" or "Partnership") is a Delaware limited partnership which owns a 98.9899% limited partner interest as sole limited partner in Borden Chemicals and Plastics Operating Limited Partnership (the "Operating Partnership"). BCP Management, Inc. ("BCPM"), a wholly-owned subsidiary of Borden, Inc. ("Borden"), owns a 1% interest as the sole general partner in the Partnership and a 1.0101% interest as the sole general partner ("General Partner") in the Operating Partnership, resulting in an aggregate 2% ownership interest in the partnerships. BCPM manages and controls the activities of the Partnership and the Operating Partnership, and its activities are limited to such management and control. The General Partner's interest in the Operating Partnership is reflected as minority interest in the accompanying consolidated financial statements. The Operating Partnership has three operating locations: its main operating site in Geismar, Louisiana, which produces PVC resins, vinyl chloride monomer and acetylene; a PVC resins plant located in Illiopolis, Illinois; and a PVC resins plant in Addis, Louisiana. Its finished goods PVC resins are sold for further processing into various end-use applications, such as plastic pipe and pipe fittings, vinyl siding and window frames, vinyl flooring and other applications. The Partnership has incurred net losses of $83,912, $23,991 and $40,607 in 2000, 1999, and 1998, respectively. During 2000, the Partnership exited its Methanol and Derivatives and Nitrogen Products operations that were dependent on natural gas as a raw material feedstock. Increased production capacities outside of the United States that take advantage of low cost supplies of natural gas had resulted in the Partnership incurring significant losses from these businesses competing against low cost global producers. During the second half of 2000, the Partnership incurred significant losses from continuing operations, as market conditions in the PVC resin industry deteriorated. Industry resin capacity increases combined with a significant downturn in consumption from PVC converters, which was a result of inventory control efforts by the converters and reduced demand from end users due to sluggish economic conditions, caused the Partnership's sales volume and selling prices to fall well below profitable levels. Further, the cost of natural gas increased to unprecedented levels during the second half of the year. This caused the Partnership's production costs to rise dramatically, as natural gas affected both raw material costs and energy costs. On April 3, 2001, the Operating Partnership and its subsidiary, BCP Finance Corporation, (collectively, "the Debtors") elected to seek bankruptcy court protection to develop and implement a financial reorganization because, despite management's continuing efforts to reduce the exposure to natural gas, depressed resin prices and demand converged with sharply increased energy costs in the first quarter of 2001 to create a critical debt and liquidity situation. Management is in the process of developing strategies to restructure the Operating Partnership's financial affairs and allow it to emerge from bankruptcy. These strategies could include seeking strategic investors, lenders, and/or joint venture partners, selling substantial assets or pursuing a merger or other strategic transactions. There can be no assurance that management's efforts in this regard will be successful. The support of the Partnership's vendors, customers, lenders, unitholders and employees will continue to be key to the Partnership's future success. 44 Management has undertaken several initiatives to improve liquidity, including idling unprofitable or high cost assets and production facilities, wage freezes, reductions-in-force and entering into a DIP Credit Facility as described below. However, given current business and market conditions, there can be no assurance that the Partnership will be able to meet its financial obligations in the future. 2. Proceedings Under Chapter 11 On April 3, 2001, the Debtors filed voluntary petitions for protection under Chapter 11 of the Bankruptcy Code (the "Chapter 11 Cases"). The Chapter 11 Cases have been procedurally consolidated for administrative purposes only. The Debtors are currently acting as debtors-in-possession pursuant to the Bankruptcy Code. Subsequent to the commencement of the Chapter 11 Cases, the Debtors sought and obtained several orders from the Bankruptcy Court which were intended to stabilize and continue business operations. The most significant of these orders (i) approved an amendment to the Operating Partnership's Credit Agreement dated as of March 31, 2000, (the "Year 2000 Revolving Credit Facility") with Fleet Capital Corporation ("Fleet") as agent for itself and other lenders party thereto (the "DIP Lenders"). The amendment (the "DIP Loan Agreement") provides up to $100 million debtor-in-possession financing, (ii) permitted continued operation of the consolidated cash management system during the Chapter 11 Cases in substantially the same manner as it was operated prior to the commencement of the Chapter 11 Cases, and (iii) authorized payment of pre-petition wages, vacation pay and employee benefits and reimbursement of employee business expenses. The DIP Loan Agreement provides the Operating Partnership with a revolving line of credit in an aggregate amount not to exceed $100 million subject to borrowing base limitations. The aggregate borrowing limit can be increased to an amount not to exceed $120 million at the discretion of the DIP Lenders. The Operating Partnership will use amounts borrowed under the DIP Loan Agreement for its ongoing working capital needs and for certain other purposes of the Operating Partnership as permitted by the DIP Loan Agreement. The Operating Partnership granted a security interest to the DIP Lenders in substantially all of the Operating Partnership's assets as security for its obligations under the DIP Loan Agreement. All obligations under the DIP Loan Agreement will be afforded "super-priority" administrative expense status in the Chapter 11 Cases. Under the DIP Loan Agreement, the Operating Partnership, at its option, may make either LIBOR based or Base Rate Borrowings. The applicable interest rate for LIBOR based borrowings is LIBOR plus 3.00%, and for Base Rate Borrowings, is Base Rate plus 1.25%. 3. Summary of Significant Accounting Policies The significant accounting policies summarized below are in conformity with generally accepted accounting principles; however, this is not the basis for reporting taxable income to Unitholders. Principles of Consolidation - The consolidated financial statements include the accounts of the Partnership and the Operating Partnership after elimination of interpartnership accounts and transactions. Revenues - Sales and related cost of sales are recognized upon shipment of products. Net trade and net related party sales are net of sales discounts and product returns and allowances. Shipping and Handling Costs - Shipping and handling costs are recorded as part of 45 cost of goods sold upon shipment of products. Cash Equivalents - The Partnership considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Included in cash and equivalents are time deposits of $243 and $2,000 at December 31, 2000 and 1999, respectively. Inventories - Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Investments in and Advances to Affiliated Companies - The Partnership owns 50% of a utility station located at the Geismar complex. Utilities provided are allocated to the owners at cost. The Partnership's allocated costs are included in cost of goods sold. The Partnership owns a 51% partner interest in another partnership engaged in manufacturing and marketing vinyl esters. Due to the significance of the rights held by the minority partner, the Partnership's interest in this partnership is accounted for using the equity method. Other Assets and Liabilities - Debt issuance costs are capitalized and are amortized over the term of the associated debt or credit agreement. Included in other assets are spare parts totaling $13,244 and $22,996 at December 31, 2000 and 1999, respectively. Included in other accrued liabilities are accrued sales discounts of $4,156 and $4,380 at December 31, 2000 and 1999, respectively. Property, Plant and Equipment - The amount of the purchase price originally allocated by the Partnership at its formation to land, buildings, and machinery and equipment was based upon their relative fair values. Expenditures made subsequent to the formation of the Partnership have been capitalized at cost except that the purchase price for the Addis, Louisiana plant acquired in 1995 was allocated to properties based upon their relative fair values. Major renewals and betterments are capitalized. Maintenance, repairs and minor renewals totaling $39,824 in 2000, $34,768 in 1999 and $34,766 in 1998 were expensed as incurred. When properties are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts. Depreciation is recorded on the straight-line basis by charges to costs and expenses based on the estimated useful lives of the assets. The estimated useful lives of the assets are as follow: Land improvements 10 - 20 years Buildings 20 - 30 years Machinery and equipment 5 - 15 years Computer equipment and software 3 - 8 years Long-Lived Assets - When events or changes in circumstances indicate that assets may be impaired, an evaluation is performed in accordance with Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". If it is probable that undiscounted future cash flows will not be sufficient to recover an asset's carrying amount, the asset is written down to its fair value. In December 2000, the Partnership idled its acetylene plant and acetylene- based VCM plant due to unfavorable economic conditions. As a result, the fixed assets and other related assets of the idled facilities were reviewed for impairment and were determined to be impaired under SFAS No. 121. As a result, the Partnership recorded a $58,083 charge in 2000. The charge was comprised of $52,533 to write-down the idled acetylene plant, acetylene-based VCM plant and other related assets to fair value as determined by estimated future discounted cash flows and $5,550 to accrue for losses on related purchase commitments to be made during fiscal 2001. 46 Environmental Expenditures - Environmental related expenditures associated with current operations are generally expensed as incurred. Expenditures for the assessment and/or remediation of environmental conditions related to past operations are charged to expense; in this connection, a liability is recognized when assessment or remediation effort is probable and the costs are estimable. See also Note 11 for discussion of the Environmental Indemnity Agreement ("EIA") with Borden. Income Taxes - Income taxes are accounted for under SFAS No. 109, "Accounting for Income Taxes". In accordance with this statement, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and the respective tax bases, as measured by the expected 3.5% gross margin tax rate that will be in effect in the periods when the deferred tax assets and liabilities are expected to be settled or realized. Long-Term Incentive Plan - Under the Long-Term Incentive Plan (the Plan), certain management personnel and employees are awarded phantom appreciation rights. Phantom appreciation rights provide the grantee the opportunity to earn a cash amount equal to the appreciation from the base price to the fair market value of the Partnership's traded units at the time of exercise. The phantom appreciation rights vest 50% after two years, with the balance vesting after three years. Due to declines in the price of the units there was no compensation expense recognized for the phantom appreciation rights during 2000, 1999 or 1998. The plan provides the independent committee of the Board of Directors of the General Partner the discretion to decrease the base price of the phantom appreciation rights in certain events, including changes in ownership or capitalization. Earnings per Unit - Basic income per unit is computed by dividing net income, after subtracting the General Partner's 1% interest, by the weighted average number of units outstanding. Currently, there are no potentially dilutive securities; accordingly, basic income per unit and diluted income per unit are equivalent. Comprehensive Income -SFAS No. 130 "Reporting Comprehensive Income", establishes standards for reporting of comprehensive income and its components. However, the Partnership has no elements of "other comprehensive income" and, accordingly, net income and comprehensive income are equivalent. Segment Information - Prior to fiscal 2000, the Partnership operated in three reportable segments as defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The segments were PVC Polymers Products, Methanol and Derivatives and Nitrogen Products. The Partnership identifies its reportable segments based on the internal organization that is used by management for making operating decisions and assessing performance During fiscal 2000, the Partnership exited its Methanol and Derivatives and Nitrogen Products business segments. See Note 3. Consequently, the Partnership now operates in only the PVC Polymers Products business segment, which consists of PVC resins, ethylene-based vinyl chloride monomer (for internal consumption), and its currently idled acetylene and acetylene-based vinyl chloride monomer operations. Internal Use Software - The Partnership accounts for internal use software costs using the provisions of Statement of Provision ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." According to the SOP, costs incurred to develop the software during the application development stage, upgrades and enhancements that provide additional functionality are to be capitalized. As of December 31, 2000 and 1999, the net book value of computer software costs were $12,986 and $11,985, respectively. Depreciation expense of computer software costs amounted to $2,143, $1,971 and $10 for the years ended December 31, 2000, 1999 and 1998, respectively 47 New Accounting Pronouncements - In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is effective in 2001 for the Partnership. The statement requires that all derivatives be recorded in the balance sheet as either assets or liabilities and be measured at fair value. The accounting for changes in fair value of a derivative depends on the intended use of the derivative and the resulting designation. The Partnership does not believe that SFAS No. 133 will have a significant impact on the Consolidated Financial Statements. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the reporting period. Actual results could differ from those estimates. Reclassifications - Certain amounts in the prior year's financial statements and notes thereto have been reclassified to conform to fiscal 2000 classifications. 4. Discontinued Operations On June 27, 2000, the Partnership announced its decision to exit the methanol and derivatives and nitrogen products business segments, as part of a process that included the sale of its formaldehyde and certain other assets for $48,500 to a subsidiary of Borden. The sale of those assets was completed on July 28, 2000, with the Partnership receiving $38,800 in cash and an interest-bearing note for $9,700 which was paid in January 2001. The nitrogen products facilities were closed in July 2000, and the methanol production ceased in December 2000. In connection with the discontinuance of the methanol and derivatives and nitrogen products business segments, a gain of $1,397 (net of taxes) was recognized in 2000. The gain was based on the sales proceeds less associated transaction costs, book value of assets sold, charges for the write-down of methanol and nitrogen products assets to estimated net realizable value, and an accrual for estimated losses from these operations during the phase-out period. The accrual for estimated losses was adjusted in the fourth quarter of 2000 to reflect actual losses during the phase-out period. Estimated net realizable value for the methanol and nitrogen products assets was determined based on preliminary discussions with potential buyers and are expected to be sold in fiscal 2001. Results of these operations, previously reported as separate business segments, have been classified as discontinued and prior periods have been restated. Continuing operations are now comprised of the PVC Polymers Products business segment. Net revenues and (losses) income from the discontinued operations are as follows:
Year ended December 31, ------------------------------- 2000 1999 1998 -------- -------- -------- Net sales $170,135 $150,531 $162,674 -------- -------- -------- (Loss) income from discontinued operations $(10,192) $(11,731) $ 5,196 Gain on disposal of business segments 1,397 -------- -------- -------- Net (loss) income from discontinued operations $ (8,795) $(11,731) $ 5,196 ======== ======== ========
5. Related Party Transactions The Partnership is managed by the General Partner. Under certain agreements, the 48 General Partner and Borden are entitled to reimbursement of costs incurred relating to the business activities of the Partnership. The Partnership is engaged in various transactions with Borden and its affiliates in the ordinary course of business. Such transactions include, among other things, the sharing of certain general and administrative costs, sales of products to and purchases of raw materials from Borden or its related parties, and usage of rail cars owned or leased by Borden. The Partnership participates in general insurance coverage held in its name by a Borden affiliate. The costs of the coverage are specifically apportioned to the Partnership by the insurance carriers and the Partnership pays the premiums for the coverage directly to those carriers. The deductibles for property and liability insurance coverages are $2,500, $1,000 and $1,000 per occurrence for property and related damages at the Geismar, Illiopolis and Addis facilities, respectively, and deductibles ranging from $100 to $2,000 per event for liability insurance. The employees of BCPM (together with employees providing support to or services for BCPM) operate the Partnership and participate in various Borden benefit plans including pension, retirement savings, postretirement other than pensions, post employment, and health and life insurance. The Partnership has no direct liability for such benefits since the Partnership does not directly employ any of the persons responsible for managing and operating the Partnership, but instead reimburses Borden (on its own or BCPM's behalf) for their services. Charges to the Partnership for such services are actuarially determined where appropriate. The Partnership expenses the full amount of such charges but only reimburses Borden (on its own or BCPM's behalf) for actual benefits paid. The difference between cash payments to Borden (on its own or BCPM's behalf) and expense is accrued on the Partnership's books. Benefit plan costs paid to Borden, and allocation for usage of resources such as personnel and data processing equipment paid to Borden were $6,224 in 2000, $5,622 in 1999, and $6,072 in 1998. Management believes the allocation methods used are reasonable. Although no specific analysis has been undertaken, if the Partnership were to directly provide such services and resources at the same cost as Borden, management believes the allocations are indicative of costs that would be incurred on a stand-alone basis. The Partnership sold methanol, ammonia and urea to, and processed formaldehyde and urea-formaldehyde concentrate for, Borden and its affiliates at prices which approximated market under long-term agreements with Borden. As part of the formaldehyde sales agreement (see Note 4) and the Partnership's decision to exit these business segments, these agreements were terminated in 2000. The Partnership also sells PVC resins to a customer in which Borden has a 34% ownership interest. Sales to this entity are included in related party sales on the face of the income statement. 6. Debt This note contains information regarding the Operating Partnership's short- term borrowings and long-term debt as of December 31, 2000. On April 3, 2001, the Debtors commenced the Chapter 11 Cases. See Note 2. As a result of the filing of the Chapter 11 Cases, no payments will be made on any pre-petition debt except as approved by the Bankruptcy Court. On May 1, 1995, the Operating Partnership issued $200,000 aggregate principal amount of senior unsecured 9.5% notes due 2005. The senior unsecured notes contain a number of financial and other covenants, including limitations on liens and sales of assets. Cash distributions are not permitted unless compliance with certain covenants is maintained. See Note 9 for further discussion of cash distributions. 49 The aggregate fair value of the Operating Partnership's outstanding notes was $75,500 at December 31, 2000 and $186,000 at December 31, 1999 as determined by the market trading price for the notes at those dates. The Operating Partnership entered into a four-year Credit Agreement (the "Year 2000 Revolving Credit Facility") with Fleet Capital Corporation ("Fleet"), effective March 31, 2000, which provides for a revolving credit facility of up to $100,000 subject to borrowing base limitations. The credit facility expires on March 30, 2004, at which time all amounts outstanding must be repaid. The Operating Partnership's obligations under the facility are collateralized by its accounts receivable, inventory and a lien against certain fixed assets. The Year 2000 Revolving Credit Facility replaced the existing facility and all amounts outstanding under that facility were repaid with borrowings under the Year 2000 Credit Facility. Under the Year 2000 Revolving Credit Facility, the Operating Partnership, at its option, may make either LIBOR based or Base Rate borrowings. The applicable margin for such borrowings is reset quarterly based on the ratio of EBITDA to interest expense for the previous twelve months. For LIBOR based borrowings the applicable margin can range from LIBOR plus 1.25% to 2.50%, and for Base Rate borrowings, the margin can range from Base Rate flat plus 0.5%. In addition, the Operating Partnership pays a commitment fee between 0.375% and 0.50% on the unused portion of the facility based on the same EBITDA to interest expense ratio. The applicable margin, through the quarter ended December 31, 2000, was 2.00% for LIBOR loans and 0.0% for Base Rate loans and the commitment fee was 0.375% for the same period. Effective March 15, 2001, the Year 2000 Revolving Credit Facility was amended such that the applicable margin for borrowings under the facility is LIBOR plus 3.00% for LIBOR based borrowings and is Base Rate plus 1.25% for Base Rate borrowings. The Year 2000 Revolving Credit Facility contains covenants that place significant restrictions on, among other things, the ability to incur additional indebtedness, make distributions, engage in certain transactions with affiliates, create liens or other encumbrances, merge or consolidate with other entities, make acquisitions, make capital expenditures, and sell or otherwise dispose of assets. In addition, a change in control of the General Partner, the Partnership or the Operating Partnership are events of default under the Year 2000 Revolving Credit Facility. At December 31, 2000, borrowings under the Year 2000 Credit facility were $72,410 and bore interest at an average rate of 9.5%. At December 31, 1999, borrowings under the prior facility were $63,200 and bore interest at an average rate of 10.41%. 7. Property, Plant and Equipment Property, plant and equipment consisted of the following: December 31, --------------------- 2000 1999 -------- -------- Land and improvements ......... $16,385 $16,308 Buildings ..................... 45,881 45,625 Machinery and equipment ....... 400,989 682,598 Computer software and equipment 23,155 21,654 -------- -------- $486,410 $766,185 ======== ======== 8. Allocation of Income and Loss 50 Income and loss of the Partnership is allocated in proportion to the partners' percentage interests in the Partnership, provided that at least 1% of the income or loss of the Partnership and Operating Partnership is allocated to the General Partner. For gross margin tax purposes, certain items are specially allocated to account for differences between the tax basis and fair market value of property contributed to the Partnership by Borden and to facilitate uniformity of Units. In addition, the Partnership Agreement generally provides for an allocation of gross income to the Unitholders and the General Partner to reflect disproportionate cash distributions, on a per Unit basis. 9. Cash Distributions Under the terms of the Partnership Agreement, the Partnership is required to make quarterly distributions to Unitholders and the General Partner of 100% of its Available Cash. Available Cash each quarter generally consists of cash receipts less cash disbursements (excluding cash distributions to Unitholders and the General Partner) and reserves. Distributions of Available Cash are generally made 98% to the Unitholders and 2% to the General Partner, subject to the payment of an incentive distribution to the General Partner after a target level of cash distributions to the Unitholders is achieved for the quarter. The incentive distribution is 20% of any remaining Available Cash for the quarter (in addition to the General Partner's 2% regular distribution). Incentive distributions are accounted for as an expense of the Partnership. Cash distributions are limited by the terms of the Partnership's debt agreements-(See Note 6) and are unlikely to be made in the future during the Chapter 11 process or upon its resolution. 10. Tax on Gross Margin In August, 1997 legislation was enacted which extends indefinitely the Partnership's ability to be treated as a partnership for federal income tax purposes provided that the Partnership elected to be subject to a 3.5% tax on taxable gross income beginning on January 1, 1998 (the ability to be treated as a partnership had been scheduled to expire on December 31, 1997). The Partnership made such an election. Taxes on gross margin expense are comprised of: Year ended December 31, -------------------------- 2000 1999 1998 ------- ------ ------ Current tax expense $ 3,209 $1,833 $1,002 Deferred tax expense (2,507) 840 5,800 ------- ------ ------ Total $ 702 $2,673 $6,802 ======= ====== ====== At December 31, 2000, substantially all of the Partnership's deferred tax liability related to property and equipment. 11. Rights to Purchase Units On April 8, 1997, the General Partner declared a distribution of one common unit purchase right (a "Right") for each outstanding common unit of the Partnership and the number of Rights most closely approximating 1/99 th of the number of the units 51 outstanding corresponding to the General Partner's interest in the Partnership. The Rights are not exercisable until the earlier to occur of: (i) ten days following a public announcement that a person or affiliated group of persons (an "Acquiring Person") have acquired 15% or more of the outstanding units or (ii) ten days (or such later date as may be determined by the General Partner prior to someone becoming an Acquiring Person) following the commencement of, or announcement of an intention to make, a tender or exchange offer the consummation of which would result in a person or affiliated group of persons acquiring 15% or more of the outstanding units. Until then, The Rights will trade with the units and a Right will be issued with each additional unit issued. The number of Rights outstanding at December 31, 2000 was 37,121,212. Each Right entitles the holder to purchase from the Partnership one common unit at a price of $21.00, subject to adjustment in certain circumstances. In the event an Acquiring Person acquires a 15% or more interest in the Partnership, each holder of a Right, with the exception of the Acquiring Person, will have the right to receive upon exercise of the Right at the then exercise price of the Right, that number of Units having market value of two times such exercise price. At any time prior to an Acquiring Person becoming such, the General Partner may redeem the Rights in whole, but not in part, for $0.01 per Right. The Rights, which do not have voting rights, generally will expire no later than April 8, 2007. 12. Commitments and Contingencies Purchase Commitments: The Partnership has entered into a fifteen year supply agreement for one of its raw materials commencing in 1997 to assure long-term supply and minimize price volatility. The purchase price is based on raw material and variable costs, as well as fixed costs that will vary based on economic indices, changes in taxes or regulatory requirements. The aggregate amount at December 31, 2000 of minimum payments required under the agreement is $34,067 with $4,753 per year of minimum payments required through 2008. The payments are amortized over the life of the contract on a straight-line basis. Purchases under the agreement totaled $31,418 in 2000, and $25,528 in 1999. Environmental and Legal Proceedings On March 11, 1998, the Partnership and the United States Department of Justice ("DOJ") reached an agreement in principle to resolve the enforcement action brought by the DOJ against the Operating Partnership, the Partnership and the General Partner in October 1994, and the Declaratory Judgement Action brought by the Partnership against the United States. The settlement provides for a program of groundwater and other remediation at the Geismar facility. In light of Borden's obligation under the EIA to pay for the groundwater remediation program, the settlement will not have a material effect on the Partnership's financial position or results of operations. Under the EIA, Borden has agreed, subject to certain specified limitations, to indemnify the Partnership in respect of environmental liabilities arising from facts or circumstances that existed and requirements in effect prior to November 30, 1987, the date of the initial sale of the Geismar and Illiopolis plants to the Partnership. The Partnership is responsible for environmental liabilities arising from facts or circumstances that existed and requirements that become effective on or after such date. With respect to certain environmental liabilities that may arise from facts or circumstances that existed and requirements in effect both prior to and after such date, Borden and the Partnership will share liabilities on an equitable basis 52 considering all of the facts and circumstances including, but not limited to, the relative contribution of each to the matter and the amount of time each has operated the assets in question (to the extent relevant). The Partnership is subject to extensive federal, state and local environmental laws and regulations which impose limitations on the discharge of pollutants into the air and water, establish standards for the treatment, storage, transportation and disposal of solid and hazardous wastes, and impose obligations to investigate and remediate contamination in certain circumstances. The Partnership has expended substantial resources, both financial and managerial, and it anticipates that it will continue to do so in the future. Failure to comply with the extensive federal, state and local environmental laws and regulations could result in significant civil or criminal penalties, and remediation costs. The Partnership is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of the management of the Partnership, the amount of the ultimate liability, taking into account its insurance coverage, including its risk retention program and Environmental Indemnity Agreement with Borden would not materially affect the financial position or results of operations of the Partnership. Any potential liability may be impacted by the Chapter 11 Cases described in Note 2. Operating Lease Arrangements The Company leases certain railcars under operating leases which expire over the next fifteen years. Generally, management expects that leases will be renewed or replaced by other leases in the normal course of business. Minimum payments for operating leases having initial or remaining non- cancelable terms in excess of one year are as follows: Fiscal Year(s) Amount 2001 $ 8,592 2002 6,886 2003 6,017 2004 5,037 2005 2,439 2006 to termination 6,460 - --------------------------------------------------- Total minimum lease payments $35,431 - --------------------------------------------------- Total rent expense for all operating leases amounted to $9,721 for 2000, $9,537 for 1999 and $9,403 for 1998. The lease obligations described above are subject to the impact of the Chapter 11 Cases described in Note 2. During 1999, the Partnership realized a gain of $2,519 on the sale and leaseback of railcars which has been deferred and is being amortized as a reduction of rental expense over the terms of the leases. 13. Quarterly Financial Data (Unaudited) The following table sets forth certain financial data for the periods indicated:
