-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, sq6Cyb00dAFsptMp1XN0TpkLZA+J+8uIHpPC09+V3LJ2XHgO3lnxap6fh08sFuus 7IHoFFdORz9va5Q2g9iLwQ== 0000950130-94-001656.txt : 19941128 0000950130-94-001656.hdr.sgml : 19941128 ACCESSION NUMBER: 0000950130-94-001656 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19941123 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BORDEN CHEMICALS & PLASTICS OPERATING LIMITED PARTNERSHIP CENTRAL INDEX KEY: 0000821202 STANDARD INDUSTRIAL CLASSIFICATION: 2821 IRS NUMBER: 311269627 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-55863 FILM NUMBER: 94561619 BUSINESS ADDRESS: STREET 1: HIGHWAY 73 CITY: GEISMAR STATE: LA ZIP: 70734 BUSINESS PHONE: 5046736121 MAIL ADDRESS: STREET 1: HIGHWAY 73 STREET 2: 180 EAST BROAD STREET 25TH FLOOR CITY: COLUMBUS STATE: OH ZIP: 43215 FORMER COMPANY: FORMER CONFORMED NAME: BORDEN CHEMICALS & PLASTICS LIMITED PARTNERSHIP DATE OF NAME CHANGE: 19920703 S-3/A 1 AMENDMENT NO. 1 TO FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 23, 1994 REGISTRATION NO. 33-55863 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ---------------- DELAWARE 31-1269627 (STATE OF ORGANIZATION) 2821 (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION NUMBER) (I.R.S. EMPLOYER IDENTIFICATION NUMBER) HIGHWAY 73 GEISMAR, LOUISIANA 70734 (504) 673-6121 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------- LAWRENCE L. DIEKER, ESQ. SECRETARY BCP MANAGEMENT, INC. 180 EAST BROAD ST. COLUMBUS, OHIO 43215 (614) 225-4000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) PLEASE SEND COPIES OF ALL CORRESPONDENCE TO: SIDLEY & AUSTIN ANDREWS & KURTH L.L.P. 875 THIRD AVENUE 425 LEXINGTON AVENUE NEW YORK, NEW YORK 10022 NEW YORK, NY 10017 ATTENTION: MAHBOOB MAHMOOD, ESQ. ATTENTION: JONATHAN P. CRAMER, ESQ. WILLIAM N. FINNEGAN, IV, ESQ. ---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [_] If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [_] THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A) MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED NOVEMBER 23, 1994 4,000,000 Depositary Units Representing Common Limited Partner Interests Borden Chemicals and Plastics Limited Partnership -------- The 4,000,000 Depositary Units ("Units") representing common limited partner interests in Borden Chemicals and Plastics Limited Partnership, a Dela- ware limited partnership (the "Company" or the "Partnership"), are being sold by the Company. The Company was formed in 1987 to ac- quire, own and operate polyvinyl chloride, methanol and other chemical plants located at Geismar, Louisiana, and Illiopolis, Illinois, previously owned and operated by Borden, Inc. ("Borden"). The Company distributes 100% of its Available Cash (as defined herein) after the end of each quarter. BCP Management, Inc. (the "General Partner" or "BCPM"), a wholly owned subsidiary of Borden, serves as the sole gen- eral partner of each of the Company and its subsidiary operating partnership, Borden Chemicals and Plastics Operating Limited Partnership (the "Operating Company" or the "Operating Partnership"). The Units are listed on the New York Stock Exchange under the symbol BCU. On November 21, 1994, the last re-ported sale price of Units on the Composite Tape of the New York Stock Exchange was $19 7/8 per Unit. -------- FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE UNITS SEE "INVESTMENT CONSIDERATIONS". SUCH FACTORS INCLUDE THE FOLLOWING: . THE MARKETS FOR THE COMPANY'S PRODUCTS HAVE BEEN, AND ARE LIKELY TO CONTINUE TO BE, COMPETITIVE AND CYCLICAL. . THE COMPANY IS SUBJECT TO EXTENSIVE FEDERAL, STATE AND LOCAL LAWS AND REGULATIONS RELATING TO THE PROTECTION OF THE ENVIRONMENT. THE COMPANY MAY INCUR MATERIAL ENVIRONMENTAL LIABILITIES. . UNITHOLDERS HAVE LIMITED VOTING RIGHTS AND THE GENERAL PARTNER MANAGES AND CONTROLS THE COMPANY. . THE GENERAL PARTNER AND ITS AFFILIATES MAY HAVE CONFLICTS OF INTEREST WITH THE COMPANY AND THE UNITHOLDERS. . THE COMPANY'S PARTNERSHIP AGREEMENT LIMITS THE LIABILITY AND MODIFIES THE FIDUCIARY DUTIES OF THE GENERAL PARTNER; UNITHOLDERS ARE DEEMED TO HAVE CONSENTED TO CERTAIN ACTIONS AND CONFLICTS OF INTEREST THAT MIGHT OTHERWISE BE DEEMED A BREACH OF FIDUCIARY OR OTHER DUTIES UNDER STATE LAW. . THE GENERAL PARTNER ANTICIPATES THAT THE COMPANY WILL BE TREATED AS A PARTNERSHIP FOR TAX PURPOSES FOR TAXABLE YEARS ENDING ON OR BEFORE DECEMBER 31, 1997, AND AS A CORPORATION FOR ALL SUBSEQUENT TAXABLE YEARS. -------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECU- RITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR AD- EQUACY OF THIS PROSPECTUS. ANY REP- RESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting Price to Discounts and Proceeds to Public Commissions Company(1) --------- ------------- ----------- Per Unit................................... $ $ $ Total(2)................................... $ $ $
(1) Before deduction of expenses payable by the Company estimated at $ . (2) The Company has granted the Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase a maximum of 600,000 additional Units to cover over-allotments of Units. If the option is exercised in full, the total Price to Public will be $ , Underwriting Discounts and Commissions will be $ and Proceeds to Company will be $ . -------- The Units are offered by the several Underwriters when, as and if issued by the Company, delivered to and accepted by the Underwriters and subject to their right to reject orders in whole or in part. It is expected that the Units will be ready for delivery on or about , 1994. CS First Boston PaineWebber Incorporated The date of this Prospectus is , 1994. TABLE OF CONTENTS
PAGE ---- PROSPECTUS SUMMARY........................................................ 3 INVESTMENT CONSIDERATIONS................................................. 13 Considerations Relating to the Company's Business........................ 13 Considerations Relating to the Possible Change of Control of Borden; Re- lationship with Borden.................................................. 16 Considerations Relating to the Addis Facility............................ 17 Considerations Relating to Partnership Structure and Relationship to the General Partner......................................................... 18 Tax Considerations....................................................... 21 PARTNERSHIP STRUCTURE..................................................... 23 THE ACQUISITION........................................................... 24 USE OF PROCEEDS........................................................... 26 CAPITALIZATION............................................................ 27 PRICE RANGE OF UNITS AND DISTRIBUTIONS.................................... 28 CASH DISTRIBUTIONS........................................................ 29 General.................................................................. 29 Distributions of Cash from Operations.................................... 30 Adjustment of the Target Distribution.................................... 30 Distributions of Cash from Interim Capital Transactions.................. 31 Distributions Upon Liquidation........................................... 31 Entity-Level Taxation.................................................... 31 SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA............ 33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................................... 35 BUSINESS AND PROPERTIES................................................... 42 General.................................................................. 42 PVC Polymers Products.................................................... 43 Methanol and Derivatives................................................. 46 Nitrogen Products........................................................ 47 Properties............................................................... 48 Raw Materials............................................................ 49 Insurance................................................................ 49 Marketing................................................................ 50 Utilities................................................................ 50 Purchase and Processing Agreements....................................... 50 Competition.............................................................. 51 Trademarks............................................................... 52 Management............................................................... 52 Environmental and Safety Regulations..................................... 52 Borden Environmental Indemnity........................................... 56 Addis Environmental Indemnity............................................ 57 Product Liability and Regulation......................................... 57 MANAGEMENT................................................................ 58 LEGAL PROCEEDINGS......................................................... 60 CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY........................ 63 DESCRIPTION OF DEPOSITARY UNITS AND THE DEPOSIT AGREEMENT................. 67 General.................................................................. 67
PAGE ---- Combination of Units and Elimination of Distribution Support............. 67 Transfer of Units........................................................ 67 Distributions............................................................ 68 Federal Income Tax Matters............................................... 69 Withdrawal of Limited Partner Interests.................................. 69 Voting................................................................... 69 Resignation or Removal of Depositary..................................... 69 Amendment................................................................ 70 Termination.............................................................. 70 Duties and Status of Depositary.......................................... 70 The Depository Trust Company............................................. 70 Conditional Right to Require Purchase of Units by Borden................. 72 Miscellaneous............................................................ 73 SUMMARY OF THE PARTNERSHIP AGREEMENTS..................................... 73 Name..................................................................... 74 Organization and Duration................................................ 74 Purpose, Business and Management......................................... 74 Power of Attorney........................................................ 74 Restrictions on Authority of the General Partner......................... 75 Withdrawal or Removal of the General Partner; Obligations of BCPM and Borden.................................................................. 75 Reimbursement for Services............................................... 76 Status as Limited Partner or Assignee.................................... 76 Issuance of Additional Units and Securities.............................. 77 Right to Call Units...................................................... 77 Amendment of Partnership Agreements...................................... 77 Meetings and Voting...................................................... 79 Indemnification.......................................................... 79 Limited Liability........................................................ 80 Books, Reports and Information to Unitholders............................ 80 Right to Inspect Company Books and Records............................... 81 Termination, Dissolution and Liquidation................................. 81 SUMMARY OF THE FINANCING DOCUMENTS........................................ 82 ALLOCATIONS OF INCOME AND LOSS............................................ 90 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................. 90 ERISA AND OTHER CONSIDERATIONS CONCERNING EMPLOYEE BENEFIT PLANS AND RETIREMENT ACCOUNTS...................................................... 110 UNDERWRITING.............................................................. 113 LEGAL OPINIONS............................................................ 115 EXPERTS................................................................... 115 AVAILABLE INFORMATION..................................................... 115 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 116 GLOSSARY OF TERMS......................................................... 117 INDEX TO FINANCIAL STATEMENTS............................................. F-1
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE UNITS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE- COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements and the notes thereto appearing elsewhere in this Prospectus or incorporated by reference in this Prospectus. For the definitions of certain terms used in this Prospectus, see "Glossary of Terms". Unless otherwise indicated, the information contained in this Prospectus assumes that the Underwriters' over-allotment option is not exercised. See "Underwriting". As the context requires, references herein to the Company or the Partnership constitute references to the Company and/or the Operating Company or the Partnership and/or the Operating Partnership, respectively. THE COMPANY The Company is a publicly held limited partnership formed in 1987 to acquire, own and operate through the Operating Company polyvinyl chloride ("PVC"), methanol and other chemical plants located in Geismar, Louisiana, and Illiopolis, Illinois, that were previously owned and operated by Borden. The three principal product groups manufactured at these facilities are (i) PVC Polymers Products, which consist of PVC resins and feedstocks (such as vinyl chloride monomer ("VCM") and acetylene), (ii) Methanol and Derivatives, which consist of methanol and formaldehyde, and (iii) Nitrogen Products, which consist of ammonia and urea. During 1993, PVC Polymers Products, Methanol and Derivatives and Nitrogen Products accounted for 60%, 28% and 12%, respectively, of the Company's revenues. The Company recently announced that the Operating Company has entered into an agreement to acquire a PVC resin production facility located in Addis, Louisiana (the "Addis Facility"). Upon completion of such acquisition, the Company's stated annual capacity for the production of PVC resin is expected to increase by over 50% to 1,270 million pounds and the Company will be the fifth largest producer of PVC resins in the United States. The Company manufactures and sells general purpose PVC resins for larger volume construction applications, such as water distribution pipe, residential siding and wallcoverings. The Company also manufactures and sells specialty purpose PVC resins for use in applications such as vinyl flooring, electric cable coating, film wrap for food packaging, toys and medical and household products. As a result of PVC's many uses within the construction and automotive industries, demand for PVC resin is highly dependent upon the overall level of economic activity, both domestically and abroad. Published prices for PVC resins have increased from an average of $0.272 per pound during the first quarter of 1993 to an average of $0.402 per pound during the third quarter of 1994. The Company is also one of the largest manufacturers of methanol in the United States, with a stated annual capacity of 270 million gallons. Methanol is used primarily as a feedstock in the production of other chemicals such as formaldehyde, which is used in the manufacture of wood building products and adhesives, and methyl tertiary butyl ether ("MTBE"), which is used as a gasoline additive. Demand for methanol has increased substantially due to increasing demand for wood building products in the construction industry and for MTBE in response to environmental regulations. Published prices for methanol have increased from an average of $0.44 per gallon during the first quarter of 1993 to an average of $1.01 per gallon during the third quarter of 1994. The Company's strategy is to maximize current cash distributions while selectively reinvesting cash from operations to increase its production capacity through expansions of its facilities, debottlenecking of production processes and strategic acquisitions. Through these expenditures, the Company seeks to lower production costs and improve operational flexibility in order to minimize the impact of cyclical downturns in the Company's business and maximize the benefits of cyclical upturns. The integrated design of the Company's plants provides it with a comparatively high degree of flexibility to shift production volumes according to market conditions and with the ability to efficiently utilize by-product streams. The Company believes that the diversification of its businesses into three product groups mitigates, to some extent, the cyclicality of the markets for such commodity chemical products. 3 THE ACQUISITION On August 12, 1994, the Operating Company entered into an agreement with Occidental Chemical Corporation ("OxyChem") to purchase (the "Acquisition") the Addis Facility and certain related assets (collectively, the "Addis Assets") and assume certain obligations relating to the Addis Assets. See "The Acquisition". The cash purchase price for the Addis Assets is $104.3 million, subject to certain customary post-closing adjustments. Based primarily on the inventory levels of the Addis Facility at September 30, 1994, the Company expects that such post-closing adjustments could reduce the purchase price by up to $5.0 million. The Acquisition provides the Company the opportunity to increase its PVC resin capacity at a time of increasing demand for PVC resin. The Company believes that purchasing an existing plant, which has a proven operating capacity, is substantially more cost effective than increasing capacity through the construction of a new grass-roots facility. In addition, a new grass-roots facility would require two to three years to complete. The closing of this offering will occur concurrently with, and is conditioned upon, the closing of the Acquisition. The Acquisition is subject to certain conditions, including approval by the United States Federal Trade Commission (the "FTC"), an environmental assessment of the real estate upon which the Addis Facility is located and the financing of the Acquisition. The purchase price for the Addis Assets will be financed in part by the proceeds of this offering. The remaining purchase price will be financed through a concurrent offering of senior unsecured notes (the "Notes") of the Operating Company and its wholly-owned subsidiary, BCP Finance Corporation ("Finance Corp."). Neither the Acquisition nor this offering is conditioned upon consummation of the Notes offering. In the event that the Notes offering is postponed or not consummated, the Company will use short-term borrowings, cash on hand or a combination thereof to fund a portion of the purchase price of the Addis Assets. The use of cash on hand would reduce cash available for distribution to Unitholders. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources". CASH DISTRIBUTIONS The Company distributes 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 Company 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 amounts of additions and reductions to reserves may impact the amount of incentive distributions 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. Distributions by the Company 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 to the extent that a target level of cash distributions to the Unitholders is achieved for any quarter. The Amended and Restated Agreement of Limited Partnership of the Company (the "Partnership Agreement") provides that, after an amount equal to $0.3647 per Unit (the "Target Distribution") has been distributed for any quarter to Unitholders, the General Partner will receive 20% of any then remaining Available Cash for such quarter as an incentive distribution (in addition to its 2% regular distribution). Unitholders would share in the balance of such Available Cash pro rata. The Target Distribution is subject to adjustment under certain circumstances. See "Cash Distributions". 4 The Company distributed an aggregate of $0.78 per Unit with respect to 1993 and $0.21, $0.65 and $1.02 per Unit, respectively, with respect to the first three quarters of 1994. Because the distributions in the second and third quarters of 1994 were in excess of the Target Distribution, the General Partner was entitled to an incentive distribution of 20% of the amount distributed above such amount. As a result, through the first nine months of 1994, the Unitholders received 87% and the General Partner received 13% of all distributions. In 1993, when no incentive distribution was made, Unitholders received 98% and the General Partner received 2% of all distributions. The increases in distributions during 1994 is largely the result of increased Available Cash due to higher PVC and methanol prices. While the outlook for PVC and methanol prices remains strong in the near term, these prices are cyclical in nature and there can be no assurance that distributions at these levels can be maintained in the future. Past cash distributions are not necessarily indicative of future cash distributions. See "Price Range of Units and Distributions". Because of the Company's focus on maximizing current cash distributions, the cyclical nature of its business and the fact that it does not retain significant amounts of cash during cyclical upturns in the Company's business for purposes of later distribution, the level of the Company's cash distributions to Unitholders has tended to vary substantially from period to period. Although the Company intends to continue its strategy of maximizing current cash distributions and not retaining significant amounts of cash for future distributions, there may be times, even during cyclical upturns in the Company's business, when the Company's strategy will require that significant amounts of otherwise distributable cash be retained for capital investment in the business, strategic acquisitions, payment of future debt obligations or general operating purposes. See "--The Acquisition". As a result, the level of cash distributions is likely to continue to fluctuate and at times could fluctuate even more than in the past. THE OFFERING Securities offered(1).............. 4,000,000 Units Units to be outstanding after the 40,750,000 Units offering(1)....................... Use of proceeds.................... The net proceeds from the sale of the Units offered hereby will be used to fund a por- tion of the purchase price of the Acquisi- tion. See "Use of Proceeds". New York Stock Exchange symbol..... BCU
- -------- (1) Does not give effect to the exercise of the over-allotment option of 600,000 Units granted to the Underwriters by the Company. See "Underwriting". 5 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING INFORMATION The following table sets forth, for the periods and at the dates indicated, summary consolidated historical financial and operating data for the Company and combined pro forma financial data for the Company after giving effect to the Acquisition, this offering, the offering of the Notes and the prepayment of the Operating Company's existing notes. See "Use of Proceeds". The summary consolidated historical financial data are derived from and should be read in conjunction with the consolidated historical financial statements and notes thereto included elsewhere in this Prospectus. See also "Management's Discussion and Analysis of Financial Condition and Results of Operations". The summary combined pro forma financial information is derived from and should be read in conjunction with the pro forma financial information contained elsewhere in this Prospectus. The pro forma statement of operations data assumes that the Acquisition, this offering, the offering of the Notes and the prepayment of the Company's existing notes referred to in "Use of Proceeds" had been consummated on January 1, 1993. The pro forma balance sheet data assumes that the Acquisition, this offering, the offering of the Notes and the prepayment of the Operating Company's existing notes had been consummated on September 23, 1994.
HISTORICAL PRO FORMA ------------------------------------------------------- --------- YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1989 1990 1991 1992 1993 1993 --------- --------- --------- --------- --------- --------- (AMOUNTS IN THOUSANDS, EXCEPT PER UNIT AND PER UNIT DATA) STATEMENT OF OPERATIONS DATA: Total revenues.......... $ 465,923 $ 420,631 $ 410,005 $ 401,803 $ 433,297 $529,459 Expenses Cost of goods sold.... 353,871 335,309 317,504 337,982 397,771 490,123 Marketing, general and administrative....... 16,745 17,745 18,578 18,118 18,993 19,243 Interest.............. 16,340 16,340 16,340 16,340 16,356 19,500 General Partner incentive............ 11,072 5,832 5,497 2,146 -- -- Other................. (1,600) 109 533 132 1,612 3,092 Net (loss) income....... 69,495 45,296 51,553 27,085 (1,435) (2,474) Net (loss) income per Unit(1)................ 1.87 1.22 1.39 0.73 (0.04) (0.06) Cash distributions per Unit(2)................ 2.45 1.95 1.98 1.59 0.78 Percentage of distributions Unitholders........... 87% 91% 91% 95% 98% General Partner....... 13% 9% 9% 5% 2% OTHER DATA: Capital expenditures.... $ 28,157 $ 22,084 $ 17,975 $ 10,534 $ 15,041 EBITDA(3)............... 137,158 108,368 115,895 89,155 57,867 $65,737 Depreciation............ 40,251 40,900 42,505 43,584 42,946 48,711 Costs reimbursed to Borden................. 55,254 54,185 53,209 50,921 56,976 BALANCE SHEET DATA: PP&E, net............... $417,186 $395,762 $369,189 $335,136 $305,975 Total assets............ 549,628 544,204 507,042 466,729 444,304 Long-term debt.......... 150,000 150,000 150,000 150,000 150,000 Total partners' capital. 341,707 314,558 292,555 260,595 230,205 OPERATING DATA: Average price received per unit sold(4) PVC Polymers Products. 132 119 103 99 106 Methanol and Derivatives.......... 99 87 110 88 94 Nitrogen Products..... 77 80 87 82 85 Raw material costs per unit sold(4) Natural gas........... 74 74 63 74 88 Ethylene.............. 207 171 128 116 115 Chlorine.............. 50 13 N/M(5) 7 83 Production volumes (in pounds) PVC Polymers Products. 1,786,288 1,912,233 1,793,271 1,929,093 1,848,657 Methanol and Derivatives.......... 2,000,962 1,972,705 2,113,909 2,339,561 2,408,579 Nitrogen Products..... 1,178,916 1,250,910 1,291,566 1,307,764 1,207,020
- -------- (footnotes on following page) 6
HISTORICAL PRO FORMA --------------------------- ------------- NINE MONTHS ENDED ----------------------------------------- SEPTEMBER 24, SEPTEMBER 23, SEPTEMBER 23, 1993 1994 1994 ------------- ------------- ------------- (AMOUNTS IN THOUSANDS, EXCEPT PER UNIT AND PER UNIT DATA) STATEMENT OF OPERATIONS DATA: Total revenues....................... $ 307,576 $ 438,133 $537,799 Expenses Cost of goods sold................. 286,887 326,225 417,413 Marketing, general and administrative.................... 14,153 15,298 15,485 Interest........................... 12,066 12,009 14,264 General Partner incentive.......... -- 8,751 8,751 Other.............................. 530 6,312 7,210 Net (loss) income.................... (6,060) 69,538 74,676 Net (loss) income per Unit(1)........ (0.16) 1.87 1.81 Cash distributions per Unit(2)....... 0.60 1.88 Percentage of Distributions Unitholders........................ 98% 87% General Partner.................... 2% 13% OTHER DATA: Capital expenditures................. $ 7,991 $ 14,215 EBITDA(3)............................ 38,117 123,239 $134,956 Depreciation......................... 32,171 32,941 37,265 Costs Reimbursed to Borden........... 42,644 40,344 BALANCE SHEET DATA: PP&E, net............................ $ 310,583 $ 286,635 $381,235 Total assets......................... 445,866 497,838 603,959 Long-term debt....................... 150,000 150,000 200,000(6) Total partners' capital.............. 232,262 229,867 291,033(6) OPERATING DATA: Average price received per unit sold(4) PVC Polymers Products.............. 105 120 Methanol and Derivatives........... 91 139 Nitrogen Products.................. 86 112 Raw material costs per unit sold(4) Natural gas........................ 87 84 Ethylene........................... 118 124 Chlorine........................... 69 120 Production volumes (in pounds) PVC Polymers Products.............. 1,321,931 1,486,313 Methanol and Derivatives........... 1,503,577 1,945,598 Nitrogen Products.................. 879,066 855,160
- -------- (1) The General Partner's allocation of net income has been deducted before calculating net income per Unit. (2) The Company distributes 100% of its Available Cash as of the end of each fiscal quarter on or about 45 days after the end of such quarter. The cash distributions set forth herein with respect to any year represent the aggregate distributions made with respect to the quarters occurring within such year, although the cash distributions with respect to the last quarter of a year are paid in the first quarter of the following year. (3) EBITDA is calculated as net income plus interest, depreciation and amortization and General Partner incentive. EBITDA is not intended to represent cash flow and does not represent the measure of cash available for distribution. EBITDA is not a measure under generally accepted accounting principles, but provides additional information for evaluating the Company's ability to make the Target Distribution. In addition, EBITDA is not intended as an alternative to earnings from continuing operations or net income. (4) Represents relative average amounts per unit using 1985=100 as the base year for all products. (5) Not meaningful due to extreme oversupply of chlorine and the resulting negative value in the marketplace. (6) In the event the Notes offering is not consummated, the Company will use short-term borrowings, cash on hand or a combination thereof to fund a portion of the purchase price of the Addis Assets. In such event and assuming a charge for prepayment of the Operating Company's existing notes is not incurred, the principal amount of long-term debt and total partners' capital would be $150,000 and $304,892, respectively. Total partners' capital reflects the aggregate estimated charge related to the prepayment of the Operating Company's existing notes. The total charge for prepayment of such notes is currently estimated to be $14.0 million, of which each of Borden and the Company would pay a portion. 7 RELATIONSHIP WITH BORDEN BCPM, a wholly owned subsidiary of Borden, is the sole general partner of the Company and the Operating Company. Borden holds no partnership interests in either the Company or the Operating Company other than through BCPM's interests as general partner, which represent a 2% interest on a combined basis. Subject to certain specified exceptions, BCPM has agreed not to withdraw as general partner prior to November 30, 2002, and Borden has agreed not to sell its interests in BCPM prior to November 30, 2002. See "Summary of the Partnership Agreements". The General Partner is entitled to receive reimbursement for all its direct and indirect costs and may receive substantial incentive distributions not shared in by Unitholders in the event the Company makes cash distributions in excess of the Target Distribution. See "Cash Distributions". Borden has advised the Company that Borden has entered into a merger agreement (the "Merger Agreement") pursuant to which an affiliate of Kohlberg Kravis Roberts & Co. ("KKR") would, subject to certain terms and conditions, merge with and into Borden. In the event that such transaction were to be effected, Borden would become a subsidiary of Whitehall Associates, L.P., an affiliate of KKR. As a result of certain actions taken by Borden's Board of Directors, the Unitholders will not have a right to require Borden to purchase the Units in connection with the transactions contemplated in the Merger Agreement. See "Description of the Depositary Units and the Deposit Agreement-- Conditional Right to Require Purchase of Units by Borden". Sales to Borden represented approximately 19% of the Company's total sales in 1993 and approximately 21% of the Company's total sales in the first nine months of 1994 (less than 18% in both 1993 and the first nine months of 1994 on a pro forma basis after giving effect to the Acquisition). Borden and the Operating Company are parties to certain purchase agreements (the "Purchase Agreements") and processing agreements (the "Processing Agreements") described under "Business and Properties--Purchase and Processing Agreements". Such agreements require Borden, subject to the terms and conditions contained therein, to purchase from the Company at least 85% of Borden's requirements for PVC resins, methanol, ammonia and urea and to utilize certain percentages of the Company's capacity to process formaldehyde and urea-formaldehyde concentrate. The Company believes that the pricing formulae set forth in such agreements have in the past provided aggregate prices and processing charges for the covered products that over time have approximated the aggregate prices and processing charges that Borden would have been able to obtain from unaffiliated suppliers, considering the magnitude of Borden's purchases, the long-term nature of such agreements and other factors. The Company believes that this will continue to be the case in the future. There may be conditions prevailing in the market at various times, however, under which the prices and processing charges under these agreements could be higher or lower than those obtainable from unaffiliated third parties. Because the Purchase and Processing Agreements are requirements contracts, sales or processing of products thereunder are dependent on Borden's requirements for such products. Such requirements could be affected by a variety of factors, including a sale or other disposition by Borden of all or certain of its manufacturing plants to unaffiliated purchasers (in which event such agreements would not apply to any such purchaser unless otherwise agreed to by such purchaser). In the event that, whether following any change of control of Borden or otherwise, Borden were to sell or otherwise dispose of all or certain of its plants or otherwise reorient its businesses, Borden's requirements for products sold or processed by the Company under the Purchase and Processing Agreements could be diminished or eliminated. In the event that Borden's requirements under any such agreements were to be materially diminished or eliminated, the Company's sales of the applicable products would be affected in the short-term while the Company attempted to find replacement customers. Depending on market conditions, the Company may be able to effect sales of such products at lower or higher prices than would otherwise have been the case had Borden's requirements for such products been maintained at past levels. In the event of a weak market for any such products, the 8 Company's sales volumes would likely be lower than if Borden's requirements for such products had been maintained at past levels. The Company anticipates that, if Borden were to sell all or certain of its chemical products manufacturing facilities, a purchaser may be interested in negotiating the continuation of all or certain of the Purchase and Processing Agreements. Borden's other agreements with the Company include an environmental indemnity agreement (the "Environmental Indemnity Agreement") (see "Business and Properties--Environmental and Safety Regulations") and an Intercompany Agreement (the "Intercompany Agreement") that contains, among other things, a covenant by Borden not to compete in the manufacture or sale in the United States of certain products manufactured by the Company (see "Business and Properties--Competition"). Borden has also capitalized BCPM with a promissory note of Borden with an aggregate outstanding principal amount of $37.5 million and will, in connection with this offering, issue to BCPM an additional promissory note in the amount of 10% of the net proceeds of this offering. In addition, the Company has no employees, and the Company relies on the officers and employees of BCPM, who are officers or employees of Borden. Prior to the announcement of Borden's proposed merger with an affiliate of KKR, Borden's management had presented a plan to its Board of Directors aimed at improving Borden's financial performance. The plan recommended the sale of certain of Borden's businesses, including the sale of Borden's dairy business (excluding the cheese business) and Borden's wallcoverings and packaging resources business. The sale of the wallcoverings and packaging resources business would have included a sale of Borden's manufacturing plants that use PVC resins purchased from the Company. In November 1994, Borden announced an organizational restructuring involving the reorganization of its businesses and assets into three primary operating divisions: (i) the Packaging and Industrial Products Division; (ii) the Dairy Division; and (iii) the Consumer Packaged Products Division. Such reorganization will result in a reduction of Borden's staff by approximately 200 persons. Borden has advised the Company that the reorganization of Borden into three operating divisions is intended to facilitate the operation of each division as a stand-alone business and to reduce general overhead expenses. Such reorganization may also facilitate the sale or other disposition of such businesses or portions of such businesses. BCPM and most of the employees of Borden serving BCPM and the Company have been included within the Packaging and Industrial Products Division. As described under "Summary of the Partnership Agreements", subject to certain exceptions, Borden has agreed not to sell its interests in BCPM prior to November 30, 2002 without approval by Unitholders holding more than 50% of the Units held by persons other than Borden and its affiliates. No assurance can be given as to whether, following a change of control or otherwise, Borden would dispose of various assets or businesses, increase its leverage or effect changes in its management so as to adversely affect the financial condition, size or scope of business or management of Borden and thereby its ability to perform its contractual obligations to the Company or BCPM or adversely affect the management of BCPM and, accordingly, the management of the Company. NOTES OFFERING Concurrently with this offering of Units, the Operating Company and Finance Corp. intend to make a public offering of the Notes in an aggregate principal amount of $200.0 million. See "Summary of the Financing Documents--The Notes". Such offering will be made only by means of a separate prospectus. It is possible that the Company may postpone or not consummate the Notes offering. Neither the Acquisition nor this offering is conditioned upon consummation of the Notes offering. The Operating Company intends to use the net proceeds from the sale of the Notes first to prepay the currently outstanding $150.0 million aggregate principal amount of existing notes of the Operating Company (the "Old Notes"). See "Summary of the Financing Documents--The Old Notes and the Working Capital Facility". The remaining proceeds of the Notes offering will be used to fund a portion of the purchase price 9 of the Addis Assets and for other permitted partnership purposes. In the event the Notes offering is postponed or not consummated, the Company will use short- term borrowings, cash on hand or a combination thereof to fund a portion of the purchase price of the Addis Assets. See "Use of Proceeds". The Operating Company does not have a contractual right to prepay the Old Notes but it has initiated discussions with the holders of the Old Notes (the "Old Noteholders") and anticipates that it is likely to obtain their consent to prepayment of the Old Notes. The Operating Company expects that the prepayment price will equal the outstanding aggregate principal of and accrued interest on the Old Notes, together with a premium (the "Prepayment Premium") to be negotiated with the Old Noteholders. In connection with the original issuance by the Operating Company of the Old Notes, Borden had entered into an agreement (the "Borden Purchase Obligation"), which provides that, in the event of a change of control of Borden, the Old Noteholders may elect to require Borden to purchase the Old Notes at a price equal to the outstanding aggregate principal of and accrued interest on the Old Notes, together with the Change of Control Premium. "Change of Control Premium" means, as of any date of determination, the excess of (i) the scheduled principal and interest payments on the Old Notes discounted at applicable Treasury rates over (ii) the outstanding principal of and accrued interest on the Old Notes. In the event that the Change of Control Premium were payable on November 18, 1994, the amount of such premium would be approximately $14.0 million. Assuming interest rates remain constant or increase, such amount will decrease over time. See "Summary of the Financing Documents--The Old Notes and the Working Capital Facility--Borden Undertaking". The change of control of Borden that would result from the completion of the transactions contemplated in the Merger Agreement would trigger the Borden Purchase Obligation. However, in the event that the Operating Company were to prepay the Old Notes, the Borden Purchase Obligation would be terminated. Borden has advised the Company that, in view of such termination of the Borden Purchase Obligation and the benefits to Borden of such termination, Borden is willing to pay a portion of the Prepayment Premium that Borden determines to be fair and reasonable to Borden. The Company believes that the refinancing of the Old Notes with the Notes will also benefit the Company by way of a significant extension of the maturity of the Operating Company's indebtedness and additional operating and financial flexibility as a result of the elimination or modification of certain of the restrictive covenants currently imposed on the Operating Company under the Note Agreement (the "Note Agreement") of the Operating Company pursuant to which the Old Notes were issued. In addition, the Company anticipates that the interest rate on the Notes is likely to be lower than the interest rates on the Old Notes. Because of these factors, the Company is also willing to pay a portion of the Prepayment Premium so long as such payment is determined by Special Approval to be fair and reasonable to the Company. "Special Approval" means approval by a majority of the Board of Directors of the General Partner that includes approval by a majority of a committee (the "Independent Committee") of such Board of Directors composed of directors who are neither officers, employees or directors of Borden nor officers or employees of the General Partner. The Company anticipates that the Prepayment Premium payable in connection with the prepayment of the Old Notes will be no greater than the Change of Control Premium payable by Borden had the Borden Purchase Obligation been triggered at the time of such prepayment of the Old Notes. Borden and the Company have not agreed to any allocation of the Prepayment Premium, although the Company believes that an allocation can be made on a basis that is fair and reasonable to the Company and Borden. Because the allocation of the Prepayment Premium between Borden and the Company constitutes a conflict of interest between Borden and the Company, any such allocation of the Prepayment Premium will be subject to Special Approval. In the event that the Company is not able to negotiate a satisfactory Prepayment Premium with the Old Noteholders or in the event that the Company and Borden are not able to negotiate a satisfactory allocation of the Prepayment Premium in a timely manner, the Operating Company will not proceed with the offering of the Notes. 10 DEPOSITARY UNITS AND RESTRICTIONS ON OWNERSHIP The Units offered hereby will be evidenced by Depositary Receipts. The Units are eligible, but are not required, to be held by the persons acquiring such Units through The Depository Trust Company. See "Description of Depositary Units and the Deposit Agreement". Because the Operating Company owns certain co-generation power facilities, the Units may not be held by or on behalf of electric utilities, electric utility holding companies or any subsidiary thereof in order that the Company will not become a regulated public utility holding company under applicable federal law. SUMMARY OF CERTAIN INCOME TAX CONSEQUENCES The following is a summary of certain federal income tax consequences of acquiring, owning and disposing of the Units offered hereby and is based, in part, upon the opinions of Sidley & Austin, special counsel to the Company, the Operating Company and BCPM. Unitholders are urged to note the qualifications to the opinions of Sidley & Austin described herein. For a more detailed discussion of these consequences and the qualifications to the opinions of Sidley & Austin, see "Certain Federal Income Tax Considerations". Partnership Status and Treatment of Distributions. Based on certain representations of BCPM, in the opinion of Sidley & Austin, under current law, each of the Company and the Operating Company will be treated as a partnership for federal income tax purposes, and owners of Units, whether held directly or by a nominee, will generally be treated as partners for federal income tax purposes. In the case of the Company, such treatment will not extend beyond the Company's taxable year ending December 31, 1997. As a consequence, prior to 1998, the Company will pay no federal income tax, and Unitholders will be required to report their allocable shares of income, gain, loss, deduction and credit of the Company, even if cash is not distributed by the Company. Because Unitholders will be required to include in income their allocable shares of the Company's income regardless of whether cash distributions are made, Unitholders could be allocated income from the Company in excess of the amount of any cash distributions with respect to such income. For taxable years ending on or before December 31, 1997, distributions of cash by the Company to a Unitholder will not be taxable except to the extent such distributions exceed such Unitholder's basis in his Units. Automatic Taxation as Corporation after 1997. The General Partner anticipates that, because of certain amendments made to the Code subsequent to the formation of the Company, the Company will be treated as a corporation for tax purposes for taxable years beginning after December 31, 1997. In that event, the Company's income, gains, losses, deductions and credits will not pass through to Unitholders, but instead will be reflected on the corporate tax return of the Company. As a result, any distributions made to a Unitholder will be treated as dividend income (to the extent of current or accumulated earnings and profits), and, in the absence of current or accumulated earnings and profits, as a nontaxable return of capital (to the extent of the Unitholder's basis in his Units), or as capital gain (after the Unitholder's basis in his Units is reduced to zero). Accordingly, the treatment of the Company for federal income tax purposes as a corporation after 1997 will result in a material reduction in a Unitholder's cash flow and after-tax return. Legislation has been introduced that, if enacted, may change certain tax rules applicable to large partnerships such as the Company. In addition, other proposed legislation, if enacted, may permanently extend the treatment of the Company as a partnership for federal income tax purposes. See "Certain Federal Income Tax Considerations--Proposed Changes in Federal Income Tax Law". Section 754 Election. Each of the Company and the Operating Company has previously made, and if a termination of the Company occurs following the sale of the Units being offered hereby (see "Certain Federal Income Tax Considerations--Disposition of Units--Constructive Termination or Dissolution of the Company"), will make, the election provided by Section 754 of the Internal Revenue Code of 1986, as amended (the "Code"). The Section 754 election will generally permit a Unitholder to calculate cost recovery and depreciation deductions by reference to the portion of his purchase price attributable to each asset of the Company (which will include the Company's share of nonrecourse liabilities of the Operating Company). 11 Based on the trading history of the Units, the General Partner expects that no constructive termination of the Company will occur as a result of the sale of the Units offered hereby, and if such constructive termination does occur, its effect will not be material to a purchaser of Units offered hereby. Allocation of Income and Loss. In general, income and loss of the Company will be allocated in proportion to the Unitholders' percentage interests in the Company, provided that at least 1% of all items of income, gain, loss, deduction and credit of each of the Company and the Operating Company will be allocated to the General Partner. For federal income tax purposes, certain items of income, gain, loss and deduction will be specially allocated to account for differences between the tax basis and fair market value of property contributed to the Company and the Operating Company by the General Partner, Borden and its affiliates, and to facilitate in certain circumstances 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. Items of income, gain, loss, deduction and credit of the Company will generally be determined on a monthly basis and be apportioned among the Unitholders of record as of the opening of business on the first business day of the month to which they relate, even though Unitholders may dispose of their Units during the month in question. Tax Shelter Registration. The Code generally requires that "tax shelters" be registered with the Secretary of the Treasury. The Company has registered as a tax shelter with the Internal Revenue Service ("IRS"). ISSUANCE OF THE REGISTRATION NUMBER DOES NOT INDICATE THAT AN INVESTMENT IN THE COMPANY OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE IRS. See "Certain Federal Income Tax Considerations--Administrative Matters-- Registration as a Tax Shelter". Ownership of Units by Tax-Exempt Entities. It is anticipated that substantially all of the income derived from the Company by tax exempt entities (including individual retirement accounts and other retirement plans) will constitute unrelated business taxable income until December 31, 1997. As a result, tax-exempt entities which become Unitholders will be required to report Company taxable income on a federal income tax return filed with the IRS and may be required to pay taxes on such income. See "Certain Federal Income Tax Considerations--Tax Treatment of Operations--Unrelated Business Taxable Income". Considerations for Foreign Investors. Investments in Units may not be advisable for foreign persons. A Unitholder who is a nonresident alien, foreign corporation or other foreign person will be regarded as engaged in a trade or business in the United States as a result of ownership of Units, and thus will be required to file federal income tax returns, as well as to pay tax on such Unitholder's share of the Company's taxable income, and possibly on gain from the disposition of Units until December 31, 1997. Foreign corporate Unitholders will also be subject to an additional branch profits tax of 30% unless reduced or eliminated by an applicable treaty. In addition, distributions to foreign persons will be subject to withholding. State and Local Taxes. For taxable years ending on or prior to December 31, 1997, Unitholders will generally be required to file state and local tax returns and pay state and local taxes in states in which the Company's properties are located or in which the Company's activities otherwise result in taxation. Distributions to Unitholders may be reduced by the amount of any state income taxes paid by the Company on behalf of such Unitholders. The Operating Company conducts business primarily in Illinois and Louisiana, although an obligation to file tax returns or to pay taxes may arise in other states. THE TAX CONSEQUENCES OF AN INVESTMENT IN THE COMPANY TO A PARTICULAR INVESTOR WILL DEPEND IN PART ON THE INVESTOR'S OWN TAX CIRCUMSTANCES. EACH PROSPECTIVE INVESTOR SHOULD THEREFORE CONSULT HIS OWN TAX ADVISOR ABOUT THE FEDERAL, STATE AND LOCAL TAX CONSEQUENCES TO SUCH INVESTOR OF AN INVESTMENT IN UNITS. 12 INVESTMENT CONSIDERATIONS Prospective purchasers of Units should carefully consider the following factors, in addition to other information contained herein, in evaluating an investment in Units. CONSIDERATIONS RELATING TO THE COMPANY'S BUSINESS Cyclical Markets for Products; Lack of Control Over Cost of Raw Materials. The markets for and profitability of the Company's products 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 until the cycle is repeated. In addition, markets for the Company's products are affected by general economic conditions and a downturn in the economy could materially adversely affect the Company, including its ability to make distributions to Unitholders and service its debt obligations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". The principal raw material feedstock purchased by the Company is natural gas, the price of which has been volatile in recent years. The Company's natural gas costs comprised approximately 35% of its total production costs in 1993. In addition, the Company buys most of its natural gas under long term market sensitive supply contracts. Because of the large volume of purchases of natural gas, any increase in the price of natural gas not passed along to customers through selling price increases could materially adversely affect the Company. The Company purchases other feedstocks, principally ethylene and chlorine. Significant increases in the prices of these feedstocks could also materially adversely affect the Company if not passed along to customers through selling price increases. As a result, there have been substantial fluctuations in the Company's cost of goods sold due to increases and decreases in raw material costs. See "Business and Properties--Raw Materials". Since changes in demand for the Company's products result in increases or decreases in prices for the Company's products, total revenues may change significantly from one period to another. Cost of goods sold, in particular raw material costs, do not necessarily correlate with changes in product prices, either in the direction of the price change or in absolute magnitude. Therefore, although revenues may increase from a prior period, net income may decline. For example, revenues increased in 1993 to $433.3 million from $401.8 million in 1992, due primarily to increased prices for the Company's products. However, prices for raw materials also increased and the Company incurred a net loss of $1.4 million in 1993, as compared to net income of $27.1 million in 1992. The Company expects such cycles in its business to continue. Highly Competitive Industry. 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. See "Business and Properties--Competition". Factors Affecting Demand for Methanol and MTBE. Methanol is used as a feedstock in the production of MTBE, an oxygenate and octane enhancer used in reformulated gasoline. The Clean Air Act mandates numerous comprehensive specifications for motor vehicle fuel, including increased oxygenate content and lower volatility. Future demand for MTBE (and therefore methanol) will depend on, among other things, the degree to which the Clean Air Act is implemented and enforced, the possible adoption of additional legislation, the willingness of the regulatory authorities to grant waivers for specific cities or regions, and the difficulties in isolating non-attainment areas where its use is not required. Although the Company expects there will be a continued market preference for MTBE, there can be no assurance that MTBE will not be replaced by alternative oxygenates or octane enhancers as a result of price or regulatory changes. 13 Uncertainty as to Level of Cash Distributions. The Company's ability to make cash distributions, and the amount of such distributions, will depend on, among other factors, the Company's ability to generate Available Cash. The Company's products are commodities for which the markets have been, and are likely to continue to be, cyclical. Quarterly distributions for full quarters since the formation of the Company on November 30, 1987 have ranged from $0.12 to $1.08 per Unit. No assurance can be given regarding the level of cash distributions to Unitholders in future periods. Because of the Company's focus on maximizing current cash distributions, the cyclical nature of its business and the fact that it does not retain significant amounts of cash during cyclical upturns in its business for purposes of later distribution, the level of the Company's cash distributions to Unitholders has tended to vary substantially from period to period. Although the Company intends to continue its strategy of maximizing current cash distributions and not retaining significant amounts of cash for future distributions, there may be times, even during cyclical upturns in its business when the Company's strategy will require that significant amounts of otherwise distributable cash be retained for capital investment in the business or for strategic acquisitions. As a result, the level of cash distributions is likely to continue to fluctuate and at times could fluctuate even more than in the past. In addition, neither the Acquisition nor this offering is conditioned upon consummation of the Notes offering. In the event that the Notes offering is postponed or not consummated, the Company will use short-term borrowings, cash on hand or a combination thereof to fund a portion of the purchase price of the Addis Assets. The use of cash on hand would reduce cash available for distribution to Unitholders. See "Use of Proceeds". Cash Distributions Have Exceeded Net Income. The Company distributes 100% of its Available Cash as of the end of each quarter to Unitholders and the General Partner. Cash distributions have historically exceeded net income, primarily due to the excess of depreciation expense, a non-cash reduction of income, over capital expenditures. The amount of cash distributions in excess of net income has resulted in an aggregate reduction in the Company's capital of $124.0 million from the date operations commenced through September 23, 1994. Potential Environmental Liabilities. The Company 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 Company 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. In 1985 the Louisiana Department of Environmental Quality (the "LDEQ") and Borden entered into a settlement agreement (the "Settlement Agreement") that called for the implementation of a long term groundwater and soil remediation program at the Geismar complex to address contaminants. Borden and the Company have implemented the Settlement Agreement, and have worked in cooperation with the LDEQ to remediate the groundwater and soil contamination. The Company believes that it already has sufficiently identified the extent of the groundwater plume. Nevertheless, the Company intends to drill and test some additional groundwater wells for the purpose of addressing issues raised by the LDEQ concerning whether the extent of the groundwater contamination has been identified. Borden has paid substantially all the costs to date of the Settlement Agreement. On October 27, 1994, the United States Department of Justice (the "DOJ"), at the request of the United States Environmental Protection Agency (the "EPA"), filed an action against the Company and BCPM in the United States District Court for the Middle District of Louisiana. The complaint seeks facility-wide corrective action and material civil penalties for alleged violations of the federal Resource, Conservation and Recovery Act ("RCRA"), the federal Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), and the federal Clean Air Act (the "Clean Air Act") at the Geismar complex. If the Company is unsuccessful in this proceeding, or otherwise subject to RCRA permit requirements, it may be subject to three types of costs: (i) corrective action; (ii) penalties; and (iii) costs needed to obtain a RCRA 14 permit. Corrective action could require the Company to conduct investigatory and remedial activities at the Geismar complex concurrently with the groundwater monitoring and remedial program that the Company is currently conducting under the Settlement Agreement. The cost of any corrective action could have a material adverse effect on the Company. Although the maximum statutory penalty that would apply if the government is successful in its enforcement action would be in excess of $150 million, the Company believes that, assuming the Company is unsuccessful and based on information currently available to it and an analysis of relevant case law and administrative decisions, the more likely amount of any liability for civil penalties would not exceed several million dollars. If the Company must incur additional costs to obtain a RCRA permit, it estimates that it will spend approximately $1.0 million to complete the RCRA permit application process that it has begun as a protective filing, and an additional amount, which the Company does not believe would be material, to amend its pending RCRA permit application to include the north trench sump at the Geismar facility. If the United States is successful in requiring the Company to perform corrective action at the Geismar complex, or the LDEQ requires the Company to perform further remedial measures in response to data generated by the planned additional groundwater wells, the Company anticipates that at least a portion of such corrective action costs or additional costs required by LDEQ would be covered by the Environmental Indemnity Agreement. Pursuant to such agreement, Borden has agreed, subject to certain conditions, to indemnify the Company and the Operating 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 facilities to the Company. The extent to which any penalties or permit costs that the Company may incur as a result of the government's recent enforcement action will be subject to the Environmental Indemnity Agreement will depend, in large part, on whether such penalties or costs are attributable to facts or circumstances that existed and requirements in effect prior to November 30, 1987. See "Business and Properties--Borden Environmental Indemnity" for a more detailed discussion of the terms and limitations of the Environmental Indemnity Agreement. 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, including claims arising from the Settlement Agreement and the enforcement action filed on October 27, 1994. However, insurance generally does not cover penalties or costs of obtaining a permit. A description of the Settlement Agreement, pending federal enforcement action, and the Company's evaluation of these matters, are set forth under "Legal Proceedings"; it is recommended that prospective purchasers of Units carefully review that section. Anticipated Capital Expenditures. The Company currently believes that the level of annual base capital expenditures at its Geismar and Illiopolis facilities over the next several years will be in the range of $20-25 million per year. The Company anticipates that total capital expenditures for 1994 will be approximately $23.0 million, of which $14.2 million was incurred during the first three quarters. Total capital expenditures for 1995 are anticipated to be approximately $42 to $46 million, $20 to $25 million of which will be used for annual base capital expenditures and the balance of which will be used primarily for an approved 30 million gallon methanol expansion and a proposed expansion of the Addis Facility. The Company's actual level of capital expenditures would vary substantially if the Company is required to undertake corrective action or incur other environmental compliance costs in connection with the proceedings discussed under "Legal Proceedings". No assurance can be given that greater capital expenditures will not be required. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources--Capital Expenditures" and "Business and Properties--Methanol and Derivatives". Operating Risks. The Company has two major operating facilities, the Geismar complex and the Illiopolis plant, and proposes to acquire a third major operating facility, the Addis Facility. The loss or shutdown of operations over an extended period of operations at any such facility would have a material adverse effect on the Company. The Company's operations are subject to the usual hazards associated with chemical manufacturing and the related storage and transportation of feedstocks, products and wastes, including 15 explosions, fires, inclement weather and natural disasters, mechanical failure, unscheduled downtime, transportation interruptions, remediation, chemical spills, discharges or releases of toxic or hazardous substances or gases and other environmental risks. These hazards can cause personal injury and loss of life, severe damage to or destruction of property and equipment and environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. 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. Potential Exposure to Increased Louisiana Use Taxes. The Louisiana Supreme Court recently upheld the imposition of use taxes by a local Louisiana taxing authority, Plaquemine Parish Government, against BP Oil Company on certain intermediate materials used in its reprocessing of crude oil. The holdings of this case could expose the Company to additional use tax liability in connection with its current operations in Louisiana. Under Louisiana law, the use tax is imposed by local authorities including parishes. Although the Louisiana parish in which the Company's current facility is located has not assessed any use taxes against the Company based on the holdings of the BP Oil Company case, the parish does have a use tax ordinance and under the holdings of the case could impose the use tax on the Company. For prior years for which the statute of limitation has not elapsed and the Company is subject to additional assessment, the Company's best current estimate of the potential amount of use taxes which might be imposed is approximately $10.0 million (exclusive of interest). The Company (together with many other businesses located in Louisiana) has filed a motion to intervene in the BP Oil Company case to support a rehearing and reversal of the court's decision. The Louisiana Supreme Court has recently granted a rehearing of one of the holdings of the BP Oil Company case. If the rehearing results in the reversal of such holding, the potential amount of use taxes which might be imposed for the prior years and future years may be substantially reduced. However, in the event the BP Oil Company case is not reversed and the Louisiana parishes in which the Company's facilities are located seek to assess a similar use tax, the Company estimates that the increased use tax costs in future years will be approximately $2.5 million per year. CONSIDERATIONS RELATING TO THE POSSIBLE CHANGE OF CONTROL OF BORDEN; RELATIONSHIP WITH BORDEN Borden has advised the Company that Borden has entered into the Merger Agreement pursuant to which an affiliate of KKR would, subject to certain terms and conditions, merge with and into Borden. In the event that such a transaction were to be effected, Borden would become a subsidiary of Whitehall Associates, L.P., an affiliate of KKR. As a result of certain actions taken by Borden's Board of Directors, the Unitholders will not have a right to require Borden to purchase the Units in connection with the transactions contemplated in the Merger Agreement. See "Description of the Depositary Units and the Deposit Agreement--Conditional Right to Require Purchase of Units by Borden". Sales to Borden represented approximately 19% of the Company's total sales in 1993 and approximately 21% of the Company's total sales in the first nine months of 1994 (less than 18% in both 1993 and the first nine months of 1994 on a pro forma basis after giving effect to the Acquisition). Borden and the Operating Company are parties to certain Purchase Agreements and Processing Agreements described under "Business and Properties--Purchase and Processing Agreements". Such agreements require Borden, subject to the terms and conditions contained therein, to purchase from the Company at least 85% of Borden's requirements for PVC resins, methanol, ammonia and urea and to utilize certain percentages of the Company's capacity to process formaldehyde and urea- formaldehyde concentrate. The Company believes that the pricing formulae set forth in such agreements have in the past provided aggregate prices and processing charges for the covered products that over time have approximated the aggregate prices and processing charges that Borden would have been able to obtain from unaffiliated suppliers, considering the magnitude of Borden's purchases, the long-term nature of such agreements and other factors. The Company believes that this will continue to be the case in the future. There may be conditions prevailing in the market at various times, however, under which the prices and processing charges under these agreements could be higher or lower than those obtainable from unaffiliated third parties. Because the Purchase and Processing Agreements are requirements contracts, sales or processing of products thereunder are dependent on Borden's requirements for such products. Such requirements could be 16 affected by a variety of factors, including a sale or other disposition by Borden of all or certain of its manufacturing plants to unaffiliated purchasers (in which event such agreements would not apply to any such purchaser unless otherwise agreed to by such purchaser). In the event that, whether following any change of control of Borden or otherwise, Borden were to sell or otherwise dispose of all or certain of its plants or otherwise reorient its businesses, Borden's requirements for products sold or processed by the Company under the Purchase and Processing Agreements could be diminished or eliminated. In the event that Borden's requirements under any such agreements were to be materially diminished or eliminated, the Company's sales of the applicable products would be affected in the short-term while the Company attempted to find replacement customers. Depending on market conditions, the Company may be able to effect sales of such products at lower or higher prices than would otherwise have been the case had Borden's requirements for such products been maintained at past levels. In the event of a weak market for any such products, the Company's sales volumes would likely be lower than if Borden's requirements for such products had been maintained at past levels. The Company anticipates that, if Borden were to sell all or certain of its chemical products manufacturing facilities, a purchaser may be interested in negotiating the continuation of all or certain of the Purchase and Processing Agreements. Prior to the announcement of Borden's proposed merger with an affiliate of KKR, Borden's management had presented a plan to its Board of Directors aimed at improving Borden's financial performance. The plan recommended the sale of certain of Borden's businesses, including a sale of Borden's manufacturing plants that use PVC resins purchased from the Company. In light of the proposed merger of Borden, it has not been determined by Borden's Board of Directors whether Borden will pursue the recommendations of its management's plan. Borden's other agreements with the Company include an environmental indemnity agreement (see "Business and Properties--Environmental and Safety Regulations") and a covenant not to compete in the manufacture or sale in the United States of certain products manufactured by the Company (see "Business and Properties-- Competition"). Borden has also capitalized BCPM with a promissory note of Borden with an aggregate outstanding principal amount of $37.5 million and will, in connection with this offering, issue to BCPM an additional promissory note in the amount of 10% of the net proceeds of this offering. The promissory note of Borden representing the original capitalization of BCPM was not contributed to the Company and remains outstanding. Pursuant to the Partnership Agreements, BCPM has a 1% general partner interest in the Company and a 1.0101% general partner interest in the Operating Company. Pursuant to the Intercompany Agreement, BCPM is required to maintain a net worth equal to at least 10% of the capital contributions to the Company or the Operating Company. For this purpose, "net worth" means the excess of (i) the fair market value of all assets of BCPM (exclusive of any interest in, and notes and accounts receivable from, any limited partnership in which BCPM has any interest) over (ii) all liabilities of BCPM. In order to meet such net worth test, BCPM intends to retain as assets, and does not intend to contribute to the Company, such promissory note and the additional promissory note of Borden to be issued to it by Borden in connection with this offering. In addition, the Company has no employees, and the Company relies on the officers and employees of BCPM, who are also officers or employees of Borden. No assurance can be given as to whether, following a change of control or otherwise, Borden would dispose of various assets or businesses, increase its leverage or effect changes in its management so as to adversely affect the financial condition, size, scope of business or management of Borden and thereby its ability to perform its contractual obligations to the Company or adversely affect the management of BCPM. CONSIDERATIONS RELATING TO THE ADDIS FACILITY Integration of Addis Facility. The Acquisition represents a significant increase in the Company's PVC resin business. The Addis Facility's fiscal 1993 total net sales were approximately $96.2 million. Successful integration of the Addis Facility into the Company's operations will depend primarily on the Company's ability to maintain existing sales levels and achieve improved operating efficiencies and lower overhead costs. There can be no assurance that the Company can successfully integrate the Addis Facility. 17 Potential Addis Environmental Liabilities. Similar to the Company, the operations of the Addis Facility are subject to federal, state and local environmental, health and safety laws and regulations. Pursuant to the Asset Transfer Agreement, OxyChem has agreed to indemnify 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, 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. 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. CONSIDERATIONS RELATING TO PARTNERSHIP STRUCTURE AND RELATIONSHIP TO THE GENERAL PARTNER Limited Liability of Limited Partners is Not Unconditional. The Operating Company conducts business in Louisiana, Illinois and other states. The limitations on the liability of limited partners for the obligations of a limited partnership have not been clearly established in some states. If it were determined that the Company was, by virtue of its ownership of a limited partner interest in the Operating Company or otherwise, conducting business in any state without compliance with the applicable limited partnership statute, or that the right or the exercise of the right by the Unitholders as a group to remove or replace the General Partner of the Company, to make certain amendments to the Partnership Agreement or to take other action pursuant to the Partnership Agreement constituted participation in the "control" of the Company's business, then the Unitholders could be held liable for the Company's obligations to the same extent as a general partner. See "Summary of the Partnership Agreements--Limited Liability". Liability of Unitholders for Return of Certain Distributions. Unitholders will not be liable for assessments in addition to their initial capital investments in the Units. Under certain circumstances, however, a Unitholder may be required to repay, for a period of one year after return, amounts rightfully returned to him which represent a return of contribution and which are necessary to discharge the Company's liabilities to creditors who extended credit to the Company during the period such contribution was held by the Company. In addition, under certain circumstances, a Unitholder may be required to repay amounts wrongfully returned or distributed to him. See "Summary of the Partnership Agreements--Limited Liability". Management and Control by the General Partner; Difficulty in Removing General Partner. The General Partner has broad discretion to manage the business and operations of the Company including, without limitation, matters affecting the amount of Available Cash. Unitholders have no right to elect the General Partner or its Board of Directors on an annual or other ongoing or periodic basis. The limited partners of the Company (the "Limited Partners") may not remove the General Partner unless (i) such removal is approved by Unitholders holding at least 66 2/3% of the Units held by persons other than BDH One, Inc. ("Borden Delaware"), a wholly owned subsidiary of Borden, or its affiliates and (ii) they receive a legal opinion relating to the tax status of the Company and the limited liability of the Unitholders. The substitution of a new general partner requires the approval by Unitholders holding more than 50% of the Units held by persons other than Borden Delaware or its affiliates (a "Majority Interest"). BCPM has agreed not to withdraw as general partner of the Company and the Operating Company (with limited exceptions described below) without the approval of a Majority Interest prior to November 30, 2002. Notwithstanding the foregoing, BCPM may withdraw as general partner, without the approval of a Majority Interest and without an opinion of counsel relating to certain matters, upon 90 days' notice to the Unitholders if more than 50% of the outstanding Units held by persons other than by Borden Delaware or its affiliates are held by one person or its affiliates. 18 The General Partner may transfer all, but not less than all, of its general partner interests in the Company and the Operating Company without the approval of the Unitholders to a subsidiary of Borden or upon its merger or consolidation into another entity or the transfer of all or substantially all of its assets to another entity, provided in either case that such subsidiary or entity assumes the rights and duties of the General Partner, agrees to be bound by the provisions of the Partnership Agreement and the Amended and Restated Agreement of Limited Partnership of the Operating Company (the "Operating Partnership Agreement," and, together with the Partnership Agreement, the "Partnership Agreements") and furnishes an opinion of counsel that such transfer would not result in the loss of the limited liability of any Unitholders or of the limited partner of the Operating Company or cause either the Company or the Operating Company to be taxable as a corporation or an association taxable as a corporation for federal income tax purposes. In the case of any other transfer, in addition to the foregoing requirements, the vote of a Majority Interest is required. The Partnership Agreements provide that the withdrawal or removal of BCPM as the general partner of either the Company or the Operating Company will automatically constitute its withdrawal or removal as general partner of the other. See "Summary of the Partnership Agreement-- Withdrawal or Removal of the General Partner; Obligations of BCPM and Borden". In addition, Borden has agreed to retain, either directly or through a wholly owned subsidiary, beneficial ownership of 100% of the shares of capital stock of BCPM until the earlier of (i) November 30, 2002, (ii) the first date as of which the General Partner is permitted to withdraw as general partner of the Company as described above or (iii) the date as of which a Majority Interest approves the sale of such shares. Conflicts of Interest. Certain conflicts of interest may arise as a result of the General Partner's relationship with Borden and its affiliates, including the Company. Such conflicts may include, among others, the following situations: (i) decisions of the General Partner that affect Available Cash and the payment of incentive distributions to the General Partner, such as the General Partner's determination of the amount and timing of any capital expenditures, borrowings and reserves and which expenditures are necessary or appropriate to provide for the proper conduct of the business of the Company, thereby reducing Available Cash from which the Target Distribution is payable; (ii) the issuance of additional equity securities; (iii) payments to the General Partner or its affiliates for any services rendered to or on behalf of the Company, subject to the limitations described under "Conflicts of Interest and Fiduciary Responsibilities"; (iv) the General Partner's determination of which direct and indirect costs are reimbursable by the Company; (v) enforcement by the General Partner of obligations owed by the General Partner or its affiliates to the Company, including the obligations of Borden or its subsidiaries under the Purchase and Processing Agreements and the Environmental Indemnity Agreement; and (vi) the decision to retain separate counsel, accountants or others to perform services for or on behalf of the Company. Such conflicts of interest may also arise if and when Borden and its affiliates engage in businesses, either currently or in the future, that may be in competition with the business then conducted by the Company. See "-- Considerations Relating to the Possible Change of Control of Borden; Relationship with Borden". The Partnership Agreements provide that the General Partner may resolve any conflicts of interest that may arise by, among other things, considering the relative interests of all the parties to the conflict and such additional factors as the General Partner deems relevant, reasonable or appropriate under the circumstances. Thus, unlike the strict duty of a trustee who must refrain under state law from engaging in transactions with its affiliates and must act solely in the best interests of its beneficiary, the Partnership Agreement permits the General Partner to consider the interests of all parties to any conflict of interest, including Borden and its affiliates. See "Conflicts of Interest and Fiduciary Responsibility". As described under "Use of Proceeds", the Operating Company intends to offer Notes and use a portion of the net proceeds to prepay the Old Notes. The Company anticipates that, in order to effect such prepayment, it will need to pay a Prepayment Premium. The prepayment of the existing Old Notes will, in addition to providing certain benefits to the Company described under "Use of Proceeds", benefit Borden 19 because it will have the effect of terminating the Borden Purchase Obligation that would otherwise be triggered by a change of control of Borden. Because of the benefits to Borden of the prepayment of the Old Notes, Borden has advised the Company that it is willing to pay a portion of the Prepayment Premium. Because the allocation of the Prepayment Premium between Borden and the Company constitutes a conflict of interest between Borden and the Company, such allocation will be subject to Special Approval. See "Use of Proceeds". Modification of Fiduciary Duties. The General Partner is generally accountable to the Company and to the Unitholders as a fiduciary. Consequently, the General Partner generally must exercise good faith and integrity in handling the assets and affairs of the Company. The Delaware Revised Uniform Limited Partnership Act (the "Delaware Act") provides that Delaware limited partnerships may, in their partnership agreements, modify the fiduciary duties that might otherwise be applied by a court in analyzing the duty owed by general partners to limited partners. The Partnership Agreements, as permitted by the Delaware Act, contain various provisions that have the effect of restricting the fiduciary duties that might otherwise be owed by the General Partner to the Company and its partners. In addition, holders of Units are deemed to have consented to certain actions and conflicts of interest that might otherwise be deemed a breach of fiduciary or other duties under state law. Such modifications of state law standards of fiduciary duty may significantly limit a Unitholder's ability to successfully challenge the actions of the General Partner as being in breach of what would otherwise have been a fiduciary duty. Limitations on the Voting Rights of the Limited Partners. Unlike the holders of common stock in a corporation, holders of outstanding Units have only limited voting rights on matters affecting the Company. As a result of such limited voting rights, holders of Units will not have the ability to participate in partnership governance to the same degree as holders of common stock in a corporation. The treatment of the Company as a corporation for tax purposes commencing January 1, 1998 would not, in itself, change the Unitholders' status as a limited partner for any other purpose. The sale or exchange of all or substantially all of the Company's or the Operating Company's assets requires the approval of a Majority Interest. An election of the General Partner to dissolve the Company requires the approval of a Majority Interest. See "Summary of the Partnership Agreements--Meetings and Voting". Unitholders holding 20% or more of the outstanding Units have the right to propose amendments to the Partnership Agreement. Under certain circumstances, Assignees have certain rights to cause the General Partner to vote the Units owned by such Assignees pursuant to their written direction. See "Summary of the Partnership Agreements--Amendment of Partnership Agreements"; --Meetings and Voting". Issuance of Additional Units May Cause Dilution to Existing Unitholders. The Partnership Agreement authorizes the General Partner to cause the Company to issue an unlimited number of additional units and other equity securities ("Additional Units") (subject to a limitation on the number of equity securities that may be issued that have rights to distributions or in liquidation ranking on a parity with, prior to or senior to, the Units) for such consideration and on such terms and conditions as shall be established by the General Partner in its sole discretion without the approval of any Unitholders. See "Summary of the Partnership Agreements--Issuance of Additional Units and Securities". Any increase in the number of Units outstanding would result in a decrease in the proportionate ownership interest in the Company represented by, and may adversely affect the market price of, Units then outstanding and may reduce the amount of per Unit distributions by the Company. Right of General Partner to Call Units. In the event that at any time less than 10% of the Units are held by persons other than the General Partner and its affiliates, the General Partner will have the right, which it may assign and transfer to any of its affiliates or to the Company, to purchase all, but not less than all, of the outstanding Units held by such nonaffiliated persons. See "Summary of the Partnership Agreements--Right to Call Units". Absence of Arm's-Length Agreements. Neither the Partnership Agreements nor the Purchase and Processing Agreements and the Environmental Indemnity Agreement nor any other agreement between 20 Borden and the Company was the result of arm's-length negotiations. See "Conflicts of Interest and Fiduciary Responsibility". Relationship with Borden. The Company has numerous continuing relationships with Borden. The General Partner is a wholly-owned subsidiary of Borden. In addition, Borden has entered into certain Purchase and Processing Agreements with the Operating Company. The Company also has the right to use certain trademarks and patents under a license agreement with Borden. Borden's other agreements with the Company include an environmental indemnity agreement (see "Business and Properties--Environmental and Safety Regulations") and a covenant not to compete in the manufacture or sale in the United States of certain products manufactured by the Company (see "Business and Properties-- Competition"). Borden has also capitalized the General Partner with a promissory note of Borden having an aggregate outstanding principal amount of $37.5 million and will, in connection with this offering, issue to the General Partner an additional promissory note in the amount of 10% of the net proceeds of this offering. In addition, the Company has no employees and the Company relies on the officers and employees of the General Partner who are officers or employees of Borden. The Partnership Agreements provide that the Company will not engage in any business other than the manufacture or production of PVC resins, VCM, acetylene, methanol, formaldehyde, urea-formaldehyde concentrate, ammonia, urea and acetic acid, unless such other business is approved by Special Approval. Moreover, the General Partner is not permitted to cause the Company to construct any plants at locations other than Geismar and Illiopolis or to expand significantly the capacity of the Geismar formaldehyde plants without Special Approval. The Company's acquisition of the Addis Facility received Special Approval. See "The Acquisition". The Company and the Operating Company are intended to be limited purpose partnerships, and the Partnership Agreements provide that the General Partner has no duty to propose or approve, and in its sole discretion may decline to propose or approve, any of the above actions. For a discussion relating to a possible change of control of Borden see "--Considerations Relating to Possible Change of Control of Borden; Relationship with Borden". TAX CONSIDERATIONS For a general discussion of the expected federal income tax consequences of acquiring, owning and disposing of Units, see "Certain Federal Income Tax Considerations". Characterization of Partnership Income. Certain Unitholders, including any Unitholder who is an individual, will not be permitted to use losses from other passive activities to offset income from the Company. A Unitholder's share of net passive income from the Company will be treated as investment income and may be offset by such Unitholder's investment interest expense. Partnership Status. Based upon certain representations of the General Partner, Sidley & Austin, special counsel to the Company, the Operating Company and BCPM, has rendered its opinion that under current law and regulations, which are subject to change, (i) each of the Company and the Operating Company will be treated as a partnership for federal income tax purposes (but, in the case of the Company, such treatment will not extend beyond the Company's taxable year ending December 31, 1997); (ii) the owners of Units (other than an owner who is entitled to execute and deliver a Transfer Application but who has failed to do so) will be treated as partners of the Company (but such treatment will not extend beyond the Company's taxable year ending December 31, 1997); and (iii) the acquisition of the Addis Assets by the Operating Company will not be the addition of a substantial new line of business with respect to the Company. However, no advance ruling from the IRS as to such status has been or will be requested, and the opinion of counsel is not binding on the IRS. If the IRS were to challenge the federal income tax status of the Company or the amount of the Unitholder's allocable share of the Company's taxable income, such challenge could result in an audit of the Unitholder's entire tax return and in adjustments to non-Company items on that return. In addition, the Unitholder would bear the cost of any expenses incurred in connection with an examination of his personal tax return. One of the criteria involved in determining whether the Company and the Operating Company are treated as partnerships for federal income tax purposes is whether the General Partner has and maintains a 21 substantial net worth (as such term is used for partnership tax law purposes). The opinion of Sidley & Austin that the Company and the Operating Company will be treated as partnerships for federal income tax purposes is expressly conditioned on the General Partner maintaining a specified net worth. See "Certain Federal Income Tax Considerations--Legal Opinions and Advice"; and "-- Partnership Status". At the time of the sale of the Units offered hereby, the General Partner will have such net worth, represented in whole or in part by a demand note issued by Borden. Treatment of either the Company or the Operating Company as a corporation in any taxable year (which will occur in the case of the Company in its first taxable year beginning after December 31, 1997) would result in its income, gains, losses, deductions and credits being reflected only on its tax return rather than being passed through to Unitholders, and its net income being taxed at corporate rates. In addition, distributions made to Unitholders would be treated as dividend income (to the extent of current or accumulated earnings and profits), and, in the absence of current or accumulated earnings and profits, as a nontaxable return of capital (to the extent of the Unitholder's basis in his Units), or as capital gain (after the Unitholder's basis in his Units is reduced to zero). Furthermore, losses realized by the Company and the Operating Company would not flow through to Unitholders. Ownership of Units by Tax-Exempt Entities. It is anticipated that substantially all of the income derived from the Company by tax exempt entities (including individual retirement accounts and other retirement plans) will constitute unrelated business taxable income until December 31, 1997. As a result, tax-exempt entities which become Unitholders will be required to report the Company's taxable income on a federal income tax return filed with the IRS and may be required to pay taxes on such income. See "Certain Federal Income Tax Considerations--Tax Treatment of Operations--Unrelated Business Taxable Income". Tax Liability Exceeding Cash Distributions or Proceeds from Dispositions of Units. A Unitholder will be required to pay federal income tax and, in certain cases, state and local income taxes, on his allocable share of the Company's income, whether or not he receives cash distributions from the Company. Taxable income may exceed cash distributions and Unitholders may be required to pay tax liabilities without the receipt of cash from the Company. Further, upon the sale or other disposition of Units, a Unitholder may incur tax liability in excess of the amount of cash received. To the extent that a Unitholder's tax liability exceeds the amount distributed to him or which he receives on the sale or other disposition of his Units, he will incur an out-of-pocket expense. State and Local Taxes. With respect to an investment in Units, Unitholders will be required to file state and local income tax returns and to pay state and local income taxes in their states of domicile. In addition, Unitholders may be liable for state and local taxes in the various states in which the Operating Company conducts business or in which its properties are located. The Operating Company currently conducts business primarily in Illinois and Louisiana, although an obligation to file tax returns or to pay taxes may arise in other states. Automatic Taxation as a Corporation after 1997. The General Partner anticipates that, because of certain amendments made to the Code subsequent to the formation of the Company, the Company will be treated as a corporation for federal income tax purposes during the Company's first taxable year beginning after December 31, 1997. In general, the principal tax disadvantage of the treatment of the Company as a corporation is that a corporation pays taxes on its net income and in addition, its shareholders generally pay taxes on any dividends from the corporation. In contrast, a partnership pays no entity-level tax and its partners pay tax on their share of the partnership net income and on distributions that exceed their tax basis in their partnership interests. Accordingly, the treatment of the Company for federal income tax purposes as a corporation after 1997 will result in a material reduction in a Unitholder's cash flow and after-tax return. 22 PARTNERSHIP STRUCTURE The Company was formed in 1987 to acquire, own and operate, through the Operating Company, PVC, methanol and other chemical plants located at Geismar, Louisiana, and Illiopolis, Illinois, that were previously owned and operated by Borden. BCPM is the sole general partner of each of the Company and the Operating Company and has a 2% aggregate interest in the Company. BCPM is a wholly-owned subsidiary of Borden. The Company is managed and operated by officers and employees of BCPM, who are also employees of Borden. The Company currently has no employees and does not anticipate having any employees. The following chart depicts the organization and ownership of the Company after giving effect to the sale of the Units offered hereby (assuming the Underwriters' over-allotment option is not exercised). [GRAPHIC APPEARS HERE] The Operating Company owns 100% of Finance Corp., a co-issuer, together with the Operating Company, of the Notes. The principal executive offices of the Company and BCPM are located at Highway 73, Geismar, Louisiana 70734, and the telephone number is (504) 673- 6121. 23 THE ACQUISITION OVERVIEW On August 12, 1994, the Operating Company entered into an asset transfer agreement (the "Asset Transfer Agreement") with OxyChem to purchase the Addis Assets and assume certain obligations relating to the Addis Assets. The cash purchase price for the Addis Assets is $104.3 million, subject to certain customary post-closing adjustments. Based primarily on the inventory levels of the Addis Facility at September 30, 1994, the Company expects that such post- closing adjustments could reduce the purchase price by up to $5.0 million. The Acquisition provides the Company the opportunity to increase its PVC resin capacity at a time of increasing demand for PVC resin. The Company believes that purchasing an existing plant, which has a proven operating capacity, is substantially more cost effective than increasing capacity through the construction of a new grass-roots facility. In addition, a new grass-roots facility would require two to three years to complete. The closing of this offering will occur concurrently with, and is conditioned upon, the closing of the Acquisition. The Acquisition is subject to certain conditions, including approval by the FTC, an environmental assessment of the real estate upon which the Addis Facility is located and the financing of the Acquisition. The purchase price for the Addis Assets will be financed in part by the proceeds of this offering. The remaining purchase price will be financed through a concurrent offering of the Notes. Neither the Acquisition nor this offering is conditioned upon consummation of the Notes offering. In the event that the Notes offering is postponed or not consummated, the Company will use short-term borrowings, cash on hand or a combination thereof to fund a portion of the purchase price of the Addis Assets. The use of cash on hand would reduce cash available for distribution to Unitholders. See "Use of Proceeds." ADDIS FACILITY The Addis Facility, which is located in Addis, Louisiana, produces general purpose PVC resins. The Addis Facility began operations in 1979 and is located on approximately 40 acres of a 220 acre site. Approximately 140 employees work at the Addis Facility, including approximately 55 contract personnel. The current permitted annual capacity of the plant is 600 million pounds although proven annual capacity is 450 million pounds. Production during the years 1990 through 1993 has ranged from 407 million to 450 million pounds per year depending on product mix and timing of maintenance turnarounds. In 1993, only 407 million pounds of PVC resins were produced, partially as a result of a scheduled maintenance outage in November. In addition, during 1993, the Addis Facility produced 95% of its volume as low molecular weight resin which runs at a line rate 11% slower than standard molecular weight resin such as pipe grade resin. SPECIAL APPROVAL Under the Operating Partnership Agreement, Special Approval is required in order for the Operating Company to acquire, own and operate the Addis Assets. As so required, the acquisition, ownership and operation by the Operating Company of the Addis Assets and the Asset Transfer Agreement have been approved by Special Approval. CERTAIN TERMS OF THE ASSET TRANSFER AGREEMENT Pursuant to the Asset Transfer Agreement, the Operating Company will purchase the Addis Assets, which includes the Addis Facility, and assume certain obligations relating to the current operation of the Addis Assets such as executory obligations under existing leases, licenses, permits and contracts. In addition, the General Partner will extend offers of employment, on terms determined by it, to all the hourly employees and certain salaried employees employed at the Addis Facility, and will provide certain employee benefits to such employees. The Asset Transfer Agreement contains certain customary representations and warranties of the Operating Company and OxyChem, as well as customary closing conditions. 24 OxyChem has agreed to indemnify the Operating Company and affiliated persons for any actions, losses and expenses arising out of the operation of the Addis Facility prior to the closing and any pre-closing liabilities imposed under environmental laws in effect prior to the closing. The Operating Company has agreed to indemnify OxyChem and affiliated persons for any actions, losses and expenses arising out of similar actions or liabilities arising after the closing. In addition, OxyChem and the Operating Company have agreed to indemnify each other for claims, damages, liabilities, losses or other expenses arising out of, certain other matters, including (i) breaches of representations, warranties and covenants, (ii) products liability for products shipped by OxyChem or the Operating Company before or after the closing of the Acquisition, as the case may be, and (iii) liabilities or obligations of OxyChem which are or are not assumed by the Operating Company, as the case may be. Certain of such indemnities are subject to limitations in terms of indemnified amounts and indemnification periods. VCM SUPPLY AGREEMENT AND PVC TOLLING AGREEMENT Upon the closing of the Acquisition, the Operating Company and OxyChem will enter into a VCM supply agreement (the "VCM Supply Agreement") that would obligate the Operating Company to purchase from OxyChem its requirements for VCM at the Addis Facility up to a specified annual base requirement. The VCM Supply Agreement is a multi-year agreement under which OxyChem will sell VCM to the Company at competitive rates. Upon the closing of the Acquisition, the Operating Company and OxyChem will also enter into a PVC Tolling Agreement (the "PVC Tolling Agreement"), under which OxyChem will supply VCM to the Operating Company for conversion into a specified annual base quantity of PVC at the Addis Facility for OxyChem. The PVC Tolling Agreement is a multi-year agreement under which the Operating Company will manufacture PVC for a competitive fee. ACCOUNTING TREATMENT The Acquisition will be treated as a purchase for accounting purposes. Accordingly, the results of operations of the Addis Facility will be included in the Company's consolidated results of operations from and after the closing of the Acquisition. Based on internal engineering evaluations, which indicate that the fair market value of the Addis Assets will exceed the acquisition price, management anticipates that no goodwill will be recognized from the Acquisition for accounting purposes. 25 USE OF PROCEEDS The net proceeds from this offering of Units are estimated to be approximately $74.2 million, after deduction of underwriting discounts and commissions and estimated expenses. The Company intends to contribute all such net proceeds to the Operating Company to fund a portion of the purchase price for the Addis Assets and related expenses. See "The Acquisition". If the Underwriters' over-allotment option is exercised in full, the Company intends to contribute the estimated additional $11.3 million of net proceeds to the Operating Company to be used to fund any remaining portion of the purchase price for the Addis Assets, and for other permitted partnership purposes. Concurrently with this offering of Units, the Operating Company and Finance Corp. intend to make a public offering of the Notes in an aggregate principal amount of $200.0 million. See "Summary of the Financing Documents-- The Notes". Such offering will be made only by means of a separate prospectus. It is possible that the Company may postpone or not consummate the Notes offering. Neither the Acquisition nor this offering is conditioned upon consummation of the Notes offering. The Operating Company intends to use the net proceeds from the sale of the Notes first to prepay the currently outstanding $150.0 million aggregate principal amount of the Old Notes. The remaining proceeds of the Notes offering will be used to fund a portion of the purchase price of the Addis Assets and for other permitted partnership purposes. In the event the Notes offering is postponed or not consummated, the Company will use short-term borrowings, cash on hand or a combination thereof to fund a portion of the purchase price of the Addis Assets. In addition, in the event that the Notes offering is not consummated, the Old Notes will not be refinanced and will continue to remain outstanding (although in such event the Company may, but has not determined that it will, attempt to refinance the Old Notes through a new loan facility or to seek an amendment to certain terms of the Old Notes). See "Summary of the Financing Documents--The Old Notes and the Working Capital Facility". The Operating Company does not have a contractual right to prepay the Old Notes but it has initiated discussions with the Old Noteholders and anticipates that it is likely to obtain their consent to prepayment of the Old Notes. The Operating Company expects that the prepayment price will equal the outstanding aggregate principal of and accrued interest on the Old Notes, together with a Prepayment Premium to be negotiated with the Old Noteholders. In connection with the original issuance by the Operating Company of the Old Notes, Borden had entered into the Borden Purchase Obligation, which provides that, in the event of a change of control of Borden, the Old Noteholders may elect to require Borden to purchase the Old Notes at a price equal to the outstanding aggregate principal of and accrued interest on the Old Notes, together with the Change of Control Premium. The change of control of Borden that would result from the completion of the transactions contemplated in the Merger Agreement would trigger the Borden Purchase Obligation. However, in the event that the Operating Company were to prepay the Old Notes, the Borden Purchase Obligation would be terminated. Borden has advised the Company that, in view of such termination of the Borden Purchase Obligation and the benefits to Borden of such termination, Borden is willing to pay a portion of the Prepayment Premium that Borden determines to be fair and reasonable to Borden. The Company believes that the refinancing of the Old Notes with the Notes will also benefit the Company by way of a significant extension of the maturity of the Operating Company's indebtedness and additional operating and financial flexibility as a result of elimination or modification of certain of the restrictive covenants currently imposed on the Operating Company under the Note Agreement. In addition, the Company anticipates that the interest rate on the Notes is likely to be lower than the interest rates on the Old Notes. Because of these factors, the Company is also willing to pay a portion of the Prepayment Premium so long as such payment is determined by Special Approval to be fair and reasonable to the Company. The Company anticipates that the Prepayment Premium payable in connection with the prepayment of the Old Notes will be no greater than the Change of Control Premium payable by Borden had the Borden Purchase Obligation been triggered at the time of such prepayment of the Old Notes. In the event that the 26 Change of Control Premium were payable on November 18, 1994, the amount of such premium would be approximately $14.0 million. Assuming interest rates remain constant or increase, such amount will decrease over time. Borden and the Company have not agreed to any allocation of the Prepayment Premium, although the Company believes that an allocation can be made on a basis that is fair and reasonable to the Company and Borden. Because the allocation of the Prepayment Premium between Borden and the Company constitutes a conflict of interest between Borden and the Company, any such allocation of the Prepayment Premium will be subject to Special Approval. In the event that the Company is not able to negotiate a satisfactory Prepayment Premium with the Old Noteholders or in the event that the Company and Borden are not able to negotiate a satisfactory allocation of the Prepayment Premium in a timely manner, the Operating Company will not proceed with the offering of the Notes and any remaining funds required by the Operating Company for the purchase price of the Addis Assets will be obtained as described below. The General Partner will make a capital contribution to the Company in an amount equal to 1% of the net proceeds of this offering. Such amount, together with the proceeds of the Units offered hereby, will be contributed as a capital contribution by the Company to the Operating Company. The General Partner will also make a capital contribution directly to the Operating Company in an amount equal to 1% of the aggregate amount of capital contributions referred to in the preceding sentence. CAPITALIZATION The following table sets forth the consolidated capitalization of the Company at September 23, 1994, and as adjusted to reflect (i) the consummation of the Acquisition, (ii) the sale of 4,000,000 Units pursuant to this offering (after deducting underwriting discounts and commissions and estimated offering expenses), (iii) the issuance and sale by the Operating Company of the Notes, (iv) the prepayment of the Old Notes and (v) the contribution to the capital of the Company by the General Partner. Such information should be read in conjunction with the historical and pro forma financial statements and the notes thereto included elsewhere in this Prospectus or incorporated by reference in this Prospectus.
AT SEPTEMBER 23, 1994 ------------------------ ACTUAL AS ADJUSTED(1) --------- -------------- (AMOUNTS IN THOUSANDS) Long-Term Debt: Old Notes(2)......................................... $150,000 $ -- Notes(3)............................................. -- 200,000 Partners' Capital(4): Common Unitholders................................... 228,615 289,170 General Partner...................................... 1,252 1,863 --------- -------- Total Partners' Capital.............................. 229,867 291,033 --------- -------- Total Capitalization................................... $379,867 $491,033 ========= ========
- -------- (1) In the event the Notes offering is not consummated, the Company will use short-term borrowings, cash on hand or a combination thereof to fund a portion of the purchase price of the Addis Assets. In such event and assuming the Prepayment Premium is not incurred, the principal amount of Old Notes outstanding would remain at $150,000 and total partners' capital and total capitalization, as adjusted, would be $304,892 and $454,892, respectively. (2) See "Summary of the Financing Documents--The Old Notes and the Working Capital Facility". (3) See "Summary of the Financing Documents--The Notes". (4) Partners' Capital, as adjusted, reflects the aggregate estimated charge related to the prepayment of the Old Notes. The total Prepayment Premium is currently estimated to be $14.0 million, of which each of Borden and the Company would pay a portion. See "Use of Proceeds". 27 PRICE RANGE OF UNITS AND DISTRIBUTIONS The Units are listed on the New York Stock Exchange, Inc. (the "NYSE") under the symbol BCU. As of September 23, 1994 there were approximately 6,900 holders of record of Units. The Company distributes 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. See "Cash Distributions". The following table presents for the periods indicated the cash distributions declared on Units, and the high and low sale prices of the Units, as reported on the NYSE Composite Tape. The cash distributions set forth below represent distributions of Available Cash per Unit with respect to each quarter, which distributions are made in the following quarter. As described under "Description of Depository Units and the Deposit Agreement--Combination of Units and Elimination of Distribution Support", until December 31, 1992 the Units constituted two separate classes of limited partner interests in the Partnership, Preference Units and Common Units (which Common Units traded on the NYSE as Enhanced Common Units). The two classes of Units received the same level of distributions per Unit, but traded at slightly different price levels. The two classes were combined into a single class of Units effective December 31, 1992 and the listing of the Units on the NYSE was combined under the symbol BCU on February 16, 1993. The following table reflects the trading history of the Enhanced Common Units through February 15, 1993.
CASH HIGH LOW DISTRIBUTIONS ------ ------- ------------- 1989:First quarter................................ $ 24 $17 7/8 $0.80 Second quarter............................... 22 16 1/4 0.80 Third quarter................................ 18 7/8 13 1/2 0.50 Fourth quarter............................... 14 5/8 9 7/8 0.35 1990:First quarter................................ 12 5/8 10 1/8 0.34 Second quarter............................... 10 3/4 8 1/2 0.56 Third quarter................................ 10 5/8 7 5/8 0.53 Fourth quarter............................... 9 1/4 7 1/2 0.52 1991:First quarter................................ 13 1/4 8 3/8 0.39 Second quarter............................... 12 7/8 10 3/8 0.45 Third quarter................................ 13 1/4 11 5/8 0.62 Fourth quarter............................... 14 3/4 12 1/8 0.52 1992:First quarter................................ 22 7/8 13 3/4 0.45 Second quarter............................... 21 3/8 16 1/2 0.51 Third quarter................................ 19 3/8 15 7/8 0.32 Fourth quarter............................... 17 12 3/8 0.31 1993:First quarter................................ 17 1/8 13 5/8 0.30 Second quarter............................... 16 1/8 10 3/4 0.18 Third quarter................................ 12 1/8 8 7/8 0.12 Fourth quarter............................... 11 1/4 8 1/4 0.18 1994:First quarter................................ 13 1/4 9 7/8 0.21 Second quarter............................... 15 1/8 10 7/8 0.65 Third quarter................................ 25 7/8 13 1/4 1.02 Fourth quarter............................... 26 3/8 19 1/4 (1) (through November 21, 1994)
- -------- (1) The Company anticipates declaring a distribution with respect to the fourth quarter on or about January 24, 1995. On November 21, 1994, the last reported sale price of Units on the NYSE Composite Tape was $19 7/8 per Unit. 28 CASH DISTRIBUTIONS GENERAL A principal objective of the Company is to generate cash from operations and to distribute Available Cash to the Unitholders and the General Partner in the manner described herein. "Available Cash" means generally, with respect to any quarter, the sum of all of the cash receipts of the Company (including distributions of cash received from the Operating Company) plus net reductions to reserves established in prior quarters, less all of its cash disbursements and net additions to reserves in such quarter. The full definition of Available Cash is set forth in "Glossary of Terms". Both the Old Notes and the Notes being offered concurrently with this offering of Units impose restrictions on the ability of the Operating Company to distribute cash to the Company and, therefore, the ability of the Company to make distributions to Unitholders. See "Summary of the Financing Documents". The definition of Available Cash permits the General Partner to establish cash reserves that it determines are necessary or appropriate to provide for the proper conduct of the business of the Company, to stabilize distributions of cash to the Unitholders and the General Partner with respect to the remaining quarters within a fiscal year and the first quarter of the following year or as necessary to comply with the terms of any agreement or obligation of the Company. 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 and distributions. The timing and amounts of additions and reductions to reserves may impact the amount of incentive distributions 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. The Company will 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 on the applicable record date and to the General Partner. Cash distributions are characterized as either distributions of Cash from Operations or Cash from Interim Capital Transactions. This distinction affects the amounts distributed to the Unitholders relative to the General Partner. See "--Distributions of Cash from Interim Capital Transactions". Cash from Operations, which is determined on a cumulative basis, generally refers to all cash generated by the operations of the Company's business since the date the Company commenced operations in 1987 ("Company Inception"), after deducting related cash expenditures, reserves and certain other items. Cash from Interim Capital Transactions generally refers to cash generated by (i) borrowings and sales of debt securities by the Company (other than for working capital purposes), (ii) sales of equity interests by the Company for cash and (iii) sales or other voluntary or involuntary dispositions of any assets of the Company for cash (other than inventory, accounts receivable and other current assets and assets disposed of in the ordinary course of business). The full definitions of Cash from Operations and Cash from Interim Capital Transactions are set forth in "Glossary of Terms". Amounts of cash distributed by the Company on any date from any source will be treated as a distribution of Cash from Operations, until the sum of all amounts so distributed to the Unitholders and to the General Partner (including any incentive distributions) equals the aggregate amount of all Cash from Operations from Company Inception through the date of such distribution. Any amount of cash (irrespective of its source) distributed on such date in excess of the aggregate amount of all Cash from Operations from Company Inception through the quarter prior to such distribution will be deemed to constitute Cash from Interim Capital Transactions and distributed accordingly. If Available Cash that is deemed to constitute Cash from Interim Capital Transactions is distributed in an aggregate amount equal to $367,500,000, the distinction between Cash from Operations and Cash from Interim Capital Transactions will cease, and all Available Cash will be distributed as Cash from Operations. The General Partner does not anticipate that there will be significant amounts of Available Cash that are deemed to constitute Cash from Interim Capital Transactions distributed to the Unitholders. See "-- Distributions of Cash from Operations" and "--Distributions of Cash from Interim Capital Transactions". 29 Capital expenditures that are made to upgrade and maintain the Company's plants or to comply with laws relating to the protection of the environment or expenditures that the General Partner determines to make to acquire other companies or assets (including the Addis Assets) reduce the amount of Available Cash. Further, for taxable years beginning after December 31, 1997, the Company will be treated as a corporation for tax purposes. Since net income and gain will be taxed to the Company, the amount of Available Cash will be reduced which will result in a material reduction in a Unitholders' cash flow and after-tax return. See "--Entity-Level Taxation". The following description of distributions under "Distribution of Cash from Operations", "Distributions of Cash from Interim Capital Transactions" and "Distributions Upon Liquidation", combines the 1.0101% distribution that is required to be made by the Operating Company to the General Partner with the 1% distribution that is required to be made by the Company to the General Partner and restates the Company's distributions as if both such distributions were required to be made at the level of the Company with the effect that, in appropriate contexts, the Company is stated to be required to make 2% regular distributions to the General Partner. DISTRIBUTIONS OF CASH FROM OPERATIONS Distributions by the Company of Available Cash with respect to any quarter that is deemed to be Cash from Operations will be made in the following manner: first, 98% of any such Available Cash to all Unitholders pro rata and 2% thereof to the General Partner, until there has been distributed in respect of each such Unit an amount equal to $0.3647 for such quarter; and thereafter, 78% of any such Available Cash then remaining to all Unitholders pro rata and 22% (20% incentive distribution plus 2% regular distribution) to the General Partner. The following table illustrates the distribution of Available Cash from Operations:
DISTRIBUTION UNITHOLDERS GENERAL PARTNER ------------ ----------- --------------- Up to the Target Distribution................. 98% 2% After the Target Distribution................. 78% 22%
ADJUSTMENT OF THE TARGET DISTRIBUTION The Company will be treated, solely for tax purposes, as a corporation for taxable years beginning after December 31, 1997. See "--Entity-Level Taxation". As a result of the taxation of the Company as a corporation, the Target Distribution for each quarter beginning after December 31, 1997, will be equal to (i) $0.3647 multiplied by (ii) 1 minus the sum of (x) the highest marginal federal corporate income tax rate for the calendar year in which such quarter occurs plus (y) the effective over-all state and local income tax rate applicable to the Company for the calendar year next preceding the calendar year in which such quarter occurs (after taking into account the benefit of any deduction allowable for federal income tax purposes with respect to the payment of state and local income taxes). Such effective over-all state and local income tax rate shall be determined for the calendar year next preceding the first calendar year during which the Company is taxable for federal income tax purposes as a corporation or as an association taxable as a corporation by determining such rate as if the Company had been subject to such state and local taxes during such preceding calendar year. The Target Distribution will also be proportionately adjusted in the event of any combination or subdivision of Units (whether effected by a distribution payable in Units or otherwise) but not by reason of the issuance of additional Units for cash. In addition, if a distribution is made of Available Cash constituting Cash from Interim Capital Transactions which are dispositions of assets arising from condemnation, fire, acts of God or other similar events beyond the reasonable control of the Company, the Target Distribution will be adjusted downward by multiplying the Target Distribution, as the same may have been previously adjusted, by a fraction, the numerator of which is the Unrecovered Capital (as defined below) immediately after giving effect to such distribution and the denominator of which is the Unrecovered Capital immediately prior to such distribution. The "Unrecovered Capital" is $281,250,000, less the aggregate distributions of cash from such Interim Capital Transactions on the Units. If and when the Unrecovered Capital is zero, the Target Distribution will have been reduced to zero and all Available Cash constituting Cash from Operations will 30 thereafter be distributed 78% to the Unitholders and 22% to the General Partner. Distributions of Cash from Interim Capital Transactions will not reduce the Target Distribution in the quarter in which they are distributed. DISTRIBUTIONS OF CASH FROM INTERIM CAPITAL TRANSACTIONS Distributions on any date by the Company of Available Cash that is deemed to be Cash from Interim Capital Transactions will be distributed 98% to all Unitholders pro rata and 2% to the General Partner until the Unitholders have received, since the Company commenced operations through such date, distributions of Available Cash constituting Cash from Interim Capital Transactions in an aggregate amount equal to $367,500,000. Thereafter, all Available Cash that otherwise would be deemed to be Cash from Interim Capital Transactions will be deemed to be Cash from Operations and will be distributed as provided in "--Distributions of Cash From Operations". DISTRIBUTIONS UPON LIQUIDATION Following the commencement of the dissolution and liquidation of the Company, assets will be sold or otherwise disposed of, and the partners' capital account balances will be adjusted to reflect any resulting gain or loss. The proceeds of such liquidation will, first, be applied to the payment of creditors of the Company in the order of priority provided in the Partnership Agreement and by law, and thereafter any remaining proceeds (or assets in kind) will be distributed to the Unitholders and the General Partner in accordance with the positive balances in their respective capital account balances, as adjusted, and, finally, 98% to the Unitholders and 2% to the General Partner. Any gain (or unrealized gain attributable to assets distributed in kind) will be allocated to each partner as follows: first, each partner having a deficit balance in such partner's capital account to the extent of and in proportion to such deficit balance; second, any then remaining gain shall be allocated 98% to all Unitholders, pro rata, and 2% to the General Partner until the capital account for each Unit is equal to its Remaining Capital (as defined below); third, any then remaining gain shall be allocated 98% to all Unitholders and 2% to the General Partner until the amount of gain allocated to such Unitholders, when combined with Cash from Operations theretofore distributed to Unitholders and to the General Partner (including incentive distributions), equals the aggregate amount of Cash from Operations generated since the Company commenced operations through the date of such allocation (which gain so allocated to the Unitholders shall be allocated among them in the same manner as if it were Cash from Operations distributed in accordance with the priorities set forth under "--Distributions of Cash from Operations"); and fourth, any then remaining gain shall be allocated 17% (15% as incentive distribution plus 2% regular distribution) to the General Partner and 83% to all Unitholders. "Remaining Capital" with respect to any Unit means, in general, $10 less the sum of any distributions of Available Cash constituting Cash from Interim Capital Transactions and any distributions of cash (or the Net Agreed Value (as defined in the Partnership Agreement) of any assets distributed in kind) in connection with the dissolution and liquidation of the Company theretofore made in respect of such Unit. ENTITY-LEVEL TAXATION Publicly traded limited partnerships are generally treated as corporations for federal income tax purposes for taxable years beginning after December 31, 1987. However, the Code contains a "grandfather" provision under which certain publicly traded partnerships existing on December 17, 1987, including the Company, are treated as partnerships for federal income tax purposes until their first taxable years beginning after December 31, 1997. The benefit of the "grandfather" provision will cease and the Company will be treated as a corporation for federal income tax purposes at an earlier date if the Company adds a substantial new line of business. Based on certain representations of BCPM, in the opinion of Sidley & Austin, special counsel to 31 BCPM and the Company, the acquisition of the Addis Assets will not be treated as the addition of a substantial new line of business with respect to the Company. At the time the Company is treated as a corporation under the publicly traded partnership rules, it will be treated as contributing all of its assets (subject to all of its liabilities) to a newly formed corporation in exchange for all of such corporation's stock and as distributing such stock to Unitholders in complete liquidation of the Company. This deemed contribution and liquidation should be tax-free to Unitholders and the Company, so long as the Company, at such time, does not have liabilities in excess of the adjusted tax basis of its assets. When the Company becomes taxable as a corporation under the publicly traded partnership rules or as an association taxable as a corporation for federal income tax purposes, the Target Distribution for each quarter would be reduced as described under "--Adjustment of the Target Distribution". 32 SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OPERATING DATA The following table sets forth, for the periods and at the dates indicated, selected consolidated historical financial and operating data for the Company and combined pro forma financial data for the Company after giving effect to the Acquisition, this offering, the offering of the Notes and the prepayment of the Old Notes. See "Use of Proceeds". The selected consolidated historical financial data are derived from and should be read in conjunction with the consolidated historical financial statements and notes thereto included elsewhere in this Prospectus. See also "Management's Discussion and Analysis of Financial Condition and Results of Operations". The selected combined pro forma financial information is derived from and should be read in conjunction with the pro forma financial information contained elsewhere in this Prospectus. The pro forma statement of operations data assumes that the Acquisition, this offering, the offering of the Notes and the prepayment of the Old Notes had been consummated on January 1, 1993. The pro forma balance sheet data assumes that the Acquisition, this offering, the offering of the Notes and the prepayment of the Old Notes had been consummated on September 23, 1994.
HISTORICAL PRO FORMA ------------------------------------------------------- --------- YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ 1989 1990 1991 1992 1993 1993 --------- --------- --------- --------- --------- --------- (AMOUNTS IN THOUSANDS, EXCEPT PER UNIT AND PER UNIT DATA) STATEMENT OF OPERATIONS DATA: Total revenues.......... $ 465,923 $ 420,631 $ 410,005 $ 401,803 $ 433,297 $529,459 Expenses Cost of goods sold.... 353,871 335,309 317,504 337,982 397,771 490,123 Marketing, general and administrative....... 16,745 17,745 18,578 18,118 18,993 19,243 Interest.............. 16,340 16,340 16,340 16,340 16,356 19,500 General Partner incentive............ 11,072 5,832 5,497 2,146 -- -- Other................. (1,600) 109 533 132 1,612 3,092 Net (loss) income....... 69,495 45,296 51,553 27,085 (1,435) (2,474) Net (loss) income per Unit(1)................ 1.87 1.22 1.39 0.73 (0.04) (0.06) Cash distributions per Unit(2)................ 2.45 1.95 1.98 1.59 0.78 Percentage of Distributions Unitholders........... 87% 91% 91% 95% 98% General Partner....... 13% 9% 9% 5% 2% OTHER DATA: Capital expenditures.... $ 28,157 $ 22,084 $ 17,975 $ 10,534 $ 15,041 EBITDA(3)............... 137,158 108,368 115,895 89,155 57,867 $ 65,737 Depreciation............ 40,251 40,900 42,505 43,584 42,946 48,711 Costs Reimbursed to Borden................. 55,254 54,185 53,209 50,921 56,976 BALANCE SHEET DATA: PP&E, net............... $417,186 $395,762 $369,189 $335,136 $305,975 Total assets............ 549,628 544,204 507,042 466,729 444,304 Long-term debt.......... 150,000 150,000 150,000 150,000 150,000 Total partners' capital. 341,707 314,558 292,555 260,595 230,205 OPERATING DATA: Average price received per unit sold(4) PVC Polymers Products. 132 119 103 99 106 Methanol and Derivatives.......... 99 87 110 88 94 Nitrogen Products..... 77 80 87 82 85 Raw material costs per unit sold(4) Natural gas........... 74 74 63 74 88 Ethylene.............. 207 171 128 116 115 Chlorine.............. 50 13 N/M(5) 7 83 Production volumes (in pounds) PVC Polymers Products. 1,786,288 1,912,233 1,793,271 1,929,093 1,848,657 Methanol and Derivatives.......... 2,000,962 1,972,705 2,113,909 2,339,561 2,408,579 Nitrogen Products..... 1,178,916 1,250,910 1,291,566 1,307,764 1,207,020
- -------- (footnotes on following page) 33
HISTORICAL PRO FORMA --------------------------- ------------- NINE MONTHS ENDED ----------------------------------------- SEPTEMBER 24, SEPTEMBER 23, SEPTEMBER 23, 1993 1994 1994 ------------- ------------- ------------- (AMOUNTS IN THOUSANDS, EXCEPT PER UNIT AND PER UNIT DATA) INCOME STATEMENT DATA: Total revenues....................... $ 307,576 $ 438,133 $537,799 Expenses Cost of goods sold................. 286,887 326,225 417,413 Marketing, general and administrative.................... 14,153 15,298 15,485 Interest........................... 12,066 12,009 14,264 General Partner incentive.......... -- 8,751 8,751 Other.............................. 530 6,312 7,210 Net (loss) income.................... (6,060) 69,538 74,676 Net (loss) income per Unit(1)........ (0.16) 1.87 1.81 Cash distributions per Unit(2)....... 0.60 1.88 Percentage of distributions Unitholders........................ 98% 87% General Partner.................... 2% 13% OTHER DATA: Capital expenditures................. $ 7,991 $ 14,215 EBITDA(3)............................ 38,117 123,239 $134,956 Depreciation......................... 32,171 32,941 37,265 Costs Reimbursed to Borden........... 42,644 40,344 BALANCE SHEET DATA: PP&E, net............................ $ 310,583 $ 286,635 $381,235 Total assets......................... 445,866 497,838 603,959 Long-term debt....................... 150,000 150,000 200,000(6) Total partners' capital.............. 232,262 229,867 291,033(6) OPERATING DATA: Average price received per unit sold(4) PVC Polymers Products.............. 105 120 Methanol and Derivatives........... 91 139 Nitrogen Products.................. 86 112 Raw material costs per unit sold(4) Natural gas........................ 87 84 Ethylene........................... 118 124 Chlorine........................... 69 120 Production volumes (in pounds) PVC Polymers Products.............. 1,361,931 1,486,313 Methanol and Derivatives........... 1,503,577 1,945,598 Nitrogen Products.................. 879,066 866,160
- -------- (1) The General Partner's allocation of net income has been deducted before calculating net income per Unit. (2) The Company distributes 100% of its Available Cash as of the end of each fiscal quarter on or about 45 days after the end of such quarter. The cash distributions set forth herein with respect to any year represent the aggregate distributions made with respect to the quarters occurring within such year, although the cash distributions with respect to the last quarter of a year are paid in the first quarter of the following year. (3) EBITDA is calculated as net income plus interest, depreciation and amortization and General Partner incentive. EBITDA is not intended to represent cash flow and does not represent the measure of cash available for distribution. EBITDA is not a measure under generally accepted accounting principles, but provides additional information for evaluating the Company's ability to make the Target Distribution. In addition, EBITDA is not intended as an alternative to earnings from continuing operations or net income. (4) Represents relative average amounts per unit using 1985=100 as the base year for all products. (5) Not meaningful due to extreme oversupply of chlorine and the resulting negative value in the marketplace. (6) In the event the Notes offering is not consummated, the Company will use short-term borrowings, cash on hand or a combination thereof to fund a portion of the purchase price of the Addis Assets. In such event and assuming the Prepayment Premium is not incurred, the principal amount of long-term debt and total partners' capital would be $150,000 and $304,892, respectively. Total partners' capital reflects the aggregate estimated charge related to the prepayment of the Old Notes. The Total Prepayment Premium is currently estimated to be $14.0 million, of which each of Borden and the Company would pay a portion. 34 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion and analysis should be read in conjunction with the historical consolidated financial statements of the Company and the pro forma combined financial statements of the Company and the notes thereto included elsewhere in this Prospectus. OVERVIEW The Company's revenues are derived from three principal product groups: (i) PVC Polymers Products, which consist of PVC resins, VCM, the principal feedstock for PVC resins, and acetylene, (ii) Methanol and Derivatives and (iii) Nitrogen Products, which consist of ammonia and urea. See "Business and Properties--General". The markets for and profitability of the Company's products 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 until the cycle is repeated. In addition, markets for the Company's products are affected by general economic conditions and a downturn in the economy could have a material adverse affect on the Company, including its ability to make distributions to Unitholders and service its debt obligations. The demand for the Company's PVC products is primarily dependent on the construction and automotive industries. Methanol demand is also dependent on the construction industry, as well as the demand for MTBE. Demand for the Company's Nitrogen Products is dependent primarily on the agricultural industry. The principal raw material feedstock for the Company's products is natural gas, 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. In particular, the price of chlorine increased dramatically from 1992 to 1993. Currently the Company is experiencing strong demand for its PVC products due to strength in the construction and automotive industries and expects continued strong demand for PVC resins into 1995. PVC sales prices are, however, approaching historically high levels and could be negatively impacted by adverse changes in general economic conditions, as well as adverse changes in the construction and automotive industries. During 1994, due to strength in the construction industry, the Company has experienced increased demand for methanol and formaldehyde in downstream applications such as adhesives for plywood and other pressed wood products. Methanol demand has also been affected by the use of MTBE to comply with certain requirements of the Clean Air Act. The Company expects continued strong demand for methanol products into 1995, subject to the extent of implementation and enforcement of the Clean Air Act and the substitution of other products for MTBE. Published methanol prices have increased from approximately $0.47 per gallon during the fourth quarter of 1993 to approximately $1.50 per gallon during the fourth quarter of 1994. The Company does not expect announced capacity increases which are scheduled to come on stream in the next two to three years to exceed projected increases in methanol demand. The Company is experiencing strong demand for its Nitrogen Products due primarily to shortages in supply. Ammonia prices have increased due to tight worldwide supply resulting from restricted production in the former Soviet Union. Urea prices have recently increased due to increased demand primarily from India and China, which had restricted their purchases of urea in 1993. The Company expects continued strong demand for its Nitrogen Products into 1995. The cost of ethylene, the primary feedstock for PVC, has recently been rising. The Company believes that its PVC operations have lower exposure to ethylene price increases than many other manufacturers, because the Company is able to produce a portion of its PVC raw material, VCM, from acetylene instead of ethylene. Acetylene-based VCM manufacturing accounts for approximately one- third of the Company's total 35 VCM production. The primary raw material for acetylene is natural gas, thus the cost of acetylene is affected by changes in natural gas prices which, in 1994, have remained at levels comparable to 1993, but are expected to increase modestly in 1995. Natural gas is also the principal raw material for methanol. Chlorine is a feedstock for PVC resins and unit costs have varied significantly on a historical basis, as demonstrated in 1991 when chlorine had a negative value in the market due to an extreme oversupply situation. Recently, chlorine prices have decreased from approximately $180 per ton in the first half of 1994 to approximately $145 per ton in November 1994. The Company expects chlorine prices to remain near current levels into 1995. On August 12, 1994, the Company entered into an agreement with OxyChem to purchase the Addis Assets, which includes the Addis Facility. The Addis Facility produces general purpose PVC resins and has a current annual permitted capacity of 600 million pounds, although production during the years 1990 through 1993 has ranged from 407 million to 450 million pounds per year. At present, the Company's Geismar complex and Illiopolis plant have annual stated capacities of 440 million and 380 million pounds of PVC resins, respectively. The net proceeds from this offering will be used to fund a portion of the cash purchase price of the Addis Assets. The closing of this offering will occur simultaneously with, and is conditioned upon, the closing of the acquisition of the Addis Assets. RESULTS OF OPERATIONS The following table sets forth the dollar amount of total revenues and the percentage of total revenues for each of the three principal product groups of the Company for the respective periods shown therein (dollars in thousands):
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED ---------------------------------------- ------------------------------ SEPTEMBER SEPTEMBER 23, 1991 1992 1993 24, 1993 1994 ------------ ------------ ------------ ------------ ---------------- PVC Polymers Products... $232,963 57% $247,209 61% $261,342 60% $185,524 60% $ 241,627 55% Methanol and Derivatives............ 119,278 29 100,002 25 119,779 28 84,352 28 146,506 33 Nitrogen Products....... 57,764 14 54,592 14 52,176 12 37,700 12 50,000 12 -------- --- -------- --- -------- --- -------- --- --------- ---- Total Revenues......... $410,005 100% $401,803 100% $433,297 100% $307,576 100% $ 438,133 100% ======== === ======== === ======== === ======== === ========= ====
The following table summarizes relative average prices received per unit of product sold per period for the three principal product groups of the Company and relative average raw material costs per unit per period for the principal raw materials (using 1985=100 as the base year for all products); as well as production volumes for each period. The price indices in the table reflect changes in the mix and volume of individual products sold as well as changes in selling prices.
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED -------------------------- ------------------------------------- 1991 1992 1993 SEPTEMBER 24, 1993 SEPTEMBER 23, 1994 ------- ------- ------- ------------------ ------------------ Average price received per unit sold PVC Polymers Products. 103 99 106 105 120 Methanol and Derivatives.......... 110 88 94 91 139 Nitrogen Products..... 87 82 85 86 112 Raw material costs per unit sold Natural gas........... 63 74 88 87 84 Ethylene.............. 128 116 115 118 124 Chlorine.............. N/M(1) 7 83 69 120 Production volumes (in millions of pounds) PVC Polymers Products. 1,793 1,929 1,849 1,322 1,486 Methanol and Derivatives.......... 2,114 2,340 2,409 1,701 1,946 Nitrogen Products..... 1,292 1,308 1,207 879 855
- -------- (1) Not meaningful due to extreme oversupply of chlorine and the resulting negative value in the market place. 36 NINE MONTHS ENDED SEPTEMBER 23, 1994 COMPARED TO NINE MONTHS ENDED SEPTEMBER 24, 1993 Total Revenues Total revenues for the first nine months of 1994 increased 42.4% to $438.1 million compared to $307.6 million in 1993. Total revenues for PVC Polymers Products increased 30.2% to $241.6 million from $185.5 million in 1993. The improvement was due to strong increases in volume and selling prices for PVC resins resulting from strength in the construction and automotive industries, as well as other industries. Total revenues for Methanol and Derivatives increased 73.7% to $146.5 million in 1994 from $84.4 million in 1993. Increased volumes and significant increases in selling prices were due to the worldwide tightness in the methanol market resulting from limited growth in methanol supply and industry consolidations in recent years and increased demand for methanol and formaldehyde in downstream applications such as MTBE and adhesives. Total revenues for Nitrogen Products increased 32.6% to $50.0 million in 1994 from $37.7 million in 1993. Ammonia selling prices increased significantly fueled primarily by strong demand from industrial users and the worldwide tightness in the ammonia market. Volumes were comparable to the same period in 1993. Urea volumes and selling prices showed modest improvements. Cost of Goods Sold Total cost of goods sold increased 13.7% to $326.2 million in 1994 from $286.9 million in 1993. The increase was a result of the increased volumes discussed above and an aggregate raw material cost increase of approximately 7% comprised of significant unit cost increases for chlorine offset by reduced natural gas costs. Ethylene costs were comparable during both periods. Expressed as a percentage of total revenues, cost of goods sold decreased to 74% of total revenues in 1994 from 93% in 1993, resulting in greatly improved gross margins and net income for the Company. Gross margins for PVC Polymers Products more than doubled as a result of the improved selling prices and volumes discussed above, offset by substantially higher chlorine costs. Gross margins for Methanol and Derivatives increased over 500% as a result of the increased volumes and significantly higher selling prices discussed above, combined with reduced natural gas costs. Gross margins for Nitrogen Products improved from a slightly negative position in 1993 to a profitable position in 1994 on the strength of the ammonia selling price increases and reduced natural gas costs discussed above. Incentive Distribution to General Partner An incentive distribution to the General Partner of $8.8 million has been generated in the first nine months of 1994 as a result of the second and third quarter cash distributions to Unitholders of $0.65 and $1.02 per Unit, respectively, exceeding the Target Distribution due to improved operating performance. The distributions generated during the first three quarters of 1993 did not exceed the Target Distribution, resulting in no incentive distribution to the General Partner. Other (Income) and Expense, Including Minority Interest The net expense for 1994 was $6.3 million compared to $0.5 million in 1993. This increase was primarily due to a $4.0 million provision established in the third quarter 1994 for potential expenses related to environmental matters. See "Legal Proceedings". The increase was also partially due to the increase in the minority interest in consolidated subsidiary due to the subsidiary's improved operating performance. 37 Net Income (Loss) Net income was $69.5 million compared to a net loss of $6.1 million in 1993. As discussed above, the primary reasons for the improved operating performance were significant selling price increases in all product lines and volume improvements in PVC resins and methanol, partially offset by increased raw material costs. 1993 COMPARED TO 1992 Total Revenues Total revenues for 1993 increased 7.8% to $433.3 million compared to $401.8 million in 1992. Total revenues for PVC Polymers Products increased 5.7% to $261.3 million compared to 1992. The improvement was a result of higher selling prices for PVC resins, partially offset by a 1.2% decrease in volume. PVC producers, including the Company, increased PVC selling prices in 1993 in an attempt to pass on some of the increased costs associated with chlorine. Total revenues for Methanol and Derivatives increased 19.8% to $119.8 million compared to 1992 as a result of increased volumes and slightly higher selling prices. The increased volume was achieved through production capacity increases that came on-stream in 1993 that allowed the Company to meet increased winter demand for MTBE, as well as increased general industry demand. Total revenues for Nitrogen Products decreased 4.4% to $52.2 million compared to 1992. Generally weak market conditions led to reduced volumes for ammonia and urea, offset partially by slightly higher ammonia selling prices from low 1992 levels. Cost of Goods Sold Total cost of goods sold increased 17.7% to $397.8 million in 1993 from $338.0 million in 1992. The increase resulted almost entirely from an aggregate raw material cost increase of approximately 32% comprised of substantially higher unit costs for natural gas and a dramatic unit cost increase for chlorine, with ethylene costs remaining comparable to 1992. As a percentage of total revenues, cost of goods sold increased to 92% of revenues in 1993 from 84% in 1992, resulting in reduced gross margins and net loss for the Company. Gross margins for PVC Polymers Products decreased 54% as a result of the significant increase in chlorine costs which could not be fully recovered in product pricing due to strong industry-wide competition. Gross margins for Methanol and Derivatives decreased 7.7% from 1992. While sales volumes and selling prices improved, it was not sufficient to offset substantially higher natural gas costs. Gross margins for Nitrogen Products declined to a moderate loss in 1993 from near break-even in 1992. The increased ammonia selling price did not offset the negative impact of reduced volumes and higher raw material costs. Incentive Distribution to General Partner No incentive distribution to the General Partner was generated in 1993 as no quarterly cash distribution to Unitholders exceeded the Target Distribution. In 1992, incentive distributions to the General Partner aggregating $2.1 million were generated in the first and second quarters, but no incentive distributions were generated in the third or fourth quarter. Other (Income) Expense, net Other (income) and expense increased to $1.6 million in 1993 from $0.1 million in 1992 resulting from decreased interest income earned on reduced cash balances during 1993 and from the amortization of the transition obligation related to the 1993 adoption of SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions". 38 Net Income (Loss) The Company incurred a net loss of $1.4 million in 1993 compared to net income of $27.1 million in 1992. As discussed above, the primary reason for the net loss in 1993 was increased raw material costs, including a dramatic increase in unit costs for chlorine and substantially higher unit costs for natural gas, partially offset by slightly higher selling prices in all three principal product groups of the Company. 1992 COMPARED TO 1991 Total Revenues Total revenues for 1992 decreased 2.0% to $401.8 million from $410.0 million in 1991. Total revenues for PVC Polymer Products increased 6.1% to $247.2 million as a result of increased volume partially offset by lower selling prices. Domestic demand for PVC resin in building and construction applications achieved record levels in 1992, but industrywide capacity (which experienced substantial additions in 1991 and 1992) exceeded demand resulting in increased price competition. Total revenues for Methanol and Derivatives decreased 16.2% to $100.0 million as a result of lower selling prices compared to 1991, when unscheduled production outages by several major domestic methanol producers resulted in tight supplies and higher prices. These decreases were partially offset by higher volumes from increased demand for methanol, especially for use in MTBE and formaldehyde. Total revenues for Nitrogen Products decreased 5.5% to $54.6 million as a result of lower selling prices for ammonia and urea compared to 1991. Volume was essentially unchanged as demand in key fertilizer end uses remained stable. Cost of Goods Sold Total cost of goods sold increased 6.4% to $338.0 million in 1992 from $317.5 million in 1991. The increase was a result of increased PVC resin volumes discussed above and an aggregate raw material cost increase of approximately 12% comprised of unit cost increases for natural gas and chlorine, partially offset by reduced ethylene costs. As a percentage of total revenues, cost of goods sold increased to 84% of revenues in 1992 from 77% in 1991, resulting in reduced gross margins and net income for the Company. Gross margins for PVC Polymers Products increased 2% from 1991. The higher sales volumes and reduced raw material ethylene costs combined to more than offset lower selling prices and increased chlorine costs. Gross margins for Methanol and Derivatives decreased 51% from 1991 as a result of lower selling prices and increased natural gas costs. Gross margins for Nitrogen Products decreased from a moderately profitable position in 1991 to near break-even in 1992 as a result of lower selling price and higher natural gas costs. Incentive Distribution to General Partner The incentive distribution to the General Partner generated in 1992 decreased to $2.1 million from $5.5 million in 1991. In 1992, an incentive distribution was generated in the first and second quarters only, whereas an incentive distribution was generated in all four quarters of 1991. Net Income Net income for 1992 decreased to $27.1 million compared to $51.6 million in 1991. As discussed above, the primary reasons for the decrease in net income were decreases in selling prices in each of the Company's three principal product groups and a raw material cost increase of approximately 12%, consisting of unit cost increases in both natural gas and chlorine. 39 INFLATION Both inflation and deflation can cause fluctuations in annual earnings of the Company. Inflation and deflation can cause variations in the costs of raw materials and in the demand for, and prices of, commodity chemicals. Margins can fluctuate because costs of raw materials and selling prices of commodity chemicals may not increase or decrease at the same rates or in the same direction during the same periods. LIQUIDITY AND CAPITAL RESOURCES Cash Flows from Operations. Cash provided by operations increased to $93.4 million for the nine months ended September 23, 1994, as compared to $25.5 million for the nine months ended September 24, 1993. The increase was primarily attributable to an increase in net income and increased accruals for the incentive distribution payable and other liabilities. Operating cash flows were negatively affected by an increase of $22.0 million in receivables. Cash provided by operations for the year ended December 31, 1993 decreased to $38.5 million, as compared to $63.9 million for the prior year. The decrease was primarily attributable to a decrease in net income, an increase in receivables and an increase in inventories, partially offset by an increase in payables. Cash Flows from Investing Activities. Capital expenditures for the first nine months of 1994 totaled $14.2 million, $4.6 million of which related to completion of the urea granulation and expansion project and other discretionary capital projects and $9.6 million of which related to non- discretionary projects, and environmental and safety related projects. Non- discretionary capital expenditures vary from year to year with normal equipment renovation requirements. Capital expenditures for 1993 totaled $15.0 million. This amount included $5.9 million for the expansion of facilities (such as the new urea granulation and expansion project) and for other discretionary capital improvements. Non- discretionary capital expenditures totaled $9.2 million for 1993, which amount included a large number of relatively small projects. During 1993, capital expenditures were primarily related to the urea granulation and expansion project, the ethylene-based VCM plant environmental project, and waste treatment upgrades. Cash Flows from Financing Activities. The Company makes quarterly distributions to Unitholders and the General Partner of 100% of its Available Cash. Available Cash means generally, with respect to any quarter, the sum of all cash receipts of the Company plus net reductions to reserves established in prior quarters, less all of its cash disbursements and net additions to reserves in such quarter. These reserves are retained to provide for the proper conduct of the Company's business, to stabilize distributions of cash to Unitholders and the General Partner and as necessary to comply with the terms of any agreement or obligation of the Company. Cash distributions of $38.6 million were made during the first nine months of 1994 compared to $29.3 million in the 1993 period. During the first three quarters of 1994, the Company generated, respectively, $0.21, $0.65 and $1.02 of Available Cash per Unit which amounts were distributed in the following quarters. See "Price Range of Units and Distributions". Cash distributions with respect to interim periods are not necessarily indicative of cash distributions with respect to a full year. Moreover, due to the cyclical nature of the Company's business (see "Investment Considerations--Considerations Relating to the Company's Business--Cyclical Markets for Products; Lack of Control over Cost of Raw Materials"), past cash distributions are not necessarily indicative of future cash distributions. As indicated under "Business and Properties--PVC Polymers Products"; "-- Methanol and Derivatives"; "--Nitrogen Products"; and "--Raw Materials", there are various seasonality factors affecting results of operations and, therefore, cash distributions. In addition, the amount of Available Cash constituting Cash from Operations for any period does not necessarily correlate directly with net income for such period because various items and transactions affect net income and Available Cash constituting Cash from Operations differently. For example, depreciation reduces net income but does not affect Available Cash constituting Cash from Operations, while changes in working capital items (including receivables, inventories, accounts payable and other items) generally do not affect net income but do affect such Available Cash. 40 Moreover, as provided for in the Partnership Agreements, certain reserves may be established which affect Available Cash constituting Cash from Operations but do not affect cash balances in financial statements. See the definitions of Available Cash and Cash from Operations set forth in the "Glossary of Terms". Such reserves have generally been used to set cash aside for interest payments, capital expenditures and other accrued items. Liquidity. The Company expects to satisfy its cash requirements, including the requirements of the Addis Facility, through internally generated cash and borrowings. The Operating Company has a short-term unsecured working capital facility of up to $20 million under the Revolving Credit Agreement (as defined herein) to support working capital requirements. Borrowings under the working capital facility bear interest at rates fixed at the time of each borrowing. As of the date of this Prospectus, no borrowings were outstanding under such working capital facility. The Company intends, in connection with the Acquisition, to either expand its existing working capital facility by approximately $20 million or implement an additional working capital facility in the amount of approximately $20 million. The purchase price for the Addis Assets will be financed in part by the proceeds of this offering. The remaining purchase price will be financed through a concurrent offering of the Notes. Neither the Acquisition nor this offering is conditioned upon consummation of the Notes offering. In the event that the Notes offering is postponed or not consummated, the Company will use short-term borrowings, cash on hand or a combination thereof to fund a portion of the purchase price of the Addis Assets. Beginning in November 1995, the $150.0 million principal amount of the Old Notes is mandatorily redeemable by the Operating Company (at 100% of the principal amount thereof plus accrued interest) in principal amounts of $30.0 million per year for the years 1995 through 1999. The Operating Company intends to use the net proceeds from the sale of the Notes to prepay the Old Notes. Capital Expenditures. The Company currently believes that the level of annual base capital expenditures at its Geismar and Illiopolis facilities over the next several years will be in the range of $20 to $25 million per year. The Company anticipates that total capital expenditures for 1994 will be approximately $23.0 million, of which $14.2 million was incurred during the first three quarters. Total capital expenditures for 1995 are anticipated to be approximately $42 to $46 million, $20 to $25 million of which will be used for annual base capital expenditures and the balance of which will be used primarily for an approved 30 million gallon methanol expansion and a proposed expansion of the Addis Facility. The Company's actual level of capital expenditures would vary substantially if the Company is required to undertake corrective action or incur other environmental compliance costs in connection with the proceedings discussed under "Legal Proceedings". No assurance can be given that greater capital expenditures will not be required. See "Business and Properties--Environmental and Safety Regulations". Environmental Expenditures. Annual environmental capital expenditures for 1991-1993 ranged from $1.3 to $7.4 million. These amounts did not vary significantly from amounts budgeted by the Company. Environmental capital expenditures for the nine months ended September 23, 1994 were $1.5 million. The 1995 budget for environmental capital expenditures is approximately $4 million, and is included in the budget of $42 to $46 million discussed above. Annual non-capital environmental expenditures for 1991-1993 ranged from $19.0 to $22.5 million. These amounts did not vary significantly from amounts budgeted by the Company. Non-capital environmental expenditures for the nine months ended September 23, 1994 were $13.7 million. In connection with potential environmental matters, an additional provision of $4.0 million was reflected in the operating results for the nine months ended September 23, 1994. See "Legal Proceedings". The 1995 budget for non-capital environmental expenditures is approximately $22 million. The Company's actual level of non- capital expenditures would vary substantially if the Company is required to undertake corrective action or incur other environmental compliance costs in connection with the proceedings discussed under "Legal Proceedings". No assurance can be given that greater non-capital environmental expenditures will not be required. See "Business and Properties--Environmental and Safety Regulations" and "Legal Proceedings". 41 BUSINESS AND PROPERTIES GENERAL The Company is a publicly held limited partnership formed in 1987 to acquire, own and operate PVC, methanol and other chemical plants located in Geismar, Louisiana, and Illiopolis, Illinois, that were previously owned and operated by Borden. The three principal product groups manufactured at these facilities are (i) PVC Polymers Products, which consist of PVC resins and feedstocks (such as VCM and acetylene), (ii) Methanol and Derivatives, which consist of methanol and formaldehyde, and (iii) Nitrogen Products, which consist of ammonia and urea. During 1993, PVC Polymers Products, Methanol and Derivatives and Nitrogen Products accounted for 60%, 28% and 12%, respectively, of the Company's revenues. The Company seeks to increase its productive capacity through selective expansions of its existing facilities and "debottlenecking" of production facilities at its plants. From 1988 to 1993 the Company increased overall capacity of the Geismar and Illiopolis plants by 14.6% through various expansions and "debottlenecking" projects at a cost of approximately $38 million. Incremental sales from these capacity increases approximated $170 million during this period. The Company recently announced that the Operating Company has entered into an agreement to acquire the Addis Facility, a PVC resin production facility located in Addis, Louisiana. Upon completion of the Acquisition, the Company's stated annual capacity for the production of PVC resin is expected to increase by over 50% to 1.27 billion pounds. After the four largest producers, which have capacities ranging from 1.38 billion pounds to 2.38 billion pounds, the Company will be the fifth largest producer of PVC resins in the United States upon completion of the Acquisition. The Company's production complex at Geismar, Louisiana, and a plant at Illiopolis, Illinois, produce products for the following applications: - --------------------------------------------------------------------------------
PRODUCTS LOCATION PRINCIPAL APPLICATIONS - ---------------------------------------------------------------------------------------------- PVC POLYMERS PRODUCTS PVC Geismar Water distribution pipe, residential Illiopolis siding, wallcoverings, vinyl flooring VCM Geismar Raw material for the Company's PVC operations Acetylene Geismar Raw material for the Company's VCM operations METHANOL AND DERIVATIVES Methanol Geismar Formaldehyde, MTBE, adhesives and fibers or raw materials for the Company's formaldehyde operations Formaldehyde Geismar Pressed wood products, adhesives, fibers NITROGEN PRODUCTS Ammonia Geismar Fertilizers, fibers, plastics, explosives Urea Geismar Fertilizers, animal feeds, adhesives, plastics
Upon consummation of the Acquisition, the Company's production facilities will also include a plant located at Addis, Louisiana, that produces PVC resins. Principal applications for PVC resins produced at the Addis Facility include film wrap for food products, wallcoverings and molded products. The Company's plants can generally be operated at rates in excess of stated capacity to take advantage of market opportunities without undue adverse effects. References to capacity in this Prospectus 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. 42 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 with the ability to efficiently utilize by-product streams. The Company's products are produced through the highly integrated lines set forth below: [GRAPHIC APPEARS HERE] 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 two plants--one located at the Geismar complex and another at Illiopolis--with stated annual capacities of 440 million and 380 million pounds of PVC resins, respectively. The PVC resin plants operated at approximately 99% of combined capacity in 1993 and approximately 110% of combined capacity during the first nine months of 1994. Although there have been year-to-year fluctuations in product mix, the Company has over time concentrated on 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 that for 1993 the Company accounted for 7.7% of total industry sales of PVC resins--11.6% pro forma for the Acquisition. 43 The following table shows the Company's actual and the Addis Facility's estimated domestic product mix for PVC resins as compared to the industry's product mix for 1993.
% OF COMPANY'S % OF ADDIS FACILITY % OF INDUSTRY TOTAL PRODUCTION TOTAL PRODUCTION TOTAL PRODUCTION(1) PVC RESIN USE (ACTUAL) (ESTIMATED) (ESTIMATED) ------------- ---------------- ------------------- ------------------- Rigid Pipe...... 33.8% 10.0% 43.0% Calendaring..... 15.6 50.0 11.9 Wire & Cable.... 13.5 -- 4.3 Coatings........ 9.2 -- 4.0 Film & Sheet.... 8.7 -- 3.7 Siding.......... 6.2 -- 12.4 Paste........... 2.3 -- 2.3 Molding......... 0.4 20.0 5.7 All Other....... 10.3 20.0 12.7 ----- ----- ----- TOTAL......... 100.0% 100.0% 100.0% ===== ===== =====
- -------- (1) Source: Society of the Plastics Industry, Committee on Resins Statistics The PVC resin industry has been experiencing strong demand for nearly two years. Producer inventories have been reduced to minimal levels, while plants are operating at maximum capacities. As a result, published prices for PVC resins have increased from an average of $0.272 per pound during the first quarter of 1993 to an average of $0.402 per pound during the third quarter of 1994. During 1993, approximately 14% of the Company's total production of PVC resins was sold to Borden for use in its downstream vinyl conversion operations. The balance was purchased by many small customers, none of which accounted for more than approximately 7.4% of total sales. During 1993, PVC resins were shipped from the Addis Facility to approximately 70 customers. Of these, the top ten customers represented approximately 80% of the Addis Facility's total sales volume of PVC resins during 1993. Other than OxyChem, which accounted for approximately 29% of total sales, no customer accounted for more than approximately 19% of total sales during 1993. Unless there is a shortage of PVC resin capacity, demand for PVC resins generally tends to be seasonal with higher demand during spring months and lower demand during winter months. Production Process. PVC resins are produced by the polymerization of VCM, a raw material produced by the Company. The production by the Company of certain specialty grades of PVC resins also involves the use of certain quantities (approximately 8.0 million pounds annually) of vinyl acetate monomer, a raw material not produced by the Company. The Company purchases quantities of vinyl acetate monomer from Borden (which in turn purchases such raw material in bulk from third parties) or from unrelated third parties. Purchases from Borden have been and will be at prices that do not exceed the market price of vinyl acetate monomer. All the VCM used by the Company's Geismar and Illiopolis PVC resin plants is obtained from the Company's two Geismar VCM plants discussed below. During 1993 and the first nine months of 1994, substantially all of the production of such VCM plants was consumed by the Company's PVC resins plants at Geismar and Illiopolis. The Geismar PVC resin plant obtains 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 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. 44 VCM is principally used in the production of PVC resins. The Company produces 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. The Company is currently operating at full capacity; consequently, the Company is producing VCM by both processes. Ethylene-Based VCM. Ethylene-based VCM ("VCM-E") is produced by the Company at a 610 million pound stated annual capacity plant at the Geismar complex. The plant operated at approximately 90% of capacity during 1993 and approximately 101% of capacity during the first nine months of 1994. During 1993, substantially all of the production of the VCM-E plant was 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. The plant operated at approximately 93% of capacity during 1993 and 87% of capacity during the first nine months of 1994. During 1993 and the first nine months of 1994, all of the VCM-A produced at the Geismar complex was consumed by the PVC resin plants at Geismar and Illiopolis. The Geismar complex contains the only VCM-A plant in the United States. The integration of the VCM-A plant with the other plants on site provides stability, cost and efficiency benefits to the plants located at the Geismar complex. Although ethylene has generally been regarded as a lower cost feedstock for the production of VCM, the VCM-A plant reduces the overall processing costs of the Geismar complex because the acetylene plant produces as a by-product acetylene off-gas, which is used as a feedstock in the production of methanol. In addition, hydrochloric acid, a feedstock used in the production of VCM-A, is produced as a by-product by the adjacent VCM-E plant. Furthermore, certain industrial plants located near the Geismar complex have excess supplies of hydrochloric acid that the Company is generally able to purchase at relatively low cost. In addition to hydrochloric acid, acetylene is a primary feedstock used in the production of VCM-A. Acetylene. Acetylene is primarily used as a feedstock for VCM-A and for other chemical intermediates. The Company has 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"). The plant was operated at approximately 97% of capacity during 1993 and approximately 93% of capacity during the first six months of 1994, with all production being consumed by either the Company or BASF. During 1993 and the first nine months of 1994, approximately 67% and 65%, respectively, of the total sales volume of the acetylene plant was used internally as a principal feedstock of the Geismar VCM-A plant. BASF accounted for approximately 33% of the plant's 1993 sales volume, less than its full 50% share of 1993 production. Acetylene not required by BASF is available to the Company at cost. It is anticipated that excess acetylene will be available to the Company through 1996. 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 Operating Company, BASF and Liquid Air Corporation pursuant to joint venture arrangements. For a description of the Company's arrangements for the purchase of natural gas, see "--Raw Materials". As long as a subsidiary of Borden is the general partner of the Company, the plant will be operated and managed by employees of such general partner pursuant to an operating agreement with BASF. The agreement provides that, if a Borden subsidiary ceases to be the general partner, BASF will have the exclusive 45 right to become the operator of the plant and the personnel necessary to operate the plant will be encouraged to accept employment with BASF. The Company's interest in the acetylene plant and the air separation systems is subject to certain rights of first refusal and limitations on transfer. In addition, the Company and the third parties who hold the other interests in such assets have mutual rights under certain circumstances, to require the other party to purchase its interests. METHANOL AND DERIVATIVES Methanol. Methanol is used primarily as a feedstock in the production of other chemicals. Such chemicals include formaldehyde, which is used in the manufacture of wood building products and adhesives, and MTBE, which is used as a gasoline additive. Methanol is produced at a 270 million gallon stated annual capacity plant at the Geismar complex. The plant operated at approximately 104% of capacity during 1993 and approximately 111% of capacity during the first nine months of 1994. Market conditions for methanol have improved significantly due to limited growth in the supply of methanol and industry consolidation during the past several years as well as strong demand for MTBE and formaldehyde. Since the second quarter of 1993, production outages in the United States and Europe have tightened the supply of methanol. The Company and many of its competitors have taken steps to expand their methanol capacity through various plant and process improvements, and certain competitors have also announced plans to increase their methanol capacity through plant expansion. The Company is currently in the process of increasing stated annual methanol capacity by over 10% to 300 million gallons through "debottlenecking" and other process improvements. The Company expects these increases to be completed by the end of 1994. By the end of 1995, the Company anticipates completing an expansion of its methanol plant that it expects will increase annual stated methanol capacity by 30 million gallons. In 1993, approximately 44% of total sales of methanol was to third parties (other than Borden). Borden accounted for approximately 32% of such sales for its downstream formaldehyde production. Approximately 17% of sales was used internally in the production of formaldehyde and the remaining approximately 7% was used primarily to satisfy tolling and exchange arrangements. No customer (other than Borden) accounted for more than 19.1% of total methanol sales in 1993. The primary raw material feedstock used in the production of methanol is natural gas. The efficiency of the Geismar methanol plant has been enhanced by using the by-product of the Geismar acetylene plant, acetylene off-gas, as a partial substitute feedstock for purchased natural gas. Natural gas represented approximately 79% of the Company's total cost of producing methanol during 1993 and the first nine months of 1994. Formaldehyde. Formaldehyde is a chemical intermediate used primarily in the production of plywood and other pressed wood products. The Company produces 50%-concentration formaldehyde (which is 50% formaldehyde and 50% water) at three units in the Geismar complex. The formaldehyde plants have stated annual capacities of 270 million, 190 million and 180 million pounds per year, respectively, for the 50%-concentration formaldehyde. During 1993 and the first nine months of 1994, the three plants operated at approximately 84% and 95%, respectively, of combined capacity. The smaller plant is also capable of producing urea-formaldehyde concentrate for the fertilizer industry. If operated for production of urea-formaldehyde, the smaller plant's stated annual capacity would be 125 million pounds. Formaldehyde demand is generally influenced by the construction industry and housing starts. Total United States production capacity of 50%-concentration formaldehyde is approximately 7.4 billion pounds, with the formaldehyde units at the Geismar complex representing 640 million pounds (approximately 9%) of such total. During 1993, approximately 58% of the Company's formaldehyde sales was made to a third party, approximately 40% was to Borden, and the remaining approximately 2% was utilized by the Company in the production of urea- formaldehyde concentrate. 46 The principal feedstock used in the production of formaldehyde is methanol. The Geismar formaldehyde plants obtain all of such feedstock from the adjacent methanol plant. Borden produces formaldehyde and urea-formaldehyde concentrate at other facilities located in the United States and facilities outside the United States. The Company does not have any interest in such other facilities and, accordingly, Borden may be a competitor of the Company with respect to formaldehyde and urea-formaldehyde concentrate. The Operating Partnership Agreement provides that the Operating Company may not significantly expand the capacity of the Geismar formaldehyde plants without Special Approval. The Operating Company is intended to be a limited purpose partnership and the Operating Partnership Agreement provides that the General Partner shall have no duty to propose or approve, and in its sole discretion may decline to propose or approve, any such expansion. See "Conflicts of Interest and Fiduciary Responsibility". NITROGEN PRODUCTS Ammonia. Ammonia is a commodity chemical which is used primarily for fertilizer applications and as an intermediate for other agricultural chemicals such as pesticides and herbicides. The Company produces ammonia at a 400,000 ton stated annual capacity plant located at the Geismar complex. The plant operated at approximately 94% of capacity during 1993 and approximately 89% of capacity during the first nine months of 1994. In the latter half of 1993 and continuing into 1994, the worldwide supply of ammonia has experienced a series of disruptions and reductions due to plant shutdowns, operating problems and interruptions in the supply of natural gas, the primary feedstock in the production of ammonia. At the same time, demand for ammonia, particularly in Asia (China, India and Pakistan), has increased for both industrial and fertilizer applications. These factors have combined to cause occasional shortages of ammonia in the United States, which is a net importer of nitrogen products, and increasing selling prices for ammonia. Demand for ammonia is seasonal, with prices tending to be higher in the spring and fall months than during the remainder of the year. In addition, fertilizer demand is sharply affected by swings in crop acreage. During 1993, approximately 62% of total sales of ammonia was made to third parties (other than Borden), approximately 36% of total sales was made to the Company's adjacent urea plant, and approximately 2% of total sales was made to Borden. During 1993, five customers accounted for approximately 50.7% of total sales volume with no customer accounting for more than 13.2% of total sales. The principal feedstock used in the production of ammonia is natural gas. Two by-products of the production of ammonia are carbon dioxide and low pressure steam. The ammonia plant supplies the carbon dioxide to the urea and methanol plants and the steam to the plant-wide supply grid. Urea. Urea is a commodity chemical which is used primarily in fertilizer applications. Urea's high nitrogen content (46%) makes it an effective and popular dry nitrogen fertilizer. In addition, urea is used in the production of animal feed and pesticides. Outside the agricultural chemical industry, urea is used largely in the production of urea-formaldehyde resins used in the wood building products industry. The Company produces urea at a 250,000 ton stated annual capacity plant at the Geismar complex. In 1993 the Company converted the plant to produce granular urea, a widely accepted form of urea product. The plant operated at approximately 92% of capacity in 1993 and approximately 86% of capacity during the first nine months of 1994. Because of the importance of the agricultural chemical industry as a market for urea, demand is affected sharply by swings in crop acreage. In addition, like ammonia, demand for urea is seasonal, with prices tending to be higher in the spring and fall months than during the remainder of the year. Worldwide urea production has expanded rapidly over the past 20 years, particularly in countries with abundant supplies of low cost natural gas. Like ammonia, urea demand has suffered during recent years from reduced United States fertilizer demand. It has also been affected even more severely than ammonia by imports from third world countries because storage and shipping of urea are easier and less costly than in the case of ammonia. Competition from imports has moderated recently as the declining value of the United States dollar has made United States markets less attractive. 47 Urea prices remained stable in 1993 and through the third quarter of 1994 due to many of the same factors which influenced the price of ammonia. However, unlike ammonia, the supply of urea has increased during this time period as several new world scale plants came on stream. This factor has kept urea prices at relatively stable levels in spite of the increasing demand. During 1993, approximately 78% of the Company's urea was sold to third parties, approximately 21% to Borden, and the remaining approximately 1% was used internally by the Company in the production of urea-formaldehyde concentrate. The principal feedstocks used in the production of urea are ammonia and carbon dioxide, which the Company obtains from its adjacent ammonia plant. 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. The PVC resin facility at Illiopolis became operational in 1962. 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. The following table sets forth the approximate annual capacity of each of the principal manufacturing plants at the Geismar complex and the PVC plant at Illiopolis, all of which are owned by the Company except as noted, and with respect to the PVC plant at the Addis Facility, which will be owned by the Company after the Acquisition.