2000 Quarters - ------------------------------------------------------------------------------------------------ First Second Third Fourth -------------- --------- --------- ------------
53 Revenues $140,478 $139,707 $113,333 $ 97,537 Gross profit 20,600 23,081 4,246 (10,896) Income (loss) from continuing operations 4,974 8,638 (8,078) (80,651)(a) (Loss) from discontinued operations (4,603) (5,589) Net gain on disposal of discontinued operations 5,012 (3,615) Net income (loss) 371 8,061 (8,078) (84,266)(a) Net income (loss) per Unit - basic and diluted: Continuing operations 0.14 0.23 (0.22) (2.17) Discontinued operations (0.12) (0.02) (0.10) -------- -------- --------- -------- Total 0.02 0.21 (0.22) (2.27)
1999 Quarters - ------------------------------------------------------------------------------------------------ First Second Third Fourth -------- -------- -------- -------- Revenues $ 83,125 $ 95,111 $111,027 $113,500 Gross profit 9,097 9,334 10,182 14,944 (Loss) from continuing operations (3,925) (2,692) (2,460) (3,183) (Loss) income from discontinued operations (1,766) (6,086) (4,880) 1,001 Net (loss) (5,691) (8,778) (7,340) (2,182) Net (loss) income per Unit - basic and diluted: Continuing operations (0.11) (0.07) (0.07) (0.09) Discontinued operations (0.04) (0.17) (0.13) 0.03 -------- -------- -------- -------- Total (0.15) (0.24) (0.20) (0.06)
(a) Includes a $58,083 charge for impairment of long-lived assets. 54 Borden Chemicals and Plastics Limited Partnership Schedule II - Valuation and Qualifying Accounts (Dollars in thousands) Additions ---------
Charged Balance at Charged to to other Balance at beginning cost and accounts - Deductions end of Description of period expenses describe - describe period - ----------- ---------- ----------- ---------- ----------- ---------- 2000 Allowance for doubtful accounts $456 $1,420 $-- $(33)(1) $1,843 ==== ====== ========== ======= ====== 1999 Allowance for doubtful accounts $672 $ (172) $-- $(44)(1) $ 456 ==== ====== ========== ======= ====== 1998 Allowance for doubtful accounts $475 $ 197 $-- $-- $ 672 ==== ====== ========== ======= ======
NOTES: (1) Accounts receivable balances written off during the period. 55 EX-10.3 2 dex103.txt UTILITIES AND SERVICE AGREEMENT UTILITIES AND SERVICES AGREEMENT -------------------------------- AGREEMENT entered into as of the 28th day of July, 2000, by and between BORDEN CHEMICAL, INC., a Delaware corporation with an office at 180 East Broad Street, Columbus, Ohio 43215 (hereinafter called "BCI"), and BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership with offices at Highways 73 and 30, Geismar, LA 70734 (hereinafter called "BCP"); W I T N E S S E T H: -------------------- WHEREAS, pursuant to an Agreement to Sell and Purchase dated January 26, 2000, BCP has sold to BCI approximately 8.7 acres of land located in Ascension Parish, Louisiana, identified on the site plan attached hereto as Exhibit A and made a part hereof, on which property BCI has erected facilities for the production and storage of formaldehyde, meth-a-form and related products (hereinafter referred to as the "New BCI Plant"); and WHEREAS, contemporaneously with the execution and delivery of this Agreement BCI has, pursuant to a Conveyance and Transfer Agreement dated June 27, 2000 (the "Conveyance Agreement"), purchased certain assets from BCP located in Ascension Parish, Louisiana, identified in Exhibit A, and the methanol dock, formaldehyde plants, storage tanks and related equipment thereon (but excluding certain assets related to the production of methanol, as to which BCI holds an option to purchase under the Conveyance Agreement) (hereinafter referred to as the "Acquired Plants"); and WHEREAS, BCP shall continue to own and operate a chemical plant complex on adjacent land in Ascension Parish, Louisiana, identified in Exhibit A (hereinafter the 1 "BCP Plant"), including, but not limited to facilities for the production and distribution of certain utilities and services described herein; and WHEREAS, BCI desires to procure from BCP certain services to support the operation of the New BCI Plant and the Acquired Plants and BCP desires to procure from BCI certain utilities and services to support the operation of the BCP Plant; NOW, THEREFORE, in consideration of the mutual agreements herein contained, BCI and BCP agree as follows: 1 BCP Supplied Utilities. -------------------------- (a) Firewater Supply. BCP shall allow BCI to tie the New BCI Plant and ----------------- the Acquired Plants into the firewater system for the BCP Plant at the approximate tie-in locations shown in Exhibit B, attached hereto and made a part hereof. BCP, at its own cost and expense, shall maintain the firewater system in good condition and repair, in accordance with past practice, up to the point of BCI's tie-ins. BCI, at its own cost and expense, shall be responsible for maintaining the tie-ins and all subsequent portions of the BCI firewater system. Water from the firewater system will be used only for testing and emergency purposes. All firewater supplied hereunder shall be supplied for the charge and shall meet the specifications set forth in Exhibit C, attached hereto and made a part hereof. (b) Potable Water Supply. BCP shall sell, and BCI shall purchase and --------------------- accept, BCI's requirements of potable water for the New BCI Plant and the Acquired Plants at the Point(s) of Transfer shown on Exhibit B. BCP, at its own cost and expense, shall be responsible for maintaining the potable water system in 2 good condition and repair, in accordance with past practice, up to the Points of Transfer. BCI, at its own cost and expense, shall be responsible for maintaining the valves and tie-ins at the Points of Transfer and all subsequent portions of the BCI Plant potable water system. All potable water supplied hereunder shall be supplied for the charge and shall meet the specifications set forth in Exhibit C. (c) Demineralized Water Supply. BCP shall sell, and BCI shall --------------------------- purchase and accept, BCI's requirements of demineralized water for the New BCI Plant and the Acquired Plants at the Point(s) of Transfer shown on Exhibit B. BCP, at its own cost and expense, shall be responsible for maintaining the demineralized water system in good condition and repair, in accordance with past practice, up to the Points of Transfer. BCI, at its own cost and expense, shall be responsible for maintaining the valves and tie- ins at the Points of Transfer and all subsequent portions of the BCI demineralized water system. All demineralized water supplied hereunder shall be supplied for the charge and shall meet the specifications set forth in Exhibit C. (d) Clarified Water Supply. BCP shall sell, and BCI shall purchase ----------------------- and accept, BCI's requirements of clarified water for the New BCI Plant and the Acquired Plants at the Point(s) of Transfer shown on Exhibit B. BCP, at its own cost and expense, shall be responsible for maintaining the clarified water system in good condition and repair, in accordance with past practice, up to the Points of Transfer. BCI, at its own cost and expense, shall be responsible for maintaining all valves and tie-ins at the Points of Transfer and all subsequent 3 portions of the BCI clarified water system. All clarified water supplied hereunder shall be supplied for the charge and shall meet the specifications set forth in Exhibit C. (e) Instrument Air. BCP shall sell, and BCI shall purchase and --------------- accept, BCI's requirements of the Acquired Plants for instrument air, up to a maximum of 250 SCFM, at the Point(s) of Transfer shown on Exhibit B. BCP, at its own cost and expense, shall be responsible for maintaining the instrument air system in good condition and repair, in accordance with past practice, up to the Point(s) of Transfer. BCI, at its own cost and expense, shall be responsible for maintaining all valves and tie-ins at the Points of Transfer and all subsequent portions of the instrument air system of the Acquired Plants. Instrument air shall be delivered for the charge and shall meet the specifications set forth in Exhibit C. AT NO TIME SHALL BCI USE INSTRUMENT AIR AS BREATHING AIR OR UTILITY AIR. (f) Breathing Air. BCP shall allow BCI to tie the Acquired Plants -------------- into the breathing air system for the BCP Plant at the approximate tie-in locations shown on Exhibit B. BCP, at its own cost and expense, shall be responsible for maintaining the breathing air system in good condition and repair, in accordance with past practice, up to the point of BCI's tie-ins. BCI, at its own cost and expense, shall be responsible for maintaining the tie-ins and all subsequent portions of the BCI breathing air system. Air from the breathing air system shall be used only for emergency purposes. Breathing air shall be 4 delivered for the charge and shall meet the specifications set forth in Exhibit C. (g) Nitrogen. BCP shall sell, and BCI shall purchase and accept, --------- BCI's requirements of nitrogen for the Acquired Plants at the Point(s) of Transfer shown on Exhibit B. BCP, at its own cost and expense, shall be responsible for maintaining the nitrogen delivery system in good condition and repair, in accordance with past practice, up to the Points of Transfer. BCI, at its own cost and expense, shall be responsible for maintaining all valves and tie-ins at the Points of Transfer and all subsequent portions of the nitrogen delivery system. All nitrogen sold hereunder shall be supplied for the charge and shall meet the specifications set forth in Exhibit C. (h) Steam. BCP shall sell, and BCI shall purchase and accept, ------ steam required for the Acquired Plants (in excess of steam produced by the Acquired Plants), up to a maximum of 35,000 pounds per hour, at the Point(s) of Transfer shown on Exhibit B. BCP, at its own cost and expense, shall be responsible for maintaining the steam delivery system in good condition and repair, in accordance with past practice, up to the Points of Transfer. BCI, at its own cost and expense, shall be responsible for maintaining all valves and tie-ins at the Points of Transfer and all subsequent portions of the steam delivery system of the Acquired Plants. All steam sold hereunder shall be supplied for the charge and shall meet the specifications set forth in Exhibit C. (i) Electrical Distribution. BCP shall allow BCI to tie the ------------------------ Acquired Plants into the electrical distribution system for the BCP Plant at the approximate tie-in 5 locations shown on Exhibit B. BCP, at its cost and expense, shall maintain the electrical distribution system in good condition and repair, in accordance with past practices, up to the point of BCI's tie-ins. The BCP electrical distribution system shall be made available to BCI on the terms set forth in Exhibit C. BCP shall have the right to determine and control the sequence of any curtailment of electric power distributed though its system, including electrical power to the Acquired Plants, pursuant to the written curtailment plan developed by BCP and attached hereto as Exhibit D. BCP shall be entitled, from time to time, to make reasonable modifications to such curtailment plan, provided the modifications are shared with BCI and such modified curtailment plan shall provide a fair allocation of available power among the parties. BCP shall charge BCI the infrastructure charge set forth in Exhibit C. While BCI receives electric power for the Acquired Plants through the BCP distribution system, BCI shall at all times be required to purchase its electric power from a source other than BCP which is not selling electrical power or transmission/distribution services to BCI under this Agreement. (j) Flare. BCP shall allow BCI to vent process waste gas from ------ Formaldehyde Plant Number 1 (which is one of the Acquired Plants) into the cold box flare system for the BCP Plant at the approximate tie-in locations shown on Exhibit B. BCP, at its cost and expense, shall maintain the flare system in good condition and repair, in accordance with past practices, up to the point of BCI's tie-ins. The BCP flare system shall be made available to BCI on the terms set forth in Exhibit C. 6 (k) Additional Capacity. BCI shall have the right, upon not less -------------------- than six (6) months advance written notice to BCP, to acquire from BCP additional capacities of demineralized water, clarified water or potable water at either the New BCI Plant or the Acquired Plants to accommodate improvements, alterations or expansions at either the New BCI Plant or the Acquired Plants, but not to exceed 130 gpm in the case of demineralized water, 180 gpm in the case of clarified water and 20 gpm in the case of potable water (collectively the "Expansion Amount") over the flow rates set forth in Exhibit C. In the event BCI shall exercise this right, there shall be a corresponding proportional adjustment in the infrastructure charge set forth in Exhibit C for each type of water. In the event that BCI desires to increase its usage in excess of the Expansion Amount, then BCP and BCI shall negotiate in good faith regarding the terms, conditions and costs on which such additional capacity may be provided. BCP shall decide, in its sole discretion, whether to provide such additional capacity. If BCP declines to provide such additional capacity, BCI may elect to reduce the amounts purchased by it for demineralized water, clarified water and potable water under this Agreement by giving BCP not less than six (6) months advance written notice of such election. 2. BCI Supplied Services. -------------------------- (a) Steam. To the extent that BCI generates steam as a result ------ of formaldehyde production in the Acquired Plants which is not required by BCI for its internal use, BCI shall sell to BCP, and BCP shall, to the extent steam is required by the BCP Plant, purchase and accept, such steam up to a maximum of 30,000 7 pounds per hour, at the Point(s) of Transfer shown in Exhibit B; but, in no event when steam is available from BCI, shall BCP purchase less than the amount of steam BCI purchases for the same period from BCP pursuant to Section 1(h). BCI, at its own cost and expense, shall be responsible for maintaining the steam delivery system in good condition and repair, in accordance with past practice, up to the Points of Transfer, and BCP, at its own cost and expense, shall be responsible for maintaining all valves and tie-ins at the Points of Transfer and all subsequent portions of the steam delivery system. All steam sold hereunder shall be supplied for the charge and shall meet the specifications set forth in Exhibit C. (b) Vent Gas. To the extent that BCI generates vent gas as a --------- result of formaldehyde production in the Formaldehyde I plant (which is in the Acquired Plants) that is not required by BCI for its internal use, including, but not limited to, use in the urea plant incinerator acquired by BCI from BCP, BCI shall sell to BCP, and BCP shall, to the extent vent gas is required by it for use in BCP's VCM-E plant incinerator, giving such vent gas preference over the use natural of gas but not over other internal BCP sources of vent gas, purchase and accept, such vent gas, up to a maximum of 40 million Btu's per hour, at the Points of Transfer shown in Exhibit B. BCP agrees that, during the initial two years of this Agreement, it will, if and to the extent such quantity of vent gas is available from BCI at all times when the VCM-E plant incinerator is operating normally, purchase a minimum of 216,000 mm BTU's of vent gas per year from BCI. BCI, at its own cost and expense, shall be 8 responsible for maintaining the vent gas delivery system in good condition and repair, in accordance with past practice, up to the Point of Transfer, including all valves and tie-ins at the Points of Transfer. BCP, at its sole cost and expense, shall be responsible for maintaining from the Points of Transfer, all subsequent portions of the vent gas delivery system. All vent gas shall be sold for the charge and shall meet the specifications set forth in Exhibit C. 3. Wastewater -------------- (a) BCI may discharge into the existing bio plant and deepwell treatment facilities of the BCP Plant, at the Point(s) of Transfer shown on Exhibit B, wastewater generated by the Acquired Plants primarily consisting of process wastewater, cooling tower and boiler blowdown and water from the existing methanol scrubbers located in the tank farm and barge dock areas conveyed by BCP to BCI as part of the Purchased Assets pursuant to the Conveyance Agreement. BCI, at its own cost and expense, shall be responsible for maintaining the process wastewater delivery system for the Acquired Plants in good condition and repair, in accordance with past practice, up to the Points of Transfer, including all valves and tie-ins at the Points of Transfer. BCP, at its sole cost and expense, shall be responsible for maintaining from the Points of Transfer all subsequent portions of the wastewater treatment system. BCI will pay the charge specified in Exhibit C, and the wastewater tendered by BCI hereunder shall also meet the specifications and shall not exceed the limits set forth in Exhibit C. BCP retains the right to refuse to accept any 9 wastewater from BCI which does not meet the specifications set forth in Exhibit C. (b) BCP will allow BCI to install a three-inch connection, at the approximate location shown on Exhibit B, to BCP's wastewater outfall piping leading to the Mississippi River. BCI shall have the right to use the outfall piping for the purpose of discharging non-contact cooling water blowdown, boiler blowdown and treated sanitary wastewater of the New BCI Plant. BCI agrees to obtain its own separate LPDES permit for this discharge from the Louisiana Department of Environmental Quality. This right shall survive any termination of this Agreement. (c) BCI shall be entitled to discharge sanitary waste from the Acquired Plants into the sanitary sewer system for the BCP Plant at the Point of Transfer shown on Exhibit B. BCP shall, at its own cost and expense, be responsible for maintaining the sanitary sewer system in good condition and repair, in accordance with past practice, up to BCI's tie-ins. BCI shall, at its own cost and expense, be responsible for maintaining all subsequent (up stream) portions of BCI's sanitary sewer delivery system. BCI will pay the charge specified in Exhibit C, and the sanitary waste tendered by BCI shall also meet the specifications and shall not exceed the limit set forth in Exhibit C. BCP retains the right to refuse to accept any sanitary waste from BCI which would cause BCP to be in violation of any environmental, health or safety law, regulation, order or permit. 10 (d) BCI shall have the right, upon not less than six (6) months advance written notice to BCP, to acquire from BCP additional capacity for the discharge of wastewater from the Acquired Plants meeting the specifications on quality set forth in Exhibit C to accommodate improvements, alterations or expansions at the Acquired Plants, but not to exceed 20 additional gpm of wastewater to the bioplant and deepwell facilities (collectively the "Wastewater Expansion Amount") over the maximum flow rates set forth in Exhibit C. In the event BCI shall exercise this right, there shall be a corresponding proportional adjustment in the infrastructure charge set forth in Exhibit C for wastewater to the bioplant and/or deepwell. In the event BCI desires to increase its discharge volume in excess of the Wastewater Expansion Amount, BCP and BCI shall negotiate in good faith regarding the terms, conditions and costs on which such additional capacity may be provided. BCP shall determine, in it sole discretion, whether to provide such additional capacity and the terms therefor. If BCP declines to provide such additional capacity, BCI may elect to reduce the volume of wastewater discharged by it into the BCP treatment facilities by giving BCP not less than six (6) months advance written notice of such election. 4. Truck Scales. BCI shall have the right to use BCP's truck ------------ scales located at the BCP Plant along Highway 73 near Gate 1 on the terms set forth in Exhibit C. 5. Vinyl Esters and Methanol Load Out. When called upon to do so ---------------------------------- by BCP, BCI will provide properly trained operators, during normal working 11 hours, to operate the vinyl esters load-out equipment on the BCP property adjacent to BCI's tank farm to load trucks provided by BCP and to operate the methanol load-out equipment at the Acquired Plants to load trucks for a charge of two cent per gallon and rail cars for a charge of one cent per gallon (hereinafter the "Throughput Fee") provided by BCP. The Throughput Fee shall be adjusted as of October 1, 2001, and annually thereafter, by an amount equal to the percentage increase, if any, in the hourly rate of pay for the tank farm operating technician employed at the tank farm area of the Acquired Plant (whether by BCI or an independent contractor having a pay scale escalating reasonably within industry norms) compared to the rate of pay for the same classification as of October 1, 2000, or the last annual adjustment date, as the case may be. BCP shall, at its sole cost and expense, be responsible for maintaining all vinyl esters load out equipment in good order and condition, in accordance with past practice, and BCI shall, at its sole cost and expense, be responsible for maintaining all methanol load out equipment in good order and condition, in accordance with past practice. BCP shall be responsible for all other duties and obligations with respect to the shipping and delivery of products to BCP's customers. BCP shall give BCI reasonable advance notice of its scheduled load-out requirements. BCI assumes no liability for loss or contamination of vinyl esters or methanol. 6. Tankage. BCP shall be permitted to use the existing ammonia ------- storage tank and all existing ammonia transfer lines within the Acquired Plants for the storage and handling of ammonia for a period of up to ninety (90) days 12 following BCP's shut down of its ammonia plant, but not to extend beyond December 31, 2000. BCP shall be responsible for maintaining the ammonia tank and all ammonia pipelines and related equipment in good order and condition. BCP shall de-inventory the ammonia tank and associated pipes (excluding the barge dock pipeline) in accordance with Section 7.3(f) of the Conveyance Agreement. For the first six (6) months following the closing under the Conveyance Agreement and, if BCI does not exercise its option under the Conveyance Agreement to purchase BCP's methanol business, then (i) for remainder of the term of this Agreement or (ii) until BCP gives BCI not less than 30 days advance written notice that it has discontinued the operation of the methanol production assets under the terms of the Conveyance Agreement, whichever is shorter, BCP shall also be permitted to use, concurrently with BCI, the existing methanol storage tanks and all existing methanol transfer lines within the Acquired Plants for the storage and handling of methanol. During the Interim Period and any Extended Period (as defined in the Conveyance Agreement), BCP's quantity of methanol in the storage tanks shall at no time exceed 5 million gallons (the "Storage Cap") and shall be determined by survey of the methanol production day tanks that are transferred on a batch basis to the methanol storage tanks. BCI employees may participate in taking the daily readings. BCI may, at its option and sole expense, install meters determining the flow from the production day tanks to the methanol storage tanks. The parties shall meet monthly to reconcile any differences between book and physical inventories, and any difference in 13 excess of 1/2% shall be adjusted as required. If BCP continues to own and operate the methanol business after the Interim Period or any Extended Period, the Storage Cap in the preceding sentence may, at BCP's option, which option may be exercised by giving BCI not less than 30 days advance written notice, be increased to not more than 7 million gallons. After the initial exercise of this option, the Storage Cap shall be subject to further periodic adjustment by BCP, up to the total of 7 million gallons, but not more often than once every 12 months. BCP shall pay BCI a monthly facility fee for the use of the methanol storage tanks and transfer lines measured by multiplying the maximum Storage Cap in each month by $0.003 per gallon. 7. Stormwater. BCI shall have a right to drain the surface of the ---------- Acquired Plants which is outside of diked areas into natural and man-made drainage ditches, swales, culverts and tiles on the BCP Plant. BCI shall also have the right to pump any stormwater from the surface of the Acquired Plants which is inside of diked areas into the BCP bio plant and deepwell treatment facilities, provided, however, that BCI shall not allow contaminated surface waters to be discharged onto the BCP Plant and provided, further, that BCI shall obtain any LPDES permits that may be required from the Louisiana Department of Environmental Quality for the collection or diversion of surface waters by BCI. BCI will pay the charge specified in Exhibit C, and all surface water tendered by BCI for discharge by the BCP treatment facilities shall also meet the specifications and not 14 exceed the limits specified in Exhibit C. BCI's right under the first sentence of this section shall survive any termination of this Agreement. 8. Fees and Charges. ---------------- (a) Costs. In calculating the fees and charges for the utilities and services ----- which are the subject of this Agreement and are set forth in Exhibit C, all of BCP's costs of providing utilities and services, whether fixed or variable, shall be determined pursuant to BCP's normal internal accounting systems and procedures, in a manner consistent with the existing policies of BCP for other operating units within the BCP Plant as described on Exhibit C. BCI and BCP each represents and warrants to the other that the accounting systems and procedures they employ will conform to generally accepted accounting principles. BCP and BCI will promptly inform each other of any changes in their standard accounting procedures that would affect the prices of utilities or services provided hereunder. (b) Meters. The quantities of potable water, demineralized water, clarified ------- water and nitrogen supplied by BCP hereunder shall be determined by meters supplied and maintained by BCI. The quantities and heating content of steam and vent gas supplied by BCI, or steam provided by BCP, and the quantity and content of wastewater accepted by BCP into the BCP Plant waste treatment system shall be determined by meters which shall be supplied and maintained by BCI in the case of vent gas and wastewater meters and supplied and maintained by BCP in the case of steam meters. The quantities of electric power purchased by BCI from a third party shall be determined by meters 15 supplied by BCI and maintained by BCP, at the sole cost and expense of BCI, at the points where the provider's transmission line ties into the BCP distribution system and the point where BCI ties into the BCP system. The party responsible for each meter shall have a mutually agreeable independent contractor calibrate, prove and seal each meter at the time it is placed into service hereunder and provide documentation of such calibration to the other. All meters shall be recalibrated quarterly in accordance with the recommendations of the manufacturer. Each party shall be given reasonable notice of and the right to observe the calibration of the other's meters. If during calibration any meter is found to be inaccurate by more than two percent (2%), the parties shall endeavor to agree on an appropriate adjustment to be made to billings for the period from the previous calibration. If, following good faith negotiations, the parties are unable to agree upon an appropriate adjustment, the readings for the last half of the period since the prior calibration shall be adjusted by the amount of the inaccuracy. (c) Audit. BCP and BCI shall have the right, not more than once each year, ----- to have all books and records pertaining to any fees or charges assessed by the other hereunder based on costs, audited by an independent accounting firm selected and paid for by the party requesting the audit. Such accounting firm will maintain the confidentiality of books and records being audited and shall either verify the correctness of the fees and charges assessed hereunder, or advise the parties of the composite adjustments required to correct any discrepancies for the period being audited. 16 (d) Invoicing. All annual charges set forth on Exhibit C shall be payable --------- in advance beginning on the date hereof and thereafter on each anniversary of such date. For all other utilities and services fees set forth on Exhibit C, each party shall prepare and deliver to the other a monthly invoice for the utilities and services it provided to the other during the previous calendar month. The invoices shall separately identify in reasonable detail the amounts owed for the various utilities and services provided hereunder, including volume and cost per unit data where applicable. Each invoice shall be payable in full within thirty (30) days of the invoice date. All invoices shall include sales and uses taxes, if any, payable by the purchaser of a particular utility or other service. 9. Geismar Area Mutual Aid System; Safety Standards. BCP and BCI shall ---------------------------------------------------- be members of the Geismar Area Mutual Aid System and shall comply with its membership requirements. 10. Temporary Access. BCP and BCI shall each be provided temporary ---------------------- access over the BCP Plant and the Acquired Plants, respectively, using such routes as the other party shall reasonably direct, as are reasonably necessary, from time to time, in order for BCP or BCI to perform initial construction or any maintenance, removal or replacement of those portions of any improvements, facilities, devises or systems which either of them is to install and/or maintain under this Agreement. 17 11. Indemnities. ------------------ (a) Indemnification by BCI. Subject to the terms, conditions and limitations ---------------------- of paragraphs (c) and (d), BCI shall hold harmless, indemnify and defend BCP, its successors, permitted assigns and affiliates (other than BCI) and their respective shareholders, partners, directors, officers and agents (the "BCP Indemnitees") from and against all damages, losses, liabilities, penalties, fines, assessments, judgments, settlement payments, expenses (including reasonable fees of counsel and other experts), claims, demands, and other legal or arbitration proceedings ("Losses") incurred by any BCP Indemnitee that result from or arise out of any of the following: (i) a default by BCI of its obligations under this Agreement that is not cured by BCI within 30 days of its receipt of written notice thereof from BCP; (ii) any failure of BCI to comply with the terms of any EPA, LDEQ or other governmental statute, regulation, authorization, permit or order in providing or receiving utilities or services hereunder; (iii) any claim brought by a third party based on or arising out of the operation of the New BCI Plant or the Acquired Plants, including, without limitation, any claim based, in whole or in part, on a curtailment or outage of electrical power or a failure, curtailment or delay by BCP, for any reason, to provide utilities or services hereunder; (iv) any release or discharge of wastewater or storm water by BCI in violation of Section 3 or 7 hereof; 18 (v) any property damage, injury or death suffered by any third party caused by the negligence of BCI or its employees, agents, contractors or invitees in connection with the performance of its obligations with respect to the provision or receipt of utilities or services under this Agreement; and (vi) any property damage suffered by BCP, but only to the extent any such Losses are caused by the gross negligence of BCI, its employees and agents. (b) Indemnification by BCP. Subject to the terms, conditions and ---------------------- limitations of paragraphs (c) and (d), BCP shall hold harmless, indemnify and defend BCI, its successors, permitted assigns and affiliates (other than BCP) and their respective shareholders, partners, directors, officers and agents (the "BCI Indemnitees") from and against all Losses incurred by any BCI Indemnitee that result from or arise out of any of the following: (i) a default by BCP of its obligations under this Agreement that is not cured by BCP within 30 days of its receipt of written notice thereof from BCI; (ii) any failure of BCP to comply with the terms of any EPA, LDEQ or other governmental statute, regulation, authorization, permit or order in providing or receiving utilities or services hereunder; (iii) any claim brought by a third party based on or arising out of the operation of the BCP Plant, including, without limitation, any claim based, in whole or in part, on a curtailment or outage of electrical power or a failure, curtailment or delay by BCI, for any reason, to provide utilities or services hereunder; 19 (iv) any spill, release or loss of ammonia or other products in connection with the services provided by BCI under Sections 5 and 6 hereof, except caused by the gross negligence or willful misconduct of BCI; (v) any property damage, injury or death suffered by any third party caused by the negligence of BCP or its employees, agents, contractors or invitees in connection with the performance of its obligations with respect to the provision or receipt of utilities or services under this Agreement; and (vi) any property damage suffered by BCI, but only to the extent any such Losses are caused by the gross negligence of BCP, its employees and agents. (c) Indemnification Procedures. The following procedures shall govern -------------------------- claims made hereunder: (i) The party claiming indemnification (the "Claimant") shall expressly notify the party from whom indemnification is sought (the "Indemnitor") in writing of the basis for the Claimant's claim hereunder promptly after the Claimant learns of any such claim; provided, however, that the failure to so notify the Indemnitor -------- -------- shall not relieve the Indemnitor of its obligations hereunder, except to the extent, if any, that the Indemnitor has been prejudiced by the lack of timely and adequate notice. (ii) With respect to claims between the parties, the Indemnitor shall have 30 days to investigate the claim and the Claimant shall make available information substantiating the claim. 20 (iii) With respect to third-party claims, the Indemnitor shall have the right to assume at its full cost and expense the control of all legal proceedings, subject to the right of the Claimant to participate (at its full cost and expense and with counsel of its choice) in the defense, compromise or settlement thereof. The Indemnitor will not compromise or settle any such claim or proceeding without the prior written approval of the Claimant, which approval will not be unreasonably withheld and in any event will not be withheld if the settlement provides solely for a cash payment and provides for a full and complete release of the Claimant and its affiliates. (d) Limitations. Notwithstanding anything in this Agreement to the contrary, ----------- neither party makes any representations or warranties with respect to the utilities or services provided hereunder, other than the limited warranty to provide such utilities and services in accordance with the terms and specifications provided herein. Each party's total liability to the other party based upon a breach of such limited warranty or otherwise based upon the quality or deficiencies of any of the utilities or services supplied hereunder shall not exceed the fees paid for the applicable utility or service for the period during which such utility or service was noncompliant or deficient. In no event whatsoever shall either party be liable, whether in contract, tort or otherwise, for any special, indirect, punitive, incidental or consequential damages. 21 (e) Survival of Indemnities. Upon termination of this Agreement, the terms ----------------------- and conditions of this Paragraph 11 shall survive until the lapse of the applicable statute of limitations. 12. Further Assistance. To the extent reasonably required by either ------------------- party to deliver or receive a utility or service under this Agreement, BCI and BCP each agree, upon request of the other, (i) to cause the real property to be subjected to servitude to be surveyed and a legal description thereof to be prepared and (ii) to execute one or more servitude agreements in recordable form as appropriate. BCI and BCP shall share the cost of such surveys and agreements equally. 13. Assignment. Neither party may assign its rights or obligations ----------- hereunder to any non-affiliated third party without the other party's prior written consent; which consent shall not be unreasonably withheld; provided, however, that either party may assign its rights and obligations under this Agreement without the consent of the other party if all of the following applicable conditions are met: (a) If BCI is the party making the assignment, the assignee acquires all or substantially all of BCI's right, title and interest in and to the new BCI Plant or the Acquired Plants; and (b) If BCP is the party making the assignment, the assignee acquires substantially all of BCP's right, title and interest in and to those portions of the BCP Plant necessary to deliver the utilities and services to be furnished hereunder; and 22 (c) The assignee expressly assumes and agrees to perform the obligations of the assignor under this Agreement and delivers a signed copy of such assumption to the other party. 14. Insurance. BCI shall provide insurance coverage for the New BCI -------------- Plant and the Acquired Plants and its property located on the real property of BCP. BCP shall provide insurance coverage for the BCP Plant and any of its property located on the real property of BCI. Each party hereto shall have and maintain worker's compensation insurance in compliance with the laws of the State of Louisiana, and employer's liability insurance with a minimum limit of $500,000. Each party shall provide the other party with satisfactory evidence of General Liability insurance coverage with a combined bodily injury and property damage single limit of no less than $5,000,000.00. Each party hereto agrees to release and waive, and hereby releases and waives, all rights of subrogation against the other possessed by its insurers to the extent permitted under its policies of insurance. BCI or BCP may self-insure, at its election, any of its obligations under this Section 14. 15. Notices. All notices under this Agreement shall be in writing and ------------- shall be sent registered or certified mail, return receipt requested, addressed to the proper party at the address shown below, unless said address shall have been changed by written notice: BORDEN CHEMICAL, INC. 180 East Broad Street Columbus, Ohio 43215 Attn: President 23 BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP Highway 73 and 30 Geismar, LA 70734 Attn: Vice President - Manufacturing 16. Modifications. This Agreement shall not be modified or changed, ------------------- except by written instrument executed by a duly authorized officer of both of the parties hereto. 17. Applicable Law. The place of performance of this Agreement is the -------------------- State of Louisiana, and the laws of said state shall govern the rights of the parties hereto. 18. Invalidity of Particular Provisions. If any term or provision of ----------------------------------------- this Agreement or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law. 19. Term. The term of this Agreement shall commence as of the date ---------- hereof and continue for an initial term of ten (10) years. Thereafter, the term shall be automatically extended on a year to year basis, unless and until BCI gives BCP not less than three hundred sixty (360) days, or BCP gives BCI not less than 24 months, advance written notice of termination prior to the end of the initial term or any anniversary thereof. In the event this Agreement is terminated by BCP, or in the event BCP declines a request by BCI for 24 increased capacities under Section 1(k) or 3(d) hereof, and in the further event that it is necessary for BCI to obtain easements or rights of way across the BCP Plant in order to procure any utilities or services from other sources, then BCP agrees that it will grant such easements or rights of way to BCI along mutually agreed, reasonably convenient routes. Notwithstanding the foregoing, BCI may, at any time upon not less than three hundred sixty (360) days written notice to BCP, discontinue the receipt of any one or more utilities or services hereunder, without terminating this Agreement with respect to any remaining utilities or services. 20. Force Majeure. No party hereto shall be deemed in default with ------------------- respect to any of the terms, covenants and conditions of this Agreement which are to be performed, to the extent that the party's failure to timely perform the same is caused by any strike, lockout, labor trouble, civil disorder, injunction, governmental law, regulation rule or order, riots, insurrections, fire, sabotage, explosion, war, acts of God, inability to obtain raw materials or electric power, equipment outage or loss of equipment beyond the reasonable control of the non-performing party, or any other cause beyond the reasonable control of the non- performing party. Such party shall promptly notify the other party of the occurrence of such event and shall use its reasonable best efforts to remedy such event as soon as practicable, provided that the settlement of any strike, lockout or labor trouble shall be within the sole discretion of the affected party. If any force majeure event affects only part of BCP's or BCI's capacity to provide a utility or service hereunder, then the affected party shall, 25 to the extent permitted by its contractual obligations to others existing on the date hereof, allocate its available utility or service hereunder in a fair and equitable manner between its own requirements and its obligations to the other party under this Agreement. If either party is prevented from performing for any of the foregoing reasons, it shall cooperate with the other party's efforts to obtain an alternate supply of the affected utility or service. 21. Coordination of Outages and Curtailments. Except in the event of --------------------------------------------- unplanned outages or equipment problems and other emergencies, each party shall provide written notice to the other at least 7 days prior to commencing any maintenance, repair or replacement that could reasonably be expected to stop or materially reduce its demand for or ability to supply any one or more utilities or services, as the case may be. To the maximum extent commercially practicable, the parties will work together to coordinate outages and production curtailments in order to prevent or minimize the adverse impact, if any, on their respective plants and operations resulting from decreases in the demand for or ability to supply utilities or services as the case may be. 22. Provisions Binding; No Third Party Beneficiaries. All rights and ------------------------------------------------------ liabilities herein given to, or imposed upon, the respective parties hereto shall extend to and bind the several and respective successors and permitted assigns of said parties. Nothing contained in this Agreement is intended or shall be construed to afford any person, other than a party hereto (including any successor or permitted assign) or the persons expressly entitled to 26 indemnification under Section 11(a) or (b) hereof, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision hereof. 23. Captions. The captions and headings used throughout this Agreement -------------- are for convenience of reference only and shall not affect the interpretation of this Agreement. 24. Relationship of Parties. Nothing contained in this Agreement shall ---------------------------- be deemed or construed by the parties hereto, or by any third party, to create the relationship of principal and agent or of partnership or of joint venture or of any association whatsoever between BCP and BCI, it being expressly understood and agreed that no provisions contained in this Agreement, nor any act or acts of the parties hereto, shall be deemed to create any partnership, joint venture, or agency relationship between BCI and BCP. 25. Entire Agreement. This Agreement constitutes the entire --------------------- understanding between the parties with respect to the utilities and services to be provided hereunder, and supercedes all prior contemporaneous agreements between the parties hereto in respect of the subject matter hereof as well as the previous Utilities and Services Agreement between the parties dated January 26, 2000. 27 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers to be effective as of the day and year first above written. BORDEN CHEMICAL, INC. By:________________________________ BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP BCP Management, Inc., General Partner By: _______________________________ 28 EXHIBIT C ---------- to -- UTILITIES AND SERVICES AGREEMENT -------------------------------- BCP UTILITY INFORMATION GEISMAR, LOUISIANA 1. Demineralized Water ------------------- A. Cost basis: Actual unit cost + 5% until 12/31/2002 and 10% thereafter = Charge to BCI Plus Annual Infrastructure charge = $5,000 until 12/31/2002 and $10,000 thereafter B. Specifications: Total hardness less than 0.2ppm pH 8.0 minimum Silica less than 0.5ppm Conductivity less than 15 micromhos, 24 hour average Conductivity less than 30 micromhos, any 60 minute average C. Delivery conditions: New Plant Acquired Plant ---------------------------------- Flow: 220 gpm minimum 200 gpm minimum Pressure: 85 psig minimum 85 psig minimum D. Preheated Boiler Feed Water is included at an upcharge based on BTU content 2. Clarified Water --------------- B. A. Cost basis: Actual unit cost + 5% until 12/31/2002 and 10% thereafter = Charge to BCI Plus Annual Infrastructure charge = $10,000 until 12/31/2002 and $20,000 thereafter B. Specifications: Turbidity less than 5 NTU Total hardness 80-120 ppm PH 9.8-10.5 C. Delivery conditions: New Plant Acquired Plant ---------------------------------- 29 Flow: 300 gpm minimum 350 gpm minimum Pressure: 70 psig minimum 70 psig minimum 3. Potable Water ------------- A. Cost basis: Clarified water charge less $0.05/1000 gallons + 5% until 12/31/2002 and 10% thereafter = Charge to BCI Plus annual infrastructure charge = $2,500 until 12/31/2002 and $5,000 thereafter B. Specification: Chlorine 0.25-1.0 ppm Turbidity 1.0-1.5 NTU (typical) C. Delivery conditions: New Plant Acquired Plant ------------------------------------ Flow: 35 gpm minimum 35 gpm minimum Pressure: 100 psig minimum 100 psig minimum 4. Firewater --------- A. Cost basis: Standby charge only = $12,500 until 12/31/2002 and 25,000 per year thereafter B. Specifications: Same as clarified water. C. Delivery conditions: Flow 1300 gpm minimum Pressure 150 psig minimum 5. Steam ----- A. Cost basis: Actual unit cost + 5% until 12/31/2002 and 10% thereafter = Charge to BCI B. Cost basis: Same cost as A = Charge to BCP Plus annual infrastructure charge to both BCP and BCI = $5,000 until 12/31/2002 and $10,000 thereafter 30 C. Specifications: Pressure = 150 psig minimum Temperature = 365F minimum (saturated) D. Delivery conditions: New Plant Acquired Plant -------------------------------------- Flow N/A 65M lbs/hr minimum Pressure N/A 150 psig minimum 6. Nitrogen -------- A. Cost basis: Actual unit cost + 5% until 12/31/2002 and 10% thereafter = Charge to BCI Plus annual infrastructure charge = $2,500 until 12/31/2002 and $5,000 thereafter B. Specifications: Oxygen content 40 ppm max C. Delivery conditions: New Plant Acquired Plant ------------------------------------ Flow N/A 200 SCFM minimum Pressure N/A 35 psig minimum 7. Instrument Air -------------- A. Cost basis: Annual infrastructure charge only = $5,000 until 12/31/2002 and $10,000 thereafter B. Specifications: Dew point - 40F maximum C. Delivery conditions: New Plant Acquired Plant ------------------------------------ Flow: N/A 300 SCFM minimum Pressure: N/A 60 psig minimum 31 8. Wastewater to BioPlant ---------------------- A. Cost basis: Actual unit cost +5% until 12/31/2002 and 10% thereafter = Charge to BCI Plus annual infrastructure charge = $10,000 until 12/31/2002 and $20,000 thereafter B. Specifications: Wastewater from BCI Acquired Plants must only be from routine operations. Non-routine wastewater (i.e. from spills) must be contained until advised by BCP that water is ready for processing. In addition, water from UFC production must be approved before processing. C. Delivery conditions: 100 GPM maximum into process sump 9. Wastewater to Deepwell ---------------------- A. Cost basis: Actual unit cost + 5% until 12/31/2002 and 10% thereafter = Charge to BCI Plus annual infrastructure charge = $5,000 until 12/31/2002 and $10,000 thereafter B. Specifications: Wastewater to be only blowdown from cooling towers and will not contain materials in sufficient quantities to cause the blowdown stream to be a hazardous material as defined in RCRA regulations. C. Delivery conditions: Flow 20 gpm maximum Pressure 50 psig minimum 10. Water to Sanitary Sewer ----------------------- A. Cost basis: Annual usage charge only = $7,500 until 12/31/2002 and $15,000 thereafter B. Specifications: Normal sanitary sewer water containing no organic waste material C. Delivery conditions: Flow 10 GPM max 32 11. Electrical Distribution System ------------------------------ A. Cost basis: Annual infrastructure charge only = $17,500 until 12/31/2002 and $35,000 thereafter Plus cost of direct maintenance on electrical breakers and feeders serving the Acquired Plants. B. Specifications: Not applicable C. Delivery conditions: Not applicable 12. Breathing Air ------------- A. Cost basis: Annual usage charge only = $2,500 until 12/31/2002 and $5,000 thereafter B. Specifications: Oxygen 20% (vol.) minimum CO 20 ppm maximum C. Delivery conditions: Flow: Emergency usage only Pressure: 50 psig minimum 13. Vent Gas -------- A. Cost basis: Actual unit cost (based on 50% of BTU content) + 5% until 12/31/2002 and 10% thereafter = Charge to BCP B. Specifications: Not applicable C. Delivery conditions: Pressure: Slightly positive to allow flow to incinerators 14. Truck Scales ------------ A. Cost basis: Use as required without charge. 15. Cold Box Flare System --------------------- A. Cost Basis: Annual use charge only = $5,000 until 12/31/2002 and $10,000 thereafter 33 EX-10.4 3 dex104.txt BARGE DOCK AGREEMENT BARGE DOCK AGREEMENT -------------------- THIS AGREEMENT, made as of the 28th day of July, 2000 by and between BORDEN CHEMICAL, INC., a Delaware corporation with an office and place of business at 180 East Broad Street, Columbus, Ohio 43215, (hereinafter referred to as "BCI"), and BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership with an office and place of business at Highway 73 & 30, Geismar, Louisiana 70734 (hereinafter referred to as "BCP"). WHEREAS, BCI, on the date hereof, pursuant to a Conveyance and Transfer Agreement between BCP and BCI dated June 27, 2000 (the "Conveyance Agreement"), acquired from BCP, and intends to operate, barge dock facilities situated on the left descending bank of the Mississippi River, near the Town of Geismar in Ascension Parish, Louisiana (hereinafter referred to as "Dock Facilities"); and WHEREAS, the Dock Facilities are currently capable of handling the loading and discharge of liquid cargoes from river barges; and WHEREAS, BCI is willing to provide BCP with dock capacity at the Dock Facilities upon the terms and in the manner hereinafter expressed, NOW THEREFORE, in consideration of the payments hereinafter specified and of the covenants hereinafter contained, it is mutually agreed as follows: 1. Cargoes. Beginning on the date BCI assumes responsibility for the operation of the Dock Facilities in accordance with that certain Transition Services Agreement of even date herewith between BCI and BCP ("Commencement Date"), and continuing throughout the term hereof: (a) BCI shall operate the Dock Facilities and BCP's existing ethylene dichloride ("EDC") pipeline, which is six (6) inches in diameter, for the unloading of EDC; and (b) unless BCI exercises its Option (as defined in the Conveyance Agreement), BCI shall operate the Dock Facilities and the existing methanol pipelines for the loading of methanol until BCP advises BCI that it is permanently ceasing operation of the Optioned Assets (as defined in the Conveyance Agreement) for the production of methanol or until BCP has ceased the operation of the Optioned Assets for the production of methanol for twelve (12) consecutive months, whichever occurs first. Beginning on the Commencement Date, BCP shall also be entitled to have BCI operate the Dock Facilities and the existing ammonia pipelines for the loading of ammonia until the earlier of (i) ninety (90) days after the shutdown of BCP's ammonia plant or (ii) December 31, 2000. 1 EDC, methanol and ammonia, loaded or unloaded for BCP in accordance with this Agreement, are hereinafter referred to as "Cargoes." No Cargoes other than EDC (and, during the respective periods indicated above, methanol and ammonia) shall be handled under this Agreement without BCI's prior written approval. The maximum number of barges carrying EDC Cargoes that will be accepted at the Dock Facility per month will be ten (10). No unloading shall occur unless BCP has supplied hazard information to BCI, as provided in Section 10 below. 2. EDC Equipment. BCP shall install, at its expense, any and all valves, pipes, hoses and pumps that may be required to handle its EDC (the "EDC Equipment"). Title to all of said EDC Equipment shall remain in BCP, and BCP shall have the right to remove said property at the termination of this Agreement or, at its option, may abandon said property and leave same on the premises unless, within thirty (30) days after the termination of this Agreement, BCI requests removal of same. If BCP does not promptly remove same upon request, BCI may remove and dispose of it at BCP's expense. All EDC Equipment installed by BCP shall be engineered to comply with all applicable federal, state, and local environmental statutes, regulations and ordinances, including, but not limited to, the Clean Air Act, as amended. In addition, BCP shall have a continuing obligation to comply with any future environmental requirements. BCP shall annually inspect its pipeline and other property located on BCI's property and submit an annual report to BCI attesting to its integrity. 3. Scheduling; Efficient Operations. BCI shall make reasonable efforts to operate the Dock Facilities to achieve maximum capacity and efficiency. BCP shall exert reasonable efforts to furnish BCI advance shipping schedules for the purpose of enabling BCI to make efficient use of the Dock Facilities. Both parties will cooperate and provide aid to the other to ensure effective loading and unloading of Cargoes. To this end, the parties agree as follows: (a) BCI and BCP shall develop and jointly maintain a rolling two month forecast of anticipated barge traffic at the Dock Facility. Both parties will have the ability to access this forecast. BCI will input scheduling information provided by BCP and will update the forecast and scheduling information at least once a week. This forecast is intended to serve as a tool for efficient Barge Dock operations and not as formal notification of barge arrivals. (b) BCI agrees that up to four (4) shipments of EDC per month will be given priority as follows: (i) if BCP gives BCI not less than 48 hours advance notice of the anticipated arrival time of a nominated barge, BCI guarantees that BCI will make the Dock Facilities available to allow the shipment to dock at the Dock Facility at any time 2 within two (2) hours before or after the anticipated arrival time specified in the notice; and (ii) if BCP's EDC shipment arrives outside the two (2) hour window in subparagraph (i), BCI agrees to use reasonable efforts (which, subject to Subsection (d), shall not include the discontinuation of any loading or unloading of cargoes or the incurrence of demurrage or other costs or expenses) to allow the EDC shipment to dock at the Dock Facility and unload as soon as possible after its arrival. BCP agrees that barges carrying EDC Cargoes other than "off-spec" or "wet" Cargoes will unload at a minimum rate of 150 tons per hour. (c) BCP agrees to give BCI reasonable advance notice of all Cargoes (in addition to the 48-hour notice referred to above), and BCI agrees to use its reasonable efforts to load or unload such Cargoes in an efficient and timely manner. Subject to Subsection (d) below, such Cargoes and cargoes unloaded for BCI's own account or for third parties will generally be loaded on a first come, first served basis. "Off-spec" or "wet" EDC shall not be granted priority pursuant to Subsection (b) and while it shall be scheduled according to normal first-come, first-served scheduling, if the unloading of any such barge shall not be completed within six (6) hours, such unloading may be discontinued to accommodate other scheduled barge traffic. BCI shall be entitled to schedule barge traffic following such six-hour time frame and such EDC unloading shall be resumed as dock availability permits. Any costs or expenses resulting from such interruption shall be borne by BCP. (d) If either BCI or BCP declares a commercial emergency and requests a barge be granted priority access to the Dock Facility, the other party will grant the party declaring the emergency prompt access to the Dock Facility and, if necessary, will discontinue loading or unloading its cargoes; provided however, that the party declaring the emergency will reimburse the other party for any and all costs and expenses incurred by it that are directly and proximately attributable to the granting of such priority. (e) If both BCI and BCP declare commercial emergencies simultaneously, they will use good faith efforts to resolve the emergencies, with the relative costs thereof to be borne by each in an equitable manner. (f) If BCI grants any third party rights to use the Dock Facilities for other than the handling of methanol for BCI's plants, BCI covenants and agrees that its contracts with such third parties will guarantee BCP the priority provided in (b) above for 4 shipments per month and equal entitlements to that enjoyed hereunder for BCP's remaining six (6) barges per month in scheduling use of the Dock Facilities. (g) Due to limitations on loading and unloading facilities, demurrage and other charges on scheduled barges may occur. Except for the situations described in Subsections (b) and (d) above, demurrage or other charges (including, without limitation, repositioning and towing and placement charges) shall be borne by the party for whose account such barge 3 was scheduled. In the event the loading or unloading of a docked barge (including a barge granted priority pursuant to Subsection (b)) is delayed or interrupted as a result of defective or noncompliant Cargoes, failed cargo inspections or similar matters, the party for whose account such barge was docked shall be responsible for all demurrage charges and other costs and expenses incurred by either party resulting from such delay or interruption. 4. BCI's Obligations. BCI shall furnish and be responsible for the operation of the Dock Facilities and the following costs pertaining thereto: (a) all labor and supervision on a 24-hour-per-day, 7-day-per-week schedule; (b) utility requirements for power, water, and lights; (c) other utilities, within reason and if readily available; (d) fire protection water supply; and (e) all maintenance of Dock Facilities and pipelines and loading and unloading facilities located thereon, whether owned by BCI or BCP, in good condition and repair; provided, however, that: (i) BCI shall not be obligated to add any capital improvements to the Dock Facilities except such as are reasonably required to enable BCI to fulfill its obligations under this Agreement; and (ii) BCI's obligation to maintain BCP-owned loading and unloading equipment or facilities shall be limited to normal day-to-day mechanical maintenance; unusual, large scope maintenance projects on BCP equipment or facilities, such as complete or partial replacement of hoses and valves or cyclical repainting, shall be done by BCI at BCP's expense, subject to the prior agreement of BCP as to the basis and amount of the charges therefor. BCI shall conduct operations hereunder in accordance with good industry practices. BCI shall not be required to furnish tugs for the placement of Cargoes. 4 5. Dual Unloading. BCI and BCP agree to work together, and use their respective reasonable best efforts, to secure all necessary permissions from the U. S. Coast Guard to load and/or unload two (2) barges simultaneously at the Dock Facility. If BCI is permitted to load and/or unload two (2) barges simultaneously at the Dock Facility, BCP and BCI will negotiate in good faith regarding the terms, conditions and costs on which the maximum number of barges carrying EDC Cargoes that will be accepted at the Dock Facility per month may be increased to up to twenty (20). BCI shall decide in its sole discretion, however, whether to accept such higher maximum. 6. Insurance. BCI shall provide insurance coverage for the Dock Facilities and all related facilities and appurtenances owned by it, whether located on its property or on BCP's property. BCP shall provide insurance coverage for the EDC Equipment and related facilities owned by it, whether located on its property or BCI's property. BCI shall provide such insurance coverage for cargoes handled at the Dock Facilities (other than Cargoes) as is reasonable and customary. BCP shall provide such insurance coverage for Cargoes as is reasonable and customary. Each party hereto shall have and maintain Worker's Compensation insurance in compliance with the laws of the State of Louisiana, and Employer's Liability insurance with a minimum limit of $500,000. Each party shall provide the other party with satisfactory evidence of General Liability insurance coverage with a combined bodily injury and property damage single limit of no less than $5,000,000.00. Each party hereto agrees to release and waive, and hereby releases and waives, all rights of subrogation against the other possessed by its insurers to the extent permitted under its policies of insurance. BCI or BCP may self insure, at its election, any of its obligations under this Section 6. 