1988 1993 ANNUAL STATED CAPACITY ANNUAL STATED CAPACITY 5 YEAR CAPACITY PLANTS (STATED IN MILLIONS) (STATED IN MILLIONS) PERCENTAGE INCREASE - ------ ---------------------- ---------------------- ------------------- Geismar, LA: PVC Polymers Products PVC Resins.......... 400 lbs. 440 lbs. 10.0% Acetylene-based VCM(1)............. 320 lbs. 320 lbs. -- Ethylene-based VCM.. 550 lbs. 610 lbs. 10.9% Acetylene........... 190 lbs. 200 lbs. 5.3% Methanol and Derivatives Methanol............ 230 gals. 270 gals. 17.4% Formaldehyde I...... 210 lbs. 270 lbs. 28.6% Formaldehyde II(2).. 160 lbs. 180 lbs. 12.5% Formaldehyde III.... -- 190 lbs. N/M Nitrogen Products Ammonia............. .40 tons .40 tons -- Urea................ .22 tons .25 tons 13.6% Illiopolis, IL: PVC Resins............ 350 lbs. 380 lbs. 8.6% Addis, LA: PVC Resins............ 450 lbs. 450 lbs. -- Total equivalent lbs.(3)................ 5,405 6,130 13.4%
- -------- (1) 50% owned by the Company. (2) Also capable of producing urea-formaldehyde concentrate at an annual stated capacity of 125 million pounds. (3) Equivalent pounds is based on 6.63 pounds per gallon. 48 RAW MATERIALS The principal purchased raw material used in the Company's operations is natural gas. In 1993, the Company purchased over 58 billion cubic feet of natural gas for feedstock and as an energy source. Currently, the Company is one of the largest industrial purchasers of natural gas in the state of Louisiana. Natural gas is supplied by pipeline to the Geismar complex by six major natural gas pipelines. In 1993, natural gas represented 38%, 68% and 79% of total production costs for acetylene, ammonia and methanol, respectively, and 35% of the Company's total production costs. The Company purchases the majority of its natural gas under long-term, market sensitive supply contracts. The cost of purchasing natural gas is, in general, greater in winter months, reflecting increased demand for natural gas by consumers and industry during such months. Although the Company has diversified its suppliers and does not currently anticipate any difficulty in obtaining adequate natural gas supplies, 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. The Company purchases other raw materials in its operations, principally, ethylene and chlorine. Ethylene is currently supplied by pipeline to the Geismar complex by three suppliers. Chlorine is supplied by railcar to the Geismar complex by various suppliers. The major raw material for the Illiopolis PVC plant, VCM, is supplied by railcar from the Geismar complex. 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--PVC Resins". The Company anticipates purchasing its VCM requirements for the Addis Facility under the VCM Supply Agreement to be entered into between the Operating Company and OxyChem at the closing of the Acquisition. See "The Acquisition--VCM Supply Agreement and PVC Tolling Agreement". The Company does not believe that the loss of any present supplier would have a material adverse effect on the production of any particular product because of numerous, competitive alternate suppliers. Because raw materials have accounted for a high percentage of the Company's total 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 market conditions. Because of the large volume of purchases of natural gas, any increase in the price of natural gas or a shortage in its availability could materially adversely affect the Company's income and cash flow and its ability to make distributions to Unitholders and 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. See "Legal Proceedings". The Company's insurance is currently included in Borden's master insurance program although it may be separate from such master insurance program in the future if the General Partner so determines. The Company believes that the terms and premiums for the insurance obtained through Borden's program are no less favorable than those generally available through an independent program. All costs of the insurance program, including but not limited to premiums, service fees, deductible losses, and uninsured loss amounts, are direct operating expenses of the Company and are payable by the Company. At the closing of the Acquisition, the Addis Facility will be included in the Company's insurance program. For a description of the Company's right to be indemnified for certain losses related to periods prior to the closing of the Acquisition, see "The Acquisition--Certain Terms of the Asset Transfer Agreement". 49 MARKETING The Company's PVC resin sales are conducted through a professional staff of approximately nine trained personnel geographically located in nine territories, supported by a regional sales office located in Northbrook, Illinois. In addition to the regional sales managers, there are three product sales managers performing marketing functions. All are employees of the General Partner. Following the Acquisition, all sales and marketing of PVC resins produced at the Addis Facility will be consolidated with the Company's existing marketing organization. The Company's other products are similarly marketed through a professional field sales organization of three employees and two additional marketing managers under the management of the director of non-PVC resins sales and marketing located at Geismar. The professionals involved in this sales function are geographically positioned in three locations covering the United States. The Company's activity is based on customer contact on a regular basis to secure and maintain long-term supply relationships. A substantial portion of the Company's sales is made under contracts with annual negotiations relating to specific conditions of sale. Occasional export sales outside North America of products from both facilities have been, and will continue to be, coordinated through Borden's international sales representatives in Columbus, Ohio. UTILITIES The Geismar complex operates three high thermal efficiency co-generation units providing the complex with low cost electricity, steam and high temperature reformer combustion air. Each unit is composed of a natural gas burning turbine/generator unit combined with a steam producing heat recovery system. These three co-generation units are designed to provide 100% of the electricity, a significant portion of the steam, and a portion of the reformer combustion air requirements of the Geismar complex at full production levels. These co-generation units have electrical outputs of 20, 35 and 35 megawatts. The electricity supplied by the three co-generation units through a substation owned by Monochem, Inc. ("Monochem"), a corporation of which the Operating Company owns 50% of the capital stock, usually exceeds the requirement of the Geismar complex with the excess production being sold to Gulf States Utilities at its "avoided cost" rate. The Company's interest in Monochem is subject to certain rights of first refusal and limitations on transfer. The Addis Facility obtains its electricity and water requirements from local public utilities. Natural gas is purchased by pipeline from various intrastate suppliers. PURCHASE AND PROCESSING AGREEMENTS In connection with the formation of the Company in 1987, Borden entered into certain Purchase Agreements and Processing Agreements with the Operating Company covering the following products: PVC resins, methanol, ammonia, urea, formaldehyde and urea-formaldehyde concentrate. The Purchase and Processing Agreements each have a remaining term of eight years, subject to termination by Borden in the event BCPM ceases to be the general partner of the Company, other than by reason of (i) the withdrawal of BCPM as general partner under circumstances where such withdrawal violates the Partnership Agreement, (ii) removal of BCPM as general partner by the Unitholders under circumstances where cause exists or (iii) any other event except (x) voluntary withdrawal by BCPM as general partner of the Company under circumstances where such withdrawal does not violate the Partnership Agreement and such withdrawal is approved by a Majority Interest or (y) the removal of BCPM as general partner of the Company by action of the Unitholders under circumstances where cause does not exist. The Purchase Agreements require Borden to purchase from the Company and the Company to supply to Borden, subject to certain monthly quantity limits, at least 85% (and at the option of Borden up to 100%) of the quantities of PVC resins, methanol, ammonia and urea required by Borden for use in its plants in the 50 continental United States. Under the Purchase Agreements, the price for PVC resins, ammonia, urea and methanol will generally be an amount equal to the monthly weighted average price per unit that the Company charges its lowest- priced major customer (other than Borden). If the Company does not make any sales to any major customers other than Borden, then the price to Borden will be the lowest prevailing price in the relevant geographic area. The Purchase Agreements also provide that the Company is required to meet competitive third- party offers or let Borden purchase the lower-priced product from such third parties in lieu of purchases under the Purchase Agreements. The Processing Agreements for formaldehyde and urea-formaldehyde concentrate essentially require Borden to utilize the processing capacity of the formaldehyde plants so that the formaldehyde plants operate at no less than 90% of capacity, after taking into account the purchases of formaldehyde by an unaffiliated third party under a long-term requirements contract. Although such third party's current requirements for formaldehyde exceed 200 million pounds per year, in the event that such third party's annual requirements are less than such amount, Borden has the option of reducing or terminating its obligation to utilize such processing capacity. Under the Processing Agreements, Borden is required to pay the Company a fee for each pound of formaldehyde and urea-formaldehyde concentrate processed equal to the Company's processing costs plus a per pound charge. The per-pound charge is subject to increase or decrease based on changes in the Consumer Price Index from October 1987. The Processing Agreements also require the Company to meet competitive third party offers covering formaldehyde unless meeting such offer would impose a significant economic penalty on the Company, in which case Borden will be permitted to accept such offer and reduce its obligations under the Processing Agreements by a corresponding amount. The Company believes that the pricing formulae set forth in the Purchase and Processing Agreements have historically produced aggregate prices and processing charges for the covered products that over time have approximated the aggregate prices and processing charges that Borden would have been able to obtain from unaffiliated suppliers considering the magnitude of Borden's purchases, the long-term nature of such agreements and other factors. The Company believes that this will continue to be the case in the future. There may be conditions prevailing in the market at various times, however, under which the prices and processing charges set under the Purchase and Processing Agreements could be higher or lower than those obtainable from unaffiliated third parties. The Company is free to sell or otherwise dispose of, as it deems appropriate, any quantities of PVC resins, ammonia, urea, methanol or formaldehyde which Borden is not required to purchase. In addition, the Purchase and Processing Agreements do not cover acetylene, VCM or industrial gases, which are either consumed internally by the Company or have not been historically purchased by Borden. Because the foregoing Purchase and Processing Agreements are requirements contracts, sales of products thereunder are dependent on Borden's requirements for such products. Such requirements could be affected by a variety of factors, including a sale or other disposition by Borden of all or certain of its manufacturing plants to unaffiliated purchasers (in which event such agreements shall not apply to any such purchaser unless otherwise agreed to by such purchaser). In the event that, whether following any change of control of Borden or otherwise, Borden were to sell or otherwise dispose of all or certain of its plants or otherwise reorient its businesses, Borden's requirements for products sold or processed by the Company under the Purchase and Processing Agreements could be diminished or eliminated. The Company anticipates that if Borden were to sell all or certain of its chemical manufacturing facilities, a purchaser may be interested in negotiating the continuation of all or certain of the Purchase and Processing Agreements. For a discussion of these factors, see "Investment Considerations--Possible Change of Control of Borden". COMPETITION The Company encounters competition from numerous manufacturers in all of its product lines. Many of such competitors have substantially greater financial resources and are more highly diversified than the Company. 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. The Company believes that the overall efficiency, integration 51 and optimization of product mix of the facilities at Geismar and Illiopolis make the Company well positioned to compete in the markets it serves. The acquisition of the Addis Facility should enable the Company to further optimize its product mix. Borden has agreed in the Intercompany Agreement that, so long as BCPM is the general partner of the Company, Borden will not engage in the manufacture or sale in the United States of methanol, ammonia, urea, 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 Partnership Agreements, Borden shall not 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 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 shall terminate in the event that BCPM ceases to be the General Partner. MANAGEMENT The General Partner manages and controls the activities of the Company and the Operating Company and the General Partner's activities are limited to such management and control. See "Management." Unitholders do not direct or participate in the management or control of the Company. The General Partner has fiduciary duties to Unitholders. See "Conflicts of Interest and Fiduciary Responsibility". Notwithstanding any limitation on obligations or duties, the General Partner will be liable, as general partner, for all the debts of the Company and the Operating Company (to the extent not paid by the Company or the Operating Company) other than the Old Notes, the Notes and any other debt incurred by the Company or the Operating Company that is made specifically nonrecourse to the General Partner. As is commonly the case with publicly traded limited partnerships, the Company and the Operating Company do not directly employ any of the persons responsible for managing or operating the business of the Company or the Operating Company, but instead rely on the officers and employees of the General Partner and reimburse the General Partner for their services. At October 6, 1994, the General Partner employed approximately 730 individuals, who are also employees of Borden. 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 generally 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 substantially and rapidly in recent years, and the Company anticipates continuing changes. The trend in environmental regulation is to place more restrictions and limitations on activities that may affect the environment, such as emissions of pollutants and the generation and disposal of wastes. 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. 52 The Company maintains an environmental and industrial safety and health compliance program and conducts internal regulatory audits at its Geismar and Illiopolis 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 certain plant operations and certain 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. Each of the federal health, safety and environmental programs typically have state counterparts. The state environmental programs generally must be at least as stringent as the federal requirements, and some state requirements are more onerous than the federal requirements. Both federal and state environmental programs allow the imposition of substantial civil and criminal penalties for the violation of such programs. The Company's plants in the past have been subject to enforcement proceedings with respect to environmental issues typically encountered in the chemical industry. Past proceedings generally have been settled. Like the operations of the Company, the operations of the Addis plant 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. In connection with the Company's acquisition of the Addis plant, the Company has conducted an environmental assessment of that plant. Such assessment included a review of certain federal and state environmental agency files for the Addis plant, a review of certain OxyChem files, interviews with personnel at the Addis plant, tours of the plant and groundwater sampling. Based on the results of the environmental assessment, the Company does not know of material violations of environmental, health or safety laws at the Addis plant. In addition, based on the information available to the Company to date, the Company believes that environmental capital expenditures at the Addis plant may be in excess of $3.0 million over the next several years. 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 and Illiopolis plants generally are in material compliance with these requirements. Based on the results of the Company's environmental assessment of the Addis plant, the Company does not know of material violations of the Clean Air Act, or comparable Louisiana laws, at that plant. The 1990 Amendments to the Clean Air Act (the "1990 Clean Air Act Amendments") substantially revised and expanded the air pollution control requirements throughout the United States. As discussed below, certain of these new or revised requirements may impact the Geismar, Illiopolis and Addis plants. The 1990 Clean Air Act Amendments require more 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 a "non- attainment area" for ozone under the 1990 Clean Air Act Amendments. 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 new more 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. In particular, the EPA promulgated a rule in April 1994, which may require the modification of the existing emission control equipment at the Geismar facility. Capital expenditures may be necessary to comply with these control standards. The 1990 Clean Air Act Amendments further require "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 upgrade the systems to comply with the "enhanced monitoring" requirement. 53 Based on the 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 Clear Air Act Amendments and corresponding state regulations will be material. However, because all the regulatory requirements under the 1990 Clean Air Act Amendments are not yet final, and 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. The DOJ, at the request of the EPA, has brought an enforcement proceeding against the Company and BCPM for alleged violation of the Clean Air Act, and other environmental statutes, at the Geismar facility. See "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 and Illiopolis plants generally are in material compliance with OSHA requirements, including general industry standards, vinyl chloride exposure requirements, recordkeeping requirements and chemical process safety standards. Based on the results of the Company's environmental assessment of the Addis plant, the Company does not know of material violations of OSHA at that plant. 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 prepared a detailed hazard communication program and will continue this program as a part of its industrial safety and health compliance program. The Company is a member of the Community Awareness and Environmental Response ("CAER") program of the Chemical Manufacturer's Association, as well as the Association's Responsible Care efforts. At Geismar, membership in such programs includes participation in the Geismar Area Mutual Aid organization, which maintains a community warning system for notification of chemical releases through the local sheriff's department. The Company believes that it generally is in material compliance with EPCRA. Based on the results of the Company's environmental assessment of the Addis plant, the Company does not know of material violations of EPCRA at that plant. The Company is currently subject to a proceeding for alleged violations at the Illiopolis facility of release reporting requirements under EPCRA. This proceeding is discussed under "Legal Proceedings". Solid and Hazardous Waste. The Geismar, Illiopolis and Addis plants generate hazardous and nonhazardous solid waste and are subject to the requirements of RCRA and comparable state statutes. The Company believes that the Geismar and Illiopolis plants generally are in material compliance with RCRA. However, see "Legal Proceedings". Based on the results of the Company's environmental assessment of the Addis plant, the Company does not know of material violations of RCRA at that plant. 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 would likely result in additional capital expenditures or operating expenses. The Geismar complex is operating under RCRA interim status and has filed a permanent RCRA permit application for its valorization of chlorinated residuals ("VCR") unit and related tanks. However, the Company does not believe that the Geismar facility must obtain a RCRA permit and is challenging the applicability of the RCRA permit requirements to it. The Company's challenge to those permit requirements, the potential permitting costs, civil penalties and corrective action costs that it may incur if that challenge is unsuccessful, are discussed under "Legal Proceedings". 54 The DOJ, at the request of the EPA, has brought an enforcement proceeding against the Company and BCPM for alleged violations of RCRA, and other environmental statutes, at the Geismar facility. See "Legal Proceeding". Superfund. CERCLA, also known as the "Superfund" law, imposes liability, without regard to fault or the legality of the original conduct, on certain 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 DOJ, at the request of the EPA, has brought an enforcement proceeding against the Company and BCPM for alleged violation of CERCLA's reporting requirements, and other environmental requirements, at the Geismar facility. See "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. Based on the results of the Company's environmental assessment of the Addis plant to date, the Company does not know of material violations of TSCA at that plant. 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. See "Legal Proceedings" for a discussion of the Company's challenge to a wastewater permit for the Geismar facility. Where required, the Company and the Addis plant have also applied for permits to discharge stormwater. The Company believes that the Geismar and Illiopolis plants generally are in material compliance with the Federal Water Pollution Control Act of 1972 and comparable state laws. Based on the results of the Company's environmental assessment of the Addis plant, the Company does not know of material violations of the Federal Water Pollution Control Act of 1972 or comparable Louisiana laws at the Addis plant. 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 wastewater treatment plant at the Illiopolis facility has been having difficulty meeting its wastewater permit limitations for biochemical oxygen demand ("BOD") and total suspended solids ("TSS"). The Illinois Pollution Control Board has granted the facility an emergency provisional variance from the BOD and TSS permit limitations. This variance will expire on December 3, 1994. The facility will be able to apply for another forty-five day variance, but there is no assurance that the Board will grant another variance. The Company believes that it has identified the cause of the upset condition, and has undertaken corrective measures. At this time, the Company does not know whether its corrective measures will resolve the upset condition, although preliminary data indicate that the corrective measures have resolved the upset condition 55 in the area of the production process where the problem is believed to have originated. If the corrective measures do not resolve the upset condition, the Company may have to incur additional costs to correct this problem, and may be subject to civil penalties. Any such costs and civil penalties cannot accurately be estimated at this time. 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 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. It is common for chemical plants from time to time to encounter areas of groundwater contamination during the ordinary course of business. Typically, some of these contamination events are historical and cannot be documented as to the causal circumstances. While some contamination events have been identified at the Company's plants and at the Addis plant, it is the Company's policy, where possible, to address and resolve these contamination events. The Company believes that environmental indemnities available to it would cover the majority of these known or unknown contamination events. The Company does not believe that the known contamination events will have a material adverse impact on the Company's operations. The Company believes that the Geismar and Illiopolis plants generally are in material compliance with all laws with respect to known groundwater contamination events. Based on the results of the Company's environmental assessment of the Addis plant, the Company does not know of material violations of laws applicable to groundwater contamination at that plant. At the Geismar complex, Borden and the Company have complied with the Settlement Agreement with the state of Louisiana for groundwater remediation. See "Legal Proceedings" for further discussion. 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, in many instances 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. To the extent estimates are available, capital expenditures for environmental control facilities are expected to total approximately $3.0 million in 1994 and approximately $4.0 million in 1995 (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). For a discussion concerning possible capital expenditures at the Addis plant, see "--General" and "Management's Discussion and Analysis of Financial Condition and Results of Operations-- Liquidity and Capital Resources". BORDEN ENVIRONMENTAL INDEMNITY Under the Environmental Indemnity Agreement, subject to certain conditions, Borden has agreed to indemnify the Company and the Operating 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"). The Company is responsible for environmental liabilities arising from facts or circumstances that existed and 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 56 Environmental Indemnity Agreement after November 30, 2002, and no claim can, with certain exceptions, be made with respect to the first $0.5 million of liabilities which Borden would otherwise be responsible for thereunder in any year, but such excluded amounts shall not exceed $3.5 million in the aggregate. Excluded amounts under the Environmental Indemnity Agreement have aggregated approximately $2.0 million through September 30, 1994. If the United States is successful in requiring the Company to perform corrective action at the Geismar facility or the LDEQ requires the Company to take further remedial measures in connection with the Settlement Agreement (see "Legal Proceedings"), the Company anticipates that a portion of its corrective action costs would be covered by the Environmental Indemnity Agreement. The extent to which any penalties or permit costs that the Company may incur as a result of pending environmental proceedings will be subject to the Environmental Indemnity Agreement will depend, in large part, on whether such penalties or costs are attributable to facts or circumstances that existed and requirements in effect prior to the Transfer Date. ADDIS ENVIRONMENTAL INDEMNITY OxyChem has agreed to indemnify 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, 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. Such indemnification obligation 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. PRODUCT LIABILITY AND REGULATION The United States Food and Drug Administration ("FDA") is proposing new regulations providing for the safe use of vinyl chloride polymers in food- contact articles. According to the FDA, such regulations are required because vinyl chloride monomer, a component of vinyl chloride polymer, has been shown to be a carcinogen. However, the FDA concludes in its proposal that there is a reasonable certainty of no harm from the exposure to the small amounts of vinyl chloride monomer that may result from the use of vinyl chloride polymers in food packaging which complies with the FDA's proposed regulations. Thus, the FDA proposal would continue to allow substantially all presently allowable uses, including all products currently made using products produced by the Company. While the FDA has tentatively concluded that such action will not have a significant effect on the human environment, it is considering whether to develop a full environmental impact statement to consider the potential effect on the environment of the disposal of these food-contact articles. The EPA has authority with respect to the safe use of vinyl chloride polymer pipe in municipal water systems and has not imposed any restrictions on its use. It is possible, however, that the FDA, the EPA, or other federal and state agencies may seek to impose additional restrictions on the use or disposal of vinyl chloride polymer. Moreover, while Borden has agreed to indemnify the Company in respect of liabilities arising from products (including but not limited to vinyl chloride polymer) shipped prior to the Transfer Date, the Company will be responsible for any subsequent product liabilities. As a result of the Company's manufacture, distribution and use of different chemicals, the Company 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. 57 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The Partnerships do not have directors or officers. The Company is managed by and under the direction of BCPM. See "Summary of the Partnership Agreements." As the sole stockholder of BCPM, Borden elects the directors of BCPM on an annual basis. Set forth below is certain information concerning the directors and executive officers of BCPM.
SERVED IN PRESENT NAME AGE POSITION WITH GENERAL PARTNER POSITION SINCE ---- --- ----------------------------- ----------------- Joseph M. Saggese....... 63 Chairman of the Board of Directors, President and Chief Executive Officer 1990 Daniel M. Galbreath..... 66 Director 1987 Edward H. Jennings...... 57 Director 1989 David A. Kelly.......... 56 Director, Treasurer and Principal Financial Officer 1987(1) George W. Koch.......... 68 Director 1987 John P. Stapleton....... 49 Director and Vice President 1987 Ronald B. Wiles......... 56 Director 1990 Judy A. Barker.......... 53 Vice President 1994 W. Bailey Barton........ 56 Vice President 1994 Lawrence L. Dieker...... 56 Secretary 1987 Wayne P. Leonard........ 52 Vice President 1987 John L. Russ III........ 54 Vice President 1987 James O. Stevning....... 35 Controller and Principal Accounting Officer 1994
- -------- (1) Mr. Kelly was elected a director effective March 1, 1994. Joseph M. Saggese has been Chairman of the Board of Directors, President and Chief Executive Officer of BCPM since July 1990. He is also Executive Vice President of Borden and President of Borden Packaging and Industrial Products Division Domestic and International (the "Borden PIP Division"), positions he has held since July 1990. From January 1989 to August 1990 he served as Senior Group Vice President of the Borden PIP Division. He served as a Senior Vice President of the Borden PIP Division from October 1985 to January 1989. Daniel M. Galbreath is a director of BCPM. He is Chairman of the Board and CEO of The Galbreath Company, a position he has held since 1979. The Galbreath Company is a national full-service real estate business. Mr. Galbreath is also a director of Churchill Downs, Incorporated, the owner and operator of thoroughbred racetracks. Edward H. Jennings is a director of BCPM. 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. Mr. Jennings is also a director of Super Foods, Inc., a wholesale grocers, Lancaster Colony, Inc., a manufacturer and marketer of food, automotive and glass products, and Hymedix, Inc., a medical products company. David A. Kelly is a director, Treasurer and Principal Financial Officer of BCPM. He is also Vice President and Treasurer of Borden, a position he has held since 1980. George W. Koch is a director of BCPM. He is Of Counsel in the law firm of Kirkpatrick & Lockhart since January 1992. Prior to that he was a partner of Kirkpatrick & Lockhart since April 1990. From 1966 to April 1990, he was President and Chief Executive Officer of the Grocery Manufacturers of America, Inc., a non-profit organization of the leading grocery manufacturers in the United States. Mr. Koch is also a director of McCormick & Co., a food products company. 58 John P. Stapleton is a director and a Vice President of BCPM. He is also Vice President of the Borden PIP Division, a position he has held since 1983. He has served in other capacities with the Borden PIP Division since 1972, including assistant controller, manager of business planning/commercial development, and director of planning and development. Ronald B. Wiles is a director of BCPM. He is also Controller of the Borden PIP Division, a position he has held since July 1, 1990. Prior to that he held various Group Controller positions for the Borden PIP Division. Judy A. Barker has been Vice President of BCPM since June 1994. She is also Vice President, Social Responsibility for Borden, a position she has held since October 1990. Prior to that time, she was Director of Social Responsibility for Borden. She also is the President of the Borden Foundation. W. Bailey Barton has been Vice President of BCPM since June 1994. He has also served as Chief Environmental Officer of Borden since April 1, 1991. Prior to that time, he was Vice President of Environmental Affairs for the Borden Chemical Division, and Corporate Director of Environmental Affairs for Borden. Lawrence L. Dieker is Secretary of BCPM. He is also Assistant General Counsel of Borden, a position he has held since 1982. Wayne P. Leonard is a Vice President of BCPM. From 1984 to 1987, he was Director of Manufacturing, Basic Chemicals Unit of the Borden PIP Division. Prior thereto, he was manager of the vinyl products sector of the Basic Chemicals Unit of the Borden PIP Division. He has served in the chemical business for thirty years and at all such times he has worked at the Geismar complex. John L. Russ III is a Vice President of BCPM. From 1986 to 1987, he was General Manager, Thermoplastics Unit and Petrochemical Borden PIP Division. He joined Borden in 1982 as director of sales and marketing for the Thermoplastics Unit of the Borden PIP Division. He has served in the PVC resin business in sales and marketing capacities for over thirty years. James O. Stevning has been Controller and Principal Accounting Officer of BCPM since March, 1994. He is also Group Controller of the Company, a position he has held since April 1992. Prior to that he was Assistant Controller of the Borden PIP Division. INDEPENDENT COMMITTEE. BCPM is required to maintain an Independent Committee of its Board of Directors, which is to 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. The Partnership Agreements provide that certain actions require Special Approval. Such actions include an expansion of the scope of business of the Partnerships, the making of material capital expenditures, the material curtailment of the operations of any plant, the material expansion of the capacity of any plant and the amendment of or entry into by either of the Partnerships of any agreement with Borden. The members of the Independent Committee are Daniel M. Galbreath, Edward H. Jennings and George W. Koch. COMPENSATION. All the direct and indirect costs of the General Partner incurred in connection with the operation of the Company, including general and administrative costs and compensation and benefits payable to officers and other employees engaged in the operation of the Company, are paid or reimbursed by the Company. Pursuant to the Partnership Agreement, the General Partner is to determine the costs that are allocable to the Company in any reasonable manner determined by the General Partner in its sole discretion. The executive officers of BCPM management operate the business of the Company. The Company does not directly employ any of the executives, but instead reimburses Borden on behalf of BCPM for the allocable cost of (including fringe and post-employment benefits, if any) the services of such persons, including salary and bonus. In addition, Borden maintains a number of employee benefit plans for employees of Borden and 59 its subsidiaries. Officers and employees of BCPM, a wholly-owned subsidiary of Borden, are eligible to participate in such plans, including long-term incentives such as options to purchase common stock of Borden and performance units payable based on the attainment of specified performance goals. The Board of Directors of the General Partner recently approved in principle, by Special Approval, the adoption by the General Partner of an employee incentive plan for management and employees of the General Partner. The plan is intended to provide incentives to the management and employees of the General Partner to enhance the financial performance of the Company or the market value of the Units or both. Rewards will be made under the plan on the basis of or in relation to services performed, directly or indirectly, for the benefit of the Company and on the basis of the financial performance of the Company or the market value of the Units or both. The benefits to be provided under the plan will be in addition to, and not in lieu of, the benefits provided to management and employees of the General Partner under existing plans or employee benefit arrangements. The plan may involve the grant by the Company of Units, restricted Units or options to purchase Units, the provision by the General Partner of cash bonuses or some combination thereof. It is expected that all Units under the plan would be made available through open market purchases. The General Partner will be reimbursed by the Company for all payments made or expenses incurred by the General Partner under the plan. As currently approved, the maximum amount of additional Units that could be available under the plan would be 3% of the outstanding Units and, if the plan involves payments by the Company, the maximum amount payable by the Company during any year would be 3% of the Available Cash distributed to Unitholders with respect to such year. The final terms of the plan are subject to Special Approval and final terms of the plan so approved may be different from the terms indicated herein (including in respect of maximum amounts of Units or payments). LEGAL PROCEEDINGS LOUISIANA GROUNDWATER REMEDIATION SETTLEMENT AGREEMENT In 1985 the LDEQ and Borden entered into the Settlement Agreement that called for the implementation of a long term groundwater and soil remediation program at the Geismar complex to address contaminants, including ethylene dichloride ("EDC"). Also during this time frame, Borden commenced closure of various units identified to have been contributors to the EDC contamination underlying the Geismar complex. Borden and the Company have implemented the Settlement Agreement, and have worked in cooperation with the LDEQ to remediate the groundwater and soil contamination. The Settlement Agreement contemplated, among other things, that Borden would install a series of groundwater monitoring and recovery wells, and recovery trench systems. The Company believes that it already has sufficiently identified the extent of the groundwater plume. Nevertheless, the Company intends to drill and test some additional groundwater wells for the purpose of addressing issues raised by the LDEQ concerning whether the extent of the groundwater contamination has been identified. Borden has paid substantially all the costs to date of the Settlement Agreement. It is unknown how long the remediation program will continue or whether the LDEQ will require the Company to incur costs to take further remedial measures in response to data generated by the planned additional groundwater wells. If the LDEQ requires the Company to take further remedial measures, the Company anticipates that a portion of such costs would be covered by the Environmental Indemnity Agreement. See"Business and Properties--Borden Environmental Indemnity". FEDERAL ENVIRONMENTAL ENFORCEMENT PROCEEDING On October 27, 1994, the DOJ, at the request of the EPA filed an enforcement proceeding against the Company and BCPM in the United States District Court for the Middle District of Louisiana (the "Geismar enforcement proceeding"). The complaint seeks civil penalties for alleged violations of RCRA, CERCLA and the Clean Air Act at the Geismar facility, as well as corrective action at that facility. Prior to the filing of the complaint, the Company and the DOJ had engaged in settlement discussions. The federal government's primary allegations for which it seeks penalties include claims that (i) the Company's international export of a partially depleted mercuric chloride catalyst for recycling violated 60 RCRA; (ii) the Company should have applied for a RCRA permit for operation of its VCR unit and related tanks before August 1991; and (iii) the Company should have applied for a RCRA permit for the north trench sump at the Geismar complex because such sump allegedly contains hazardous waste. The government's allegations include other claims related to these and other alleged RCRA violations, as well as claims of alleged violations of immediate release reporting requirements under CERCLA and requirements governing particulate matter emissions under the Clean Air Act. The Company plans to vigorously defend itself against all such allegations. Because of a reversal of LDEQ's position that the partially depleted mercuric chloride catalyst was not a hazardous waste, and pending the outcome of the Geismar enforcement proceeding, the Company has ceased exporting the partially depleted mercuric chloride catalyst for recycling and is currently handling it as if it were a hazardous waste. Accordingly, even if a court should determine that the partially depleted catalyst was a hazardous waste when it was exported, the Company does not anticipate that it would incur material additional expenditures to continue to manage the partially depleted catalyst as a hazardous waste. In 1991, as a protective filing, the Company applied for a hazardous waste permit for the VCR unit and related tanks. In January 1994, in response to a petition from the Company to LDEQ for a determination that the VCR unit does not require a RCRA permit, LDEQ determined that the VCR unit is subject to RCRA. The Company continues to maintain that the VCR unit is not subject to RCRA and has filed appeals of LDEQ's determination in Louisiana state courts. In May 1994, the Company filed a Complaint for Declaratory Judgment in the United States District Court in Baton Rouge seeking a determination that (i) the partially depleted mercuric chloride catalyst was not a hazardous waste when it was exported for recycling, (ii) the materials entering the VCR unit and related tanks are not hazardous waste and (iii) the north trench sump does not require a RCRA permit. The EPA has moved to dismiss this Complaint. If the Company is unsuccessful in prosecuting its Declaratory Judgment Action, or in defending itself against the Geismar enforcement proceeding, it could be subject to three types of costs: (i) penalties; (ii) corrective action; and (iii) costs needed to obtain a RCRA permit. Although the maximum statutory penalties that would apply in a successful enforcement action by the DOJ would be in excess of $150 million, the Company believes that, assuming the Company is unsuccessful and based on information currently available to it and an analysis of relevant case law and administrative decisions, the more likely amount of any liability for civil penalties would not exceed several million dollars. If the Company is unsuccessful in either the Declaratory Judgment Action or the Geismar enforcement proceeding, it may also be subject to corrective action. The federal government also can require corrective action for a facility subject to RCRA permit requirements. Corrective action could require the Company to conduct investigatory and remedial activities at the Geismar complex concurrently with the groundwater monitoring and remedial program that the Company is currently conducting under the Settlement Agreement with LDEQ. The DOJ has advised the Company that it intends to seek facility-wide corrective action to address potential contamination at the Geismar complex. The EPA has indicated that it intends to evaluate the adequacy of the existing groundwater remediation project performed under the Settlement Agreement with LDEQ, and to determine the potential for other areas of contamination on or near the Geismar complex. The cost of any corrective action could be material, depending on the scope of such corrective action. However, the actual cost of a facility-wide corrective action cannot be identified until the EPA provides substantially more information to the Company. If the Company is unsuccessful in either proceeding concerning its challenge to the applicability of the RCRA permit requirements to the VCR unit and related tanks, or the north trench sump, it will have to incur additional permitting costs. The Company estimates that its costs to complete the permitting process for the VCR unit and related tanks would be approximately $1.0 million. The Company believes that the costs for amending its pending RCRA permit application to include the north trench sump would not be material. 61 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. However, insurance generally does not cover penalties or the costs of obtaining permits. EMERGENCY PLANNING AND COMMUNITY RIGHT-TO-KNOW ACT PROCEEDING In February 1993, an EPA Administrative Law Judge held that the Illiopolis facility had violated CERCLA and EPCRA by failing to report certain relief valve releases, which occurred between February 1987 and July 1989, that the Company believes are exempt from CERCLA and EPCRA reporting. The Company's petition for reconsideration was denied, a penalty hearing will be scheduled, and further appeals are possible. Management does not believe that any ultimate penalty arising from this proceeding would have a material adverse effect on the Company. The proposed penalty in EPA's administrative complaint initiating this proceeding in 1991 was $1.0 million. FEDERAL WASTEWATER PERMIT The Geismar facility has a permit for each of its two wastewater outfalls. The Company is challenging conditions in one of those permits. As a result of the government's delay in responding to this challenge, the challenged permit is expiring and the Company is applying for a new permit. Depending on the result of that permit application, the Company's current permit challenge may be irrelevant. GENERAL 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 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 harm. New or different claims arising from the Company's various chemical operations may be made in the future. The Company is subject to various other legal proceedings and claims which arise in the ordinary course of business. The management of BCPM 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 Environmental Indemnity Agreement with Borden, would not have a material adverse effect on the financial position and results of operations of the Company. 62 CONFLICTS OF INTEREST AND FIDUCIARY RESPONSIBILITY CONFLICTS OF INTEREST Certain conflicts of interest could arise as a result of the General Partner's relationship with Borden and its affiliates, the Company or any Unitholder. The General Partner makes all decisions relating to the Company. Some of the officers of the General Partner who make such decisions may also be officers of Borden and its affiliates. In addition, Borden owns all the outstanding capital stock of the General Partner. The directors and officers of Borden have fiduciary duties to manage Borden, including its investments in its subsidiaries (including the General Partner) and affiliates, in a manner beneficial to the shareholders of Borden. In general, the General Partner has a fiduciary duty to the Company, including a duty to manage the Company in a manner beneficial to the Company and, through it, the Unitholders. However, the Partnership Agreement contains provisions that allow the General Partner to take into account the interests of parties in addition to the Company and the Unitholders in resolving conflicts of interest and provisions that may restrict the remedies available to Unitholders for actions taken that might otherwise constitute breaches of fiduciary duty. The duty of the directors and officers of the General Partner and Borden to their shareholders and affiliates may, therefore, come into conflict with the duties of the General Partner to the Company. Potential conflicts of interest could arise in the situations described below, among others: (a) Because of the definitions of Available Cash and Cash from Operations set forth elsewhere herein, the amount of cash expenditures and reserves in any quarter will affect whether or the extent to which there is sufficient Available Cash constituting Cash from Operations in order to meet the Target Distribution. Borrowings and issuances of additional Units also increase the amount of Available Cash and, in the case of working capital borrowings, the amount of Cash from Operations. Any actions taken by the General Partner consistent with the standards of "reasonable discretion" set forth in the definitions of Available Cash or Cash from Operations will be deemed not to breach any duty of the General Partner to the Company or the Unitholders. See "Cash Distributions". (b) Under the terms of the Partnership Agreements, the General Partner will exercise its discretion in managing the business of the Company and, as a result, the General Partner is not restricted from paying Borden, its subsidiaries or affiliates for services rendered, if any, to the Company. In this connection, the General Partner will determine which of its direct or indirect costs (including costs allocated to the General Partner by its affiliates) are reimbursable by the Company. (c) In connection with the formation of the Company, Borden entered into the Purchase and Processing Agreements. Borden's interest in enlarging or reducing its requirements for products which are subject to such Purchase and Processing Agreements may differ from the Company's interest in such changes. The price of products purchased by Borden under the Purchase Agreements is generally an amount equal to the weighted average price per unit that the Company charges its lowest-priced major customer other than Borden. Because the General Partner is a wholly-owned subsidiary of Borden, and the General Partner determines the terms and conditions, including price, upon which the Company sells products to all third parties, the General Partner's pricing decisions indirectly determine, in certain cases, the price of the Company's products to Borden. The intention of the General Partner, however, is to sell the Company's products to third parties on terms that are in the best interests of the Company, including the best price available after taking into account purchase volumes, contract duration and other relevant factors. (d) At the time of the formation of the Company, Borden retained various formaldehyde plants at locations other than the Geismar complex and methanol plants located in Brazil and Argentina. Although (i) the Company acquired from Borden a long-term supply contract with an unaffiliated third party covering formaldehyde and (ii) Borden entered into Processing and Purchase Agreements covering formaldehyde, urea-formaldehyde concentrate and methanol which, subject to the terms and conditions contained therein, require Borden to utilize certain portions of the formaldehyde and urea- formaldehyde 63 concentrate processing capacities of the Company and to purchase certain of Borden's methanol requirements from the Company, Borden and the Company may compete with each other with respect to formaldehyde, urea-formaldehyde concentrate and methanol under certain circumstances. During the term of the Processing Agreements covering urea-formaldehyde concentrate, the Company will not sell urea-formaldehyde concentrate to any person other than Borden. (e) The Operating Partnership Agreement provides that the Operating Company is not permitted to expand the production capacity of the two formaldehyde plants at the Geismar complex beyond 385 million pounds per year unless such expansion receives Special Approval. The Operating Partnership Agreement also provides that the Operating Company will not engage in any business other than the manufacture or production of PVC resins, VCM, acetylene, methanol, formaldehyde, urea-formaldehyde concentrate, ammonia, urea and acetic acid or construct any plants at locations other than Geismar and Illiopolis unless approved by Special Approval. The Operating Partnership Agreement provides that the General Partner has no duty to the limited partners in the Operating Company to propose or approve, and in its sole discretion may decline to propose or approve, any of the above actions. (f) The General Partner has certain varying interests and priorities with respect to Available Cash and net proceeds of capital transactions. See "Cash Distributions". The timing and amount of cash receipts and proceeds of capital transactions received by or allocated to the General Partner may be affected by various determinations made by the General Partner under the Partnership Agreements (including, for example, those relating to the amount of capital expenditures, the timing of any capital transaction, the establishment and maintenance of reserves, the timing of expenditures, the incurrence of debt and other matters). (g) The General Partner has the authority under the Partnership Agreement to cause the Company to issue, among other types of partnership interests, additional units or other partnership interests with a preference with respect to distributions over the Units. In the event that the General Partner causes the Company to issue units or other partnership interests with a preference with respect to distributions over the Units, the amount of funds available for distribution by the Company on the Units may be decreased. Similarly, issuance of additional partnership interests on a parity with the Units as to distributions could result in a reduction of funds available for distribution on Units on a per Unit basis. (h) Neither of the Partnership Agreements nor any of the agreements, contracts and arrangements between the Company or the Operating Company, on the one hand, and the General Partner, Borden and its affiliates, on the other hand (including, without limitation, the Purchase and Processing Agreements and the Environmental Indemnity Agreement), were or will be the result of arm's-length negotiations. (i) The decision whether the Company or the General Partner should purchase outstanding Units at any time may involve the General Partner or Borden in a conflict of interest. See "Summary of the Partnership Agreements--Right to Call Units". (j) The Company does not have any employees and relies solely on employees of the General Partner and its affiliates, including Borden. The General Partner conducts no business other than as general partner of the Company and the Operating Company. There may be competition between the Company and Borden and its affiliates for the time and effort of a small number of employees who provide services to the General Partner. (k) As a matter of practice and whenever possible, the General Partner limits the liability under contractual arrangements of the Company to all or particular assets of the Company, with the other party thereto to have no recourse against the General Partner or its assets other than its interest in the Company. In some circumstances, such action of the General Partner may result in the terms of the transaction being less favorable to the Company than would otherwise be the case. The Partnership Agreement provides that such action does not constitute a breach of the General Partner's fiduciary obligations. 64 (l) The Company is, and may from time to time in the future be, a party to various agreements to which the General Partner and its affiliates, including Borden, are also parties and that provide certain benefits to the Company. However, these agreements do not grant to the holders of the Units, separate and apart from the Company, the right to enforce the obligations of the General Partner or of such affiliates in favor of the Company. Therefore, the General Partner is primarily responsible for enforcing such obligations, including obligations that it or such affiliates may owe to the Company. As described under "Use of Proceeds", the Operating Company intends to offer Notes and use a portion of the net proceeds of the Notes to prepay the Old Notes. The Company anticipates that it will, in order to effect such prepayment, need to pay a Prepayment Premium. The prepayment of the Old Notes will, in addition to providing various benefits to the Company described under "Use of Proceeds", benefit Borden because it will have the effect of terminating the Borden Purchase Obligation that would otherwise be triggered by a change of control of Borden. Because of the benefits to Borden of the prepayment of the Old Notes, Borden has advised the Company that it is willing to pay a portion of the Prepayment Premium. Because the allocation of the Prepayment Premium between Borden and the Company constitutes a conflict of interest between Borden and the Company, any such allocation will be subject to Special Approval. See "Use of Proceeds". FIDUCIARY RESPONSIBILITIES OF THE GENERAL PARTNER; RESOLUTION OF CONFLICTS OF INTEREST; INDEMNIFICATION; DERIVATIVE ACTIONS Fiduciary Responsibilities of the General Partner The General Partner is generally accountable to the Company and to the Unitholders as a fiduciary. Consequently, the General Partner must exercise good faith and integrity in handling the assets and affairs of the Company. In contrast to the relatively well developed state of the law concerning fiduciary duties owed by officers and directors to the shareholders of a corporation, the law concerning the duties owed by general partners to the other partners and to their partnerships is relatively undeveloped. The Delaware Act provides that Delaware limited partnerships may, in their partnership agreements, restrict or expand the fiduciary duties that might otherwise be applied by a court in analyzing the standard of duty owed by general partners to limited partners. In order to induce the General Partner to manage the business of the Company, the Partnership Agreements, as permitted by the Delaware Act, contain various provisions that have the effect of restricting the fiduciary duties that might otherwise be owed by the General Partner to the Company and its partners. Further, as discussed below, certain transactions approved by Special Approval are conclusively deemed to be fair and reasonable to the Company. In addition, holders of Units are deemed to have consented to certain actions and conflicts of interest that might otherwise be deemed a breach of fiduciary or other duties under state law. The Partnership Agreements provide that whenever a potential conflict of interest arises between the General Partner or any of its affiliates on the one hand, and the Company, or any Unitholder on the other hand, any resolution or course of action in respect of such conflict of interest will not be a breach of the Partnership Agreements, any other agreements, or any duty expressed or implied by law or equity, if the resolution or course of action is fair and reasonable to the Company. Any resolution or course of action that receives Special Approval shall be deemed fair and reasonable to the Company. The General Partner may also adopt a resolution or course of action that has not received Special Approval and if such resolution or course of action is fair and reasonable to the Company and the Operating Company, it will not be a breach of the Partnership Agreements, any other agreements or any duty expressed or implied by law or equity. The General Partner (including the Independent Committee in connection with any Special Approval) is authorized but not required in connection with the resolution of any conflict of interest to consider the relative interests of all parties to the conflict of interest and additional factors deemed appropriate. The Partnership Agreements also provide that any determination of the fairness and reasonableness of any transaction shall take into account the relationship of the parties to the transaction and the relative benefits and detriments of such transaction when considered in the aggregate with other transactions between the parties to the 65 transaction. The Partnership Agreements also provide that certain actions on the part of the General Partner discussed above under "--Conflicts of Interest" will be deemed not to constitute breaches of any duty to the Company. The extent to which these provisions are enforceable under Delaware law is not clear. Delaware law provides that a limited partner may institute legal action on behalf of a partnership (a partnership derivative action) to recover damages from a third party (including a general partner) where the general partner has refused to institute the action or where an effort to cause the general partner to do so is not likely to succeed. In addition, the statutory or case law of certain jurisdictions may permit a limited partner to institute legal action on behalf of himself or all other similarly situated limited partners (a class action) to recover damages from a general partner for violations of its fiduciary duties to the limited partners. Furthermore, the terms of various agreements relating to the Company and the manner in which those agreements were entered into involve certain conflicts of interest. See "Investment Considerations--Considerations Relating to Partnership Structure and Relationship to General Partner--Conflicts of Interest". The Partnership Agreements provide that the General Partner will not be liable to the Company, the Operating Company or the Unitholders for any acts or omissions taken in good faith. The extent to which these provisions are enforceable under Delaware law is not clear. In addition, the Company and the Operating Company have, under the Partnership Agreements, and Borden has, under other agreements, granted broad rights of indemnification to the General Partner, its affiliates and the directors, officers, partners, employees, agents and controlling persons of the General Partner and its affiliates. See "Summary of the Partnership Agreements--Indemnification". It is not clear to what extent these indemnification rights are enforceable under Delaware law. In addition, insofar as such indemnification purports to indemnify the General Partner, certain of its officers and its directors and controlling persons for liabilities arising under the Securities Act, such indemnity may be unenforceable. The nature of fiduciary obligations of general partners is a developing area of the law, and Unitholders should consult their own legal counsel concerning the fiduciary responsibilities of the General Partner and the remedies available to Unitholders. The rights of the Unitholders under Delaware law are in addition to any rights that they may have under the federal securities laws, and Unitholders will not be deemed to have waived such rights by becoming partners in the Company. 66 DESCRIPTION OF DEPOSITARY UNITS AND THE DEPOSIT AGREEMENT The following is a description of certain provisions of the Third Amended and Restated Deposit Agreement among the Company, Society National Bank, as depositary (the "Depositary"), Borden and BCPM, as General Partner and as attorney-in-fact for the Assignees and the Limited Partners (the "Deposit Agreement"), and such description is qualified in its entirety by reference to the Deposit Agreement, which is incorporated by reference as an exhibit to the Registration Statement of which this Prospectus is a part. GENERAL The Units are registered under the Securities Exchange Act of 1934, as amended ("Exchange Act") and the rules and regulations thereunder, and the Company is subject to the reporting requirements of the Exchange Act. The Company is required to file periodic reports containing financial and other information with the Securities and Exchange Commission. Prior to the closing of this offering, all of the Units being offered hereby will be deposited with the Depositary in exchange for Depositary Receipts evidencing such Units. Purchasers of Units in this offering and subsequent transferees of Units (or their brokers, agents or nominees on their behalf) will be required to execute and deliver a transfer application ("Transfer Application"). Units may be held in "street name" or by any other nominee holder. The Company is entitled to treat the nominee holder of a Unit as the absolute owner thereof, and the beneficial owner's rights are limited solely to those that it has against the nominee holder as a result of or by reason of any understanding or agreement between such beneficial owner and nominee holder. See "--The Depository Trust Company". The Units are listed on the NYSE under the symbol BCU. COMBINATION OF UNITS AND ELIMINATION OF DISTRIBUTION SUPPORT The currently issued and outstanding 36,750,000 Units originally constituted depositary units representing two separate classes of limited partner interests in the Company: a class of 28,125,000 Preference Units and a class of 8,625,000 Common Units. Under the terms of the Partnership Agreement, the Preference Units were entitled to receive distributions of Available Cash constituting Cash from Operations in preference to the Common Units. Effective December 31, 1992, the differences and distinctions between the Preference Units and Common Units were automatically eliminated pursuant to the terms of the Partnership Agreement and the Preference Units and Common Units became a single class of 36,750,000 Common Units. On February 16, 1993, the 36,750,000 Common Units began trading on the NYSE as a single class of Units. Pursuant to a Distribution Support Agreement, Borden had agreed to provide certain levels of distribution support for the benefit of the holders of Preference Units. Pursuant to a Direct Payment Agreement, Borden Delaware had agreed to make certain direct payments to the holders of Common Units, which direct payment obligations of Borden Delaware were guaranteed by Borden pursuant to a Guaranty. Prior to the combination of the Units, the Common Units, as enhanced by the Direct Payment Agreement and the Guaranty, were traded on the NYSE as Enhanced Common Units. Effective December 31, 1992, Borden's obligations under the Distribution Support Agreement and the Guaranty and Borden Delaware's obligations under the Direct Payment Agreement expired pursuant to the respective terms of such agreements. TRANSFER OF UNITS Units evidenced by Depositary Receipts are securities and are transferable in accordance with the laws governing transfers of securities. Persons who are Ineligible Persons (as hereinafter defined) may not purchase or otherwise acquire Units. In order to ensure that Units are not held by or on behalf of persons who are 67 Ineligible Persons, the General Partner is authorized to establish procedures in conjunction with the Depositary and any national securities exchange on which the Units are listed or any securities market through which the Units are traded, to limit the transfer of Units to persons who are not Ineligible Persons. In addition, the Partnership Agreement provides that, if any legislation, regulation, ruling or judicial decision would result in the taxation of the Company for federal income tax purposes as a corporation or an association taxable as a corporation, then the General Partner may, under certain circumstances, impose such restrictions on the transfer of Units as may be required, in the opinion of counsel, to prevent the taxation of the Company for federal income tax purposes as a corporation or as an association taxable as a corporation. As used in this Prospectus, an "Ineligible Person" means a person (including a corporation, partnership or other entity) deemed to constitute an electric utility, an electric utility holding company or any subsidiary thereof under regulations promulgated from time to time by the Federal Energy Regulatory Commission. As of the date of this Prospectus, a person is an Ineligible Person if such person is, with certain exceptions, primarily engaged in the generation or sale of electric power or is a parent or subsidiary of such a person. There can be no assurance that the determination of who is an "Ineligible Person" will not change from time to time. Until the transfer of a Unit has been registered on the books of the Depositary, the Depositary and the Company, notwithstanding any notice to the contrary or any notation or other writing on the Depositary Receipt, may treat the record holder thereof as the absolute owner for all purposes. A transfer of a Unit (including a transfer from the Underwriters as a part of the offering made hereby) will not be recorded by the Depositary or recognized by the Company unless the transferee executes and delivers a Transfer Application. By executing and delivering a Transfer Application, a transferee of Units automatically requests admission as a Limited Partner of the Company, agrees to be bound by the terms and conditions of, and executes, the Partnership Agreement and the Deposit Agreement, represents that he has the capacity and authority to enter into the Partnership Agreement and the Deposit Agreement, grants powers of attorney to the General Partner and any liquidator of the Company and makes the consents and waivers contained in the Partnership Agreement. The Transfer Application also contains a representation by the purchaser of the Unit that such purchaser is not an Ineligible Person. An Assignee will become a Limited Partner of the Company in respect of transferred Units upon the consent of the General Partner and the recordation of the name of the Assignee on the books and records of the Company. Such consent may be withheld in the sole discretion of the General Partner. A purchaser or other transferee of Units who does not execute and deliver a Transfer Application obtains only (a) the right to negotiate the Units to a purchaser or other transferee and (b) the right to transfer the right to request admission as a Limited Partner with respect to the Units. Thus, a purchaser or transferee of Units who does not execute and deliver a Transfer Application will not receive cash distributions and, unless the Units are held in a nominee or street name account and the nominee or broker has executed and delivered a Transfer Application with respect to such Units, may not receive certain federal income tax information or reports furnished to record holders of Units. Whether or not a transferee of Units executes a Transfer Application, the transferee, by acceptance of a Depositary Receipt evidencing the Units, is deemed to become a party to the Deposit Agreement and to be bound by its terms and conditions. A transferor of Units has a duty to provide his transferee all information necessary to obtain recordation of the transfer of the Units, but a transferee agrees, by acceptance of a Depositary Receipt evidencing the Units, that his transferor has no duty to cause the execution and delivery of a Transfer Application by the transferee and has no liability or responsibility if the transferee neglects or chooses not to execute and deliver a Transfer Application. See "Summary of the Partnership Agreements--Status as Limited Partner or Assignee". DISTRIBUTIONS To facilitate cash or other distributions, the Depositary shall, at the General Partner's request, furnish to the General Partner a list of the recordholders of the Units and the number of Units held by them, as recorded on the books and records of the Depositary as of the close of business on the last Business Day of 68 the month preceding the month in which such request is made, or as of such record date as the General Partner may specify. At the request of the General Partner, subject to certain notice conditions, the Depositary may act as paying agent with respect to a cash or other distribution. The General Partner shall deposit with the Depositary funds sufficient to pay the distribution. The Depositary shall calculate the amount of the distribution to which each Unitholder is entitled based upon the number of Depositary Receipts registered in his name. On the date set by the General Partner for the distribution, the Depositary shall distribute the funds received from the General Partner to the recordholders of Depositary Receipts as of the record date; provided that the Depositary may withhold any funds permitted to be withheld pursuant to the Deposit Agreement or the Partnership Agreement. The Company may appoint a co-paying agent, including, without limitation, the General Partner or an affiliate of the Company. FEDERAL INCOME TAX MATTERS The Depositary shall have no duty, obligation or liability with respect to (a) the allocation of federal tax benefits related to federal tax matters respecting the Company, the General Partner, the Limited Partners or the Assignees or (b) any income or other tax reporting obligations imposed upon the Company, the General Partner or any Limited Partner by the Internal Revenue Service or any other federal, state or local taxing authority. WITHDRAWAL OF LIMITED PARTNER INTERESTS Upon the written request of a Unitholder for withdrawal of limited partner interests from deposit with the Depositary and surrender of the Unitholder's Depositary Receipt evidencing his Units in compliance with the terms of the Deposit Agreement, the Depositary will request from the Company and deliver to the Unitholder a certificate representing the withdrawn limited partner interests previously represented by such Units. Limited partner interests withdrawn from deposit with the Depositary are not transferable (except to the Company or a general partner of the Company or by death or operation of law) unless redeposited with the Depositary. In order to transfer limited partner interests so withdrawn, a holder must redeposit the withdrawn limited partner interests with the Depositary by delivering the certificate representing the limited partner interests to the Depositary in exchange for Units and requesting a Depositary Receipt evidencing Units representing such limited partner interests, which may then be transferred. Redeposit of withdrawn limited partner interests with the Depositary will require 60 days' advance written notice (except for redeposit by the General Partner or its affiliates, which will not require any prior notice) and is subject to certain other restrictions. VOTING Upon receipt from the Company of notice of any meeting of which recordholders of Depositary Receipts are entitled to notice, the Depositary shall, at the request of the Company, mail to each recordholder of Depositary Receipts as of the record date specified in the notice of the meeting a copy of such notice. The rights of a recordholder to vote on any matter concerning the Company shall be governed solely by the terms of the Partnership Agreement and applicable law. RESIGNATION OR REMOVAL OF DEPOSITARY The Depositary may at any time resign or be removed by the General Partner, such resignation or removal to become effective upon the appointment by the General Partner of a successor depositary and its acceptance of such appointment. If no successor depositary is appointed and has accepted such appointment within 30 days after such resignation or removal, the General Partner is authorized to act as the depositary until a successor depositary is appointed. 69 AMENDMENT Any provision of the Deposit Agreement, including the form of Depositary Receipt or Transfer Application, may at any time and from time to time be amended by the Company and the Depositary in any respect deemed necessary or desirable by them, without the approval of Unitholders. However, no amendment to the Deposit Agreement may impair the right of a Unitholder to surrender a Depositary Receipt and withdraw limited partner interests represented by the Units evidenced thereby. See "--Withdrawal of Limited Partner Interests". The Depositary will furnish each holder of record of a Depositary Receipt and each securities exchange on which the Units are listed for trading with notice of any material amendment to the Deposit Agreement. Each holder of record of a Depositary Receipt at the time any amendment to the Deposit Agreement becomes effective will be deemed, by continuing to hold Units, to consent and agree to the amendment and to be bound by the Deposit Agreement as amended. The Depositary will give notice of the imposition of any fee or charge (other than fees and charges provided for in the Deposit Agreement), or change therein, upon the holders of Depositary Receipts or transferees to each holder of record and each securities exchange on which Units are listed for trading. The imposition of any fee or charge, or change therein, will not be effective until the expiration of 90 days after the date of notice, unless it becomes effective earlier in the form of an amendment to the Deposit Agreement effected by the Partnership and the Depositary. TERMINATION The Depositary will terminate the Deposit Agreement, whenever directed to do so by the Company, by mailing notice of termination to the record holders of all Units then outstanding at least 30 days before the date fixed for termination. DUTIES AND STATUS OF DEPOSITARY The Depositary's only duties are essentially ministerial ones set forth in the Deposit Agreement. The Depositary will make no warranties or representations as to the validity or sufficiency of any certificate representing limited partner interests on deposit with the Depositary. In addition to acting as depositary for Units, the Depositary will act as registrar and transfer agent for Units. The Depositary will receive a fee from the Company for serving in these capacities. The Company has agreed to indemnify the Depositary, its agents, any registrar or transfer agent and each of their respective shareholders, directors, officers and employees (other than an affiliate of the Company) against all claims arising out of acts performed or omitted in respect of the Deposit Agreement, except for any liability due to the negligence, gross negligence, bad faith or intentional misconduct of the indemnified person or entity. All fees charged by the Depositary for transfers of Units will be borne by the Company and not by Unitholders, except that fees similar to those customarily paid by stockholders for surety bond premiums to replace lost or stolen certificates, taxes or other governmental charges, special charges for services requested by holders of Units, including withdrawal of limited partner interests and redeposit of withdrawn limited partner interests, and other similar fees or charges will be borne by the affected holder. There will be no charge to holders for disbursements of the Company's cash distributions. THE DEPOSITORY TRUST COMPANY The Units are eligible, but are not be required, to be held by the persons acquiring such Units through The Depository Trust Company ("DTC"). Subject to any requirements imposed by DTC, any Limited Partner or Assignee that has signed a Transfer Application with respect to a Unit may elect for such Unit to be transferred to and held by DTC as Limited Partner or Assignee. Subject to any requirements imposed by DTC, any beneficial owner ("Beneficial Owner") of a Unit held by DTC as Limited Partner or Assignee may elect to hold such Unit directly as 70 Limited Partner or Assignee by causing DTC to transfer such Unit to such Beneficial Owner by signing a Transfer Application and otherwise complying with the provisions of the Deposit Agreement. Any such issuance or transfer shall be subject to and effected in accordance with the applicable rules of DTC and the applicable provisions relating to transfer of the Units set forth in the Deposit Agreement. Units held by DTC as Limited Partner or Assignee are held in the name of Cede & Co., as nominee for DTC. DTC is a limited-purpose company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code of the State of New York and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for participating organizations ("Participants") to facilitate the clearance and settlement of securities transactions between Participants through electronic book-entry changes in accounts of its Participants, thereby eliminating the need for physical movement of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and may include certain other organizations (including the Underwriters). Indirect access to the DTC system is also available to Indirect Participants. Indirect Participants are persons such as brokers, banks, dealers or trust companies that clear through or maintain a custodial relationship with a Participant either directly or indirectly. Beneficial Owners that are not Participants or Indirect Participants but desire to purchase, sell or otherwise transfer ownership of, or other interests in, Units held by DTC may do so only through Participants and Indirect Participants. In addition, Beneficial Owners will receive all distributions on the Units through the Participants, who in turn will receive them from DTC. Under the book-entry format, Beneficial Owners may experience some delay in their receipt of distributions, since such payments will be forwarded by the Partnership to Cede & Co., as nominee for DTC. DTC will forward such payments to its Participants which thereafter will forward them to Indirect Participants or Beneficial Owners. Under the rules, regulations and procedures creating and affecting DTC and its operations, DTC is required to make book-entry transfers among Participants on whose behalf it acts with respect to the Units held by DTC and is required to transmit distributions of amounts with respect to such Units that are actually received by DTC. Participants and Indirect Participants with which Beneficial Owners have accounts with respect to such Units are similarly required to make book-entry transfers and receive and transmit such payments on behalf of their respective Beneficial Owners. Because DTC can act only on behalf of Participants, who in turn act on behalf of Indirect Participants and certain banks, the ability of a Beneficial Owner of Units held by DTC to pledge such Units to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such Units may be limited due to the lack of a physical certificate for such Units. DTC has advised the General Partner that it will take any action permitted to be taken by a Beneficial Owner of Units held by DTC under the Partnership Agreement only at the direction of one or more Participants to whose account with DTC such Units are credited. Although DTC has agreed to the foregoing procedures in order to facilitate transfers of Units among Participants and Indirect Participants, DTC is under no obligation to perform or continue to perform such procedures and such procedures may be discontinued at any time. Neither the Company, the General Partner nor the Depositary will have any responsibility for the performance by DTC or their respective Participants or Indirect Participants of their respective obligations under the rules and procedures governing their operations. Beneficial Owners holding Units through DTC are not Limited Partners or Assignees with respect to such Units and do not have any rights to receive distributions, federal income tax information or reports from the Company or to vote their Units in the Company except indirectly through the DTC system described herein. 71 CONDITIONAL RIGHT TO REQUIRE PURCHASE OF UNITS BY BORDEN As described below, Borden has provided the Unitholders with a right to require Borden to purchase the Units in the event of a change of control of Borden, which right may be amended, supplemented or terminated prior to such change of control by the Board of Directors of Borden in its discretion. Borden has advised the Company that the Board of Directors of Borden has taken action such that the put right shall not apply in connection with the transactions contemplated in the Merger Agreement. Under the Deposit Agreement, holders of Units currently have the right, subject to the limitations described below (the "Put Right"), to require Borden to purchase their Units under certain circumstances. In the event (i) the preferred share purchase rights (the "Preferred Share Purchase Rights") issued by Borden under the Rights Agreement dated as of January 28, 1986 between Borden and The Bank of New York, as Rights Agent (the "Rights Agent"), as amended or supplemented from time to time (the "Rights Agreement"), become nonredeemable pursuant to the terms thereof (the first date of such nonredeemability being hereinafter referred to as the "Change-in-Control Date") and (ii) the general partner of the Company and the Operating Company is a Subsidiary (as hereinafter defined) of Borden immediately prior to the Change- in-Control Date, then each holder of a Unit shall have the right, at such holder's option, to require Borden to purchase all (but not less than all) of such holder's Units on the date (the "Purchase Date") that is 100 days (unless such date falls on other than a business day, in which event on the next business day) after the Change-in-Control Date at a cash price per Unit equal to the greater of $12.50 or 125% of the Current Market Price (as hereinafter defined) of a Unit as of the Change-in-Control Date. Within 30 days after the Change-in-Control Date, Borden is obligated to mail all holders of record of Units a notice indicating that the Put Right is exercisable, the price to be received upon exercise, the date before which a holder must notify Borden of such holder's intention to exercise the Put Right, and the procedure which such holder must follow to exercise the Put Right. Borden shall cause a copy of such notice to be delivered to the Depositary and to be published in a newspaper of general circulation in the Borough of Manhattan, The City of New York. To exercise the Put Right, a holder of Units must deliver on or before the ninetieth (90) day after the Change-in-Control Date written notice to the Depositary of such holder's exercise of the Put Right, together with the related Depositary Receipt. See "--Transfer of Units". If the Purchase Date falls between any record date for a cash distribution on the Units and the date of such cash distribution, the Units to be purchased must be accompanied by the payment of the cash amount which the registered holder thereof is to receive on such date. Notwithstanding the foregoing, (i) if the Preferred Share Purchase Rights cease to be outstanding by reason of redemption or otherwise, the Put Rights shall automatically terminate unless at that time the Board of Directors of Borden, in its sole discretion, determines that the Put Rights shall continue, in which event the Put Rights shall be exercisable on such terms and conditions as the Board then specifies and (ii) the Put Rights may be amended, supplemented or terminated at any time prior to the Change-in-Control Date if the Board of Directors of Borden, in its sole discretion, so provides. The right of the Board of Directors of Borden to continue the Put Rights pursuant to clause (i) or to amend, supplement or terminate the Put Rights pursuant to clause (ii) may be exercised without regard to the interests of Unitholders. The Rights Agreement currently provides that the Preferred Share Purchase Rights become nonredeemable on the tenth business day after the first public announcement that a person, together with affiliates and associates, becomes the beneficial owner (subject to certain exceptions specified in the Rights Agreement) of 20% or more of the shares of common stock of Borden then outstanding. The Rights Agreement provides that it may be amended or supplemented from time to time without the approval of the holders of Preferred Share Purchase Rights if Borden and the Rights Agent deem such amendment or supplement necessary or desirable and if such amendment or supplement shall not adversely affect the interest of the holders of Preferred Share Purchase Rights. 72 As used herein, (i) "Current Market Price" of a Unit as of any date means the average of the daily Closing Prices (as hereinafter defined) per Unit for the twenty consecutive Trading Days (as hereinafter defined) immediately prior to such date; (ii) "Closing Price" for any day means the last sale price on such day, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices on such day, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the NYSE or, if the Units are not listed or admitted to trading on the NYSE, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Units are listed or admitted to trading or, if the Units are not listed or admitted to trading on any national securities exchange, the last quoted price on such day or, if not so quoted, the average of the high bid and low asked prices on such day in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System or such other system then in use, or, if on any such day the Units are not quoted by any such organization, the average of the closing bid and asked prices on such day as furnished by a professional market maker making a market in the Units selected by the Board of Directors of Borden, or, if on any such day no market maker is making a market in the Units, the fair value of such Units on such day as determined reasonably in good faith by the Board of Directors of Borden; (iii) "Trading Day" means a day on which the principal national securities exchange on which the Units are listed or admitted to trading is open for the transaction of business or, if the Units are not listed or admitted to trading on any national securities exchange, a day on which banking institutions in New York City generally are open; and (iv) "Subsidiary" of Borden means any corporation or other entity of which a majority of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by Borden. MISCELLANEOUS The General Partner of the Company may elect to have the Depositary deliver certain reports and notices required to be delivered by the General Partner to the Unitholders pursuant to the Partnership Agreement. Upon receipt of any such report or notice from the General Partner, the Depositary will mail such report or notice to the Unitholders. The Depositary will not assume any obligation or be subject to any liability under the Deposit Agreement other than for its negligence, bad faith or intentional misconduct in respect of acts to be performed by the Depositary under the Deposit Agreement. The Depositary will not be liable if it is prevented or delayed by law or any circumstance beyond its control in performing its obligations under the Deposit Agreement. The Depositary is not obligated to prosecute or defend any legal proceeding in respect of the Units unless satisfactory indemnity is furnished. The Depositary may rely on advice of or information from legal counsel, accountants, any Depositor (as defined in the Deposit Agreement), any Unitholder or other persons believed by it reasonably and in good faith to be competent to give such advice or information. SUMMARY OF THE PARTNERSHIP AGREEMENTS The following paragraphs are a summary of certain provisions of the Partnership Agreement and the Operating Partnership Agreement. The Company will provide a prospective Unitholder with a copy of the Partnership Agreements upon request at no charge. The following discussion is qualified in its entirety by reference to the Partnership Agreements. See "Glossary of Terms" for definitions of certain terms used in the following discussion. Certain provisions of the Partnership Agreements are summarized elsewhere in this Prospectus under various headings. With regard to various transactions and relationships of the Company with the General Partner and its affiliates, see "Conflicts of Interest and Fiduciary Responsibility"; with regard to the transfer of Units, see "Description of Depositary Units and the Deposit Agreement"; with regard to distributions of Available Cash, see "Cash Distributions"; and, with regard to allocations of taxable income and taxable loss, 73 see "Allocations of Income and Loss" and "Certain Federal Income Tax Considerations". Prospective investors are urged to review these sections of this Prospectus and the Partnership Agreements carefully. NAME The Partnership Agreements provide that, in the event that neither BCPM nor another subsidiary of Borden is General Partner, the Company and the Operating Company shall change their names to names that do not include "Borden" therein. Consistent therewith, Borden has entered into a Use of Name and Trademark License Agreement with the Company and Operating Company which grants the Company and the Operating Company the right to use the Borden name and logo only so long as BCPM or another subsidiary of Borden is the general partner. ORGANIZATION AND DURATION The Company and the Operating Company are Delaware limited partnerships. BCPM is the general partner of each of the Company and the Operating Company and directly holds an aggregate 2% interest in the Company and the Operating Company on a combined basis. The Unitholders hold a 98% interest in the Company and the Operating Company on a combined basis. Both the Company and the Operating Company will continue in existence until December 21, 2082, unless sooner terminated pursuant to their respective Partnership Agreements. PURPOSE, BUSINESS AND MANAGEMENT The purpose and business of the Company under the Partnership Agreement is limited to serving as the limited partner of the Operating Company unless a modification of such purpose receives Special Approval. The Partnership Agreement provides that the General Partner has no duty to the Unitholders to propose or approve, and in its sole discretion may decline to propose or approve, any modification of such purpose. In the Note Agreement (as defined herein), the Company has agreed, so long as the Old Notes are outstanding, not to engage in any other business and not to incur indebtedness without the consent of holders of a majority in outstanding principal amount of the Old Notes. The Partnership Agreement provides that, so long as the Old Notes are outstanding, the Company will not engage in any other business without the consent of holders of a majority in outstanding principal amount of the Old Notes. The Operating Partnership Agreement provides that, unless approved by Special Approval, the Operating Partnership may not engage in any business other than the manufacture or production and sale of PVC resins, VCM, acetylene, methanol, formaldehyde, urea-formaldehyde concentrate, ammonia, urea and acetic acid at the Geismar and Illiopolis facilities. The Operating Partnership Agreement provides that the General Partner has no duty to the Limited Partners to propose or approve, and in its sole discretion may decline to propose or approve, any of the above actions. The acquisition, ownership and operation by the Operating Company of the Addis Assets and the sale or other distribution by the Company of Chemicals Products produced at the Addis Facility has been approved by Special Approval. The General Partner is authorized in general to perform all acts deemed necessary to carry out such purposes and to conduct the business of the Company and the Operating Company. POWER OF ATTORNEY Each Limited Partner, and each person who acquires a Unit from a prior holder and executes and delivers a Transfer Application with respect thereto, grants to the General Partner a power of attorney to, among other things, execute and file certain documents required in connection with the qualification, continuance or dissolution of the Company, or the amendment of the Partnership Agreement and to make the consents and waivers contained in the Partnership Agreement. 74 RESTRICTIONS ON AUTHORITY OF THE GENERAL PARTNER The authority of the General Partner is limited in certain respects under the Partnership Agreement. The General Partner is prohibited, without the prior approval of a Majority Interest, from, among other things, selling or exchanging all or substantially all of the Company's assets in a single transaction or a series of related transactions or approving on behalf of the Company the sale, exchange or other disposition of all or substantially all of the assets of the Operating Company, provided that the Company may mortgage, pledge, hypothecate or grant a security interest in, all or substantially all of the Company's assets and the Operating Company may mortgage, pledge, hypothecate or grant a security interest in, all or substantially all of the Operating Company's assets, without such approval. Either of the Company or the Operating Company may also sell all or substantially all of its assets pursuant to a foreclosure or other realization upon the foregoing encumbrances without such approval. Except as provided in the Partnership Agreement and generally described below under "--Amendment of Partnership Agreements", any amendment to a provision of the Partnership Agreement will require the approval of a Majority Interest and any amendment which would materially and adversely affect any type or class of partnership interests will require the approval of a majority of the holders of such type or class or partnership interests. WITHDRAWAL OR REMOVAL OF THE GENERAL PARTNER; OBLIGATIONS OF BCPM AND BORDEN BCPM has agreed not to withdraw as General Partner of the Company and the Operating Company (with limited exceptions described below) without the approval of a Majority Interest prior to November 30, 2002. Thereafter, the General Partner may withdraw upon at least 90 days prior written notice to the Limited Partners. In any case, BCPM may withdraw only in the event that the Company receives an opinion of counsel that such withdrawal will not result in the loss of limited liability of any Unitholder or of the limited partner of the Operating Company or cause the Company or the Operating Company to be taxable as a corporation or an association taxable as a corporation for federal income tax purposes. Notwithstanding the foregoing, BCPM may withdraw, without approval of a Majority Interest and without such an opinion of counsel, upon 90 days' notice to the Limited Partners if more than 50% of the outstanding Units held by persons other than Borden Delaware or its affiliates are held by one person or its affiliates. In addition, Borden has agreed to retain, either directly or through a wholly owned subsidiary, beneficial ownership of 100% of the shares of capital stock of BCPM until the earlier of (i) November 30, 2002, (ii) the first date as of which the General Partner is permitted to withdraw as general partner of the Company as described in this section or (iii) the date as of which a Majority Interest approves the sale of such shares. The General Partner may be removed by a vote of holders of at least 66 2/3% of all Units held by persons other than Borden Delaware or its affiliates, subject to the approval of a successor General Partner by a Majority Interest and receipt of an opinion of counsel that such removal and the approval of such successor will not result in the loss of the limited liability of any Limited Partner or of the limited partner of the Operating Company or cause the Company or the Operating Company to be taxable as a corporation or an association taxable as a corporation for federal income tax purposes. Removal or withdrawal of the General Partner of the Company also constitutes removal or withdrawal, as the case may be, of the General Partner as general partner of the Operating Company. In the event of (i) withdrawal of the General Partner as the general partner of the Company or the Operating Company under circumstances where such withdrawal does not violate the Partnership Agreements or (ii) removal of the General Partner by the Limited Partners under circumstances where "cause" for removal does not exist, the General Partner will have the option to require a successor General Partner (if any) to acquire the general partner interests of the departing General Partner as a general partner in the Company and the Operating Company for a cash payment equal to the fair market value of such 75 general partner interests as of the effective date of such departure. If the General Partner withdraws as the general partner of the Company or Operating Company under circumstances where such withdrawal violates the Partnership Agreements, or if the General Partner is removed by the Limited Partners under circumstances where cause exists, a successor general partner will have the option to acquire such general partner interests in accordance with the preceding sentence. For purposes of the foregoing, "cause" means that a court of competent jurisdiction has entered a final, non-appealable judgment finding the General Partner liable for actual fraud, gross negligence or willful or wanton misconduct in its capacity as general partner of either of the Company or Operating Company. In either case, such value will be determined by agreement between the departing General Partner and the successor General Partner or, if no agreement is reached, by an independent investment banking firm or other independent expert selected by the departing General Partner and the successor General Partner (or if no expert can be agreed upon, by the expert chosen by agreement of the experts selected by each of the General Partner and departing General Partner). In addition, the Operating Company would be required to reimburse the departing General Partner for all employee related liabilities, including severance liabilities, incurred in connection with the termination of the employees employed by the departing General Partner for the benefit of the Company and the Operating Company. If the above-described option is not exercised by the party entitled to do so, the departing General Partner's general partner interests in the Company will be converted into Units and the departing General Partner will become a Limited Partner, which will result in dilution of existing Unitholders, and the departing General Partner's general partner interest in the Operating Company will be redeemed for cash in an amount determined as described in the preceding paragraph. If the departing General Partner becomes a Limited Partner, all allocations and distributions by the Company will thereafter be made 98% to Unitholders and 2% to the successor General Partner of the Company. The General Partner may transfer all, but not less than all, of its general partner interests in the Company and the Operating Company without the approval of the Limited Partners to a subsidiary of Borden or upon its merger or consolidation into another entity or the transfer of all or substantially all of its assets to another entity, provided in either case that such subsidiary or entity assumes the rights and duties of the General Partner, agrees to be bound by the provisions of the Partnership Agreements and furnishes an opinion of counsel that such transfer would not result in the loss of the limited liability of any Limited Partner or of the limited partner of the Operating Company or cause either the Company or the Operating Company to be taxable as a corporation or an association taxable as a corporation for federal income tax purposes. In the case of any other transfer, in addition to the foregoing requirements, the vote of a Majority Interest is required. REIMBURSEMENT FOR SERVICES The Partnership Agreements provide that the General Partner is not entitled to receive any compensation for its services as general partner of the Company or the Operating Company; the General Partner is, however, entitled to be reimbursed on a monthly basis (or such other basis as the General Partner may determine in its sole discretion) for all direct and indirect expenses it incurs or payments it makes on behalf of the Company or the Operating Company, and all other necessary or appropriate expenses allocable to the Company or the Operating Company or otherwise incurred by the General Partner in connection with the operation of the Company's or the Operating Company's business. The Partnership Agreements provide that the General Partner shall determine the fees and expenses that are allocable to the Company or the Operating Company in any reasonable manner determined by the General Partner in its sole discretion. STATUS AS LIMITED PARTNER OR ASSIGNEE Except as described below under "--Limited Liability", Unitholders will not be required to make additional contributions to the Company. 