7. Liability and Indemnification. Except as set forth in Section 9: (a) BCI will be responsible for, and will indemnify and hold BCP harmless from and against, the entirety of any and all losses, expenses (including reasonable attorney's, accountant's and expert's fees and expenses), damages, indictments, fines, penalties, actions and other liabilities (collectively, "Losses") arising out of: (i) damage to the Dock Facilities (except to the extent caused by the gross negligence of BCP, its employees or agents, with respect to which BCP shall indemnify and hold BCI harmless); 5 (ii) injury to or death of any BCI employee (except any injury or death arising from or caused by the gross negligence of BCP, its employees or agents, with respect to which BCP shall indemnify and hold BCI harmless); and (iii) damage to property of third parties or for injury to or death of third persons arising out of operations hereunder, including but not limited to those arising under federal, state or local environmental laws, rules or regulations, to the extent caused by the negligence of BCI, its employees or agents. (b) BCP will be responsible for, and will indemnify and hold BCI harmless from and against, the entirety of any Losses arising out of: (i) damage to the EDC Equipment, pipelines and related facilities owned by BCP (except to the extent caused by the gross negligence of BCI, its employees or agents, with respect to which BCI shall indemnify and hold BCP harmless); (ii) injury to or death of any BCP employee (except any injury or death arising from or caused by the gross negligence of BCI its employees or agents, with respect to which BCI shall indemnify and hold BCP harmless); and (iii) damage to property of third parties or for injury to or death of third persons arising out of operations hereunder, including but not limited to those arising under federal, state or local environmental laws, rules or regulations, to the extent caused by the negligence of BCP, its employees or agents. 8. Taxes. BCI shall be responsible for payment of all payroll taxes or contributions payable under the Federal Insurance Contributions Act, the Federal Unemployment Tax Act, and under applicable State Unemployment Insurance or Compensation Laws and any amendments to these laws, measured by wages paid by BCI to its employees and to the employees of any contractor of BCI with respect to employment of said employees in the operation of the Dock Facilities and the services to be performed hereunder. BCI shall pay taxes on its cargoes and on the Barge Facilities and related facilities and appurtenances owned by it, whether located on its property or on BCP's property. BCP shall pay all taxes on its Cargoes and on the EDC Equipment and related facilities owned by it, whether located on its property or on BCI's property. Any sales, use or excise tax imposed on the services provided hereunder by federal, state or local government authorities will be itemized on BCI's invoices and paid by BCP to BCI. 6 9. Liability for Loss of Cargoes. BCI shall provide properly trained personnel to work on the Dock Facilities in accordance with U.S. Coast Guard regulations; provided, however, BCI assumes no liability for loss of Cargoes or for contamination thereof and BCP agrees to hold BCI harmless for such loss or contamination regardless of cause. In the event that Cargoes are lost during handling due to pipeline, equipment, hose, vessel or any other failure, and such Cargoes spill onto the Mississippi River levee or battery or into the waters of the Mississippi River, then: (a) BCP shall indemnify and hold BCI harmless from any and all Losses, including, but not limited to, those arising out of damage to property of third parties or for injury or death of third parties and those arising under federal, state or local environmental laws, rules or regulations, except to the extent caused by the gross negligence of BCI, its employees or agents; and (b) BCI shall indemnify and hold BCP harmless from any and all Losses, including, but not limited, to those arising out of damage to property of third parties or for injury or death of third parties and those arising under federal, state or local environmental laws, rules or regulations, to the extent caused by the gross negligence of BCI, its employees or agents. In the event that cargoes handled at the Dock Facilities (other than Cargoes) are lost, and such shipments spill onto the Mississippi River levee or battery or into the waters of the Mississippi River, BCI shall indemnify and hold BCP harmless from any and all Losses resulting therefrom, except to the extent caused by the gross negligence of BCP, its employees or agents, with respect to which BCP shall indemnify and hold BCI harmless. All reportable spills and emissions will be reported by BCP to the appropriate state and federal agencies as required. BCP shall be obligated to comply with all Superfund Amendments and Reauthorization Act (SARA), Title III, toxic release reporting requirements. Should any rules or regulations effect a change in loading procedures for EDC Cargoes or require permits from any governmental agency, BCP shall be responsible for all additional costs incurred and/or for obtaining such permits, provided, however, if BCP decides it does not want to incur such costs or obtain such permits, BCP may forthwith terminate this Agreement insofar as the affected Cargoes are concerned, provided further, that BCP promptly notifies BCI of BCP's decision and reimburses BCI for the cost of removing any affected pipelines or related facilities from BCI's property. BCP shall provide BCI with copies of all permits. 10. Hazard Information. BCP shall provide BCI with all Materials Safety Data Sheets prescribed by OSHA and relating to the safe and efficient handling of Cargoes by BCI. 7 11. Fees. BCP shall pay BCI an annual fee of $50,000 for the use of the Dock Facilities plus an additional fee (the "Throughput Fee") of $1.50 per ton of Cargo (loaded or unloaded) for BCP at the Dock Facility. The Throughput Fee shall be adjusted as of October 1, 2001 and annually thereafter, by an amount equal to the percentage increase, if any, in the hourly rate of pay for a barge dock operating technician (whether employed by BCI or a third party having a pay scale escalating reasonably within industry norms), compared to the rate of pay for the same classification of BCI or such third party, as the case may be, as of October 1, 2000, or the last annual adjustment date, as the case may be. The annual fee shall be payable in advance beginning on the date hereof and thereafter on each anniversary of such date. BCI shall invoice BCP monthly for the Throughput Fee for Cargoes handled during the previous month. Each invoice shall be payable in full within thirty (30) days of the invoice date. BCP shall furnish evidence to BCI of the tonnage of the Cargoes handled. For billing purposes, any movement of Cargoes shall be deemed to have been completed as of the same date it was commenced. 12. Audit. BCP shall have the right, not more than once each year, to have all books and records pertaining to any fees or charges assessed by BCI hereunder audited by an independent accounting firm selected and paid for by BCP. Such accounting firm will maintain the confidentiality of books and records being audited and shall either verify the correctness of the fees and charges assessed hereunder, or advise the parties of the composite adjustments required to correct any discrepancies for the period being audited. BCP shall have the right at any time, upon reasonable prior notice, to audit the Barge Dock operation in order to assess whether operations are being conducted in accordance with the terms in this Agreement. In the event BCP identifies any inadequacies in operation, it shall promptly notify BCI. BCI shall, within thirty (30) days of receipt of any such notice, cure any operational inadequacy identified by BCP or notify BCP that it believes its operations are in compliance with the terms of this Agreement. 13. Term. The term of this Agreement shall commence as of the date hereof and continue for an initial term of ten (10) years. Notwithstanding the foregoing, BCP shall be entitled to terminate this Agreement at any time during the initial term upon not less than three hundred sixty (360) days advance written notice to BCI should it find that it has no further need for use of the Dock Facilities. 8 Following the initial term, this Agreement shall be automatically extended on a year to year basis, unless and until either: (a) BCI gives BCP not less than twenty-four (24) months advance written notice of termination (which notice may be given at any time commencing with the 24th month prior to the end of the initial term); or (b) BCP gives BCI not less than three hundred sixty (360) days advance written notice of termination. In the event this Agreement is terminated by BCI, or by BCP after a refusal by BCI to increase the maximum number of barges carrying EDC Cargoes pursuant to Section 5 hereof, and in the further event that it is necessary for BCP to obtain easements or rights of way across BCI's property in order to procure EDC, then BCI agrees that it will grant such easements or rights of way to BCP along mutually agreed, reasonably convenient routes. 14. Force Majeure. No party hereto shall be deemed in default with respect to any of the terms, covenants and conditions of this Agreement which are to be performed, to the extent that the party's failure to timely perform the same is caused directly or indirectly by any strike, lockout, labor trouble, civil disorder, injunction, restrictive governmental laws or regulations, riots, insurrections, fire, sabotage, explosion, war, acts of God, inability to obtain raw materials or electric power, equipment outage or loss of equipment beyond the reasonable control of the non-performing party or any other cause beyond the reasonable control of the non-performing party. Such party shall promptly notify the other party of the occurrence of such event and shall use its reasonable best efforts to remedy such event as soon as practicable; provided that the settlement of any strike, lockout or labor trouble shall be within the sole discretion of the affected party. If any force majeure event affects only part of BCI's capacity to provide services hereunder, then BCI shall allocate the available capacity of the Dock Facilities between its own requirements and its contractual commitments hereunder in a fair and equitable manner. If either party is prevented from performing for any of the foregoing reasons, it shall cooperate with the other party's efforts to obtain an alternate source of service, including granting all reasonable and necessary easements or servitudes. 15. Condemnation. In the event all or substantially all of the Dock Facilities are taken for public or quasi-public use by any power or authority having the right to take the same by condemnation, eminent domain, or otherwise, this Agreement shall terminate as of the date title shall vest in the taking body and the parties hereto shall be released of and from all obligations and liabilities to each other accruing hereunder. In the event a portion of the Dock Facilities is taken for public or quasi- public use by any power or authority having the right to take the same by condemnation, eminent domain, or 9 otherwise, BCI shall allocate the available capacity of the Dock Facilities between its own requirements and its contractual commitments hereunder in a fair and equitable manner. In the event of such taking, the parties hereto shall each be entitled to claim and have paid to them for their respective use and benefit a proportional part, as their interests may appear, of the amount awarded as compensation for the Dock Facilities so taken. 16. Notices. All notices required or permitted to be given hereunder shall be deemed given if either delivered personally to BCI or BCP or if deposited in the United States mail, in a sealed envelope with first class postage thereon prepaid, addressed to BCI or to BCP at their respective addresses given hereinabove or to such other address as the parties may direct by notice given as hereinabove provided. 17. Assignment; Subcontracting. BCP may assign all, or any portion, of its rights or obligations hereunder to a purchaser of the Optioned Assets or of the EDC Equipment. Neither this Agreement nor any rights or obligations of BCP hereunder may be assigned to any person, other than a purchaser of the Optioned Assets or of the EDC Equipment, without the prior written consent of BCI, such consent not to be unreasonably withheld, and any such attempted assignment without such consent shall be void. The term "BCP" shall include any successor or permitted assign of BCP and, in the event of a partial assignment, may include both BCP and such successor or assign. Neither this Agreement nor any rights or obligations of BCI hereunder may be assigned to any person without the prior written consent of BCP, such consent not to be unreasonably withheld, and any such attempted assignment without such consent shall be void provided that BCI shall have the right to assign its rights and obligations to any purchaser of BCI's Formaldehyde plant in Geismer, Louisiana. All the conditions, limitations, and agreements herein contained, and all the obligations herein assumed, shall inure to the benefit of and be binding upon the successors and assigns of the respective parties hereto. BCI shall have the right to engage an independent contractor for the operation of the Dock Facilities and/or the performance of any or all of BCI's duties hereunder with the prior written consent of BCP, which consent shall not unreasonably be withheld. In such event, BCI shall remain subject to BCP for the satisfactory performance of its obligations hereunder. It is understood and agreed that BCP may withhold its consent unless such contractor agrees to indemnify and hold BCP harmless from any and all Losses resulting from the negligence of such contractor. For purposes of this Agreement, the negligence of any such contractor shall not be attributed to BCI. 10 18. Entire Agreement. This Agreement constitutes the entire understanding between the parties with respect to the operation and use of the Dock Facilities and supersedes all previous understandings, agreements, communications and representations, whether written or oral, concerning the subject matter to which this Agreement relates. 19. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Louisiana without giving effect to the choice of laws principles thereof, and may not be superseded, amended or modified except by written agreement between the parties. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. BORDEN CHEMICALS & PLASTICS OPERATING LIMITED PARTNERSHIP BORDEN CHEMICAL, INC. By: BCP Management, Inc., General Partner By:______________________ By:___________________________ Title:___________________ Title:________________________ 11 EX-10.5 4 dex105.txt ENVIRONMENTAL INDEMNITY AGREEMENT ENVIRONMENTAL INDEMNITY AGREEMENT --------------------------------- This ENVIRONMENTAL INDEMNITY AGREEMENT (this "Agreement") dated as of the 28th day of July, 2000 is made by and between Borden Chemicals and Plastics Operating Limited Partnership, a Delaware limited partnership ("Seller"), and Borden Chemical, Inc., a Delaware corporation ("Purchaser"). WITNESSETH: ---------- WHEREAS, pursuant to a Conveyance and Transfer Agreement dated as of June 27, 2000 (the "Conveyance Agreement"), by and between Seller and Purchaser, Seller has agreed to sell to Purchaser and Purchaser has agreed to purchase from Seller the Purchased Assets and Seller has granted Purchaser an Option to purchase the Optioned Assets (capitalized terms used herein and not otherwise defined herein are being used as defined in the Conveyance Agreement); WHEREAS, the Purchased Assets include the Real Property; WHEREAS, Seller and Purchaser desire to set forth the terms and conditions upon which certain environmental liabilities of the Real Property will be handled on and after the date hereof; NOW, THEREFORE, in consideration of the premises and of the mutual promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Seller Indemnity. Subject to Section 3 below, Seller shall ---------------- indemnify and save and hold harmless Purchaser and its Affiliates, successors and assigns against all claims, costs, damages, expenses and liabilities incurred by such indemnified persons to the extent relating to or arising out of the following (less a deductible to be borne by Purchaser of $125,000 in any given calendar year, provided that the cumulative amount borne by Purchaser pursuant to this Section 1 shall not exceed $500,000): (a) any treatment, recycling, storage or disposal of any Materials of Environmental Concern after November 30, 1987, and prior to the date of this Agreement (the "Operating Period"), at the Real Property or any Purchased Asset or Optioned Asset (collectively, the "Assets"); (b) any Release during the Operating Period at the Real Property or from an Asset during the Operating Period of any substance which constituted Materials of Environmental Concern (the term "Release" as used herein means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment, including without limitation the workplace); (c) any claim by a third-party based upon any exposure or alleged exposure of any person or property to any Materials of Environmental Concern Released at the Real Property or from an Asset during the Operating Period (excluding claims arising after the date hereof under Workman's Compensation and Occupational Disease statutes); and (d) any violation or alleged violation during the Operating Period of applicable Environmental Laws relating to the use, operation or ownership of an Asset. It is acknowledged by the parties that this Environmental Indemnity Agreement is intended to be Purchaser's sole remedy with respect to the subject matters covered in this Section 1 but is not intended to address matters not specifically addressed in this Section. Without limiting the foregoing, this Environmental Indemnity Agreement is not intended to address claims, costs, damages, expenses and liabilities incurred as a result of treatment, recycling, storage or disposal or Releases of Materials of Environmental Concern that are not present at and do not emanate from, or violations of Seller not involving, the Real Property or the Assets, all of which matters are Excluded Liabilities indemnifiable pursuant to Section 9 of the Conveyance Agreement. 2. Purchaser Indemnity. Subject to Section 3 below, Purchaser shall ------------------- indemnify and save and hold harmless Seller and its Affiliates, successors and assigns against all claims, costs, damages, expenses and liabilities incurred by such indemnified persons to the extent relating to or arising out of: (a) any treatment, recycling, storage or disposal by or at the Real Property or any other facility owned or operated by Purchaser, including any facility leased by Purchaser on or after the date hereof, of any Materials of Environmental Concern shipped by Purchaser, or its employees, agents or contractors (other than the Seller Entities or any of their respective employees) ("Representatives"), from the Real Property or from an Asset on or after the date hereof; (b) any Release by Purchaser or its Representatives at the Real Property or from an Asset on or after the date hereof of any substance which is a Material of Environmental Concern; (c) any exposure or alleged exposure of any person or property to any Materials of Environmental Concern Released by Purchaser or its Representatives at the Real Property or from an Asset on or after the date hereof; and (d) any violation or alleged violation by Purchaser or its Representatives on or after the date hereof of applicable Environmental Laws relating to the use, operation or ownership of the Real Property or an Asset. To the extent the foregoing provisions of this Section 2 conflict with any provision of any Ancillary Agreement, the provisions of such Ancillary Agreement shall control. 3. Claim Deadline. Any claim made by Purchaser or Seller pursuant to -------------- this Agreement must be asserted no later than the fifth anniversary of the Closing Date. 2 4. Joint Liabilities. Notwithstanding the provisions of Sections 1 ------------------ and 2 above, if a matter arises that is partly Seller's responsibility under Section 1 and partly Purchaser's responsibility under Section 2, Seller and Purchaser shall apportion liability on an equitable basis considering all the facts and circumstances, including but not limited to the relative contribution of each party to the matter and the amount of time each has operated the Asset in question (to the extent relevant). If, after considering all the facts and circumstances with respect to whether a Release of a Material of Environmental Concern has contaminated the soil or groundwater of the Real Property before or after the date hereof or before or after November 30, 1987, there remains a scientific dispute which cannot be resolved with reasonable certainty, liability shall be allocated based on the number of years of ownership of the affected Real Property by Seller on the one hand, and by Purchaser or Borden, Inc., on the other hand, through the date of the claim with respect thereto. 5. Procedure and Implementation. For the purposes of this Agreement, ---------------------------- an "Indemnified Party" is a party who is entitled to indemnity pursuant to the provisions of this Agreement, and an "Indemnifying Party" is a party who has an obligation of indemnity pursuant to the provisions of this Agreement. An Indemnified Party shall give an Indemnifying Party prompt written notice of any claim that has given or could reasonably be expected to give rise to a right of indemnification under this Agreement, including any inquiry or any investigation by a government agency which the Indemnified Party believes may involve or expects will lead to such a claim; and shall provide reasonable access to the Assets as may be necessary or appropriate to enable the Indemnifying Party, its employees, agents, attorneys, consultants and/or contractors to investigate, assess and otherwise evaluate the claim, prepare its position, and take remedial or other appropriate action. The Indemnifying Party shall have the responsibility of contesting, defending, litigating, settling or satisfying any claim made against the Indemnified Party and shall have the right to employ its own counsel in connection therewith. The Indemnifying Party shall have full control over any actions (including, without limitation, any remedial action, negotiation or litigation) in connection with any such claim; provided, that the Indemnifying Party must consult with the Indemnified Party at reasonable times regarding its proposed actions, and if such action could materially and adversely affect the Indemnified Party's operations at the Assets, the latter's prior consent thereto shall be necessary (which consent shall not unreasonably be withheld); and provided further, the Indemnifying Party shall not settle any claim, but if the Indemnified Party shall refuse to consent to any settlement recommended by the Indemnifying Party and shall elect to contest the claim, then the Indemnifying Party's liability for the claim shall not exceed the amount for which the claim could have been so settled plus expenses incurred by the Indemnified Party up to the date of such refusal. The Indemnified Party shall also have the right to be represented by separate counsel at the Indemnified Party's expense in connection with any such claim. The Indemnified Party shall make available to the Indemnifying Party or its representatives all relevant information, records and other materials in the possession of the Indemnified Party which are reasonably required by the Indemnifying Party for its use in connection with any such claim and shall otherwise cooperate with and assist the Indemnifying Party in connection with any such claim. Each party shall maintain all information, records, and other materials prepared for a claim under this Agreement in a strictly confidential manner, except as required to comply with an order of a court or a governmental authority, or to enforce its rights under this Agreement. Where possible, such information shall be placed under confidential seal before it is placed in public records. In 3 the event the Indemnifying Party fails to proceed diligently and in good faith with respect to such claim, the Indemnified Party may take such course of action as it deems appropriate without prejudice to its rights to indemnity. 6. Certain Limitations. The indemnification obligations of the ------------------- parties under this Agreement are subject to the following limitations: (a) to the extent an Indemnified Party is entitled to receive the proceeds of insurance with respect to the matter for which it is to be indemnified, upon being so indemnified said party shall pay the proceeds net of all expenses of such insurance which it has received to the Indemnifying Party; (b) if and to the extent any indemnification obligation of an Indemnifying Party hereunder is or has been increased as a result of acts or omissions taken or omitted by or on behalf of an Indemnified Party, such indemnification obligation shall be reduced by the amount of such indemnification obligation that is attributable to such acts or omissions; (c) effective upon being indemnified as provided in this Agreement, an Indemnified Party hereunder (i) hereby transfers and assigns to the Indemnifying Party all rights and claims the former has or may have against third parties for reimbursement or contribution for such indemnification; (ii) agrees to execute such instruments and take such other actions as may be necessary or appropriate to transfer and assign the foregoing rights or claims to the latter; and (iii) agrees to take such reasonable actions when and as necessary or appropriate to assist the latter to obtain reimbursement or contribution for such indemnification from third parties; and (d) no party shall be entitled to indemnification on account of the effect upon its business or business operations caused by or resulting from actions taken by a party pursuant to its obligations hereunder to take remedial or other appropriate action, such as for example business interruption or lost profits, provided that any consents required by Section 6 above have been obtained before commencing such action. 7. Address and Notices. The address of Purchaser for all purpose of ------------------- this Agreement is 180 East Broad Street, Columbus, Ohio 43215, Attention: Lawrence Dieker. The address of Seller for such purposes is Highways 73 and 30, Geismar, Louisiana 70734, Attention: M. D. Owens. Any notice, demand, request or report given or made under this Agreement shall be in writing and shall be deemed given or made when delivered in person or when sent to the appropriate party at such address by first class mail or by other means of written communication. 8. Titles and Captions. All article or section titles or captions in ------------------- this Agreement are for convenience only and shall not be deemed part of this Agreement or in any way define, limit, extend or describe the scope or intent of any provisions hereof. 4 9. Binding Effect. This Agreement shall be binding upon and inure to -------------- the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns, provided that this Agreement is assignable by Purchaser only in connection with the sale of substantially all the Assets and by Seller only in connection with the sale of all or substantially all of its assets, in each case only with the prior consent of the other party, which consent shall not be unreasonably withheld. 10. Integration. This Agreement and the Ancillary Agreements referred ----------- to herein constitute the entire agreement among the parties hereto pertaining to the subjects specifically described herein, and supersede all other agreements and understandings pertaining thereto. 11. Creditors. None of the provisions of this Agreement shall be for --------- the benefit of, or shall be enforceable by, any creditor of Purchaser or Seller. 12. Waiver. No failure by any party hereto to insist upon the strict ------ performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right, or remedy consequent upon a breach thereof shall constitute a waiver of any such breach or any other covenant, duty, agreement or condition of this Agreement. 13. Counterparts. This Agreement may be executed in counterparts, all ------------ of which together constitute one agreement binding on all the parties hereto. 14. APPLICABLE LAW. NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT -------------- MAY BE EXECUTED BY ANY OF THE PARTIES HERETO, THE PARTIES HERETO EXPRESSLY AGREE THAT ALL OF THE TERMS AND PROVISIONS HEREOF SHALL BE CONSTRUED UNDER AND GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF OHIO WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW. 15. Invalidity of Provisions. If any provision of this Agreement is ------------------------ or becomes invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. * * * * * 5 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first set forth above. BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP By: BCP Management, Inc., as General Partner By: _____________________________ Its: _____________________________ BORDEN CHEMICAL, INC. By: _____________________________ Its: _____________________________ 6 EX-10.6 5 dex106.txt CONTROL ROOM AGREEMENT DATED JULY 28, 2000 CONTROL ROOM AGREEMENT ---------------------- This CONTROL ROOM AGREEMENT (this "Agreement") dated as of July 28, 2000 is made by and between Borden Chemicals and Plastics Operating Limited Partnership, a Delaware limited partnership ("Seller"), and Borden Chemical, Inc., a Delaware corporation ("Purchaser"). R E C I T A L S --------------- WHEREAS, pursuant to a Conveyance and Transfer Agreement dated as of June 27, 2000 (the "Conveyance Agreement") by and between Seller and Purchaser, Seller has agreed to sell to Purchaser and Purchaser has agreed to purchase from Seller the Purchased Assets; and WHEREAS, as a mutual condition to their respective obligations under the Conveyance Agreement, Seller has required Purchaser to enter into this Agreement in order to provide access to certain retained assets and properties of Seller located on the Real Property, specifically the Formaldehyde Control Room, in order to ensure the uninterrupted operation of Seller's continuing businesses in the ordinary course for the period of time specified below. For purposes of this Agreement, "Formaldehyde Control Room" shall mean (a) that certain control room included in the Purchased Assets and (b) the computers located therein and related peripherals and data lines included in the Excluded Assets that control Seller's vinyl esters unit and cold box unit. NOW THEREFORE, in consideration of the covenants and agreements set forth in the Conveyance Agreement and in further consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows: Section 1. Definitions. Capitalized terms used and not otherwise --------- ----------- defined herein shall have the meanings assigned to them in the Conveyance Agreement. Section 2. Access Rights. On the terms and subject to the --------- ------------- conditions set forth herein, during the term of this Agreement, Purchaser shall, and shall cause its Affiliates to provide Seller and its Affiliates full and complete access through designated routes, at all times, to the Excluded Assets in the Formaldehyde Control Room for purposes of operating, maintaining and replacing the equipment and assets of Seller contained therein. Section 3. Maintenance. On the terms and subject to the conditions --------- ----------- set forth herein, during the Term (as defined below) of this Agreement, Purchaser shall maintain the Formaldehyde Control Room in good condition and repair, in accordance with industry standards and consistent with Seller's past practices. Purchaser shall be responsible for all general and capital maintenance with respect to the Formaldehyde Control Room; provided, however, that Purchaser will have no obligation to maintain or repair Excluded Assets. Section 4. Fees; Payment. ---------- ------------- (a) Seller will pay Purchaser an annual fee of $2,000 for the use of the Control Room plus an additional fee equal to 5% of Purchaser's reasonable general and capital maintenance costs, utilities charges, janitorial expenses and other direct operating expenses of the Control Room ("Seller's Costs"). Seller shall not be required to reimburse Purchaser for its proportionate share of any individual capital maintenance expense associated with the Formaldehyde Control Room, which expense exceeds in the aggregate $50,000, unless Purchaser shall have obtained Seller's prior approval of such expense, which approval shall not unreasonably be withheld. (b) Purchaser shall invoice Seller for Seller's Costs at the end of each fiscal quarter during the Term as follows: (i) invoices shall include only amounts actually paid or incurred as of such date by Purchaser, (ii) invoices shall include reasonably appropriate supporting documentation, and (iii) the amount shown as due on such invoices shall be calculated pursuant to the terms of this Section 4. (c) If, within 10 days after Seller's receipt of an invoice, Seller disputes, in good faith, the amount of such invoice and the parties have not agreed on the amount of Seller's Costs, the amount in dispute shall be finally and conclusively determined by an independent auditing firm (the "Auditor") selected by Purchaser and Seller, which firm will not be the regular auditing firm of Purchaser or Seller. Promptly, but not later than 15 days after its acceptance of its appointment, the Auditor will determine (based solely on presentations by Seller and Purchaser and not by independent review) only that amount of Seller's Costs in dispute and will render a report as to the disputed amount and the resulting determination of Seller's Costs, which report will be conclusive and binding upon the parties. The fees, costs and expenses of the Auditor in conducting such review shall be paid by the party in error. (d) Within 10 days after (i) the invoice date with respect to undisputed amounts of Seller's Costs, and (ii) the date on which the parties agree upon the amount of Seller's Costs or the Auditor has determined such amount with respect to disputed amounts of Seller's Costs, Seller shall pay the undisputed, agreed upon or determined amount of Seller's Costs to Purchaser, in cash, by bank wire transfer of immediately available funds to an account designated in writing by Purchaser. Section 5. Term; Termination. --------- ----------------- (a) The "Term" of this Agreement shall commence on the Closing Date and, subject to the termination provisions of this Section 5, shall continue for an initial period of ten (10) years; provided, however, that this Agreement shall be automatically extended for additional periods of one (1) year each following such date unless Seller or Purchaser provides the other party hereto with written notice of its intent to terminate this Agreement not less than 360 days prior to the expiration of the initial term or any successive one (1) year term thereafter. -2- (b) Notwithstanding anything to the contrary contained herein, this Agreement may be terminated at any time: (i) by the mutual consent of Purchaser and Seller; (ii) by Purchaser in the event of any material breach or default by Seller or any of its Affiliates of any of their obligations under this Agreement and the failure of Seller or its Affiliates to cure such breach or default within 30 days after receipt of written notice from Purchaser requesting such breach or default to be cured; (iii) by Seller in the event of any material breach or default by Purchaser or any of its Affiliates of any of their obligations under this Agreement and the failure of Purchaser to cure such breach or default within 30 days after receipt of written notice from Seller requesting such breach or default to be cured; or (iv) by Purchaser, by giving six (6) months advance notice, in the event that (A) Seller transfers or disposes of all or substantially all of the assets of its vinyl esters or cold box unit to any person other than Borden, Inc. ("Borden") or a subsidiary of Borden, or (B) Borden or a subsidiary of Borden no longer has beneficial ownership of a majority of the shares of capital stock of the general partner of Seller. Section 6. Insurance; Standard of Liability; Indemnification. --------- ------------------------------------------------- (a) During the Term of this Agreement, Purchaser shall be required to maintain property and liability insurance in reasonably sufficient amounts, in the ordinary course of business and based on the past practices of Seller, covering the Formaldehyde Control Room. (b) Seller shall be liable, responsible and accountable to Purchaser for damages and costs and expenses (including reasonable attorneys' fees) solely for Seller's breach of this Agreement or for its gross negligence or willful misconduct in its operations in or related to the Formaldehyde Control Room or its Excluded Assets located therein. Purchaser shall be liable, responsible and accountable to Seller for damages and costs and expenses (including reasonable attorneys' fees) solely for Purchaser's breach of this Agreement or for its gross negligence or willful misconduct in its general maintenance, capital maintenance or operations in or related to the Formaldehyde Control Room. Any liability of Seller or Purchaser under this Section 6(b) shall be subject to the provisions of Section 6(e). (c) Purchaser shall indemnify, defend and hold harmless Seller and its general partner, limited partners, directors, officers, employees, agents and controlling persons from and against any and all losses, claims, damages, liabilities, costs and expenses (including any investigatory, legal and other expenses reasonably incurred in connection with, and any amounts reasonably paid in any settlement) resulting from any demand, claim, lawsuit, -3- action or proceeding made or commenced by any employee, agent, vendor, customer, licensor or lessor of Purchaser arising in connection with the operation by Purchaser of any portion of the Formaldehyde Control Room, provided that such matter did not arise out of the gross negligence or willful misconduct or breach of this Agreement by Seller. (d) Seller shall indemnify, defend and hold harmless Purchaser and its directors, officers, shareholders, employees, agents and controlling persons from and against any and all losses, claims, damages, liabilities, costs and expenses (including any investigatory, legal and other expenses reasonably incurred in connection with, and any amounts reasonably paid in any settlement) resulting from any demand, claim, lawsuit, action or proceeding made or commenced by any employee, agent, vendor, customer, licensor or lessor of Seller arising in connection with the access by Seller to the Formaldehyde Control Room or its operation of the Excluded Assets located therein, provided that such matter did not arise out of the gross negligence or willful misconduct or breach of this Agreement by Purchaser. (e) Notwithstanding anything contained in this Agreement to the contrary, in no event shall either party be liable for incidental, special or consequential damages (including lost profits or lost revenues) of the other party, its successors, assigns or their respective Affiliates, as a result of or arising from this Agreement, regardless of whether such liability arises in tort, contract, breach of warranty, indemnification or otherwise. Section 7. Survival of Obligations. The obligations of the parties --------- ----------------------- under Sections 4 and 6 hereto shall survive termination or expiration of this Agreement. Section 8. Assignability. Neither this Agreement nor any of the --------- ------------- rights, interests or obligations hereunder shall be assignable or transferable by either party without the prior written consent of the other party hereto; provided, however, that Purchaser may assign all or any portion of its rights, interests and obligations to a purchaser or purchasers of all of substantially all of the assets of the formaldehyde plant included in the Purchased Assets. All rights and liabilities herein given to, or imposed upon the respective parties hereto shall extend to and bind their respective successors and permitted assigns. Section 9. Entire Agreement. This Agreement constitutes the entire --------- ---------------- agreement between the parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect thereto. Section 10. Governing Law. This Agreement shall be governed by and ---------- ------------- construed in accordance with the laws of the State of Ohio, without regard to the principles of conflicts of laws thereof. Section 11. Notices. All notices and other communications ---------- ------- hereunder shall be in writing and shall be delivered to the persons and in the manner provided in the Conveyance Agreement. Section 12. Amendments. This Agreement may not be modified or ---------- ---------- amended except by an agreement in writing signed by the parties. -4- Section 13. Waivers. The failure of any party hereto at any time ---------- ------- to require strict performance by the other party hereto of any provision hereof shall not waive or diminish such party's right to demand strict performance thereafter of that or any other provision hereof. Section 14. Title and Headings. Titles and headings to sections ---------- ------------------ herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. Section 15 Legal Enforceability; Severability. Any provision of ---------- ---------------------------------- this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction (foreign or domestic), be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. If any provision of this Agreement shall be held invalid, illegal or unenforceable, the validity, legality or enforceability of the other provisions hereof shall not be affected thereby, and there shall be deemed substituted for the provision at issue a valid and enforceable provision as similar as possible to the provision at issue. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first set forth above. BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP BCP Management, Inc., as General Partner By: ------------------------------------ Its: ------------------------------------ BORDEN CHEMICAL, INC. By: ------------------------------------ Its: ------------------------------------ -5- EX-10.7 6 dex107.txt AMENDMENT TO INTERCOMPANY AGREEMENT AMENDMENT TO INTERCOMPANY AGREEMENT ----------------------------------- AMENDMENT TO INTERCOMPANY AGREEMENT (this "Amendment") dated as of July 28, 2000, among Borden Chemicals and Plastics Limited Partnership, a Delaware limited partnership (the "Partnership"), Borden Chemicals and Plastics Operating Limited Partnership, a Delaware limited partnership (the "Operating Partnership"), Borden, Inc., a New Jersey corporation ("Borden"), and BCP Management, Inc., a Delaware corporation ("BCPM"). WITNESSETH: ---------- WHEREAS, the Operating Partnership, the Partnership, Borden and BCPM are parties to an Intercompany Agreement dated November 30, 1987 (the "Agreement"); and WHEREAS, Section 6 of the Agreement contains noncompetition covenants of Borden and its Subsidiaries with respect to the manufacture or sale of various products including, but not limited to, ammonia, urea and methanol; and WHEREAS, a Borden Subsidiary, Borden Chemical, Inc., and the Operating Partnership have entered into a Conveyance and Transfer Agreement dated June 27, 2000, which, inter alia, provides for the mutual release of the various obligations between them with respect to the purchase and sale of ammonia, urea and methanol, NOW, THEREFORE, in consideration of the premises and of the mutual promises contained herein and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1. Definitions. Capitalized terms used herein without definition ----------- shall have the respective meanings specified therefor in the Agreement. Section 2. Amendment. Section 6 of the Agreement shall be amended and --------- restated in its entirety as follows: Section 6. Noncompetition Covenant of Borden. During the period --------------------------------- Borden or any of its subsidiaries is a general partner of the Partnership or the Operating Partnership, Borden shall not engage in the continental United States in the manufacture or sale of acetylene, acetylene-based vinyl chloride monomer, ethylene-based vinyl chloride monomer, acetic acid and general-purpose and specialty-purpose polyvinyl chloride resins. In addition, if the prohibition contained in the preceding sentence becomes inapplicable by reason of (i) the withdrawal of the General Partner as general partner of the Partnership or the Operating Partnership under circumstances where such withdrawal violates the Partnership Agreement or the Operating Partnership Agreement or (ii) the removal of the General Partner as general partner of the Partnership by the Limited Partners under circumstances where "cause" exists, then Borden shall not engage in the activities referred to in the preceding sentence during the two year period ending on the second anniversary of such withdrawal or removal. For such purpose, "cause" means that a court of competent jurisdiction has entered a final, non-appealable judgment finding BCPM (or such other subsidiary serving as general partner of the Partnership or the Operating Partnership) liable for actual fraud, gross negligence or willful or wanton misconduct in its capacity as general partner of the Partnership or the Operating Partnership. Section 3. Effective Date. This Amendment shall be effective as of the -------------- day and year first set forth above. Section 4. Remaining Terms. Except as amended above, the Agreement shall --------------- remain and continue between the parties upon its original terms and conditions. * * * * * 2 IN WITNESS WHEREOF, the parties hereto have hereunto set their hands as of the day and year first above written. BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP By: BCP Management, Inc., as General Partner By: ----------------------------- Its: ----------------------------- BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP By: BCP Management, Inc., as General Partner By: ----------------------------- Its: ----------------------------- BORDEN, INC. By: ----------------------------- Its: ----------------------------- BCP MANAGEMENT, INC. By: ----------------------------- Its: ----------------------------- 3 EX-10.8 7 dex108.txt GROUND LEASE DATED JULY 28, 2000 EXHIBIT 10.8 GROUND LEASE ------------ THIS GROUND LEASE ("Agreement") is entered into effective as of the 28th day of July, 2000, by and between BORDEN CHEMICAL, INC., a Delaware corporation, represented herein by its duly authorized officer, whose permanent mailing address is declared to be 180 East Broad Street, Columbus, Ohio 43215, its successors and assigns ("Landlord"), and BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership, represented herein by its duly authorized general partner, BCP Management, Inc., a Delaware corporation, represented herein by its duly authorized officer, and whose mailing address is Highways 73 and 30, Geismar, Louisiana 70734 ("Tenant"). ARTICLE 1 --------- LEASE OF PROPERTY ----------------- Section 1.01. Premises Leased. Landlord, in consideration of the rents, --------------- covenants, agreements, and conditions herein set forth which Tenant hereby agrees shall be paid, kept, and performed, does hereby lease to Tenant, and Tenant does hereby rent and lease from Landlord, that certain tract or parcel of land ("Land") situated in Ascension Parish, Louisiana, as more fully shown on Exhibit "A" attached to this Agreement, subject to such servitudes, rights-of- - ----------- way, encumbrances and restrictions set forth on Exhibit "B" attached hereto ----------- ("Permitted Exceptions"). Section 1.02. Premises Defined. All of the Land, rights, and interests ---------------- leased to Tenant pursuant to Section 1.01 are herein collectively referred to as the "Premises". Section 1.03. Habendum. TO HAVE AND TO HOLD its leasehold estate in the -------- Premises, together with all and singular the rights and privileges belonging thereto, in quiet enjoyment unto Tenant, its successors and assigns upon the terms and conditions herein set forth, for the term set forth in Article 2, subject to termination as herein provided. Section 1.04. Servitudes. Landlord reserves the right to enter upon the ---------- Premises and to cross the Premises with servitudes, rights-of-ways and/or easements for drainage, utilities, pipelines, cables, conduits, access or other purposes required in connection with the operation of its adjacent plants, as long as the exercise of such right does not interfere with Tenant's use of the Premises. ARTICLE 2 --------- TERM OF LEASE ------------- Section 2.01. Term. Unless sooner terminated as herein provided, this ---- Agreement shall be and continue in full force and effect for a term commencing on the 28th day of July, 2000 (the "Commencement Date"), and ending at midnight, C.S.T., on the 31st day of December, 2000 ("Term"). Section 2.02. Extension of Term. In the event Landlord fails to exercise ----------------- its option ("Option") to purchase the Improvements in accordance with the Conveyance and Transfer Agreement dated as of June 27, 2000 between Landlord and Tenant ("Conveyance"), the Term shall be automatically extended for an additional period of up to ten (10) years, or until Tenant ceases the operation of the Improvements for production of methanol for a period of at least twelve (12) consecutive months, or advises Landlord that it has permanently ceased operation of the Improvements for the production of methanol, whichever first occurs ("Extended Term). ARTICLE 3 --------- RENT ---- Section 3.01. Rent. The rent for this Agreement shall be (i) the ---- consideration set forth in the Conveyance; and (ii) the aggregate funds expended annually by Tenant to perform Tenant's agreement hereunder to pay all operating and other expenses incurred by Landlord or Tenant as the owner or operator of the Premises during the Term. Landlord and Tenant acknowledge and consent to the sufficiency of the consideration as equal to the fair rental value of the Premises. Whenever the term "Rent", "Rental", "rent" or "rental" is used in this Agreement, it shall refer to the consideration for this Agreement described in this Article 3, and, where applicable, to any and all other consideration, fees, costs, charges, expenses, additional rent, and any other sums of money to be paid by Tenant to or on behalf of Landlord hereunder. Section 3.02. Payment of Monies. All Rental and other sums due and ----------------- payable to Landlord by Tenant hereunder shall be payable to Landlord at the original or changed address of Landlord as set forth in Section 15.01 or to such other persons or at such other addresses as Landlord may designate from time to time in writing to Tenant. All Rent shall be paid by Tenant in lawful money of the United States of America without notice or demand, except as otherwise provided for herein. Section 3.03. Net Lease. This Agreement is a net lease, and shall be --------- absolutely net to Landlord, free of any charges, assessments, impositions or deductions of any kind and without abatement, deduction, reduction, diminution or set off except as expressly set forth herein to the contrary. Accordingly, all costs, expenses, and obligations of every kind or nature whatsoever, relating to the Premises, or any 2 improvements thereon whether now owned by Tenant or hereafter constructed, owned, operated, restored, replaced or repaired by Tenant (collectively, the "Improvements"), which may arise or become due during the Term shall be paid by Tenant, and Landlord shall be and is hereby indemnified and held harmless by Tenant from and against payment of any and all such expenses, except as provided in the Conveyance. ARTICLE 4 --------- IMPOSITIONS AND UTILITIES ------------------------- Section 4.01. Impositions Defined. The term "Impositions" shall mean all ------------------- taxes, assessments, use and occupancy taxes, water and sewer charges, rates and rents, charges for public utilities, excises, levies, license and permit fees, and all other charges by any public authority of any kind and nature whatsoever, which shall or may during the Term be assessed, levied, charged, confirmed or imposed by any public authority upon or accrued or which may become a lien on (i) the Premises, the Improvements, and Tenant's furniture, fixtures, equipment and other personal property located in, on or at the Premises; (ii) such franchises, licenses, and permits as may be pertinent to the use of the Premises; or (iii) any documents to which the Tenant is a party creating or transferring an interest or estate in the Premises. Impositions shall not include any income tax, capital levy, estate, succession, inheritance or transfer taxes, or similar tax of Landlord; or any income, profits, or revenue tax, assessment, or charge imposed upon any benefit received by Landlord under this Agreement by any Governmental Entity (as hereinafter defined). If at any time during the Term, the present method of taxation shall be so changed that the whole or any part of the Impositions now levied, assessed or imposed on the Land shall be discontinued and in whole or partial substitution therefor, taxes, assessments, levies, impositions, or charges shall be levied, assessed, and/or imposed wholly or partially as a capital levy or otherwise on the rents received from the Land or the rents reserved herein or any part thereof, then such substitute taxes, assessments, levies, impositions, or charges, to the extent so levied, assessed, or imposed, shall be deemed to be included within the term "Impositions". Section 4.02. Tenant's Obligation. During the Term, Tenant will pay ------------------- before delinquency, all Impositions. Impositions that are payable by Tenant for the tax year in which this Agreement commences as well as during the year in which the Term ends shall be apportioned so that Tenant shall pay its proportionate share of the Impositions for such periods of time. Tenant shall deliver to Landlord evidence of due payment of all Impositions Tenant is obligated to pay hereunder, promptly after making such payment. Section 4.03. Tax Contest. Tenant may, in good faith and at its sole cost ----------- and expense by appropriate proceedings, contest the validity or amount of any Imposition, in which event the payment thereof may be deferred during the pendency of such contest, if diligently prosecuted, and if such contest or deferral in payment does not place the Premises in imminent danger of being seized or forfeited. 3 Section 4.04. Right to Perform Tenant's Obligation as to Impositions. If ------------------------------------------------------ Tenant shall fail to timely pay any Imposition for which it is responsible hereunder before such Impositions become delinquent or fails to timely notify Landlord of its intention to contest the same, or fails to pay contested Impositions following a final determination of such contest, or places the Premises in imminent danger of being seized or forfeited, Landlord may, at its election (but without obligation), pay such Imposition with any interest and penalties due thereon, and the amount so paid shall be repayable by Tenant, on demand, together with interest thereon at the prime rate of interest described as the base rate on corporate loans at large U.S. money center commercial banks as published by the Wall Street Journal or any successor publication, not to exceed the maximum contract rate of interest permitted by applicable law ("Landlord's Prime Rate") from the date of such payment until repaid. Section 4.05. Utilities. Except as otherwise provided for in the --------- Conveyance, Tenant shall pay and be solely responsible for all deposits and charges for gas, electricity, water, energy, light, heat, air conditioning, power, telephone and other communication services, garbage or other trash removal and disposal, sewerage or effluent removal or disposal, water and all other utilities and similar services rendered or supplied to, or used or consumed on the Premises, and all water rents, deposits, sewer service charges, or other similar charges levied or charged against, or in connection with, the Premises. ARTICLE 5 --------- IMPROVEMENTS AND ALTERATIONS ---------------------------- Section 5.01. Ownership of the Improvements. All of the Improvements on ----------------------------- the Land are, shall be and remain the property of Tenant at all times during the Term or sooner termination of this Agreement. Upon the expiration or sooner termination of this Agreement, in the event Landlord has not elected to exercise its option to purchase the Improvements in accordance with the terms of the Conveyance, Tenant shall have the obligation to remove the Improvements to slab level, at its sole cost and expense and in a good and workmanlike manner and in accordance with applicable laws and regulations, within two (2) years of the expiration or sooner termination of this Agreement; provided however, that Tenant's obligation to remove Improvements shall be limited as follows: (i) Tenant shall have no obligation to remove slabs or foundations except to ground level, or roadways, paving or curbs; (ii) Tenant shall have no obligation to remove the cooling tower located on the Premises, but will remove all asbestos on such cooling tower; (iii) Tenant shall not be required to remove existing underground utility lines, consisting of lines for cooling water, fire water and electrical power; (iv) Tenant shall not be required to remove piperacks, pipelines or other equipment in continued operation under the terms of easements or servitudes; and (v) Tenant shall not remove the control room located on the Premises. Tenant shall, to the extent required by applicable Law (as defined below), remove all asbestos from the Premises. This obligation shall be a continuing obligation and shall survive the expiration of the Term or the termination of this Agreement. The Improvements shall be 4 maintained free from liens of materialmen, contractors, subcontractors, laborers, and other mechanic's liens (collectively, the "Mechanic's Liens"). In the event a Mechanic's Lien is filed against the Premises as a result of the alteration, maintenance and repair of the Improvements, such Lien will be paid or bonded over by Tenant within thirty (30) days of notice to Tenant of the filing of such Lien. Nothing contained herein shall limit or impede Tenant's right to contest by appropriate legal proceedings any claims arising out of the construction, repair, or maintenance of improvements or any Mechanic's Liens filed or asserted against the Premises or the improvements. Section 5.02. Right to Alter the Improvements. Tenant shall have the -------------------------------- right to construct, add to, alter, change, modify, or reconstruct the Improvements. Tenant shall fully and completely indemnify Landlord against any Mechanic's Liens in connection with the making of such alterations and changes, and shall pay all costs, expenses, and charges thereof. All alterations and repairs shall (i) be at the sole cost and expense of Tenant; (ii) be constructed in a good and workmanlike manner; and (iii) be in compliance with all applicable Laws. ARTICLE 6 --------- USE, MAINTENANCE, AND REPAIRS ----------------------------- Section 6.01. Use. --- (a) Subject to the terms and provisions hereof, Tenant shall have the right to use and enjoy the Premises for the continued operation of existing methanol plant located on the Land ("Permitted Use"), in compliance with all applicable Law. Tenant may, in good faith and by appropriate proceedings, and at its sole cost and expense, contest such law, ordinance, rule or regulation applicable to the Permitted Use, and the failure to strictly abide by such law, ordinance, rule or regulation during the pendency of such contest, if diligently prosecuted, shall not constitute a default hereunder; provided, however, that such contest does not place the Premises in imminent danger of being seized or forfeited, or create an unreasonable risk of loss to Landlord. (b) Tenant shall not use or occupy, nor permit the Premises to be used or occupied, nor do or permit anything to be done in or on the Premises in a manner which would constitute a public or private nuisance, or which would violate any restrictive covenants applicable to the Premises, laws, orders, acts, rules, regulations, ordinances, or requirements of any governmental authority having jurisdiction over the Premises, and Tenant shall to the extent permitted by applicable Law, indemnify and hold harmless Landlord from and against all fines, penalties, claim or claims for damages of every kind and nature arising out of any failure to comply with any such restrictive covenants, laws, orders, acts, rules, regulations, ordinances, or requirements. Section 6.02. Maintenance and Repairs. ----------------------- (a) At all times during the Term, Tenant shall take good care of the Premises, promptly make all necessary repairs thereto (which, subject to Section 5.01, shall 5 include any maintenance, restoration or repair required by any applicable Governmental Entities (as defined below)). (b) Except as provided in the Conveyance, Landlord shall have no obligation to maintain or repair the Premises during the Term. ARTICLE 7 --------- INSURANCE AND INDEMNITY ----------------------- Section 7.01. Comprehensive General Liability Insurance. Tenant shall at ----------------------------------------- all times, at its sole cost and expense, procure and maintain comprehensive general liability and property damage insurance with respect to the Premises. Such insurance shall be in an amount of not less than $5,000,000 per occurrence, and may be issued as a combined, single limit (bodily injury and property damage) policy, covering bodily injury, personal injury, including death and property damage. Section 7.02. Casualty Insurance. Tenant shall also procure and maintain ------------------ such casualty insurance as it desires with respect to any Improvements upon the Premises. Landlord shall have no responsibility for providing casualty insurance with respect to the Improvements. Section 7.03 Workers' Compensation Insurance. Tenant shall at all times ------------------------------- procure and maintain workers' compensation insurance in compliance with the laws of the State of Louisiana and employer's liability insurance with a minimum limit of $500,000. Section 7.04. Policy Form and Insurer. ----------------------- (a) Notwithstanding anything to the contrary contained herein, Tenant may self-insure, obtain commercial coverage, or a combination thereof in order to comply with the insurance required to be maintained under this Section 7. All commercially written insurance provided in compliance with the requirements in this Section and all renewals of such insurance shall be issued by companies authorized to transact business in the State of Louisiana. All insurance policies provided by Tenant shall expressly provide that the policies shall not be canceled or altered without 30 days' prior written notice to Landlord; and shall, to the extent obtainable, provide that no act or omission of Landlord or Tenant which would otherwise result in forfeiture or reduction of the insurance will affect or limit the obligation of the insurance company to pay the amount of any loss sustained. (b) Original or copies of original policies (together with copies of the endorsements or certificates of insurance) will be delivered by the Tenant to the Landlord prior to the Tenant's occupancy of the Premises and from time to time at least 30 days prior to the expiration of the term of each policy. 