76 A transferee of Units, in order to be registered on the books of the transfer agent as the record holder, must execute and deliver a Transfer Application. See "Description of Depositary Units and the Deposit Agreement--Transfer of Units" for a more complete description of the requirements for the transfer of Units and Depositary Receipts. An Assignee, pending its admission as a substituted Limited Partner in the Company, is entitled to an interest in the Company equivalent to that of a Limited Partner with respect to the right to share in allocations and distributions from the Company, including liquidating distributions. The General Partner will vote Units owned by an Assignee who has not become a substituted Limited Partner at the written direction of such Assignee. Such an Assignee will have no other rights of a Limited Partner unless and until such Assignee becomes a substituted Limited Partner. See "-- Meetings and Voting" below. Transferees who do not execute and deliver a Transfer Application will be treated neither as Assignees nor as record holders of Units, and will not have the right to vote or receive cash distributions, federal income tax allocations or reports furnished to record holders of Units. The only rights such transferees will have is the right to negotiate such Unit to a purchaser or other transferee and the right to transfer the right to request admission as a Limited Partner in respect of the transferred Unit to a purchaser or other transferee who executes a Transfer Application in respect of the Unit. A nominee or broker who has executed a Transfer Application with respect to Units held in street name or nominee accounts will receive such distributions and reports pertaining to such Units. ISSUANCE OF ADDITIONAL UNITS AND SECURITIES The Partnership Agreement authorizes the General Partner to cause the Company to issue Additional Units for such consideration and on such terms and conditions as shall be established by the General Partner. However, after giving effect to this offering and assuming the Underwriters' over-allotment option is not exercised, the General Partner may not issue without approval of a Majority Interest more than 7,250,000 Additional Units that have rights to distributions or in liquidation ranking on a parity with, prior to or senior to, the Units. Upon the issuance of any Additional Units by the Company, including the Units offered hereby, the Partnership Agreement requires the General Partner to make an additional capital contribution to the Company such that the General Partner shall at all times have at least a 1% interest in each item of Company income, gain, loss, deduction and credit of the Company and the Operating Company. RIGHT TO CALL UNITS In the event that at any time less than 10% of the Units are held by persons other than the General Partner and its affiliates, the General Partner will have the right, which it may assign and transfer to any of its affiliates or to the Company, on a date to be selected by the General Partner on at least 10 but not more than 60 days' notice, to purchase all, but not less than all, of the outstanding Units held by such nonaffiliated persons. The purchase price per Unit in the event of such purchase shall be the greater of (a) $10, or (b) the Current Market Price (as defined under "Description of Depositary Units and the Deposit Agreement--Conditional Right to Require Purchase of Units by Borden") of a Unit as of the date written notice of its election to call outstanding Units is given. AMENDMENT OF PARTNERSHIP AGREEMENTS Amendments to the Partnership Agreement may be proposed by the General Partner or by Limited Partners holding 20% or more of the Units. If an amendment is properly proposed, the General Partner is required to seek written approval of the holders of the number of Units required to approve such amendment or call a meeting of the Limited Partners to consider and vote upon the proposed amendment. Proposed amendments (other than those described below) must be approved by holders of at least a Majority Interest, except that no amendment may be made which would enlarge the obligations of any Partner, restrict in any way any action by or rights of the General Partner as set forth in the Partnership Agreement, modify the compensation payable by the Company or the Operating Company to the General Partner or any of its 77 Affiliates, change the term of the Company or give any person the right to dissolve the Company other than the General Partner's right to dissolve the Company with the approval of a Majority Interest, change such right of the General Partner in any way or change the requirement that the Company change its name to one not including the name "Borden" in the event neither BCPM nor another subsidiary of Borden is the General Partner. Amendments to the Operating Partnership Agreement may be proposed either by the General Partner or by the Company as the sole limited partner of the Operating Company. Proposed amendments require the approval of the Company, as the limited partner of the Operating Company, and of the General Partner of the Operating Company. The General Partner may make amendments to the Partnership Agreement and the Operating Partnership Agreement without the approval of any Limited Partner or Assignee or the respective Partnership to reflect (i) a change in the name of the Company or the location of the principal place of business of the Company, (ii) admission, substitution, withdrawal or removal of Partners in accordance with the Partnership Agreement, (iii) a change that, in the sole discretion of the General Partner, is reasonable and necessary or appropriate to qualify or continue the qualification of the Company as a partnership in which the limited partners have limited liability or that is necessary or advisable in the opinion of the General Partner to ensure that the Company will not be taxable as a corporation or an association taxable as a corporation for federal income tax purposes, (iv) an amendment that is necessary, in the opinion of counsel to the Company, to prevent the Company or the General Partner or its directors or officers from in any manner being subjected to the provisions of the Investment Company Act of 1940, as amended, the Investment Advisors Act of 1940, as amended, or "plan asset" regulations adopted under the Employee Retirement Security Act of 1974, as amended, whether or not substantially similar to plan asset regulations currently applied or proposed, (v) an amendment that in the sole discretion of the General Partner is necessary or desirable in connection with the authorization of Additional Units, (vi) any amendment expressly permitted in the Partnership Agreement to be made by the General Partner acting alone and (vii) other amendments similar to the foregoing. In addition, the General Partner may make amendments to the Partnership Agreement and the Operating Partnership Agreement without such consent if such amendments do not adversely affect the Limited Partners in any material respect, or are necessary or desirable to satisfy any requirement, condition or guideline contained in any opinion, directive, order, ruling or regulation of any federal or state agency or judicial authority or contained in any federal or state statute or that is necessary or desirable to facilitate the trading of the Depositary Units (including the subclassification of outstanding Units) or to comply with any rule, regulation, guideline or requirement any securities exchange on which the Units are or will be listed for trading, compliance with any of which the General Partner deems to be in the best interest of the Company, the Operating Company and the Limited Partners, or are required to effect the intent of the provisions of the Partnership Agreement or the Operating Partnership Agreement, or are otherwise contemplated by the Partnership Agreement or the Operating Partnership Agreement, and any other amendments similar to the foregoing. Any amendment which materially and adversely affects the rights or preferences of any type or class of Units will require the approval of a majority of the type or class of Units affected. Except for amendments described in the two preceding paragraphs, no amendment will become effective without the approval of all Unitholders unless the Company obtains an opinion of counsel to the effect that such amendment will not cause the Company or the Operating Company to be taxable as a corporation or an association taxable as a corporation for federal income tax purposes and will not affect the limited liability of any Limited Partner in the Company or the limited partner of the Operating Company. The Partnership Agreement provides that certain of the provisions in the Partnership Agreement relating to distributions to Partners (as defined in the Partnership Agreement) shall only be amended by the approval of Partners holding at least 95% of the aggregate percentage interests of the Partners in the Company. 78 MEETINGS AND VOTING Limited Partners or Assignees who are record holders of Units on the record date set pursuant to the Partnership Agreement will be entitled to notice of, and to vote at, meetings of Limited Partners of the Company and to act with respect to matters as to which approvals may be solicited. However, with respect to voting rights attributable to Units that are owned by Assignees who have not yet been admitted as Limited Partners, the General Partner shall be deemed to be the Limited Partner with respect thereto and shall, in exercising the voting rights in respect of such Units on any matter, vote such Units at the written direction of such record holder. Absent such direction, such Units will not be voted. Any action that is required or permitted to be taken by the Limited Partners may be taken either at a meeting of the Limited Partners or without a meeting if approvals in writing setting forth the action so taken are signed by holders of such number of Units as would be necessary to authorize or take such action at a meeting of the Limited Partners. Meetings of the Limited Partners of the Partnership may be called by the General Partner or by Limited Partners owning at least 20% of the Units. Limited Partners may vote either in person or by proxy at meetings. A Limited Partner Majority Interest represented in person or by proxy will constitute a quorum at a meeting of Limited Partners of the Company. Each owner of a Unit has a vote according to his percentage interest in the Company, although Additional Units having special voting rights could, under certain circumstances, be issued by the General Partner. The Partnership Agreement provides that Units held in nominee or street name accounts will be voted by the broker (or other nominee) pursuant to the instruction of the beneficial owner unless the arrangement between the beneficial owner and his nominee provides otherwise. Any notice, demand, request, report or proxy materials required or permitted to be given or made to record holders of Units (whether or not such record holder has been admitted as a Limited Partner) under the terms of the Partnership Agreement will be delivered to the record holder by the Company or by the Transfer Agent at the request of the Company. INDEMNIFICATION The Partnership Agreements provide that the Company and the Operating Company will, to the fullest extent permitted by law, indemnify the General Partner, any departing General Partner, any person who is or was an affiliate of the General Partner or any departing General Partner, any person who is or was an officer, director, employee, partner, agent or trustee of the General Partner or any departing General Partner or any such affiliate, or any person who is or was serving at the request of the General Partner or any departing General Partner or any such affiliate as an officer, director, employee, partner, agent or trustee of another person ("Indemnitees") from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, civil, criminal, administrative or investigative, in which any Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, by reason of its status as the General Partner, a departing General Partner or an affiliate thereof, an officer, director, employee, partner, agent or trustee of the General Partner, any departing General Partner or affiliate thereof or a person serving at the request of the Company or the Operating Company in another entity in a similar capacity if the Indemnitee acted in good faith and in a manner which such Indemnitee in good faith believed to be in, or not opposed to, the best interests of the Company and Operating Company and, with respect to any criminal proceeding, had no reasonable cause to believe its conduct was unlawful. Any indemnification under these provisions will be only out of the assets of the Company or the Operating Company, as the case may be. The Company and the Operating Company are authorized to purchase insurance against liabilities asserted against and expenses incurred by such persons in connection with the Company's or Operating Company's activities, whether or not the Company or Operating Company would have the power to indemnify such person against such liabilities under the provisions described above. 79 LIMITED LIABILITY Assuming that a Limited Partner does not participate in the control of the business of the Company (within the meaning of the Delaware Act ) and that he otherwise acts in conformity with the provisions of the Partnership Agreement, his liability under the Delaware Act will be limited, subject to certain possible exceptions, generally to the amount of capital he is obligated to contribute to the Company in respect of his Units plus his share of any undistributed profits and assets of the Company. Under the Delaware Act in effect prior to September 1, 1988, (a) a limited partner is liable, for a period of one year after the date of the return to him of any part of his contribution returned without violation of the partnership agreement or the Delaware Act, for the amount of such returned contribution, but only to the extent necessary to discharge liabilities of the limited partnership to creditors who extended credit while such contribution was held by the limited partnership, and (b) a limited partner is liable for the amount of any contribution returned to him in violation of the partnership agreement or the Delaware Act for a period of six years after the return of such contribution. The Delaware Act in effect prior to September 1, 1988 provides that a partner receives a return of his contribution to the extent that a distribution to him reduces his share of the fair value of the net assets of the limited partnership below the agreed value (as set forth in the records of the limited partnership) of his contribution which has not been distributed to him. Under the Delaware Act in effect prior to September 1, 1988, a limited partner may not receive a distribution from a limited partnership to the extent that, at the time of the distribution and after giving effect to the distribution, all liabilities of the limited partnership, other than liabilities to partners on account of their interests in the limited partnership, exceed the fair value of the limited partnership's assets. Certain amendments of the Delaware Act became effective on September 1, 1988. As discussed above, prior to such amendments, Section 17-608 of the Delaware Act required a partner of a limited partnership to return to the limited partnership certain distributions to the extent such distributions constituted a return to the partner of his contribution to the limited partnership. Under one of the amendments, Section 17-608 of the Delaware Act was eliminated from the Delaware Act. Another amendment of the Delaware Act changed certain other provisions of the Delaware Act, which are discussed above, relating to limitations on distributions which may be made to partners. Section 17-607(a) of the amended Delaware Act prohibits a limited partnership from making a distribution to a partner to the extent that at the time of the distribution and after giving effect thereto all liabilities of the limited partnership, other than liabilities to partners on account of their partnership interests and liabilities for which the recourse of creditors is limited to specified property of the limited partnership, exceed the fair value of the assets of the limited partnership. For purposes of this limitation, the fair value of property that is subject to a liability for which recourse of creditors is limited will be included in the assets of a limited partnership only to the extent that the fair value of the property exceeds that liability. Under the amended Delaware Act, a limited partner who received such a prohibited distribution and who knew that the distribution violated Section 17-607(a) of the amended Delaware Act will be liable to the limited partnership for the amount of the distribution for a period of three years from the date of the distribution. At the date of this Prospectus, the possible effect and interpretation of the amendments to the Delaware Act, insofar as the Company is concerned, remain unclear. However, the amended Delaware Act provides that such amendments will not affect any obligation or liability of a Limited Partner under the Partnership Agreement or other applicable law (including relevant fraudulent conveyance acts) for the amount of a distribution. Moreover, the obligation of a Limited Partner in this regard is no greater than the obligation of such Limited Partner to repay funds to the extent provided under repealed Section 17-608 or otherwise wrongfully distributed to it. BOOKS, REPORTS AND INFORMATION TO UNITHOLDERS The General Partner is required to keep appropriate books of the Company's business at the principal office of the Company. The books are maintained for both tax and financial reporting purposes on an accrual basis. The fiscal year of the Company is the calendar year. 80 As soon as practicable, but in no event later than 90 days after the close of each calendar year, the General Partner will furnish each record holder of a Unit (as of a record date selected by the General Partner) an annual report containing audited financial statements of the Company for the past fiscal year prepared on the accrual basis in accordance with generally accepted accounting principles. As soon as practicable, but in no event later than 60 days after the close of each calendar quarter (except the fourth quarter), the General Partner will furnish each record holder of a Unit (as of a record date selected by the General Partner) with unaudited financial statements prepared in the same manner. The General Partner will use all reasonable efforts to furnish each Unitholder information reasonably required for tax reporting purposes within 75 days after the close of each taxable year. Such information is expected to be furnished in a summary form so that certain complex calculations normally required of partners can be avoided. No reconciliation of financial statement information to tax reporting information will be provided to Unitholders. The General Partner's ability to furnish such summary information to Unitholders will depend on the cooperation of such Unitholders in supplying certain information to the General Partner. Every Unitholder (without regard to whether he supplies such information to the General Partner) will receive information to assist him in determining his federal and state tax liability and filing his federal and state income tax returns. RIGHT TO INSPECT COMPANY BOOKS AND RECORDS The Partnership Agreement provides that a Limited Partner can for a purpose reasonably related to such Limited Partner's interest as a limited partner, upon reasonable demand and at his own expense, have furnished to him (a) a current list of the name and last known address of each partner, (b) a copy of the Company's tax returns, (c) a copy of the Partnership Agreement, the certificate of limited partnership of the Company, amendments thereto and powers of attorney pursuant to which the same have been executed, (d) information regarding the status of the Company's business and financial condition, (e) information regarding the amount of cash and a description and statement of the agreed value of any other property or services contributed by each Partner and which each Partner has agreed to contribute in the future, and the date on which each became a Partner and (f) such other information regarding the affairs of the Company as is just and reasonable. The General Partner may and intends to keep confidential from the Limited Partners trade secrets or other information the disclosure of which the General Partner believes in good faith is not in the best interests of the Company or the Operating Company or which the Company or the Operating Company are required by law or by agreements with third parties to keep confidential. TERMINATION, DISSOLUTION AND LIQUIDATION The Company and the Operating Company will continue until December 31, 2082, unless sooner terminated pursuant to the Partnership Agreement and the Operating Partnership Agreement, respectively. The Partnership will be dissolved upon (i) the election of the General Partner, if approved by a Majority Interest, (ii) the sale of all or substantially all of the assets and properties of the Company or the Operating Company, respectively, (iii) the dissolution of the Operating Company unless the Operating Company is thereafter reconstituted in accordance with the provisions of the Operating Partnership Agreement, (iv) the bankruptcy or dissolution of the General Partner, or (v) withdrawal or removal of the General Partner or any other event that results in its ceasing to be the General Partner (other than by reason of a transfer in accordance with the Partnership Agreement or withdrawal or removal following approval of a successor pursuant to the provisions thereof), provided that the Company shall not be dissolved upon an event described in clause (v) if within 90 days after such event all Limited Partners agree in writing to continue the business of the Partnership and to the appointment, effective as of the date of such event, of a successor General Partner. Upon a dissolution pursuant to clause (iv) or (v), a Limited Partner Majority Interest may also elect, within certain time limitations, to reconstitute the Company and continue its business on the same terms and conditions set forth in the Partnership Agreement by forming a new limited partnership on terms identical to those set forth in the Partnership Agreement and having as a general partner an entity approved by a Limited Partner Majority Interest, subject to receipt by the Company of an opinion of counsel that such 81 reconstitution, continuation and approval will not result in the loss of the limited liability of Unitholders or cause the Company, the reconstituted limited partnership or the Operating Company to be taxable as a corporation or an association taxable as a corporation for federal income tax purposes. Upon dissolution of the Company, unless the Company is reconstituted and continued as a new limited partnership, the person authorized to wind up the affairs of the Company and the Operating Company (the "Liquidator") will liquidate the Company's and the Operating Company's assets and apply the proceeds of the liquidation in the order of priority set forth in the Partnership Agreement and the Operating Partnership Agreement. The Liquidator may defer liquidation or distribution of the Company's and the Operating Company's assets and/or distribute assets to the partners in kind if it determines that a sale would be unsuitable. SUMMARY OF THE FINANCING DOCUMENTS THE NOTES Concurrently with this offering of Units, the Operating Company and Finance Corp. propose to make a public offering of the Notes. Such offering will be made only by means of a separate prospectus. The description of the Notes set forth below represents the Company's current expectation of the final terms the Notes will have upon consummation of the offering thereof. There can be no assurance that such offering will be consummated or that, if consummated, the Notes will not in fact have terms, including restrictive covenants, materially more adverse to the Operating Company and the Company than the terms described below. As noted under "Use of Proceeds", in the event the Notes offering is postponed or not consummated, the Company will use short-term borrowings, cash on hand or a combination thereof to fund a portion of the purchase price for the Addis Assets. In addition, in the event that the Notes offering is not consummated, the Old Notes will not be refinanced and will continue to remain outstanding (although in such event the Company may, but has not determined that it will, attempt to refinance the Old Notes through a new loan facility or to seek an amendment to certain terms of the Old Notes). The Notes are expected to be senior unsecured notes of the Operating Company and Finance Corp., with an aggregate principal amount of approximately $200.0 million, and are expected to mature in 2001. The Notes are not expected to have the benefit of any sinking fund or mandatory redemption provision, although the Operating Company and Finance Corp. are expected to have the option to redeem the Notes upon customary terms commencing no sooner than four years after the offering. The Notes will be non-recourse to the General Partner. The indenture pursuant to which the Notes will be issued (the "Indenture") is expected to contain customary terms, including customary covenants of the Operating Company and events of default. Such covenants are expected to include (i) a restriction on the ability of the Operating Company and its subsidiaries to incur secured debt or engage in sale and lease-back transactions, (ii) a restriction on the ability of the Operating Company and its subsidiaries to incur debt if the Consolidated EBITDA Coverage Ratio (such term, together with certain other capitalized terms used in this description of the Indenture, are defined below) as of the date such debt is issued exceeds 2.5 to 1, (iii) a restriction on the ability of the Operating Company and its subsidiaries to create or permit to exist any consensual encumbrance or restriction on the ability of any such subsidiary to (1) pay dividends or make any other distributions on its capital stock or pay any debt or other obligation owed to the Operating Company, (2) make any loans or advances to the Operating Company or (3) transfer any of its tangible property or tangible assets to the Operating Company, (iv) a restriction on the ability of the Operating Company and its subsidiaries to use the cash proceeds of certain asset sales or dispositions, (v) a limitation on the ability of the subsidiaries of the Operating Company to issue debt or preferred stock and (vi) a requirement that the resulting, surviving or transferee person or lessee in certain consolidations and mergers involving the Operating Company, or sales, conveyances, transfers or leases of all or substantially all the assets of the Operating Company, assume all the obligations of the Operating Company under the Indenture and the Notes. 82 In addition, the Indenture is expected to provide that, with certain limited exceptions, the Operating Company will not, and will not permit any of its subsidiaries, directly or indirectly, to: (1) declare or pay any dividend or make any distribution on or in respect of its capital stock, including any payment in connection with any merger or consolidation involving the Operating Company (except dividends or distributions payable solely in its capital stock (other than Disqualified Capital Stock) or payable to the Operating Company or a subsidiary), (2) purchase, redeem or otherwise acquire or retire for value any capital stock of the Operating Company or of any direct or indirect parent of the Operating Company, (3) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of acquisition) or (4) make any Investment in any affiliate of the Operating Company other than a subsidiary or a person which will become a subsidiary as a result of any such Investment (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement or Investment being herein referred to as a "Restricted Payment"), unless, at the time of such Restricted Payment: (i) no default or event of default under the Indenture shall have occurred and be continuing or would occur as a consequence thereof; (ii) the Consolidated EBITDA Coverage Ratio exceeds 3.0 to 1; (iii) total debt of the Operating Company and its consolidated subsidiaries does not exceed 60% of Consolidated Net Tangible Assets on a pro forma basis as of the end of the most recently completed fiscal quarter ending at least 45 days prior to the date on which such Restricted Payment is made; and (iv) such Restricted Payment (the amount of any such payment, if other than cash, to be determined by the board of directors of the Operating Company) together with the aggregate of all other Restricted Payments (other than certain permitted Restricted Payments) made by the Operating Company and its subsidiaries in the fiscal quarter during which such Restricted Payment is made shall not exceed an amount equal to Available Cash of the Operating Company for the immediately preceding fiscal quarter. The Indenture also is expected to provide that, upon a Change of Control, each holder of Notes will have the right to require that the Operating Company and Finance Corp. repurchase such holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase. For purposes of the foregoing description of the Indenture, the following terms have the meanings specified: "Available Cash" has the meaning given to such term in the Operating Partnership Agreement, as amended to the date of the Indenture. "Borden" means Borden, Inc., a New Jersey corporation, and its successors (other than as a result of any transaction described in clause (a)(i) of the definition of "Change of Control," as if Borden, Inc. were deemed for such purposes to be the Operating Company). A "Change of Control" occurs when (a) (i) any person or "group" for purposes of Section 13(d) of the Exchange Act (a "Group"), other than Permitted Holders, shall beneficially own, directly or indirectly, more than 50% of the total voting power of all classes of Voting Stock of the General Partner, the Company or the Operating Company, (ii) (A) the Operating Company shall sell, lease, convey or otherwise dispose of all or substantially all the Operating Company's assets to any person or Group or (B) the Operating Company shall consolidate with or merge into another person or another person shall consolidate with or merge into the Operating Company, in case of either of the foregoing, in a transaction in which the outstanding Voting Stock of the Operating Company is reclassified or changed into or exchanged for cash, securities or other property, other than, in the case of either of clauses (A) or (B), to, with or into, as applicable, one or more Permitted Holders or a person, more than 50% of the total voting power of all classes of Voting Stock of which, after 83 giving effect to such transaction, is beneficially owned, directly or indirectly, by one or more Permitted Holders or (iii) the Operating Company, the Company or the General Partner shall adopt a plan of liquidation or dissolution (unless all or substantially all the Operating Company's assets are distributed pursuant to such plan to one or more Permitted Holders) and (b) a Rating Decline occurs within the period of 60 days following the first public announcement of any of the events described in clause (a) (the "Announcement") (which period shall be extended if during such 60 days either both Rating Agencies (as defined in the Indenture) shall have placed the Operating Company on credit watch (with negative implications) or one of the Rating Agencies shall have placed the Operating Company on credit watch (with negative implications) and the other Rating Agency shall have made the determination described in the definition of Rating Decline, until such time as it can be determined whether or not there has been a Rating Decline). A "Rating Decline" shall be deemed to have occurred (i) in the event the Notes are rated below investment grade by each Rating Agency on the day before the Announcement, if each such rating is reduced by more than one gradation (whether or not within the same rating category) and (ii) in the event the Notes are rated investment grade by either or both of the Rating Agencies on the day before the Announcement, if the Notes cease to be rated investment grade by at least one Rating Agency. "Consolidated EBITDA Coverage Ratio" as of any date of determination means the ratio of (i) the aggregate amount of EBITDA for the period of the most recent four consecutive fiscal quarters ending at least 45 days prior to the date of such determination to (ii) Consolidated Interest Expense for such four fiscal quarters; provided, however, that (1) if the Operating Company or any of its subsidiaries has issued any debt since the beginning of such period that remains outstanding as of such date of determination or if the transaction giving rise to the need to calculate the Consolidated EBITDA Coverage Ratio is an issuance of debt, or both, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such debt as if such debt had been issued on the first day of such period and the discharge of any other debt repaid, repurchased, defeased or otherwise discharged with the proceeds of such new debt as if such discharge had occurred on the first day of such period, (2) if since the beginning of such period the Operating Company or any of its subsidiaries shall have made any Asset Disposition (as defined in the Indenture), the EBITDA for such period shall be reduced by an amount equal to the EBITDA (if positive) directly attributable to the assets that were the subject of such Asset Disposition for such period, or increased by an amount equal to the EBITDA (if negative), directly attributable thereto for such period, and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any debt or preferred stock of the Operating Company or any of its subsidiaries repaid, repurchased, defeased or otherwise discharged with respect to the Operating Company and its continuing subsidiary or from which the Operating Company or such continuing subsidiary has been released by reason of the assumption thereof by the transferee of such Asset Disposition, in connection with such Asset Dispositions for such period (or, if the capital stock of any subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the debt or preferred stock of such subsidiary to the extent the Operating Company and its continuing subsidiaries are no longer liable for such debt or preferred stock after such sale), (3) if since the beginning of such period the Operating Company or any of its subsidiaries (by merger or otherwise) shall have made an Investment in any subsidiary (or any person which becomes a subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, which constitutes all or substantially all of an operating unit of a business, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the issuance of any debt) as if such Investment or acquisition occurred on the first day of such period and (4) if since the beginning of such period any person (that subsequently became a subsidiary or was merged with or into the Operating Company or any subsidiary since the beginning of such period) shall have made any Asset Disposition or any Investment that would have required an adjustment pursuant to clause (2) or (3) above if made by the Operating Company or a subsidiary during such period, EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition or Investment occurred on the first day of such period. 84 "Consolidated Interest Expense" means, for any period, the total interest expense of the Operating Company and its consolidated subsidiaries, including (i) interest expense attributable to capital lease obligations, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest payments, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) net costs under Interest Rate Protection Agreements (as defined in the Indenture), including amortization of fees, (vii) preferred stock dividends in respect of all preferred stock held by persons other than the Operating Company or a wholly owned subsidiary of the Operating Company, (viii) interest incurred in connection with investments in discontinued operations and (ix) interest actually paid by the Operating Company or any of its consolidated subsidiaries under any guarantee of debt or other obligation of any other person. "Consolidated Net Income" means, for any period, the net income of the Operating Company and its consolidated subsidiaries; provided, however, that there shall not be included in such Consolidated Net Income: (i) any net income of any person if such person is not a Subsidiary, except that (A) the Operating Company's equity in the net income of any such person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such person during such period to the Operating Company or a subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a subsidiary, to the limitations contained in clause (iii) below) and (B) the Operating Company's equity in a net loss of any such person for such period shall be included in determining such Consolidated Net Income; (ii) any net income of any person acquired by the Operating Company or a subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (iii) any net income of any subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such subsidiary, directly or indirectly, to the Operating Company, except that (A) the Operating Company's equity in the net income of any such subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such subsidiary during such period to the Operating Company or another subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to another subsidiary, to the limitation contained in this clause) and (B) the Operating Company's equity in a net loss of any such subsidiary for such period shall be included in determining such Consolidated Net Income; (iv) any gain (or loss) realized upon the sale or other disposition of any property, plant or equipment of the Operating Company or its consolidated subsidiaries (including pursuant to any sale-and-leaseback arrangement) which is not sold or otherwise disposed of in the ordinary course of business and any gain (or loss) realized upon the sale or other disposition of any capital stock of any person; and (v) the cumulative effect of a change in accounting principles. "Consolidated Net Tangible Assets" means the total assets of the Operating Company and its subsidiaries appearing on a consolidated balance sheet of the Operating Company and its subsidiaries (prepared in accordance with generally accepted accounting principles) as of any date selected by the Operating Company not more than 90 days prior to the date of determination, after (i) adding thereto all Attributable Debt (as defined in the Indenture) of the Operating Company and its subsidiaries in respect of any sale and leaseback arrangement not capitalized on such balance sheet, (ii) eliminating all intercompany transactions and all amounts properly attributable to minority interests, if any, in the stock and surplus of subsidiaries and (iii) deducting therefrom (without duplication of deductions): (i) all liabilities of the Operating Company and its subsidiaries other than debt; (ii) the net book amount of all assets, after deducting any reserves applicable thereto, which would be treated as intangible under generally accepted accounting principles, including such items as goodwill, trademarks, trade names, service marks, brand names, copyrights, patents and licenses, and rights with respect to the foregoing, unamortized debt discount and expense and organization expenses; 85 (iii) any write-up in the book value of any asset on the books of the Operating Company or any subsidiary resulting from a revaluation thereof subsequent to the date of the Indenture (other than the write-up of the book value of an asset made in accordance with purchase accounting under generally accepted accounting principles in connection with the purchase of such asset); (iv) all deferred charges (other than prepaid expenses); and (v) all reserves, including without limitation, reserves for deferred income taxes, liabilities (fixed or contingent), depreciation, obsolescence, depletion, insurance and inventory valuation, which appear or under generally accepted accounting principles are required to appear on such balance sheet. "Disqualified Capital Stock" means any capital stock that is Redeemable Stock or Exchangeable Stock. "EBITDA" for any period means the Consolidated Net Income for such period, plus the following to the extent deducted in calculating such Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest Expense, (iii) depreciation expense, (iv) amortization expense and (v) all other noncash items reducing Consolidated Net Income, less all noncash items increasing Consolidated Net Income. "Exchangeable Stock" means any capital stock that is exchangeable or convertible into another security (other than capital stock of the Operating Company that is neither Exchangeable Stock nor Redeemable Stock). "Investment" in any person means any loan or advance to, any acquisition of capital stock, obligation or other security of, or capital contribution or other investment in, such person. "issue" means issue, assume, guarantee, incur or otherwise become liable for; provided, however, that any debt or capital stock of a person existing at the time such person becomes a subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be issued by such subsidiary at the time it becomes a subsidiary. "Net Available Cash" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, and excluding any other consideration received in the form of assumption by the acquiring person of debt or other obligations relating to such properties or assets or received in any other noncash form) therefrom, in each case net of all legal, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be accrued as a liability under generally accepted accounting principles, as a consequence of such Asset Disposition, and in each case net of all payments made on any debt which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any lien upon or other security agreement of any kind with respect to such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition, and net of amounts thereof allocable to minority interest holders in subsidiaries. "Net Cash Proceeds", with respect to any issuance or sale of capital stock, means the cash proceeds of such issuance or sale net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees actually incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Permitted Holders" means, as of the date of determination, (a) Borden and its subsidiaries, (b) Kohlberg Kravis Roberts & Co., a New York general partnership, its successors and its affiliates and (c) (i) any officer or other member of management employed by Borden, the General Partner, the Operating Company or any subsidiary for the 12-month period prior to the date of determination; (ii) any persons described in clause (i) who have retired (including as the result of disability) after the date of the Indenture from the employment of Borden, the General Partner, the Operating Company or any subsidiary in the ordinary course of business; (iii) family members or the relatives of the persons described in clauses (i) and (ii); (iv) any trusts created for the benefit of the persons described in clauses (i), (ii), (iii) or (v); (v) in the event of the incompetence or death of any of the persons described in clauses (i), (ii) and (iii), such person's estate, executor, administrator, 86 committee or other personal representative, or beneficiaries, in each case who at any particular date shall beneficially own or have the right to acquire, directly or indirectly, capital stock and (vi) any person, the management of which is controlled by one or more persons described in clause (i) or (ii); provided, however, that in connection with the transaction that otherwise would constitute a Change of Control were the persons described in this clause (c) not Permitted Holders, any debt incurred as a result thereof shall not be recourse to any of the assets of the Operating Company or any subsidiary. "Redeemable Stock" means any capital stock that by its terms or otherwise is required to be redeemed prior to the first anniversary of the stated maturity of the Notes or is redeemable at the option of the holder thereof at any time prior to the first anniversary of the stated maturity of the Notes. "Subordinated Obligation" means any Debt of the Company (whether outstanding on the date hereof or hereafter incurred) that is subordinate or junior in right of payment to the Notes. "Voting Stock" of any person means, with respect to a corporation, all classes of capital stock of such corporation then outstanding and normally entitled to vote in the election of directors or, with respect to a partnership, any general partnership interest in such partnership. THE OLD NOTES AND THE WORKING CAPITAL FACILITY General. The Operating Company is party to (i) the Note Agreement with the Old Noteholders and (ii) a Revolving Credit Agreement dated as of November 20, 1987 (the "Revolving Credit Agreement"), with the lender (the "Lender") specified therein. The Company has not incurred any indebtedness or entered into any borrowing arrangements, although as described herein the Company has provided certain assurances for the benefit of the Old Noteholders and the Lender. The following summary of certain provisions contained in the Note Agreement and the Revolving Credit Agreement and related documents does not purport to the complete and is subject to, and is qualified in its entirety by reference to, the provisions of the Note Agreement and the Revolving Credit Agreement. The Old Notes. Simultaneously with the initial offering of Preference Units in November 1987, the Operating Company issued and sold in a private placement $150.0 million aggregate principal amount of Old Notes to the Old Noteholders pursuant to the Note Agreement. The entire net proceeds of such issuance and sale were distributed and paid to Borden and its affiliates in connection with the contribution by Borden of the Geismar complex, the Illiopolis plant and related assets to the Operating Company. As described under "Use of Proceeds", the Company intends to prepay the Old Notes with the proceeds of the Notes offering and has initiated discussions with the Old Noteholders to obtain their consent to such prepayment. An aggregate of $90.0 million principal amount of the Old Notes will mature in 1997 and bear interest at 10.70% per annum (the "1997 Notes") and an aggregate of $60.0 million principal amount of the Old Notes will mature in 1999 and bear interest at 11.10% per annum (the "1999 Notes"). The Operating Company does not have the right to prepay the Old Notes prior to maturity. However, it is obligated to redeem, at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the redemption date, $30.0 million principal amount of the 1997 Notes in each of 1995 and 1996 (with the remaining $30.0 million being due upon maturity in 1997) and $30.0 million principal amount of the 1999 Notes in 1998 (with the remaining $30.0 million being due upon maturity in 1999). Further, the Operating Company is obligated to offer to purchase the Old Notes prior to maturity if, at any time prior to the tenth anniversary of the issuance of the Old Notes (i) more than 50% of the Units that were originally Preference Units are owned beneficially or of record by any person or group of related persons (other than Borden and its affiliates) or (ii) Borden or its affiliates cease to own at least a majority of the outstanding voting stock of the general partner of the Operating Company other than by reason of removal of BCPM as the General Partner by action of the Limited Partners pursuant to the provisions of the Partnership Agreement. In connection with any such repurchase, the purchase price would be equal to 100% of the principal amount of the Old Notes being repurchased plus interest accrued to the date of repurchase and an additional amount calculated to enable the holders of the Old Notes to avoid any loss resulting from the repurchase of the Old Notes prior to their stated maturity. 87 So long as any of the Old Notes are outstanding, under the Note Agreement, distributions by the Operating Company to the Company as to any quarter may be made only to the extent of the Operating Company's Available Cash (as defined in the Note Agreement) with respect to such quarter, provided that no such distribution may be made unless, after giving effect to such distribution, (a) no condition or event exists which constitutes an event of default or could become an event of default upon the giving of notice or the passage of time or both, and (b) either (i) the aggregate of all such distributions made during the period from the date of the issuance of the Old Notes through the date of such proposed distribution shall not exceed the Operating Company's Cash from Operations (as so defined) during such period or (ii) the Operating Company's Total Indebtedness (as so defined) shall not exceed 50% of its Consolidated Net Tangible Assets (as so defined). The definitions of Available Cash and Cash from Operations relating to the Operating Company included in the Note Agreement do not differ materially from those relating to the Company contained in the Partnership Agreement except that (i) the definition of Available Cash included in the Note Agreement provides for a deduction for any reserves created in the reasonable discretion of the General Partner for the payment of the Operating Company's debt service obligations, (ii) although the definition of Cash from Operations under the Partnership Agreement includes as cash receipts in the determination of Cash from Operations relating to the Company all amounts borrowed for working capital purposes, the definition in the Note Agreement limits the amount of working capital which may be included as cash receipts in determination of the Operating Company's Cash from Operations to $20.0 million subject to adjustment on a proportional basis to reflect any future increases or decreases in the total gross revenues of the Operating Company, and (iii) although the definitions of Available Cash and Cash from Operations under the Note Agreement include as a deduction in the determination of Available Cash and Cash from Operations relating to the Operating Company amounts expended for certain types of Investments (as so defined), the definition in the Partnership Agreement does not include such deduction in the determination of Available Cash or Cash from Operations relating to the Company. The Note Agreement (a) with certain exceptions, limits the right of the Operating Company and its Restricted Subsidiaries (as so defined) (if any) to create liens on their respective assets; (b) with certain exceptions, prohibits the issuance, assumption or guarantee of Indebtedness (as so defined, but excluding the Old Notes and certain other Indebtedness) in excess of the sum of $50.0 million plus 100% of the proceeds of any sale after issuance of the Old Notes by the Operating Company of its limited partner interests if, after giving effect to such borrowing, the Total Indebtedness (as so defined) of the Operating Company does not exceed 55% of its Consolidated Net Tangible Assets (as so defined) or 50% of such proceeds if Total Indebtedness exceeds 55% of such Consolidated Net Tangible Assets; (c) restricts certain consolidations, mergers and sales of all or substantially all of the assets of the Operating Company and its Restricted Subsidiaries (as so defined; (d) prohibits Investments (as so defined) other than (i) Investments in readily marketable obligations of the United States or any state thereof or any political subdivision of any such state having one of the two highest ratings obtainable from either Standard and Poor's Corporation or Moody's Investors Service, Inc., (ii) investments in commercial paper having a maturity of no more than 270 days and one of the two highest ratings obtainable from either Standard and Poor's Corporation or Moody's Investors Service, Inc., (iii) Investments in certain short-term certificates of deposit; (iv) Investments in Restricted Subsidiaries, and (v) other Investments not exceeding $5.0 million in the aggregate; (e) prohibits sales of assets (other than inventory, accounts receivable and certain retirements and replacements) if (i) the aggregate book value of the assets sold in any fiscal year exceeds 10% of such Consolidated Net Tangible Assets as of the end of the preceding fiscal year or (ii) the total book value of all of the assets sold after the issuance and sale of the Old Notes exceed 30% of such Consolidated Net Tangible Assets or (iii) the assets to be sold produced operating income during either of the two most recently completed fiscal years in excess of 10% of the Operating Company's consolidated operating income for either of such years; (f) prohibits amendments, modifications or supplements to the Operating Company Agreement if such amendments, modifications or supplements would have a material adverse effect on the Operating Company or its ability to perform its obligations under the Note Agreement or the Old Notes; (g) prohibits the Operating Company from engaging in any line of business other than the business as described in the Registration Statement of the Company dated November 20, 1987 and activities incidental or related thereto; (h) requires the Operating Company to 88 comply with, and not terminate or amend, the Purchase Agreements and Processing Agreements and certain other agreements between Borden and the Operating Company unless the General Partner by Special Approval in good faith determines that such actions will not adversely affect the Operating Company or its ability to perform its obligations under the Note Agreement and the Old Notes; and (i) prohibits or limits certain other actions. Borden Undertaking. In connection with the Note Agreement, Borden agreed pursuant to the Borden Purchase Obligation that: (a) in the event of a specified change in control of Borden, the holder or holders of any Old Notes will have the right, under certain circumstances, to require Borden to purchase the Old Notes at a price equal to 100% of the principal amount thereof plus interest accrued to the date of purchase and the Change of Control Premium; (b) Borden will not permit the Company to engage in any business other than the ownership of partnership interests in the Operating Company and activities directly related thereto, or to incur any indebtedness; and (c) Borden will comply with, and not terminate or amend, the Purchase Agreements and Processing Agreements and certain other agreements between Borden and the Operating Company unless the General Partner by Special Approval determines in good faith that such actions will not adversely affect the Operating Company or its ability to perform its obligations under the Note Agreement and the Old Notes. In connection with the Note Agreement, the Company agreed (the "Company Undertaking") not to engage in any business other than its ownership of partnership interests in the Operating Company and any activities directly related thereto or issue, assume or guarantee any indebtedness so long as the Old Notes are outstanding. The Note Agreement provides for an event of default in the event that Borden breaches any of its obligations under the Borden Purchase Obligation or the Company breaches any of its obligations under the Company Undertaking as well as for usual events of default on the part of the Operating Company as borrower and for the acceleration of the Old Notes upon the occurrence and continuance of any event of default. If the Old Notes are accelerated, the Operating Company would be obligated to pay 100% of the outstanding principal amount of the Old Notes plus accrued interest and an amount calculated to avoid the incurrence of any loss by the holders of the Old Notes resulting from the payment of the Old Notes prior to their respective stated maturities. The Note Agreement provides that no recourse may be had against the General Partner for payment of the Old Notes. Working Capital Facility. The Operating Company has in effect a short-term unsecured working capital facility of up to $20.0 million (the "Working Capital Facility") under the Revolving Credit Agreement to support working capital requirements. The Working Capital Facility permits short-term borrowing by the Operating Company of up to $20.0 million outstanding at any time. Borrowings under the Working Capital Facility will bear interest at either of the following floating rates as selected from time to time by the Operating Company: (i) the prime rate of interest established from time to time by the lender under the Working Capital Facility or (ii) quoted money market rates. As of the date of this prospectus, no borrowings under the Working Capital Facility were outstanding. The Revolving Credit Agreement incorporates by reference the covenants of the Operating Company contained in the Note Agreement. Accordingly, whether or not the Old Notes are refinanced, the covenants of the Operating Company provided with respect to the Old Notes and described above will continue to apply so long as the Revolving Credit Agreement is in effect in accordance with its terms. The Revolving Credit Agreement requires that during each period of twelve consecutive months borrowings under the Working Capital Facility be repaid for a period of 30 consecutive days. The Revolving Credit Agreement was for an initial term of one year commencing November 30, 1987 and automatically renews for successive terms of one year subject to termination by the Operating Company at any time upon thirty days' notice and by the lender at the end of the original term or any renewal term upon sixty days' notice. The Revolving Credit Agreement provides that no recourse may be had against the General Partner for payment of the borrowings thereunder. 89 ALLOCATIONS OF INCOME AND LOSS The Partnership Agreement provides that, for capital account maintenance and federal income tax purposes, items of income, gain, loss, deduction and credit are generally allocated among the Unitholders and the General Partner in accordance with their percentage interests. There are certain important exceptions to this general principle. An allocation of gross income will be made to any Unitholder or the General Partner in the event such Unitholders or the General Partner receives a distribution of cash (other than in connection with liquidation and dissolution) which is disproportionate to a distribution of cash received by any other Unitholders or the General Partner. The amount of any such gross income allocation will generally be the amount by which the disproportionate distribution (on a per Unit basis and with respect to the General Partner as if its interest was represented by Units) exceeds the distribution to the other Unitholders. Further, an allocation of loss, deduction or a nondeductible item which results in a deficit balance in a Unitholder's capital account in excess of such Unitholder's share of minimum gain (see "Certain Federal Income Tax Considerations--Tax Consequences of Unit Ownership--Allocations of Income and Losses") will, to the extent of such excess, be allocated to the General Partner and the General Partner will be allocated a like amount of subsequent income or gain otherwise allocable to the other Unitholders. CERTAIN FEDERAL INCOME TAX CONSIDERATIONS The Company, the Operating Company and BCPM have been advised by their special counsel, Sidley & Austin ("Counsel"), that the following summary correctly describes the material federal income tax matters of general application that should be considered by prospective Unitholders who are individual citizens or residents of the United States, and to the extent set forth below under "-- Legal Opinion and Advice", represents the opinion of Counsel, insofar as it relates to matters of law and legal conclusion. It is impractical to comment on all aspects of federal, state, local and foreign laws that may affect the tax consequences of the transactions contemplated by the offering of Units made hereby and of an investment in such Units. Each prospective Unitholder should consult, and must depend on, his own tax advisor concerning the federal, state, local and foreign tax consequences to him before deciding to acquire Units. Except as otherwise noted herein, this summary is based on current provisions of the Code, existing and proposed regulations thereunder and current administrative rulings and court decisions. The tax provisions discussed in this section are in many cases subject to varying interpretations. No assurance can be given that future legislative or administrative changes or court decisions would not require significant modification of the conclusions expressed in this section. Except where indicated, the discussion below describes general federal income tax considerations applicable to individuals who are citizens or residents of the United States. Accordingly, the following discussion has limited application to domestic corporations and persons subject to specialized federal income tax treatment, such as foreign persons, tax-exempt entities and insurance companies. LEGAL OPINIONS AND ADVICE Counsel has rendered its opinion that, based on the representations and subject to the qualifications set forth in the detailed discussion which follows, for federal income tax purposes (a) each of the Company and the Operating Company will be treated as a partnership (but, in the case of the Company, such treatment will not extend beyond the Company's taxable year ending December 31, 1997), (b) the owners of Units (other than an owner who is entitled to execute and deliver a Transfer Application but who has failed to do so) will be treated as partners of the Company (but such treatment will not extend beyond the Company's taxable year ending December 31, 1997) and (c) the acquisition of the Addis Assets by the Operating Company will not be the addition of a substantially new line of business with respect to the Company. Counsel bases its opinions on its interpretation of the Code and Treasury Regulations issued thereunder, judicial decisions, the facts set forth in this Prospectus and certain factual representations made by BCPM, and its opinion is subject to the accuracy of such facts. 90 Counsel's opinions represent only its best legal judgment and do not bind the IRS or the courts. Thus, no assurance can be provided that the opinions and statements set forth herein will be sustained by a court if contested, or will not be significantly modified by court decisions or future legislative or administrative changes, which may or may not be retroactively applied with respect to the Partnerships or the Unitholders. In addition, even if the Company, the Operating Company, or the Unitholders prevail in any such contest, the Company, the Operating Company, or the Unitholders may incur substantial costs in connection with such contest. To the extent that such fees are incurred by the Company, the Operating Company, the costs will be borne indirectly by all partners; to the extent such fees are incurred by a Unitholder, he will not be reimbursed by the Company, the Operating Company, and, therefore, will bear such costs directly. PARTNERSHIP STATUS In rendering its opinion as described above that the Company and the Operating Company will be treated as partnerships for federal income tax purposes, Counsel has relied on the following representations by BCPM: 1. BCPM will have at all relevant times a net worth at least equal to $37,500,000, and the General Partner's net worth will be increased by an amount equal to 10% of any additional capital contributions to the Company or the Operating Company, including amounts contributed pursuant to the proposed transactions described in this Prospectus. For purposes of the foregoing, "net worth" means the excess of (x) the fair market value of all assets of BCPM (exclusive of any interest in, and notes and accounts receivable from, any limited partnership in which BCPM has any interest) over (y) all liabilities of BCPM. 2. The Company and the Operating Company will be operated in accordance with applicable state partnership statutes, the Partnership Agreements and the statements and representations made in this Prospectus. 3. BCPM will, at all times during the existence of the Company and the Operating Company, have at least a one percent interest in each material item of income, gain, loss, deduction and credit of each of the Company and the Operating Company. Counsel's opinion as to the partnership status of the Company and the Operating Company in the event that BCPM is not the General Partner of the Company or the Operating Company, as the case may be, is based on the assumption that any new general partner will be able to make and satisfy the foregoing representations. In addition, prospective Unitholders should note that Counsel's opinion is expressly conditioned on the maintenance by BCPM of the net worth specified above (including any additional amounts required as a result of capital contributions). BCPM is precluded, under the Intercompany Agreement and the Partnership Agreement, from entering into other businesses and incurring liabilities other than in its capacity as General Partner of the Company and the Operating Company. In addition, BCPM has agreed in the Intercompany Agreement not to make any distribution to Borden, its sole stockholder, if immediately after such distribution the net worth of BCPM would be reduced below the requisite amount. In the event the net worth of BCPM is reduced as a result of a breach of the foregoing provisions of the Intercompany Agreement or the Partnership Agreement, Borden will be obligated to contribute additional capital to BCPM to restore such net worth. However, if the net worth of BCPM is reduced below the requisite amount other than as a result of a breach of the foregoing provisions of the Partnership Agreement or Intercompany Agreement, Borden will have no obligation to contribute additional capital to BCPM in order to increase BCPM's net worth. Further, neither Borden nor BCPM will have any obligation to maintain BCPM's net worth, except as described in this paragraph. Counsel's opinion as to the partnership status of the Company and the Operating Company is based upon the provisions of Treasury Regulation Section 301.7701-2, and judicial decisions and IRS rulings construing those provisions. Treasury Regulation Section 301.7701-2 provides that an organization which qualifies under state law as a limited partnership will be classified as a partnership for federal income tax purposes unless it has more corporate characteristics than noncorporate characteristics. The Treasury Regulation provides that the principal characteristics which are unique to a corporation are (i) centralized 91 management, (ii) continuity of life, (iii) free transferability of interests and (iv) limited liability. Counsel is of the opinion that neither the Company nor the Operating Company possesses a majority of the foregoing corporate characteristics and, thus, each will be treated as a partnership for federal income tax purposes (but, in the case of the Company, such treatment will not extend beyond the Company's taxable year ending December 31, 1997). No federal income tax ruling will be sought from the IRS as to the status of the Company and the Operating Company as partnerships. However, Counsel's opinion as to the partnership status of the Company and the Operating Company depends upon the ability of the Company and the Operating Company to meet the criteria set forth by the IRS which must be met for limited partnerships to receive advance rulings as to their classification as partnerships for federal income tax purposes. A partnership is not a taxable entity and incurs no federal income tax liability. Instead, each partner is required to take into account in computing his federal income tax liability his allocable share of income, gains, losses, deductions and credits of the partnership regardless of whether cash distributions are made. Distributions by a partnership to a partner are generally not taxable unless the distribution is in excess of the partner's adjusted basis in his partnership interest. Publicly Traded Partnership Status. Section 7704 of the Code generally treats publicly traded limited partnerships as corporations for federal income tax purposes for taxable years beginning after December 31, 1987. However, a "grandfather" provision applicable to Section 7704 of the Code treats publicly traded partnerships existing on December 17, 1987, including the Company, as partnerships for federal income tax purposes until their first taxable year beginning after December 31, 1997. The benefit of the "grandfather" provision will cease and the Company will be treated as a corporation for federal income tax purposes at an earlier date if the Company adds a substantial new line of business. Based on certain representations of BCPM, in the opinion of Counsel, the acquisition of the Addis Assets by the Operating Company will not be treated as the addition of a substantial new line of business with respect to the Company. Although legislation has been introduced that, if enacted, would permanently extend the "grandfather" provision, it cannot be predicted whether such proposed legislation would be enacted. Automatic Taxation as Corporation after 1997. Under Section 7704 of the Code, the Company will be treated solely for tax purposes as a corporation for taxable years beginning after December 31, 1997. At the time the Company is treated as a corporation under the publicly traded partnership rules, it will be treated as contributing all of its assets (subject to all of its liabilities) to a newly formed corporation (the "Corporation") in exchange for all of the Corporation's stock and as distributing such stock to Unitholders in complete liquidation of the Company (such deemed contribution and distribution being referred to herein as the "Tax Conversion"). The Tax Conversion will generally be tax-free to the Unitholders and to the Company except to the extent the Company's aggregate tax basis in its assets is less than the liabilities assumed by the Corporation. Subsequent to the Tax Conversion, a Unitholder will have a tax basis in the Corporation's stock equal to such Unitholder's adjusted tax basis in his Units minus such Unitholder's share of the liabilities assumed by the Corporation. After the Tax Conversion, a Unitholder will be taxable only on distributions received from the Corporation, if any. Nonliquidating distributions will be taxable as dividends to the extent of any current or accumulated earnings and profits of the Corporation. Any nonliquidating distributions in excess of current or accumulated earnings and profits of the Corporation, or any liquidating distributions will be treated as a tax free return of capital to the extent of the Unitholder's basis in the Corporation's stock and as capital gain to the extent of the balance, assuming that such stock is held as a capital asset. The Tax Conversion would cause the Company's taxable year to close as to all Unitholders on December 31, 1997. Following the Tax Conversion, all of the assets and liabilities formerly owned by the Company will be owned by the Corporation. The Corporation will not recognize any gain or loss on the Tax Conversion. Subsequent to the Tax Conversion, the income, gains, losses, deductions and credits attributable to the assets 92 and liabilities previously held by the Company will be included in the tax return filed by the Corporation, and the Corporation will pay taxes on any taxable income it recognizes from time to time. The principal tax disadvantage of the treatment of the Company as a corporation is that a corporation pays taxes on its net income and in addition, its shareholders pay taxes on any dividends from the corporation, whereas a partnership pays no entity-level tax for federal income tax purposes and its partners pay tax on their share of the partnership net income and on distributions that exceed their tax basis in their partnership interests. Accordingly, the treatment of the Company as the Corporation subsequent to the Tax Conversion will result in a material reduction in a Unitholder's cash flow and after-tax return. The foregoing discussion of tax consequences relating to the Tax Conversion is based on the assumption that not more than 20% of the stock of the Corporation transferred to Unitholders pursuant to the Tax Conversion will be subsequently sold pursuant to purchase agreements entered into prior to the Tax Conversion. The discussion below is based on the assumption that each of the Company and the Operating Company will be classified as a partnership for federal income tax purposes. If that assumption proves to be erroneous, most, if not all, of the tax consequences described below would not be applicable to Unitholders. PARTNER STATUS Unitholders who have become Limited Partners pursuant to the provisions of the Partnership Agreement will be treated as partners of the Company for federal income tax purposes. The IRS has ruled that assignees of partnership interests who have not been admitted to a partnership as partners, but who have the capacity to exercise substantial dominion and control over the assigned partnership interests, will be treated as partners for federal income tax purposes. On the basis of such ruling, except as otherwise described herein, (a) Assignees who have executed and delivered Transfer Applications, and are awaiting admission as limited partners, and (b) Unitholders whose Units are held in street name or by another nominee, will be treated as partners for federal income tax purposes. As such ruling does not extend, on its facts, to assignees of Units who are entitled to execute and deliver Transfer Applications and thereby become entitled to direct the exercise of attendant rights, but who fail to execute and deliver Transfer Applications, the tax status of such Unitholders is unclear. Such Unitholders should consult their own tax advisors with respect to their status as partners in the Company for federal income tax purposes. A purchaser or other transferee of Units who does not execute and deliver a Transfer Application may not receive certain federal income tax information or reports furnished to record holders of Units, unless the Units are held in a nominee or street name account and the nominee or broker has executed and delivered a Transfer Application with respect to such Units. A beneficial owner of Units whose Units have been transferred to a short seller to complete a short sale would appear to lose his status as a partner with respect to such Units for federal income tax purposes. See "--Tax Treatment of Operations--Treatment of Short Sales" below. TAX CONSEQUENCES OF UNIT OWNERSHIP Treatment of Company Distributions. Distributions by the Company to a Unitholder generally will not be taxable to such Unitholder for federal income tax purposes to the extent of his basis in his Units immediately before the distribution. Cash distributions in excess of such basis generally will be considered to be gain from the sale or exchange of the Units, taxable in accordance with the rules described below under "--Disposition of Units." Any reduction in a Unitholder's share of the nonrecourse liabilities (as defined below) of the Company and the Operating Company will be treated as a distribution of cash to such Unitholder. Payments with respect to the Old Notes and the Notes by the Operating Company, as well as a decrease in a Unitholder's percentage interest in the Company because of an offering of additional Units by the Company, will decrease such Unitholder's share of nonrecourse debt, and thus will result in a corresponding deemed distribution of cash. A non pro-rata distribution of money or property which is treated as received by a Unitholder in exchange for his share of the Company's "unrealized receivables" (including depreciation recapture) and/or 93 substantially appreciated "inventory items" (both as defined in Section 751 of the Code) will generally result in the realization of ordinary income to the extent that such distribution is in excess of his basis for such Unitholder's share of such unrealized receivables and inventory items relinquished in the exchange. A non-pro rata distribution might be deemed to occur with respect to the existing partners if the Company issued additional Units at a time when the Company's assets were subject to nonrecourse liabilities. Flow-Through of Taxable Income. The Company's income, gains, losses, deductions and credits will consist of its allocable share of the income, gains, losses, deductions and credits of the Operating Company. Unitholders will be required to take into account their allocable shares of income, gains, losses, deductions and credits of the Operating Company (through the Company) without regard to whether corresponding cash distributions are received by Unitholders. Basis of Units. In general, a Unitholder's tax basis for his Units initially will be equal to the price of such Units to him plus his share of those liabilities of the Company that are without recourse to any partner including the General Partner ("nonrecourse liabilities"). The Old Notes are, and the Notes would be, nonrecourse liabilities. A Unitholder's tax basis will generally be increased by (a) his share of the Company's taxable income and (b) his share of increases in nonrecourse liabilities incurred by the Company and the Operating Company. Generally, a Unitholder's basis in his interest will be decreased (but not below zero) by (i) his share of Company distributions, (ii) his share of decreases in nonrecourse liabilities of the Company, (iii) his share of losses of the Company and (iv) his share of nondeductible expenditures of the Company which are not chargeable to capital. See "Disposition of Units-- Aggregate Tax Basis for Units" below. Limitations on Deductibility of Company Losses. To the extent losses are incurred by the Company, a Unitholder's share of deductions for the losses will be limited to the tax basis of the Unitholder's Units and, in the case of an individual Unitholder, to the amount which the Unitholder is considered to be "at risk" with respect to the Company's activities, if that is less than the Unitholder's basis. A Unitholder must recapture losses deducted in previous years to the extent that Company distributions cause the Unitholder's at risk amount to be less than zero at the end of any taxable year. Losses disallowed to a Unitholder or recaptured as a result of these limitations will carry forward and will be allowable to the extent that the Unitholder's basis or at risk amount (whichever is the limiting factor) is increased. In general, a Unitholder will be at risk to the extent of the purchase price of his Units. A Unitholder's at risk amount will increase or decrease as the basis of the Unitholder's Units increases or decreases. The passive loss limitations generally provide that individuals, estates, trusts and certain closely held corporations and personal service corporations can deduct losses from passive activities (generally, activities in which the taxpayer does not materially participate) that are not in excess of the taxpayer's income only from such passive activities or investments. The passive loss limitations are to be applied separately with respect to each publicly traded partnership. Accordingly, the losses generated by the Company, if any, will be available only to offset future income generated by the Company and will not be available to offset income from other passive activities or investments (including other publicly traded partnerships) or salary or active business income. Passive losses that are not deductible because they exceed the Unitholder's income generated by the Company may be deducted in full when the Unitholder disposes of his entire investment in the Company in a fully taxable transaction to an unrelated party. The passive activity loss rules are applied after other applicable limitations on deductions such as the at risk rules and the basis limitation discussed above. A Unitholder's share of net income from the Company may be offset by any suspended passive losses from the Company, but it may not be offset by any other current or carryover losses from other passive activities, including those attributable to other publicly traded partnerships. The IRS has announced that Treasury Regulations will be issued which characterize net passive income from a publicly traded partnership as investment income for purposes of the limitations on the deductibility of investment interest. 94 Limitation on Interest Deductions. The deductibility of a non-corporate taxpayer's "investment interest" expense is generally limited to the amount of such taxpayer's "net investment income." As noted, a Unitholder's net passive income from the Company will be treated as investment income for this purpose. In addition, the Unitholder's share of the Company's portfolio income (i.e., income from interest, dividends, annuities and royalties not derived in the ordinary course of trade or business) and certain gains from the disposition of investment property (including the Units) will be treated as investment income. Investment interest expense includes (i) interest on indebtedness properly allocable to property held for investment, (ii) a partnership's interest expense attributed to portfolio income and (iii) the portion of interest expense incurred or continued by a partner to purchase or carry an interest in a passive activity to the extent attributable to portfolio income. The computation of a Unitholder's investment interest expense will take into account interest on any margin account borrowing or other loan incurred to purchase or carry a Unit to the extent attributable to portfolio income pursuant to the passive loss rules and, as noted above, net passive income from the Company less deductible expenses (other than interest) directly connected with the production of investment income. In addition, a Unitholder's share of the Company's portfolio income from the foregoing sources will be treated as investment income. A non-corporate taxpayer's net capital gain from the disposition of investment property is included in investment income only to the extent such taxpayer elects to make corresponding reduction in the amount of net capital gain that is subject to tax at the maximum rate applicable to net capital gains, currently 28%. Investment interest deductions that are disallowed may be carried forward and deducted in subsequent years to the extent of net investment income in such years. Allocation of Income and Losses. In general, the Company's items of income, gain, loss, deduction and credit will be allocated for book and tax purposes, in accordance with the percentage interests of the General Partner and the Unitholders. However, as discussed below, special allocations for book and tax purposes will generally be made to reflect disproportionate distributions of cash. Also, special tax (but not book) allocations will be made to reflect Book-Tax Disparities (as defined below) with respect to Contributed Properties (as defined below), Adjusted Properties (as defined below), recapture income and recaptured credits. In addition, the General Partner is empowered by the Partnership Agreement to allocate various Company items other than in accordance with the percentage interests when, in its judgment, such special allocations are necessary to comply with applicable provisions of the Code and Treasury Regulations and to achieve uniformity of Units. See "--Uniformity of Units" below. Under Section 704(b) of the Code, a special allocation of income, gain, loss, deduction or credit (or an item thereof) by a partnership to a partner will not be given effect for federal income tax purposes unless the allocation has "substantial economic effect." If the allocation does not have "substantial economic effect," a partner's distributive share will be recomputed on the basis of the partner's interest in the partnership, taking into account all facts and circumstances. Generally, an allocation has substantial economic effect if there is a reasonable possibility that the allocation will affect substantially the dollar amounts to be received by the partners from the partnership, independent of tax consequences. Treasury Regulations under Section 704(b) of the Code (the "Section 704(b) Regulations") delineate the circumstances under which the IRS will view partnership allocations as having "economic effect" and as being "substantial." Generally, for an allocation to have "economic effect" under the Section 704(b) Regulations (a) the allocation must be reflected as an appropriate increase or decrease in each partner's capital account, (b) liquidation proceeds must, throughout the term of the partnership, be distributable in accordance with the partners' positive capital account balances and (c) any partner with a deficit in his capital account following the distribution of liquidation proceeds must be required to restore the amount of such deficit to the partnership, which amount is to be distributed to partners in accordance with their positive capital account balances or paid to creditors. In general, for capital accounts to reflect the economic arrangement among the partners, the Section 704(b) Regulations provide that a partner's capital account must be increased by (i) the amount of money he has contributed to the partnership, (ii) the fair market value of property he has contributed to the partnership (net of liabilities encumbering the contributed property that the partnership is considered to assume or take 95 subject to under Section 752 of the Code) and (iii) his distributive share of partnership income and gain (or items thereof), including income and gain exempt from tax. A partner's capital account must be decreased by (i) the amount of money distributed to him by the partnership, (ii) the fair market value of property distributed to him by the partnership (net of liabilities encumbering the distributed property that he is considered to assume or take subject to under Section 752 of the Code), (iii) his distributive share of certain partnership syndication expenses that are neither deductible nor amortizable and (iv) his distributive share of partnership losses and deductions. In addition, the Section 704(b) Regulations permit the partners' capital accounts to be increased or decreased to reflect the revaluation of partnership property (at fair market value) if the adjustments are made for a substantial non-tax business purpose in connection with a contribution or distribution of money or other property as consideration for the acquisition or relinquishment of an interest in the partnership. Crediting a partner's book capital account with a property's fair market value, however, creates a disparity between the partner's book capital account and his "tax" capital account (a "Book-Tax Disparity"), because the tax capital account reflects only recognized tax consequences (i.e., it reflects only the tax basis rather than the value of partnership property). Book-Tax Disparities are eliminated through allocations that cause the partner whose book capital account reflects built-in gain or loss to bear the corresponding tax benefit or burden in accordance with the principles of Section 704(c) of the Code. One of the fundamental concepts underlying the Section 704(b) regulations is that the partners' allocable shares of all items of book income, gain, loss and deduction are governed by Section 704(b) of the Code, once the appropriate book treatment has been determined. The principles of Section 704(c) of the Code govern the partners' distributive shares of all tax items attributable to a Book-Tax Disparity. Special allocations may have "economic effect" even in the absence of a full obligation to restore deficit capital accounts on the liquidation of the partnership, if (1) the agreement contains a "qualified income offset" provision, and (2) the special allocation does not cause or increase a deficit balance in a partner's specially adjusted capital account (as adjusted for certain items such as reasonable anticipated future distributions) as of the end of the partnership taxable year to which the allocation relates. A qualified income offset requires that in the event of any unexpected distribution (or specified adjustments or allocations) there must be an allocation of income or gain to the distributee that eliminates the resulting capital account deficit as quickly as possible. In general, deductions and credits associated with nonrecourse debt of a partnership must be allocated in accordance with the partners' interests in the partnership. The amount of nonrecourse deductions for a partnership taxable year equals the net increase, if any, in the amount of partnership "minimum gain" during that taxable year. Partnership minimum gain is determined by computing, with respect to each nonrecourse liability of the partnership, the amount of gain, if any, that the partnership would realize for tax purposes by disposing of the partnership property (subject to such liability) in a taxable transaction in full satisfaction of such liability. If, however, partnership property subject to one or more nonrecourse liabilities of the partnership is properly reflected on the books of the partnership at a book value that differs from the adjusted tax basis of such property, the book value, rather than the adjusted tax basis, of the partnership property is used to compute the minimum gain. Pursuant to the Section 704(b) Regulations, deductions attributable to nonrecourse debt will be deemed to be allocated in accordance with the partners' interests in a partnership if the partnership agreement provides that allocations of nonrecourse deductions are made in a manner that is reasonably consistent with allocations of other significant partnership items of income or loss attributable to partnership property securing the nonrecourse liabilities (other than minimum gain recognized by the partnership). In addition, if a partner does not have an obligation to restore a negative balance in his capital account, the partnership agreement must contain a "minimum gain chargeback" provision. A partnership agreement contains a minimum gain chargeback provision if it provides that if there is a net decrease in partnership minimum gain during a partnership taxable year, each partner will be allocated items of partnership income and gain for that year equal to such partner's share of the net decrease in partnership minimum gain. 96 A special allocation must not only have economic effect to be respected, but such economic effect must also be substantial. The economic effect of an allocation is substantial if there is a reasonable possibility that the allocation will affect substantially the dollar amounts to be received by the partners from the partnership, independent of tax consequences. The manner of allocation for items of income, gain, loss, deduction and credit for both book and tax purposes is set forth in the Partnership Agreement. In general, except in the case of liquidating distributions, allocations are made to the Unitholders and the General Partner in accordance with their percentage interests in the Company (i.e., pro rata in accordance with their respective Capital Contribution). However, the Partnership Agreement provides, for both book and tax purposes, certain special allocations of income and gain as required by the qualified income offset and minimum gain chargeback provisions discussed above. In addition, to the extent that the cash distributed to the General Partner in any year represents an incentive distribution, the General Partner will be allocated a corresponding amount of gross income. To the extent that the cash distributed to any Unitholder or the General Partner (other than as an incentive distribution) is disproportionate (on a per Unit basis) to the cash distributed to the other Unitholders, the Unitholders (or the General Partner) receiving such disproportionate cash distribution will receive a corresponding allocation of gross income. In both cases, such allocations will be exclusive of (a) allocations with respect to Contributed Property and Adjusted Property pursuant to the principles of Section 704(c) of the Code and (b) allocations designed to eliminate Book-Tax Disparities caused by the application of "ceiling" limitations (as described below). The amount of the gross income allocation to the Unitholders (or the General Partner) receiving a disproportionate distribution (other than an incentive distribution) will be equal to the product of (x) the amount by which such person's distribution (on a per Unit basis and with respect to the General Partner as if its interest was represented by Units) exceeds the distribution received (on a per Unit basis and with respect to the General Partner as if its interest was represented by Units) by the Unitholder receiving the smallest distribution and (y) the number of units owned by such person. Any allocation of gross income to a Unitholder in accordance with the minimum gain chargeback described above will reduce the amount of gross income to be allocated to Unitholders in respect of such disproportionate distributions. The Partnership Agreement further provides, solely for tax purposes, special allocations of (a) income, gain, loss and deduction attributable to properties contributed to the Company in exchange for Units ("Contributed Property"), (b) income, gain, loss and deduction attributable to properties when the Company has adjusted the book value of such properties upon the subsequent issuance of any Units to reflect unrealized appreciation or depreciation in value from the later of the Operating Company's acquisition date for such properties or the latest date of a prior issuance of Units ("Adjusted Property"), (c) gross income and deductions to preserve the uniformity of the intrinsic federal income tax characteristics of Units issued or sold from time to time and (d) recaptured income and recaptured credits resulting from the sale or disposition of assets. With respect to Contributed Property, the Partnership Agreement provides that, for federal income tax purposes, items of income, gain, loss and deduction shall first be allocated among the partners in a manner consistent with Section 704(c) of the Code. Treasury Regulations provide that tax allocations will be deemed to be in accordance with the partners' interests if they are made in accordance with Section 704(c) principles. In addition, the Partnership Agreement provides that items of income, gain, loss and deduction attributable to any Adjusted Property shall be allocated for federal income tax purposes in accordance with Section 704(c) principles. Although allocations for federal income tax purposes of income, gain, losses and deductions attributable to Contributed Property pursuant to Section 704(c) of the Code do not have economic effect (because such allocations are not reflected in the partners' capital accounts), the Section 704(b) Regulations require Section 704(c) allocations (at least as to gain, loss and depreciation deductions) to eliminate Book-Tax Disparities. Similarly, although the allocations of income, gains, losses and deductions attributable to Adjusted Property do not have economic effect, they are required allocations for federal income tax purposes (at least as to gain, loss and depreciation deductions) pursuant to the Section 704(b) Regulations to eliminate Book-Tax 97 Disparities resulting from the revaluation of the Company's property for book purposes when additional Units are issued by the Company. The General Partner will administer such allocations to result, to the maximum extent possible, in a Unitholder having tax consequences equivalent to that which such Unitholder would have had if he had purchased a direct interest in the Company's assets. Items of gross income and deduction will be allocated in a manner intended to eliminate Book-Tax Disparities, if any, arising from the application of certain "ceiling" limitations imposed on allocations related to Contributed Property or Adjusted Property. Such curative allocations of gross income and deductions to preserve the uniformity of the intrinsic tax characteristics of Units will not have economic effect because they will not be reflected in the capital accounts of the Unitholders. Treasury Regulations under Section 704(c) of the Code permit a partnership to make reasonable curative allocations to reduce or eliminate Book-Tax Disparities. Counsel believes the curative allocations provided in the Partnership Agreement are reasonable and should be respected for federal income tax purposes. The Partnership Agreement also requires gain from the sale of properties of the Company that is characterized as recapture income and recaptured tax credits to be allocated among the Unitholders and the General Partner (or their successors) in the same manner in which such partners were allocated the deductions giving rise to such recapture income and were allocated credits giving rise to such recaptured credits. The Section 704(b) Regulations and Treasury Regulation Sections 1.1245-1(e) and 1.1250-1(f) tend to support a special allocation of recapture income and recaptured credits. However, such regulations do not specifically address a special allocation based on the allocation of the deductions or credits giving rise to such recapture income and recaptured credits, as provided for in the Partnership Agreement. Therefore, it is not clear that the allocations of recapture income and recaptured credits provided for in the Partnership Agreement will be given effect for federal income tax purposes. If the allocations with respect to such recapture income and recaptured credits are not respected, such items will be reallocated to all Unitholders and the General Partner according to their percentage interests. The Partnership Agreement does not require the Unitholders to restore any deficit balance in their capital accounts upon liquidation of the Company. However, the Partnership Agreement contains "minimum gain chargeback" and "qualified income offset" provisions which, under the Section 704(b) Regulations, should obviate the requirement to restore negative capital accounts, although the qualified income offset is made subject to the gross income allocation in respect of disproportionate distributions. Taxable income and gain will be allocated in a manner consistent with the book allocations associated with the minimum gain chargeback and qualified income offset provisions. In addition, the Partnership Agreement provides that allocations of losses or deductions which would result in a negative balance in a Unitholder's Capital Account to the extent of such negative balance will be allocated to the General Partner. In the event the IRS successfully asserts an adjustment to the taxable income of the General Partner and, as a result of any such adjustment, either the Company or the Operating Company is entitled to a deduction, the Partnership Agreements provide that such deduction will be allocated to the General Partner for both book and tax purposes. The allocations of income, gain, loss, deduction or credit (and items thereof) under the Partnership Agreements (other than the curative allocations to preserve uniformity of the Units' intrinsic federal income tax characteristics) should generally be considered to have "substantial economic effect". However, because the application of the Section 704(b) Regulations in many situations is unclear, there are many uncertainties relating to the allocations. Investors should be aware that certain aspects of the allocations contained in the Partnership Agreements may be challenged by the IRS, and such challenges may be sustained. In particular, the curative allocations to preserve uniformity of the Units' intrinsic federal income tax characteristics may be challenged because such allocations are not in technical compliance with the Section 704(b) Regulations of the Code. However, such allocations are in accordance with Section 704(c) principles in attempting to eliminate fully Book-Tax Disparities. Also, the IRS may contend that the gross income allocation in respect of disproportionate distributions should not be made subject to the qualified income offset although the effect 98 of the order in which such allocations are made under the Partnership Agreement should be in accordance with such regulations. If an allocation contained in the Partnership Agreements is not given effect for federal income tax purposes, items of income, gain, loss, deduction or credit will be reallocated to the Unitholders and the General Partner in accordance with their respective interests in such items, based upon all the relevant facts and circumstances. Such reallocation among the Unitholders and the General Partner of such items of income, gain, loss, deduction or credit allocated under the Partnership Agreement could result in additional taxable income to the Unitholders. Such reallocation of Company items could also affect the uniformity of the intrinsic federal income tax characteristics of the Units. See "--Uniformity of Units" below. TAX TREATMENT OF OPERATIONS Income and Deductions. No federal income tax will be paid by the Company until its first taxable year beginning after December 31, 1997. Instead, each Unitholder will be required to report on his income tax return his allocable share of income, gains, losses, deductions and credits of the Company (substantially all of which will be the Company's share of such items of the Operating Company), irrespective of whether the Company makes a distribution of cash to the Unitholder. Subject to the application of the passive loss rules, a Unitholder is generally entitled to deduct on his personal income tax return his allocable share of Company losses, if any, to the extent of the lesser of the adjusted tax basis of his Units at the end of the year in which such losses occur or the amount that the Unitholder is considered "at risk" at the end of that year. See "--Tax Consequences of Unit Ownership--Limitations on Deductibility of Company Losses" above. The characterization of any item of profit or loss (e.g., as capital gain or loss rather than ordinary income or loss) will be the same for the Unitholder as it was for the Company. A Unitholder who owns Units at any time during a quarter and who disposes of such Units prior to the record date for a distribution will be allocated items of Company income and gain attributable to the months in such quarter during which such Units were owned but will not be entitled to receive such cash distribution. In addition, circumstances could arise in which a Unitholder's distributive share of the Company's taxable income is substantially greater than cash distributions. This could occur, for example, due to extraordinary sales of the Operating Company's assets followed by a reinvestment of the proceeds. Accounting Method and Taxable Year. The Company and the Operating Company use the calendar year as their taxable years and adopted the accrual method of accounting for federal income tax purposes. Initial Tax Basis, Depreciation and Amortization. The tax basis established for the various assets of the Operating Company will be used for purposes of computing depreciation and cost recovery deductions and, ultimately, gain or loss on the disposition of the Operating Company's assets. The Company elected to use depreciation methods that resulted in the largest available depreciation deductions in the early years of the Operating Company. Property subsequently acquired or constructed by the Operating Company may be depreciated using accelerated depreciation methods permitted by the Code. If the Company disposes of depreciable property by sale, foreclosure or otherwise, all or a portion of any gain (determined by reference to the amount of depreciation previously deducted and the nature of the property) may be subject to the recapture rules and taxed as ordinary income rather than capital gain. Similarly, a partner who has taken cost recovery or depreciation deductions with respect to property owned by the Company may be required to recapture such deductions upon a sale of his interest in the Company. See "-- Tax Consequences of Unit Ownership--Allocation of Income and Losses" above and "--Disposition of Units" below. The costs incurred in promoting the issuance of Units must be capitalized and cannot be deducted by the Company currently, ratably or upon termination of the Company. 