6 Section 7.05. Indemnification. Tenant will indemnify Landlord, its --------------- agents, shareholders, officers, members, partners, employees, and servants, and hold them harmless from and against any and all claims, actions, damages, liability, and expense in connection with loss of life, personal injury, damage to property, cost, outlay, or expense arising from or out of any occurrence in, upon, or at the Premises, or the occupancy or use by Tenant of the Premises or any part thereof, or occasioned wholly or in part by employees, servants, lessees, or concessionaires of Tenant or any person for whom Tenant is responsible, unless the same is occasioned by the willful misconduct or gross negligence of Landlord, its employees, agents and contractors. Section 7.06. Subrogation. Tenant agrees to release and waive, and hereby ----------- releases and waives, all rights of subrogation against Landlord possessed by its insurers to the extent it is permitted under its insurance policies. ARTICLE 8 --------- CASUALTY LOSS ------------- In the event the Premises is wholly or partially damaged or destroyed by fire, the extended coverage perils, flood, storm, tornado, or other casualty, Tenant shall give immediate notice to Landlord, and Tenant may but shall not be obligated, without cost, risk, expense or liability to Landlord, to rebuild, repair and/or restore the Improvements on the Premises provided, however Landlord shall never be required to expend any funds in connection therewith except to the extent such damage was caused in whole or in part by the gross negligence or willful misconduct of Landlord, its agents, employees or any other entity acting by or through Landlord in which case Landlord shall pay such repair and restoration costs. In the event Tenant elects not to rebuild, repair or restore the Improvements, Tenant shall notify Landlord of its election within thirty (30) days following the casualty, and this Agreement shall terminate. Provided, however, Tenant shall be obligated to remove the Improvements in accordance with its obligations under Section 5.01 of this Agreement. ARTICLE 9 --------- CONDEMNATION ------------ Section 9.01. Total Taking. If during the Term all or substantially all ------------ of the Premises shall be taken in any condemnation or eminent domain proceeding, this Agreement shall thereupon terminate. In such event the obligation to pay any monies hereunder and the Tenant's right of possession shall terminate on the date of such taking; provided, however, Tenant shall pay to Landlord any rent or other amounts due and owing under this Agreement at the time of the taking. Section 9.02. Partial Taking. If only a part of the Premises be taken in -------------- any condemnation or eminent domain proceeding, Tenant at its own cost, risk, expense and liability, and without cost, risk, expense or liability to Landlord shall have the right but 7 not the obligation to make such repairs and alterations to that part of the Premises as may be necessary to restore that part of the Premises not taken to a condition suitable for the uses and purposes for which the Premises are being utilized by Tenant. If the Premises would, in the Tenant's reasonable business judgment remain materially unsuitable for Tenant's Permitted Use after proposed restoration under this Section, Tenant hereto shall have the option to terminate this Agreement as of the date of ouster by giving written notice of termination within fifteen (15) days after Tenant has been ousted from possession of such part, whereupon this Agreement shall be of no further force or effect. Tenant shall remove the Improvements and restore the Premises in accordance with the provisions of Section 5.01 of this Agreement. Section 9.03. Condemnation Award. In the event of a total condemnation of ------------------ the Premises, or a partial taking of the Premises which render the Premises materially unsuitable for Tenant's Permitted Use ("Taking"), all damages awarded in connection with the Taking of the Improvements or the Premises ("Award") shall be allocated by Landlord and Tenant as follows: Landlord shall be entitled to recover all damages awarded as compensation for the diminution in value of its fee title to the Premises. Tenant shall be entitled to recovery of all damages awarded as compensation for the diminution of value of its leasehold interest in the Premises. Provided, however, Landlord and Tenant shall have the right to claim such compensation as may be separately awarded or recoverable by Tenant or Landlord in their own right on account of any and all damages to their business by reason of the condemnation and for and on account of any cost or loss which they might be put in removing its furniture, fixtures, equipment and leasehold improvements. ARTICLE 10 ---------- CONDITION OF PREMISES: ---------------------- Section 10.01. Tenant accepts the Premises "as is", in their present state and without any representation or warranty by Landlord whatever as to the condition or state of repair of the Premises or the fitness of the same for Tenant's purposes or for any purpose whatsoever. Landlord shall not be responsible for any latent vice or defect or change of condition in the Premises. Section 10.02. Landlord makes no covenant, representation or warranty as to the suitability of the Premises for any purpose whatsoever or as to the physical condition thereof. Tenant acknowledges that it has inspected the Premises, observed its physical characteristics and existing conditions and has had the opportunity to conduct such investigation and study on and of the Premises as it deems necessary for its intended use and occupancy under this Agreement, and hereby waives any and all objections to or complaints about physical characteristics and existing conditions of the Premises. Tenant further acknowledges and agrees that the Premises are to be leased to, and accepted by Tenant in its present condition "AS IS" and with all faults. 8 Section 10.03. For the purposes of this Agreement, the following terms and conditions shall have the meanings ascribed thereto: (a) "Environmental Activity" or "Environmental Activities" means any storage, presence, existence, release, threatened release, use, generation, abatement, removal, disposal, handling or transportation of any Materials of Environmental Concern in, to, on, under, from or about the Premises. (b) "Environmental Laws" means any and all applicable Laws (as defined below) regulating, relating to or imposing liability or standards of conduct concerning protection of the environment or of human health. (c) "Governmental Entity" or "Governmental Entities" means any domestic government, or agency, or bureau, board, commission, court, police jury, department, official, political subdivision, tribunal other instrumentality thereof, whether federal state, parish of local. (d) "Laws" means collectively, any constitutional provision, statute, law (including without limitation common law), code, rule, regulation, ordinance, permit, decree, injunction, judgment, order, ruling, determination, finding, writ or other legally enforceable requirement of any Governmental Entity. (e) "Materials of Environmental Concern" means any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products, polychlorinated biphenyls, asbestos, pollutants, contaminants, radioactivity, and any other substances of any kind, that are regulated pursuant to or could give rise to liability under any applicable Environmental Law. Section 10.04. Tenant shall, at Tenant's sole cost and expense, comply with and maintain the Premises in compliance with all applicable Laws. Section 10.05. In the event Landlord discovers any breaches under Section 10 of this Agreement or any violations of applicable Laws by Tenant, Landlord shall give Tenant written notice of such violation, and Tenant shall have a reasonable period of time not to exceed forty-five (45) days in which to cure such violation, unless the violation is of such a nature that it cannot be reasonably cured within such 45-day period, in which event no default shall occur as long as Tenant commences to cure the violation within the 45-day period, and thereafter, in good faith, diligently and with continuity prosecutes to completion the curing of such violation. In the event Tenant fails to commence to cure such violation within the prescribed time period, Landlord shall be entitled to all rights and remedies listed in Section 11.02 hereof. Section 10.06. Tenant shall promptly notify Landlord as to any liens threatened or attached against the Premises pursuant to any Laws. In the event that such a lien is filed against the Premises, then Tenant shall provide indemnification reasonably satisfactory to Landlord. 9 Section 10.07. Tenant's Environmental Indemnity. Tenant agrees to protect, indemnify, defend, reimburse and hold harmless (i) Landlord; (ii) any other person who acquires an interest in this Agreement whether by an assignment of Landlord's interest in this Agreement or otherwise; (iii) any other person who acquires all or a portion of the Premises at a foreclosure sale or by a conveyance in lieu of foreclosure or otherwise through the exercise of the rights and remedies of Landlord under this Agreement; and (iv) the principals, members, directors, officers, partners, shareholders, employees, successors, assigns, and invitees of such persons listed in Section 10.07(i) through 10.07(iii) above (any and all of which are referred to in this Section 10.07 as "Indemnitee") from and against any and all loss, cost, penalty, fine, liability, damage, or expenses (including without limitation attorney's fees, court costs and litigation expenses), arising out of or resulting from or in any way connected with (a) the presence of any Materials of Environmental Concern in, at, on, under or about the Premises caused by Tenant's use of the Premises after the date hereof; (b) any Environmental Activity conducted after the date hereof by Tenant or by any other party for whom Tenant is legally responsible on the Premises; (c) any violation of any Environmental Laws pertaining to the condition of the Premises or any Environmental Activity thereon to the extent caused by Tenant or caused by anyone else duly acting on behalf of Tenant or for whom Tenant is responsible; or (d) any valid or meritorious claim, demand or cause of action, brought or served against any Indemnitee which directly or indirectly relates to, arises from or out of, or is based upon any of the matters described in this Article 10, which are caused by Tenant's use of the Premises. This obligation shall survive the expiration or earlier termination of this Agreement, the discharge of all other obligations owed by the parties to each other, and transfer of title to the Premises whether by sale, exchange, foreclosure, deed in lieu of foreclosure or otherwise. Section 10.08. The provisions of this Section 10 shall be binding upon Landlord and Tenant and inure to the benefit of Landlord and Tenant, and their respective heirs, executors, administrators, legal representatives, successors and assigns. Section 10.09. The provisions of the Section 10 are in addition to and not in substitution for or in limitation of the covenants and agreements of Tenant in the separate Environmental Indemnity Agreement between the parties bearing the same date as the Agreement. Notwithstanding the foregoing, if the Extended Term ends on or before December 31, 2003, in the event indemnification is sought under this Agreement for a matter that is also covered by the Environmental Indemnity Agreement, the Environmental Indemnity Agreement shall control; provided, however, that Seller thereunder shall be deemed to be responsible for indemnification pursuant to Section 1 thereof for matters occurring through the end of the Term (or Extended Term, whichever shall then be applicable hereunder) and the "Operating Period" referred to in Section 1 thereof shall be deemed to be the period from November 30, 1987 through the end of the Term (or Extended Term, as the case may be). In addition, for purposes of Section 4 thereof, Seller's period of ownership of the Leased Premises shall be deemed to include the period of Tenant's tenancy hereunder. If the Extended Term extends beyond December 31, 2003, the provisions of this Article 10 shall apply without 10 regard to this Section 10.09. For purposes of this Agreement, a matter is "also covered by the Environmental Indemnity Agreement" if, after considering all the facts and circumstances with respect to whether a matter has occurred solely during the Term, there remains a scientific dispute which cannot be resolved with reasonable certainty. ARTICLE 11 ---------- DEFAULT AND REMEDIES -------------------- Section 11.01. Default. Each of the following shall be deemed an "Event ------- of Default" by Tenant hereunder and a material breach of this Agreement: (a) Whenever Tenant shall fail to pay any rent due by Tenant hereunder on the date upon which the same is due to be paid and such failure shall continue for thirty (30) days after Tenant shall have been given written notice thereof by Landlord of such failure; or (b) Whenever Tenant shall fail to keep, perform, or observe any of the covenants, agreements, terms, or provisions contained in this Agreement that are to be kept or performed by Tenant other than with respect to payment of any liquidated sums of money, and Tenant shall fail to commence and take such steps as are necessary to remedy the same within sixty (60) days after Tenant shall have been given a written notice specifying the same; provided, however, if the default is of such a nature that it cannot be cured within the 60-day period, Tenant shall not be considered in default under this Agreement if it commences to cure such default within the 60-day period, and thereafter in good faith and with due diligence proceeds to cure such default. Section 11.02. Remedies. If any one or more Events of Default occur(s) -------- then Landlord has the right, at its election, to undertake any one or more of the following non-exclusive actions: (a) To give Tenant written notice of Landlord's intention to terminate this Agreement on the earliest date permitted by law or this Agreement or on any later date specified in such notice, in which case Tenant's right to possession of the Premises will cease and this Agreement will be terminated, except as to Tenant's liability, as if the date fixed in such notice were the end of the Term, without, however, waiving Landlord's right to collect all Rent and other payments due or owing for the period up to the time Landlord regains possession, as well as any damages and reasonable Litigation Expenses; (b) Proceed for past due installments of Rent, reserving its right to proceed later for the remaining installments as well as any Litigation Expenses; and/or (c) Without further demand or notice of any kind, to cure any Event of Default and to charge Tenant for the cost of effecting such cure, including 11 without limitation all Litigation Expenses, provided that Landlord will have no obligation to cure any such Event of Default. Should Landlord elect to reenter, or should Landlord take possession pursuant to legal proceedings or pursuant to any notice or remedy provided by law, Landlord may, from time to time, without terminating this Agreement, relet the Premises or any part of the Premises in Landlord's name, but for the account of Tenant, the balance of the Term, and on such other conditions and upon such other terms (which may include reasonable concessions of free rent and alteration and repair of the Premises) as Landlord, in its reasonable discretion, may determine, and Landlord may collect and receive the Rent. Landlord will in no way be responsible or liable for any failure to relet the Premises, or any part of the Premises, or for any failure to collect any Rent due upon such reletting. No such reentry or taking possession of the Premises by Landlord will be construed as an election on Landlord's part to terminate this Agreement unless written notice of such intention is given to Tenant. No notice from Landlord under this Section or proceeding under a forcible or unlawful entry and detainer statute or similar law will constitute an election by Landlord to terminate this Agreement unless such notice or proceeding specifically so states. Landlord reserves the right following any such reentry or reletting to exercise its right to terminate this Agreement by giving Tenant such notice, in which event this Agreement will terminate as specified in such notice. Whenever the term "Litigation Expenses" is used in this Section 11.02, it shall mean any and all costs and expenses incurred by Landlord in connection with Tenant's default, including without limitation all attorney's fees, court costs, other reasonable legal fees and litigation costs, accountant's fees, realtor fees, brokerage commissions and leasing commissions. Section 11.03. Performance of Tenant's Other Obligations. If Tenant fails ----------------------------------------- to perform or observe any of its covenants, agreements, or obligations hereunder (other than the payment of sums of money) for a period of sixty (60) days after notice of such failure (unless the default is of such a nature that it cannot be cured within such 60-day period, in which event no default shall occur as long as Tenant commences to cure such default within the 60-day period and thereafter, in good faith, diligently and with continuity, prosecutes the curing of the default, then in addition to all other rights provided herein Landlord shall have the right, but not the obligation, at its sole election (but not as its exclusive remedy), to perform or observe the covenants, agreements, or obligations which are asserted to have not been performed or observed, at the expense of Tenant and to recover all costs or expenses incurred in connection therewith, together with interest thereon at Landlord's Prime Rate from the date expended until repaid. Any performance or observance by Landlord pursuant to this Section 11.03 shall not constitute a waiver of Tenant's failure to perform or observe. 12 ARTICLE 12 ---------- ASSIGNMENT AND SUBLETTING ------------------------- Section 12.01. Assignment or Subletting by Tenant. Tenant shall not have ---------------------------------- the right to assign, sublet or transfer any or all of its rights and privileges under this Agreement, without the prior written consent of Landlord, which shall not be unreasonably withheld, except that Tenant may assign this Agreement to any purchaser of Tenant's methanol plant as a going concern. ARTICLE 13 ---------- SURRENDER OF DEMISED PREMISES UPON TERMINATION OF LEASE ------------------------------------------------------- Tenant covenants and agrees that, upon the termination of this Agreement by lapse of time or otherwise, it will, if Landlord has not exercised it Option to purchase the Improvements, remove the Improvements to the extent and in the manner required under Section 5.01, above, and will surrender, yield up, and deliver the Premises to Landlord. ARTICLE 14 ---------- QUIET ENJOYMENT --------------- Section 14.01. Quiet Enjoyment. Landlord covenants that Tenant, on paying --------------- the Rent and performing and observing all of the covenants and agreements herein contained and provided to be performed by Tenant, shall and may peaceably and quietly have, hold, occupy, use, and enjoy the Premises during the Term and may exercise all of its rights hereunder; and Landlord agrees to warrant and forever defend Tenant's right to such occupancy, use, and enjoyment and the title to the Premises against the claims of any and all persons whomsoever lawfully claiming the same, or any part thereof subject only to the provisions of this Agreement. ARTICLE 15 ---------- MISCELLANEOUS ------------- Section 15.01. Notices. Any notice, request, demand, consent, approval, ------- or other communication required or permitted under this Agreement must be in writing and will be deemed to have been given when personally delivered, sent by facsimile with receipt acknowledged, deposited with any nationally recognized overnight carrier that routinely issues receipts, or deposited in any depository regularly maintained by the United States Postal Service, postage prepaid, certified mail, return receipt requested, addressed to the party for whom it is intended at the addresses set forth below. Either Landlord or Tenant may add additional addresses or change its address for purposes of 13 receipt of any such communication by giving ten (10) days' prior written notice of such change to the other party in the manner prescribed in this Section. To Landlord: Borden Chemical, Inc. 180 East Broad Street Columbus, Ohio 43215 Attn: Edward Huller, Vice President To Tenant: Borden Chemicals and Plastics Operating Limited Partnership Highways 73 and 30 Geismar, Louisiana 70734 Attn: M.D. Owens, VP-Manufacturing Section 15.02. Modification and Non-Waiver. No variations, modifications, ---------------------------- or changes herein or hereof shall be binding upon any party hereto unless set forth in writing executed by it or by a duly authorized officer or agent. No waiver by either party of any breach or default of any term, condition, or provision hereof, including without limitation the acceptance by Landlord of any monies at any time or in any manner other than as herein provided, shall be deemed a waiver of any other or subsequent breaches or defaults of any kind, character, or description under any circumstance. No waiver of any breach or default of any term, condition, or provision hereof shall be implied from any action of any party, and any such waiver, to be effective, shall be set out in a written instrument signed by the waiving party. Section 15.03. Governing Law. This Agreement shall be construed and ------------- enforced in accordance with the laws of the State of Louisiana. Section 15.04. Number and Gender; Captions; References. Pronouns, --------------------------------------- wherever used herein, and of whatever gender, shall include natural persons and corporations and associations of every kind and character, and the singular shall include the plural wherever and as often as may be appropriate. Article and section headings in this Agreement are for convenience of reference and shall not affect the construction or interpretation of this Agreement. Whenever the terms "hereof", "hereby", "herein", or words of similar import are used in this Agreement they shall be construed as referring to this Agreement in its entirety rather than to a particular section or provision, unless the context specifically indicates to the contrary. Any reference to a particular "Article" or "Section" shall be construed as referring to the indicated article or section of this Agreement. Section 15.05. Estoppel Certificate. Landlord and Tenant shall execute -------------------- and deliver to each other, promptly upon any request therefor by the other party, a certificate stating: (a) whether or not this Agreement is in full force and effect; (b) whether or not this Agreement has been modified or amended in any respect, and submitting copies of such modifications or amendments; 14 (c) whether or not there are any existing defaults hereunder known to the party executing the certificate, and specifying the nature thereof; (d) whether or not any particular Article, Section, or provision of this Agreement has been complied with; and (e) such other matters as may be reasonably requested by either party. Section 15.06. Severability. If any provision of this Agreement or the ------------ application thereof to any person or circumstance shall, at any time or to any extent, be invalid or unenforceable, and the basis of the bargain between the parties hereto is not destroyed or rendered ineffective thereby, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby. Section 15.07. Attorneys' Fees. If litigation is ever instituted by --------------- either party hereto to enforce, or to seek damages for the breach of, any provision hereof, the prevailing party therein shall be promptly reimbursed by the other party for all reasonable attorneys' fees, court costs and related costs incurred by the prevailing party. Section 15.08. Entireties. This Agreement and all exhibits attached ---------- hereto constitute the entire agreement of the parties hereto with respect to its subject matter, and all prior agreements with respect thereto are merged herein. Any agreements entered into between Landlord and Tenant of even date herewith are not, however, merged herein. Section 15.09. Successors and Assigns. This Agreement shall constitute a ---------------------- real right and covenant running with the Premises, and, this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Whenever a reference is made herein to either party, such reference shall include the party's successors and assigns, if any. Section 15.10. Survival. Any terms and provisions of this Agreement -------- pertaining to rights, duties, or liabilities extending beyond the expiration or termination of this Agreement shall survive the end of the Term. Section 15.11. Relationship of the Parties. Nothing contained in this --------------------------- Agreement shall be construed by the parties hereto, or by any third party, as constituting the parties as principal and agent, partners or joint venturers, nor shall anything herein render either party liable for the debts or obligations of any other party, it being understood and agreed that the only relationship between Landlord and Tenant hereunder is that of landlord and tenant. Section 15.12. No Waiver. No failure by either party to insist upon --------- strict performance of any agreement, covenant, or term of this Agreement or to exercise any right or remedy granted to such party upon a breach hereof and no acceptance of any Rent by Landlord during the continuance of any such breach shall constitute a waiver of 15 any such breach. No obligation of the Landlord and/or Tenant shall be deemed waived or modified except by written instrument. If Landlord and/or Tenant shall waive any particular breach, condition or covenant of this Agreement, such waiver shall be limited to such breach, covenant or condition and shall not be construed as a waiver in the future of the same or different breach, covenant or condition. Section 15.13. No Accord and Satisfaction. No payment by Tenant, or -------------------------- acceptance by Landlord of an amount which is less than the amount due from Tenant to Landlord, shall be treated otherwise than as a payment on account. The acceptance by Landlord of a check for a lesser amount with an endorsement or statement thereon or upon any letter accompanying such check, that such lesser amount is payment in full, shall be given no effect, and Landlord may accept such check without prejudice to any other rights or remedies which Landlord may have against Tenant. Section 15.14. Waiver of Jury Trial. Landlord and Tenant waive trial by -------------------- jury in any action, proceeding, or counterclaim brought by either of the parties to this Agreement against the other on any matters whatsoever arising out of or in any way connected with this Agreement, the relationship of the Landlord and Tenant, Tenant's use or occupancy of the Premises, or any other claims, and any emergency statutory or any other statutory remedy. Section 15.15. Recording. Landlord acknowledges that Tenant may promptly --------- record and from time to time re-record a short form memorandum of this Agreement with the Clerk and Recorder of Ascension Parish, at Tenant's sole cost and expense. Section 15.16. No Construction Against Drafting Party. Landlord and -------------------------------------- Tenant acknowledge that each of them and their counsel have had an opportunity to review this Agreement and therefore, in case of any ambiguity, shall be no construction of the ambiguous provision against either party hereto. Section 15.17. Force Majeure. If Landlord or Tenant is delayed or ------------- prevented from performing any of their obligations under this Agreement by reason of strike or labor troubles or any cause whatsoever beyond either party's control, the period of such delay or such prevention shall be deemed added to the time herein provided for the performance of any such obligation by Landlord or Tenant. Section 15.18. Brokerage. Landlord and Tenant hereby represent and --------- warrant to the other that there have been no brokers involved on their behalf in the consummation of this Agreement, and each party hereby indemnifies and agrees to hold the other harmless from and against any and all claims for brokerage commissions arising out of any breach of such representation. Section 15.19. Law Between the Parties. This Agreement shall constitute ----------------------- the law between the parties, and if any provision of this Agreement is in conflict with the provisions of "Title IX - Of Lease" of the Louisiana Civil Code, Articles 2669 through 2777, inclusive, the provisions of this Agreement shall control. 16 Section 15.20. Rules of Interpretation. The following rules shall apply ----------------------- to the construction of this Agreement unless the context requires otherwise: (a) the singular includes the plural and the plural includes the singular; (b) words importing any gender include the other genders; (c) references to statutes are to be construed as including all statutory provisions consolidating, amending or replacing the statute to which reference is made and all regulations promulgated pursuant to such statutes; (d) references to "writing" include printing, photocopy, typing, lithography and other means of reproducing words in a tangible visible form; (e) the words "including", "includes" and "include" shall be deemed to be followed by words "without limitation"; (f) references to the introductory paragraph, preliminary statements, articles, sections (or subdivision of sections), exhibits, appendices, annexes or schedules are to those of this Agreement unless otherwise indicated; (g) references to agreements and other contractual instruments shall be deemed to include all subsequent amendments and other modifications to such instruments; (h) references to persons include their respective successors and assigns to the extent successors or assigns are permitted or not prohibited by the terms of this Agreement; (i) any accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles; (j) "or" is not exclusive; (k) provisions apply to successive events and transactions; (l) references to documents or agreements which have been terminated or released or which have expired shall be of no force and effect after such termination, release, or expiration; (m) references to mail shall be deemed to refer to first-class mail, postage prepaid, unless another type of mail is specified; (n) all references to time shall be to Baton Rouge, Louisiana time; (o) references to specific persons, positions, or officers shall include those who or which succeed to or perform their respective functions, duties, or responsibilities; and (p) the terms "herein", "hereunder", "hereby", "hereof," and any similar terms refer to this Agreement as a whole and not to any particular articles, section or subdivision hereof. 17 This Agreement was executed by Landlord as of the day and year first set forth above. Witnesses: Landlord: BORDEN CHEMICAL, INC., a Delaware corporation ______________________________ By: ___________________________________ ______________________________ Its: ___________________________________ ___________________________________ Notary Public 18 This Agreement was executed by Tenant as of the day and year first set forth above. Witnesses: Tenant BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership By: BCP MANAGEMENT, INC., a Delaware corporation, its General Partner ______________________________ By: ___________________________________ ______________________________ Its: ___________________________________ ___________________________________ Notary Public 19 Exhibit A Leased Premises --------------- 20 Exhibit B Servitudes, Rights of Way, Encumbrances and Restrictions -------------------------------------------------------- The Reciprocal Servitude Agreement dated as of July 28, 2000 by and between Landlord and Tenant is hereby incorporated by reference. 21 EX-10.9 8 dex109.txt MUTUAL RELEASE DATED JULY 28, 2000 MUTUAL RELEASE AND TERMINATION AGREEMENT ---------------------------------------- This MUTUAL RELEASE AND TERMINATION AGREEMENT (this "Agreement") dated as of July 28, 2000 is made by and between Borden Chemicals and Plastics Operating Limited Partnership, a Delaware limited partnership ("Seller"), and Borden Chemical, Inc., a Delaware corporation ("Purchaser"). R E C I T A L S --------------- WHEREAS, Seller and Purchaser are parties to that certain Conveyance and Transfer Agreement dated as of June 27, 2000 (the "Conveyance Agreement"); WHEREAS, Seller and Purchaser are parties to that certain Formaldehyde Processing Agreement dated as of November 30, 1987, as amended (the "Formaldehyde Processing Agreement"); WHEREAS, Seller and Purchaser are parties to that certain Ammonia Purchase Agreement dated as of November 30, 1987, as amended (the "Ammonia Purchase Agreement"); WHEREAS, Seller and Purchaser are parties to that certain Urea Formaldehyde Concentrate Processing Agreement dated as of November 30, 1987, as amended (the "Urea Formaldehyde Concentrate Processing Agreement"); WHEREAS, Seller and Purchaser are parties to that certain Methanol Purchase Agreement dated as of November 30, 1987, as amended, and that certain Option Agreement dated as of December 23, 1998, extending the term thereof (collectively, the "Methanol Purchase Agreement"); and WHEREAS, as a mutual condition to their respective obligations under the Conveyance Agreement, Seller and Purchaser are required to enter into this Agreement in order to release each other from their respective liabilities, duties and obligations arising under the Formaldehyde Processing Agreement, Ammonia Purchase Agreement, Urea Formaldehyde Concentrate Processing Agreement and Methanol Purchase Agreement; NOW THEREFORE, in consideration of the covenants and agreements set forth in the Conveyance Agreement and in further consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows: Section 1. Termination of Agreements. --------- -------------------------- (a) Effective as of the date of this Agreement, the Formaldehyde Processing Agreement, Ammonia Purchase Agreement and Urea Formaldehyde Concentrate Processing Agreement are hereby terminated. (b) Effective as of December 31, 2000, the Methanol Purchase Agreement is hereby terminated. Section 2. Release by Seller. --------- ------------------ (a) Subject to payment of any outstanding amounts due to Seller under the following agreements, effective as of the date of this Agreement, Seller hereby releases Purchaser from all liabilities, duties and obligations arising under or relating to the Formaldehyde Processing Agreement, Ammonia Purchase Agreement and Urea Formaldehyde Concentrate Processing Agreement. (b) Subject to payment of any amounts due to Seller under the following agreement on or prior to December 31, 2000, effective as of December 31, 2000, Seller hereby releases Purchaser from all liabilities, duties and obligations arising under or relating to the Methanol Purchase Agreement. Section 3. Release by Purchaser. --------- -------------------- (a) Effective as of the date of this Agreement, Purchaser hereby releases Seller from all liabilities, duties and obligations arising under or relating to the Formaldehyde Processing Agreement, Ammonia Purchase Agreement and Urea Formaldehyde Concentrate Processing Agreement (other than any warranties of Seller with respect to the products delivered thereunder). (b) Effective as of December 31, 2000, Purchaser hereby releases Seller from all liabilities, duties and obligations arising under or relating to the Methanol Purchase Agreement (other than any warranties of Seller with respect to the products delivered thereunder). Section 4. Successors and Assigns. This Agreement and all the --------- ---------------------- provisions hereof shall be binding upon and inure to the benefit of the respective successors and permitted assigns of the parties hereto. Section 5. Entire Agreement. This Agreement constitutes the entire --------- ---------------- agreement between the parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect thereto. Section 6. Governing Law. This Agreement shall be governed by and --------- ------------- construed in accordance with the laws of the State of Ohio, without regard to the principles of conflicts of laws thereof. Section 7. Notices. All notices and other communications hereunder --------- ------- shall be in writing and shall be delivered to the persons and in the manner provided in the Conveyance Agreement. Section 8. Amendments. This Agreement may not be modified or --------- ---------- amended except by an agreement in writing signed by the parties. -2- Section 9. Title and Headings. Titles and headings to sections --------- ------------------ herein are inserted for convenience of reference only and are not intended to be part of or to affect the meaning or interpretation of this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the day and year first set forth above. BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP BCP Management, Inc., as General Partner By: ___________________________________ Its: ___________________________________ BORDEN CHEMICAL, INC. By: __________________________________ Its: __________________________________ -3- EX-10.10 9 dex1010.txt ACT OF DECLARATION OF SEPARATE OWNERSHIP ACT OF DECLARATION OF SEPARATE OWNERSHIP ---------------------------------------- On the 28th day of July, 2000, before the undersigned Notary Public, duly commissioned and qualified, and in the presence of the undersigned witnesses, personally appeared, BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership (Tax ID #31-1265500), authorized to do business in the State of Louisiana, whose limited partnership agreement is on file and of record with the Louisiana Secretary of State, herein represented by BCP MANAGEMENT, INC., a Delaware corporation, its duly authorized General Partner, authorized to transact business in the State of Louisiana, herein represented by its duly authorized undersigned officer, acting pursuant to a corporate resolution, a copy of which is attached hereto, whose mailing address is declared to be Highways 73 and 30, Geismar, Louisiana 70734, hereinafter called Appearer, who declared and acknowledged that it is the owner of that leasehold estate created by the Ground Lease Agreement (the "Ground Lease") by and between BORDEN CHEMICAL, INC., a Delaware corporation (Tax ID #51-0370356), as Landlord, and Appearer, as Tenant, dated the date hereof, a Memorandum of Lease having been filed of record in the Conveyance Records of Ascension Parish, Louisiana, affecting property more fully described on Exhibit "A" which is attached hereto and made part hereof. Appearer declares that pursuant to the Ground Lease, it did agree with the Landlord to own, possess, operate and maintain certain of the buildings, improvements, machinery, and equipment located on the land, and other component parts of the land covered by the Ground Lease as fully described and listed on Exhibit "B" which is attached hereto and made a part hereof ("Improvements"). Appearer hereby declares that all such Improvements, which are permanently attached to the land which is the subject of the Ground Lease belong to and are so owned by the Appearer, as separate immovable property all in accordance with Article 491 of the Revised Civil Code of the State of Louisiana. NOW INTERVENES, BORDEN CHEMICAL, INC., a Delaware corporation, appearing herein through its undersigned representative, who hereby acknowledges that the Improvements now located on the land covered by the Ground Lease and which are permanently attached to the land which is leased under the Ground Lease belong to and are owned by the Appearer, as its separate immovable property in accordance with Article 491 of the Revised Civil Code of the State of Louisiana. This act has been signed by Appearer in ___________, ________________, as of the day and year first set forth above, in the presence of the undersigned Notary and witnesses. Witnesses: Appearer: ___________________________ BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership ___________________________ By: BCP MANAGEMENT, INC., a Delaware corporation, its General Partner By:____________________________________ Its:___________________________________ ___________________________________ Notary Public 2 This act has been signed by Intervenor in _______________, ____________ as of the day and year first set forth above, in the presence of the undersigned Notary and witnesses. Witnesses: Intervenor: ___________________________ BORDEN CHEMICAL, INC, a Delaware corporation ___________________________ By:__________________________________ Its:_________________________________ ___________________________________ Notary Public 3 EXHIBIT A PROPERTY DESCRIPTION 4 EXHIBIT B DESCRIPTION OF IMPROVEMENTS 5 EX-10.40 10 dex1040.txt AMENDED AND RESTATED EXHIBIT 10.40 UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE IN RE: ) ) Jointly Administered BORDEN CHEMICALS AND PLASTICS OPERATING ) LIMITED PARTNERSHIP, a Delaware limited ) Case. No. 01-1268 (MFW) partnership, et al. ) -- -- ) Chapter 11 ) Debtors. AMENDED AGREED INTERIM AND PROPOSED FINAL ORDER AUTHORIZING DEBTOR: (A) TO USE CASH COLLATERAL; (B) TO INCUR POSTPETITION DEBT; AND (C) TO GRANT ADEQUATE PROTECTION AND PROVIDE SECURITY TO FLEET CAPITAL CORPORATION, AS AGENT ------------------------------------------------------- This matter came before this Court on the motion (the "Motion") of debtor Borden Chemicals and Plastics Operating Limited Partnership (the "Debtor"), requesting that this Court enter an order: (1) authorizing the Debtor to use certain cash collateral; (2) authorizing the Debtor to incur Postpetition Debt (as defined herein); and (3) granting certain liens and other relief to Fleet Capital Corporation, as agent for the Lenders (defined herein) (the "Agent"). Unless otherwise indicated, the following terms in this Order shall have the meanings set forth below. Other capitalized terms used in this Order have the meanings set forth for such terms in the Loan Agreement (as defined below). 1. Aggregate Collateral. Collectively, the Prepetition Collateral and the -------------------- Postpetition Collateral. 2. Aggregate Liens. Collectively, the Prepetition Liens, the Replacement --------------- Liens, and the Postpetition Liens. 3. Allowable 506(b) Amounts. All fees, costs, expenses, interest and other ------------------------ charges due or coming due under the Prepetition Documents with respect to the Prepetition Debt (regardless of whether such fees, costs, interest and other charges are included in the Budget) to the extent allowable under Code (S) 506(b), including, without limitation, all reasonable out-of-pocket filing and recording fees, attorneys' and paralegals' fees and expenses, external and internal audit fees and expenses, closing fees, unused facility fees, letter of credit fees, and all other costs and expenses incurred by Agent and the Lenders under the Prepetition Documents with respect to the Prepetition Debt, including such fees, costs and charges incurred in connection with: (a) the negotiation, preparation and submission of this Order and any other order or document related hereto; and (b) the representation of the Agent and the Lenders in and in connection with the Case. 4. Allowed Claim. Any claim, as that term is defined in Code (S) 101, for ------------- which a proof of claim was timely and properly filed, or which has been or hereafter is listed by the Debtor on its schedules as liquidated in amount and not disputed or contingent, provided that: (a) no objection to the allowance of the claim is timely interposed; or (b) if any objection to the allowance of the claim is timely interposed, the claim has been allowed. 5. Appraisal. The report of the appraiser retained by the Agent that will --------- provide an in place valuation of, and orderly liquidation value for, the Debtor's facilities in Geismar, Louisiana, Addis, Louisiana and Illiopolis, Illinois. 6. Budget. The budget attached to this Order as Exhibit A, including and ------ allowing for the Permitted Variances. 7. Capex Payments. Payments made by the Debtor or its subsidiaries on -------------- account of capital expenditures in accordance with generally accepted accounting principles provided that the cumulative capital expenditures from the Filing Date to the dates listed below do not exceed the amounts listed below for such dates: April 30, 2001 $800,000 May 31, 2001 $1,600,000 June 30, 2001 $2,400,000 July 31, 2001 $3,500,000 August 31, 2001 $4,600,000 September 30, 2001 $5,700,000 October 31, 2001 $6,800,000 November 30, 2001 $7,900,000 December 31, 2001 $9,000,000 8. Carveout. The carveout for professional fees of the estate set forth in -------- Paragraph 4(c) of this Order. 9. Case. This chapter 11 case or any superseding chapter 7 case of the ---- Debtor. 10. Cash Collateral. All "cash collateral," as that term is defined in Code --------------- (S) 363(a), in which the Lenders have an interest, all deposits subject to setoff rights in favor of the Lenders, and all cash arising from the collection or other conversion to cash of the Aggregate Collateral, including, without limitation, from the sale of inventory and the collection of accounts receivable. To the extent any such cash collected or received is not -2- clearly identifiable as attributable to Prepetition Collateral or Postpetition Collateral, such cash shall be deemed to be proceeds of Prepetition Collateral. 11. Committee. Any official creditors' committee appointed to represent --------- unsecured creditors in this Case pursuant to Code (S) 1102. 12. Cure Period. (a) With respect to the occurrence of an Event of Default ----------- (a) through (d), none; and (b) with respect to any other Event of Default, three business days following the receipt of Agent's written notice to the Debtor, the United States Trustee, and the Committee, via facsimile or overnight mail, of the occurrence of such Event of Default. 13. Event of Default. Any one or more of the following: (a) the Debtor ---------------- commits any Event of Default as such term is defined in Section 10 of the Loan Agreement (as modified by this Order and with the exception of Sections 10.1.2 and 10.1.8); provided that (1) it will not be an Event of Default under this Order if the Event of Default occurring under the Loan Agreement occurred prior to the Filing Date or is the result of an event that occurred on or prior to the Filing Date; and (2) no Event of Default will occur under this Order as a result of the Debtor's bankruptcy filing or the resulting requirements or provisions of the Code; (b) any representation or warranty made by the Debtor in any certificate, report or financial statement delivered to the Agent after the Filing Date proves to have been false or misleading in any material respect as of the time when made or given (including by omission of material information necessary to make such representation, warranty or statement not misleading); (c) this chapter 11 case is converted to a case under chapter 7 of the Code; (d) a Trustee is appointed or elected in this Case, or an examiner with the power to operate the Debtor's business is appointed in this Case, and (e) the Debtor fails to perform any of its other obligations in accordance with the terms of this Order or the Budget. 14. Filing Date. April 3, 2001. ----------- 15. Final Hearing. The final hearing on the Motion conducted in accordance ------------- with Fed. R. Bankr. P. 4001. 16. First Priority Liens. Liens which are first priority, properly -------------------- perfected, valid and enforceable security interests, which are not subject to any claims, defenses, or setoffs, and which are otherwise unavoidable under any provisions of the Code. 17. Lenders. The financial institutions party to the Loan Agreement ------- (defined therein as "Lenders"), which are extending Postpetition Debt to the Debtor. 18. Loan Agreement. That certain Loan and Security Agreement, dated as of -------------- March 31, 2000, by Borden Chemicals and Plastics Operating Limited Partnership, Agent, and the Lenders, as amended prior to the Filing Date. 19. Net Cash Flow. The difference between (1) Receipts Less Production ------------- Payments, and (2) SG&A Payments. -3- 20. Overadvance. The least of: (a) $35,000,000; (b) 35% of the liquidation ----------- value in place of the Debtor's facilities in Geismar, Louisiana, Addis, Louisiana and Illiopolis, Illinois, as determined by the Appraisal; and (c) 80% of the orderly liquidation value as determined by the Appraisal; provided, that -------- the percentages contained in clauses (b) and (c) herein shall be reduced by 1% on the first day of each calendar month, beginning with May 1, 2001; provided -------- further, however, until such time as the Appraisal is completed, and a copy of - ------- ------- the Appraisal is provided to the Agent, the Overadvance shall not exceed $25,000,000. 21. Permitted Liens. Liens in favor of third parties upon any of the --------------- Aggregate Collateral with priority over the Lenders' security interests in the Prepetition Collateral, which third-party liens were (i) non-avoidable, valid, properly perfected and enforceable as of the Filing Date, or (ii) existed prior to the Filing Date and become non-avoidable, valid, properly perfected and enforceable after the Filing Date pursuant to Section 546(b) of the Code. 22. Permitted Variances. The amount by which the actual Receipts Less ------------------- Production Payments, SG&A Payments and Net Cash Flow may differ adversely from the respective amounts included in the Budget, provided that the calculation of Permitted Variances is performed on a "trailing" 4 week basis (i.e. the sum of the cash flows for the 4 prior weeks) and the calculation is performed for the period from Filing Date to April 28, 2001 and weekly thereafter. The Permitted Variance shall be calculated as follows: (a) Receipts less Production Payments: the greater of $500,000 or 20% of the budgeted Receipts less Production Payments, (b) SG&A Payments: 20% of the budgeted SG&A Payments, (c) Net Cash Flow: the greater of $500,000 or 10% of Net Cash Flow. There shall be no Permitted Variances for Capex Payments or Professionals' Fee Payments which, instead, shall be subject to the Budget and the cumulative limits set forth in and calculated pursuant to the definitions of Capex Payments and Professionals' Fee Payments. 23. Positive Borrowing Availability. The amount of positive borrowing ------------------------------- availability under the collateral advance formulas set forth in Section 1.1.1 of the Loan Agreement, plus the Overadvance; provided, (a) the portion of clause ---- -------- (ii) of the definition of Borrowing Base which adds to the Borrowing Base the lesser of $17,000,000 and 5% of "Consolidated Net Tangible Assets" (as defined in the Indenture referred to on Exhibit 8.2.3 of the Loan Agreement) is eliminated, (b) the $10,000,000 Availability restriction contained in Sections 8.3 and 9.4 of the Loan Agreement is eliminated, and (c) the portion of clause (ii) of the definition of Borrowing Base which adds to the Borrowing Base 65% of the net amount of Eligible Inventory exclusive of "caustic," "additive" and "solvent" inventories and 50% of the net amount of Eligible Inventory consisting of "caustic," "additive" and "solvent" inventories shall be limited to the lesser of the amount calculated by such provision and $40,000,000; provided, -------- however, that the Postpetition Collateral and the Lender's applications of Cash - ------- Collateral to the Prepetition Debt and the Postpetition Debt pursuant to Paragraph 5(d) of this Order shall be included in the calculations of such positive borrowing availability. Notwithstanding the foregoing, (1) the Lenders shall have the rights to establish reserves against such availability pursuant to the terms of the Loan Agreement and a reserve -4- for the Carveout and accrued but unpaid professional fees, and (2) the Agent, with the written consent of the Lenders, shall have the right to increase Positive Borrowing Availability hereunder from time to time, on such terms as it deems appropriate, without the need for further Court hearing. 24. Postpetition Charges. All fees, costs, expenses, interest and other -------------------- charges due or coming due in connection with the Postpetition Debt (regardless of whether such fees, costs, interest and other charges are included in the Budget), including, without limitation, all reasonable out-of-pocket filing and recording fees, attorneys' fees and paralegals' fees and expenses, external and internal audit fees and expenses, closing fees, unused facility fees, letter of credit fees, and all other costs and expenses incurred by the Agent in connection with the Postpetition Debt including without limitation the $1,000,000 facility fee payable to the Agent on behalf of the Lenders upon entry of this Order, the $333,000 structuring fee payable to the Agent upon entry of this Order, the $500,000 success fee payable to the Agent on behalf of the Lenders upon the Termination Date or the date on which all Prepetition and Postpetition Debt owing to the Agent and the Lenders is indefensibly paid in full, the $30,000 initial administrative fee payable to the Agent upon entry of this Order and the $20,000 monthly administrative fee payable to the Agent on the first business day of each successive calendar month, which amounts shall compensate the Agent and the Lenders for all financial accommodations made hereunder. In the event the aggregate amount of Prepetition Debt and Postpetition Debt available to the Debtor increases above $100,000,000 pursuant to Paragraph 3(a) of this Order: (a) the $1,000,000 facility fee payable to the Agent on behalf of the Lenders shall increase by the amount of 1% of the increase in the maximum loans available to the Debtor above $100,000,000, and (b) the $333,000 structuring fee payable to the Agent shall increase by the amount of 0.33% of the increase in the maximum loans available to the Debtor above $100,000,000; and the balance of such increased facility fee and structuring fee shall be immediately due and payable. 25. Postpetition Collateral. All of the real and personal property of the ----------------------- Debtor of any description whatsoever, wherever located and whenever arising or acquired, including, without limitation, all cash, accounts, inventory, equipment, fixtures, chattel paper, and general intangibles (excluding claims and recoveries under Code (S)(S) 544, 547, 548, 549, 550 and 553), and all proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any of the foregoing. 26. Postpetition Debt. (a) All indebtedness or obligations of the Debtor to ----------------- the Agent and the Lenders incurred on or after the Filing Date pursuant to this Order or a final order with respect to the Motion (the "Final Order"), including any advances made by the Lenders to pay Allowable 506(b) Amounts, plus (b) the Postpetition Charges. 27. Postpetition Documents. (a) The Loan Agreement, as modified by this ---------------------- Order or the Final Order; (b) the Loan Documents (as that term is defined in the Loan Agreement), as modified by this Order or the Final Order; and (c) this Order, the Final Order, and any financing orders entered by the Court modifying or supplementing such orders. -5- 28. Postpetition Liens. First Priority Liens in the Aggregate Collateral ------------------ granted to the Agent for the benefit of the Lenders pursuant to this Order and the Final Order, subject only to: (a) Permitted Liens; (b) the Carveout; and (c) the claim of the United States Trustee for the payment of fees under 28 U.S.C.(S) 1930 and the fees of the Clerk of the Court (the "UST and Clerk Fees"), which liens are and shall be in addition to the Prepetition Liens, are and shall be, pursuant to Code(S) 364(d), senior to the Prepetition Liens and the Replacement Liens without any further action by the Debtor, the Agent or the Lenders and without the execution, filing or recordation of any financing statements, security agreements, mortgages or other documents or instruments. 29. Prepetition Collateral. All of the Collateral (as that term is defined ---------------------- in the Loan Agreement) existing as of the Filing Date, and all proceeds and products thereof. 30. Prepetition Debt. (a) All indebtedness or obligations under the ---------------- Prepetition Documents as of the Filing Date, including all fees, interest, and expenses (including the LC Amount of $2,500,000, which amount was cash collateralized prior to the Filing Date), plus (b) all Allowable 506(b) Amounts. 31. Prepetition Documents. The Loan Agreement and the Loan Documents (as --------------------- that term is defined in the Loan Agreement). 32. Prepetition Liens. The Agent's asserted security interests in the ----------------- Prepetition Collateral under the Prepetition Documents, subject to: (a) the Postpetition Liens; (b) Permitted Liens; (c) the Carveout; and (d) the UST and Clerk Fees. 33. Professionals' Fee Payments. Payments made by the Debtor or its --------------------------- subsidiaries to non-ordinary course professionals retained pursuant to Section 327 or 1103 of the Code, subject to approval by the Court, provided cumulative Professionals' Fee Payments (excluding amounts paid subsequent to and in connection with a sale of all or substantially of the Debtors' assets) from the Filing Date to the following dates do not exceed the cumulative amounts listed for such dates --- (a) to June 30, 2001, $2.5 million; (b) to September 30, 2001, $4.0 million, and (c) to December 31, 2001, $5.0 million. No Professionals' Fee Payments may be used to prosecute, as opposed to investigate whether to bring, an Avoidance Action (as defined herein) 34. Replacement Liens. First Priority Liens in the Postpetition Collateral ------------------ granted to the Agent for the benefit of the Lenders pursuant to this Order and the Final Order, subject only to: (a) the Postpetition Liens; (b) Permitted Liens; (c) the Carveout; and (d) the UST and Clerk Fees. 35. Receipts Less Production Payments. Cash received by the Debtor or its --------------------------------- subsidiaries (in the ordinary course of business and excluding any sale of assets outside the ordinary course of business) less payments made by the Debtor to suppliers of materials used in its production facilities and payments to other vendors or employees providing services in connection with such production including, but not limited to, amounts in relation to the transportation of raw materials or finished goods. -6- 36. Requisite Lenders. As of any date, Lenders holding 66.66% or more of ----------------- the aggregate Prepetition Debt and Postpetition Debt. 37. SG&A Payments. Payments made by the Debtor or its subsidiaries on ------------- account of selling, general and administrative expenses incurred, including for the purposes of this definition, amounts paid on account of Postpetition Charges, other interest charges and tax liabilities of the Debtor. 38. Termination Date. The earliest to occur of: (a) the later of (1) the ---------------- date on which the written notice to the Debtor, the United States Trustee, and the Committee of the occurrence of an Event of Default is received from the Agent via facsimile or overnight mail, and (2) if any Cure Period is applicable with respect to such Event of Default, the expiration of such Cure Period (provided that the Debtor may cure such Event of Default within any such Cure Period, and the Agent may seek to terminate this Order prior to the expiration of any such Cure Period); (b) if this Order is modified at the Final Hearing in a manner unacceptable to the Lenders, the date of the Final Hearing; and (c) December 28, 2001. 39. Trustee. Any trustee appointed or elected in the Case. ------- Having examined the Motion, being fully advised of the relevant facts and circumstances surrounding the Motion and having completed a preliminary hearing pursuant to Code (S)(S) 363 and 3641 and Fed. R. Bankr. P. 4001(b) and (c)(2), BASED UPON THE RECORD AT THE PRELIMINARY HEARING, IT APPEARS TO THE COURT THAT: A. On the Filing Date, the Debtor filed a voluntary petition for relief under chapter 11 of the Code. The Debtor has retained possession of its property and continues to operate its business as a debtor in possession pursuant to Code (S)(S) 1107 and 1108. B. The Debtor has stipulated and represented to the Court that: (1) the Prepetition Debt, the Prepetition Liens and the prepetition financing relationship between the Debtor, the Agent and the Lenders is evidenced and governed by the Prepetition Documents; (2) as of the Filing Date, the Prepetition Debt was, at least $84 million; (3) the payment of all of the Prepetition Debt is secured by, among other things, the Prepetition Liens; and (4) the Prepetition Liens are First Priority Liens, subject to Permitted Liens. C. Upon the entry of this Order, the Lenders' interests in the Prepetition Collateral will be adequately protected, without prejudice to the Agent's right to later assert _____________________________ 1 Unless otherwise indicated, all section references are to the Bankruptcy Code, 11 U.S.C.(S)(S) 101 et. seq. -- --- -7- that the Lenders' interest in the Aggregate Collateral lacks adequate protection, and (2) as of the Filing Date, including for purposes of Code (S) 506(b) and (S) 507(b), the liquidation value of the Prepetition Collateral was not less than $100 million, without prejudice to the parties' rights to later seek higher or lower valuations at a subsequent date. D. No Committee has been appointed in this Case. E. An immediate need exists for the Debtor to use Cash Collateral and to obtain Postpetition Debt in order to enable the Debtor to minimize disruption to and to avoid the termination of its business operations. Entry of this Order will also enhance the possibility of a successful reorganization. F. Pursuant to Code (S)(S) 364(a) and 364(b), the Debtor has attempted to obtain, but is unable to obtain, unsecured credit or unsecured credit allowable under Code (S) 503(b)(1). The terms of the Postpetition Debt have been negotiated in good faith and at arms' length, and the Postpetition Debt is being extended in good faith, as that term is used in Code (S) 364(e). G. In order to prevent immediate and irreparable harm to the estate pending the Final Hearing, the Debtor requires the use of Cash Collateral and Postpetition Debt to pay the expenses set forth in the Budget through the conclusion of such Final Hearing. H. Under the circumstances of the Case, the terms and conditions of this Order are a fair and reasonable response to the Debtor's request for the Lenders' consent to the use of Cash Collateral and for the Debtor's incurrence of Postpetition Debt, and the entry of this Order is in the best interests of the Debtor's estate and its creditors. I. The notice provided by the Debtor of the Motion, the hearing on the Motion, and the entry of this Order satisfy the requirements of Fed. R. Bankr. P. 4001 and were otherwise sufficient and appropriate under the circumstances. WHEREFORE, IT IS HEREBY ORDERED THAT: 1. Authorization to Use Cash Collateral. The Debtor is authorized to use ------------------------------------ Cash Collateral solely in accordance with and pursuant to the terms and provisions of this Order. Prior to the Termination Date and indefeasible payment in full of the Postpetition -8- Debt, the Debtor may not use or seek to use Cash Collateral other than pursuant to the terms of this Order. 2. Procedure for Use of Cash Collateral. ------------------------------------ (a) Delivery of Cash Collateral to Agent. The Debtor is authorized and ------------------------------------ directed to deposit all Cash Collateral now or hereafter in its possession or under its control into the existing lockbox/blocked account established by the Agent (or to otherwise deliver all such Cash Collateral to the Agent in a manner satisfactory to the Agent) promptly upon receipt thereof. Such Cash Collateral shall thereafter be applied by the Agent in accordance to Paragraph 5(d) of this Order. (b) Account Debtors. The Debtor may, without further order of court, be --------------- directed by the Agent to, or the Agent may directly, instruct all account debtors of existing and future accounts receivable included in the Aggregate Collateral to make payments directly into any blocked/lockbox account established by the Agent or such other accounts satisfactory to the Agent, in which event all such proceeds shall be treated in accordance with the provisions of this Order. (c) Cash Collateral in Agent's Possession. The Agent is authorized to ------------------------------------- collect upon, convert to cash and enforce checks, drafts, instruments and other forms of payment now or hereafter coming into its possession or under its control which constitute Aggregate Collateral or proceeds of Aggregate Collateral. 