99 The tax basis of goodwill used in a trade or business acquired after August 10, 1993 (or prior to that time in certain events), can be amortized over 15 years. However, see "--Section 754 Election" below with respect to the amortization of Section 743(b) adjustments allocated to goodwill. Section 754 Election. The Company and the Operating Company have previously made the election permitted by Section 754 of the Code. Such an election will generally permit a purchaser of Units to adjust his share of the basis in the Company's and the Operating Company's properties pursuant to Section 743(b) of the Code as if he had acquired a direct interest in the Company's and the Operating Company's assets. Such elections are irrevocable without the consent of the IRS. The Section 743(b) adjustment is attributed solely to a purchaser of Units and is not added to the basis of the Company's and the Operating Company's assets associated with all of the Unitholders (the "Common Bases"). Proposed Treasury Regulation Section 1.168-2(n) generally requires the Section 743(b) adjustment attributable to depreciable property to be depreciated as if the total amount of such adjustment were attributable to newly-acquired depreciable property placed in service when the transfer occurs. Under Treasury Regulation Section 1.167(c)-1(a)(6), which will apply to a small portion of the Company's and the Operating Company's assets, a Section 743(b) adjustment is generally required to be depreciated using the straight-line method. The depreciation method and useful lives associated with the Section 743(b) adjustment, therefore, may differ from the method and useful lives generally used to depreciate the Common Bases in such properties. However, the General Partner intends to adopt a reporting position under which such differences should not arise despite its inconsistency with such Treasury Regulations. See "--Disposition of Units --Constructive Termination or Dissolution of the Company" and "--Uniformity of Units" below. Any Section 743(b) adjustment attributable to goodwill will be treated as a separate intangible asset amortizable over 15 years on a straight line basis from the date of its acquisition. A Section 754 election is advantageous if the transferee's basis in such Units is higher than such Units' share of the aggregate basis to the Company and the Operating Company of the Company's and the Operating Company's assets immediately prior to the transfer. In such a case, pursuant to the election, the transferee would take a new and higher basis in his share of the Company's and the Operating Company's assets for purposes of calculating, among other items, his depreciation deductions and his share of any gain, loss or deduction on a sale of the Company's and the Operating Company's assets. Conversely, a Section 754 election is disadvantageous if the transferee's basis in such Units is lower than such Units' share of the aggregate basis of the Company's and the Operating Company's assets immediately prior to the transfer. The amount that a Unitholder would be able to obtain on a sale or other disposition of his Units may be affected favorably or adversely by the elections under Section 754 depending on whether the sale price of the Unit is higher or lower than such Unit's share of the aggregate basis of the Company's and the Operating Company's assets at the time of the sale or other disposition. The calculations and adjustments in connection with the Section 754 election depend, among other things, on the date on which a transfer occurs and the price at which the transfer occurs. To help reduce the complexity of those calculations and the resulting administrative cost to the Company, the General Partner will apply the following method in making the necessary adjustments pursuant to the Section 754 election: the price paid by a transferee for his Units will be deemed to be the lowest quoted trading price of the Units during the calendar month in which the transfer was deemed to occur, without regard to the actual price paid. The application of such convention yields a less favorable tax result, as compared to adjustments based on actual price, to a transferee who paid more than the "convention price" for his Units. The calculations under Section 754 are highly complex, and there is little legal authority concerning the mechanics of the calculations, particularly in the context of publicly traded partnerships. It is possible that the IRS will successfully assert that the adjustments made by the General Partner do not meet the requirements of the Code or the Treasury Regulations and require a different basis adjustment to be made. 100 Should the IRS require a different basis adjustment to be made, and should, in the General Partner's opinion, the expense of compliance exceed the benefit of the elections, the General Partner may seek permission from the IRS to revoke any Section 754 elections previously made for the Company and the Operating Company. Such a revocation may increase the ratio of a Unitholder's distributive share of taxable income to cash distributions and adversely affect the amount which a Unitholder will receive from the sale of his Units. Estimates of Relative Fair Market Values and Basis of Properties. The consequences of the acquisition, ownership and disposition of Units will depend in part on estimates by the General Partner of the relative fair market values and determinations of the tax basis of the assets of the Company and the Operating Company. The federal income tax consequences of such estimates and determinations of basis may be subject to challenge and will not be binding on the IRS or the courts. If the estimates of fair market value or determinations of basis were found to be incorrect, the character and amount of items of income, gain, loss, deduction or credit previously reported by Unitholders might change, and Unitholders might be required to amend their previously filed tax returns or to file claims for refund. See "-- Administrative Matters--Accuracy-Related Penalties" below. Treatment of Short Sales. It would appear that a Unitholder whose Units are loaned to a "short seller" to cover a short sale of Units would be considered as having transferred beneficial ownership of such Units, and would, thus, no longer be a partner with respect to such Units during the period of such loan. As a result, during such period any income, gain, deductions, losses or credits of the Company allocable to such Units would appear not to be reportable by such Unitholder, and any cash distributions received by the Unitholder with respect to such Units would be fully taxable and all of such distributions would appear to be treated as ordinary income. The IRS may also contend that a loan of Units to a "short seller" constitutes a taxable exchange. If such a contention were successfully made, the lending Unitholder may be required to recognize gain or loss. Unitholders desiring to assure their status as partners should modify their brokerage account agreements, if any, to prohibit their brokers from borrowing their Units. Alternative Minimum Tax. Each Unitholder will be required to take into account his distributive share of any items of Company income, gain, loss or deduction for purposes of the alternative minimum tax. A portion of the Company's depreciation deductions may be treated as an item of tax preference for this purpose. Alternative minimum tax is imposed currently at a rate of 26% on the first $175,000 of alternative minimum income in excess of the exemption amount and 28% on any additional alternative minimum taxable income. Alternative minimum taxable income is calculated using the 150% declining balance method of depreciation with respect to personal property and 40-year straight-line depreciation for real property, compared to the alternative methods provided for under Section 168 of the Code (including more accelerated methods of depreciation which the Company may use in computing its income for regular federal income tax purposes). A Unitholder's alternative minimum taxable income derived from the Company may be higher than his share of Company net income because the Company may use more accelerated methods of depreciation for purposes of computing federal taxable income or loss. Unitholders should consult their tax advisors as to the impact of an investment in Units on their liability for the alternative minimum tax. Unrelated Business Taxable Income. Certain entities otherwise generally exempt from federal income taxes (such as individual retirement accounts ("IRAs"), employee benefit plans and other charitable or exempt organizations) are nevertheless taxed under Section 511 of the Code on net unrelated business taxable income in excess of $1,000, and each such entity must file a tax return for each year in which it has more than $1,000 of gross income included in computing unrelated business taxable income. It is anticipated that substantially all of a tax-exempt entity's distributive share of the income from the Company will constitute unrelated business taxable income until December 31, 1997. Employee benefit plans and other tax-exempt entities classified as trusts for federal income tax purposes, including IRAs, are taxable on their unrelated business income at the rates applicable to taxable trusts, which are essentially the same as the rates applicable to individuals, except that each such rate applies at a much lower taxable income level for trusts than for 101 individuals. Other tax-exempt entities that are classified as corporations for federal income tax purposes are taxable on their unrelated business income at the rates applicable to taxable corporations. Persons investing on behalf of an otherwise tax-exempt entity should consider whether the after-tax return on an investment in the Units will compare favorably with other investment alternatives. DISPOSITION OF UNITS If a Unit is sold or otherwise disposed of, the determination of gain or loss from the sale or other disposition will be based on the difference between the amount realized and the tax basis for such Unit. See "--Tax Consequences of Unit Ownership--Basis of Units" above. Upon the sale of his Units, a Unitholder's "amount realized" will be measured by the sum of the cash or other property received plus the portion of the Company's nonrecourse debt allocated to the Units sold. Similarly, upon a gift of his Units, a Unitholder will be deemed to have received cash equal to the portion of the Company's nonrecourse debt allocable to such Units. To the extent that the amount of cash or property actually received plus the allocable share of the Company's nonrecourse debt exceeds the Unitholder's tax basis for the Units disposed of, the Unitholder will recognize gain. The tax liability, resulting from such gain could exceed the amount of cash received upon the disposition of such Units. Generally, gain recognized by a Unitholder (other than a dealer) on the sale or other disposition of a Unit held for more than twelve months will be taxable as long-term capital gain. The portion of the proceeds of such sale or other disposition attributable to a Unitholder's share of "substantially appreciated inventory items" and "unrealized receivables" of the Company (as defined in Sections 751(c) and 751(d) of the Code) will be treated as ordinary income. Unrealized receivables would include recapture income. For this purpose, "inventory" includes any property that would produce ordinary income on the sale thereof. Inventory items of the Company will be considered to have substantially appreciated in value if their fair market value exceeds 120% of their adjusted basis to the Company and 10% of the fair market value of all property, other than money, of the Company. Ordinary income attributable to unrealized receivables and substantially appreciated inventory may exceed net taxable gain realized upon the sale of Units and may be recognized even if there is a net taxable loss realized on the sale of Units. A Unitholder must report to the Company's Transfer Agent (on behalf of the Company) any transfer of Units. See "--Information Return Filing Requirements" below. The treatment of distributions received after a Unitholder has disposed of his Units is unclear. Such a distribution may be fully taxable as ordinary income or may reduce a Unitholder's basis for the Units disposed of, resulting in a larger gain or smaller loss from such disposition. Aggregate Tax Basis for Units. The IRS has ruled that a partner must maintain an aggregate adjusted tax basis for his interests in a single partnership (consisting of all interests acquired in separate transactions). On a sale of a portion of such aggregate interest, such partner would be required to allocate his aggregate tax basis between the interest sold and the interest retained, by some equitable apportionment method. If applicable, the aggregation of tax basis of a Unitholder effectively prohibits a Unitholder from choosing among Units with varying amounts of inherent gain or loss to control the timing of the recognition of such inherent gain or loss, as would be possible in a stock transaction. Thus, the ruling may result in an acceleration of gain or deferral of loss on a sale of a portion of a Unitholder's Units. It is not clear whether such ruling applies to publicly traded limited partnerships, such as the Company, the interests in which are evidenced by separate registered certificates providing a verifiable means of identifying each separate interest and tracing the purchase price of such interest. A Unitholder considering the purchase of additional Units or a sale of Units purchased at differing prices should consult his tax advisor as to the possible consequences of that ruling. Transferor/Transferee Allocations. In general, the Company's taxable income and losses will be determined annually and will be prorated on a monthly basis and subsequently apportioned among the Unitholders in proportion to the number of Units owned by them as of the opening of the NYSE on the first business day of the month in which such gain or loss is recognized for federal income tax purposes. As a 102 result of this monthly allocation, a Unitholder transferring Units in the open market may be allocated income, gain, loss, deduction and credit accrued after the transfer. The use of the monthly conventions discussed above may not be permitted by existing Treasury Regulations. If the IRS treats transfers of Units as occurring throughout each month and a monthly convention is not allowed by Treasury Regulations (or only applies to transfers of less than all of a partner's interest), the IRS may contend that taxable income or losses of the Company must be reallocated among the partners. If any such contention were sustained, the Unitholders' respective tax liabilities would be adjusted to the possible detriment of certain Unitholders. The General Partner is authorized to revise the Company's method of allocation between transferors and transferees (as well as among partners whose interests otherwise vary during a taxable period) to comply with any future Treasury Regulations. For transfers of an interest in a "parent" partnership (such as the Company) that holds an interest in a "subsidiary" partnership (such as the Operating Company), the items of the subsidiary partnership are to be allocated among the partners of the parent partnership by (a) assigning an appropriate portion of each such item to each day in the parent partnership's taxable year and (b) allocating the items assigned to each day among the partners of the parent partnership based on their interests in that partnership as of the close of the day. It is contemplated that the Company's share of items of taxable income and loss of the Operating Company will be determined and allocated among the Unitholders on a monthly basis as described above. However, the General Partner is authorized to revise this method of allocation if it determines it is necessary or otherwise is in the best interest of the Company. Information Return Filing Requirements. A Unitholder who sells or exchanges Units is required to notify the Company in writing of such sale or exchange, and the Company is required to notify the IRS of such transaction and to furnish certain information to the transferor and transferee. However, these reporting requirements do not apply with respect to a sale by an individual who is a citizen of the United States and who effects such sale through a broker. In addition, a transferor and a transferee of a Unit will be required to report to the IRS the amount of the consideration received for such Unit that is allocated to goodwill or going concern value of the Company. Failure to satisfy such reporting obligations may lead to the imposition of substantial penalties. Constructive Termination or Dissolution of the Company. Under Section 708(b)(1)(B) of the Code, the Company will be considered terminated for purposes of the Code if within any 12-month period there is a sale or exchange of 50% or more of the interests in the capital and profits of the Company. For this purpose, multiple sales or exchanges of the same Unit within a 12-month period are generally counted only once. In general, the Company does not have the ability accurately to determine whether or when a termination has occurred, because Units have been and will be freely tradeable in "street name" (i.e., the name of the owner's stockbroker). A termination of the Company would result in the assets of the Company and the Operating Company being treated, solely for tax purposes, as having been distributed to their respective partners and having been recontributed to the Company or the Operating Company, as the case may be, each of which would be treated as a new partnership for federal income tax purposes. For example, as a result of a termination of the Company during 1994, depreciation deductions which would otherwise be allowable to the Company and the Operating Company in computing taxable income for taxable years ending in 1994 and certain subsequent years would be deferred and such deductions allowable in later years would increase. As a further result of a termination of the Company, the Company would be required to file an additional tax return and make new elections (including an election under Section 754 of the Code (see "--Tax Treatment of Operations-- Section 754 Election" above). Failure to file such tax return or to make such elections could have adverse effects on the Unitholders. Based on the trading history of the Units, the General Partner expects that no constructive termination will occur as a result of the sale of Units being 103 offered hereby, and if such constructive termination does occur, its effect will not be material to a purchaser of Units offered hereby. A termination of the Company would cause the Company's taxable year to close as to all Unitholders. A termination may either accelerate the application of (or subject the reconstituted partnerships to the application of) any change in law effective as of a date after the termination. Entity-Level Collections. In the event that the Company is required under applicable law to pay any federal, state or local income tax on behalf of any Unitholder or the General Partner or former Unitholder, the General Partner is authorized to pay such taxes from Company funds. Such payments, if made, will be deemed current distributions of Available Cash to the partner on whose behalf payment was made. The General Partner is authorized (but not required) to amend the Partnership Agreement in the manner necessary to maintain uniformity of intrinsic tax characteristics of Units and to adjust subsequent distributions so that, after giving effect to such deemed distribution, the priority and characterization of distributions otherwise applicable under the Partnership Agreement are maintained as nearly as practicable. In the event the Company is permitted (but not required) under applicable law to pay any such taxes, the General Partner is authorized (but not required) to pay such taxes from Company funds and to amend the Partnership Agreement and adjust subsequent distributions as described above. The Partnership Agreement further provides that the General Partner is authorized (but not required) to attempt to collect tax deficiencies from persons who were Unitholders at the time such deficiencies arose, and any amounts so collected will become Company assets. The amounts payable by the Company could be calculated based upon the maximum effective rate of tax for individuals or corporations, whichever is higher. Thus, such a payment by the Company could give rise to an overpayment of tax on behalf of an individual Unitholder. The individual Unitholder could claim a credit for withheld amounts. UNIFORMITY OF UNITS There can arise a lack of uniformity in the intrinsic tax characteristics of Units sold pursuant to the Company's 1987 and 1988 offerings, Units sold pursuant to the offering made hereby, or Units issued by the Company subsequent to the offering made hereby. In the absence of such uniformity, compliance with a number of federal income tax requirements, both statutory and regulatory, could be substantially diminished. In addition, such nonuniformity could have a negative impact on the ability of a Unitholder to dispose of his interest in the Company. As described above, such lack of uniformity can result from a literal application of proposed Treasury Regulation Section 1.168-2(n) and Treasury Regulation Section 1.167(c)-(1)(a)(6) and the application of certain "ceiling" limitations on the Company's ability to make allocations to eliminate Book-Tax Disparities attributable to Contributed Properties and Adjusted Properties. This risk of such lack of uniformity arising is increased following a termination of the Company. See "--Disposition of Units-- Constructive Termination or Dissolution of the Company" above. The General Partner elected to depreciate the portion of a Section 743(b) adjustment attributable to unrealized appreciation in the value of Contributed Property or Adjusted Property (to the extent of any unamortized Book-Tax Disparity) using a rate derived from the depreciation method and useful life applied to the Common Bases (as defined under "Tax Treatment of Operations-- Section 754 Election" above) of such property, despite its inconsistency with Proposed Regulation Section 1.168-2(n) and Treasury Regulation Section 1.167(c)-1(a)(6). If the General Partner determines that such position cannot reasonably be taken, the General Partner may adopt a depreciation convention under which all purchasers acquiring Units in the same month would receive depreciation, whether attributable to Common Basis or Section 743(b) basis, based upon the same applicable rate as if they had purchased a direct interest in the Company's and the Operating Company's property. If such an aggregate approach is adopted, it may result in lower annual depreciation deductions than would otherwise be allowable to certain Unitholders and risk the loss of depreciation deductions not taken in the year that such deductions are otherwise allowable. Such convention 104 will not be adopted if the General Partner determines that the loss of such depreciation deductions will have a material adverse effect on the Unitholders. If the General Partner chooses not to utilize such aggregate method, the General Partner may use any other reasonable depreciation convention to preserve the uniformity of the intrinsic tax characteristics of any Unit that would not have a material adverse effect on the Unitholders. In the event the IRS were to contend successfully that the convention adopted by the General Partner was improper, the Company could be required to adopt a different convention, as determined by the IRS. In such case, Unitholders may be required to file amended tax returns and report additional taxable income. Items of income and deduction may be specially allocated in a manner that is intended to preserve the uniformity of intrinsic tax characteristics among all Units, despite the application of "ceiling" limitations to Contributed Properties and Adjusted Properties. Such special allocations will be made solely for federal income tax purposes. See "--Tax Consequences of Unit Ownership--Allocation of Income and Losses" above. ADMINISTRATIVE MATTERS Income Tax Information Returns and Audit Procedures. The Company plans to furnish Unitholders with tax information within 75 days after the close of each taxable year of the Company. Specifically, the Company intends to furnish to each Unitholder a Schedule K-1 which sets forth his allocable share of the Company's income, gains, losses, deductions and credits. In preparing such information, the General Partner will necessarily use various accounting and reporting conventions to determine each Unitholder's allocable share of income, gains, losses, deductions and credits. There is no assurance that any such conventions will yield a result that conforms to the requirements of the Code, Treasury Regulations or administrative pronouncements of the IRS. The General Partner cannot assure prospective Unitholders that the IRS will not contend that such accounting and reporting conventions are impermissible. Contesting any such allegations could result in substantial expense to the Company. In addition, if the IRS were to prevail Unitholders may incur substantial liabilities for taxes and interest. The federal income tax information returns filed by the Company may be audited by the IRS. The Code contains partnership audit procedures that significantly simplify the manner in which IRS audit adjustments of partnership items are resolved. Adjustments (if any) resulting from such an audit may require each Unitholder to file an amended tax return, and possibly may result in an audit of the Unitholder's return. Any audit of a Unitholder's return could result in adjustments of non-Company as well as Company items. Partnerships generally are treated as separate entities for purposes of federal tax audits, judicial review of administrative adjustments by the IRS and tax settlement proceedings. The tax treatment of partnership items of income, gain, loss, deduction and credit is determined at the partnership level in a unified partnership proceeding rather than in separate proceedings with the partners. The Code provides for one partner to be designated as the "Tax Matters Partner" for these purposes. The Partnership Agreement appoints the General Partner as the Tax Matters Partner for the Company. The Tax Matters Partner is entitled to make certain elections on behalf of the Company and Unitholders and can extend the statute of limitations for assessment of tax deficiencies against Unitholders with respect to Company items. In connection with adjustments to the Company's tax returns proposed by the IRS, the Tax Matters Partner may bind any Unitholder with less than a 1% profits interest in the Company to a settlement with the IRS unless the Unitholder elects, by filing a statement with the IRS, not to give such authority to the Tax Matters Partner. The Tax Matters Partner may seek judicial review (to which all the Unitholders are bound) of a final administrative adjustment with respect to the Company and, if the Tax Matters Partner fails to seek judicial review, such review may be sought by any Unitholder having at least a 1% interest in the profits of the Company and by Unitholders having in the aggregate at least a 5% profits interest. Only one judicial proceeding will go forward, however, and each Unitholder with an interest in the outcome may participate. 105 The Unitholders will generally be required to treat Company items on their federal income tax returns in a manner consistent with the treatment of the items on the Company's information return. In general, that consistency requirement is waived if the Unitholder files a statement with the IRS identifying the inconsistency. Failure to satisfy the consistency requirement, if not waived, will result in an adjustment to conform the treatment of the item by the Unitholder to the treatment on the Company return. Even if the consistency requirement is waived, adjustments to the Unitholder's tax liability with respect to Company items may result from an audit of the Company's or the Unitholder's tax return. Intentional or negligent disregard of the consistency requirement may subject a Unitholder to substantial penalties. Nominee Reporting. Persons who hold an interest in the Company as a nominee for another person must report certain information to the Company. Temporary Treasury Regulations provide that such information should include (i) the name, address and taxpayer identification number of the beneficial owners and the nominee; (ii) whether the beneficial owner is (a) a person that is not a United States person, (b) foreign government, an international organization or any wholly owned agency or instrumentality of either of the foregoing or (c) a tax- exempt entity; (iii) the amount and description of Units held, acquired or transferred for the beneficial owners and (iv) certain information including the dates of acquisitions and transfers, means of acquisitions and transfers and acquisition cost for purchases, as well as the amount of net proceeds from sales. Brokers and financial institutions are required to furnish additional information, including whether they are a United States person and certain information on Units they acquire, hold or transfer for their own account. A penalty of $50 per failure (up to a maximum of $100,000 per calendar year) may be imposed for failure to report such information to the Company. The nominee is required to supply the beneficial owner of the Units with the information furnished to the Company. Registration as a Tax Shelter. The Code requires that "tax shelters" be registered with the Secretary of the Treasury. The temporary Treasury Regulations interpreting the tax shelter registration provisions of the Code are extremely broad. The General Partner believes that under such temporary Treasury Regulations, the Company will be subject to the registration requirement. The Company has registered as a tax shelter with the IRS. ISSUANCE OF THE REGISTRATION NUMBER DOES NOT INDICATE THAT AN INVESTMENT IN THE COMPANY OR THE CLAIMED TAX BENEFITS HAVE BEEN REVIEWED, EXAMINED OR APPROVED BY THE IRS. The Company must furnish the registration number to the Unitholders, and a Unitholder who sells or otherwise transfers a Unit in a subsequent transaction must furnish the registration number to the transferee. The penalty for failure of the transferor of a Unit to furnish such registration number to the transferee is $100 for each such failure. The Unitholders must disclose the tax shelter registration number of the Company on Form 8271 to be attached to the tax return on which any deduction, loss, credit or other benefit generated by the Company is claimed or income of the Company is included. A Unitholder who fails to disclose the tax shelter registration number on his return, without reasonable cause for such failure, will be subject to a $250 penalty for each such failure. Any penalties discussed herein are not deductible for federal income tax purposes. Accuracy-Related Penalties. An additional tax equal to 20% of the amount of any portion of an underpayment of tax which is attributable to one or more of certain listed causes, including substantial understatements of income tax and substantial valuation misstatements, is imposed by the Code. No penalty will be imposed, however, with respect to any portion of an underpayment if it is shown that there was reasonable cause for such portion and that the taxpayer acted in good faith with respect to such portion. A substantial understatement of income tax in any taxable year exists if the amount of the understatement exceeds the greater of 10% of the tax required to be shown on the return for the taxable year or $5,000 ($10,000 for most corporations). The amount of any understatement subject to penalty generally is reduced if any portion (i) is attributable to an item with respect to which there is, or was, "substantial authority" for the position taken on the return or (ii) is attributable to an item as to which there is adequate disclosure on the return. If any item of income, gain, loss, deduction or credit of the Company included in the distributive shares of Unitholders might result in such an "understatement" of income for which no "substantial authority" exists, the Company must disclose the pertinent facts on its return. In addition, the 106 Company will make a reasonable effort to furnish sufficient information for Unitholders to make adequate disclosure on their returns to avoid liability for this penalty. A substantial valuation misstatement exists if the value of any property (or the adjusted tax basis of any property) claimed on a tax return is 200% or more of the amount determined to be the correct amount of such valuation or adjusted tax basis. No penalty is imposed unless the portion of the underpayment attributable to a substantial valuation misstatement exceeds $5,000 ($10,000 for most corporations). If the valuation claimed on a return is 400% or more than the correct valuation, the penalty imposed increases to 40%. INVESTMENT BY FOREIGN INVESTORS Nonresident aliens and foreign corporations, partnerships, trusts or estates, as determined for federal income tax purposes ("foreign persons"), who are partners in a partnership engaged in a trade or business in the United States will be considered to be engaged in such trade or business, even though the foreign person is only a limited partner. The activities of the Company constitute a United States trade or business for this purpose. Moreover, such activities will be deemed to be conducted through a permanent establishment. Therefore, a foreign person who becomes a Unitholder will be required to file United States tax returns on which he must report his share of the Company's items of income, gain, loss, deduction and credit and pay United States taxes at regular United States rates on his share of any net income of the Company. A foreign person may also be required to report, and pay tax on, gain from the disposition of his Units. The Code imposes federal income (including withholding) taxation on dispositions of United States real property interests ("USRPIs"), which include (i) interests in certain entities (including publicly traded partnerships) holding United States real estate assets that comprise more than 50% of the fair market value of the real estate and business related assets of such entities and (ii) distributions by partnerships to foreign persons of gains attributable to USRPIs. In general, a foreign person not owning more than 5% of the publicly traded partnership interests will qualify for an exception for interests in publicly traded entities, such as the Company. Even if such 5% exception does not apply, however, based on the determination of the relative fair market values of the USRPIs and non-USRPIs of the Company (which are subject to change) as described above, the General Partner expects that Units of the Company would not be classified as USRPIs. The Company will generally be required to pay a withholding tax (currently, at a rate of 39.6% with respect to foreign individual Unitholders and 35% with respect to foreign corporate Unitholders) on the portion of the Company's income which is effectively connected with the conduct of a United States trade or business and which is allocable to foreign Unitholders, regardless of whether any actual distributions have been made to such Unitholders. However, under the procedural guidelines issued by the IRS, a publicly traded partnership, such as the Company, must withhold on the cash distributed to foreign investors at a rate of 31% unless an election is made by the partnership to withhold tax on the basis of taxable income allocable to such investors. Each foreign Unitholder must obtain a taxpayer identification number from the IRS and submit that number to the Transfer Agent of the Company on a Form W-8 in order to obtain credit for the taxes withheld. Subsequent adoption of Treasury Regulations or the issuance of other administrative pronouncements may require the Company to change these procedures. Because a foreign corporate Unitholder will be treated as engaged in a United States trade or business, such a Unitholder will be subject to United States branch profits tax at a rate of 30%, in addition to regular federal income tax, on its allocable share of the Company's earnings and profits (as adjusted for changes in the foreign corporate Unitholder's "U.S. net equity") which are effectively connected with the conduct of a United States trade or business. Such a tax may be reduced or eliminated by an income tax treaty between the United States and the country with respect to which the foreign corporate Unitholder is a "qualified resident". In addition, such a Unitholder is subject to special information reporting requirements under Section 6038C of the Code. 107 CERTIFICATION OF NON-FOREIGN STATUS Section 1446 of the Code allows partnerships to request non-foreign partners of such partnerships to certify under penalties of perjury as to their non- foreign status. Any Unitholder failing to submit a completed Form W-9 will be subject to federal income tax withholding by the Company under Section 1446 of the Code as a foreign investor. PROPOSED CHANGES IN FEDERAL INCOME TAX LAW Several bills recently introduced in Congress would, if enacted, affect the tax treatment of the Company and Unitholders. Two identical bills introduced in the House and Senate, H.R. 3619 and S. 2179, respectively, would permit publicly traded partnerships existing on December 17, 1987, including the Company, to continue to be treated as partnerships for federal income tax purposes for taxable years beginning after December 31, 1997. Under current law, such partnerships, including the Company, would be treated as a corporation for federal income tax purposes for taxable years beginning after December 31, 1997. See "--Partnership Status--Automatic Taxation as Corporation after 1997". It cannot be predicted whether a provision such as that in H.R. 3619 or S. 2179 will be enacted. Proposed legislation introduced in the Congress as part of the Tax Simplification Act of 1993 (the "1993 Bill") would, among other things, simplify the tax treatment of partners of "large partnerships" such as the Company. The 1993 Bill, as proposed, would change the manner in which certain items of income, gain, loss, deduction and credit are reported to partners by a large partnership. For example, under current law, the Company generally reports to a Unitholder his share of Company items that are used to compute net capital gain or loss (such as the Company's net long-term capital gain and net short-term capital loss). Under the 1993 Bill, however, the Company would report to each Unitholder only his share of the Company's net capital gain or loss. Also, under the 1993 Bill, ownership changes would not cause the termination of a large partnership for tax purposes. The 1993 Bill would also make a number of changes to the tax compliance and administrative rules relating to large partnerships. One provision would require that each partner in a large partnership take into account his share of any adjustments to partnership items in the year such adjustments are made. Under current law, adjustments relating to partnership items for a previous taxable year are taken into account by those persons who were partners in the previous taxable year. Alternatively, under the 1993 Bill, a large partnership could elect to or, in some circumstances could be required to, directly pay the tax resulting from any such adjustments. In either case, therefore, Unitholders many bear the economic burden of tax adjustments relating to periods predating their acquisition of Units. It cannot be predicted whether or in what form tax legislation similar to the 1993 Bill will be enacted. However, if tax legislation is enacted which included provisions similar to those discussed above with respect to the 1993 Bill, a Unitholder might experience a reduction in cash distributions. OTHER TAXES In addition to federal income taxes, Unitholders may be subject to other taxes, such as state and local income taxes, unincorporated business taxes, and estate, inheritance or intangible taxes that may be imposed by the various jurisdictions in which the Company and the Operating Company do business or own property. Although an analysis of those various taxes cannot be presented here, each prospective Unitholder should consider their potential impact on his investment in the Company. For example, a Unitholder's allocable share of the income, gains, losses, deductions and credits of the Company may be required to be included in determining his income subject to tax under the laws of the state or locality in which he is a resident and of the states and localities in which the Operating Company does business or its properties are located. The Operating Company owns property and is doing business primarily in Louisiana and Illinois. A Unitholder 108 will likely be required to file state income tax returns in such states and may be subject to penalties for failure to comply with such requirements. In addition, an obligation to file tax returns or to pay taxes may arise in other states. Moreover, in certain states tax losses may not produce a tax benefit in the year incurred (if, for example, the partner has no income from sources within that state) and also may not be available to offset income in subsequent taxable years. Distributions to Unitholders may be reduced by the amount of any state income taxes paid by the Company on behalf of such Unitholders. It is the responsibility of each prospective Unitholder to investigate the legal and tax consequences, under the laws of pertinent states or localities, of his investment in the Company. Accordingly, each prospective Unitholder should consult, and must depend upon, his own tax counsel or other advisor with regard to those matters. Further, it is the responsibility of each Unitholder to file all state and local, as well as federal, tax returns that may be required of such Unitholder. 109 ERISA AND OTHER CONSIDERATIONS CONCERNING EMPLOYEE BENEFIT PLANS AND RETIREMENT ACCOUNTS This section is a summary of certain matters arising under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and Section 4975 of the Code which a fiduciary of an "employee benefit plan" as defined in and subject to ERISA or of a "plan" as defined in Section 4975 of the Code who has investment discretion should consider before deciding to purchase Units (such "employee benefit plans" and "plans" being referred to herein as "Plans" and such fiduciaries with investment discretion being referred to herein as "Plan Fiduciaries"). The discussion below under "--Plan Asset Issue" also should be considered by any prospective purchaser of Units that is not a Plan. This section is not intended to deal with all matters arising under ERISA or Section 4975 of the Code that may be relevant to a prospective purchaser of Units and does not include state law or other legal requirements applicable to governmental or church plans. The following statements regarding certain matters arising under ERISA and the Code are based on the provisions of ERISA and the Code as currently in effect and the existing administrative and judicial interpretations thereunder. No assurance can be given that administrative, judicial or legislative changes will not occur that could make such statements incorrect or incomplete. In general, the terms "employee benefit plan" as defined in ERISA and "plan" as defined in Section 4975 of the Code together refer to any plan or account of various types that provide retirement or welfare benefits to an individual or to an employer's employees and their beneficiaries. Such plans include, but are not limited to, corporate pension and profit sharing plans, so-called KEOGH plans for self-employed individuals (including partners), simplified employee pension plans and individual retirement accounts described in Section 408 of the Code, medical benefit plans, and bank commingled trust funds and insurance company separate accounts for such plans and accounts. FIDUCIARY CONSIDERATIONS Each Plan Fiduciary, before deciding to purchase Units, must be satisfied that such an investment is a prudent investment for the Plan, that the investments of the Plan, including an investment in Units, are diversified so as to minimize the risks of large losses, that an investment in Units complies with the documents of the Plan and related trust, and that an investment in Units complies with any other applicable requirements of ERISA or the Code. Plan Fiduciaries should also consider the discussion concerning federal income taxes under "Certain Federal Income Tax Considerations" and the discussion concerning Unitholders' liability for obligations of the Company under "Investment Considerations--Considerations Relating to Partnership Structure and Relationship to General Partner" and "Summary of the Partnership Agreements--Limited Liability" which are relevant to any decision by a Plan Fiduciary to purchase Units. PROHIBITED TRANSACTION CONSIDERATIONS Each Plan Fiduciary, before deciding to purchase Units, must also give appropriate consideration as to whether a prohibited transaction described in Section 406 of ERISA or Section 4975 of the Code would result from the Plan's purchase of Units and, if so, the availability of an exemption. Those prohibited transactions include various direct and indirect transactions, such as sales and loans, between a Plan and any person who with respect to the Plan is a "party in interest" as defined in Section 3(14) of ERISA or "disqualified person" as defined in Section 4975 of the Code, the use of the Plan's assets for the benefit of any such person, and any fiduciary of the Plan dealing with the Plan's assets in the fiduciary's own interest. The consequences of any such prohibited transaction, if no exemption applies, can include the imposition of excise taxes on the party in interest or disqualified person, the persons involved in the transaction having to rescind the transaction and pay an amount to the Plan for any losses realized by the Plan or profits realized by such persons, disqualification of any individual retirement account involved in the transaction with adverse tax consequences to the owner of such account, and other liabilities that can have a significant, adverse effect on such persons. Each Plan Fiduciary should consult its own legal advisor as to whether a prohibited transaction would result from that Plan's purchase of Units and, if so, the availability of an exemption. 110 PLAN ASSET ISSUE The following paragraphs describe the rules applicable in determining whether the assets of the Company will for purposes of ERISA and Section 4975 of the Code be considered assets of the Plans which purchase Units or for whose benefit Units are purchased (i.e., whether Company assets will be considered "Plan assets"). If the assets of the Company will be considered to be assets of such Plans, a Plan Fiduciary must consider (i) whether a purchase of Units will result in a violation of any of the fiduciary rules under ERISA and (ii) that prohibited transactions within the meaning of Section 406 of ERISA or Section 4975 of the Code will occur if assets of the Company are involved in transactions that include persons who are "parties in interest" as defined in Section 3(14) of ERISA or "disqualified persons" as defined in Section 4975 of the Code with respect to such Plans or if a person who manages or controls assets of the Company deals with those assets in that person's own interest. The possible consequences of any such prohibited transaction, if an exemption does not apply, are described above in the first paragraph under the heading "Prohibited Transaction Considerations" and can have a significant adverse effect on the Company. A regulation issued by the United States Department of Labor under ERISA (the "Plan Asset Regulation") contains rules for determining when an investment by a Plan or for the benefit of a Plan in an equity interest in an entity, such as the Units, will result in the underlying assets of the entity being deemed assets of the Plan for purposes of ERISA and Section 4975 of the Code. Those rules provide that assets of the entity will not be assets of a Plan that purchases an equity interest therein if the equity interest qualifies as a "publicly-offered security" or any of certain other exceptions apply. Under the Plan Asset Regulation, a "publicly-offered security" is a security that is (i) "freely transferable", (ii) part of a class of securities that is "widely-held", and (iii) either (a) part of a class of securities that is registered under Section 12(b) or 12(g) of the Exchange Act or (b) sold to a Plan as part of an offering of securities to the public pursuant to an effective registration statement under the Securities Act and the class of securities of which such security is a part is registered under the Exchange Act within 120 days (or such later time as may be allowed by the Securities and Exchange Commission) after the end of the fiscal year of the issuer during which the offering of such securities to the public occurred. Whether a security is considered "freely transferable" depends on the facts and circumstances of each case. If the security is part of an offering of which the minimum investment is $10,000 or less, the following factors ordinarily will not adversely affect a determination that the security is freely transferrable: (i) any prohibition against any transfer or assignment of such security or the rights in respect thereof to an ineligible or unsuitable investor, (ii) any restriction or prohibition against any transfer or assignment which would result in a termination or reclassification of the entity for federal or state tax purposes or which would violate any law, (iii) any requirement that advance notice of transfer or assignment be given to the entity and any requirement regarding execution of documentation evidencing such transfer or assignment (including written representations as to the compliance with any restriction listed above or requiring compliance with the entity's governing instruments) for such transfer or assignment to be effective, (iv) any administrative procedure which establishes a date prior to which a transfer or assignment will not be effective and (v) any restriction on substitution of an assignee as a limited partner, including a requirement that the general partner consent thereto, as long as the economic benefits of ownership of the assignor can be transferred or assigned without regard to such restriction or consent (other than compliance with any of the other restrictions listed above). A class of securities is considered "widely-held" only if it is a class of securities that is owned by 100 or more investors independent of the issuer and of one another. A class of securities will not fail to be widely-held solely because after the initial offering the number of independent investors falls below 100 as a result of events beyond the control of the issuer. The General Partner believes that the Units to be sold pursuant to this offering will meet the criteria to be "publicly-offered securities" so that assets of the Company should not be deemed assets of the Plans purchasing Units. First, the General Partner believes that the Units will be considered to be freely transferable, as the minimum investment is less than $10,000 and Unitholders may assign their economic interests in the Company by giving written notice to the General Partner and the assignee executing the 111 Transfer Application, provided such assignment would not be to an Ineligible Person and would not result in any termination or reclassification of the Company for federal or state tax purposes. Second, the General Partner expects the Units to immediately after this offering be held by substantially more than 100 investors and at least 100 or more of such investors to be independent of the Company and of one another. Third, the Units are (i) part of a class of securities that is registered under Section 12(b) or 12(g) of the Exchange Act and (ii) are being sold pursuant to this offering as part of an offering of securities to the public pursuant to an effective registration statement under the Securities Act and the class of securities of which the Units are a part is registered under the Exchange Act within 120 days after the end of the year of the Company during which the offering of such securities to the public occurs. NEITHER THE GENERAL PARTNER NOR THE COMPANY REPRESENT THAT A PURCHASE OF UNITS MEETS THE RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO OR IS APPROPRIATE FOR ANY PARTICULAR "EMPLOYEE BENEFIT PLAN" AS DEFINED IN ERISA OR ANY "PLAN" AS DEFINED IN SECTION 4975 OF THE CODE. THE FIDUCIARY WITH INVESTMENT DISCRETION CONCERNING ANY EMPLOYEE BENEFIT PLAN OR PLAN SHOULD CONSULT WITH ITS OWN LEGAL ADVISOR AND OTHER APPROPRIATE ADVISORS REGARDING SPECIFIC CONSIDERATIONS ARISING UNDER ERISA, SECTION 4975 OF THE CODE AND STATE AND OTHER LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP OR SALE OF UNITS BY SUCH EMPLOYEE BENEFIT PLAN OR PLAN IN LIGHT OF THE CIRCUMSTANCES OF THAT PARTICULAR EMPLOYEE BENEFIT PLAN OR PLAN. 112 UNDERWRITING Under the terms and subject to the conditions contained in an Underwriting Agreement dated , 1994 (the "Underwriting Agreement"), the Underwriters below (the "Underwriters"), for whom CS First Boston Corporation and PaineWebber Incorporated are acting as representatives (the "Representatives"), have severally but not jointly agreed to purchase from the Company the following respective numbers of Units:
NUMBER OF UNDERWRITER UNITS ----------- ---------- CS First Boston Corporation................................... PaineWebber Incorporated...................................... ---------- Total..................................................... ==========
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will be obligated to purchase all of the Units offered hereby (other than those Units covered by the over-allotment option described below) if any are purchased. The Underwriting Agreement provides that, in the event of a default by an Underwriter, in certain circumstances the purchase commitments of non- defaulting Underwriters may be increased or the Underwriting Agreement may be terminated. The Company has granted to the Underwriters an option, expiring at the close of business on the 30th day after the date of this Prospectus, to purchase up to 600,000 additional Units at the initial public offering price less the underwriting discounts and commissions, all as set forth on the cover page of this Prospectus. The Underwriters may exercise such option only to cover over- allotments in the sale of the Units. To the extent such option is exercised, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage of such additional Units as it was obligated to purchase pursuant to the Underwriting Agreement. The Company has been advised by the Representatives that the Underwriters propose to offer the Units to the public initially at the public offering price set forth on the cover page of this Prospectus and, through the Representatives, to certain dealers at such price less a concession of $ per Unit, and the Underwriters and such dealers may allow a discount of $ per Unit on sales to certain other dealers. After the initial public offering, the public offering price and concession and discount to dealers may be changed by the Representatives. The Company has agreed that it will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Commission a registration statement under the Securities Act of 1933, as amended (the "Securities Act") relating to, any additional Units or securities convertible or exchangeable into or exercisable for Units without the prior written consent of CS First Boston Corporation for a period of 180 days after the date of this Prospectus. The Company, the Operating Company and BCPM have agreed to indemnify the Underwriters against certain liabilities, including civil liabilities under the Securities Act, or contribute to payments which the Underwriters may be required to make in respect thereof. As the National Association of Securities Dealers, Inc. ("NASD") views the Units offered hereby as interests in a direct participation program, the offering is being made in compliance with Section 34 of the NASD's Rules of Fair Practice. Investor suitability with respect to the Units should be judged similarly to the suitability of other securities that are listed for trading on a national securities exchange. No NASD 113 member intends to confirm sales to any accounts over which it exercises discretionary authority without the prior written approval of the transaction by the customer. CS First Boston Corporation has provided financial advisory and other investment banking services to the Company, BCPM and Borden from time to time and has received customary fees for such services. CS First Boston Corporation has been engaged by the Company as its financial advisor in connection with the Acquisition and, in connection therewith, will receive customary fees and expense reimbursement. CS First Boston Corporation is serving as financial advisor to Borden in connection with the sale of Borden and, in connection therewith, will receive customary fees and expense reimbursement. In addition, CS First Boston expects to act as sole underwriter for the Notes offering. CS First Boston will also receive customary fees in connection therewith. 114 LEGAL OPINIONS The validity of the Units will be passed upon for the Company by Sidley & Austin, New York, New York. Certain legal matters will be passed on for the Underwriters by Andrews & Kurth L.L.P., New York, New York. Sidley & Austin has in the past, and may in the future, from time to time provide legal services to the Company, the Operating Company, BCPM, Borden, and various affiliates of Borden; Sidley & Austin is representing the Operating Company and Finance Corp. in the offering of the Notes. Andrews & Kurth L.L.P. is representing the underwriter, CS First Boston Corporation, in the offering of the Notes. Sidley & Austin will rely on the opinion of Richards, Layton & Finger, P.A. as to certain matters of Delaware law. EXPERTS The consolidated financial statements of the Company as of December 31, 1993, and 1992, and for each of the three years in the period ended December 31, 1993, included in this Prospectus have been so included in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of that firm as experts in auditing and accounting. The financial statements of the Addis Plant of OxyChem as of December 31, 1993 and 1992 and for the years then ended included in this Prospectus have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their reports with respect thereto, and are included herein in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. AVAILABLE INFORMATION The Company has filed with the Commission a Registration Statement on Form S- 3 (the "Registration Statement", which term shall include all amendments, exhibits and schedules thereto), pursuant to the Securities Act, and the rules and regulations promulgated thereunder, with respect to the Units offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission, and to which reference is hereby made. The Company is subject to the information and reporting requirements of the Exchange Act, and in accordance therewith files periodic reports and other information with the Commission. The Registration Statement, as well as such reports and other information filed by the Company with the Commission, may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such reports and other information concerning the Company are also available for inspection at the offices of the NYSE, 20 Broad Street, New York, New York 10005. Statements made in this Prospectus concerning the provisions of any contract, agreement or other document referred to herein are not necessarily complete. With respect to each such statement concerning a contract, agreement or other document filed as an exhibit to or incorporated by reference as an exhibit to the Registration Statement or otherwise filed with the Commission, reference is made to such exhibit or other filing for a more complete description of the matter involved, and each such statement is qualified in its entirety by such reference. 115 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents have been filed by the Company with the Commission and are incorporated herein by reference: 1. Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 1993; 2. Quarterly Reports on Form 10-Q of the Company for the quarters ended March 23, 1994;June 24, 1994; and September 23, 1994; 3. Current Reports on Form 8-K of the Company dated May 5, 1994, and July 19, 1994; and 4. The description of the Units contained in the Company's Registration Statement on Form 8-A dated November 17, 1988 and as amended December 1, 1988 and December 19, 1988. All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Units made hereby shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. COPIES OF THE ABOVE DOCUMENTS MAY BE OBTAINED UPON REQUEST WITHOUT CHARGE FROM: BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP C/O BCP MANAGEMENT, INC., 180 EAST BROAD STREET, COLUMBUS, OHIO 43215 (TELEPHONE NUMBER 614-225- 4000), ATTENTION: LAWRENCE L. DIEKER. 116 GLOSSARY OF TERMS The following terms used in this Prospectus have the meanings set forth below: Acquisition: Has the meaning set forth in "Prospectus Summary--The Acquisition". Addis Assets: Has the meaning set forth in "Prospectus Summary--The Acquisition". Addis Facility: Has the meaning set forth in "Prospectus Summary--The Company". Additional Units: Has the meaning set forth in "Investment Considerations-- Considerations Relating to Partnership Structure and Relationship to General Partner--Issuance of Additional Units May Cause Dilution to Existing Unitholders". Available Cash: means with respect to any quarter within any calendar year (i) the sum of (a) all cash receipts of the Company during such quarter from all sources (including distributions of cash received from the Operating Company) and (b) any reduction in reserves established in prior quarters, less (ii) the sum of (aa) all cash disbursements of the Company during such quarter, including, without limitation, disbursements for operating expenses, taxes, if any (including income taxes payable by the Company beginning in 1998), debt service (including the payment of principal, premium and interest), capital items and contributions, if any, to the Operating Company, (bb) any reserves established in such quarter in such amounts as the General Partner shall deem to be necessary or appropriate in its reasonable discretion (x) to provide for the proper conduct of the business of the Company or the Operating Company (including reserves for future capital expenditures) and (y) to avoid interruptions in distributions or fluctuations in the amount of distributions with respect to any one or more of any remaining quarters within such calendar year and the first quarter of the following year (and, if such quarter is the third or fourth quarter of a calendar year, with respect to the second quarter of the following calendar year) as a result of the changes in cash flow which the General Partner determines to be probable or reasonably possible, and (cc) any other reserves established in such quarter in such amounts as are necessary in the reasonable discretion of the General Partner because the distribution of such amounts would be prohibited by applicable law or by any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which the Company is a party or by which it is bound or its assets are subject. Notwithstanding the foregoing, "Available Cash" shall not include any cash receipts or reductions in reserves or take into account any disbursements made or reserves established after commencement of the dissolution and liquidation of the Company. BCPM: BCP Management, Inc., a Delaware corporation and a wholly owned subsidiary of Borden. BCPM is the general partner of the Company and the Operating Company. Borden: Borden, Inc., a New Jersey corporation. Borden Delaware: BDH One, Inc., a Delaware corporation, previously named Borden Delaware Holdings, Inc., and a wholly owned subsidiary of Borden. Borden Purchase Obligation: Has the meaning set forth in "Prospectus Summary--Notes Offering". Calendar quarter or quarter: Any calendar quarter or, at the election of the General Partner, (i) any period commencing on January 1 and comprised of not less than 12 nor more than 13 weeks as determined by the General Partner, (ii) any period commencing on the day next following any period referred to in clause (i) and comprised of approximately 13 weeks, as determined by the General Partner, (iii) any period commencing on the day next following any period referred to in clause (ii) and comprised of approximately 13 weeks, as determined by the General Partner and (iv) any period commencing on the day next following any period referred to in clause (iii) and ending on the next following December 31. 117 Cash from Interim Capital Transactions: means (a) borrowings and sales of debt securities (other than for working capital purposes) by the Company and Operating Company, (b) sales of equity interests by the Company and the Operating Company, and (c) sales or other voluntary or involuntary dispositions of any assets of the Company and the Operating Company (other than (w) sales or other dispositions of inventory in the ordinary course of business, (x) sales or other dispositions of other current assets including receivables and accounts or (y) sales or other dispositions of assets as a part of normal retirements or replacements), in each case prior to the commencement of the dissolution and liquidation of the Company and the Operating Company. Cash from Operations: means at any date within any calendar year but prior to the commencement of the dissolution and liquidation of the Company, on a cumulative basis, all cash receipts of the Company and Operating Company (excluding any cash proceeds from any Interim Capital Transactions) during the period since the commencement of operations by the Company through such date, less the sum of (a) all cash operating expenditures of the Company and the Operating Company during such period including, without limitation, taxes, if any, (b) all cash debt service payments of the Company and the Operating Company during such period (other than payments or prepayments of principal and premium required by reason of loan agreements (including covenants and default provisions therein), or by lenders, in each case in connection with sales or other dispositions of assets or made in connection with refinancings or refundings of indebtedness), (c) all cash capital expenditures of the Company and the Operating Company during such period (other than (i) cash capital expenditures made to increase materially the stated productive capacity (assuming normal operating conditions, including downtime and maintenance) of the assets of the Company and Operating Company from the stated productive capacity (assuming normal operating conditions, including downtime and maintenance) existing immediately prior to such capital expenditures and (ii) cash expenditures made in payment of transaction expenses relating to Interim Capital Transactions), (d) any reserves outstanding as of such date which the General Partner shall deem to be necessary or appropriate in its reasonable discretion to provide for the future cash payment of items of the type referred to in (a) through (c) above, and (e) any reserves outstanding as of such date established in such amounts as the General Partner shall deem to be necessary or appropriate in its reasonable discretion to avoid interruptions in distributions or fluctuations in the amount of distributions with respect to any one or more of the remaining quarters within such calendar year and the first quarter of the following year (and, if such quarter is the third or fourth quarter of a calendar year, with respect to the second quarter of the following year) as a result of changes in cash flow which the General Partner determines to be probable or reasonably possible, all as determined on a consolidated basis and after elimination of intercompany items and of the General Partner's interest therein attributable to its 1% general partner interest in the Operating Company. Where cash capital expenditures are made in part to increase materially the productive capacity and in part for other purposes, the General Partner's good faith allocation thereof between the portion increasing capacity and the portion for other purposes shall be conclusive. CERCLA: Federal Comprehensive Environmental Response, Compensation and Liability Act. Change of Control Premium: Has the meaning set forth in "Prospectus Summary-- Notes Offering". Code: Internal Revenue Code of 1986, as amended. Commission: Securities and Exchange Commission. Common Units: Units representing common limited partner interests in the Company (including common limited partner interests in the Company that, prior to December 31, 1992, constituted Preference Units). 118 Company: Borden Chemicals and Plastics Limited Partnership, a Delaware limited partnership, and, in the applicable contexts, Borden Chemicals and Plastics Operating Limited Partnership, a Delaware limited partnership. Delaware Act: Delaware Revised Uniform Limited Partnership Act. Depositary: Society National Bank, as depositary under the Deposit Agreement, and its successors and assigns. Depositary Receipts: Receipts received by holders of record of Units to evidence their ownership of Units. Depositary Units: Units deposited by the Company with the Depositary pursuant to the Deposit Agreement and represented by Depositary Receipts. Direct Payment Agreement: Has the meaning set forth in "Description of Depositary Units and the Deposit Agreement--Combination of Units and Elimination of Distribution Support". Distribution Support Agreement: Has the meaning set forth in "Description of Depositary Units and the Deposit Agreement--Combination of Units and Elimination of Distribution Support". DOJ: United States Department of Justice. Environmental Indemnity Agreement: Has the meaning set forth in "Prospectus Summary--Relationship with Borden". EPA: United States Environmental Protection Agency. Exchange Act: Securities Exchange Act of 1934, as amended. Finance Corp.: Has the meaning set forth in "Prospectus Summary--The Acquisition". General Partner: The general partner of the Company and the Operating Company. Independent Committee: Has the meaning set forth in "Prospectus Summary-- Notes Offering". Intercompany Agreement: Has the meaning set forth in "Prospectus Summary-- Relationship with Borden". KKR: Kohlberg Kravis Roberts & Co. LDEQ: Louisiana Department of Environmental Quality. Limited Partners: Limited partners of the Company. Majority Interest: Has the meaning set forth in "Investment Considerations-- Considerations Relating to Partnership Structure and Relationship to General Partner--Management and Control by the General Partner; Difficulty in Removing General Partner". Merger Agreement: Has the meaning set forth in "Prospectus Summary-- Relationship with Borden". MTBE: Methyl tertiary butyl ether. NASD: National Association of Securities Dealers, Inc. Note Agreement: Has the meaning set forth in "Prospectus Summary--Notes Offering". 119 Notes: Has the meaning set forth in "Prospectus Summary--The Acquisition". NYSE: New York Stock Exchange, Inc. Old Noteholders: Has the meaning set forth in "Prospectus Summary--Notes Offering". Old Notes: Has the meaning set forth in "Prospectus Summary--Notes Offering". Operating Company: Borden Chemicals and Plastics Operating Limited Partnership, a Delaware limited partnership. Operating Partnership: Borden Chemicals and Plastics Operating Limited Partnership, a Delaware limited partnership. Operating Partnership Agreement: Amended and Restated Agreement of Limited Partnership of the Operating Company. OxyChem: Occidental Chemical Corporation, a New York corporation. Partner: a partner in the Company. Partnership: Individually and collectively Borden Chemicals and Plastics Limited Partnership, a Delaware limited partnership, and Borden Chemicals and Plastics Operating Limited Partnership, a Delaware limited partnership. Partnership Agreement: Amended and Restated Agreement of Limited Partnership of the Company. Partnership Agreements: The Partnership Agreement and Operating Partnership Agreement. Partnerships: the Partnership and the Operating Partnership. Preference Units: Preference limited partner interests in the Company. The differences and distinctions between the Preference Units and the Common Units were eliminated effective December 31, 1992. Prepayment Premium: Has the meaning set forth in "Prospectus Summary--Notes Offering". Processing Agreements: Has the meaning set forth in "Prospectus Summary-- Relationship with Borden". Purchase Agreements: Has the meaning set forth in "Prospectus Summary-- Relationship with Borden". PVC: Polyvinyl chloride. RCRA: Federal Resource Conservation and Recovery Act. Registration Statement: Registration Statement of which this Prospectus is a part, and includes all amendments, exhibits and schedules thereto. Representatives: CS First Boston Corporation and PaineWebber Incorporated. Securities Act: Securities Act of 1933, as amended. Settlement Agreement: Has the meaning set forth in "Investment Considerations--Considerations Relating to the Company's Business--Potential Environmental Liabilities". Special Approval: Has the meaning set forth in "Prospectus Summary--Notes Offering". 120 Target Distribution: Has the meaning set forth in "Prospectus Summary--Cash Distributions". Transfer Application: Has the meaning set forth in "Description of Depositary Units and the Deposit Agreement--General". Underwriters: The underwriters as defined under "Underwriting" in the Prospectus. Underwriting Agreement: The agreement between the Company and CS First Boston and PaineWebber, as Representative, regarding the underwriting for the Units offered hereby. Unitholders: The record holders of Units. Units: Depositary units representing common limited partner interests in the Company. VCM: Vinyl chloride monomer. 121 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Borden Chemicals and Plastics Limited Partnership: Consolidated Financial Statements: Report of Independent Accountants....................................... F-2 Consolidated Statements of Operations for the years ended December 31, 1993, 1992, and 1991................................................... F-3 Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992, and 1991................................................... F-4 Consolidated Balance Sheets as of December 31, 1993 and 1992............ F-5 Consolidated Statements of Changes in Partners' Capital for the years ended December 31, 1993, 1992, and 1991................................ F-6 Notes to Consolidated Financial Statements.............................. F-7 Interim Consolidated Financial Statements: Consolidated Statements of Operations for the nine months ended September 23, 1994 and September 24, 1993.............................. F-11 Consolidated Statements of Cash Flows for the nine months ended September 23, 1994 and September 24, 1993.............................. F-12 Consolidated Balance Sheets as of September 23, 1994 and December 31, 1993................................................................... F-13 Consolidated Statements of Changes in Partners' Capital for the nine months ended September 23, 1994 and September 24, 1993................. F-14 Notes to Interim Consolidated Financial Statements...................... F-15 Addis Plant: Financial Statements: Reports of Independent Accountants...................................... F-17 Statements of Operations and Changes in Owner's Investment for the nine months ended September 30, 1994 and 1993 and for the years ended December 31, 1993 and 1992............................................................... F-19 Statements of Cash Flows for the nine months ended September 30, 1994 and 1993 and for the years ended December 31, 1993 and 1992............ F-20 Balance Sheets as of September 30, 1994 and as of December 31, 1993 and 1992................................................................... F-21 Notes to Financial Statements........................................... F-22 Pro Forma Combined Financial Statements (Unaudited): Introductory Description................................................ F-28 Combined Balance Sheet as of September 23, 1994......................... F-29 Combined Statement of Operations for the nine months ended September 23, 1994................................................................... F-30 Combined Statement of Operations for the year ended December 31, 1993... F-31 Notes to the Pro Forma Combined Financial Statements.................... F-32
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Borden Chemicals and Plastics Limited Partnership In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of changes in partners' capital and of cash flows present fairly, in all material respects, the financial position of Borden Chemicals and Plastics Limited Partnership at December 31, 1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. These financial statements 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 generally accepted auditing standards 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 the opinion expressed above. Price Waterhouse LLP Columbus, Ohio January 18, 1994 F-2 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT PER UNIT DATA)
YEAR ENDED DECEMBER 31, ---------------------------- 1993 1992 1991 -------- -------- -------- Revenues Net trade sales................................ $349,200 $328,343 $328,069 Net affiliated sales........................... 84,097 73,460 81,936 -------- -------- -------- Total revenues............................. 433,297 401,803 410,005 -------- -------- -------- Expenses Cost of goods sold Trade........................................ 321,966 274,505 253,319 Affiliated................................... 75,805 63,477 64,185 Marketing, general and administrative expenses. 18,993 18,118 18,578 Interest expense............................... 16,356 16,340 16,340 General Partner incentive...................... 2,146 5,497 Other (income) and expense, including minority interest...................................... 1,612 132 533 -------- -------- -------- Total expenses............................. 434,732 374,718 358,452 -------- -------- -------- Net (loss) income................................ (1,435) 27,085 51,553 Less 1% General Partner interest............... 14 (271) (515) -------- -------- -------- Net (loss) income applicable to Limited Partners' interest........................................ $ (1,421) $ 26,814 $ 51,038 ======== ======== ======== Net (loss) income per Unit....................... $ (.04) $ .73 $ 1.39 ======== ======== ======== Average number of Units outstanding during the year............................................ 36,750 36,750 36,750 ======== ======== ======== Cash distributions declared per Unit............. $ .78 $ 1.59 $ 1.98 ======== ======== ========
See notes to consolidated financial statements F-3 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------- 1993 1992 1991 ------- ------- ------- Cash Flows From Operations Net (loss) income................................. $(1,435) $27,085 $51,553 Adjustments to reconcile Net income to net cash provided by operating activities: Depreciation.................................. 42,946 43,584 42,505 (Increase) decrease in receivables............ (11,821) (3,398) 5,173 (Increase) decrease in inventories............ (5,418) (996) 7,604 Increase (decrease) in payables............... 13,698 5,887 (14,486) Decrease in incentive distribution payable.... (1,607) (154) Other, net.................................... 517 (6,618) (693) ------- ------- ------- 38,487 63,937 91,502 ------- ------- ------- Cash Flows From Investing Activities Capital expenditures.............................. (15,041) (10,534) (17,975) ------- ------- ------- Cash Flows From Financing Activities Cash distributions paid........................... (33,781) (66,856) (73,558) ------- ------- ------- Decrease in cash and equivalents.................... (10,335) (13,453) (31) Cash and equivalents at beginning of year........... 19,389 32,842 32,873 ------- ------- ------- Cash and equivalents at end of year................. $ 9,054 $19,389 $32,842 ======= ======= ======= Supplemental Disclosures of Cash Flow Information Interest paid during the year..................... $16,356 $16,340 $16,340 ======= ======= =======
See notes to consolidated financial statements F-4 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, DECEMBER 31, 1993 1992 ------------ ------------ ASSETS ------ Cash and equivalents................................. $ 9,054 $ 19,389 Accounts receivable (less allowance for doubtful accounts of $768 and $477, respectively) Trade.............................................. 48,990 41,711 Affiliated......................................... 18,267 13,725 Inventories Finished goods..................................... 21,499 19,209 Raw materials...................................... 7,758 4,630 Other current assets................................. 2,182 1,912 -------- -------- Total current assets............................. 107,750 100,576 -------- -------- Investments in and advances to affiliated companies.. 3,623 2,787 Other assets......................................... 26,956 28,230 -------- -------- 30,579 31,017 -------- -------- Land................................................. 12,051 11,960 Buildings............................................ 35,955 36,012 Machinery and equipment.............................. 505,236 492,593 -------- -------- 553,242 540,565 Less accumulated depreciation...................... (247,267) (205,429) -------- -------- 305,975 335,136 -------- -------- $444,304 $466,729 ======== ======== LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Accounts and drafts payable.......................... $ 44,408 $ 30,710 Cash distributions payable........................... 6,682 11,508 Accrued interest..................................... 1,845 1,845 Other accrued liabilities............................ 8,515 9,966 -------- -------- Total current liabilities........................ 61,450 54,029 -------- -------- Long-term debt....................................... 150,000 150,000 Minority interest in consolidated subsidiary......... 1,795 2,105 Postretirement benefit obligation.................... 854 -------- -------- 152,649 152,105 -------- -------- Partners' capital Preference Unitholders............................. 210,923 Common Unitholders................................. 228,862 48,025 General Partner.................................... 1,343 1,647 -------- -------- Total partners' capital.......................... 230,205 260,595 -------- -------- $444,304 $466,729 ======== ========
See notes to consolidated financial statements F-5 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (IN THOUSANDS)
PREFERENCE COMMON GENERAL UNITHOLDERS UNITHOLDERS PARTNER TOTAL ----------- ----------- ------- -------- Balances at December 31, 1990........ $ 251,749 $ 60,545 $2,264 $314,558 Net income........................... 39,059 11,979 515 51,553 Cash distributions declared.......... (55,688) (17,078) (790) (73,556) --------- -------- ------ -------- Balances at December 31, 1991........ 235,120 55,446 1,989 292,555 Net income........................... 20,521 6,293 271 27,085 Cash distributions declared.......... (44,718) (13,714) (613) (59,045) --------- -------- ------ -------- Balances at December 31, 1992........ 210,923 48,025 1,647 260,595 Combination of Preference and Common units............................... (210,923) 210,923 Net loss............................. (1,421) (14) (1,435) Cash distributions declared.......... (28,665) (290) (28,955) --------- -------- ------ -------- Balances at December 31, 1993........ $ -0- $228,862 $1,343 $230,205 --------- -------- ------ --------
See notes to consolidated financial statements F-6 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS EXCEPT UNIT AND PER UNIT DATA) 1. ORGANIZATION Borden Chemicals and Plastics Limited Partnership (the Partnership), a Delaware limited partnership, was formed in 1987 when the Partnership, through its subsidiary operating partnership, acquired the basic chemicals and polyvinyl chloride (PVC) resins operations of Borden, Inc. (Borden). The operations are comprised of highly integrated plants in Geismar, Louisiana, which produce basic petrochemical products, PVC resins and industrial gases and a PVC resins plant located in Illiopolis, Illinois. The Partnership conducts its activities through Borden Chemicals and Plastics Operating Limited Partnership (the Operating Partnership). The Partnership, as the sole limited partner, owns a 98.9899% interest and BCP Management, Inc. (BCPM), a Delaware corporation and wholly-owned subsidiary of Borden, owns a 1.0101% interest as the sole general partner (General Partner) in the Operating Partnership. The General Partner's interest in the Operating Partnership is reflected in the accompanying consolidated financial statements as minority interest. Borden and its affiliates contributed the basic chemicals and PVC resins operations to the Partnership in exchange for 28,125,000 Preference Units, 8,625,000 Enhanced Common Units, the general partner interest in each of the partnerships, the net proceeds of $150,000 aggregate principal amount of Notes issued by the Operating Partnership and the assumption by the Operating Partnership of substantially all of the liabilities of Borden related to the basic chemicals and PVC resins operations. In 1987 Borden and its affiliates sold the Preference Units representing a 75% interest in the partnerships and in 1988 sold the Enhanced Common Units representing a 23% interest in the partnerships. Borden retains, through BCPM's general partner interest, the remaining 2% interest in the partnerships. With the payments of the fourth quarter distribution on February 12, 1993, all differences between the Preference Units and Enhanced Common Units ceased and all units are now Common Units. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies summarized below are in conformity with generally accepted accounting principles; however, this will not be 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. The Partnership's proportionate ownership of a joint venture that provides utilities to the Geismar complex is accounted for by the equity method. Utilities provided by the joint venture are allocated to the joint venture partners at cost. The cost of the Partnership's proportionate share of utilities is included in cost of goods sold. Revenues--Sales and related cost of sales are recognized upon shipment of products. Net trade and net affiliated sales are net of sales discounts and product returns and allowances. Cash Equivalents--The Partnership considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Inventories--Inventories are stated at the lower of cost or market. Cost is determined using the average cost and first-in, first-out methods. Property and Equipment--The amount of the purchase price originally allocated by the Partnership 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. Depreciation is recorded on the straight-line basis by charges to costs and expenses at rates based on the estimated useful lives of the properties (average rates for buildings--4%; machinery and equipment--8%). F-7 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Major renewals and betterments are capitalized. Maintenance, repairs and minor renewals totaling $29,905 in 1993, $29,302 in 1992 and $30,763 in 1991 were expensed as incurred. When properties are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts. Income Taxes--The Partnership is not a separate taxable entity for federal and state and local income tax purposes. Accordingly, any taxable income or loss, which may vary substantially from income or loss reported under generally accepted accounting principles, is included in the tax returns of the individual partners. Under current tax law the Partnership will be treated as a partnership until December 31, 1997; thereafter, it will be taxed as a corporation. Effective January 1, 1993 the Partnership adopted statement of Financial Accounting Standard (SFAS) No. 109 "Accounting for Income Taxes." The adoption of this statement did not have a material effect on 1993 results. 3. RELATED PARTY TRANSACTIONS The Partnership is managed by the General Partner. Under certain agreements, the 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 affiliates, and usage of railcars owned or leased by Borden. The employees of BCPM operate the Partnership and participate in various Borden benefit plans including pension, retirement savings, and health and life insurance. Employee benefit plan expenses are determined by Borden's actuary based on annual employee census data. The Partnership is charged for general insurance expense, which includes liability and property damage insurance, based on calculations made by Borden's Risk Management Department. Under its risk retention program, Borden maintains deductibles of $2,500 and $500 per occurrence for property and related damages at the Geismar and Illiopolis facilities, respectively, and deductibles ranging from $1,000 to $3,000 per event for liability insurance. The Partnership has first dollar liability insurance coverage from Borden. The cost of Borden's corporate information services and corporate staff department services is allocated to the Partnership based on usage of resources such as personnel and data processing equipment. The Partnership has no direct liability for postretirement benefits since the Partnership does not directly employ any of the persons responsible for managing and operating the Partnership, but instead reimburses Borden for their services. As a result of Borden's adoption of SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions", 1993 charges to the Partnership for such services were actuarially determined. The Partnership expensed the full amount of such charges but only reimbursed Borden for actual postretirement benefits paid. The difference between cash payments to Borden and postretirement expense is accrued on the Partnership's books. In 1992 the Partnership was charged and reimbursed Borden for other postretirement benefits on a cash basis. Benefit plan and general insurance expenses, and allocation for usage of resources such as personnel and data processing equipment were $9,506 in 1993, $10,319 in 1992 and $10,610 in 1991. Management believes these allocations reasonably reflect the usage of Borden's resources by BCP. 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 would be indicative of costs that would be incurred on a stand- alone basis. The Partnership sells methanol, ammonia, urea and PVC resins to, and processes formaldehyde and urea-formaldehyde concentrate for, Borden and its affiliates at prices which approximate market. The Partnership is party to long-term agreements with Borden which require Borden to purchase from the Partnership at least 85% of Borden's requirements for PVC resins, ammonia, urea and methanol and to F-8 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) utilize specified percentages of the Partnership's capacity to process formaldehyde and urea-formaldehyde concentrate. 4. DEBT At December 31, 1993 and 1992 long-term debt consists of the following: 10.7% Note due 1997...................... $ 90,000 11.1% Note due 1999...................... 60,000 -------- $150,000 ========
On November 30, 1987, the Operating Partnership issued $150,000 aggregate principal amount of Notes in a private placement. The gross proceeds were reduced by $1,600 of expenses associated with the borrowing. These expenses have been deferred and are being amortized over the term of the debt. The Operating Partnership is obligated to redeem $30,000 of the 10.7% Note due 1997 in each of 1995 and 1996 and to redeem $30,000 of the 11.1% Note due 1999 in 1998. The Notes provide that no recourse is available against the General Partner. The aggregate fair value of the Partnership's outstanding debt was $183,586 at December 31, 1993 and $180,362 at December 31, 1992, which was calculated based on current yields for debt with similar characteristics. The Partnership has a short-term unsecured working capital facility of up to $20,000 under a revolving credit agreement. There were no significant borrowings under the revolving credit agreement at December 31, 1993 and 1992, or during the 1993 and 1992 period. There were also no amounts outstanding at any month end during 1993 and 1992. A commitment fee of 1/4% per annum is payable on the unused portion. Borrowings under the revolving credit agreement bear interest at rates fixed at the time of each borrowing. It provides that no recourse is available against the General Partner. 5. ALLOCATION OF INCOME AND LOSS 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 income 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. 6. CASH DISTRIBUTIONS The Partnership makes 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. On February 12, 1993, which was the payment date for the 1992 fourth quarter distribution, Borden's obligations under the Guarantee Agreement to ensure minimum quarterly distributions under the Preference Unit Distribution Support Agreement and Common Unit Direct Payment Agreement were extinguished, and all differences between the Preference Units and Enhanced Common Units ceased. All Units are now Common Units. F-9 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 7. CONTINGENCIES The Louisiana Department of Environmental Quality has determined that a production unit at the Geismar facility should be subject to state hazardous waste regulations. While the Partnership has appealed the decision, the outcome of such decision is uncertain and if upheld, the Partnership could be required to incur significant expenditures which at this time cannot be estimated, and could be subject to the Environmental Indemnity Agreement (EIA) discussed below. In addition, the Partnership is subject to various other legal proceedings and claims which arise in the ordinary course of business. In the opinion of the management, based upon the information it presently possesses, the amount of the ultimate liability of these other matters, taking into account insurance coverage, including its risk retention program and EIA with Borden, would not have a material adverse effect on the financial position and results of operations of the Partnership. 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 the date of the initial public offering of Preference Units. 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. F-10 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP ---------------- CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS EXCEPT PER UNIT DATA)
NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 23, 1994 SEPTEMBER 24, 1993 ------------------ ------------------ Revenues Net trade sales........................ $345,422 $248,113 Net affiliated sales................... 92,711 59,463 -------- -------- Total revenues..................... 438,133 307,576 -------- -------- Expenses Cost of goods sold Trade................................ 258,793 232,024 Affiliated........................... 67,432 54,863 Marketing, general and administrative expenses................................ 15,298 14,153 Interest expense......................... 12,009 12,066 General Partner incentive................ 8,751 Other (income) and expense, including minority interest....................... 6,312 530 -------- -------- Total expenses..................... 368,595 313,636 -------- -------- Net income (loss)........................ 69,538 (6,060) Less 1% General Partner interest....... (695) 61 -------- -------- Net income (loss) applicable to Limited Partners' interest...................... $ 68,843 $ (5,999) ======== ======== Net income (loss) per Unit............... $ 1.87 $ (.16) ======== ======== Average number of Units outstanding during the period....................... 36,750 36,750 ======== ======== Cash distributions declared per Unit..... $ 1.88 $ .60 ======== ========
F-11 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP ---------------- CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 23, 1994 SEPTEMBER 24, 1993 ------------------ ------------------ Cash Flows From Operations Net income (loss)........................ $ 69,538 $ (6,060) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation......................... 32,941 32,171 Increase in receivables.............. (34,305) (12,269) Decrease (increase) in inventories... 3,389 (2,581) Increase in payables................. 3,348 11,574 Increase in incentive distribution payable............................. 6,097 Increase in accrued interest......... 3,825 3,870 Other, net........................... 8,524 (1,208) -------- -------- 93,357 25,497 -------- -------- Cash Flows From Investing Activities Capital expenditures................... (14,215) (7,991) -------- -------- Cash Flows From Financing Activities Cash distributions paid................ (38,633) (29,326) -------- -------- Increase (decrease) in cash and equivalents............................. 40,509 (11,820) Cash and equivalents at beginning of period.................................. 9,054 19,389 -------- -------- Cash and equivalents at end of period.... $ 49,563 $ 7,569 ======== ======== Supplemental Disclosure of Cash Flow Information Interest paid during the period........ $ 8,184 $ 8,196 ======== ========
F-12 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP ---------------- CONSOLIDATED BALANCE SHEETS (UNAUDITED) (IN THOUSANDS)
SEPTEMBER 23, DECEMBER 31, ASSETS 1994 1993 ------ ------------- ------------ Cash and equivalents................................ $ 49,563 $ 9,054 Accounts receivable (less allowance for doubtful accounts of $510 and $768, respectively) Trade............................................. 71,719 48,990 Affiliated........................................ 29,843 18,267 Inventories Finished goods.................................... 18,025 21,499 Raw materials..................................... 7,843 7,758 Other current assets................................ 2,687 2,182 --------- --------- Total current assets............................ 179,680 107,750 --------- --------- Investments in and advances to affiliated companies. 3,742 3,623 Other assets........................................ 27,781 26,956 --------- --------- 31,523 30,579 --------- --------- Land................................................ 12,051 12,051 Buildings........................................... 36,418 35,955 Machinery and equipment............................. 517,530 505,236 --------- --------- 565,999 553,242 Less accumulated depreciation..................... (279,364) (247,267) --------- --------- 286,635 305,975 --------- --------- $ 497,838 $ 444,304 ========= ========= LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Accounts and drafts payable......................... $ 47,756 $ 44,408 Cash distributions payable.......................... 37,925 6,682 Incentive distribution payable to General Partner... 6,097 Accrued interest.................................... 5,670 1,845 Other accrued liabilities........................... 13,595 8,515 --------- --------- Total current liabilities....................... 111,043 61,450 --------- --------- Long-term debt...................................... 150,000 150,000 Minority interest in consolidated subsidiary........ 1,791 1,795 Post retirement benefit obligation ................. 5,137 854 --------- --------- 156,928 152,649 --------- --------- Partners' capital Common Unitholders................................ 228,615 228,862 General Partner................................... 1,252 1,343 --------- --------- Total partners' capital......................... 229,867 230,205 --------- --------- $ 497,838 $ 444,304 ========= =========
F-13 BORDEN CHEMICALS AND PLASTICS LIMITED ---------------- CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED) (IN THOUSANDS)
PREFERENCE COMMON GENERAL UNITHOLDERS UNITHOLDERS PARTNER TOTAL ----------- ----------- ------- -------- Balances at December 31, 1992........ $ 210,923 $ 48,025 $1,647 $260,595 Combination of preference and common Units............................... (210,923) 210,923 Net loss............................. (5,999) (61) (6,060) Cash distributions declared.......... (22,050) (223) (22,273) --------- -------- ------ -------- Balances at September 24, 1993....... $ -0- $230,899 $1,363 $232,262 ========= ======== ====== ======== Balances at December 31, 1993........ $228,862 $1,343 $230,205 Net income........................... 68,843 695 69,538 Cash distributions declared.......... (69,090) (786) (69,876) -------- ------ -------- Balances at September 23, 1994....... $228,615 $1,252 $229,867 ======== ====== ========
F-14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. ACQUISITION On August 12, 1994, Borden Chemicals and Plastics Operating Limited Partnership (the "Operating Partnership") entered into an agreement with Occidental Chemical Corporation to purchase its Addis, Louisiana PVC manufacturing facility. The Addis facility has an annual proven production capacity of 450 million pounds per year, which will increase the Operating Partnership's stated annual capacity for the production of PVC resins by over 50 percent. The cash purchase price for the Addis assets is $104.3 million, subject to certain customary post-closing adjustments. The acquisition is subject to certain conditions, including approval by the U.S. Federal Trade Commission, an environmental assessment of the real estate upon which the Addis facility is located and the financing of the acquisition. 2. NEW OFFERING OF UNITS AND NOTES On October 7, 1994, Borden Chemicals and Plastics Limited Partnership (the "Partnership") filed a registration statement on Form S-3 (File No. 33-55863) with the Securities and Exchange Commission ("SEC") relating to the offering of up to 4.0 million Depositary Units (excluding an over-allotment option for 600,000 additional Units) representing common limited partner interests in the Partnership. The net proceeds of this offering will be used to fund a portion of the purchase price of the Addis facility. On October 14, 1994 the Operating Partnership filed a registration statement on Form S-1 (File No. 33-85186) with the SEC relating to the offering of $200 million of Senior Notes. The Senior Notes offering is contingent upon negotiation by the Operating Partnership of a right of prepayment with holders of the Operating Partnership's existing Notes, due November 30, 1997 and November 30, 1999. Management expects that the prepayment price will involve payment by the Operating Partnership of a prepayment premium. The Operating Partnership intends to use the net proceeds from the sale of the Senior Notes first to prepay the currently outstanding $150.0 million principal amount of existing Notes. The remaining proceeds would be used to provide funds for the remaining purchase price of the Addis facility and other permitted partnership purposes. 3. INTERIM FINANCIAL STATEMENTS The accompanying unaudited interim consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, which in the opinion of BCP Management, Inc. (the "General Partner") are necessary for a fair statement of the results for the interim periods. Results for the interim periods are not necessarily indicative of the results for the full year. 4. COMBINATION OF PREFERENCE AND COMMON UNITS With the payment of the 1992 fourth quarter distribution on February 12, 1993, all differences between the Preference and Common Units ceased and all units became Common Units. 5. CONTINGENCIES As a result of a Complaint filed on October 27, 1994 by the U.S. Department of Justice ("DOJ") on behalf of the Environmental Protection Agency ("EPA") against the Partnership, significant penalties and costs for obtaining permits and performing environmental cleanup and investigation at the Geismar, La. facility, may be incurred (depending on the outcome of the litigation), portions of which could be subject to the Environmental Indemnity Agreement ("EIA") discussed below (see "Legal Proceedings"). F-15 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 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). No claims can be made under the EIA after November 30, 2002, and no claim can, with certain exceptions, be made with respect to the first $0.5 million of liabilities which Borden would otherwise be responsible for thereunder in any year, but such excluded amounts shall not exceed $3.5 million in the aggregate. Excluded amounts under the EIA have aggregated approximately $2.0 million through September 23, 1994. In connection with potential environmental matters, a $4.0 million provision has been included in the Partnership's third quarter financial statements. F-16 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Borden Chemicals and Plastics Limited Partnership: We have audited the accompanying balance sheets of the Addis Plant (as defined in Note 1) of Occidental Chemical Corporation, an indirect wholly-owned subsidiary of Occidental Petroleum Corporation, as of December 31, 1993 and 1992, and the related statements of operations and changes in owner's investment and cash flows for the years then ended. These financial statements are the responsibility of Occidental Chemical Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Addis Plant of Occidental Chemical Corporation as of December 31, 1993 and 1992, and the results of its operations and changes in owner's investment and its cash flows for the years then ended in conformity with generally accepted accounting principles. As discussed in Note 3 to the financial statements, effective January 1, 1992, the Addis Plant changed its method of accounting for postretirement benefits other than pensions. Arthur Andersen LLP Dallas, Texas September 16, 1994 F-17 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Borden Chemical and Plastics Limited Partnership: We have reviewed the accompanying balance sheet of the Addis Plant (as defined in Note 1) of Occidental Chemical Corporation as of September 30, 1994, and the related statements of operations and changes in owner's investment and cash flows for the nine-month periods ended September 30, 1994 and 1993. These financial statements are the responsibility of Occidental Chemical Corporation's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of obtaining an understanding of the system for the preparation of interim financial information, applying analytical review procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. These procedures are substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. Arthur Andersen LLP Dallas, Texas November 15, 1994 F-18 OCCIDENTAL CHEMICAL CORPORATION ADDIS PLANT STATEMENTS OF OPERATIONS AND CHANGES IN OWNER'S INVESTMENT (IN THOUSANDS)
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, -------------------------- -------------------- 1994 1993 1993 1992 ------------ ------------ --------- --------- (UNAUDITED) EXTERNAL SALES, net.......... $ 74,563 $ 52,648 $ 68,176 $ 65,452 SALES TO OWNER AT MARKET VAL- UE.......................... 25,103 19,531 27,986 25,335 ------------ ------------ --------- --------- TOTAL SALES, net............. 99,666 72,179 96,162 90,787 OPERATING COSTS AND EXPENSES: Cost of sales.............. 91,839 68,530 92,397 89,682 Selling, general and admin- istrative expenses........ 1,561 1,371 1,825 2,198 Other operating (income) expense................... 119 (68) 644 115 ------------ ------------ --------- --------- OPERATING INCOME (LOSS)...... 6,147 2,346 1,296 (1,208) INTEREST AND OTHER EXPENSE: Interest expense, affili- ates...................... 591 591 788 788 Other...................... 102 99 132 132 ------------ ------------ --------- --------- INCOME (LOSS) BEFORE TAXES... 5,454 1,656 376 (2,128) Income tax expense (bene- fit)...................... 2,093 923 462 (765) ------------ ------------ --------- --------- INCOME (LOSS) BEFORE CUMULA- TIVE EFFECT OF CHANGE IN AC- COUNTING PRINCIPLE.......... 3,361 733 (86) (1,363) Cumulative effect of change in accounting principle, net....................... -- -- -- (543) ------------ ------------ --------- --------- NET INCOME (LOSS)............ 3,361 733 (86) (1,906) INCREASE (DECREASE) IN OWN- ER'S INVESTMENT............. (10,342) 1,216 1,679 1,577 OWNER'S INVESTMENT, beginning of period................... 38,737 37,144 37,144 37,473 ------------ ------------ --------- --------- OWNER'S INVESTMENT, end of period...................... $ 31,756 $ 39,093 $ 38,737 $ 37,144 ============ ============ ========= =========
The accompanying notes are an integral part of these statements. F-19 OCCIDENTAL CHEMICAL CORPORATION ADDIS PLANT STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30, DECEMBER 31, -------------------------- -------------------- 1994 1993 1993 1992 ------------ ------------ --------- --------- (UNAUDITED) CASH FLOW FROM OPERATING AC- TIVITIES: Net income (loss).......... $ 3,361 $ 733 $ (86) $(1,906) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of change in accounting principle, net.......... -- -- -- 543 Depreciation and amorti- zation.................. 3,413 3,099 4,071 4,006 Deferred income taxes.... 105 221 354 (443) Changes in operating as- sets and liabilities: Decrease (increase) in inventories........... 4,644 (2,617) (3,636) 745 Decrease (increase) in other current assets................ (152) (583) (135) 136 Increase (decrease) in accounts payable and accrued liabilities... (229) (253) 87 (1,347) Other, net............... (22) 6 576 (179) ------------ ------------ --------- --------- Net cash provided by operat- ing activities.............. 11,120 606 1,231 1,555 ------------ ------------ --------- --------- CASH FLOW FROM INVESTING AC- TIVITIES: Capital expenditures....... (778) (1,822) (2,910) (3,132) ------------ ------------ --------- --------- Net cash used by investing activities.................. (778) (1,822) (2,910) (3,132) ------------ ------------ --------- --------- CASH FLOW FROM FINANCING AC- TIVITIES: Increase (decrease) in own- er's investment........... (10,342) 1,216 1,679 1,577 ------------ ------------ --------- --------- Net cash provided (used) by financing activities........ (10,342) 1,216 1,679 1,577 ------------ ------------ --------- --------- Increase in cash............. -- -- -- -- Cash--beginning of period.... 2 2 2 2 ------------ ------------ --------- --------- Cash--end of period.......... $ 2 $ 2 $ 2 $ 2 ============ ============ ========= =========
The accompanying notes are an integral part of these statements. F-20 OCCIDENTAL CHEMICAL CORPORATION ADDIS PLANT BALANCE SHEETS (IN THOUSANDS)
DECEMBER 31, --------------- SEPTEMBER 30, 1994 1993 1992 ------------------ ------- ------- (UNAUDITED) CURRENT ASSETS: Cash...................................... $ 2 $ 2 $ 2 Inventories............................... 6,500 11,144 7,508 Deferred income taxes..................... 105 -- 171 Other current assets...................... 311 159 24 ------- ------- ------- Total current assets.................... 6,918 11,305 7,705 PROPERTY, PLANT AND EQUIPMENT, at cost, net of accumulated depreciation of $46,533 as of September 30, 1994 and $43,219 and $41,883 as of December 31, 1993 and 1992... 44,980 47,518 49,129 OTHER ASSETS................................ 1,818 1,702 1,703 ------- ------- ------- TOTAL ASSETS............................ $53,716 $60,525 $58,537 ======= ======= ======= CURRENT LIABILITIES: Accounts payable.......................... $ 1,228 $ 1,511 $ 1,380 Accrued liabilities....................... 376 322 366 ------- ------- ------- Total current liabilities............... 1,604 1,833 1,746 ------- ------- ------- DEFERRED INCOME TAXES....................... 11,999 11,808 11,625 OTHER LIABILITIES........................... 1,357 1,147 1,022 NOTE PAYABLE TO AFFILIATE................... 7,000 7,000 7,000 ------- ------- ------- Total liabilities....................... 21,960 21,788 21,393 ------- ------- ------- COMMITMENTS AND CONTINGENCIES OWNER'S INVESTMENT.......................... 31,756 38,737 37,144 ------- ------- ------- TOTAL LIABILITIES AND OWNER'S INVESTMENT.... $53,716 $60,525 $58,537 ======= ======= =======
The accompanying notes are an integral part of these statements. F-21 OCCIDENTAL CHEMICAL CORPORATION ADDIS PLANT NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1994 AND 1993 (UNAUDITED) AND DECEMBER 31, 1993 AND 1992 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-- Organization, business and basis of presentation--The accompanying financial statements present the financial position, results of operations and cash flows of the Addis Plant of Occidental Chemical Corporation (OCC), a New York corporation. All of the outstanding common shares of OCC are owned indirectly by Occidental Petroleum Corporation (Occidental). The financial statements are prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in a Form 8-K and a registration statement of Borden Chemicals and Plastics Limited Partnership (Borden) in connection with its acquisition of the Addis Plant (see Note 10). Certain amounts in the accompanying financial statements have been allocated in a reasonable and consistent manner in order to depict the financial position, results of operations and cash flows of the Addis Plant on a stand-alone basis. The Addis Plant, located in Addis, Louisiana, manufactures and sells commodity grade PVC suspension resins from raw materials purchased primarily from OCC. Additionally, the Addis Plant participates in a variety of operating and sales contracts administered by OCC. These include national sales agreements as well as purchase and energy agreements. Occidental utilizes a centralized cash management system for its operations, including the Addis Plant. Cash distributed to or advanced from Occidental has been reflected in Owner's investment in the accompanying balance sheets. In addition, settlements of transactions with other Occidental affiliates are recorded through Owner's investment. Interim period presentation--The financial statements as of September 30, 1994 and for the nine months ended September 30, 1994 and 1993 (unaudited) include all normal, recurring adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for such periods. Supplemental cash flow information--For the years ended December 31, 1993 and 1992 and for the nine months ended September 30, 1994 and 1993, all cash payments for income taxes were made by Occidental. For the same periods, there were no cash payments for interest. As of September 30, 1994 and December 31, 1993 and 1992, trade receivables of $11,906,000, $7,749,000, and $6,092,000, respectively, were transferred to an affiliate (see Note 2). Property, plant and equipment--Property additions, major renewals and improvements are capitalized at cost. Maintenance and repair costs are charged to expense as incurred. The cost and related accumulated depreciation, depletion and amortization of properties sold or retired are removed from the property accounts and any resulting gain or loss is recorded. Depreciation of plant and equipment has been provided using the units-of- production method. Other assets--Goodwill with a basis of $3,296,000 represents the excess of cost over fair value of net assets at acquisition date and is amortized on the straight-line basis over 25 years. The accumulated amortization was $1,824,000, $1,725,000 and $1,593,000 at September 30, 1994 and December 31, 1993 and 1992, respectively. Environmental costs--Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to existing conditions caused by past operations, and that do not contribute to current or future revenue generation, are expensed. No such costs were incurred at the F-22 OCCIDENTAL CHEMICAL CORPORATION ADDIS PLANT NOTES TO FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1994 AND 1993 (UNAUDITED) AND DECEMBER 31, 1993 AND 1992 Addis Plant during 1994, 1993, or 1992. Reserves for estimated costs are recorded when environmental remedial efforts are probable and the costs can be reasonably estimated. In determining the reserves, OCC uses the most current information available, including similar past experiences, available technology, regulations in effect, the timing of remediation and cost-sharing arrangements. The Addis Plant's estimated operating expenses relating to compliance with environmental laws and regulations governing ongoing operations were approximately $3,400,000 and $3,300,000 in 1993 and 1992, respectively. In addition, estimated capital expenditures for environmental compliance in 1993 and 1992 were approximately $200,000 and $100,000, respectively. Management has not identified any material environmental matter, nor has the Addis Plant been identified as a potentially responsible party in connection with any such matter. At September 30, 1994 and December 31, 1993 and 1992, there are no environmental reserves related to the Addis Plant. Income taxes--The Addis Plant uses the asset and liability method required by Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes" (see Note 7). Deferred income taxes are recorded at enacted rates to recognize the future effects of temporary differences which arise between financial statement assets and liabilities and their basis for income tax reporting purposes. Income tax expense and deferred income tax liabilities are determined as though the Addis Plant filed separate U.S. federal and state corporate income tax returns. Current income tax liabilities determined on a separate return basis are included in Owner's investment in the accompanying financial statements. OCC includes the Addis Plant's operations in determining its taxable income, and joins with Occidental in filing a consolidated U.S. federal income tax return. Significant customers--Three customers accounted for 19%, 12% and 11% of external sales in 1993. These same customers accounted for 17%, 14% and 12% in 1992. (2) RECEIVABLES As of September 30, 1994, and December 31, 1993 and 1992, OCC transferred to an Occidental affiliate trade receivables of the Addis Plant under a revolving sale program amounting to $11,906,000, $7,749,000 and $6,092,000, respectively, with recourse, in connection with the ultimate sale for cash of such receivables. OCC transferred the receivables to the affiliate in a noncash transaction that was reflected as a reduction in the Addis Plant's Owner's investment. OCC has retained the collection responsibility with respect to the receivables sold. An interest in new receivables is transferred monthly representing the net difference between newly created receivables and collections made from customers. (3) ACCOUNTING CHANGES Effective January 1, 1992, the Addis Plant adopted SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" on the immediate recognition basis. This statement required that the cost of these benefits, which are primarily health care related, be recognized in the financial statements during the employees' active working careers. The Addis Plant recorded a charge of $543,000, which is net of a $350,000 income tax benefit, as of January 1, 1992 to reflect the cumulative effect of the change in accounting principle (see Note 8). In December 1992, the Financial Accounting Standards Board issued SFAS No. 112 "Employers' Accounting for Postemployment Benefits," which substantially changed the existing method of accounting for employer benefits provided to inactive or former employees after employment but before retirement. This statement requires that the cost of postemployment benefits be recognized in the financial statements during employees' active working careers. OCC adopted SFAS No. 112, effective January 1, 1994, but the adoption did not have a material impact on the Addis Plant's financial position or results of operations. F-23 OCCIDENTAL CHEMICAL CORPORATION ADDIS PLANT NOTES TO FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1994 AND 1993 (UNAUDITED) AND DECEMBER 31, 1993 AND 1992 (4) INVENTORIES Inventories are valued at the lower of cost or market. The last-in, first-out (LIFO) cost method was used in determining the costs of raw materials and finished goods. Materials and supplies inventories were determined using the weighted average cost method. The valuation of LIFO inventories for September 30, 1994 is based on management estimates of year-end inventory levels and costs. Inventories consisted of the following (in thousands):
DECEMBER 31, --------------- SEPTEMBER 30, 1994 1993 1992 ------------------ ------- ------ (UNAUDITED) Raw materials............................. $1,629 $ 1,461 $1,470 Materials and supplies.................... 1,367 1,165 1,140 Finished goods............................ 4,438 8,990 4,636 ------ ------- ------ 7,434 11,616 7,246 LIFO/lower of cost or market reserve...... (934) (472) 262 ------ ------- ------ Inventory at lower of cost or market...... $6,500 $11,144 $7,508 ====== ======= ======
During 1993 and 1992, certain inventory quantities carried at LIFO were reduced. This reduction resulted in a liquidation of LIFO inventory quantities carried at higher costs prevailing in prior years as compared with the cost of 1993 and 1992 purchases, the effect of which increased cost of sales by approximately $183,000 and $20,000, respectively. (5) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following (in thousands):
DECEMBER 31, ---------------- SEPTEMBER 30, 1994 1993 1992 ------------------ ------- ------- (UNAUDITED) Land and land improvements.............. $ 4,115 $ 4,115 $ 3,992 Buildings............................... 7,498 7,445 7,086 Machinery and equipment................. 78,860 77,023 74,669 Construction in progress................ 1,040 2,154 5,265 ------- ------- ------- 91,513 90,737 91,012 Accumulated depreciation................ (46,533) (43,219) (41,883) ------- ------- ------- $44,980 $47,518 $49,129 ======= ======= =======
(6) LEASE COMMITMENTS At December 31, 1993, future minimum lease payments under noncancelable operating leases were as follows (in thousands): 1994................................................................ $1,263 1995................................................................ 827 1996................................................................ 646 1997................................................................ 601 1998................................................................ 334 Thereafter.......................................................... 64 ------ Total minimum lease payments........................................ $3,735 ======
F-24 OCCIDENTAL CHEMICAL CORPORATION ADDIS PLANT NOTES TO FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1994 AND 1993 (UNAUDITED) AND DECEMBER 31, 1993 AND 1992 Rental expense totaled approximately $1,474,000 and $1,712,000 for the years ended December 31, 1993 and 1992, respectively. (7) INCOME TAXES Income tax expense (benefit) consists of the following (in thousands):
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, ------------------- ------------- 1994 1993 1993 1992 --------- -------- ------ ------ (UNAUDITED) Current U.S. federal........................ $ 1,704 $ 604 $ 92 $ (279) Current state............................... 284 98 16 (43) Deferred U.S. federal....................... 84 (37) 69 (353) Deferred tax charge due to federal income tax rate change............................ -- 268 268 Deferred state.............................. 21 (10) 17 (90) --------- ------- ----- ------ $ 2,093 $ 923 $ 462 $ (765) ========= ======= ===== ======
The following table reconciles the maximum statutory U.S. federal income tax rate multiplied by the Addis Plant's income (loss) before taxes to the recorded income tax expense (benefit) (in thousands):
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, ------------------- ------------- 1994 1993 1993 1992 --------- -------- ------ ------ (UNAUDITED) U.S. federal income tax at 35% (34% at September 30, 1993 and December 31, 1992).. $ 1,909 $ 580 $ 132 $ (724) State income tax expense, net of U.S. federal benefit............................ 198 57 21 (88) Goodwill amortization and other nondeductible expenses..................... 36 36 47 47 Current benefit from graduated U.S. federal rates...................................... (50) (18) (6) -- Deferred U.S. federal income tax expense resulting from rate increase on August 10, 1993....................................... -- 268 268 -- --------- ------- ----- ------ $ 2,093 $ 923 $ 462 $ (765) ========= ======= ===== ======
As discussed in Note 1, the Addis Plant accounts for income taxes on a separate return basis under SFAS No. 109. Temporary differences are associated with the financial statement assets and liabilities shown in the table below. Deferred income tax assets and liabilities have been recorded in the following amounts (in thousands):
SEPTEMBER 30, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992 ------------------ ------------------ ------------------ DEFERRED TAX DEFERRED TAX DEFERRED TAX ASSETS LIABILITIES ASSETS LIABILITIES ASSETS LIABILITIES ------ ----------- ------ ----------- ------ ----------- (UNAUDITED) Inventories............. $ -- $ -- $ -- $ -- $ 183 $ -- Property, plant and equipment.............. -- (13,351) -- (13,068) -- (12,859) Other assets............ -- (68) -- (56) -- -- Accrued liabilities..... 113 -- -- -- -- -- Other liabilities....... 584 -- 493 -- 429 -- Deferred state income tax.................... 828 -- 823 -- 793 -- ------ -------- ------ -------- ------ -------- $1,525 $(13,419) $1,316 $(13,124) $1,405 $(12,859) ====== ======== ====== ======== ====== ========
F-25 OCCIDENTAL CHEMICAL CORPORATION ADDIS PLANT NOTES TO FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1994 AND 1993 (UNAUDITED) AND DECEMBER 31, 1993 AND 1992 (8) RETIREMENT PLANS AND POSTRETIREMENT BENEFITS The Addis Plant participates in defined contribution retirement plans sponsored by Occidental for all of its salaried employees that provide for periodic contributions by OCC based on the base salary and age level of the eligible employees. Such contributions are invested in guaranteed-investment contracts with insurance companies and in other high-quality fixed-income investments. The Addis Plant expensed $245,000 and $236,000 under the provisions of these plans during the years ended December 31, 1993 and 1992, respectively. OCC provides medical, dental and life insurance for certain active, retired, and disabled employees and their eligible dependents. Beginning in 1993, certain salaried participants pay for all medical cost increases in excess of increases in the Consumer Price Index (CPI). The benefits generally are funded by OCC as the benefits are paid during the year. The cost of providing these benefits is based on claims filed and insurance premiums paid for the period. The 1993 and 1992 postretirement benefits costs of $134,000 and $129,000, as discussed in the table below, are based on an allocation of the OCC actuarial study using participant counts as of January 1, 1994. As discussed in Note 3, effective January 1, 1992, OCC adopted SFAS No. 106. This statement required that the cost of postretirement benefits other than pensions, which are primarily for health care, be accrued as a form of deferred compensation earned during the period that employees render service, rather than the previously permitted practice of accounting for such costs as claims were paid. OCC elected immediate recognition of the net obligation at January 1, 1992. The related charge for the Addis Plant included an allocation of OCC's previously unrecognized accumulated postretirement benefit obligation of $543,000, which is net of a $350,000 income tax benefit. These allocations are also based on participant counts as of January 1, 1994. The postretirement benefit obligation as of December 31, 1993 and 1992 was determined by application of the terms of medical, dental, and life insurance plans, including the effect of established maximums on covered costs, together with relevant actuarial assumptions and health-care cost trend rates projected at a CPI increase of 4 percent. Because salaried participants pay for all medical cost increases in excess of increases in the CPI, there is no effect of a 1 percent annual increase in these assumed cost trend rates on the accumulated postretirement benefit obligation or the annual service and interest costs in 1993. The weighted average discount rates used in determining the accumulated postretirement benefit obligation as of December 31, 1993 and 1992 were 7.5 and 8.5 percent, respectively. The plans are unfunded. The following table sets forth the accrued postretirement benefit costs at December 31, 1993 and 1992 (in thousands):
1993 1992 ------ ------ Accumulated postretirement benefit obligation: Retirees................................................... $ 137 $ 64 Fully eligible active plan participants.................... 482 400 Other active plan participants............................. 857 558 ------ ------ Total accumulated postretirement benefit obligation.......... 1,476 1,022 Unrecognized net loss........................................ (329) -- ------ ------ Accrued postretirement benefit cost.......................... $1,147 $1,022 ====== ======
F-26 OCCIDENTAL CHEMICAL CORPORATION ADDIS PLANT NOTES TO FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1994 AND 1993 (UNAUDITED) AND DECEMBER 31, 1993 AND 1992 Net periodic postretirement benefit cost included the following components for the years ended December 31, 1993 and 1992 (in thousands):
1993 1992 ---- ---- Service cost-benefits attributed to service during the period...... $ 49 $ 53 Interest cost on accumulated postretirement benefit obligation..... 85 76 ---- ---- Net periodic postretirement benefit cost........................... $134 $129 ==== ====
(9) RELATED PARTY TRANSACTIONS Transactions with other plants and affiliates of OCC included purchases of feedstocks of $67,932,000 in 1993 and $58,885,000 in 1992. These purchases are recorded at market value. The Addis Plant has been charged for certain financial and operational support services provided by OCC. Charges for such support services included in cost of sales and selling, general and administrative costs in the accompanying statements of operations totaled $3,564,000 and $3,636,000 in 1993 and 1992, respectively, and $3,123,000 and $2,765,000 for the nine months ended September 30, 1994 and 1993, respectively. These charges were allocated based on ratios including such factors as revenues, operating income, fixed assets, and working capital in a reasonable and consistent manner. Included in the above allocations are research and development costs, which are charged to operations by OCC as incurred, and were $226,000 and $408,000 in 1993 and 1992, respectively, and $289,000 and $174,000 for the nine months ended September 30, 1994 and 1993, respectively. These charges are included in selling, general and administrative costs in the accompanying financial statements. The Addis Plant incurred $788,000 in 1993 and 1992 of interest expense on a note payable to an affiliate due on November 30, 1995 with an outstanding balance of $7 million and an interest rate of 11.25 percent. Other net advances from owner and affiliates included in Owner's investment in the accompanying Balance Sheets bear no interest. (10) SALE OF ADDIS PLANT In 1986, the Federal Trade Commission (FTC) initiated an administrative proceeding against OCC alleging that its acquisition of facilities from Tenneco Polymers, Inc. in Pasadena, Texas and Burlington, New Jersey, violated antitrust laws. The administrative complaint sought rescission of the acquisition agreement and divestiture of the acquired assets. In 1993, the FTC issued an opinion and final order of divestiture. OCC petitioned for review to the U.S. Court of Appeals for the Second Circuit (Second Circuit). A settlement was subsequently reached under which OCC agreed to divest its facilities in Burlington and, in lieu of Pasadena, Addis, Louisiana, and refrain from acquiring polyvinyl chloride assets for a period of 10 years without FTC approval. The Second Circuit approved the settlement in January 1994. Borden has agreed to purchase selected assets and liabilities of the Addis Plant, primarily including, but not limited to, property, plant and equipment and inventories. The assets and liabilities included in these financial statements are those required to present the Addis Plant as a stand-alone entity and include certain assets and liabilities that are not included in the sale to Borden. F-27 PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED) On August 12, 1994 Borden Chemicals and Plastics Limited Partnership (Partnership) through Borden Chemicals and Plastics Operating Limited Partnership (Operating Partnership) entered into an agreement with Occidental Chemical Corporation (OxyChem) to purchase its Addis, Louisiana PVC resin production facility and certain related assets (the Addis Assets) and assume certain obligations relating to the Addis Assets. The purchase price for the Addis Assets is $104.3 million, subject to certain customary post-closing adjustments. The purchase price for the Addis Assets will be financed in part by the proceeds of an offering of depositary units representing common limited partner interests (Units) by the Partnership. The remaining purchase price will be financed through a concurrent offering of senior unsecured notes (Senior Notes) by the Operating Partnership or, in the event such offering is not completed, through short-term borrowings, cash on hand or a combination thereof. The following pro forma financial statements assume the acquisition of the Addis Assets, the issuance of 4.0 million Units with net proceeds to the Partnership of $18.57 per Unit, the issuance of $200.0 million of Senior Notes expected to mature in 2001 and to bear interest at 9.75%, and the retirement of the existing $150.0 million of notes (Notes) of the Operating Partnership (collectively, the Transactions). The following pro forma combined financial statements give effect to the acquisition of the Addis Assets under the purchase method of accounting. The pro forma combined financial statements are based on the historical financial statements of the Partnership and of the Addis Plant of OxyChem (Addis Plant) and the estimates and assumptions set forth herein and on page F-32. The data presented herein is not necessarily indicative of the results of operations or financial position that the Partnership would have obtained had such events occurred at the beginning of the period, as assumed, or of the future results of the Partnership. The pro forma combined balance sheet as of September 23, 1994 combines the Addis Plant September 30, 1994 balance sheet with the Partnership's September 23, 1994 balance sheet, assuming the Transactions occurred as of September 23, 1994, which was the end of the Partnership's latest fiscal period. The pro forma combined statements of income combine the historical statements of operations for the Addis Plant and the Partnership for the year ended December 31, 1993 and the nine months ended September 30, 1994 and September 23, 1994 for the Addis Plant and the Partnership, respectively, assuming the Transactions occurred as of January 1, 1993. F-28 PRO FORMA COMBINED BALANCE SHEET (UNAUDITED) AS OF SEPTEMBER 23, 1994 (IN THOUSANDS)
ADDIS PRO FORMA PRO FORMA A S S E T S PARTNERSHIP PLANT ADJUSTMENTS COMBINED ----------- ----------- ------- ----------- --------- Cash............................. $ 49,563 $ 2 $ (2)(a) $ 49,584 21 (b) Accounts receivable.............. 101,562 101,562 Inventories...................... 25,868 6,500 32,368 Other current assets............. 2,687 416 (416)(a) 2,687 -------- ------- -------- -------- Total current assets........... 179,680 6,918 (397) 186,201 Property and equipment, net...... 286,635 44,980 94,600 (b) 381,235 (44,980)(c) Other assets..................... 31,523 1,818 (1,818)(a) 36,523 5,000 (b) -------- ------- -------- -------- Total assets................... $497,838 $53,716 $ 52,405 $603,959 ======== ======= ======== ======== L I A B I L I T I E S A N D O W N E R ' S E Q U I T Y ----------------------------- Accounts and drafts payable...... $ 47,756 $ 1,228 $ (1,228)(a) $ 47,756 Other current liabilities........ 63,287 376 (376)(a) 57,617 (5,670)(b) -------- ------- -------- -------- Total current liabilities...... 111,043 1,604 (7,274) 105,373 -------- ------- -------- -------- Long-term debt................... 150,000 7,000 50,000 (b) 200,000 (7,000)(a) Other liabilities................ 6,928 13,356 (13,356)(a) 7,553 766 (b) (141)(d) -------- ------- -------- -------- Total other liabilities........ 156,928 20,356 30,269 207,553 -------- ------- -------- -------- Owner's Investment--Addis........ 31,756 (31,756)(a) 0 Partners' Capital: Common unitholders............. 228,615 74,275 (b) 289,170 (13,720)(d) General partner................ 1,252 750 (b) 1,863 (139)(d) -------- ------- -------- -------- Total partners' capital....... 229,867 0 61,166 291,033 -------- ------- -------- -------- Total liabilities & owners' equity....................... $497,838 $53,716 $ 52,405 $603,959 ======== ======= ======== ========
F-29 PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 23, 1994 (IN THOUSANDS, EXCEPT PER UNIT DATA)
ADDIS PRO FORMA PRO FORMA PARTNERSHIP PLANT ADJUSTMENTS COMBINED ----------- ------- ----------- --------- Net trade sales..................... $438,133 $99,666 $537,799 -------- ------- -------- Expenses: Cost of goods sold................ 326,225 91,839 (1,562)(e) 417,413 911 (f) Marketing, general and administra- tive expense..................... 15,298 1,561 (1,374)(e) 15,485 Interest expense.................. 12,009 591 (591)(e) 14,264 2,255 (g) Incentive to General Partner...... 8,751 8,751 Other (income) and expense includ- ing minority interest............ 6,312 221 536 (h) 7,210 141 (i) -------- ------- ------ -------- Total expenses.................. 368,595 94,212 316 463,964 -------- ------- ------ -------- Income before taxes................. 69,538 5,454 (316) 74,676 Income tax expense.................. 0 2,093 (2,093)(e) 0 -------- ------- ------ -------- Net income.......................... 69,538 3,361 1,777 74,676 ======= ====== Less 1% General Partner interest.. (695) (747) -------- -------- Net income applicable to Limited Partners' interest................. $ 68,843 $ 73,289 ======== ======== $ 1.87 $ 1.81 ======== ======== Average number of Units outstanding during the period.................. 36,750 4,000 40,750 ======== ====== ========
F-30 PRO FORMA COMBINED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE YEAR ENDED DECEMBER 31, 1993 (IN THOUSANDS, EXCEPT PER UNIT DATA)
ADDIS PRO FORMA PRO FORMA PARTNERSHIP PLANT ADJUSTMENTS COMBINED ----------- ------- ----------- --------- Net trade sales.................... $433,297 $96,162 $529,459 -------- ------- -------- Expenses: Cost of goods sold............... 397,771 92,397 (1,739)(e) 490,123 1,694 (f) Marketing, general and administrative expense.......... 18,993 1,825 (1,575)(e) 19,243 Interest expense................. 16,356 788 (788)(e) 19,500 3,144 (g) Other (income) and expense, including minority interest..... 1,612 776 714 (h) 3,092 (10)(i) -------- ------- ------ -------- Total expenses................. 434,732 95,786 1,440 531,958 -------- ------- ------ -------- Income (loss) before taxes......... (1,435) 376 (1,440) (2,499) Income tax expense................. 0 462 (462)(e) 0 -------- ------- ------ -------- Net income (loss).................. (1,435) (86) (978) (2,499) ======= ====== Less 1% General Partner interest. 14 25 -------- -------- Net income (loss) applicable to Limited Partners' interest........ $ (1,421) $ (2,474) ======== ======== Net income (loss) per Unit......... $ (0.04) $ (0.06) ======== ======== Average number of Units outstanding during the period................. 36,750 4,000 40,750 ======== ====== ========
F-31 NOTES TO THE PRO FORMA COMBINED FINANCIAL STATEMENTS (a) Reflects the elimination of certain historical assets and liabilities of the Addis Plant excluded from the acquisition transaction, as well as of OxyChem's historical investment. (b) Reflects the acquisition of the Addis Assets and the effects of the debt and equity offerings as follows: Net proceeds from sale of 4.0 million Units.................. $ 74,275 Additional capital contribution by General Partner to Operat- ing Partnership included in Minority Interest in Consoli- dated Subsidiary............................................ 766 Additional capital contribution by General Partner to Part- nership..................................................... 750 Proceeds from issuance of $200.0 million of Senior Notes net of repayments of Notes...................................... 50,000 Payment of debt issuance costs of the Senior Notes of $5.0 million, payment of accrued interest as of September 23, 1994 on the Notes of $5.67 million, and payment of the pre- mium on the prepayment of the Notes of $14.0 million........ (24,670) -------- 101,121 Cash acquisition price of $104.3 million net of purchase price adjustment of $3.2 million based on September 30, 1994 inventory values............................................ 101,100 -------- Net proceeds in excess of acquisition price.................. $ 21 ======== The cash acquisition price has been allocated for pro forma purposes based upon the General Partner's preliminary esti- mate of the fair market value of the assets acquired: Inventories................................................ $ 6,500 Property, plant and equipment.............................. 94,600 -------- $101,100 ========
(c) Reflects the elimination of historical basis in fixed assets acquired. (d) Reflects the effect of the payment of a premium related to the prepayment of the Notes. The prepayment premium would be accounted for as an extraordinary loss on early extinguishment of debt; as such, it is reflected as a reduction of Minority Interest in Consolidated Subsidiary and Partners' Capital in the pro forma balance sheet as of September 23, 1994. The prepayment premium is not reflected in the pro forma statements of income due to its nonrecurring nature. The prepayment premium amount ($14.0 million) represents an approximate amount calculated as of November 18, 1994 on the assumption that the premium will be the excess of (i) the remaining scheduled principal and interest payments on the Notes discounted to present value at applicable Treasury rates over (ii) the outstanding principal of and accrued interest on the Notes. The holders of the Notes have not agreed to prepayment of the Notes or to any prepayment formula, although discussions have begun. Accordingly, the prepayment premium is likely to vary from $14.0 million based on the results of the negotiation as well as the actual timing of any payment and prevailing interest rates. In addition, as discussed under "Use of Proceeds", Borden has advised the Partnership that it will pay a portion of the prepayment premium. The prepayment premium set forth herein has not been reduced to reflect payment of a portion of the same by Borden since such amount has not been negotiated. (e) Reflects the elimination of certain OxyChem costs (interest, taxes and certain corporate expenses allocated to depict the Addis Plant on a stand- alone basis and which are considered to substantially duplicate existing Partnership functions) that would not have been incurred under ownership by the Partnership, net of anticipated corporate costs of $0.25 million annually that are estimated to be allocated from the General Partner based on customary methods for the expected incremental activity related to the Addis Assets. (f) Reflects the net increase in depreciation over historical Addis Plant depreciation using the increased basis in fixed assets and depreciable lives of 30 years and 15 years for buildings and equipment, respectively. (g) Reflects the net additional interest from the issuance of $200.0 million of Senior Notes (at 9.75%) over the interest on the $150.0 million of Notes assumed to be retired in the pro forma financial statements. (h) Reflects the amortization of debt issuance costs related to the Senior Notes. (i) Reflects effect of the Addis Plant and pro forma adjustments on Minority Interest in Consolidated Subsidiary. F-32 - ------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR- MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRE- SENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSE- QUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE. ------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................................................ 3 Investment Considerations................................................. 13 Partnership Structure..................................................... 23 The Acquisition........................................................... 24 Use of Proceeds........................................................... 26 Capitalization............................................................ 27 Price Range of Units and Distributions.................................... 28 Cash Distributions........................................................ 29 Selected Consolidated Historical and Combined Pro Forma Financial Data.... 33 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 35 Business and Properties................................................... 42 Management................................................................ 58 Legal Proceedings......................................................... 60 Conflicts of Interest and Fiduciary Responsibility........................ 63 Description of Depositary Units and the Deposit Agreement................. 67 Summary of the Partnership Agreements..................................... 73 Summary of the Financing Documents........................................ 82 Allocations of Income and Loss............................................ 90 Certain Federal Income Tax Considerations................................. 90 ERISA and Other Considerations Concerning Employee Benefit Plans and Retirement Accounts...................................................... 110 Underwriting.............................................................. 113 Legal Opinions............................................................ 115 Experts................................................................... 115 Available Information..................................................... 115 Incorporation of Certain Documents by Reference........................... 116 Glossary of Terms......................................................... 117 Index to Financial Statements............................................. F-1
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Borden Chemicals and Plastics Limited Partnership 4,000,000 Depositary Units Representing Common Limited Partner Interests PROSPECTUS CS First Boston PaineWebber Incorporated - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS TO REGISTRATION STATEMENT ON FORM S-3 OF BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP (THE "COMPANY") ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following sets forth the estimated expenses and costs in connection with issuance and distribution of the securities being registered, other than underwriting discounts and commissions, all of which shall be paid by the Company. Securities and Exchange Commission Registration Fee........... $ 21,850 National Association of Securities Dealers Filing Fee......... 11,425 Printing and Expenses......................................... 350,000 Legal Fees and Expenses....................................... 720,000 Accounting Fees and Expenses.................................. 125,000 Blue Sky expenses and counsel fees............................ 15,000 Miscellaneous................................................. 50,000 ---------- Total..................................................... $1,293,275 ==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 17-108 of the Delaware Revised Uniform Limited Partnership Act provides that subject to such standards and restrictions, if any, as are set forth in its partnership agreement, a limited partnership may and shall have to power to indemnify and hold harmless any partner or other person from and against any and all claims and demands whatsoever. Section 6.7 of the Partnership Agreement provides that the Company will to the fullest extent permitted by law, indemnify the General Partner (as defined in the Partnership Agreement), any Departing Partner (as defined in the Partnership Agreement) and their respective affiliates and the officers, directors, employees, partners, agents and trustees of the General Partner, any Departing Partner or any such affiliate as an officer, director, employee, partner, agent or trustee of another person from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, demands, actions, suits, or proceedings, civil, criminal, administrative, or investigative, in which any such indemnified person may be involved, or is threatened to be involved, as a party or otherwise, by reason of its status as the General Partner, a Departing Partner or an affiliate thereof, an officer, director, partner, employee, agent or trustee of the General Partner, any Departing Partner or affiliate thereof, or a person serving at the request of the Company in another entity in a similar capacity, if such person acted in good faith and in a manner which such person in good faith believed to be in, or not opposed to, the best interests of the Company, and, with respect to any criminal proceeding, had no reasonable cause to believe its conduct was unlawful. Any indemnification under this provision will be limited to the assets of the Company. Section 6.7 of the partnership agreement for the Operating Company provides that the Operating Partnership will, to the fullest extent permitted by law, indemnify the General Partner (as defined in such Partnership Agreement), any Departing Partner (as defined in such Partnership Agreement) and their respective affiliates and the officers, directors, employees, partners, agents and trustees of the General Partner, and Departing Partner or any such affiliate and persons serving at the request of the General Partner or any Departing partner or any such affiliate as an officer, director, employee, partner, agent or trustee of another person from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, settlements and other amounts arising from any and all claims, II-1 demands, actions, suits or proceedings, civil, criminal, administrative or investigative, in which any such indemnified person may be involved, or is threatened to be involved, as a party or otherwise, by reason of its status as the General Partner, a Departing Partner or an affiliate thereof, an officer, director, partner, employee, agent or trustee of the General Partner, any Departing Partner or affiliate thereof, or a person serving at the request of the Operating Partnership, and, with respect to any criminal proceeding, had no reasonable cause to believe its conduct was unlawful. Any indemnification under this provision will be limited to the assets of the Operating Partnership. The Company and Operating Company are authorized to purchase and maintain insurance, on behalf of the General Partner (as defined in each of the Partnership Agreements) for the Partnership and the Operating Partnership as applicable and such other persons as the General Partner shall determine, against liabilities and expenses incurred by such person in connection with the Company's and Operating Company's activities as applicable, whether or not the Company or the Operating Company, as applicable, would have the power to indemnify such person against such liabilities or expenses under the provisions of the Partnership Agreement of the Company and the Operating Company as applicable. The form of Underwriting Agreement contains provisions by which the Underwriters severally agree to indemnify the Company and the General Partner, their directors, each of their officers who signs the Registration Statement of the Company, and each person who controls the General Partner, with respect to information furnished in writing by the Underwriters for use in the Registration Statement. Section 145 of the Delaware General Corporation Law sets forth the extent to which a person who is a director or officer of a Delaware corporation or serves at the request of a Delaware corporation as a director, officer, employee or agent of any other enterprise may be indemnified against any liabilities they may incur in their capacity as such. Article Eleventh of the General Partner's Certificate of Incorporation and Section 7 of Article V of the General Partner's Bylaws provide for the indemnification of directors and officers of the General Partner and such directors and officers who serve at the request of the General Partner as directors, officers, employees, or agents of any other enterprise against certain liabilities under certain circumstances. In addition, the General Partner has provided for the indemnification of the General Partner's directors (to the extent permitted under Delaware law). ITEM 16. EXHIBITS 1.1 Form of Underwriting Agreement dated as of , 1994 among Borden Chemicals and Plastics Limited Partnership (the "Company"), Borden Chemicals and Plastics Operating Limited Partnership (the "Operating Company"), BCP Management, Inc. ("General Partner"), CS First Boston Corporation and PaineWebber Incorporated 2.1* Asset Transfer Agreement dated as of August 12, 1994 between the Operating Company and OxyChem Chemical Corporation The registrant hereby agrees to provide the Commission, upon request, copies of any omitted schedules required by Item 601(b)(2) of Regulation S-K 4.1/1/ Amended and Restated Certificate of Limited Partnership of the Company 4.2/1/ Amended and Restated Certificate of Limited Partnership of the Operating Company 4.3/1/ Amended and Restated Agreement of Limited Partnership of the Company dated as of December 15, 1988 4.4/2/ Amended and Restated Agreement of Limited Partnership of the Operating Company dated as of November 30, 1987 4.5 ** Form of Depositary Receipt for Units
II-2 4.6** Form of Third Amended and Restated Deposit Agreement dated as of , 1994 among the Company, General Partner, Borden, Inc. and Society National Bank 5.1 Opinions of Sidley & Austin and Richards, Layton & Finger re legality 8.1 Opinion of Sidley & Austin re tax matters 23.1 Consents of Sidley & Austin and Richards, Layton & Finger (contained in Exhibit 5.1) 23.2 Consent of Price Waterhouse LLP, dated November , 1994 23.3 Consent of Arthur Andersen LLP, dated November , 1994 24.1*** Powers of Attorney
- -------- * confidential treatment requested ** to be filed by amendment *** previously filed /1/ Filed as an exhibit to the joint Registration Statement on Form S-1 and Form S-3 of the Company, Borden, Inc. and Borden Delaware Holdings, Inc. (File No. 33-25371) and incorporated herein by reference in this Registration Statement. /2/ Filed as an exhibit to the Company's Registration Statement on Form S-1 (File No. 33-18938) and incorporated herein by reference in this Registration Statement. /3/ Filed as an exhibit to the Company's 1992 Form 10-K Annual Report and incorporated herein by reference in this Registration Statement. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchanges Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1993 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. The registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it is declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW YORK, ON NOVEMBER 17, 1994. Borden Chemicals and Plastics Limited Partnership By BCP Management, Inc., in its capacity as General Partner of Borden Chemicals and Plastics Limited Partnership /s/ David A. Kelly* By: _________________________________ Name: (David A. Kelly, Treasurer and Principal Financial Officer) PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED (WITH BCP MANAGEMENT INC., GENERAL PARTNER) ON NOVEMBER 17, 1994.
SIGNATURE TITLE --------- ----- /s/ Joseph M. Saggese* - ------------------------------------ (Joseph M. Saggese) Chairman of the Board of Directors, President and Chief Executive Officer and Director /s/ James O. Stevning* - ------------------------------------ (James O. Stevning) Controller and Principal Accounting Officer /s/ David A. Kelly* - ------------------------------------ (David A. Kelly) Treasurer and Principal Financial Officer and Director /s/ Edward H. Jennings* - ------------------------------------ (Edward H. Jennings) Director /s/ George W. Koch* - ------------------------------------ (George W. Koch) Director /s/ John P. Stapleton* - ------------------------------------ (John P. Stapleton) Director /s/ Ronald P. Wiles* - ------------------------------------ (Ronald P. Wiles) Director
/s/ Lawrence L. Dieker *By: __________________________ Name: (Lawrence L. Dieker, Attorney- In-Fact) II-4 GRAPHICS APPENDIX LIST PAGE WHERE GRAPHIC APPEARS DESCRIPTION OF GRAPHIC OR CROSS-REFERENCE - -------------------------------------------------------------------------------- 23 - Borden, Inc. owns 100% of the common shares of BCP Management, Inc. - BCP Management, Inc. is the sole general partner of each of Borden Chemicals and Plastics Limited Partnership and Borden Chemicals and Plastics Operating Limited Partnership - BCP Management, Inc. owns a 1% general partner interest in Borden Chemicals and Plastics Limited Partnership - BCP Management, Inc. owns a 1.0101% general partner interest in Borden Chemicals and Plastics Operating Limited Partnership - Borden Chemicals and Plastics Limited Partnership owns a 98.9899% limited partner interest in Borden Chemicals and Plastics Operating Limited Partnership - Public Unitholders, in the aggregate, own a 99% limited partner interest in Borden Chemicals and Plastics Limited Partnership - Public Unitholders own 40,750,000 Common Units after giving effect to the sale of the Units offered hereby and assuming the Underwriters' over-allotment option is not exercised. - -------------------------------------------------------------------------------- 43 - The three primary raw materials used by the Company are natural gas, ethylene, and chlorine. Ethylene and chlorine are used exclusively in the ethylene-base vinyl chloride monomer ("VCM") plant which produces VCM and by product hydrochloric acid. - Natural gas is used in four primary ways: a) as a fuel in the cogeneration units to produce steam and electricity for plant-wide use; b) as a fuel and raw material in the acetylene plant which produces acetylene and acetylene off-gas; c) as a fuel and raw material in the methanol plant which produces methanol; and, d) as a fuel and raw material in the ammonia plant which produces ammonia and by product carbon dioxide. - Because of the design and integration of the plant each of the above noted products are further used by the Company to produce other downstream products. Acetylene and by product hydrochloric acid from the ethylene-based VCM plant are combined to produce acetylene-based VCM. The VCM from both the ethylene-based and acetylene-based VCM plants is then further used to produce polyvinyl chloride (PVC) resins. Acetylene off-gas is used to produce methanol and also may be cryogenically separated to produce carbon monoxide and hydrogen. Methanol is also further used to produce formaldehyde and urea-formaldehyde concentrate. Ammonia and its by product carbon dioxide are used to produce urea. The above description is designed to describe the integrated processes by which three primary raw materials: natural gas, ethylene, and chlorine are converted into the major end products produced by the Company: PVC resins, methanol, formaldehyde and urea-formaldehyde concentrate, ammonia, and urea. EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE ------- ----------- ---- 1.1 Form of Underwriting Agreement dated as of , 1994 among Borden Chemicals and Plastics Limited Partnership (the "Company"), Borden Chemicals and Plastics Operating Limited Partnership (the "Operating Company"), BCP Management, Inc. ("General Partner"), CS First Boston Corporation and PaineWebber Incorporated 2.1* Asset Transfer Agreement dated as of August 12, 1994 between the Operating Company and OxyChem Chemical Corporation The registrant hereby agrees to provide the Commission, upon request, copies of any omitted schedules required by Item 601(b)(2) of Regulation S-K 4.1/1/ Amended and Restated Certificate of Limited Partnership of the Company 4.2/1/ Amended and Restated Certificate of Limited Partnership of the Operating Company 4.3/1/ Amended and Restated Agreement of Limited Partnership of the Company dated as of December 15, 1988 4.4/2/ Amended and Restated Agreement of Limited Partnership of the Operating Company dated as of November 30, 1987 4.5** Form of Depositary Receipt for Units 4.6** Form of Third Amended and Restated Deposit Agreement dated as of , 1994 among the Company, General Partner, Borden, Inc. and Society National Bank 5.1 Opinions of Sidley & Austin and Richards, Layton & Finger re legality 8.1 Opinion of Sidley & Austin re tax matters 23.1 Consents of Sidley & Austin and Richards, Layton & Finger (contained in Exhibit 5.1) 23.2 Consent of Price Waterhouse LLP, dated November , 1994 23.3 Consent of Arthur Andersen LLP, dated November , 1994 24.1*** Powers of Attorney
- -------- * confidential treatment requested ** to be filed by amendment *** previously filed /1/ Filed as an exhibit to the joint Registration Statement on Form S-1 and Form S-3 of the Company, Borden, Inc. and Borden Delaware Holdings, Inc. (File No. 33-25371) and incorporated herein by reference in this Registration Statement. /2/ Filed as an exhibit to the Company's Registration Statement on Form S-1 (File No. 33-18938) and incorporated herein by reference in this Registration Statement. /3/ Filed as an exhibit to the Company's 1992 Form 10-K Annual Report and incorporated herein by reference in this Registration Statement. EX-1.1 2 UNDERWRITING AGREEMENT EXHIBIT 1.1 Draft 11/21/94 BORDEN CHEMICALS AND PLASTICS LIMITED PARTNERSHIP 4,000,000 COMMON UNITS UNDERWRITING AGREEMENT ---------------------- ___________ ___, 1994 CS First Boston Corporation PaineWebber Incorporated As Representatives of the Several Underwriters, c/o CS First Boston Corporation, Park Avenue Plaza New York, New York 10055 Dear Sirs: 1. Introductory. Borden Chemicals and Plastics Limited Partnership, a Delaware limited partnership (the "Company") proposes to issue and sell to the Underwriters (hereinafter defined) 4,000,000 common limited partner interests in the Company ("Common Interests") on a firm basis and up to 600,000 of such Common Interests on an optional basis.. The Common Interests are to be deposited upon issuance with Society National Bank, as Depositary (the "Depositary"), in exchange for depositary units evidenced by depositary receipts ("Depositary Receipts"). Unless the context otherwise requires, all references to "Common Units" shall be deemed to include the Common Interests sold to the Underwriters. The Common Units so proposed to be sold by the Company to the Underwriters on a firm basis are hereinafter referred to as "Firm Common Units" and the Common Units so proposed to be sold by the Company to the Underwriters on an optional basis are hereinafter referred to as the "Optional Common Units." The Firm Common Units and the Optional Common Units are hereinafter referred to as the "Securities." All capitalized terms which are not defined in this Agreement shall be given the same meaning as such terms have in the Registration Statement (hereinafter defined). The Company, Borden Chemicals and Plastics Operating Limited Partnership, a Delaware limited partnership (the "Operating Company"), and BCP Management, Inc., a Delaware corporation and the general partner of the Company and the Operating Company ("BCPM" or the "General Partner"), hereby agree with the several Underwriters named in Schedule I hereto (the "Underwriters") as follows: 2. Representations, Warranties and Agreements of the Company and Others. (a) Each of the Company, the Operating Company and BCPM, jointly and severally represents and warrants to, and agrees with, the several Underwriters that: (i) A registration statement on Form S-3 (No. 33-55863), including a form of prospectus relating to the Securities has been filed with the Securities and Exchange Commission (the "Commission") and either (A) has been declared effective under the Securities Act of 1933, as amended ("Act"), and is not proposed to be amended or (B) is proposed to be amended by amendment or post-effective amendment. If the Company does not propose to amend such registration statement and if any post-effective amendment to such registration statement has been filed with the Commission prior to the execution and delivery of this Agreement, the most recent such amendment has been declared effective by the Commission. For purposes of this Agreement, "Preliminary Prospectus" means any prospectus included in such registration statement, or amendments to such registration statement, before such registration statement has been declared effective by the Commission and any prospectus filed by the Company with the Commission pursuant to Rule 424(a) under the Act. For purposes of this Agreement, "Effective Time" means (A) if the Company has advised you that it does not propose to amend such registration statement, the date and time as of which such registration statement, or the most recent post-effective amendment thereto (if any) filed prior to the execution and delivery of this Agreement, was declared effective by the Commission, or (B) if the Company has advised you that it proposes to file an amendment or post-effective amendment to such registration statement, the date and time as of which such registration statement, as amended by such amendment or post-effective amendment, as the case may be, is declared effective by the Commission. "Effective Date" means the date of the Effective Time. Such registration statement, as amended at the Effective Time, including all material incorporated by reference therein and including all information (if any) deemed to be a part of such registration statement as of the Effective Time pursuant to Rule 430A(b) under the Act, is hereinafter referred to as the "Registration Statement," and the form of prospectus relating to the Securities, as first filed with the Commission pursuant to and in accordance with Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is required) as included in the Registration Statement, including all material incorporated by reference in such prospectus, is hereinafter referred to as the "Prospectus." (ii) If the Effective Time is prior to the execution and delivery of this Agreement: (A) on the Effective Date, the Registration Statement conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission under the Act (the "Rules and Regulations") and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (B) on the date of this Agreement, the Registration Statement conforms, and at the time of filing of the Prospectus pursuant to Rule 424(b), the Registration Statement and the Prospectus will conform, in all material respects to the requirements of the Act and the Rules and Regulations, and neither of such documents contains or will contain, an untrue statement of a material fact or omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. If the Effective Time is subsequent to the execution and delivery of this Agreement: on the Effective Date, the Registration Statement and the Prospectus will conform in all material respects to the requirements of the Act and the Rules and Regulations, and neither of such documents will contain an untrue statement of a material fact or will omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. The two preceding sentences do not apply to statements in, or omissions from the Registration Statement or the Prospectus based upon written information furnished to the Company by any Underwriter through the Representatives specifically for use therein. No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission. (iii) Other than as provided in the Partnership Agreement (as defined below) or pursuant to [names of benefit plans], there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the Securities registered pursuant to the Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Act. 2 (iv) Subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, and except as set forth or contemplated in the Prospectus, none of the Company, the Operating Company or BCPM has incurred any material liabilities or obligations, direct or contingent, nor entered into any material transactions not in the ordinary course of business, and, subsequent to the respective dates as of which information is given in the Registration Statement and Prospectus, and except as set forth or contemplated in the Prospectus, there has not been (A) any material adverse change in the financial condition, business, properties, prospects or results of operations of the Company, the Operating Company, BCPM or, to the knowledge of such persons, Borden, Inc., a New Jersey corporation ("Borden"), which has a reasonable probability of materially adversely affecting (1) the financial condition, business, properties, prospects or results of operations of the Company and the Operating Company on a combined basis, or BCPM, or (2) to the best knowledge of the Operating Company, the Company and BCPM, Borden's ability (or the ability of any of Borden's subsidiaries or affiliates) to fulfill their obligations under any of the Operative Agreements (hereinafter defined), (B) any dividend or distribution of any kind declared, paid or made by the Company, the Operating Company or BCPM, or (C) any decrease in the equity or increase in the long-term debt of the Company, the Operating Company or BCPM other than increases in long term debt that do not exceed in the aggregate $2.0 million and other than the concurrent offering of notes by the Operating Company and BCP Finance Corporation, a Delaware corporation and a wholly owned subsidiary of the Operating Company. (v) The pro forma financial information set forth in the Prospectus and the pro forma financial information set forth in the Preliminary Prospectus dated __________, 1994 has been prepared in all material respects in accordance with any applicable rules and guidelines of the Commission with respect to pro forma financial statements and, in the opinion of the Company, the Operating Company, and BCPM, the assumptions on which the pro forma adjustments to such pro forma financial information are based provide a reasonable basis for presenting all of the significant effects of the transactions contemplated by such pro forma financial information and such pro forma adjustments give appropriate effect to such assumptions and are properly applied in such pro forma financial information. The audited and unaudited financial statements and schedules included in the Registration Statement and the Prospectus (other than with respect to pro forma matters) present fairly the financial position and the results of operations of the Company, the Operating Company and their consolidated subsidiaries on a consolidated basis, at the respective dates or for the respective periods therein specified, in conformity with generally accepted accounting principles applied on a consistent basis, except as may be set forth in the Prospectus. The other historical financial and statistical information and data included in the Prospectus and in the Registration Statement are, in all material respects, accurately presented and prepared in accordance with any applicable rules and guidelines of the Commission and on a basis consistent with such financial statements and the books and records of the Company and the Operating Company. (vi) Price Waterhouse LLP on the one hand, and Arthur Andersen LLP, on the other hand, who have expressed their respective opinions on the audited financial statements included in the Preliminary Prospectus dated __________, 1994 and on the audited financial statements and related schedules included in the Registration Statement and the Prospectus, are independent accountants with respect to the Company and BCPM on the one hand, and the Addis Plant on the other hand, as required by the Act and the applicable published Rules and Regulations. 3 (vii) Each of the Company and the Operating Company has been duly formed and is validly existing and in good standing as a limited partnership under the Delaware Revised Uniform Limited Partnership Act (the "Delaware Act") with full partnership power and authority to own or lease its properties (including, without limitation, in the case of the Operating Company, the Addis Assets), to conduct its business as described in the Prospectus after giving effect to the transfer of the Addis Assets and to execute, deliver and perform this Agreement and, in the case of the Company, to authorize the offering of the Securities, and to issue, sell and deliver the Securities; the Company's only subsidiary is the Operating Company; the Operating Company's only subsidiaries are Monochem, Inc. and Borden Finance Corporation; to the knowledge of the Company, the Operating Company and BCPM, on the First Closing Date (as defined in Section 3), all action required on the part of OxyChem to be taken by such First Closing Date for the conveyance and transfer of the Addis Assets to the Operating Company will have been validly and sufficiently taken; the Company, the Operating Company and BCPM will, after giving effect to the transfer of the Addis Assets as described in the Prospectus, be in possession of and operating in compliance in all material respects with all material franchises, grants, authorizations, approvals, licenses, permits, easements, consents, certificates and orders required to own or lease their properties (including, without limitation, in the case of the Operating Company), to own the Addis Assets and to assume certain obligations relating to the Addis Assets and to permit the conduct of their business, except for those franchises, grants, authorizations, approvals, licenses, permits, easements, consents, certificates and orders (the "Permitted Exceptions") which (a) can be expected to be obtained or given in the normal course of business after the Closing Date or Dates hereinafter mentioned, (b) are of a routine nature not customarily obtained or given prior to the consummation of a transaction of the nature of the transfer of the Addis Assets and are expected to be obtained or given after the Closing Date or Dates hereinafter mentioned or (c) the failure to obtain or give would not materially and adversely affect the business or the operations of the Company and the Operating Company on a combined basis, or BCPM, as a result of indemnity or otherwise; and each of the Company and the Operating Company is duly qualified or registered and in good standing as a foreign partnership in all other jurisdictions where, after the conveyance to the Operating Company of the Addis Assets, its ownership or leasing of properties or the conduct of its business would require such qualification or registration, except where failure to so qualify will not have a material effect on its financial condition. (viii) BCPM is the general partner of each of the Company and the Operating Company and owns a general partner interest in the Company of 1% and a general partner interest in the Operating Company of 1.0101%. BCPM has made all capital contributions to the Company which it is required to make pursuant to the Partnership Agreement, and upon the issuance of the Firm Common Units and the Optional Common Units, if any, as the case may be, BCPM shall make the additional capital contribution to the Company as required by Section 4.4(a)(iv) of the Partnership Agreement. BCPM's general partner interests in the Company and the Operating Company are validly issued, fully paid, and owned free and clear of any liens, encumbrances, security interests, equities and claims (except in each case as provided by the Delaware Act, by the Partnership Agreements or as set forth in the Prospectus). (ix) The Company is the sole limited partner of the Operating Company with a limited partner interest in the Operating Company of 98.9899%. The Company's limited partner interest in the Operating Company is validly issued and, except as provided in the Partnership Agreements, subject to the qualifications set forth in the following sentence, is fully paid and non-assessable and owned free and clear of any liens, encumbrances, security interests, equities and claims. Assuming that the Company does not participate in the control 4 of the business of the Operating Company (within the meaning of the Delaware Act) and that it does no more than exercise its rights as a limited partner of the Operating Company, the Company, as limited partner of the Operating Company, will have no liability in excess of its obligations to make contributions to the Operating Company, its obligations to make other payments provided for in the Operating Partnership Agreement (as defined below) (the Partnership Agreement and the Operating Partnership Agreement are collectively referred to as the "Partnership Agreements") and its share of the Operating Company's assets and undistributed profits (subject to the obligation of a limited partner of a limited partnership no greater than the obligation of such limited partner to repay (i) to the limited partnership, to the extent provided under repealed 6 Del. C. (S) 17-608, for a period of one year after any rightful return, any part of its contribution to the limited partnership rightfully returned to it, but only to the extent necessary to discharge the limited partnership's liabilities to creditors who extended credit to the limited partnership during the period the contribution was held by the limited partnership and (ii) any funds wrongfully returned to the extent provided under repealed 6 Del. C. (S)17-608 or wrongfully distributed to it). (x) The Securities conform in all material respects to the description thereof in the Prospectus and such description conforms in all material respects to the rights set forth in the Partnership Agreement. (xi) All of the Common Units have been duly and validly authorized by the Company, and at the time of the delivery of the Securities to the Underwriters against payment therefor, all of the outstanding Securities will be duly and validly issued and, subject to the qualifications set forth in the following sentence, will be fully paid and non-assessable and owned free and clear of any liens, encumbrances, security interests, equities and claims. Assuming that the holder of any such Security does not participate in the control of the business of the Company (within the meaning of the Delaware Act) and that he does no more than exercise his rights as a Limited Partner (as defined in the Partnership Agreement), such holder (other than a Departing Partner), as a Limited Partner, will have no liability in excess of his obligation to make contributions to the Company, his obligation to make other payments provided for in the Partnership Agreement and the Deposit Agreement (as defined below) and his share of the Company's assets and undistributed profits (subject to the obligation of a limited partner of a limited partnership no greater than the obligation of such limited partner to repay (i) to the limited partnership, to the extent provided under repealed 6 Del. C. (S) 17-608, for a period of one year after any rightful return, any part of his contribution to the limited partnership rightfully returned to him, but only to the extent necessary to discharge the limited partnership's liabilities to creditors who extended credit to the limited partnership during the period the contribution was held by the limited partnership, and (ii) any funds wrongfully returned to the extent provided under repealed 6 Del. C. (S)17-608 or wrongfully distributed to him). The sale of the Securities pursuant to this Agreement is not subject to the preemptive rights of any person or entity. (xii) This Agreement has been duly authorized, executed and delivered by the Company, the Operating Company and BCPM and, assuming due authorization, execution and delivery by the Underwriters, is a valid and binding agreement of the Company, the Operating Company and BCPM, and is enforceable against each of such parties in accordance with its terms; the Amended and Restated Agreement of Limited Partnership of the Company among Borden Delaware Holdings, Inc., a Delaware corporation ("Borden Delaware"), BCPM (as General Partner and agent and attorney-in-fact on behalf of the limited partners of the Company), together with the persons who became partners thereof, as amended and restated (the "Partnership Agreement"), has been duly authorized, executed and delivered by Borden Delaware and BCPM, and is a valid and binding agreement of Borden Delaware and BCPM, 5 enforceable against Borden Delaware and BCPM, in accordance with its terms; the Agreement of Limited Partnership of the Operating Company between BCPM and the Company, as amended and restated (the "Operating Partnership Agreement"), has been duly authorized, executed and delivered by BCPM and the Company, and is a valid and binding agreement of BCPM and the Company, enforceable against BCPM and the Company in accordance with its terms; the Third Amended and Restated Deposit Agreement among the Company, Borden, BCPM (as General Partner and as attorney-in-fact for the Limited Partners and Assignees and the Depositary (the "Deposit Agreement") has been duly authorized, executed and delivered by the Company, Borden and BCPM, and assuming due authorization, execution and delivery by the Depositary, is a valid and binding agreement of the Company, Borden and BCPM, enforceable against the Company, Borden and BCPM, and to the best knowledge of the Company, the Operating Company and BCPM, against the Depositary, in accordance with its terms; the Asset Transfer Agreement between the Operating Company and OxyChem, dated as of August 12, 1994, (the "Asset Transfer Agreement") has been duly authorized, executed and delivered by the Operating Company, and assuming the due authorization, execution and delivery by OxyChem, is a valid and binding agreement of the Operating Company, and to the best knowledge of the Company, the Operating Company and BCPM, of OxyChem, enforceable against the Operating Company, and to the best knowledge of the Company, the Operating Company and BCPM, against OxyChem, in accordance with its terms; the Ammonia Purchase Agreement, the PVC Purchase Agreement, the Urea Purchase Agreement, the Methanol Purchase Agreement, the Formaldehyde Processing Agreement and the Urea-Formaldehyde Concentrate Processing Agreement, all of which agreements are between the Operating Company and Borden and are hereinafter collectively referred to as the "Purchase and Processing Agreements," have been duly authorized, executed and delivered by each of the Operating Company and Borden and are valid and binding agreements of each of the Operating Company and Borden, enforceable against each of the Operating Company and Borden in accordance with their terms; the Intercompany Agreement among the Company, the Operating Company, BCPM and Borden (the "Intercompany Agreement") has been duly authorized, executed and delivered and is a valid and binding agreement of the Company, the Operating Company, BCPM and Borden enforceable against each of such parties in accordance with its terms; the Borden and BCPM Covenant Agreement among the Company, BCPM and Borden (the "Borden and BCPM Covenant Agreement") has been duly authorized, executed and delivered by the Company, BCPM and Borden, is a valid and binding agreement of the Company, BCPM and Borden, enforceable against each of such parties in accordance with its terms; the Environmental Indemnity Agreement among the Company, the Operating Company and Borden (the "Environmental Indemnity Agreement") has been duly authorized, executed and delivered by each of the Company, the Operating Company and Borden, and is a valid and binding agreement of the Company, the Operating Company and Borden, enforceable against each of such parties in accordance with its terms; the Use of Name and Trademark License Agreement among the Company, the Operating Company and Borden (the "Use of Name and Trademark License Agreement") has been duly authorized, executed and delivered by the Company, the Operating Company and Borden and is a valid and binding agreement of the Company, the Operating Company and Borden, enforceable against each of such parties in accordance with its terms; the Patent and Know-How Agreement among the Company, the Operating Company and Borden (the "Patent and Know-How Agreement") has been duly authorized, executed and delivered by the Company, the Operating Company and Borden and is a valid and binding agreement of the Company, the Operating Company and Borden, enforceable against each of such parties in accordance with its terms; all necessary filings with respect to the formation of the Company and the Operating Company as limited partnerships under the Delaware Act have been made; and all of the statements in the Certificate of Limited Partnership of the Company (the "Partnership Certificate") and the Certificate of Limited Partnership of the Operating Company (the "Operating Partnership Certificate") are 6 true and correct in all material respects. The representations and warranties expressed herein with respect to the enforceability of this Agreement and the Operative Agreements (hereinafter defined) are qualified to the extent that such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium and other similar laws affecting the rights and remedies of creditors, and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and, without limiting the foregoing, the Company, the Operating Company and BCPM make no representation or warranty regarding the enforceability of Section 7 of this Agreement. (xiii) The Securities to be sold by the Underwriters have been approved for listing on the New York Stock Exchange, subject to official notice of issuance. (xiv) Except as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company, the Operating Company, or BCPM or, to the knowledge of such persons, Borden is a party or of which any property of the Company, the Operating Company, BCPM or, to the knowledge of such persons, Borden is the subject, which have a reasonable probability, individually or in the aggregate, of materially adversely affecting, (i) to the best knowledge of the Company the Operating Company and BCPM, the ability of Borden (or any of its subsidiaries or affiliates) to fulfill its obligations under any of the Operative Agreements or (ii) the financial condition, business, properties, prospects or results of operations of the Company and the Operating Company on a combined basis, or BCPM; and, to the best knowledge of the Company, the Operating Company and BCPM, no such proceedings are threatened by governmental authorities or by others. (xv) The execution, delivery and performance of this Agreement, the Partnership Agreement, the Operating Partnership Agreement, the Deposit Agreement, the Asset Transfer Agreement, the Purchase and Processing Agreements, the Intercompany Agreement, the Environmental Indemnity Agreement, the Use of Name and Trademark License Agreement and the Patent and Know-How Agreement (collectively, the "Operative Agreements") and the consummation of the transactions contemplated in the Prospectus to be consummated on or prior to the Closing Date or Dates hereinafter mentioned (including, without limitation, the conveyance of the Addis Assets to the Operating Company) do not and will not (i) conflict with or result in breach or violation of any of the terms or provisions of, or constitute a default under the Operative Agreements, the Partnership Certificate, the Operating Partnership Certificate, the charter documents, as amended, or by-laws, as amended, of BCPM or, to the knowledge of such persons, Borden or any material indenture, mortgage, deed of trust, note agreement or other material agreement or instrument to which the Company, the Operating Company, BCPM or, to the knowledge of such persons, Borden is a party or by which they or any of them or any of their respective properties are bound, or (ii) except for violations caused by failure to obtain any Permitted Exceptions, constitute a violation of any statute, rule, regulation, judgment, order or decree of any federal, state or local government, governmental instrumentality or court having jurisdiction over the Company, the Operating Company, BCPM or, to the knowledge of such persons, Borden or any of their respective properties, which conflicts, breaches, violations or defaults in the case of (i) or (ii) have a reasonable probability of materially adversely affecting the Company and the Operating Company on a combined basis, or BCPM. (xvi) No consent, approval, authorization or order of any court or governmental agency or body is required for the issuance, sale or delivery of the Securities to the Underwriters or the consummation by the Company, the Operating Company or BCPM of the transactions contemplated by this Agreement, except such as may be required by the New York Stock Exchange ("NYSE"), the National Association of Securities Dealers, Inc. ("NASD") 7 or under the Act or the securities or Blue Sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters. (xvii) Except as disclosed in the Prospectus, none of the Company, the Operating Company or BCPM is in default with respect to any material contract or agreement to which it is a party which default has a reasonable likelihood of materially adversely affecting the Company and the Operating Company on a combined basis, or BCPM. BCPM is not in violation of its charter documents, as amended, or by-laws, as amended, and the Company and the Operating Company are not in violation of their Certificates of Limited Partnership. (xviii) Except as described in the Prospectus, the Company, the Operating Company and BCPM possess, and are and have been operating in compliance in all material respects with, all certificates, consents, exemptions, orders, permits, licenses, authorizations, or other approvals (each, an "Authorization") issued by the appropriate local, state, federal or foreign regulatory agencies or bodies necessary or required to own, lease, license and use their properties and assets and to conduct the business currently, or to have conducted the business in the past (or, as described or contemplated in the Prospectus, to be) operated by them, except for such Authorizations which, if not obtained, would not reasonably be expected to have, individually or in the aggregate, a material adverse effect upon the ability of the Company, the Operating Company, or BCPM to conduct their businesses in all material respects as currently conducted and as contemplated by the Prospectus to be conducted; and, except as described in the Prospectus, none of the Company, the Operating Company or BCPM has received any notice of proceedings relating to the revocation or modification of any such Authorization which, individually or in the aggregate, if the subject of an unfavorable decision, rulemaking, anticipated rulemaking, ruling or filing, would be expected to have a material adverse effect upon the ability of the Company, the Operating Company or BCPM to conduct their businesses in all material respects as currently conducted and as contemplated by the Prospectus to be conducted. (xix) Except as disclosed in the Prospectus, none of the Company, the Operating Company or BCPM (i) has violated any environmental, health, safety or similar law or regulation applicable to its business relating to the protection of human health, the environment or relating to hazardous or toxic substances or wastes, solid wastes, pollutants or contaminants ("Environmental Laws"); (ii) lacks any permits, licenses or other approvals required of them under applicable Environmental Laws to own, lease and operate their respective properties and to conduct their business in the manner described in the Prospectus; or (iii) is violating any items and conditions of any such permit, license or approval or has permitted to occur any event that allows, or after notice or lapse of time would allow, revocation, termination of any such permit, license or approval or results in any other impairment of their rights thereunder, which in each case under the immediately preceding clause (i), (ii) or (iii) could reasonably be expected to result, singly or in the aggregate, in a material adverse effect on the Company and the Operating Company on a combined basis, or BCPM. (xx) None of the Company, the Operating Company or BCPM is an "investment company" as that term is defined in the Investment Company Act of 1940, as amended, or is subject to regulation under such Act. (xxi) All of the issued shares of capital stock of BCPM have been duly authorized and validly issued and are fully paid and non-assessable; and all of the issued shares of capital stock of BCPM are owned by Borden, free and clear of all liens, security interests, mortgages, pledges, encumbrances, equities or claims (each, a "Lien"). 