3. Authorization To Incur Postpetition Debt. ---------------------------------------- (a) Positive Borrowing Availability/Maximum Loans. If there is Positive --------------------------------------------- Borrowing Availability (after giving effect to outstanding Prepetition Debt and Postpetition Debt), the Debtor is authorized to incur Postpetition Debt, and the Lenders shall be required to provide the Debtor with Postpetition Debt pursuant to the terms of the Loan Agreement (as modified by this Order and the Final Order), to the extent of such remaining Positive Borrowing Availability. Notwithstanding the amount of Positive Borrowing Availability or anything to the contrary in this Order, the aggregate of Prepetition Debt and Postpetition Debt shall not at any time exceed $120,000,000; provided, however, that until such -------- ------- time as all Lenders agree in writing or the Agent obtains the agreement of one or more financial -9- institutions (in addition to the Lenders who were parties to the Loan Agreement prior to Filing Date), to extend additional Postpetition Debt to the Debtor pursuant to the terms of this Order and the Postpetition Documents, the aggregate of Prepetition Debt and Postpetition Debt shall not at any time exceed $100,000,000. (b) Budget. The Debtor is authorized to incur Postpetition Debt solely in ------ accordance with and pursuant to the terms and provisions of this Order and only to the extent required to pay those expenses listed in the Budget (including Permitted Variances) as and when such expenses become due and payable (including expenses of the Debtor's subsidiaries to the extent included in the Budget). Notwithstanding anything to the contrary in this Paragraph 3, however: (1) the Debtor is hereby authorized and directed to incur the Postpetition Debt at any time to pay Allowable 506(b) Amounts, the UST and Clerk Fees, and the Postpetition Charges, and (2) if the Lenders advance monies to the Debtor and the Debtor uses such monies other than in accordance with or pursuant to the terms or provisions of this Order, such advances shall be considered Postpetition Debt for purposes of this Order. (c) Superpriority Administrative Expense Status; Postpetition Liens. The --------------------------------------------------------------- Postpetition Debt is hereby granted superpriority administrative expense status under Code(S) 364(c)(1), with priority over all costs and expenses of administration of the Case that are incurred under any provision of the Code, but subject to the Carveout and the UST and Clerk Fees. In addition, the Agent and the Lenders are hereby granted the Postpetition Liens to secure the Postpetition Debt. The Postpetition Liens: (1) are and shall be in addition to the Prepetition Liens; (2) are and shall be, pursuant to Code(S) 364(d), senior to the Prepetition Liens and the Replacement Liens without any further action by the Debtor, the Agent or the Lenders and without the execution, filing or recordation of any financing statements, security agreements, mortgages or other documents or instruments; and (3) shall remain in full force and effect notwithstanding any subsequent conversion or dismissal of the Case. Notwithstanding the foregoing, the Debtor is authorized and directed to execute and deliver to the Agent such financing statements, mortgages, instruments and other documents as the Agent may deem necessary or reasonably desirable from time to time. -10- (d) Conditions Subsequent. Notwithstanding anything to the contrary --------------------- contained in this Order, the following shall be conditions to Debtor's continued authorization to incur Postpetition Debt: (i) On or before July 2, 2001, the Debtor shall have received bona fide but non-binding offers for the purchase of all or substantially all of the Debtor's assets; (ii) On or before July 30, 2001, the Debtor shall have received a bona fide binding offer to purchase all or substantially all of the Debtor's assets acceptable to the Agent and the Lenders; (iii) On or before August 15, 2001, the Debtor shall have filed a motion pursuant to Section 363 of the Code seeking the approval of a sale of all or substantially all of the Debtor's assets; and (iv) On or before September 28, 2001 the Debtor shall have closed a sale of all or substantially all of the Debtor's assets acceptable to the Agent and the Lenders, or the Prepetition and Postpetition Debt shall have been indefeasibly paid in full; provided, that the dates in this Paragraph 2(d) and clause (c) of the - -------- definition of Termination Date may be extended with the written consent of the Requisite Lenders and without further order of court. (e) Additional Terms of Postpetition Debt. (i) Letters of Credit. From and after the Filing Date no Letters of Credit shall be issued and no LC Guaranties shall be made by the Agent or the Lenders under the Loan Agreement or the Postpetition -11- Documents. The Letters of Credit and LC Guaranties outstanding as of the Filing Date shall remain outstanding until such time as they are drawn upon or expire in accordance with their respective terms. (ii) Notwithstanding anything to the contrary in the Loan Agreement, the Prepetition Documents or the Postpetition Documents, effective from March 15, 2001, interest on the principal amount of the Prepetition Debt outstanding at the end of each day (after the application of cash collateral in accordance with Paragraph 5(d) of this Order), shall accrue at a fluctuating rate per annum equal to (a) with respect to the Base Rate Portion of Prepetition Debt, 1.25% plus the Alternate Base Rate, and (b) with respect to the LIBOR Portion of the Prepetition Debt, 3.00% plus the LIBOR Rate. The Lenders otherwise waive their right to charge the Default Rate with respect to the Prepetition Debt. Notwithstanding the foregoing, and notwithstanding anything to the contrary in the Loan Agreement, the Prepetition Documents or the Postpetition Documents, the LIBOR Period for any Postpetition Debt shall not exceed one month, any Prepetition Debt consisting of LIBOR Portion may only be renewed as Base Rate Portion or as a LIBOR Portion with a LIBOR Period one month or less, and any Prepetition Debt consisting of Base Rate Portion may only be converted to a LIBOR Portion with a LIBOR Period of one month or less. All interest on the Prepetition Debt and the Postpetition Debt shall be paid by the Debtor pursuant to the terms of the Loan Agreement prior to an Event of Default. The Postpetition Debt shall: (1) bear interest at 1.25% plus the Alternate Base Rate -12- for the Base Rate Portion and 3.00% plus the LIBOR Rate for the LIBOR Portion; provided, that such LIBOR Portion shall have no LIBOR Periods in excess of one month; and (2) mature and be paid in full on the Termination Date. (iii) Sale Process Reporting. On Tuesday of each week, beginning with April 10, 2001, the Debtor shall provide the Agent with a report describing the steps the Debtor has taken to comply with Paragraph 3(d) of this Order, including any information or reports received from The Taylor Group. (iv) Disposition of Assets. Notwithstanding the terms of Section 8.2.9 of the Loan Agreement or any other provisions contained in the Prepetition Documents or the Postpetition Documents, or herein, the Debtor shall not dispose of any portion of its assets out of the ordinary course of business, whether pursuant to Codess. 363 or otherwise, without the Agent's written consent; provided that, notwithstanding the foregoing, so long as the net proceeds of such sale are applied as set forth in paragraph 3(e)(v), the Agent and the Lenders agree that the Debtor shall be permitted to sell or otherwise dispose of (a) the vacant real estate located adjacent to the Geismer, Louisiana facility within 90 days of entry of this Order, (b) the methanol plant that is a part of the Geismer Louisiana facility within 90 days of entry of this Order (together, the "Permitted Sales"), and/or (c) any ineligible Accounts due from Armstrong World Industries, Inc. (or any related entity) or any of the following Canadian entities or any affiliate thereof --- American Biltrite of -13- Canada, Ltd., Best Glove Manufacturing, Ltd., Plastique Reinier, Inc., and Stedfast, Inc. (the "Ineligible Accounts") sold for at least 85% of the uncollected amount of such Accounts . (v) Mandatory Repayment. All net proceeds (after costs, taxes, and satisfaction of Permitted Liens) received by the Debtor from a sale or disposition of assets (other than Ineligible Accounts) outside the ordinary course of business (consented to by the Agent if required by the immediately foregoing Paragraph 3(e)(iv)), in excess of the amount of Positive Borrowing Availability supported by Accounts and Inventory transferred as part of the non-ordinary course sale or disposition (the "Net Sales Proceeds"), will result in the permanent reduction in the Overadvance as follows: (A) if the Net Sales Proceeds exceed by two times the Lendable Value of the sale or disposition assets other than the Accounts and Inventory, the Overadvance shall be reduced by 50% of the Net Sales Proceeds; (B) if the Net Sales Proceeds exceed the Lendable Value of the sale or disposition assets other than Accounts and Inventory, but are less than two times the Lendable Value of the sale or disposition assets (other than the Accounts and Inventory), the Overadvance shall be reduced by the Lendable Value plus 50% of the amount in excess of the Lendable Value; and -14- (C) if the Net Sales Proceeds are less than or equal to the Lendable Value of the sale or disposition assets other than Accounts and Inventory, the Overadvance shall be reduced by the full amount of the Net Sales Proceeds; provided, that the "Lendable Value" for purposes of this Paragraph 3(e)(iv) shall be the lesser of 35% of the liquidation value in place or 80% of the orderly liquidation value of the assets being transferred in the sale or disposition, as determined in the Appraisal, and, provided, further, after making application of the proceeds and reducing the Overadvance as provided in this Paragraph 3(e)(v), the Overadvance shall not exceed the least of $35,000,000, 35% of the liquidation value in place, and 80% of the orderly liquidation value of the remaining assets, as determining by the Appraisal (subject to the amortization of such advance percentages in accordance with the definition of "Overadvance" in this Order). Notwithstanding anything in this Paragraph 3(e)(v) to the contrary, upon the consummation of the Permitted Sales and the application of the proceeds thereof, the Overadvance will be permanently reduced by an amount equal to 50% of the Net Sales Proceeds of the Permitted Sales. 4. Termination of Right to Use Cash Collateral And To Incur Postpetition --------------------------------------------------------------------- Debt. - ---- (a) Termination Date. Unless extended by the Court upon the written ---------------- agreement of the Agent, this Order and the Debtor's authorization to use Cash Collateral and incur Postpetition Debt pursuant to this Order will immediately terminate on the Termination Date. (b) Rights Upon Termination. On the Termination Date, the Agent and the ----------------------- Debtor shall be entitled to apply to this Court for all appropriate relief, upon such notice as -15- may be appropriate under the circumstances; provided, however, that: (1) the obligations of the Debtor and the rights of the Agent and the Lenders with respect to all transactions which have occurred prior to the Termination Date shall remain unimpaired and unaffected; and (2) the Agent, the Lenders and the Debtor shall retain all of their respective rights and remedies under the Code, including, without limitation, the Debtor's right, after paying the Postpetition Debt, including any Overadvance, in full, to request the continued use of Cash Collateral, and the Agent's right to oppose the Debtor's further use of Cash Collateral and to move for relief from the automatic stay. (c) Carveout. Notwithstanding anything to the contrary in this Order, the -------- Final Order, or any of the Prepetition Documents or the Postpetition Documents, or otherwise, should the Lenders' obligations to make loans or other financial accommodations under this Order or the Final Order terminate as a result of an Event of Default or the occurrence of the Termination Date, the Lenders agree that, notwithstanding the termination of such obligations, the Debtor may use the Agent's and the Lenders' cash collateral to pay, in addition to any accrued fees and expenses as of such date permitted by the Budget (a) any unpaid UST Fees and Clerk Fees as such fees are charged to the Debtors; and (b) unpaid fees and expenses allowed by the Bankruptcy Court of professionals or professional firms retained pursuant to Section 327 or 1103 of the Code, which professional fees and expenses do not exceed in the aggregate $1.0 million (the amount of all such professional fees and expenses being defined herein as the "Carveout"). The Agent's and the Lenders' liens on the Aggregate Collateral, and any claim or claims arising under Sections 364(c), 364(d), 506(b), or 507(b) of the Code, shall be subject and subordinate to the Carveout and the UST and Clerk Fees, and (B) the terms of this Paragraph 4(c) shall survive and not be affected by the termination of this Order or the Final Order, any default hereunder, the conversion or dismissal of this Chapter 11 case, the confirmation of a plan, or the appointment of any trustee. Notwithstanding the foregoing, no part of the Carveout may be used to prosecute, as opposed to investigate whether to bring, an Avoidance Action (as defined herein). 5. Adequate Protection of Interests of the Lenders in the Aggregate ------------------------------------------------------------------- Collateral and the Aggregate Liens. As adequate protection of the interests of the Lenders in the Prepetition Collateral and the Prepetition Liens: -16- (a) Priority of Prepetition Liens/Allowance of Lender's Claim. Subject to ---------------------------------------------------------- the reservation of rights set forth in Paragraph 7(a) of this Order: (1) the Prepetition Liens shall constitute First Priority Liens, subject to Permitted Liens, Postpetition Liens, Replacement Liens, the Carveout, and the UST and Clerk Fees; and (2) the Lenders' claim with respect to the Prepetition Debt shall constitute an Allowed Claim in an amount not less than $84 million. (b) Replacement Liens. The Agent and the Lenders are hereby granted the ----------------- Replacement Liens to secure Prepetition Debt in an amount equal to the decline (if any) in the value of the Agent's and the Lenders' interests in the Prepetition Collateral during the Case. The Replacement Liens: (1) are and shall be in addition to the Prepetition Liens; (2) are and shall be First Priority Liens that, subject to Permitted Liens, the Carveout, and the UST and Clerk Fees, are properly perfected, valid and enforceable without any further action by the Debtor or the Agent and without the execution, filing or recordation of any financing statements, security agreements, mortgages or other documents or instruments; and (3) shall remain in full force and effect notwithstanding any subsequent conversion or dismissal of the Case. Notwithstanding the foregoing, the Debtor is authorized and directed to execute and deliver to the Agent such financing statements, mortgages, instruments and other documents as the Agent may deem necessary or reasonably desirable from time to time. (c) Allowed Code(S)507(b) Claim. If and to the extent the adequate --------------------------- protection of the interests of the Agent and the Lenders in the Prepetition Collateral granted to the Agent and the Lenders pursuant to this Order proves insufficient, the Agent and the Lenders shall have an Allowed Claim under Code(S) 507(b) in the amount of any such insufficiency, with priority over: (1) all costs and expenses of administration of the Case (other than the Lenders' claim pursuant to Paragraph 3(c) of this Order) that are incurred under any provision of the Code, including, without limitation, Code (S)(S) 503(b), 506(c), 507(a), or 552(b); and (2) the claims of any other party in interest under Code (S) 507(b), but in each case, subject and subordinate to the Carveout and the UST and Clerk Fees. (d) Application of Cash Collateral. The Agent is authorized to apply all ------------------------------ Cash Collateral now or hereafter coming into the Agent's possession or control as follows: (1) first, to payment of Prepetition Debt consisting of Allowable 506(b) Amounts; (2) -17- second, to payment of other Prepetition Debt; (3) third, to payment of Postpetition Charges; and (4) fourth, to payment of other Postpetition Debt. All such applications to Prepetition Debt shall be final in nature, subject only to (1) the right of parties in interest to object to applications to Allowable 506(b) Amounts under and in accordance with Paragraph 6(a) of this Order; and (2) the reservation of rights set forth in Paragraph 7(a) of this Order. Notwithstanding anything to the contrary in this Order, should the Interim Order not become the Final Order (including any period of stay or appeal), the Agent and Lenders shall be required to return to the estate promptly upon request (a) the facility fee and structuring fee paid upon entry of the Interim Order, minus (b) 1.33% of the difference between (i) the highest principal amount outstanding under the Loan Agreement after the Filing Date and prior to termination of the Interim Order, and (ii) the principal amount outstanding under the Loan Agreement as of the Filing Date. (e) Prohibition Against Additional Debt. No order shall be entered in this ------------------------------------ case authorizing the Debtor to incur debt (other than the Carveout or the UST Fees) secured by a lien which is equal to or superior to the Aggregate Liens, or which is given superpriority administrative expense status under Code (S) 364(c)(1) equal to or superior to the superpriority administrative expense status granted to the Postpetition Debt, unless, in addition to the satisfaction of all requirements of Code(S) 364 for the incurrence of such debt: (a) the Agent and the Lenders have consented to such order; (b) there is no Postpetition Debt outstanding at the time of the entry of such an order; or (c) such credit or debt is used to immediately pay the Postpetition Debt in full. (f) No Consent to Surcharge. Nothing in this Order shall be deemed to ----------------------- constitute the Agent's and the Lenders' consent to any claim under Code (S) 506(c) asserted for the benefit of any party, and the Agent and the Lenders shall retain all rights to contest any such claims. (g) Waiver of Right to Return/Consent to Setoff. The Debtor hereby waives ------------------------------------------- its right: (1) to return any Prepetition Collateral or Postpetition Collateral pursuant to Bankruptcy Code(S) 546(g); or (2) to consent to setoff pursuant to Bankruptcy Code(S) 553. -18- 6. Miscellaneous Provisions. ------------------------- (a) Notice of and Objections to Allowable 506(b) Amounts. The Agent shall ---------------------------------------------------- provide the Debtor's counsel, counsel for any Committee, and the United States Trustee with copies of all invoices sent by the Agent's counsel to the Agent (edited to delete any attorney-client or other confidential information) with respect to the attorneys' fees and related costs and expenses asserted as Allowable 506(b) Amounts. Any such party may object to the reasonableness of any such fees, costs and expenses. However, any objection by any such party to any such fees, costs, or expenses shall be forever waived and barred unless, within thirty days of receipt of the invoice to which the objection relates: (1) the objection is filed with the Court and served upon the Agent; and (2) the objection describes with particularity the items or categories of fees, costs and expenses that are the subject of the objection and provides the specific basis of the objection to each such item or category of fees, costs and expenses. Any hearing on an objection to the fees, costs and expenses of the Agent set forth on any invoice shall be limited to the reasonableness or necessity of the particular items or categories of the fees, costs and expenses that are the subject of such objection. (b) Force and Effect of Prepetition Documents; Conflicts. Except as ----------------------------------------------------- modified herein, and subject to the other provisions of this Order and the Code, the Prepetition Documents, and the terms and provisions thereof, shall remain in full force and effect with respect to the Prepetition Debt. The Postpetition Debt shall be governed by the Postpetition Documents except where they conflict with the provisions of this Order, in which case the provisions of this Order shall prevail. In addition to the modifications otherwise contained in this Order, the Loan Agreement is further modified as follows: (1) Sections 2.7, 8.3, 9.2 (with respect to prepetition conduct) and 9.4 of the Loan Agreement are eliminated; (2) each representation and warranty set forth in Section 7 of the Loan Agreement is modified to take into account the events and circumstances that customarily occur as a result of the events leading up to and following the commencement of a proceeding under chapter 11 of the Code, or events that have occurred leading up to the commencement of the Case; (3) the reporting requirements of Sections 8.1.3(i) (with respect to the delivery of an unqualified annual audit), 8.1.3(iii) and 8.1.7 of the Loan Agreement are -19- eliminated; and (4) the conditions precedent set forth Sections 9.5 and 9.6 are modified to take into account the events and circumstances that customarily occur as a result of the events leading up to and following the commencement of a proceeding under chapter 11 of the Code, or events that have occurred leading up to the commencement of the Case. To the extent that any of the Prepetition Documents conflict with the provisions of this Order, the provisions of this Order shall prevail. (c) Modification of Stay. The automatic stay of Code (S) 362 is hereby -------------------- modified with respect to the Agent and the Lenders to the extent necessary to effectuate the provisions of this Order. (d) Financial Information; Insurance. The Debtor is hereby directed to -------------------------------- deliver to the Agent such financial and other information concerning the business and affairs of the Debtor and any of the Aggregate Collateral as may be required pursuant to the Prepetition Documents and such financial information and other information as the Agent shall reasonably request from time to time, including monthly information as to the Debtor's post-petition accrued, unpaid expenses, a daily borrowing base report in form and substance substantially identical to that provided immediately prior to the Filing Date, a weekly inventory estimate, information necessary to confirm that the Debtor is within the Budget and Permitted Variances, and weekly Budgets for any period subsequent to June 30, 2001 as soon as practicable but in no event later than 60 days prior to the commencement of such period. The Debtor is also directed to allow the Agent (and any consultant retained by the Agent) access to the premises for the purpose of enabling the Agent (or Agent's consultant) to inspect and audit the Aggregate Collateral and the Debtor's books and records. Such access for such purpose shall be permitted during normal business hours and upon forty-eight hours' notice or such shorter notice as may be provided in the Prepetition Documents; provided, however, that if the Agent alleges fraud or gross mismanagement, the Agent (or the Agent's consultant) shall be permitted access to the premises for such purpose at any time without notice. The Debtor is further directed to deliver to the Agent evidence, satisfactory to the Agent, that the Aggregate Collateral is insured for the full replacement value thereof, that all insurance policies required by the Prepetition Documents or obtained in connection with the Aggregate Collateral are maintained in full force and effect, and that the Agent is named as -20- loss payee on all such property insurance policies and named as additional insured on all such liability policies as its interests may appear. (e) No Waiver. Except to the extent expressly set forth in this Order, this --------- Order shall not constitute a waiver by the Agent or the Lenders of any of their rights under the Prepetition Documents, the Code or other applicable law, including, without limitation: (1) its right to later assert that, notwithstanding the terms and provisions of this Order, any of their interests in the Prepetition Collateral lack adequate protection within the meaning of Code(S)(S) 362(d) or 363(e); or (2) their right to later assert a claim under Code(S) 507. The Agent's failure, at any time or times hereafter, to require strict performance by the Debtor (or by any Trustee) of any provision of this Order shall not waive, affect or diminish any right of the Agent and the Lenders thereafter to demand strict compliance and performance therewith. No delay on the part of the Agent in the exercise of any right or remedy under this Order shall preclude any other or further exercise of any such right or remedy or the exercise of any other right or remedy. None of the rights or remedies of the Agent or the Lenders under this Order shall be deemed to have been suspended or waived by the Agent unless such suspension or waiver is in writing, signed by a duly authorized officer of the Agent, consented to in writing by the Lenders and directed to the Debtor specifying such suspension or waiver. 7. Binding Effect. -------------- (a) Stipulations and Findings; Reservation of Rights. The stipulations and ------------------------------------------------ findings contained in Paragraphs B and C of this Order shall be binding on all parties in interest in the Case and their respective successors and assigns, including, without limitation, any Trustee, subject only to the provisions of this Paragraph 7(a). Any party-in-interest shall have through 75 days from the entry of this Order, and the Committee shall have through 60 days from its formation (if later), to file an action in this Court (1) (i) challenging the validity, enforceability, extent or priority of the Prepetition Debt or the Lender's liens in the Prepetition Collateral, or (ii) otherwise asserting any claims or causes of action against the Lender arising out of prepetition activities, and (2) as a result, to the extent required by such actions, asserting that the payment of any Prepetition Debt authorized or directed by this Order should be reversed or reapplied (an "Avoidance Action"). Any Avoidance Action may -21- be filed in the name of the Debtor without further leave of Court. To the extent that a party-in-interest or the Committee ultimately prevails with respect to an Avoidance Action (whether initially, on appeal, or otherwise), to the extent required by such Avoidance Action, the Court shall grant any appropriate relief, including appropriate relief in respect of the payment of the Prepetition Debt. (b) Order. Except as provided in Paragraph 7(a) of this Order, this Order ----- shall be binding on all parties in interest in this Case and their respective successors and assigns, including, without limitation, any Trustee, except that any Trustee shall have the right to terminate this Order after notice and a hearing. If this Order never becomes a final and nonappealable order, if a Trustee terminates this Order, or if any or all of the provisions of this Order are hereafter modified, vacated or stayed by subsequent order of this Court or any other court, such termination or subsequent order shall not affect: (a) the priority, validity, enforceability or effectiveness of any lien, security interest, priority, or other benefit authorized hereby with respect to any Cash Collateral used or Postpetition Debt incurred prior to the effective date of such subsequent order (and all such liens, security interests, priorities and other benefits shall be governed in all respects by the original provisions of this Order); (b) the stipulations and findings contained in Paragraphs B and C of this Order; or (c) the validity, enforceability or effectiveness of the provisions of Paragraphs 5(d) or 5(f) of this Order. Except as otherwise explicitly set forth in this Order, no third parties are intended to be or shall be deemed to be third party beneficiaries of this Order. (c) Notice of Final Hearing. The Debtor shall, on or before April 9, 2001, ----------------------- serve by overnight mail copies of a notice of entry of this Order, together with a copy of this Order, to the Agent and each of the Lenders, the Agent's counsel at the address set forth at the end of this Order, counsel to the Committee, if any, when and if appointed, the twenty (20) largest unsecured creditors of the Debtor as set forth on schedules filed by the Debtor pursuant to Bankruptcy Rule 1007(d), the United States Trustee, any other persons which the Debtor knows are entitled to notice under Bankruptcy Rule 4001(b) as of such date, and any other party-in-interest for which counsel to the Debtor has received a written request in this case before 2:00 p.m. (EDT) on such date to receive such pleadings. The notice of entry of this Order shall state that any party-in-interest objecting to the entry of a final order on the -22- Motion shall file a written objection with the United States Bankruptcy Court Clerk for the District of Delaware no later than 10:00 a.m. (EDT) on April 18, 2001, which objection shall be served so that the same is received on or before 10:00 a.m. (EDT) on such date by the United States Trustee and counsel for the Debtor and counsel for the Agent set forth at the end of this Order (at each of the addresses set forth therein). If no written objection and request for final hearing on the Motion has been timely filed with this Court, and served upon and timely received by all parties entitled to notice thereof, this Order (together with any modifications approved by the Court) shall be deemed to be a final order at 5:00 p.m. (EDT) on such date, shall continue on a final basis and remain in full force and effect thereafter and shall constitute final authority for the provisions set forth herein, and any objection by any party-in-interest to the terms of this Order and the relief requested in the Motion shall be deemed forever waived. If an objection is timely filed, served and received, a final hearing shall be held on the Motion and objections thereto before this Court on April 18, 2001 at 2:00 p.m., by telephone at the Court's convenience, if necessary. _____________________________________ UNITED STATES BANKRUPTCY JUDGE Dated: April ______, 2001 AGREED TO AND ACKNOWLEDGED BY: BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP By: ____________________________________ One of Its Attorneys JONES, DAY, REAVIS & POGUE David G. Heiman, Esq. Brad B. Erens, Esq. North Point 77 W. Wacker Drive 901 Lakeside Avenue Suite 3800 Cleveland, OH 44114-1190 Chicago, IL 60601-1692 -23- Telephone (216) 586-3939 Telephone (312) 782-3939 Telecopier (216) 579-0212 Telecopier (312) 782-8585 DUANE, MORRIS & HECKSCHER LLP Michael R. Lastowski, Esq. Mark J. Packel, Esq. 1100 North Market Street, Suite 1200 Wilmington, Delaware 19801 Telephone: (302) 657-4900 Telecopier: (302) 657-4901 FLEET CAPITAL CORPORATION, FOR ITSELF AND AS AGENT FOR THE LENDERS By: ____________________________________ One of Its Attorneys GOLDBERG, KOHN, BELL, BLACK, ROSENBLOOM & MORITZ Alan P. Solow, Esq. Demetrios G. Karcazes, Esq. 55 E. Monroe St., Suite 3700 Chicago, IL 60603 Telephone: (312) 201-4000 Telecopier: (312) 332-2196 THE BAYARD FIRM Neil B. Glassman, Esq. 222 Delaware Ave., Suite 900 Wilmington, DE 19899 Telephone: (302) 655-5000 Telecopier: (302) 658-6395 -24- EXHIBIT A --------- BUDGET ------ -25- EX-27 11 dex27.txt FINANCIAL DATA SCHEDULE
5 1,000 YEAR 3-MOS DEC-31-2000 DEC-31-2000 JAN-01-2000 OCT-01-2000 DEC-31-2000 DEC-31-2000 3,223 3,223 0 0 80,772 80,772 0 0 56,988 56,988 156,890 156,890 486,410 486,410 295,995 295,995 388,837 388,837 73,013 73,013 200,000 200,000 0 0 0 0 0 0 115,824 115,824 388,837 388,837 491,055 97,537 491,055 97,537 454,024 108,433 454,024 108,433 83,930 64,991 0 0 27,516 6,372 (74,415) (82,259) 702 (1,608) (75,117) (80,657) (8,795) (3,615) 0 0 0 0 (83,912) (84,266) 2.28 2.29 2.28 2.29
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