8 (xxii) None of the Company, the Operating Company or BCPM does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Section 517.075 of Florida Statutes (Chapter 92-198, Laws of Florida). (xxiii) At each Closing Date, BCPM will have (excluding its interests in the Company and the Operating Company and any notes receivable from or payable to the Company or the Operating Company) a net worth of at least $ million. (xxiv) There are no contracts, agreements or understandings between the Company, the Operating Company or BCPM and any person (other than the Underwriters) that would give rise to a valid claim against any of them or any Underwriter for a brokerage commission, finder's fee or other like payment relating to the offering of the Securities. (xxv) Except as described in the Prospectus, the Company, the Operating Company and BCPM own, possess or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property (collectively "intellectual property rights") necessary to conduct the business now operated by them, or presently employed by them and to their knowledge will own, possess or can acquire adequate intellectual property rights necessary to conduct the business of the Addis Assets and have not received and, to their knowledge, Oxychem has not received any notice of infringement of or conflict with asserted rights of others with respect to any intellectual property rights that, if determined adversely to the Company, the Operating Company or BCPM would individually or in the aggregate have a material adverse effect on the Company and the Operating Company on a combined basis, or BCPM. 3. Purchase, Sale and Delivery of the Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Underwriters, and the Underwriters agree, severally and not jointly, to purchase from the Company, at a purchase price of $______ per Common Unit, the number of Firm Common Units set forth opposite the name of such Underwriter under the caption "Number of Firm Common Units to be Purchased" on Schedule I hereto. The Company will deliver or cause to be delivered the Depositary Receipts representing the Firm Common Units to you for the accounts of the Underwriters, against payment of the purchase price by wire transfer of same day funds to such account of the Company specified by the Company at the New York office of Sidley & Austin, at 10:00 A.M., New York time, on ________________, 1994 or at such other place or time not later than seven full business days thereafter as CS First Boston Corporation ("CS First Boston") and the Company determine, such time and date being referred to herein as the "First Closing Date". On the First Closing Date, the Company will wire transfer to CS First Boston an amount equal to the overnight cost of borrowing the purchase price referred to above, such amount to be confirmed to the Company in writing. The Depositary Receipts representing the Firm Common Units will be delivered to or upon the order of CS First Boston and PaineWebber Incorporated (the "Representatives") in the form of one or more permanent global securities, representing the amount of Securities then being sold to the Underwriters (the "Global Securities"), which will be deposited with The Depository Trust Company ("DTC"), for credit to the respective accounts of the Underwriters, unless otherwise directed by the Representatives, and registered in the name of Cede & Co. as nominee of DTC. In addition, upon written notice from CS First Boston given to the Company from time to time not more than 30 days subsequent to the date of the Prospectus, the Underwriters may purchase all or less than all of the Optional Common Units at the purchase price per Security to be paid for the Firm Common Units. The Company agrees to sell to the Underwriters and the Underwriters agree, 9 severally and not jointly, to purchase from the Company, the number of Optional Common Units (subject to adjustment by you to eliminate fractions) which bears the same proportion to the total number of Optional Common Units to be purchased which the number of Securities set forth opposite the name of such Underwriter under the caption "Number of Firm Common Units to be Purchased" in Schedule I hereto bears to the total number of Firm Common Units. Such Optional Common Units may be purchased by the Underwriters only for the purpose of covering over-allotments made in connection with the sale of the Firm Common Units. No Optional Common Units shall be sold or delivered unless the Firm Common Units previously have been, or simultaneously are, sold and delivered. The right to purchase the Optional Common Units or any portion thereof may be exercised from time to time and to the extent not previously exercised may be surrendered and terminated at any time upon notice by CS First Boston to the Company. Each time for delivery of and payment for the Optional Common Units, being herein referred to as an "Optional Closing Date", which may be the First Closing Date (the First Closing Date and each Optional Closing Date, if any, being sometimes referred to as a "Closing Date"), shall be determined by CS First Boston but shall be not later than seven full business days after written notice of election to purchase the Optional Common Units is given. The Company will deliver or cause to be delivered the Depository Receipts representing the Optional Common Units on each Optional Closing Date to you for the accounts of the several Underwriters against payment of the purchase price therefor by wire transfer of same day funds to such account of the Company specified by the Company at the New York office of Sidley & Austin. On each Optional Closing Date, the Company will wire transfer to CS First Boston an amount equal to the overnight cost of borrowing the purchase price referred to above, such amount to be confirmed to the Company in writing. The Depositary Receipts representing the Optional Common Units will be delivered to or upon the order of the Representatives in the form of one or more Global Securities, representing the amount of Securities then being sold to the Underwriters, which will be deposited with DTC, for credit to the respective accounts of the Underwriters, unless otherwise directed by the Representatives, and registered in the name of Cede & Co. as nominee of DTC. 4. Offering by Underwriters. It is understood that the several Underwriters propose to offer the Securities for sale to the public as set forth in the Prospectus. 5. Certain Agreements of the Company and Others. The Company, the Operating Company and BCPM covenant and agree with the several Underwriters that: (a) If the Effective Time is prior to the execution and delivery of this Agreement, the Company will file the Prospectus with the Commission pursuant to Rule 424(b)(1), if applicable (or, if applicable and consented to by you, pursuant to Rule 424(b)(3) or 424(b)(4)), not later than the Commission's close of business on the earlier of (i) the second business day following the execution and delivery of this Agreement or (ii) the fifth business day after the Effective Date; the Company will advise you promptly of any such filing pursuant to Rule 424(b). (b) The Company will advise you promptly of any proposal to amend or supplement the registration statement as filed or the related prospectus or the Registration Statement or the Prospectus and will not effect such amendment or supplementation to which you reasonably object; and the Company will also advise you promptly of the effectiveness of the Registration Statement (if the effective time is subsequent to the execution and delivery of this Agreement) and of any amendment or supplementation of the Registration Statement or the Prospectus, and of the institution by the Commission of any stop order proceedings in respect of the Registration Statement, and will use its best efforts to prevent the issuance of any such stop order and to obtain as soon as possible its lifting, if issued. 10 (c) If, at any time when a prospectus relating to the Securities is required to be delivered under the Act, any event occurs as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact, or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus or the Registration Statement to comply with the Act, the Company will promptly notify you of such event and will promptly prepare and file with the Commission, at its own expense an amendment or supplement which will correct such statement or omission or an amendment or supplement which will effect such compliance. Neither your consent to or failure to disapprove of, nor the Underwriter's delivery to the Company of such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6. (d) As soon as practicable, but not later than the Availability Date (as defined below), the Company will make generally available to its security holders an earnings statement, which need not be audited, covering a period of at least twelve months beginning after the Effective Date which will satisfy the provisions of Section 11(a) of the Act. For the purpose of the preceding sentence only, "Availability Date" means the 45th day after the end of the fourth fiscal quarter following the fiscal quarter that includes the Effective Date, except that if such fourth fiscal quarter is the last quarter of the Company's fiscal year, the 90th day after the end of such fourth fiscal quarter. (e) The Company will furnish to you copies of the Registration Statement (seven of which will be signed and will include all exhibits), each related Preliminary Prospectus, the Prospectus and all amendments and supplements to such documents, in each case as soon as available and in such quantities as you reasonably request. (f) The Company and BCPM will take such action as you may reasonably request to qualify the Securities for offering and sale and determination of their eligibility for investment under the laws of such jurisdictions as you designate and will continue such qualification in effect so long as required for the distribution of the Securities, provided that no such qualification shall be required in any jurisdiction where, as a result thereof, the Company, the Operating Company or BCPM would become subject to general service of process or to taxation or qualification to do business as a foreign corporation or foreign limited partnership doing business in such jurisdiction. (g) During the period of five years hereafter, the Company will furnish to you, and upon request, to each of the other Underwriters, as soon as practicable after the end of each fiscal year a copy of its annual report to security holders for such year; and the Company will furnish to you (i) as soon as available, a copy of each report or definitive proxy statement, if any, of the Company filed with the Commission under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or mailed to security holders, and (ii) from time to time, such other information concerning the Company as you may reasonably request, provided that you agree to treat any of such other information which the Company advises you is confidential in a confidential manner. (h) The Company, the Operating Company or BCPM will pay or cause to be paid the following: (i) the fees, disbursements and expense of their counsel and accountants in connection with the registration of the Securities under the Act and all other expenses (except as provided below) in connection with the preparation, printing and filing of the Registration Statement and the Prospectus and amendments and supplements thereto and the furnishing of copies thereof and of any Preliminary Prospectus to the Underwriters and dealers; (ii) the cost of reproducing this Agreement, any Legal Investment Surveys and the preliminary and final forms of Blue Sky Memoranda; (iii) all expenses in connection with the qualification of the Securities for offering and sale as provided in Section 5(f) hereof, including any reasonable fees and disbursements of counsel for the Underwriters 11 in connection with any qualification and in connection with the Legal Investment Survey and the Blue Sky Memoranda in an amount not in excess of $15,000; (iv) the fees charged by the NASD for reviewing the terms of the offering of the Securities; (v) the cost of preparing the Securities; (vi) the fees and expenses of Resources Consultants, Inc., the environmental consultants retained by the Underwriters in an aggregate amount not in excess of $43,000 which includes the amount referenced in Section 5 of the underwriting agreement relating to the issuance and sale by the Operating Company and its subsidiary of $200,000,000 principal amount of Notes due 2001) and (vii) all other costs and expenses incident to the performance of their obligations hereunder which are not otherwise specifically provided for in this Section. It is understood, however, that except as provided in this Section and in Section 9, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, transfer taxes on resale of any of the Securities by them, and any advertising expenses connected with any offers they make. (i) The Company, the Operating Company or BCPM will notify the Underwriters promptly of any change affecting any of the representations, warranties, covenants or agreements contained herein that occurs at any time prior to payment being made to the Company or the Operating Company on the Closing Date or Dates. (j) The Company will use the net proceeds received from the issuance of the Common Units in the manner specified in the Prospectus under "Use of Proceeds." (k) The Company will pay any stamp, transfer or other similar tax imposed in connection with (i) the execution, delivery and performance of this Agreement and (ii) the execution, authentication, issuance, delivery and sale of the Securities or otherwise in connection with the offering or distribution of the Securities, but in no event shall the taxes covered by this Section 5(l) be deemed to include any federal, state or local income taxes. (l) The Company agrees not to offer, sell, contract to sell or otherwise dispose of, or file with the Commission a registration statement under the Act, relating to, any additional Common Units or any security convertible into or exchangeable for Common Units without the prior written consent of CS First Boston for a period of 180 days after the Effective Date of the Registration Statement, other than (i) Common Units transferred to an affiliated (as defined in the Rules and Regulations) company of the Company, provided that such transferee agrees in writing prior to such transfer to be bound by this restriction on disposition with respect to such Common Units as though an original party hereto or (ii) issuances pursuant to the names[ of benefit plans] outstanding on the date hereof. 6. Conditions of the Obligations of the Underwriters. The obligations of the several Underwriters to purchase and pay for the Firm Common Units on the First Closing Date and the Optional Common Units to be purchased on each Optional Closing Date will be subject to the accuracy of the representations and warranties contained herein and the performance of all the covenants and agreements contained herein on the part of the Company, the Operating Company and BCPM, to the accuracy of the statements of their officers made in any certificate furnished pursuant to the provisions hereof, to the performance by them of their obligations hereunder and to the following additional conditions precedent: (a) If the Effective Time is not prior to the execution and delivery of this Agreement, the Effective Time shall have occurred not later than 10:00 P.M. New York time, on the date of this Agreement or such later date as shall have been consented to by you. If the Effective Time is prior to the execution and delivery of this Agreement, the Prospectus shall have been filed with the Commission in accordance with the Rules and Regulations and Section 5(a) of this Agreement. Prior to the Closing Dates, no stop order suspending the effectiveness of the Registration Statement shall 12 have been issued and no proceedings for that purpose shall have been instituted or, to the knowledge of the Company or you, shall be threatened by the Commission. (b) You shall not have advised the Company that the Registration Statement or Prospectus, or any amendment or supplement thereto, contains an untrue statement of fact or omits to state a fact which you have concluded, based on written advice of your counsel, is in either case misleading and in the case of an omission is required to be stated therein or is necessary to make the statements therein not misleading. (c) The closing under the Asset Transfer Agreement shall have occurred either prior to or concurrently with the First Closing Date. (d) On the date of this Agreement you shall have received a letter of Price Waterhouse LLP, addressed to BCPM and you in form and substance satisfactory to you in all respects and dated the date of delivery thereof. The letters to be received from Price Waterhouse LLP will confirm that they are independent accountants with respect to the Company and BCPM within the meaning of the Act and the applicable published Rules and Regulations thereunder and state in effect that: (i) in their opinion the financial statements and schedules examined by them and included or incorporated by reference in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Act and the Securities and Exchange Act of 1934, as amended (the "Exchange Act") and the related published Rules and Regulations; (ii) they have made a review of the unaudited financial statements included in the Registration Statement in accordance with the standards established by the American Institute of Certified Public Accountants; (iii) they have (A) read the unaudited pro forma condensed combined balance sheet as of September 23, 1994 and the unaudited pro forma condensed combined statements of income for the year ended December 31, 1993 and the nine-month period ended September 23, 1994, included in the Registration Statement; (B) inquired of certain officials of the Company and of the Addis Plant who have responsibility for financial and accounting matters about the basis for their determination of the pro forma adjustments, and whether the unaudited pro forma condensed combined financial statements referred to above comply as to form in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X; and (C) proved the arithmetic accuracy of the application of the pro forma adjustments to the historical amounts in the unaudited pro forma condensed combined financial statements. (iv) on the basis of the review referred to in clause (ii) above, a reading of the latest available interim financial statements of the Company (including the consolidation of the Operating Company, if applicable) made available by management of the Company; carrying out certain specified procedures (but not an examination in accordance with generally accepted auditing standards) with respect to the comments set forth in such letter; a reading of the minutes of the meetings (or consents in lieu thereof) of the stockholders, board of directors and standing committees thereof, of BCPM; and inquiries of certain officials of BCPM who have responsibility for financial and accounting matters of the Addis Plant and BCPM, nothing came to their attention which caused them to believe that: 13 (A) the unaudited condensed consolidated financial statements included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the Exchange Act as it applies to Form 10-Q and the related published Rules and Regulations or any material modifications should be made to the unaudited condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles; (B) at the date of the latest available unaudited balance sheet read by such accountants, or at a subsequent specified date not more than five days prior to the date of this Agreement, there was any change in the total current assets, total assets or total historical partners' capital or any increase in total current liabilities or any changes in total short-term indebtedness or long-term indebtedness of the Partnership as compared with amounts shown on the latest balance sheet included in the Prospectus; or (C) for the period from the closing date of the latest unaudited income statement included in the Prospectus to the closing date of the latest available unaudited income statement read by such accountants, or to the subsequent specified date set forth in the immediately preceding paragraph, there were any decreases, as compared with the corresponding period of the previous year in consolidated net trade sales or net affiliated sales or in the total or per Unit amounts of net income or cash distributions declared. except in all cases set forth in clauses (B) and (C) above for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; (v) nothing came to their attention as a result of the procedures specified in paragraph 6(d)(iii) that caused them to believe that the unaudited pro forma combined consolidated financial statements referred to in section 6(d)(iii)(A) included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of Rule 11-02 of Regulation S-X and that the pro forma adjustments have not been properly applied to the historical amounts in compilation of those statements. (vi) they have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in the Registration Statement (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of the Company and its subsidiaries subject to the internal controls of the Company's accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other financial information to be in agreement with such results, except as otherwise specified in such letter. For purposes of this subsection, if the Effective Time is subsequent to the execution and delivery of this Agreement, "Registration Statement" shall mean the registration statement as proposed to be amended by the amendment or post- effective amendment to be filed shortly prior to the Effective Time, and "Prospectus" shall mean the prospectus included in the Registration Statement and schedules included in material incorporated by reference into the Prospectus shall be deemed included in the Registration Statement for purposes of this subsection. 14 (e) On the date of this Agreement you shall have received a letter of Arthur Andersen LLP, addressed to BCPM and you in form and substance satisfactory to you in all respects and dated the date of delivery thereof. The letter to be received from Arthur Andersen LLP will confirm that they are independent accountants with respect to the Addis Plant within the meaning of the Act and the applicable published Rules and Regulations thereunder and state in effect that: (i) in their opinion the financial statements examined by them and included or incorporated by reference in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the Act and related published Rules and Regulations thereunder; (ii) they have made a review of the unaudited financial statements included in the Registration Statement in accordance with the standards established by the American Institute of Certified Public Accountants, as indicated in their reports attached to such letter; (iii) on the basis of the review referred to in clause (ii) above, a reading of the latest available interim financial statements of the Addis Plant made available by management of OxyChem; carrying out certain specified procedures (but not an examination in accordance with generally accepted auditing standards) with respect to the comments set forth in such letter, a reading of the minutes of the meetings (or consents in lieu thereof) of the stockholders, board of directors and standing committees thereof of OxyChem; and inquiries of certain officials of OxyChem which have responsibility or financial and accounting matters of the Addis Plant, nothing came to their attention that caused them to believe that: (A) the unaudited financial statements of the Addis Plant included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations; (B) at the date of the latest available balance sheet of the Addis Plant read by such accountants, or at a subsequent specified date not more than five days prior to the date of this Agreement, there was any increase in total current liabilities or total liabilities of the Addis Plant or, at the date of the latest available balance sheet read by such accountants, or to the subsequent specified date set forth in the immediately preceding paragraph, there was any decrease in total assets, as compared with amounts shown on the latest balance sheet of the Addis Plant included in the Prospectus; or (C) for the period from the closing date of the latest income statement of the Addis Plant included in the Prospectus to the closing date of the latest available income statement read by such accountants there were any decreases, as compared with the corresponding period of the previous year in external sales, net total sales, or net operating income, or in the total amounts of net income of the Addis Plant; except in all cases set forth in clauses (B) and (C) above for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (iv) they have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in the Registration Statement (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of OxyChem and its subsidiaries subject to 15 the internal controls of OxyChem's accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other financial information to be in agreement with such results, except as otherwise specified in such letter. For purposes of this subsection, if the Effective Time is subsequent to the execution and delivery of this Agreement, "Registration Statement" shall mean the registration statement as proposed to be amended by the amendment or post- effective amendment to be filed shortly prior to the Effective Time, and "Prospectus" shall mean the prospectus included in the Registration Statement. (f) You shall have received from Sidley & Austin, special counsel for the Company, the Operating Company and BCPM, an opinion, dated such Closing Date and for purposes of such opinion, Sidley & Austin may rely as to matters involving Delaware law on the opinion of Richards, Layton & Finger, dated such Closing Date, a copy of which opinion shall be delivered to you at the closing (Richards, Layton & Finger may deliver an opinion as to such matters of Delaware law in lieu of the opinion of Sidley & Austin regarding such matters), and for purposes of such opinion, Sidley & Austin may rely as to matters involving Louisiana law on the opinion of ________________, dated such Closing Date, a copy of which opinion shall be delivered to you at the closing, to the effect that: (i) Each of the Company and the Operating Company has been duly formed and is validly existing as a limited partnership under the Delaware Act, with partnership power and authority under the Delaware Act and, insofar as the Company is concerned, under the Partnership Agreement and the Partnership Certificate, and insofar as the Operating Company is concerned, under the Operating Partnership Agreement and the Operating Partnership Certificate, to own or lease its properties (including, without limitation, in the case of the Operating Company, the Addis Assets (as such term is defined in the Prospectus)) and to conduct its business, as described in the Prospectus. All filings required by the Delaware Act for the formation of the Company and the Operating Company as limited partnerships thereunder have been made. The Company is duly qualified or registered as a foreign partnership in the State of Louisiana. The Operating Company is duly qualified or registered as a foreign partnership in the States of Illinois and Louisiana. (ii) BCPM has been duly organized and is validly existing and in good standing as a corporation under the laws of the State of Delaware and has the corporate power and authority necessary to own or lease its properties and conduct its business as described in the Prospectus. BCPM has been duly qualified as a foreign corporation to do business and is in good standing in the States of Illinois and Louisiana. (iii) BCPM is the general partner of each of the Company and the Operating Company with the interests, as general partner, in distributions thereof as specified in the Partnership Agreement and the Operating Partnership Agreement, respectively. The Company is the sole limited partner of the Operating Company, with the interest, as limited partner, in distributions thereof as specified in the Operating Partnership Agreement. BCPM's general partner interests in the Company and the Operating Company are authorized by the Partnership Agreement and the Operating Partnership Agreement, respectively, are validly issued and, to their knowledge and except as provided in the Partnership Agreements, are owned free and clear of any perfected Liens. (iv) The Company's limited partner interest in the Operating Company is duly authorized by the Operating Partnership Agreement, validly issued and, subject to the qualifications set forth in the following sentence, a fully paid and non-assessable limited 16 partner interest in the Operating Company, and, to their knowledge, and except as provided in the Partnership Agreements is owned free and clear of any perfected Liens. Assuming that the Company, as limited partner in the Operating Company, does not participate in the control of the business of the Operating Company (within the meaning of the Delaware Act) and that it does no more than exercise its rights as limited partner of the Operating Company, the Company, as limited partner of the Operating Company, will have no liability in excess of its obligations to make contributions to the Operating Company, its obligations to make other payments provided for in the Operating Partnership Agreement and its share of the Operating Company's assets and undistributed profits (subject to the obligation of a limited partner of a limited partnership no greater than the obligation of such limited partner to repay (i) to the limited partnership, to the extent provided under repealed 6 Del C. (S)17-608, for a period of one year after any rightful return, any part of its contribution to the limited partnership rightfully returned to it, but only to the extent necessary to discharge the limited partnership's liabilities to creditors who extended credit to the limited partnership during the period the contribution was held by the limited partnership and (ii) any funds wrongfully returned to the extent provided under repealed 6 Del. C. (S)17-608 or wrongfully distributed to it). (v) All of the 36,750,000 Common Units issued under the Partnership Agreement are duly authorized by the Partnership Agreement, validly issued and, subject to the qualifications set forth in the following sentence, fully paid and non-assessable limited partner interests in the Company; the Securities being delivered on the Closing Date, when (i) the Securities are deposited with the Depositary in accordance with the Deposit Agreement and (ii) Depositary Receipts representing the Securities have been executed, countersigned and registered in accordance with the Deposit Agreement and delivered to and paid for by the Underwriters in accordance with the terms of this Agreement, will constitute Common Units which have been duly authorized by the Partnership Agreement, validly issued and subject to the qualifications set forth in the following sentence, fully paid and non- assessable limited partner interests in the Partnership. Assuming that the Limited Partners (as such term is defined in the Partnership Agreement), as limited partners of the Partnership, do not participate in the control of the business of the Company and that they do no more than exercise their rights as Limited Partners (as such term is defined in the Partnership Agreement), the Limited Partners (as so defined), as limited partners of the Partnership other than any Departing Partner (as so defined), will have no liability in excess of their obligations to make contributions to the Company, their obligations to make other payments provided for in the Partnership Agreement and the Deposit Agreement and their share of the Company's assets and undistributed profits (subject to the obligation of a limited partner of a limited partnership no greater than the obligation of such limited partner to repay (i) to the limited partnership, to the extent provided under repealed 6 Del. C (S)17-608, for a period of one year after any rightful return, any part of its contribution to the limited partnership rightfully returned to it, but only to the extent necessary to discharge the limited partnership's liabilities to creditors who extended credit to the limited partnership during the period the contribution was held by the limited partnership, and (ii) any funds wrongfully returned to the extent provided under repealed 6 Del. C. (S)17-608 or wrongfully distributed to it). The sale of the Securities pursuant to the Underwriting Agreement is not subject under the Delaware Act or the Partnership Agreement to the preemptive rights of any person or entity. (vi) The Securities conform in all material respects to the description thereof in the Prospectus and such description conforms in all material respects to the rights set forth in the Partnership Agreement. (vii) This Agreement has been duly authorized, executed and delivered by the Company, the Operating Company, and BCPM; the Partnership Agreement is a valid and 17 binding agreement of and enforceable against, BCPM in its capacity as general partner of the Company, in accordance with its terms; the Operating Partnership Agreement is a valid and binding agreement of, and enforceable against, BCPM in its capacity as general partner of the Operating Company, in accordance with its terms; and the Deposit Agreement has been duly authorized, executed and delivered by the Company, BCPM as general partner of the Company and as attorney-in-fact for the Limited Partners and the Assignees and, assuming due authorization, execution and delivery by the Depositary and Borden, is a valid and binding agreement of, and enforceable against, the Company and BCPM, in accordance with its terms; the opinions with respect to the enforceability of such documents is qualified to the extent that such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium and other similar laws affecting the rights and remedies of creditors, and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or law). (viii) The execution, delivery and performance of this Agreement do not and will not (i) conflict with or result in a breach or violation of any of the terms or provisions of or constitute a default under, the Partnership Agreement, the Operating Partnership Agreement, the Deposit Agreement, the charter documents, as amended, or by-laws, as amended, of BCPM or (ii) except for violations caused by failure to obtain any Permitted Exceptions, constitute a violation of the Delaware Act or, to our knowledge, any existing applicable law, rule or regulation of the United States of America, Illinois or New York or any governmental body, or administrative or court decree thereof, having jurisdiction over the Company, the Operating Company or BCPM, which conflicts, breaches, violations or defaults in the case of (i) or (ii) have a reasonable probability of materially adversely affecting the Company and the Operating Company on a combined basis, or BCPM. (ix) None of the Company, the Operating Company or BCPM is an "investment company" as that term is defined in the Investment Company Act of 1940, as amended, or is subject to regulation under such Act. (x) To their knowledge, there are no contracts of, or legal or governmental proceedings involving, the Company, the Operating Company or BCPM of a character required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement which are not described or filed as required. (xi) To their knowledge, no consent, approval, authorization or order of any court or governmental agency or body of the United States of America, Illinois or New York is required for the issuance and sale of the Securities to the Underwriters or the consummation by the Company, the Operating Company and BCPM of the transactions contemplated by this Agreement except such as have been obtained or made on or prior to the date hereof, as may be required under the Act or as may be required by the NYSE, the NASD or under the securities or Blue Sky laws of any jurisdiction in connection with the purchase and distribution of the Securities by the Underwriters. (xii) The filing of the Registration Statement with the Commission was duly authorized by the Board of Directors of BCPM. The Registration Statement was declared effective under the Act as of __________________ ____ 1994, the Prospectus was filed with the Commission pursuant to Rule 424(b) on ____________________, 1994 and, to their knowledge, (i) no stop order suspending the effectiveness of the Registration Statement or any part thereof has been issued under the Act and (ii) no proceedings for that purpose have been instituted or threatened by the Commission. At the time the Registration Statement became effective, after giving effect to Rule 430A under the Act, the Registration Statement and the Prospectus 18 (in each case other than the financial statements and schedules and other financial and statistical information and data included therein, as to which they express no opinion) complied as to form in all material respects with the requirements of the Act and the Rules and Regulations. (xiii) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Act. (xiv) All of the issued shares of capital stock of BCPM have been duly authorized and validly issued and are fully paid and non-assessable; and all of the issued shares of capital stock of BCPM are owned by Borden, free and clear of all perfected Liens. In addition, such counsel shall state that in the course of the preparation of the Registration Statement and the Prospectus, such counsel has considered the information set forth therein in light of the matters required to be set forth therein and that they have participated in conferences with officers and other representatives of the Company, the Operating Company and BCPM, representatives of the independent accountants for the Company and the Addis Plant and with the Underwriters and their counsel during the course of which the contents of the Registration Statement, the Prospectus and related matters were discussed and, although such counsel has not independently checked the accuracy or completeness or otherwise verified, and accordingly are not passing upon, and do not assume responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus (except as set forth in paragraph (vi) and (x) above), on the basis of the foregoing, relying as to materiality to a large extent upon the judgments of officers and other representatives of the Company, the Operating Company and BCPM, no facts have come to their attention which cause them to believe that, the Registration Statement or any amendment thereto, as of its effective date or as of such Closing Date, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto as of its issue date or as of such Closing Date included an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading; it being understood that such counsel need not comment with respect to the financial statements and schedules and other financial and statistical information and data included in either the Registration Statement or the Prospectus. (g) You shall have received from Lawrence L. Dieker, General Counsel of BCPM and Assistant General Counsel of Borden, an opinion, dated such Closing Date, to the effect that: (i) Except for Permitted Exceptions, BCPM, the Company and the Operating Company have all requisite partnership or corporate power and authority, and have obtained and are in compliance in all material respects with all material franchises, grants, authorizations, approvals, licenses, permits, easements, consents, certificates and orders required, to own or lease their respective properties as described in the Prospectus, to permit the conduct of their respective businesses and to perform the Operative Agreements to which BCPM, the Company or the Operating Company, as the case may be, is a party. (ii) Borden has all requisite corporate power and authority to perform the Operative Agreements to which Borden is a party. 19 (iii) The Asset Transfer Agreement has been duly authorized, executed and delivered by the Operating Company, and each of the Asset Transfer Agreement, the Purchase and Processing Agreements, the Intercompany Agreement, the Borden and BCPM Covenant Agreement, the Environmental Indemnity Agreement, the Use of Name and Trademark License Agreement and the Patent and Know-How Agreement is a valid and binding agreement of, and enforceable against, the parties thereto, in accordance with its terms; the opinions with respect to the enforceability of such documents is qualified to the extent that such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium and other similar laws affecting the rights and remedies of creditors, and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or law). (iv) The performance by BCPM, the Company, the Operating Company or Borden of each of the Operative Agreements does not and will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under (A) any of the agreements referred to in paragraph (iii) above, the charter documents, as amended, or By-laws, as amended, of BCPM or Borden or (B) any material indenture, mortgage, deed of trust, note agreement or other material agreement or instrument to which the Company, the Operating Company, BCPM or, to his knowledge, Borden is a party or by which the Company, the Operating Company or BCPM or any of them or any of their respective properties are bound or, to his knowledge, Borden or its properties are bound or (ii) except for violations caused by failure to obtain any Permitted Exceptions, constitute a violation of any statute, rule, regulation, judgment, order or decree of any federal, state or local government, governmental instrumentality or court having jurisdiction over the Company, the Operating Company, BCPM or to his knowledge Borden or any of their respective properties, which conflicts, breaches, violations or defaults in the case of (i) or (ii) have a reasonable probability of materially adversely affecting the Company and the Operating Company on a combined basis, or BCPM. (v) To his knowledge, except as disclosed in the Prospectus, none of the Company, the Operating Company, or BCPM is in default in any material respect with respect to any material contract or agreement to which it is a party, which default has a reasonable probability of materially adversely affecting the financial condition, business or properties of the Company and the Operating Company on a combined basis, or BCPM or has a reasonable probability of materially adversely affecting the consummation of the transactions contemplated in the Prospectus to be consummated on or prior to the date hereof or the performance of the agreements referred to in paragraph (iii) above. (vi) Except as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company, the Operating Company, BCPM or, to his knowledge, Borden is a party or of which any property of the Company, the Operating Company, BCPM or to his knowledge Borden is the subject, which have a reasonable probability, individually or in the aggregate, of adversely affecting, in any material respect, the ability of the Company, the Operating Company or Borden to fulfill their obligations under any of the agreements referred to in paragraph (ii) above, or resulting in a material adverse change in the financial condition, business, properties, prospects or results of operations of the Company and the Operating Company on a combined basis, or BCPM, and, to his knowledge, no such proceedings are threatened by governmental authorities or by others. (vii) To his knowledge, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company 20 owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Act. (h) At such Closing Date, BCPM will, as general partner of the Company and the Operating Company, have substantial assets which can be reached by creditors of the Company and the Operating Company in addition to its interests in the Company and the Operating Company; and the interest of BCPM, as general partner of the Company and the Operating Company, in each material item of income, gain, loss, deduction or credit of the Company and the Operating Company will be equal to at least 1% of each such item on such date. (i) Upon the issuance of the Common Units BCPM shall make the additional capital contribution required by Section 4.4(a)(v) of the Partnership Agreement. (j) You shall have received from Andrews & Kurth, counsel for the Underwriters, their opinion dated such Closing Date with respect to the organization of the Company, the validity of the Securities, the Registration Statement and the Prospectus and such other related matters as you may reasonably request and the Company, the Operating Company, and BCPM shall have furnished to such counsel such documents as they may reasonably request for the purpose of enabling them to pass upon such matters. (k) You shall have received a certificate, dated such Closing Date, of BCPM individually, and of BCPM as the general partner of the Company, executed by BCPM's Chief Executive Officer, President or any vice president and the chief financial or accounting officer to the effect that: (i) No stop order suspending the effectiveness of the Registration Statement has been instituted by the Commission, and, to the knowledge of the signers, no proceedings for that purpose have been instituted or are threatened under the Act; (ii) The representations and warranties of the Company, the Operating Company and BCPM in this Agreement are true and correct at and as of such Closing Date, and each of the Company, the Operating Company and BCPM has complied with all the covenants and agreements and satisfied all the conditions on its part to be performed or satisfied at or prior to such Closing Date; (iii) Between the date of this Agreement and such Closing Date, the business, properties, and operations conducted by the Company, the Operating Company, BCPM or, to their knowledge, the Addis Assets have not sustained a loss by strike, fire, flood, accident or other calamity (whether or not insured) of such a character as to interfere materially with the conduct of business, properties and operations of the Company, the Operating Company, the Addis Assets or BCPM. (l) You shall have received an opinion from Sidley & Austin that such counsel's opinions with respect to certain matters in the Prospectus discussed under the caption "Federal Income Tax Considerations" are affirmed as of such Closing Date. (m) At such Closing Date, you or your counsel shall have been furnished by the Company, the Operating Company or BCPM with all such documents or certificates as you or your counsel may reasonably request in order to evidence the accuracy of any of the representations or warranties, the performance of any covenants of the Operating Company and BCPM, or the fulfillment of any of the covenants, agreements and conditions herein contained; and all proceedings taken by the 21 Company, the Operating Company, and BCPM at or prior to such Closing Date in connection with the authorization, issuance and sale of the Securities as herein contemplated shall be reasonably satisfactory in form and substance to you and to counsel for the Underwriters. (n) Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) any change, or any development or event involving a prospective change, in the condition, financial or otherwise, business, properties or results of operations of the Company, the Operating Company, the Addis Assets or BCPM which, in the judgment of a majority in interest of the Underwriters including you, is material and adverse and makes it impractical or inadvisable to proceed with completion of the public offering or sale of and payment for the Securities; (ii) any suspension or limitation of trading in securities generally on the NYSE, or any setting of minimum prices for trading on such exchange, or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market; (iii) any banking moratorium declared by Federal or New York authorities; (iv) any outbreak or escalation of major hostilities in which the United States is involved, any declaration of war by Congress or any other substantial national or international calamity or emergency if, in the judgment of a majority in interest of the Underwriters including you, the effect of any such outbreak, escalation, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the sale of and payment for the Securities; or (v) any enactment, with a present or future effective date, of legislation which causes or would cause the Company to become taxable as a corporation for federal income tax purposes prior to January 1, 1998. (o) You shall have received a letter, dated such Closing Date, of each of Price Waterhouse LLP and Arthur Andersen LLP which meets the requirements of Section 6(d) and 6(e), respectively, except that the specified date referred to in such subsection will be a date not more than five days prior to such Closing Date for the purposes of this subsection. The Company or BCPM will furnish you with such conformed copies of such opinions, certificates, letters and documents as you reasonably request. 7. Indemnification. (a) The Company, the Operating Company and BCPM, jointly and severally, agree to indemnify and hold harmless each Underwriter against any losses, claims, damages, or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, the Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse each Underwriter for any legal or other expenses reasonably incurred by such Underwriter in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that (i) the Company, the Operating Company and BCPM will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged untrue statement in or omission from any of such documents in reliance upon and in conformity with written information furnished to the Company, the Operating Company or BCPM by any Underwriter through the Representatives specifically for use therein and (ii) such indemnity shall not inure to the benefit of any Underwriter from whom the person asserting any such loss, claim, damage or liability purchased the Securities which are the subject thereof if such person did not receive a copy of the Prospectus (or the Prospectus as amended or supplemented) excluding documents incorporated therein by reference at or prior to the confirmation of the sale of such Securities to such person in any case where such delivery is required by the Act and the untrue statement or omission contained in the Prospectus or any related preliminary prospectus was corrected 22 in the Prospectus (or the Prospectus as amended or supplemented) if copies thereof had previously been furnished to such Underwriter. (b) Each Underwriter will severally and not jointly indemnify and hold harmless each of the Company, the Operating Company and BCPM against any losses, claims, damages or liabilities to which any of them may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, the Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company, the Operating Company or BCPM by such Underwriter through the Representatives specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by any of them in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by any Underwriter consists of the following information in the Prospectus furnished on behalf of each Underwriter: the last paragraph at the bottom of the cover page concerning the terms of the offering by the Underwriters, the legend concerning over-allotments and stabilizing on the inside front cover page, the concession and discount figures appearing in the fourth paragraph under the caption "Underwriting" and the information contained in the last sentence of the seventh paragraph and the entire eighth paragraph under the caption "Underwriting". (c) Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under subsections (a) or (b) above, notify the indemnifying party in writing of the commencement thereof; but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party otherwise than under subsections (a) or (b) above. In case any such action is brought against any indemnified party and it notifies the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. Notwithstanding the indemnifying party's election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel) and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement or compromise of or consent to the entry of any judgment with respect to any pending or threatened action or claim in respect of which any indemnified party is or could have been a party and indemnity could have been 23 sought hereunder by such indemnified party unless such settlement includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action. No indemnified party shall, without the prior written consent of the indemnifying party, effect the settlement or compromise of or consent to the entry of any judgment with respect to any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnifying party is an actual or potential party to such action or claim). (d) If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party under subsection (a) or (b) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of losses, claims, damages or liabilities referred to in subsection (a) or (b) above (i) in such proportion as is appropriate to reflect the relative benefits received by BCPM, the Company, and the Operating Company on the one hand and the Underwriters on the other from the offering of the Securities or, (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, the Operating Company and BCPM on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company, the Operating Company and BCPM on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters. The relative fault of the Company, the Operating Company and BCPM on the one hand and the Underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, the Operating Company and BCPM or the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by the Company, the Operating Company and BCPM or any of the Underwriters in connection with investigating or defending against any action or claim which is the subject of this subsection (d). Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) The obligations of the Company, the Operating Company and BCPM under this Section shall be in addition to any liability which the Company, the Operating Company, and BCPM may otherwise have and shall extend, upon the same terms and conditions, to each director, officer, employee or agent of any Underwriter or person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each director, officer, employee or agent of the Company, the Operating Company and BCPM, to each officer of the Company, the Operating Company, and BCPM who has signed the Registration Statement and to each person, if any, who controls the Company, the Operating Company and BCPM within the meaning of the Act. 24 8. Default of Underwriters. If any Underwriter or Underwriters default in their obligations to purchase Securities hereunder on either the First or any Optional Closing Date and the aggregate number of Securities that such defaulting Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of the total number of Securities which the Underwriters are obligated to purchase on such Closing Date, CS First Boston may make arrangements satisfactory to the Company for the purchase of such Securities by other persons, including any of the Underwriters, but if no such arrangements are made by such Closing Date, the non-defaulting Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Securities which such defaulting Underwriter or Underwriters agreed but failed to purchase on such Closing Date. If any Underwriter or Underwriters so default and the aggregate number of Securities with respect to which such default or defaults occur is more than 10% of such total number of Securities that the Underwriters were obligated to purchase on such Closing Date and arrangements satisfactory to CS First Boston and the Company for the purchase of such Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non- defaulting Underwriter or the Company, the Operating Company or BCPM, except as provided in Section 9 (provided that if such default occurs with respect to Securities purchased after the First Closing Date, this Agreement will not terminate as to the Firm Common Units or any Optional Common Units purchased prior to such termination). As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from liability for its default. 9. Survival of Certain Representations and Obligations. The respective indemnities, agreements, representations, warranties, and other statements of the Company, the Operating Company and BCPM or their respective officers and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter or the Company, the Operating Company or BCPM or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of any payment for the Securities. If this Agreement is terminated pursuant to Section 8 or if for any reason the purchase of the Securities by the Underwriters is not consummated, the Company, the Operating Company and BCPM shall remain responsible for the expenses to be paid or reimbursed by them pursuant to Section 5 and the respective obligations of the Company, the Operating Company and BCPM and the Underwriters pursuant to Section 7 shall remain in effect, and if any Securities have been purchased hereunder the representations and warranties in Section 2 and all obligations under Section 5 shall also remain in effect. If the purchase of the Securities by the Underwriters is not consummated for any reason other than solely because of the termination of this Agreement pursuant to Section 8, or the occurrence of any event specified in clause (ii), (iii) or (iv) of Section 6(n), the Company, the Operating Company and BCPM will reimburse the Underwriters for all out-of-pocket expenses (including fees and disbursements of counsel and the environmental consultants) reasonably incurred by them in connection with the offering of the Securities. 10. Notices. All communications hereunder will be in writing, and, if sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed to you, c/o CS First Boston Corporation, Park Avenue Plaza, New York, New York 10055 attention: Investment Banking Department - Transactions Advisory Group, with a copy to Andrews & Kurth L.L.P., 425 Lexington Avenue, New York, New York 10017, Attention: Michael Rosenwasser, Esq. or, if sent to the Company, the Operating Company or BCPM, will be mailed, delivered or telegraphed and confirmed to them at Highway 73, Geismar, Louisiana 70734 ; provided, however, that any notice to an Underwriter pursuant to Section 7 will be mailed, delivered or telegraphed and confirmed to such Underwriter at its address specified in its Underwriters' Questionnaire or acceptance telex in lieu of such questionnaire. 25 11. Conditions of the Obligations of the Company and Others. Except as is set forth in Section 9, the obligations of the Company, the Operating Company and BCPM pursuant to this Agreement shall be subject to the following conditions precedent: (i) subsequent to the execution and delivery of this Agreement, there shall not have occurred any enactment, with a present or future effective date, of legislation which causes or would cause the Company to become taxable as a corporation for federal income tax purposes prior to January 1, 1998 and (ii) the closing under the Asset Transfer Agreement shall occur prior to or concurrently with the Closing Date. 12. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers, directors, and controlling persons referred to in Section 7, and no other person will have any right or obligation under or by virtue of this Agreement. No purchaser of Securities from any Underwriter will be deemed a successor to such Underwriter merely by reason of such purchase. 13. Representation of Underwriters. You will act for the several Underwriters in connection with this financing, and any action under this Agreement taken by you jointly or by CS First Boston Corporation will be binding upon all the Underwriters. 14. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York, without regard to principles of conflicts of laws. The Company, the Operating Company and BCPM hereby submit to the non- exclusive jurisdiction of the Federal and state Courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. 15. Direct Participation Program. As the NASD views the Securities as interests in a direct participation program, each Underwriter agrees that it will offer the Securities in compliance with Section 34(b)(3)(A) of Article III of the NASD Rules of Fair Practice (the "Rules"). In particular, each Underwriter agrees not to execute any transaction in a discretionary account without prior written approval of the transaction by the customer, and to comply with the disclosure and due diligence requirements set forth in subsection (B) of Article III, Section 34(b)(3) of the Rules. 16. Counterparts. This Agreement may be executed in counterparts, all of which, taken together, shall constitute a single agreement. 26 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us one of the counterparts, whereupon it will become a binding agreement between the Company, the Operating Company and BCPM and the several Underwriters in accordance with its terms. Very truly yours, Borden Chemicals and Plastics Limited Partnership By: BCP Management, Inc. as General Partner By: ---------------------------------------------- Authorized Officer Borden Chemicals and Plastics Operating Limited Partnership By: BCP Management, Inc. as General Partner By: ---------------------------------------------- Authorized Officer BCP Management, Inc. By: ---------------------------------------------- Authorized Officer 27 The foregoing Underwriting Agreement is hereby confirmed and accepted at New York, New York, as of the date first above written. CS First Boston Corporation PaineWebber Incorporated Acting on behalf of themselves and as the Representatives of the several Underwriters By: CS First Boston Corporation By: ----------------------------- Title: 28 SCHEDULE I Number of Firm Common Units Underwriter to be Purchased ----------- --------------- CS First Boston Corporation PaineWebber Incorporated TOTAL.......................... 4,000,000 --------- ========= 29 EX-2.1 3 ASSET TRANSFER AGREEMENT EXHIBIT 2.1 _______________________________________________ ASSET TRANSFER AGREEMENT BETWEEN OCCIDENTAL CHEMICAL CORPORATION AS SELLER AND BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP AS BUYER DATED AS OF AUGUST 12, 1994 ___________________________ PVC PRODUCTION ASSETS ADDIS, LOUISIANA ___________________________ _______________________________________________ LIST OF SCHEDULES
Schedule Description -------- ----------- 1.1 Permitted Liens 2.2(b) Addis Contracts 2.2(c) Addis Equipment 2.2(d) Addis Permits 2.2(e) Addis Real Estate Interests 2.2(f) Addis Technology and Know How 2.2(i) Addis Technical Materials 2.4(j) Excluded Patent and Technology Assets 5.3 Exceptions to Title 5.4 Excepted Defaults 5.5 Litigation and Proceedings 5.6 Seller's Third Party Approvals 5.7 Other Liabilities 5.8 Non-Compliance 5.9 Exceptions to Required Permits 5.11(a) Employee Listing 5.11(b) Labor Disputes 5.12 Seller's Employee Benefit Plans 5.14 Off Site Waste Disposal 5.18 Financial Data 5.19 Environmental Condition 6.3 Buyer's Employee Benefit Plans 6.4 Buyer's Third Party Approvals 7.5 Environmental Assessment 7.6 Construction Debris Removal
LIST OF ANNEXES
Annex Description ----- ----------- A Change Adjustment Worksheet B Form of Seller's Opinion of Counsel C Form of Buyer's Opinion of Counsel D Form of VCM Supply Agreement E Form of PVC Tolling Agreement F Form of Deed G Form of Assignment and Assumption Agreement
TABLE OF CONTENTS
PAGE NUMBER ------ Parties and Recitals 1 ARTICLE I DEFINITIONS SECTION 1.1 Definitions.................................... 1 SECTION 1.2 Accounting Terms............................... 5 SECTION 1.3 Accounting and Financial Determinations........ 5 SECTION 1.4 Other Defined Terms; Use of Defined Terms...... 5 ARTICLE II AGREEMENTS OF PURCHASE AND SALE; ASSUMPTION OF CERTAIN LIABILITIES SECTION 2.1 Purchase and Sale.............................. 5 SECTION 2.2 Scope of Included Assets....................... 5 SECTION 2.3 Seller's Retention of Excluded Assets.......... 6 SECTION 2.4 Scope of Excluded Assets....................... 6 SECTION 2.5 Assumption of Liabilities...................... 6 SECTION 2.6 Excluded Liabilities........................... 6 SECTION 2.7 License........................................ 6
PAGE NUMBER ------ ARTICLE III PURCHASE PRICE; ADJUSTMENT FOR CHANGES SECTION 3.1 Purchase Price................................. 7 SECTION 3.2 Allocation of Purchase Price................... 7 SECTION 3.3 Purchase Price Adjustment...................... 7 ARTICLE IV CLOSING SECTION 4.1 Time and Location.............................. 8 SECTION 4.2 Delivery of Instruments and Payment............ 8 SECTION 4.3 Taxes.......................................... 9 SECTION 4.4 Exemption From Hart-Scott-Rodino Filing........ 9 ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER SECTION 5.1 Corporate Organization......................... 9 SECTION 5.2 Corporate Authority............................ 9 SECTION 5.3 Good Title..................................... 9 SECTION 5.4 No Defaults.................................... 10 SECTION 5.5 Litigation and Proceedings..................... 10 SECTION 5.6 Governmental and Third Party Approvals......... 10 SECTION 5.7 Other Liabilities.............................. 10 SECTION 5.8 No Violations.................................. 10 SECTION 5.9 Permits........................................ 10 SECTION 5.10 Acquisition of All Assets...................... 11 SECTION 5.11 Employees; Labor Relations..................... 11
PAGE NUMBER ------ SECTION 5.12 Employee Benefit Plans......................... 11 SECTION 5.13 Taxes.......................................... 11 SECTION 5.14 Off Site Disposal.............................. 11 SECTION 5.15 Material Contracts and Agreements.............. 11 SECTION 5.16 Technology and Know-How Being Transferred...... 12 SECTION 5.17 Equipment Being Transferred.................... 12 SECTION 5.18 Financial Information Accurate................. 12 SECTION 5.19 Environmental Condition........................ 12 SECTION 5.20 No Other Representations or Warranties......... 13 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER SECTION 6.1 Partnership Organization....................... 13 SECTION 6.2 Authority...................................... 13 SECTION 6.3 Employee Benefit Plans......................... 14 SECTION 6.4 Governmental and Third Party Approvals......... 14 ARTICLE VII COVENANTS OF SELLER SECTION 7.1 Operation of the Included Assets............... 14 SECTION 7.2 Further Assurances............................. 14 SECTION 7.3 Further Investigation.......................... 14 SECTION 7.4 Transitional Assistance........................ 15 SECTION 7.5 Environmental Assessment....................... 15 SECTION 7.6 Construction Debris Commitment................. 16 SECTION 7.7 First Month's Resin Production................. 16
PAGE NUMBER ------ SECTION 7.8 First Month's VCM Supply....................... 16 SECTION 7.9 Financial Statements........................... 16 SECTION 7.10 Clean Reactor System........................... 16 ARTICLE VIII COVENANTS OF BUYER SECTION 8.1 Confidentiality................................ 16 SECTION 8.2 Occidental Name................................ 16 SECTION 8.3 Post Closing Access............................ 17 SECTION 8.4 Records Access; Transitional Assistance........ 17 SECTION 8.5 Prohibition Against Recruitment................ 17 SECTION 8.6 Wastewater Treatment Ponds..................... 17 SECTION 8.7 Construction Debris Commitment................. 18 SECTION 8.8 First Month's Resin Production................. 18 SECTION 8.8A First Month's VCM Supply....................... 18 SECTION 8.9 No Reduction in Compensation................... 18 SECTION 8.10 Participation in Health Maintenance Organization.................................. 18 SECTION 8.11 Diligent Pursuit of Financing.................. 18 SECTION 8.12 License to Operate the .... 19 ARTICLE IX EMPLOYEE MATTERS SECTION 9.1 Offers of Employment........................... 19 SECTION 9.2 Participation in Buyer's Employee Benefit Plans......................................... 20
PAGE NUMBER ------ SECTION 9.3 Liability for Severance Benefits............... 20 SECTION 9.4 Certain Medical Plan Deductibles and Benefits.. 20 SECTION 9.5 Benefit Plans Transfer......................... 20 SECTION 9.6 Coordination of Benefit Plans for Retirees..... 21 SECTION 9.7 Final Payroll.................................. 22 SECTION 9.8 Certain Employee Related Liabilities........... 22 SECTION 9.9 Buyer's Compensation Practices and Benefit Plans......................................... 22 SECTION 9.10 No Restriction on Seller's or Buyer's Rights to Amend or Terminate......................... 22 ARTICLE X TERMINATION SECTION 10.1 Mutual Consent................................. 23 SECTION 10.2 Failure of Financing Contingency............... 23 SECTION 10.3 Misrepresentation or Breach.................... 23 SECTION 10.4 Court Order.................................... 23 ARTICLE XI CONDITIONS TO OBLIGATIONS OF BUYER SECTION 11.1 Performance.................................... 23 SECTION 11.2 Collateral Agreements.......................... 24 SECTION 11.3 Corporate Authorization........................ 24 SECTION 11.4 Opinion of Seller's Counsel.................... 24 SECTION 11.5 Representations and Warranties True............ 24 SECTION 11.6 No Violations of Statutes...................... 24 SECTION 11.7 Federal Trade Commission Approval.............. 24 SECTION 11.8 Licenses, Consents and Approvals............... 25 SECTION 11.9 Results of Environmental Assessment............ 25
PAGE NUMBER ------ ARTICLE XII CONDITIONS TO OBLIGATIONS OF SELLER SECTION 12.1 Performance.................................... 25 SECTION 12.2 Authorizations................................. 25 SECTION 12.3 Opinion of Buyer's Counsel..................... 25 SECTION 12.4 Representations and Warranties True............ 26 SECTION 12.5 No Violations of Statutes...................... 26 SECTION 12.6 Federal Trade Commission Approval.............. 26 SECTION 12.7 Licenses, Consents and Approvals............... 26 ARTICLE XIII INDEMNITIES; SURVIVAL SECTION 13.1 Seller's Indemnity - General and Contractual... 26 SECTION 13.2 Seller's Indemnity - Environmental............. 26 SECTION 13.3 Buyer's Indemnity - General and Contractual.... 27 SECTION 13.4 Buyer's Indemnity - Environmental.............. 27 SECTION 13.5 Limitations.................................... 28 SECTION 13.6 Threshold for Claims........................... 28 SECTION 13.7 Claim Deductibles.............................. 29 SECTION 13.8 Claim Limits................................... 29 SECTION 13.9 Notice of Claims............................... 30 ARTICLE XIV MISCELLANEOUS SECTION 14.1 Inability to Obtain Certain Consents........... 30 SECTION 14.2 Costs and Expenses; Brokerage.................. 31 SECTION 14.3 Bulk Sales Laws................................ 31 SECTION 14.4 Titles for Convenience......................... 31 SECTION 14.5 Successors and Assigns......................... 31 SECTION 14.6 Entire Agreement; Amendment.................... 31 SECTION 14.7 Governing Law.................................. 31 SECTION 14.8 Notices........................................ 32 SECTION 14.9 Public Statements.............................. 32 SECTION 14.10 Third Party Beneficiaries...................... 33
ASSET TRANSFER AGREEMENT THIS AGREEMENT, dated as of August 12, 1994, is between OCCIDENTAL CHEMICAL CORPORATION, a New York corporation (hereinafter called "Seller") and BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership (hereinafter called "Buyer"). Seller and Buyer are hereinafter sometimes collectively referred to as the "parties" and each singularly as a "party". WITNESSETH: WHEREAS, Seller is engaged in the business of producing and marketing PVC (as such term and certain other terms used with initial capital letters in this Agreement are defined in Article I hereof) resins, which business consists of the facilities, machinery, equipment, technology, intellectual property rights, inventories, permits and licenses, real and personal property, contracts, leases and other assets, wheresoever located throughout the world, owned, leased, employed or otherwise used by Seller in connection with the manufacture and marketing of PVC resins (the "Business"); and WHEREAS, Seller wishes to sell to Buyer certain of the assets used in the Business (the "Included Assets" as hereinafter more specifically defined), and to retain that portion of the Business constituting the Excluded Assets; and WHEREAS, Buyer wishes to purchase the Included Assets from Seller; NOW, THEREFORE, in consideration of the premises and the mutual benefits, covenants, and agreements herein contained, the parties have agreed and do hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 Definitions. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated (such meanings to be equally applicable to both the singular and the plural forms of the terms defined): "Addis Business Records" means (i) originals or copies of the books of account; records; files; invoices; customer lists; supplier lists; health, safety or environmental records and other similar data used in connection with the Facility, excluding any portion of such data that relates to a production facility other than the Facility, and (ii) the name and address of, and the name and telephone number of the contact person(s) at, each of the customers to whom Seller has supplied suspension PVC homopolymer jointly from the Facility and from another production facility owned by Seller, and (iii) that portion of the customer records and files for each such customer that relates solely to sales to such customer from the Facility, and (iv) a copy of all other customer records and files for each such customer excluding any portion of such records and files that relates solely to sales to such customer from a production facility other than the Facility. "Addis Confidential Technology Information" means all portions and aspects of the OxyChem Addis Technology except that which at the Closing Date is or subsequently becomes part of the public domain through no fault of Buyer, or information that Buyer demonstrates by documentary evidence was in Buyer's possession free of any obligation of secrecy at the time of receipt from Seller, or information that subsequent to the Closing Date comes into Buyer's possession from an independent third party not under obligation of secrecy to Seller. Aspects or portions of the OxyChem Addis Technology which are specific shall not be deemed to be within the foregoing exceptions solely because they are embraced by more general information in the public domain or in the prior possession of Buyer. In addition, any combination of features shall not be deemed to be within the foregoing exceptions solely because individual features are in the public domain or in the possession of Buyer, but only if the combination itself and its principle of operation are in the public domain or in the possession of Buyer. "Addis Contracts" means originals or copies of all the contracts, licenses, leases, commitments, sales orders and purchase orders that pertain to the operation of the Facility including, without limitation, the material items set forth in Schedule 2.2(b). "Addis Equipment" means all machinery, equipment, plant, vehicles, office furniture, fixtures, tools, machine and electrical parts, computer equipment and programs and other tangible personal property owned by Seller and located at the Facility except to the extent specifically set forth in the definition of Excluded Assets, and including, without limitation, the major items of equipment set forth in Schedule 2.2(c). "Addis Permits" means the permits, approvals, orders, licenses, variances and exemptions issued by any federal, state or local governmental entity and necessary for the lawful operation of the Facility. "Addis Plant" means the buildings, equipment, facilities and real estate interests constituting Seller's commodity PVC resin production facility located at Addis, Louisiana. "Addis Real Estate Interests" means the interests in real estate owned, leased or used by Seller in connection with the operation of the Facility as set forth in Schedule 2.2(e). "Addis Working Capital" means the inventories of raw materials, work in process, finished goods and spare parts purchased or manufactured by Seller and located at the Facility as of the Closing Date. "Affiliate" means an entity which is, directly or indirectly, Controlling, Controlled by or under common Control with the predicate entity. 2 "Assumed Liabilities" means the executory obligations of Seller with respect to the Included Assets under the express terms of the documents, agreements, contracts, leases, licenses, and permits pertaining to the Included Assets as set forth in Schedules 2.2(b) and (d) and the liabilities assumed by Buyer pursuant to Article IX. "Business" has the meaning set forth in the first recital of this Agreement. "Closing" means the closing of the transactions contemplated by this Agreement. "Closing Date" means the date specified for the Closing by the Seller in a written notice to Buyer, subject to the requirements of Section 10.2 of this Agreement or upon such other date as the parties may mutually agree. "Code" means the Internal Revenue Code of 1986, as amended. All citations to the Code shall include any amendments or any substitute or successor provisions thereto. "Confidentiality Agreement" means that certain agreement entered into between Occidental Chemical Corporation and Borden Chemicals and Plastics Operating Limited Partnership dated February 14, 1994. "Control" (including the terms "Controlling", "Controlled by" and "under common Control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the predicate entity whether through the ownership of voting securities, by contract, or otherwise. "dollars" means dollars of the United States of America. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Evaluation Material" means the information furnished by Seller and designated as "Evaluation Material" under the terms of the Confidentiality Agreement. 3 "Excluded Assets" has the meaning assigned to it in Section 2.4 of this Agreement. "Facility" means the Addis Plant. "Included Assets" means the rights, properties and assets of Seller described in Section 2.2 of this Agreement. "OxyChem Addis Technology" means all the technology owned by, or licensed to, Seller, or which Seller has the right to use, and which is practiced at or embodied in equipment or processes operated at the Addis Plant on the Closing Date. OxyChem Addis Technology does not include that technology or those rights to use technology which are set out in Section 2.4. OxyChem Addis Technology may include confidential technology, non-confidential technology, and technology covered by United States patents. "Pension Plan" has the meaning set forth in Section 3(2) of ERISA. "Permitted Exceptions" means (i) liens for taxes that are not in default or taxes that are being contested in good faith by appropriate proceedings; (ii) easements, restrictions and other limitations set forth in any policy of title insurance that may be obtained in respect of the transfer to Buyer of the Addis Real Estate Interests and which are (a) not substantial in amount, (b) do not materially detract from the value of the Included Assets, and (c) do not materially interfere with the ability to operate the Included Assets; and (iii) encumbrances, easements, restrictions and other limitations arising in connection with the Included Assets which are set forth in Schedule 1.1. "Promotional Literature" means all catalogues, sales promotional literature, advertising materials and trademarks owned or used by Seller in connection with the sale of PVC manufactured at the Facility, excepting those rights set forth in Section 2.4(f) of this Agreement. "PVC" means polyvinyl chloride. "PVC Tolling Agreement" means the agreement in the form of Annex E hereto. "SEC" means the Securities and Exchange Commission of the United States. "VCM" means vinyl chloride monomer. "VCM Supply Agreement" means the agreement in the form of Annex D hereto. "Welfare Plan" has the meaning set forth in Section 3(1) of ERISA. 4 SECTION 1.2 Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles currently in effect, including, without limitation, applicable statements, bulletins and interpretations issued by the Financial Accounting Standards Board and bulletins, opinions, interpretations and statements issued by the American Institute of Certified Public Accountants or its committees. SECTION 1.3 Accounting and Financial Determinations. When the character or amount of any assets or liability or item of income or expense is required to be determined, for the purpose of this Agreement such determination or calculation shall, to the extent applicable and except as otherwise specified in this Agreement, be made in accordance with generally accepted accounting principles applied on a consistent basis. SECTION 1.4 Other Defined Terms; Use of Defined Terms. The words "hereof", "herein", and "hereunder", and words of similar import, when used in this Agreement, shall refer to this Agreement, and Article, Section, Schedule, Annex and like references are intended to refer to this Agreement unless otherwise specified. Terms for which meanings are provided in this Agreement shall, unless otherwise defined or the context otherwise requires, have such meanings when used in each notice or other communication delivered or given from time to time under or in connection with this Agreement. ARTICLE II AGREEMENTS OF PURCHASE AND SALE; ASSUMPTION OF CERTAIN LIABILITIES SECTION 2.1 Purchase and Sale. On the terms and conditions set forth in this Agreement, Seller agrees to sell, convey, transfer and assign, or to cause to be sold, conveyed, transferred and assigned, to Buyer or to a wholly-owned subsidiary of Buyer designated by Buyer, and Buyer agrees to purchase, or to cause such subsidiary to purchase, on the Closing Date, all of the Included Assets. SECTION 2.2 Scope of Included Assets. The Included Assets shall consist of the following, as of the Closing Date: (a) Addis Business Records; (b) rights of Seller under the Addis Contracts; (c) Addis Equipment; (d) rights of Seller under the Addis Permits; (e) Addis Real Estate Interests; (f) the license set forth in Section 2.7; (g) Addis Working Capital; (h) Promotional Literature; and (i) Addis technical material set out in Schedule 2.2(i). 5 SECTION 2.3 Seller's Retention of the Excluded Assets. Expressly excluded from this transaction are the Excluded Assets and Seller shall retain all right, title and interest in and to the Excluded Assets. SECTION 2.4 Scope of Excluded Assets. The Excluded Assets shall include the following as of the Closing Date: (a) all intracompany and intercompany accounts of Seller; (b) all cash and bank accounts of Seller; (c) all claims of Seller against third parties (including, without limitation, those not yet ascertained and/or unliquidated) relating to operations at the Facility for the period prior to the Closing Date; (d) all accounts and notes receivable; (e) prepaid expenses; (f) all rights to use of the designations "Oxy", "OxyChem" "Occidental" and the Occidental logo; (g) all insurance policies of Seller and all rights of the Seller of every nature and description under or arising out of such insurance policies; (h) all losses, carryovers and rights to receive refunds with respect to any and all taxes of the Seller, including interest receivable with respect thereto; (i) the basic books and records of account relating to any taxes of the Seller; (j) title to Seller's patent and technology portfolio as well as rights to technology set forth in Schedule 2.4(j); (k) the Business of Seller except as expressly included in the definition of the Included Assets; (l) all computer equipment and programs used in the Business other than those used exclusively in connection with the Included Assets; (m) inventories of bagged and labeled PVC located at the Facility; and (n) all policies and procedures of Seller other than those used exclusively in connection with the Included Assets. SECTION 2.5. Assumption of Liabilities. As additional consideration for the purchase of the Included Assets and subject to the provisions of Section 2.6, Buyer shall assume as of the Closing Date and thereafter pay and perform or discharge (and indemnify Seller against or reimburse Seller for any payments made or performance rendered by or on Buyer's behalf with respect to) the Assumed Liabilities. SECTION 2.6 Excluded Liabilities. Buyer and Seller hereby agree that Buyer shall not be liable for any of the obligations or liabilities of Seller other than those specifically assumed by Buyer pursuant to Section 2.5. SECTION 2.7 License. Seller hereby grants to Buyer an irrevocable royalty- free non-exclusive license to use the OxyChem Addis Technology, including Seller's patents, at the Addis Plant (and any expansions of the Addis Plant) for the purposes of operating, maintaining, improving or expanding the Addis Plant (or any expansions thereof). This license does not include the 6 This license cannot be sub-licensed or assigned without the prior written permission of Seller except upon the sale of all or substantially all of the assets at any of Buyer's PVC production sites to which the license relates. ARTICLE III PURCHASE PRICE; ADJUSTMENT FOR CHANGES SECTION 3.1 Purchase Price. (a) Buyer agrees to transfer to the Seller on the Closing Date the sum of one hundred four million three hundred thousand dollars ($104,300,000.00) (the "Purchase Price") as payment for the Included Assets and to assume the Assumed Liabilities of the Seller as provided in Section 2.5. The Purchase Price shall be delivered at the Closing in immediately available funds by wire transfer to such bank account as Seller may designate in writing prior to the Closing Date. The Purchase Price shall be subject to adjustment as provided in Section 3.3. (b) Included in the Purchase Price is the estimated value, as of the Closing Date, of Addis Working Capital in the amount of nine million seven hundred thousand dollars ($9,700,000.00). SECTION 3.2 Allocation of Purchase Price. The Purchase Price (including any adjustments described in Section 3.3 below) shall be allocated among the Included Assets by each of Buyer and Seller in the manner required by section 1060 of the Code. Buyer and Seller shall endeavor to agree to an allocation of the Purchase Price among the Included Assets prior to Closing, but neither party shall be obligated to so agree if (in the sole opinion of either of the parties) it is not in its best interest to do so. SECTION 3.3 Purchase Price Adjustment. (a) Within ten (10) days after the Closing Date or on such other date as Buyer and Seller may mutually agree, Seller will prepare and deliver to Buyer an unaudited statement of items that will require adjustment on or after the Closing Date, in the form of, and with all listed attachments, of Annex A (the "Change Adjustment Worksheet"). (b) The Change Adjustment Worksheet will be prepared in accordance with Section 1.3 from data developed as a result of physical counts and inspections taken jointly on the Closing Date or on such other date as Buyer and Seller may mutually agree by representatives of both Buyer and Seller. 7 (c) Within thirty (30) business days after receipt of the Change Adjustment Worksheet and subject to the provisions of Section 3.3(d) below, Buyer will pay Seller or Seller will pay Buyer, as the case may be, the adjustment amounts specified as then due and payable in the Change Adjustment Worksheet. Any amounts which are, by the terms of the Change Adjustment Worksheet, payable on a later date, will be paid promptly after such amount has been determined in accordance with the provisions of the Change Adjustment Worksheet (collectively, the "Adjustment Amounts"). (d) If Buyer has any objection to any Adjustment Amount, it shall notify Seller specifying the item or items to which it objects within thirty (30) days after delivery to Buyer of the Change Adjustment Worksheet. Payments as to which the parties are in agreement shall be promptly made. If Buyer and Seller cannot resolve any such remaining objections within forty-five (45) days after delivery to Seller of Buyer's notice under this subparagraph (d), the item or items in dispute will be submitted to a mutually acceptable, nationally recognized public accounting firm for resolution as promptly as possible. The decision of such accounting firm shall be binding on the parties. The fees and expenses of the accounting firm shall be borne by the party from which such accounting firm differs most in aggregate dollars in its final resolution of the disputed amounts. Payment of the award shall be made by the Buyer or Seller, as the case may be, by wire transfer of immediately available funds within seven (7) days of the accounting firm's notice of its decision. ARTICLE IV CLOSING SECTION 4.1 Time and Location. The Closing shall be held at the offices of the Seller in New York, New York at 11:00 a.m. local time on the Closing Date. SECTION 4.2 Delivery of Instruments and Payment. On the Closing Date: (a) Seller shall execute and deliver to Buyer such deeds, bills of sale, assignments, endorsements and other instruments and documents as shall satisfy the requirements of Section 2.1 hereof in form and substance reasonably satisfactory to the Buyer; (b) Seller shall execute and deliver to Buyer a deed for the transfer of land in the form attached hereto as Annex F conveying good and marketable title to the real estate being acquired by Buyer pursuant to this Agreement, free of all liens, easements and encumbrances, except for Permitted Exceptions. (c) Seller and Buyer shall execute and deliver the VCM Supply Agreement (as may be required by Buyer pursuant to the provisions of Sections 11.2 of this Agreement), and the PVC Tolling Agreement (as may be required by Buyer pursuant to the provisions of Sections 11.2 of this Agreement); (d) Seller shall deliver the executed agreements, opinions, certificates and other documents required by Sections 11.3, 11.4, 11.5, 11.7 and 11.8 hereof in form and substance reasonably satisfactory to the Buyer and Buyer shall deliver the executed agreements, opinions, certificates and other documents required by Sections 12.2, 12.3, 12.4 and 12.7 hereof in form and substance reasonably satisfactory to the Seller; and (e) Buyer shall make payment of the Purchase Price as required by Section 3.1 hereof; and 8 (f) Buyer and Seller shall execute and deliver the Assignment and Assumption Agreement in the form attached hereto as Annex G and such other instruments and documents as shall evidence Seller's satisfaction of Section 2.1 and as shall evidence Buyer's satisfaction of Section 2.5. SECTION 4.3 Taxes. Buyer shall pay all sales and use taxes, if any, applicable to the transfer of the Included Assets pursuant to this Agreement and all documentary and stamp taxes and any recording and filing fees arising as a result of or in connection with the transfer of the Included Assets under this Agreement, if any. Property taxes and any payments in lieu of property taxes, if applicable to any of the Included Assets, shall be prorated between the parties as of the Closing Date. SECTION 4.4 Exemption From Hart-Scott-Rodino Filing. Buyer and Seller recognize and agree that pursuant to certain rules of the United States Federal Trade Commission (16 C.F.R. 802.70), closing of the transactions contemplated hereby is exempt from the notification and filing requirements of the Hart- Scott-Rodino Antitrust Improvements Act of 1976, as amended. ARTICLE V REPRESENTATIONS AND WARRANTIES OF SELLER The following representations and warranties are hereby made to Buyer: SECTION 5.1 Corporate Organization. Seller has been duly organized and is validly existing as a corporation in good standing under the laws of the State of New York. Seller has full corporate power and authority to own and operate the Included Assets as and in the places where such Included Assets are now owned and operated, and to sell, convey, transfer and assign the Included Assets as described in this Agreement. SECTION 5.2 Corporate Authority. All corporate actions have been taken which are necessary to the due authorization of the execution and delivery of this Agreement and the performance of the acts to be performed by Seller hereunder, and this Agreement constitutes, and the other agreements to be entered into by Seller hereunder will constitute, legal, valid and binding obligations of Seller, enforceable against Seller in accordance with their terms. The entering into of this Agreement and the other agreements to be entered into hereunder and the consummation of the transactions contemplated hereby and thereby do not and will not violate the provisions of Seller's Articles of Incorporation or by- laws, or of any note, indenture, mortgage, lease, license agreement or other agreement or instrument to which Seller is a party, is maker or by which it is bound or result in the creation of any lien, charge or encumbrance upon the Included Assets. SECTION 5.3 Good Title. Except as set forth in Schedule 5.3, Seller has, and shall convey, transfer and assign to Buyer at the Closing, good title to all Included Assets and properties described 9 in Section 2.2 free and clear of any liens, easements, or encumbrances of any kind not referred to therein and except for Permitted Exceptions. SECTION 5.4 No Defaults. Except as set forth in Schedule 5.4, Seller has performed all material obligations required to be performed by it and is not in default in any material respect under any material agreement to which it is a party or by which it is bound relating to the conduct of that portion of the Business constituting the Included Assets, and no event has occurred which with notice or lapse of time or both, would constitute such a default. Except as set forth in Schedule 5.4, to the best of Seller's knowledge no other party to any Addis Contract is in material default under any of said agreements. SECTION 5.5 Litigation and Proceedings. Except as set forth in Schedule 5.5, there are no suits, actions, proceedings or governmental investigations pending, or to Seller's knowledge, threatened relating to the Included Assets in any court or before any federal (U.S. or Canada), provincial, state, county, municipal or other governmental department, commission, bureau or agency which would have a material adverse effect. SECTION 5.6 Governmental and Third Party Approvals. Except as set forth in Schedule 5.6, no approval, authorization, consent or other order or action of, or filing with, or notification to, (i) any court, administrative agency or other governmental authority, or (ii) any other third party, is required in connection with the execution and delivery by Seller of this Agreement or the other agreements and instruments to be executed and delivered by Seller pursuant hereto or its consummation of the transactions contemplated hereby or thereby. SECTION 5.7 Other Liabilities. Except as set forth in Schedule 5.7, there are no liabilities of any kind relating to the Included Assets, whether accrued, fixed, absolute, contingent, determined or determinable, other than liabilities incurred in the ordinary course of business since May 1, 1994. SECTION 5.8 No Violations. Except as set forth in Schedule 5.8, Seller is not in violation of any applicable federal, state, local or foreign law, rule or regulation, permit or order of any governmental, regulatory or administrative agency or court in respect of its ownership and operation of the Included Assets. SECTION 5.9 Permits. Except as set forth in Schedule 5.9, Seller possesses in its own name all federal, state and local licenses, permits or other authorizations of governmental, regulatory or administrative agencies required to own and operate the Included Assets, where a failure to obtain such license, permit or other authorization would have a material adverse effect on the Buyer's ability to operate the Facility in the manner in which it is operated by Seller as of the Closing Date. Schedule 2.2(d) contains a complete listing of all such permits, licenses or other authorizations required for the operation of the Facility as of the Closing Date the absence of which would have material adverse effect on the Buyer's ability to operate the Facility in the manner in which it is operated by Seller as of the Closing Date. 10 SECTION 5.10 Acquisition of All Assets. Excepting only the Excluded Assets, the Included Assets include all assets employed in connection with the operation of the Facility as of the date hereof. SECTION 5.11 Employees; Labor Relations. Set forth in Schedule 5.11(a) is a complete listing of employees of Seller, hourly and salaried, employed exclusively in connection with the operation of the Facility. Except as set forth in Schedule 5.11(b), since January 1, 1990 there has not been any unresolved dispute with any labor organization or any strike, picketing, slowdown, unfair labor practice charges filed with the National Labor Relations Board, or work stoppage relating to the Included Assets, nor to the knowledge of Seller, is there threatened or contemplated any strike, picketing, slowdown or work stoppage relating to the Included Assets. As of the Closing Date there is no labor organization recognized as a representative of the hourly workers at the Facility and, to Seller's knowledge, there has not been since January 1, 1990 any organized effort to form a collective bargaining unit to represent the hourly workers at the Facility. SECTION 5.12 Employee Benefit Plans. Set forth in Schedule 5.12 is a description of Seller's current employee benefit plans, including but not limited to those defined in Section 3(3) of ERISA, including all bonus, deferred compensation, health, dental and severance plans and programs currently maintained or contributed to by the Seller for the benefit of any of the employees listed in Schedule 5.11(a). None of the plans is a multi-employer plan as defined in Section 4001(a)(3) of ERISA. With respect to any partial or total withdrawal by Sellers from any multi-employer plan formerly maintained for any employee of Seller with respect to the Facility, there was either (a) no withdrawal liability as defined in Title IV of ERISA, or (b) such withdrawal liability has been fully satisfied by Seller. SECTION 5.13 Taxes. There are no tax liens against any of the Included Assets and there are no federal, state, local or foreign taxes of any kind (other than (i) those which are not yet due and payable, or (ii) those which are subject to a good faith contest by appropriate proceedings) which are owed and unpaid or for which Seller is liable and which could result in or constitute a lien or encumbrance on the Included Assets or could result in a claim by any taxing authority against Buyer with respect to its acquisition of the Included Assets. SECTION 5.14 Off Site Disposal. Schedule 5.14 contains a complete and accurate listing of all locations away from the real estate upon which the Facility is located where Seller has disposed of or arranged for the disposal of waste materials generated as a result of Seller's operation of the Facility. SECTION 5.15 Material Contracts and Agreements. Schedule 2.2(b) contains a listing of and Seller has provided Buyer true and complete copies of all contracts, licenses, leases, commitments, sales orders and purchase orders pertaining to the Included Assets as of the Closing Date which have 11 (i) a stated value greater than one hundred thousand dollars ($100,000.00), or (ii) a term in excess of one year. SECTION 5.16 Technology and Know-How Being Transferred. (a) Except as set forth in Schedule 2.4(j) and except as otherwise provided pursuant to the provisions of Section 8.12, the right to practice and utilize OxyChem Addis Technology licensed to Buyer pursuant to this Agreement includes the right to employ at the Facility all technology used by Seller in connection with the operation of the Facility as of the Closing Date. Additionally, and subject to the same exceptions stated above, the technical information transferred to Buyer pursuant to Section 2.1 and Section 2.2(i) is complete and sufficient to operate the Facility as it is operated as of the Closing Date. (b) For a period of twelve months after the Closing Date, there will be commercially available to Buyer adequate supplies of a primary suspending agent(s) necessary to enable Buyer (i) to operate the Facility at productivity rates consistent with the historical performance of the Facility, and (ii) to produce PVC products reasonably acceptable to Seller's contract customers as of the Closing Date. Notwithstanding the provisions of Section 13.5(c), Seller's obligations of indemnity in case of a breach of the representation in this subparagraph (b) shall include direct damage claims asserted against Buyer by Buyer's customers and arising out of or attributable to Seller's breach of this representation and provided further, that in the event that Seller's breach of the representation in this subparagraph (b) shall cause Buyer to breach its product warranty contained in Section 8.2 of the PVC Tolling Agreement such breach by Buyer shall be excused. SECTION 5.17 Equipment Being Transferred. Schedule 2.2(c) contains a listing of all major items of machinery, equipment, vehicles, machine and electrical parts, computer equipment and programs and other tangible personal property located at the Facility and owned by Seller and used in connection with the operation of the Facility as of the Closing Date. Excepting only the Excluded Assets, Buyer's acquisition of the Addis Equipment together with Buyer's acquisition of the Addis Contracts vests in Buyer the right to utilize all equipment necessary to operate the Facility in the manner operated by Seller as of the Closing. SECTION 5.18 Financial Information Accurate. Except to the extent that financial data provided as part of the Evaluation Material consists of or incorporates, expressly or by reference, estimates, opinions, projections or forecasts, the financial data provided to Buyer by Seller as part of the Evaluation Material and set forth in Schedule 5.18 is accurate and has been compiled from the books and records of Seller which have been prepared and maintained in accordance with the requirements of generally accepted accounting principles consistently applied. SECTION 5.19 Environmental Condition. Except as set forth in Schedule 5.19 and excepting any conditions disclosed upon completion of the environmental assessment conducted pursuant to Section 7.5, Seller is not aware of any solid, liquid or gaseous material present at the surface or subsurface levels of the Facility, or present in the air above, or the water on or under, or the air and water immediately surrounding the Facility, which is in excess of any concentration, levels or standards prescribed or permitted by any applicable law, rule, regulation, ordinance, judgment, decree, order, injunction or decision of any court or governmental authority, in each case as in effect 12 and applicable to the Facility as of the Closing Date; nor is Seller aware of any condition existing on or about the Facility that would require corrective action or closure under the provisions of the Resource Conservation and Recovery Act, or remedial or other action under the provisions of the Comprehensive Environmental Response, Compensation and Liability Act or the regulations promulgated under such Acts, or that would constitute a public nuisance under the laws of the State of Louisiana, in each case as such laws are in effect and applicable to the Facility as of the Closing Date, except as disclosed in Schedule 5.19. All underground storage tanks located at the Facility are listed in Schedule 5.19. SECTION 5.20 No Other Representations or Warranties. There are no representations or warranties of any kind made in connection with the transactions contemplated hereby other than those expressed in this Agreement. It is expressly understood and agreed that (a) except as otherwise specifically and expressly provided in this Agreement, Seller has made no warranty or agreement as to the condition or performance of the Included Assets which are sold to Buyer AS IS, WHERE IS, and (b) Seller has not made any warranty or agreement, express or implied, as to the tax consequences of this transaction or the tax consequences of any transaction pursuant to or arising out of this Agreement. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER The following representations and warranties are hereby made to Seller: SECTION 6.1 Partnership Organization. Buyer has been duly organized and is validly existing as a limited partnership in good standing under the laws of the State of Delaware. Buyer has full power and authority to acquire, own and operate the Included Assets as described in this Agreement. SECTION 6.2 Authority. Buyer has all requisite partnership power to execute, deliver and perform this Agreement. The execution, delivery and performance by Buyer of this Agreement has been duly authorized by all necessary partnership and corporate action on the part of Buyer and BCP Management, Inc., respectively. This Agreement constitutes, and the other agreements to be entered into by Buyer hereunder will constitute, legal, valid and binding obligations of Buyer, enforceable against Buyer in accordance with their terms. The entering into of this Agreement and the other agreements to be entered into hereunder and the consummation of the transactions contemplated hereby and thereby do not and will not violate the provisions of Buyer's amended and restated agreement of limited partnership, or of any note, indenture, mortgage, lease, license agreement or other agreement or instrument to which Buyer is a party, is maker or by which it is bound. BCP Management Inc., a Delaware corporation and a wholly owned subsidiary of Borden, Inc., a New Jersey corporation, is the general partner of Buyer. 13 SECTION 6.3 Employee Benefit Plans. Set forth in Schedule 6.3 is a description of Buyer's current employee benefit plans, including but not limited to those defined in Section 3(3) of ERISA, including all bonus, deferred compensation, health, dental and severance plans and programs currently maintained or contributed to by the Buyer for the benefit of its employees. Each of the plans set forth in Schedule 6.3 that is an employee benefit plan as defined in section 3(3) of ERISA complies substantially in form and in operation in all material respects with ERISA and the Code, and that each such plan is current in the filing of annual returns and reports required to be filed with the Internal Revenue Service. All such plans which are qualified pension plans comply in form and in operation with the requirements of Code section 401(a), and have received favorable determination letters from the Internal Revenue Service. SECTION 6.4 Governmental and Third Party Approvals. Except as set forth in Schedule 6.4, no approval, authorization, consent or other order or action of, or filing with, or notification to, (i) any court, administrative agency or other governmental authority, or (ii) any other party, is required in connection with the execution and delivery by Buyer of this Agreement or the other agreements and instruments to be executed and delivered by Seller pursuant hereto or its consummation of the transactions contemplated hereby or thereby. ARTICLE VII COVENANTS OF SELLER Seller covenants that: SECTION 7.1 Operation of the Included Assets. Between the date hereof and the Closing Date, Seller will take all measures reasonably required to maintain the Facility in its present condition, excepting normal wear and tear, and will maintain inventory at levels consistent with operation of the Facility in the ordinary course of business. Except in each case as allowed by this Agreement or consented to in writing by Buyer, and except for transactions in the ordinary course of business, Seller will not, insofar as the Included Assets are concerned, (a) incur or become subject to obligations or liabilities (absolute or contingent) which have or are likely to have a material adverse effect; (b) mortgage, pledge or voluntarily subject to lien, charge or other encumbrance any assets, tangible or intangible to be sold hereunder; (c) sell or transfer any of its tangible or intangible assets; (d) waive any rights of any material value; or (e) accept any business not within Seller's normal credit terms where shipment will be made after the Closing Date. SECTION 7.2 Further Assurances. At any time and from time to time after the Closing Date, at Buyer's reasonable request and without further consideration, Seller will execute and deliver such other instruments of conveyance and transfer and take such other action as Buyer reasonably may require more effectively to convey to, transfer to, and vest in Buyer, or to put Buyer in possession of, any or all of the assets and properties intended to be transferred, conveyed or assigned to Buyer hereunder. SECTION 7.3 Further Investigation. Prior to the Closing Date, Seller will provide to designated employees, agents and representatives of Buyer access at reasonable times to the Facility 14 premises and to such financial and operating data and other information with respect to the Included Assets as Buyer shall from time to time reasonably request, provided, however, that Buyer shall not have access to Addis Confidential Technology Information (except as reasonably necessary to facilitate Buyer's diligent pursuit of its obligations pursuant to Section 8.11) prior to the satisfaction or waiver by Buyer of the conditions set forth in Sections 11.7 and 10.2. SECTION 7.4 Transitional Assistance. For a period of twelve (12) months after the Closing, Seller will make its personnel reasonably available for the purpose of (a) providing Buyer, upon Buyer's reasonable request, with assistance in locating information which was unavailable at the time of Closing, (b) providing Buyer, upon Buyer's reasonable request, with appropriate verifications of documents and information in Seller's possession, (c) providing Buyer, upon Buyer's reasonable request, technical assistance to enable Buyer to operate the OxyChem Addis Technology at the Facility, provided however, that Buyer shall reimburse Seller's full cost of providing such additional technology and know- how, or (d) otherwise providing reasonable assistance which the parties mutually deem appropriate, provided further however, that with respect to any of the foregoing Seller shall be under no obligation to insure the availability of particular individuals or employees for purposes of performing its obligations pursuant to this Section. SECTION 7.5 Environmental Assessment. As soon as possible after the date of this Agreement and prior to the Closing Date, Buyer and Seller shall carry out, by an independent contractor mutually acceptable to Buyer and Seller, an environmental baseline assessment of the real estate upon which the Facility is situated in the manner described in Schedule 7.5. Seller shall afford reasonable access to the Facility for the purpose of carrying out the assessment. On site assessment activities shall be conducted so as to minimize interference with or disruption of Seller's operation and use of the Facility. The results of the assessment and all reports and other data collected or prepared in connection therewith will be provided to Seller and Buyer provided, however that Buyer shall not disclose the contents of the assessment, reports or data to any third party without the Seller's prior written consent. Prior to the Closing Date, Seller shall have full title to the assessment, reports and other data collected or prepared in connection therewith and shall be entitled to share the information with any third parties without the need for Buyer's consent. After the Closing Date, Buyer shall have title to such materials, provided however, that Seller may retain copies of any or all of such materials for the purpose of ensuring Seller's and Buyer's compliance with the provisions of this Agreement. In any case where any portion of such information is required by law, rule, regulation, or ordinance to be disclosed, the manner and extent of such compliance shall be determined in Seller's sole discretion and shall be Seller's sole responsibility and Buyer shall have no liability therefore. In the event that this Agreement shall terminate for any reason, Buyer shall forward all copies of the assessment and all reports and other data collected or prepared in connection therewith in its possession to the Seller and all such materials shall be deemed to be Evaluation Material subject to the terms of the Confidentiality Agreement. Buyer and Seller shall share equally the costs of the assessment conducted pursuant to this provision. 15 SECTION 7.6 Construction Debris Commitment. Seller shall diligently pursue the performance of its obligations pursuant to the provisions of Schedule 7.6. SECTION 7.7 First Month's Resin Production. Prior to the Closing Date, Seller shall mutually agree with Buyer on the quantities of PVC to be manufactured by Buyer during the first calendar month after the Closing, pursuant to the provisions of the PVC Tolling Agreement. SECTION 7.8 First Month's VCM Supply. Prior to the Closing Date, Seller shall mutually agree with Buyer on the quantities of VCM to be supplied to Buyer during the first calendar month after the Closing, pursuant to the provisions of the VCM Supply Agreement. SECTION 7.9 Financial Statements. Not later than September 30, 1994, Seller shall, at Buyer's expense, furnish to Buyer such audited and/or unaudited statements of income and cash flows and balance sheets of the business comprised of the Included Assets and the Assumed Liabilities or such other business required by Rule 3-05 of Regulation S-X of the SEC as are required to be included in a Report on Form 8-K or Registration Statement on Form S-3 of Buyer. Prior to the Closing Date, Seller shall furnish such additional audited statements and/or unaudited statements as may be required by such Rule 3-05. Without limiting the foregoing, it is understood and agreed that the audited and unaudited financial statements contemplated by the immediately preceding sentence shall constitute the financial statements described in Rule 3-05 of Regulation S-X of the SEC as required to be included by Buyer in a Report on Form 8-K or Registration Statement on Form S-3. SECTION 7.10 Buyer having elected to operate the Facility after the Closing Date with the Seller will have installed the at the Facility and shall have the operational as of the Closing Date and Seller shall have demonstrated the ability of the modified Facility (i) to operate at productivity rates consistent with the historical performance of the Facility, and (ii) to produce PVC products reasonably acceptable to Seller's contract customers as of the Closing Date. ARTICLE VIII COVENANTS OF BUYER Buyer covenants that: SECTION 8.1 Confidentiality. Buyer and its Affiliates will remain subject to the obligations of confidentiality set forth in the Confidentiality Agreement. Additionally, Buyer agrees to maintain all aspects of the Addis Confidential Technology Information confidential for the period of fifteen years from the date of this Agreement. SECTION 8.2 Occidental Name. On and after the Closing Date Buyer: (a) will clearly mark or cause to be clearly marked all products manufactured in respect of the Included Assets to indicate Buyer's ownership thereof, and (b) will not use, nor permit to be used on its behalf, (i) the 16 comet logo, or (ii) the words "Oxy", "OxyChem" or "Occidental", provided, however, that Buyer shall have a period of no longer than sixty (60) days following the Closing Date within which to change all signs at the Facility that contain the logo or words described in sub-paragraphs (i) and (ii) above. SECTION 8.3 Post Closing Access. On and after the Closing Date (without regard to Section 13.5) Buyer shall allow Seller, its employees, agents, contractors and subcontractors to have access to the Facility at all reasonable times for the purposes of undertaking all necessary monitoring and environmental cleanup activities or as may otherwise be necessary or appropriate to carry out the provisions of this Agreement. SECTION 8.4 Records Access; Transitional Assistance. With respect to the files, records and other documents constituting part of the Included Assets, for a period of ten (10) years after the Closing Date, Buyer will give Seller access to such files, records and other documents acquired from Seller as part of the Included Assets and will make its personnel reasonably available for the purpose of providing Seller, upon Seller's reasonable request, with assistance in locating information from such records, providing appropriate verifications of documents and information, developing information, reports, submissions and the like relating to Seller's operation of the Included Assets prior to the Closing, or otherwise providing reasonable assistance which the parties mutually deem appropriate; provided, however, that Buyer shall be under no obligation to retain any such files, records and other documents beyond the periods of time applicable under Buyer's records retention policies and procedures or until the expiration of one month after the applicable statute of limitations for the assessment of additional state and/or local sales and use taxes (including any extension thereof), if later. SECTION 8.5 Prohibition Against Recruitment. In the event this Agreement is terminated for any reason, for a period of three (3) years after the date of such termination, Buyer shall not recruit or otherwise solicit in any manner the employment of any employee of Seller. SECTION 8.6 Wastewater Treatment Ponds. At such time after the Closing Date as Buyer determines that it desires to or is required by applicable law to cease operating the aeration and effluent ponds located at the Facility as of the Closing Date (the "ponds"), Buyer shall prepare a closure plan for the ponds in accordance with the requirements of applicable laws and regulations and submit such plan in a timely manner for approval by the appropriate regulatory agencies. Buyer shall consult with Seller in the preparation of the closure plan and shall allow the participation of Seller in the negotiation of the closure plan with the involved agencies so long as such participation by Seller does not materially adversely affect or delay the permitting, construction or operation of Buyer's new or modified wastewater system. Buyer and Seller shall cooperate reasonably and in good faith in negotiating an appropriate closure plan with the relevant agencies. Buyer shall close the ponds in a manner consistent with the approved closure plan. Seller shall be afforded an opportunity to 17 participate in all phases of the implementation of the closure plan, including but not limited to, any sampling plans, collection and analyses activity and the establishment of the closure criteria. Buyer shall make all required reports to relevant state or federal agencies and take all actions requested by such agencies consistent with the closure plan. Buyer shall maintain accurate records with respect to the cost of preparing and implementing the closure plan, and Seller shall have the right to audit such records. Buyer shall submit its invoice, and Seller shall promptly reimburse Buyer, for all costs incurred by Buyer in excess of in implementing the closure plan. Buyer shall use its best efforts to minimize costs, consistent with the requirements of the closure plan. SECTION 8.7 Construction Debris Commitment. Buyer shall diligently pursue the performance of its obligations pursuant to the provisions of Schedule 7.6. SECTION 8.8 First Month's Resin Production. Prior to the Closing, Buyer shall mutually agree with Seller on the quantities of PVC to be manufactured by Buyer during the first calendar month after the Closing, pursuant to the provisions of the PVC Tolling Agreement. SECTION 8.8A First Month's VCM Supply. Prior to the Closing Date, Seller shall mutually agree with Buyer on the quantities of VCM to be supplied to Buyer during the first calendar month after the Closing, pursuant to the provisions of the VCM Supply Agreement. SECTION 8.9 No Reduction in Compensation. For a period of twelve months after the Closing Buyer shall not institute any across the board reductions in compensation applicable to the Transferred Employees. SECTION 8.10 Participation in Health Maintenance Organization. For a period of twelve months after the Closing, Buyer shall allow Transferred Employees to continue participation in Community Health Network of Louisiana, Inc., ("Community Health") pursuant to a contract to be entered into between Buyer and Community Health which shall provide the same plan design and premium payments for Transferred Employees as administered under the Seller's program with Community Health prior to the Closing. SECTION 8.11 Diligent Pursuit of Financing. Subject to Seller's compliance with Section 7.9, Buyer shall diligently and in good faith exercise its best commercial efforts to pursue and secure commitments for the financing necessary for Buyer's acquisition of the Included Assets pursuant to this Agreement. Such diligence shall include, without limitation, Buyer's good faith efforts to file, within five (5) business days after Seller shall have provided such financial statements as are required pursuant to the provisions of Section 7.9 of this Agreement, for such approvals from the SEC for public or private placement offerings as may be necessary or appropriate for Buyer's acquisition of the Included Assets pursuant to this Agreement within six (6) weeks after the later of (i) approvals having been received from the Federal Trade Commission, and (ii) approvals having been received from the SEC. 18 SECTION 8.12 License to Operate the . On or before the Closing Date, Buyer shall have entered into an agreement with which shall be effective no later than the Closing Date, licensing Buyer to operate the and the installed at the Facility pursuant to Section 7.10. ARTICLE IX EMPLOYEE MATTERS SECTION 9.1 Offers of Employment. (a) On or before the Closing Date, Buyer shall extend offers of employment to all of Seller's active employees who are employed on an hourly basis at the Facility as of the Closing Date and who are not on long-term disability or sick leave (short-term disability) on such terms and conditions as Buyer, in its discretion, shall determine. Notwithstanding the above, any such employee who is on sick leave (short-term disability) as of the Closing Date and who is authorized by a Doctor to return to work within twenty six (26) weeks after the Closing Date shall be offered employment by the Buyer. (b) On or before the Closing Date, Buyer may extend offers of employment to such of Seller's active, salaried employees who are employed in connection with the operation of the Facility as of the Closing Date, and who are not on long- term disability or sick leave (short-term disability) on such terms and conditions, as Buyer, in its discretion, shall determine. Notwithstanding the above, any such employee who is on sick leave (short-term disability) as of the Closing Date and who is authorized by a Doctor to return to work within twenty six (26) weeks after the Closing Date may be offered employment by the Buyer. (c) The employment of all such employees accepting offers of employment with Buyer shall commence on the Closing Date and such employees shall be referred to as the "Transferred Employee(s)". As to any Transferred Employee, no provision of this Agreement shall be construed, either expressly or by implication, as requiring or otherwise providing for the termination of such employee's employment by Seller and the commencement of new employment by the Buyer; it being the intention of Buyer and Seller that the employment of Transferred Employees shall be continuous and uninterrupted. (d) Seller shall be responsible for all salaries, wages and benefits (including employees on long-term disability and sick leave), if any, of each employee accruing after the Closing Date and prior to the date that such employee commences (or returns to) work as a Transferred Employee of Buyer. Except as expressly set forth herein, Buyer shall have no liability for Seller's employees who do not become Transferred Employees on or after the Closing Date, and with respect to Transferred Employees, Buyer shall have no liability for salaries, wages or benefits accrued or relating to periods prior to the date that the employees become Transferred Employees. 19 SECTION 9.2 Participation in Buyer's Employee Benefit Plans. Effective as of the Closing Date and except as otherwise provided in this Article IX, Buyer shall permit all Transferred Employees to participate in Buyer's employee benefit plans which are described in Schedule 6.3 of this Agreement. With respect to Transferred Employees, Buyer shall recognize and give full credit for all years of service with Seller for purposes of vesting and eligibility under all employee benefit plans (including early retirement but excluding retiree medical as contained in Section 9.6) maintained by Buyer, and all Transferred Employees shall be immediately eligible for enrollment under Buyer's medical plan without limitation or exclusion for any pre-existing condition. Seller assumes no liability or obligations under any of Buyer's employee benefit plans. SECTION 9.3 Liability for Severance Benefits. (a) If Buyer at any time during the one year period beginning on the Closing Date terminates the employment of any Transferred Employee for any reason other than for cause, Buyer shall pay such individual a severance benefit equal to the benefit the terminated employee would have received under Seller's severance pay policy in effect on the Closing Date. Buyer shall not be obligated under this Section to extend participation to such severed employees in its other benefit plans beyond that which it would under its severance policy. (b) If Seller or Buyer incurs any liability as a result of constructive termination claims by or on behalf of any Transferred Employee, the Buyer and Seller shall share equally the liability and expenses. SECTION 9.4 Certain Medical Plan Deductibles and Benefits. Transferred Employees shall be required to satisfy only the annual medical plan deductibles (medical, dental and pharmaceutical) for the calendar year in which the Closing Date occurs which is the lesser of such deductibles required by Seller's medical plan or Buyer's medical plan, and Transferred Employees shall receive full credit under Buyer's plan for all amounts paid by such employee under Seller's plan including, without limitation, any such amounts paid which are applicable to the calendar year in which the Closing shall occur. Any plan benefits paid to or on behalf of a Transferred Employee under Seller's medical plan in the calendar year in which the Closing shall occur shall be applicable to the calculation of Buyer's medical plan benefit limits applicable to such Transferred Employee for such calendar year. At the Closing and for a period of three (3) months thereafter, Seller shall provide Buyer with a list of each Transferred Employee's amounts applied to the annual deductibles and stop loss under Seller's Plans. SECTION 9.5 Benefit Plans Transfer (a) All Transferred Employees shall cease to accrue service credit except as expressly provided herein, under any and all of Seller's or any of its affiliate's or subsidiaries' Welfare Plans, or under any and all of Seller's or any of its affiliate's or subsidiaries' Pension Plans, in which participation had been available to such Transferred Employees, including, but not limited to, retirement and profit sharing plans, life, health, dismemberment, vacation benefits and deferred compensation pay. Expenses incurred and expenses for continuous periods of disability or hospitalization commencing but not completed as of the Closing Date shall be responsibility of the Seller. Seller's liability shall end when the disability or hospitalization ends. Seller shall retain responsibility for the administration of the account balances of the Transferred Employees who do not elect to transfer their assets to the Buyer from the Occidental Petroleum Corporation Savings Plan and the Occidental Petroleum Corporation 20 Retirement Plan. Effective as of the Closing Date, Seller agrees to cause Occidental Petroleum Corporation to vest fully the Transferred Employees in their account balances in the Occidental Petroleum Corporation Savings Plan and Occidental Petroleum Corporation Retirement Plan. In that both the Seller, its affiliates and Buyer wish to accommodate Transferred Employees in effecting a one time plan to plan asset transfer of their individual account balance under the Occidental Petroleum Corporation Savings Plan, for each Transferred Employee who so elects, Seller and Buyer shall facilitate such plan to plan individual asset transfer, including outstanding loan balances, as soon as reasonably possible following the Closing Date, and in no event later than three (3) full calendar months following the Closing Date. Seller agrees to facilitate such plan to plan individual asset transfer as prescribed in the administrative procedure to be developed by the Seller and Buyer no later than thirty (30) days following the Closing Date. Buyer agrees to accept the assets including outstanding loan balances into its Borden Inc. Consolidated Retirement Savings and Employee Stock Ownership Plan and credit such assets, including outstanding loans, to each of the Transferred Employee's respective individual employee account, for those who so elect such transfer of his/her account balance subject to the individual employee promptly executing loan authorization transfer documentation in a form acceptable to the Buyer. (b) Seller agrees that uninterrupted service with Buyer during the period of five (5) years immediately following the Closing Date shall be credited to each Transferred Employee for purposes of service and age under the retiree medical provisions of the Occidental Petroleum Corporation Medical Care Plan under which any such Transferred Employee was a participant prior to the date such employee became a Transferred Employee (if continued employment during that five (5) year period with Seller or its affiliates would entitle such Transferred Employee to benefits under such medical plan providing benefits to retiree upon retirement). Such employee shall be entitled to such benefits under such plans which are then generally available to Seller's employees retiring directly from employment, and separation of service from Buyer shall be treated as a separation of service from Seller for the purposes of eligibility under Seller's medical plan. (c) On or after the Closing Date, Seller shall calculate the amount of pro rated vacation entitlement for each of the Transferred Employees earned in 1994 based on Seller's vacation policy. The net amount of vacation liability shall be included as a Post Closing Price Adjustment. Banked Vacation liabilities for Transferred Employees shall be paid by Seller promptly after the Closing Date to the Transferred Employees. (d) Both Seller and Buyer shall take, or shall use their best efforts to cause its affiliates to take, whatever action is necessary, including but not limited to amendment of applicable benefit plans, in order to effect Seller's and Buyer's agreement with respect to the provision of this Article 9. SECTION 9.6 Coordination of Benefit Plans for Retirees. (a) With respect to Transferred Employees immediately eligible for benefit under the Seller's medical plan as of the Closing Date, the coverage provided under Seller's plan shall be primary when 21 the Transferred Employees terminate employment with the Buyer, and the coverage provided under Buyer's plan shall be secondary. (b) Seller's medical plan shall be primary for Transferred Employees over fifty years of age as of the Closing Date who, (i) retire from employment with Buyer, and (ii) provide written notice to Seller of their election to participate in Seller's medical plan, provided that such employee otherwise meets the eligibility requirements for participation in Seller's plan. (c) With respect to Transferred Employees who are forty-five years of age or older as of the Closing Date, Buyer shall recognize the period of such employees' service as recognized by Seller immediately prior to the Closing Date for purposes of eligibility under Buyer's retiree medical plan, not to exceed five years. SECTION 9.7 Final Payroll. Seller shall pay the Transferred Employees directly the amount of salaries and wages earned to the Closing Date. Such payment shall reflect such employee's share of payroll and employment taxes. SECTION 9.8 Certain Employee Related Liabilities. Except as otherwise specifically provided in this Article IX, all employee related liabilities arising with respect to events or relating to periods which occurred on or before the Closing Date and all employee related liabilities with respect to all employees who are not hired by Buyer shall be the sole responsibility of Seller. Except as otherwise specifically provided in this Article IX, all employee related liabilities arising with respect to events or relating to periods after the Closing Date and all employee related liabilities with respect to the Transferred Employees shall be the sole responsibility of Buyer. SECTION 9.9 Buyer's Compensation Practices and Benefit Plans. Except as otherwise required by the provisions of this Article IX, Buyer shall establish such compensation practices and employee benefit programs for Transferred Employees as it determines appropriate or desirable. Buyer shall provide the following to Transferred Employees for purposes of addressing disparities between Buyer's compensation and benefit package and Seller's compensation and benefit package: for those Transferred Employees who are on Buyer's payroll on December 15, 1995, 1996 and 1997, Buyer shall pay such Transferred Employee by December 31st of each year an allowance of . SECTION 9.10 No Restriction on Seller's or Buyer's Rights to Amend or Terminate. Nothing in this Article IX shall be construed as restricting or eliminating the parties' or their affiliates' rights to amend or terminate their employee benefit plans or policies, nor shall this Article IX be construed as causing any Transferred Employee to be vested in any entitlement to benefits under any Welfare Plan sponsored by either party or any of their affiliates. Except as specifically provided in this Article IX, nothing shall be construed as creating or expanding the right of Transferred Employees or any other of Seller's active employees at the Facility to benefits under any Welfare Plan, Pension Plan, or other employee benefit plan sponsored by the parties or any of their affiliates. Nothing expressed or implied in the Agreement is intended or shall be construed to confer upon or give any person, firm, or corporation other than the parties hereto, any rights or remedies under or by reason of this Agreement or the transactions contemplated hereby. 22 ARTICLE X TERMINATION This Agreement and the transactions contemplated hereby may be terminated at any time prior to the Closing Date: SECTION 10.1 Mutual Consent. By mutual written consent of Buyer and Seller; SECTION 10.2 Failure of Financing Contingency. By Seller or Buyer if Buyer has not (i) made such filings with the SEC as are described in Section 8.11 within the time limit set forth in such Section, or (ii) within six weeks of the later of the parties having obtained such approvals from the Federal Trade Commission as are required pursuant to Sections 11.7 and 12.6 of this Agreement and the Buyer having obtained such approvals from the SEC as are required for its financing offering, completed the acquisition of financing necessary for the closing of the transactions contemplated by this Agreement. SECTION 10.3 Misrepresentation or Breach. Without prejudice to any other rights or remedies it might have, by either party if there has been a material misrepresentation or breach of warranty or covenant herein or in any signed writing delivered pursuant hereto on the part of the other party or if such other party has failed to satisfy or caused to be satisfied the conditions to the obligations of the terminating party hereunder other than those contained in Section 11.7 and 12.6 and subject to the provisions of Section 14.1. SECTION 10.4 Court Order. By either party upon written notice to the other (a) if consummation of the transactions contemplated hereby shall violate any non-appealable final order, decree or judgment of any court or governmental body having competent jurisdiction, or (b) in the event that Seller and Buyer shall not have received such approvals from the Federal Trade Commission as are required pursuant to Section 11.7 and Section 12.6 of this Agreement and the parties do not agree to pursue gaining such approvals through the Federal court system. ARTICLE XI CONDITIONS TO OBLIGATIONS OF BUYER The obligations of Buyer to be performed at Closing shall be subject to the satisfaction or the waiver in writing by Buyer on or prior to the Closing Date of the following conditions: SECTION 11.1 Performance. Each agreement and covenant of Seller to be performed on or before the Closing Date pursuant hereto shall have been duly performed in all material respects; 23 SECTION 11.2 Collateral Agreements. (a) If requested by Buyer, Buyer shall have entered into a partial assignment agreement with Seller and OxyMar, a Texas general partnership, pursuant to which certain of Seller's rights to purchase VCM from OxyMar pursuant to that certain Amended and Restated VCM Purchase Agreement (OxyChem) dated August 30, 1990 in quantities sufficient to supply one hundred percent (100%) of the requirements of the Facility as of the date of this Agreement shall be assigned to Buyer; or (b) If Buyer has not requested the partial assignment described in sub- paragraph (a) or if the consent of OxyMar to such a partial assignment is requested by Buyer but cannot be obtained prior to the Closing Date, then Seller shall have executed and delivered to Buyer the VCM Supply Agreement; and (c) Seller shall have executed and delivered to Buyer the PVC Tolling Agreement. SECTION 11.3 Corporate Authorization. Seller shall have furnished to Buyer (a) a copy of Seller's certificate of incorporation, certified as of a recent date by the Secretary of State of New York, and (b) a certificate of the Secretary or an Assistant Secretary of Seller (i) including a copy of Seller's by-laws, (ii) a copy of resolutions adopted by the Board of Directors of Seller authorizing the execution, delivery and performance of this Agreement by Seller, and (iii) as to the incumbency and signatures of officers, no amendment of the certificate of incorporation or by-laws, and no proceedings for dissolution or liquidation; SECTION 11.4 Opinion of Seller's Counsel. Buyer shall have received the opinion of Duane Stamp, Associate General Counsel for Seller, in the form attached hereto as Annex B; SECTION 11.5 Representations and Warranties True. The representations and warranties of Seller contained herein and in any other signed writing delivered by Seller pursuant hereto or in connection herewith shall be true in all material respects on and as of the Closing Date and with the same effect as though made on and as of such date, and Buyer shall have received at the Closing a certificate to such effect dated the Closing Date and executed on behalf of Seller by an officer of Seller; SECTION 11.6 No Violations of Statutes. There shall not be any statute, rule or regulation which makes it illegal for Buyer to consummate the transactions contemplated hereby or any order, decree or judgment enjoining Buyer from consummating the transactions contemplated hereby; SECTION 11.7 Federal Trade Commission Approval. Seller shall have provided evidence to Buyer of Seller's receipt of such approvals from the Federal Trade Commission as are required pursuant to the Stipulation and Final Order of the United States Court of Appeals for the Second Circuit in Occidental Petroleum -------------------- Corporation, et al. v. The Federal Trade Commission, Docket 93-4122, modifying - ---------------------------------------------------- the order of the Federal Trade Commission entered December 22, 1992 in Commission Docket No. 9205; 24 SECTION 11.8 Licenses, Consents and Approvals. Buyer and Seller have received such consents of other parties as are set forth in Schedule 5.6 and Schedule 6.4, except where the failure to obtain such consent would not have a material adverse effect. SECTION 11.9 Results of Environmental Assessment. Buyer shall be satisfied with the results of the environmental assessment conducted pursuant to Section 7.5 provided, however, that Buyer shall be required to proceed with the Closing unless the environmental assessment reveals a condition that would in Buyer's reasonable judgment materially adversely affect Buyer's future use of the Real Estate and provided further that Seller has not been able to remedy the condition within a reasonable time. Buyer's election to proceed to complete the transactions contemplated by this Agreement shall not relieve or limit Seller's obligations of indemnity pursuant to Section 13.2, which shall include the obligation to indemnify Buyer for such costs and expenses incurred by Buyer in correcting any condition revealed as a result of the assessment which is within the scope of Section 13.2(c), subject to the application of such thresholds, deductibles and limitations of claims as are applicable to such indemnity pursuant to the provisions of Article XIII. ARTICLE XII CONDITIONS TO OBLIGATIONS OF SELLER The obligations of Seller to be performed at Closing shall be subject to the satisfaction or the waiver in writing by Seller on or prior to the Closing Date of the following conditions: SECTION 12.1 Performance. Each agreement and covenant of Buyer to be performed on or before the Closing Date pursuant hereto shall have been duly performed in all material respects; SECTION 12.2 Authorizations. Buyer shall have furnished to Seller (a) a copy of the certificate of limited partnership of Buyer, certified as of a recent date by the Secretary of State of Delaware, (b) a copy of the certificate of incorporation of BCP Management Inc., certified as of a recent date by the Secretary of State of Delaware, (c) a certificate of the Secretary or an Assistant Secretary of BCP Management, Inc. attesting to (i) no amendment of the amended and restated agreement of limited partnership of Buyer, and no proceedings for dissolution or liquidation of Buyer and (ii) the adoption of resolutions by the Board of Directors of BCP Management Inc. authorizing the execution, delivery and performance of this Agreement by Buyer, and (iii) the incumbency and signatures of officers of BCP Management, Inc., no amendment of the certificate of incorporation or by-laws of BCP Management, Inc. and no proceedings for its dissolution or liquidation; SECTION 12.3 Opinion of Buyer's Counsel. Seller shall have received the opinion of Lawrence Dieker, Assistant General Counsel for Borden, Inc., in the form attached hereto as Annex C; 25 SECTION 12.4 Representations and Warranties True. The representations and warranties of Buyer contained herein and in any other signed writing delivered by Buyer pursuant hereto or in connection herewith shall be true in all material respects on and as of the Closing Date and with the same effect as though made on and as of such date, and Seller shall have received at the Closing a certificate to such effect dated the Closing Date and executed on behalf of Buyer by its Chief Financial Officer; SECTION 12.5 No Violations of Statutes. There shall not be any statute, rule or regulation which makes it illegal for Seller to consummate the transactions contemplated hereby or any order, decree or judgment enjoining Seller from consummating the transactions contemplated hereby; SECTION 12.6 Federal Trade Commission Approval. Seller shall have received such approvals from the Federal Trade Commission as are required pursuant to the Stipulation and Final Order of the United States Court of Appeals for the Second Circuit in Occidental Petroleum Corporation, et al. v. The Federal Trade -------------------------------------------------------------- Commission, Docket 93-4122, modifying the order of the Federal Trade Commission - ---------- entered December 22, 1992 in Commission Docket No. 9205; SECTION 12.7 Licenses, Consents and Approvals. Buyer and Seller have received such consents of other parties as are set forth in Schedule 5.6 and Schedule 6.4, except where the failure to obtain such consent would not have a material adverse effect. ARTICLE XIII INDEMNITIES; SURVIVAL SECTION 13.1 Seller's Indemnity - General and Contractual. Except for environmental matters for which indemnification is provided pursuant to Section 13.2, Seller will indemnify and defend Buyer, its Affiliates and their respective directors, officers, employees and agents from and against any and all claims, demands, suits, damages, liabilities, loss or other expense (including reasonable attorneys' fees), whether for property damages, bodily injury, governmental fines (including, without limitation, for the violation of operating permits) or otherwise to the extent such claims, demands, suits, damages, liabilities, loss or other expense arise out of, result from or are attributable to: (a) Seller's operation of the Included Assets prior to the Closing Date; or (b) product liability claims for all products shipped by Seller prior to the Closing; or (c) allegations which, if true, would render any representation or warranty of Seller contained herein false when made; or (d) the breach of any covenant or other promise of Seller contained herein; or (e) any other liability or obligation of Seller of any nature, accrued or contingent, and not assumed by Buyer. SECTION 13.2 Seller's Indemnity - Environmental. To the extent arising from (a) the manufacture, generation, treatment, storage, handling, processing, disposal, discharge, loss, leak, escape or spillage of any product, waste or substance (generated or handled by Seller on or off the 26 premises of the Facility) prior to the Closing Date, or (b) any condition resulting therefrom relating to acts, omissions or operations of Seller prior to the Closing Date, or (c) any duty, obligation or responsibility imposed upon Seller or its Affiliates prior to the Closing Date under any environmental law in effect prior to the Closing Date to prevent or remedy any such condition, Seller agrees to defend and indemnify Buyer, its Affiliates and their respective directors, officers, employees and agents from and against all actions or causes of action, losses, damages, costs and expenses (including reasonable attorneys' fees) arising out of, relating to or resulting from any condition or action described in clause (a), (b) or (c) of this Section 13.2. In no event shall this provision be construed so as to entitle Buyer to indemnification if the claim for indemnification would not exist but for a change in applicable law occurring after the Closing Date. The preceding sentence shall not apply however, to any claims with respect to any sites away from the real estate upon which the Facility is located where Seller may have disposed of waste materials, including, without limitation, the locations referred to in Schedule 5.14. SECTION 13.3 Buyer's Indemnity - General and Contractual. Except for environmental matters for which indemnification is provided pursuant to Section 13.4, Buyer will indemnify and defend Seller, its Affiliates and their respective directors, officers, employees and agents from and against any and all claims, demands, suits, damages, liabilities, loss or other expense (including reasonable attorneys' fees), whether for property damages, bodily injury, governmental fines (including, without limitation, for the violation of operating permits) or otherwise, to the extent such claims, demands, suits, damages, liabilities, loss or other expense arise out of, result from or are attributable to: (a) Buyer's operation of the Included Assets on and after the Closing Date; or (b) product liability claims for any products shipped by Buyer after the Closing; or (c) allegations which, if true, would render any representation or warranty of Buyer contained herein false when made; or (d) the breach of any covenant or other promise of Buyer contained herein; or (e) any other liability or obligation of Seller of any nature, accrued or contingent, assumed by Buyer hereunder. SECTION 13.4 Buyer's Indemnity - Environmental. To the extent arising from (a) the manufacture, generation, treatment, storage, handling, processing, disposal, discharge, loss, leak, escape or spillage of any product, waste or substance (generated or handled by Buyer on or off the premises of the Facility) after the Closing Date, or (b) any condition resulting therefrom relating to acts, omissions or operations of Buyer after the Closing Date, or (c) any duty, obligation or responsibility of Buyer, its parents or its subsidiaries or affiliates under any environmental law to prevent or remedy any such condition, Buyer agrees to defend and indemnify Seller, its Affiliates and their respective directors, officers, employees and agents from and against all actions or causes of action, losses, damages, costs and expenses (including reasonable attorneys' fees) arising out of, 27 relating to or resulting from any condition or action described in clause (a) or (b) or (c) of this Section 13.4. SECTION 13.5 Limitations. Unless otherwise specifically provided, all representations, warranties and covenants made by the parties in this Agreement and in any certificates or other instruments delivered pursuant hereto shall survive the Closing, provided however, (a) representations and warranties concerning environmental matters and Seller's warranty in Section 5.16 shall . Representations and warranties concerning tax matters shall survive for a period of after the relevant authorities shall no longer be entitled to assess liability for tax against Buyer for any particular fiscal year ended on or prior to the Closing Date. All other representations and warranties shall only survive for a period of from the Closing Date; provided, however, that Buyer's or Seller's sole remedy for a breach of any representation or warranty herein shall, in the absence of fraud, consist of the right to indemnification as provided in this Article XIII. If no claim shall have been made under this Agreement against a party for any incorrectness in or breach of any representation or warranty made in this Agreement prior to the expiry of these survival periods, such party shall have no further liability under this Agreement with respect to such representation or warranty, and (b) notwithstanding the limitations set out in subsection (a) above, any claim which is based on title to the Included Assets, intentional misrepresentations or fraud may be brought at any time. (c) notwithstanding any other provision of this Article XIII, neither party nor any of their Affiliates shall be liable to the other for consequential, incidental, indirect or punitive damages in connection with their indemnification obligations under this Agreement unless such obligation is incurred as a result of willful misrepresentation. The remedies set forth in this Agreement are in lieu of, and not in addition to, any other legal or equitable remedies to which the parties might be entitled. (d) notwithstanding any other provision of this Article XIII, Seller's damages for a breach by Buyer of its obligations pursuant to Section 8.11 shall be limited to third party costs incurred by Seller in connection with Seller's efforts to sell the Included Assets to Buyer, not to exceed . SECTION 13.6 Threshold for Claims. (a) Representations and Warranties. Except for any claims based upon the ------------------------------- warranty in Section 5.16, no claim shall be made by either party against the other based upon the provisions of Section 13.1(c) and Section 13.3(c) unless the aggregate of all such claims by the claiming party shall exceed in the aggregate, whereupon the party against which such claims are made shall be liable for the aggregate amount of all such claims made against it. (b) General and Contractual. No claim shall be made by either party against ------------------------ the other based upon the provisions of Sections 13.1(a), (d) or (e) or Sections 13.3 (a), (d) or (e) unless the aggregate of all such claims by the claiming party shall exceed in the aggregate, whereupon the party against which such claims are made shall be liable for the aggregate amount of all such claims made against it. (c) Product Liability and Personal Injury Claims. No claim shall be made by --------------------------------------------- either party against the other based upon the provisions of Section 13.1(a) (only to the extent such claims consist of personal injury claims), Section 13.1 (b) or Section 13.3 (b) unless the aggregate of all such claims by the claiming party shall exceed in the aggregate, 28 whereupon the party against which such claims are made shall be liable for the aggregate amount of all such claims made against it. (d) Environmental. No claim shall be made by either party against the other -------------- based upon the provisions of Section 13.2 or Section 13.4 unless the aggregate of all such claims by the claiming party shall exceed in the aggregate, whereupon the party against which such claims are made shall be liable for the aggregate amount of all such claims made against it. SECTION 13.7 Claim Deductibles. (a) Representations and Warranties. Except for any claims based upon the ------------------------------- warranty in Section 5.16, Seller and Buyer shall each have a deductible of per claim and an aggregate and cumulative deductible of against any and all claims for indemnity under Sections 13.1(c) and 13.3(c) of this Agreement. (b) General and Contractual. Seller and Buyer shall each have an aggregate ------------------------ and cumulative deductible of against any and all claims for indemnity under Sections 13.1(a), (d) and (e) and Sections 13.3(a), (d) and (e) of this Agreement. (c) Product Liability and Personal Injury Claims. Seller and Buyer shall each --------------------------------------------- have an aggregate and cumulative deductible of against any and all claims for indemnity under Section 13.1(a) (only to the extent such claims consist of personal injury claims), Section 13.1(b) and Section 13.3(b) of this Agreement. (d) Environmental. Seller and Buyer shall each have an aggregate and -------------- cumulative deductible of against any and all claims for indemnity under Section 13.2 and Section 13.4 of this Agreement. SECTION 13.8 Claim Limits. (a) General and Contractual. The maximum aggregate and cumulative amount that ------------------------ either party may recover from the other based upon the provisions of Sections 13.1(a) (excepting personal injury claims), (d) and (e) or Sections 13.3 (a), (d) and (e) of this Agreement shall be . In addition, upon the expiration of the period ending from the Closing Date, the percentage of Seller's obligation to indemnify Buyer pursuant to Sections 13.1 (a), (d) and (e) of this Agreement shall be reduced by and each year thereafter such that at the expiration of the after the Closing Date, Seller's obligation of indemnification pursuant to the aforementioned provisions of this Agreement shall terminate. The maximum aggregate and cumulative amount that Buyer may recover from Seller based upon the warranty in Section 5.16 shall be limited to the Purchase Price less the Addis Working Capital. (b) Environmental. During the period ending from the Closing -------------- Date, Seller shall be liable for of its indemnification obligation pursuant to Section 13.2 of this Agreement. For the period of period referred to in the preceding sentence, Seller shall be liable for of its indemnification obligation pursuant to Section 13.2. Upon the expiration of the period 29 referred to in the preceding sentence, Seller's obligation to indemnify pursuant to Section 13.2 shall terminate. SECTION 13.9 Notice of Claims. Each party indemnified under the provisions of this Agreement (the "Indemnitee"), upon receipt of written notice of any claim or the service of a summons or other initial legal process upon it in any action instituted against it, in respect of the indemnities contained in this Agreement, shall give reasonably prompt written notice of such claim, or the commencement of such action, or threat thereof, to the party from whom indemnity is provided hereunder (the "Indemnitor"). The Indemnitor shall be entitled to a reasonable period of time (not to exceed ninety days without the consent of the Indemnitee) within which, at is own expense, to avoid, cure or otherwise mitigate the claim giving rise to the obligation of indemnity and the Indemnitee shall cooperate reasonably with such efforts, provided, that in the case of the Buyer as Indemnitee, Buyer shall not be required to undertake, nor to permit, any modifications to the Facility which substantially reduce the efficiency, economic productivity or product characteristics of the Facility. The Indemnitor shall be entitled at its own expense to participate in the defense of such claim or action, or, if it shall elect, to assume such defense; in which event such defense shall be conducted by counsel chosen by the Indemnitor, which counsel may be any counsel satisfactory to the Indemnitee. The Indemnitee shall be entitled to continue to participate in any defense so assumed. Nothing contained herein shall be construed to: (a) prevent the Indemnitee from settling any claim or proceeding in its discretion, or (b) affect the substantive rights of the parties under the indemnities contained herein, including, without limitation, the obligation of the Indemnitee to reasonably and prudently mitigate losses, costs, damages and expenses; provided that (except in the case of a claim arising under Section 5.16 pursuant to which preliminary equitable relief has been obtained which materially disrupts the Indemnitee's operation of the Facility and where the Indemnitor has been given the opportunity to avoid, cure or otherwise mitigate the claim as provided above), if the Indemnitee settles a claim or proceeding over the written objection of the Indemnitor, the Indemnitor shall not be required to reimburse the Indemnitee for the amount of such settlement. ARTICLE XIV MISCELLANEOUS SECTION 14.1 Inability to Obtain Certain Consents. To the extent that any claim, contract, license, permit or other intangible for which transfer or assignment to Buyer is provided herein is not transferable or assignable without the consent of a third party, this Agreement shall not constitute a transfer or assignment or an attempted transfer or assignment if such transfer or assignment or attempted transfer or assignment would constitute a breach thereof. If so requested by Buyer, Seller shall diligently seek to obtain such consents, provided, however, that if any such consent is not obtained, Seller and Buyer agree to cooperate in good faith to enter into any reasonable arrangements 30 mutually acceptable to them designed to provide Buyer with the benefits of and to burden Buyer with the obligations under any such claim, contract, license, permit or other intangible. SECTION 14.2 Costs and Expenses; Brokerage. All cost and expenses, including attorneys' fees, incident to this Agreement and the transactions contemplated herein shall be paid by the party who incurred the same, whether the transactions contemplated by this Agreement are consummated or not. The parties respectively represent and warrant that they have not dealt in any manner with a broker, agent or finder as regards the transaction set forth in this Agreement. SECTION 14.3 Bulk Sales Laws. Buyer hereby waives compliance with the provisions of the bulk sales laws of any jurisdiction which may be applicable to the transactions contemplated hereby. SECTION 14.4 Titles for Convenience. The titles of the Articles and Sections of this Agreement are for convenience of reference only and are not be considered in construing this Agreement. SECTION 14.5 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns; provided that except for the assignment by Buyer to another limited partnership of which BCP Management, Inc. is the general partner, this Agreement may not be assigned by any party without the express written consent of the other party hereto. SECTION 14.6 Entire Agreement; Amendment. This Agreement together with any exhibits, schedules, annexes, the Confidentiality Agreement, and other agreements or documents incorporated by reference herein, embodies the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements with respect thereto. This Agreement may be amended, and any provision hereof waived, but only in writing signed by the party against whom such amendment or waiver is sought to be enforced. SECTION 14.7 Governing Law. The transfer of the Addis Real Estate Interests shall be governed by the laws of the State of Louisiana pertaining thereto. In all other respects this Agreement shall be governed by the laws of the State of New York, excluding conflict of laws principles that may direct the application of the laws of another jurisdiction. The execution and delivery of this Agreement shall be deemed to be the transaction of business within the State of New York for purposes of conferring jurisdiction upon courts located within the State of New York. The parties agree that any court proceedings arising out of this Agreement shall be brought only in the federal or state courts in the State of New York and both parties consent to the jurisdiction of such courts. 31 SECTION 14.8 Notices. All notices, requests, demands or other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered in person to the respective offices named below or two (2) business days after having been mailed by registered or certified mail, postage prepaid, return receipt requested: If to Seller: Occidental Chemical Corporation Occidental Tower 5005 LBJ Freeway Dallas, Texas 75244 (214) 404-3840 (214) 404-4155 (facsimile) Attention: Vice President and General Counsel If to Buyer: Borden Chemicals and Plastics Operating Limited Partnership Highway 73 Geismar, Louisiana 70734 (504) 387-5101 (504) 673-0672 (facsimile) Attention: Vice President - Operations with a copy to: BCP Management, Inc. 180 E. Broad Street Columbus, Ohio 43215 Attention: President SECTION 14.9 Public Statements. Prior to the Closing Date, neither Seller nor Buyer will issue any press release or other statement to third parties concerning this Agreement or the transactions contemplated hereby without the other party's written consent which shall not be unreasonably withheld. 32 SECTION 14.10 Third Party Beneficiaries Nothing expressed or implied in this Agreement is intended or shall be construed to confer upon or give any person, firm, or corporation other than the parties hereto, any rights or remedies under or by reason of this Agreement or any transaction contemplated hereby. IN WITNESS WHEREOF, the parties hereto have caused their respective names to be hereunto subscribed as of the date and year first above written. OCCIDENTAL CHEMICAL CORPORATION By: ________________________________ Title: _______________________________ BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP BY ITS GENERAL PARTNER, BCP MANAGEMENT, INC. By: ________________________________ Title: _______________________________ 33 ANNEX D __________________________________________________________________ VCM SUPPLY AGREEMENT BETWEEN OCCIDENTAL CHEMICAL CORPORATION SELLER, AND BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP BUYER DATED AS OF _______, 1994 ________________________________________________________________________ TABLE OF CONTENTS Page ARTICLE I DEFINITIONS SECTION 1.1 Definitions......................................... 2 ARTICLE II COMMITMENTS OF PURCHASE AND SALE SECTION 2.1 Purchase Commitment................................. 4 SECTION 2.2 Sales Commitment.................................... 4 ARTICLE III QUANTITY SECTION 3.1 Requirements........................................ 4 SECTION 3.2 Notification of Annual Requirements................. 4 SECTION 3.3 Excess Requirements................................. 5 ARTICLE IV TERM SECTION 4.1 Term of This Agreement.............................. 5 SECTION 4.2 Election to Continue This Agreement................. 6 SECTION 4.3 Notices and Elections Binding....................... 6 ARTICLE V PRICE SECTION 5.1 Price of VCM........................................ 6 SECTION 5.2 Seller's Price Estimate, Nomination and Buyer's Payment.................................... 7 SECTION 5.3 Settlement of Market Price.......................... 7 SECTION 5.4 Default Market Pricing Mechanism.................... 7 ARTICLE VI DELIVERY SECTION 6.1 Shipping Instructions............................... 8 SECTION 6.2 Title and Risk of Loss.............................. 8 SECTION 6.3 Transportation Costs................................ 8 i Page SECTION 6.4 Change in Supply Source............................. 9 ARTICLE VII MEASUREMENT SECTION 7.1 Pipeline Delivery................................... 9 SECTION 7.2 Rail Car Delivery................................... 9 SECTION 7.3 Calibration of Measuring Devices.................... 9 ARTICLE VIII WARRANTIES SECTION 8.1 Seller's Warranty................................... 10 SECTION 8.2 VCM Not For Resale.................................. 10 SECTION 8.3 Patents............................................. 10 SECTION 8.4 Uses and Safe Handling.............................. 10 SECTION 8.5 Claims; Liability................................... 10 ARTICLE IX TAXES SECTION 9.1 Responsibility for Taxes............................ 10 SECTION 9.2 Duty Drawbacks...................................... 11 ARTICLE X LIABILITY AND RESPONSIBILITY SECTION 10.1 Allocation of Liability............................. 11 ARTICLE XI EXCUSE OF PERFORMANCE SECTION 11.1 Excuse of Performance............................... 11 ARTICLE XII MISCELLANEOUS SECTION 12.1 Notices............................................. 12 SECTION 12.2 Assignment.......................................... 12 SECTION 12.3 Jurisdiction........................................ 13 SECTION 12.4 Confidentiality..................................... 13 SECTION 12.5 Entirety of Agreement............................... 13 SECTION 12.6 Waiver.............................................. 13 SECTION 12.7 Headings............................................ 13 ii Page SECTION 12.8 Default............................................. 14 iii ANNEX D VCM SUPPLY AGREEMENT THIS VCM SUPPLY AGREEMENT dated as of the _______ day of ________, 1994 is between OCCIDENTAL CHEMICAL CORPORATION, a New York corporation (hereinafter "Seller") and BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership (hereinafter "Buyer"). Each of Seller and Buyer is sometimes hereinafter referred to as a "party" and collectively as the "parties". Capitalized terms not otherwise specifically defined herein shall have the meanings assigned to them in the Asset Transfer Agreement between Occidental Chemical Corporation and Borden Chemicals and Plastics Operating Limited Partnership dated August 12, 1994. WHEREAS, pursuant to the Asset Transfer Agreement, the parties have provided for the sale by Seller and the purchase by Buyer of Seller's right, title and interest in certain PVC production assets located at Addis, Louisiana (the "Facility"); and WHEREAS, VCM is the principal raw material utilized in the production of PVC at the Facility; and WHEREAS, Seller owns or operates VCM production facilities; and WHEREAS, Buyer desires to purchase from Seller VCM required to produce PVC at the Facility; and WHEREAS, Seller desires to sell to Buyer VCM required to produce PVC at the Facility; and WHEREAS, the parties are entering into this Agreement in accordance with the provisions of the Asset Transfer Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 Definitions. 1 ANNEX D "Addis Plant" has the meaning assigned to it in the Asset Transfer Agreement. "Agreement" means this VCM Supply Agreement. "Asset Transfer Agreement" means that certain Asset Transfer Agreement between Occidental Chemical Corporation and Borden Chemicals and Plastics Operating Limited Partnership dated August 12, 1994. "Delivery Month" has the meaning assigned to it in Section 5.2. "Excess Requirements" has the meaning assigned to it in Section 3.3. "Extended Term" has the meaning assigned to it in Section 4.1. "Facility" means the Addis Plant. "month" means a calendar month. "Payment Month" has the meaning assigned to it in Section 5.2. "Price" has the meaning assigned to it in Section 5.2. "Primary Term" has the meaning assigned to it in Section 4.1. "PVC" means polyvinyl chloride. "PVC Tolling Agreement" means that certain PVC Tolling Agreement between Occidental Chemical Corporation and Borden Chemicals and Plastics Operating Limited Partnership dated _______, 1994. "Superfund Tax" means the assessment on the production and sale of VCM imposed pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, as the same may be from time to time amended or reauthorized. "Term" means the period of the Primary Term of this Agreement together with the period of any Extended Term. "VCM" means vinyl chloride monomer having the specifications set forth in Appendix A to this Agreement. 2 ANNEX D "year" or "yearly" means a calendar year, provided that if this Agreement is dated as of a date other than January 1, the initial year of this Agreement shall run from the effective date of this Agreement until the next succeeding December 31. ARTICLE II COMMITMENTS OF PURCHASE AND SALE SECTION 2.1 Purchase Commitment. Buyer agrees to purchase from Seller, during the Term, the quantities of VCM as hereinafter described and at the Price as hereinafter set forth. If the initial year of this Agreement is other than a full calendar year, all such commitments shall be prorated during such initial year based upon the duration of that year. SECTION 2.2 Sales Commitment. Seller agrees to sell to Buyer, during the Term, the quantities of VCM as hereinafter described and at the Price as hereinafter set forth. If the initial year of this Agreement is other than a full calendar year, all such commitments shall be prorated during such initial year based upon the duration of that year. ARTICLE III QUANTITY SECTION 3.1 Requirements. (a) In each year during the Term Buyer shall purchase from Seller one hundred percent (100%) of the requirement for VCM at the Facility up to a base requirement of of VCM per year is hereinafter referred to as the "Base Requirement". (c) The parties may from time to time mutually agree to increases or decreases in the Base Requirement. 3 ANNEX D (d) Any quantity of VCM provided by Seller pursuant to the provisions of the PVC Tolling Agreement shall be included for the sole purpose of determining whether Buyer has met the Base Requirement. SECTION 3.2 Notification of Annual Requirements. (a) Not less than one hundred eighty (180) days prior to the end of each year Buyer shall submit to Seller in writing a forecast of Buyer's requirements for VCM at the Facility for the following three (3) years. Such forecast shall represent Buyer's best effort to accurately predict VCM consumption at the Facility. (b) The parties agree that the quantity of VCM to be supplied by Seller during the initial year of this Agreement is estimated to be a pro rata portion of the Base Requirement based upon the number of days remaining in the initial year. SECTION 3.3 Excess Requirements. (a) Seller may, but shall not be required to, supply VCM in excess of the Base Requirement. (b) In the event that (i) Buyer shall from time to time change the manner of operation or expand the capacity of the Facility such that the requirement of VCM shall increase above the Base Requirement, or (ii) in the event that for any other reason Buyer shall require during any year a quantity of VCM in excess of Buyer's firm VCM quantity nomination for such year, then as to any such additional requirement for VCM shall be collectively referred to as "Excess Requirements". (c) Buyer shall notify Seller of Excess Requirements within the meaning of subsection b(i) not less than one hundred eighty (180) days prior to the date upon which Buyer will need such additional VCM and Seller shall have thirty (30) days from the date of such notification within which to notify Buyer of Seller's willingness to supply all or any part of such Excess Requirements upon the terms and conditions set forth in this Agreement but at a price for such Excess Requirements which the parties shall negotiate in good faith. In the event the parties are unable to reach agreement on the price for such Excess Requirements within thirty (30) days after Seller has notified Buyer of its willingness to supply, Buyer may obtain such quantity from other sources of supply, provided however, that Buyer shall not pay any such competing source of supply a delivered price higher than any firm price last offered by Seller for such Excess Requirements. (d) Buyer shall notify Seller of Excess Requirements within the meaning of subsection (b)(ii) as soon as practicable and Seller shall have thirty (30) days from the date of such notification within which to notify Buyer of Seller's election to supply all or any part of such Excess Requirements at the Price and upon the other terms and conditions set forth in this Agreement. (e) To the extent that Seller shall not elect to supply Excess Requirements, then Buyer may obtain such quantity from other sources of supply, provided however, that Buyer's obligation to purchase VCM from any third party shall be subject to the priority of Buyer's obligation to purchase VCM first from Seller pursuant to the provisions of Section 3.1 and that Buyer's obligations to purchase VCM from Seller shall not be subject to allocation among any other sources of supply. 4 ANNEX D ARTICLE IV TERM SECTION 4.1 Term of This Agreement. The primary term of this Agreement shall commence on the date hereof. If this Agreement is dated other than on January 1, the initial year shall end on the next succeeding December 31 and the primary term of this Agreement shall continue thereafter for a period of (the "Primary Term") and year to year thereafter (the "Extended Term"), unless and until a notice of intent to cancel this Agreement is submitted by either party effective as of the last day of the Primary Term or the last day of any year during the Extended Term. Subject to the provisions of Section 4.4, a notice of intent to cancel shall be void if issued less than twelve months prior to its stated effective date. SECTION 4.2 Election to Continue this Agreement. In the event that a party to this Agreement has provided notice of intent to cancel pursuant to Section 4.1, the other party shall nevertheless have the option to continue this Agreement in effect in the following manner. Not more than ninety (90) days after the submission of any notice of intent to cancel pursuant to Section 4.1, the non-canceling party may provide notice of its election to continue this Agreement in effect, notwithstanding such notice of intent to cancel, by electing to reduce the quantity of VCM that must be purchased or supplied, as the case may be, during the next following year of the Term by of the Base Requirement in effect in the last year of this Agreement prior to the effective date of the first notice of intent to cancel submitted pursuant to Section 4.1 (less the quantity of VCM supplied by Seller to Buyer during such year pursuant to the PVC Tolling Agreement). In the event that a notice of election to continue this Agreement is not provided as set forth in this paragraph, then this Agreement shall terminate in accordance with the most recent notice of intent to cancel. At such time, if any, as a notice of election to continue this Agreement has been submitted three times, then any subsequent notice of intent to cancel this Agreement shall have the effect of terminating this Agreement upon the effective date of such notice. Section 3.3 of this Agreement shall not apply during any period covered by an election to continue. SECTION 4.3 Notices and Elections Binding. Any such notices and elections that either party shall submit or make from time to time in accordance with the provisions of this Article shall be binding upon both Buyer and Seller. Any elections that either party shall make from time to time in accordance with the provisions of this section to reduce the quantity of VCM to be supplied to Buyer shall be deemed to be a permanent reduction in the Buyer's requirements for VCM at the Facility and shall be binding upon both Buyer and Seller until the expiration or other termination of this Agreement. 5 ANNEX D ARTICLE V PRICE SECTION 5.1 Price of VCM. Each calendar month during the Term, the Price of VCM sold to Buyer hereunder, expressed in dollars per pound of VCM, shall represent the (hereinafter the "Market Price"). SECTION 5.2 Seller's Price Estimate, Nomination and Buyer's Payment. Not later than the first day of each month during the Term, Seller shall provide to Buyer a written good faith estimate of the Price applicable to VCM to be delivered to Buyer during such month (the "Delivery Month"). Not later than the day of the next succeeding month (the "Payment Month") Seller shall invoice Buyer for VCM delivered during the Delivery Month at a price nominated by Seller (the "Price") (which may or may not be the same as Seller's prior good faith estimate) and which Seller believes fairly represents the Market Price. Buyer shall pay such invoice, at the Price nominated therein by Seller, by the day of such Payment Month by wire transfer of funds to a bank account designated by Seller to receive such payment. SECTION 5.3 Settlement of Market Price. Prior to the end of each Payment Month, Buyer or Seller may provide written notice that the Price nominated by Seller as applicable to the immediately preceding Delivery Month does not accurately represent the Market Price. Such notice shall include specification of the price which such party believes accurately represents the Market Price during the relevant Delivery Month. Buyer and Seller shall thereafter promptly enter into good faith discussions to resolve the Price of VCM for such Delivery Month. In the event that good faith negotiations to settle the Price of VCM are unsuccessful in resolving the parties' differences within a period of thirty (30) days following written notice pursuant to this Section and if the final disparity in the parties' good faith evaluation of the Market Price for the relevant month is equal to or less than , the parties shall settle the Market Price by splitting the difference between their respective positions. If the parties settle the Price at an amount different than Seller's previously nominated Price for such Delivery Month, then an adjustment for any overpayment or underpayment made by Buyer shall be included in Seller's invoice submitted during the next Payment Month following the parties' agreement. SECTION 5.4 Default Market Pricing Mechanism. In the event that good faith negotiations to settle the Price of VCM are unsuccessful in resolving the parties' differences within a period of thirty (30) days following written notice pursuant to Section 5.3 and if the final disparity in the parties' good faith evaluation of the Market Price for the relevant month is greater than , the Price to be applied to VCM delivered during the relevant Delivery Month shall default to the 6 ANNEX D ARTICLE VI DELIVERY SECTION 6.1 Monthly Shipping Instructions. Fifteen (15) days prior to the first day of each month, Buyer shall furnish to Seller in writing a good faith estimate of the quantities of VCM to be delivered to the Facility during each of the next three months and such instructions and estimates for the month immediately following such notice shall be considered final and binding. The parties shall cooperate to distribute deliveries of VCM in approximately equal monthly quantities during each year. 7 ANNEX D SECTION 6.2 Title and Risk of Loss. Title to and risk of loss of VCM delivered hereunder shall pass to Buyer upon loading into rail tank cars for delivery to Buyer or at the first flange on the pipeline entering the Facility premises, as the case may be. SECTION 6.3 Transportation Costs. For VCM sold to Buyer and shipped by Seller to the Facility, Seller and Buyer shall exercise reasonable commercial efforts to reduce the net transportation costs. SECTION 6.4 Change in Supply Source. If Seller desires to Supply VCM to Buyer from a source other than the current source(s), for a period of more than 45 days, Buyer and Seller shall exercise reasonable commercial efforts to qualify such source(s) of supply. ARTICLE VII MEASUREMENT SECTION 7.1 Pipeline Delivery. If VCM is delivered to the Facility via the VCM pipeline owned by the Dow Chemical Company ("Dow"), the quantity of VCM so delivered shall be determined by an industry standard flow measurement device owned and operated by Dow at its VCM shipping location in Plaquemine, Louisiana. Dow's weights and measures shall govern except in case of demonstrated error. SECTION 7.2 Rail Car Delivery. (i) If VCM is delivered in rail tank cars loaded by Seller, the quantity of VCM so delivered shall be determined by rail tank car weigh scales or other mutually agreed measuring device which shall be operated, maintained and regularly calibrated by Seller at Seller's shipping location in accordance with accepted industry practice. Seller's weights and measures shall govern except in case of demonstrated error. (ii) If VCM is delivered in rail tank cars loaded by a third party, the quantity of VCM so delivered shall be determined by rail tank car weigh scales or other measuring device employed in connection with the loading of such rail cars in accordance with accepted industry practice. Third party weights and measures shall govern except in case of demonstrated error. SECTION 7.3 Calibration of Measuring Devices. (i) In respect of any VCM delivered hereunder the quantity of which is measured by devices operated by Seller, Seller shall give Buyer at least three (3) days' prior notice of any calibration test and Buyer may elect to have a representative present at any such test. If a level of inaccuracy is determined by such test at plus or minus one percent (1%) or more of full scale, Seller shall restore the measuring device to a condition of accuracy and billings shall be corrected for the period known 8 ANNEX D to be affected by such inaccuracy or, if such period cannot be accurately determined, billings shall be corrected for one-half the period of time elapsed since the date of the most recent previous calibration. (ii) In respect of any VCM delivered hereunder the quantity of which is measured by devices operated by a third party, Seller shall exercise reasonable commercial efforts to afford to Buyer (a) at least (3) days' prior notice of any calibration test (of which Seller has such advance knowledge) to be performed on any such device, and (b) an opportunity for Buyer to have a representative present at any such test. If a level of inaccuracy is determined by such test at plus or minus one percent (1%) or more of full scale, Seller's billings to Buyer shall be corrected for the period known to be affected by such inaccuracy or, if such period cannot be accurately determined, billings shall be corrected as Buyer and Seller shall mutually agree. ARTICLE VIII WARRANTIES SECTION 8.1 Seller's Warranty. Seller's sole and exclusive warranty is that the VCM complies with the physical and chemical specifications set forth in Appendix A to this Agreement. Seller makes no other warranties, either express or implied, whether with respect to its recommendations, instructions, product apparatus, process or otherwise and specifically disclaims any implied warranties, whether of merchantability, suitability, fitness for a particular purpose or otherwise. SECTION 8.2 VCM Not for Resale. Buyer represents and warrants that VCM purchased hereunder is solely for Buyer's internal consumption and shall not be resold by Buyer or on Buyer's behalf. SECTION 8.3 Patents. Seller's recommendations or instructions are not intended to suggest operations which would infringe any patents and Seller assumes no liability to Buyer of any kind or responsibility for any such infringement. SECTION 8.4 Uses and Safe Handling. Seller shall properly label VCM for shipment to Buyer pursuant to applicable statutes, rules and regulations. Buyer hereby acknowledges receipt of Seller's material safety data sheet with respect to VCM. Buyer shall carefully inspect VCM upon receipt and will maintain appropriate safe handling and use procedures. Buyer will apprise its employees, contractors and customers of the hazards, proper use and handling requirements of VCM and shall comply with all applicable statutes, rules and regulations pertaining thereto. SECTION 8.5 Claims; Liability. Buyer shall be deemed to have waived all claims with respect to any VCM sold hereunder for which Buyer's notice of insufficient quality has not been given to Seller in writing within seventy-five (75) days of Buyer's receipt of such VCM. As to any claim of any nature, whether in contract, tort, strict liability or otherwise, Seller's and its affiliates liability shall 9 ANNEX D not exceed the Price of the portion of the VCM in respect of which such claim is made plus any transportation charges thereon paid by Buyer. In no event shall Seller and its affiliates be liable for indirect, consequential, special, incidental or contingent damages, costs of litigation or for loss of business or business opportunities. ARTICLE IX TAXES SECTION 9.1 Responsibility for Taxes. In addition to the Price and any transportation costs Buyer is required to pay to Seller hereunder, Buyer shall pay to Seller the amount of all federal, state and local governmental taxes, excises, duties, and/or other charges (including, without limitation, sales and use taxes, Superfund Taxes, and excepting taxes on or measured by net income) that Seller may be required to pay with respect to the production, sale or transportation of VCM sold and delivered hereunder. Such charges shall be added to Seller's invoice as a separate line item and shall be paid by Buyer as provided in Section 5.2. Seller and Buyer will cooperate so as to minimize any sales and use taxes imposed by any state or local governmental authority including, without limitation, the prompt execution and delivery of any necessary exemption certificates required to reduce or claim complete exemption from any tax. SECTION 9.2 Duty Drawbacks and Other Tax Credits. Seller and Buyer will cooperate so as to facilitate Seller's ability to promptly file for, claim and collect duty drawbacks, Superfund and other tax credits. Seller will share the net amount of such drawbacks equally with Buyer. ARTICLE X LIABILITY AND RESPONSIBILITY SECTION 10.1 Allocation of Liability. Except to the extent that such is solely and directly caused by any breach of Seller's obligations hereunder, Buyer assumes full responsibility for any liability arising out of the shipment, unloading, discharge, storage, handling, use and disposal of any VCM purchased hereunder, including the use of such VCM alone or in combination with other substances and compliance or non-compliance with any law or regulations relating thereto. Buyer shall defend, indemnify and hold harmless Seller and its affiliates and their respective representatives and employees from and against all losses, liabilities, damages and expenses made against or incurred by Seller, its affiliates and their respective representatives and employees arising out of any claim, suit or proceeding by any governmental agency or any third parties which claim, suit or proceeding alleges death, personal or economic injury or damages to any private or public property or resources caused or contributed to by VCM sold hereunder if such death, injury or damages occurred subsequent to shipment of such VCM, except to the extent such is solely and directly caused by any breach of Seller's obligations hereunder. 10 ANNEX D ARTICLE XI EXCUSE OF PERFORMANCE SECTION 11.1 Excuse of Performance. Performance of any obligation under this Agreement may be suspended by either party without liability, to the extent that: an Act of God; war; riot; fire; explosion; accident; flood; sabotage; mechanical breakdown; involuntary plant shutdown; governmental laws, regulations or orders; or any other cause (except financial) beyond the reasonable control of such party; or labor trouble, strike, walkout, lockout or injunction (whether or not such labor event is within the reasonable control of such party), delays, prevents, restricts, limits, or renders commercially infeasible, the performance of this Agreement or the consumption, sale or use of VCM, except as to VCM already in transit. The affected party may invoke this provision by promptly notifying the other party in writing of the nature and estimated duration of the suspension period. The affected party shall exercise reasonable diligence in curing such condition, provided, however, that Seller shall not be obligated to procure VCM or otherwise obtain any materials required for its performance hereunder from other than its customary sources of supply. If any of the above described contingencies occur, Seller shall, without further liability to Buyer of any kind, allocate its available supply of any VCM among its contract customers and Seller's own internal consumption upon such basis and in such manner as Seller deems fair and reasonable. ARTICLE XII MISCELLANEOUS SECTION 12.1 Notices. Any notice required or permitted to be given pursuant to this Agreement shall be in writing and shall be sufficiently given when duly mailed, postage prepaid, and addressed as follows or personally delivered or transmitted electronically. If to Seller for matters concerning quantity, price, quality, or shipment: Occidental Chemical Corporation 5005 LBJ Freeway Dallas, Texas 75244 Attention: Business Manager - VCM Telephone: 214-404-2818 Facsimile: 214-404-2883 If to Seller for all other matters: Occidental Chemical Corporation 5005 LBJ Freeway Dallas, Texas 75244 Attention: Vice President and General Counsel Facsimile: 214-404-3957 11 ANNEX D with a copy to: Occidental Chemical Corporation 5005 LBJ Freeway Dallas, Texas 75244 Attention: Business Manager - VCM Facsimile: 214-404-2883 If to Buyer: Borden Chemicals and Plastics Operating Limited Partnership Highway 73 Geismar, Louisiana 70734 Attention: Vice President - Operations Facsimile: (504) 673-0672 with a copy to: BCP Management, Inc. 180 E. Broad Street Columbus, Ohio 43215 Attention: President SECTION 12.2 Assignment. This Agreement shall bind the respective successors and assigns of the parties hereto, provided however, that neither party may assign or otherwise transfer its rights or obligations hereunder to a third party without the prior written consent of the other party hereto, provided further, however, that such consent shall not be required in the case of an assignment of this Agreement to a subsidiary or affiliate of the assigning party. In the event that a party hereto, or such party's subsidiary or affiliate (if such party shall have previously assigned this Agreement to a subsidiary or affiliate) shall have entered into a binding agreement for the sale to a non-affiliate of all or substantially all of its business or assets pertaining to the performance of this Agreement then such party shall assign (and shall make it a condition of the binding agreement of sale that the acquiring party shall accept assignment of) this Agreement; provided, however, that in connection with such sale if the other party hereto shall not have provided its consent to an assignment of this Agreement to the acquiring party, then the assigning party may elect to terminate this Agreement by written notice delivered not less than thirty days (30) prior to the effective date of such sale. Any permitted assignment shall not relieve the assignor of its obligations hereunder. Any attempted assignment without such consent as may be required by this provision shall be void. SECTION 12.3 Jurisdiction. The parties hereto agree that all of the provisions of this Agreement and any questions concerning its interpretation and enforcement shall be governed by the internal laws of the State of New York and the execution and delivery of this Agreement shall be deemed to be the transaction of business within the State of New York for purposes of conferring jurisdiction upon courts located within the state. The parties agree that any litigation arising out of this Agreement shall be brought only in the federal or state courts in the State of New York and both parties consent to the jurisdiction of said courts. 12 ANNEX D SECTION 12.4 Confidentiality. The parties shall, and shall cause their respective employees, agents and other representatives to, hold in strict confidence and not utilize for any commercial or other purpose or disclose to any other person, the terms and provisions of this Agreement; provided, however, that the foregoing obligation of confidence shall not apply to (i) any information that is or shall become generally available to the public other than as a result of a disclosure by or on behalf of such party, (ii) any information that was available to a party on a non-confidential basis prior to the date of this Agreement, (iii) any information that comes into a party's possession after the date of this Agreement from a third party not under any obligation of confidentiality with respect to such information, or (iv) any information that shall be required to be disclosed by or on behalf of a party as a result of any applicable law rule or regulation of any governmental authority having competent jurisdiction, provided, that such party shall give the other party thirty (30) days' prior written notice before making any such disclosure in accordance with the provisions of this clause (iv). SECTION 12.5 Entirety of Agreement. The provisions of this Agreement constitute the entire understanding between the parties relating to the subject matter hereof. Neither party shall be bound by any change in, addition to or waiver of any of the provisions hereof unless approved in writing by its authorized representative. SECTION 12.6 Waiver. Any waiver of any particular breach or default of this Agreement shall be in writing and shall not constitute a continuing waiver or a waiver of any other breach or default. SECTION 12.7 Headings. Section headings or titles are included for ease of reference and do not constitute any part of the text or affect its meaning or interpretation. SECTION 12.8 Default. Any failure of Buyer to make any payment required hereunder without deduction, setoff or counterclaim within ten (10) days after the same becomes due (excepting payments due but being contested in good faith), or if Buyer defaults in the performance of any other obligation, term or condition of this Agreement, or if Buyer shall make any assignment for the benefit of creditors, or in the event of a commencement of proceedings by or against Buyer involving bankruptcy, insolvency or reorganization, Seller, without demand or notice of any kind and without prejudice to any other remedy of Seller, may cancel this Agreement or Seller may defer further deliveries until the default is remedied. The remedies provided for in this Section are in addition to any other remedies that may be available to the Seller in the event of a default by the Buyer. 13 ANNEX D IN WITNESS WHEREOF, the parties have, by their duly authorized representatives, signed this VCM Supply Agreement as of the day and year first above written. OCCIDENTAL CHEMICAL CORPORATION By: ---------------------------- Title: ------------------------- BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP by its General Partner, BCP MANAGEMENT, INC. By: --------------------------- Title: ------------------------ 14 ANNEX E __________________________________________________________________ PVC TOLLING AGREEMENT BETWEEN OCCIDENTAL CHEMICAL CORPORATION AND BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP DATED AS OF _______, 1994 ________________________________________________________________________ TABLE OF CONTENTS
PAGE ARTICLE I DEFINITIONS SECTION 1.1 Definitions.................................... 2 ARTICLE II COMMITMENTS OF SUPPLY AND CONVERSION SECTION 2.1 VCM Supply and PVC Receiving Commitment........ 3 SECTION 2.2 VCM Conversion and PVC Delivery Commitment..... 4 ARTICLE III QUANTITY SECTION 3.1 BCP's Base Quantity Obligation................. 4 SECTION 3.2 OxyChem's Base Quantity Obligation............. 4 SECTION 3.3 Excess Quantity of VCM......................... 5 ARTICLE IV TERM SECTION 4.1 Term of This Agreement......................... 5 SECTION 4.2 Election to Continue This Agreement............ 5 ARTICLE V PRICE AND PAYMENT SECTION 5.1 Fee for Conversion Services.................... 6 SECTION 5.2 Invoicing Procedure............................ 6 SECTION 5.3 Access to Records.............................. 7 ARTICLE VI DELIVERY SECTION 6.1 OxyChem's Shipping Instructions................ 7 SECTION 6.2 BCP's Shipping Instructions.................... 7 SECTION 6.3 Title to VCM................................... 7 SECTION 6.4 Title to PVC................................... 7 ARTICLE VII MEASUREMENT SECTION 7.1 Pipeline Delivery of VCM....................... 8
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PAGE SECTION 7.2 Rail Car Delivery of VCM....................... 8 SECTION 7.3 Rail Car Delivery of PVC....................... 8 SECTION 7.4 Calibration of Measuring Devices............... 8 ARTICLE VIII WARRANTIES SECTION 8.1 OxyChem's Warranty............................. 9 SECTION 8.2 BCP's Warranties............................... 9 SECTION 8.3 Patents........................................ 9 SECTION 8.4 Uses and Safe Handling......................... 9 SECTION 8.5 Claims; Liability.............................. 10 ARTICLE IX TAXES SECTION 9.1 Responsibility for Taxes....................... 10 ARTICLE X LIABILITY AND RESPONSIBILITY SECTION 10.1 Allocation of Liability........................ 10 ARTICLE XI EXCUSE OF PERFORMANCE SECTION 11.1 Excuse of Performance ......................... 11 ARTICLE XII MISCELLANEOUS SECTION 12.1 Imbalances..................................... 11 SECTION 12.2 Notices........................................ 12 SECTION 12.3 Assignment..................................... 13 SECTION 12.5 Jurisdiction................................... 13 SECTION 12.6 Entirety of Agreement.......................... 13 SECTION 12.7 Waiver......................................... 13 SECTION 12.8 Headings....................................... 13 SECTION 12.9 Default........................................ 13 SECTION 12.10 Confidentiality................................ 14
ii ANNEX E PVC TOLLING AGREEMENT THIS PVC TOLLING AGREEMENT dated as of the _______ day of ________, 1994 is between OCCIDENTAL CHEMICAL CORPORATION, a New York corporation (hereinafter "OxyChem") and BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP, a Delaware limited partnership (hereinafter "BCP"). Each of OxyChem and BCP is sometimes hereinafter referred to as a "party" and collectively as the "parties". Capitalized terms not otherwise specifically defined herein shall have the meanings assigned to them in the Asset Transfer Agreement between Occidental Chemical Corporation and Borden Chemicals and Plastics Operating Limited Partnership dated August 12, 1994. WHEREAS, pursuant to the Asset Transfer Agreement, the parties have provided for the sale by OxyChem and the purchase by BCP of OxyChem's right, title and interest in certain PVC production assets located at Addis, Louisiana (the "Facility"); and WHEREAS, OxyChem owns or operates VCM production facilities; and WHEREAS, OxyChem desires to provide VCM to BCP for conversion into PVC at the Facility for the benefit of OxyChem; and WHEREAS, BCP desires to receive VCM from OxyChem and convert such VCM into PVC at the Facility for the benefit of OxyChem which will facilitate the full and effective operation of the Facility; and WHEREAS, the parties are entering into this Agreement in accordance with the provisions of the Asset Transfer Agreement. NOW, THEREFORE, in consideration of the premises and the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE I DEFINITIONS SECTION 1.1 Definitions. "Addis Plant" has the meaning assigned to it in the Asset Transfer Agreement. "Agreement" means this PVC Tolling Agreement. "Asset Transfer Agreement" means that certain Asset Transfer Agreement between Occidental Chemical Corporation and Borden Chemicals and Plastics Operating Limited Partnership dated August 12, 1994. 1 ANNEX E "Base Quantity" has the meaning assigned to it in Section 3.1. "Conversion Fee" has the meaning assigned to it in Article V of this Agreement. "Excess Quantity" has the meaning assigned to it in Section 3.3. "Extended Term" has the meaning assigned to it in Section 4.1. "Facility" means the Addis Plant. "month" means a calendar month. "Primary Term" has the meaning assigned to it in Section 4.1. "PVC" means polyvinyl chloride in any of the various grades, or their equivalents, as described in Appendix B to this Agreement. "Superfund Tax" means the assessment on the production and sale of VCM imposed pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as the same may be amended or re-authorized from time to time. "Term" means the period of the Primary Term of this Agreement together with the period of any Extended Term. "VCM" means vinyl chloride monomer supplied by OxyChem and having the specifications set forth in Appendix A to this Agreement. "VCM Supply Agreement" means that certain VCM Supply Agreement between Occidental Chemical Corporation and Borden Chemicals and Plastics Operating Limited Partnership dated _______, 1994. "year" or "yearly" means a calendar year, provided that if this Agreement is dated as of a date other than January 1, the initial year of this Agreement shall run from the effective date of this Agreement until the next succeeding December 31. ARTICLE II COMMITMENTS OF SUPPLY AND CONVERSION SECTION 2.1 VCM Supply and PVC Receiving Commitment. OxyChem agrees to supply to BCP, during the Term, the quantities of VCM as hereinafter described and to 2 ANNEX E receive from BCP the corresponding quantities of PVC and to pay BCP for such conversion services the Conversion Fee as hereinafter set forth. If the initial year of this Agreement is other than a full calendar year, all such commitments shall be prorated during such initial year based upon the days remaining in that year. SECTION 2.2 VCM Conversion and PVC Delivery Commitment. BCP agrees to receive from OxyChem, during the Term, the quantities of VCM as hereinafter described and to deliver to OxyChem the corresponding quantities of PVC in the grades specified in Section 6.1 and to accept as full payment for such conversion services the Conversion Fee as hereinafter set forth. If the initial year of this Agreement is other than a full calendar year, all such commitments shall be prorated during such initial year based upon the days remaining in that year. ARTICLE III QUANTITY SECTION 3.1 BCP's Base Quantity Obligation. Subject to the provisions of Sections 3.2 and 3.3, BCP shall receive delivery from OxyChem at the Addis Plant each year during the Term not less than the quantity of VCM (the "Base Quantity") which, at the Conversion Rate, is required to produce pounds of PVC. Ten (10) days after the end of each calendar quarter during the Term BCP shall provide to OxyChem written notification of BCP's actual rate of VCM consumption (per pound of PVC produced) at the Facility. SECTION 3.2 OxyChem's Base Quantity Obligation. (a) In consideration of BCP's reservation of a portion of its PVC production capacity at the Addis Plant for the purpose of converting OxyChem's VCM as provided in this Agreement, OxyChem agrees that each year during the Term of this Agreement, it shall supply to BCP not less than the Base Quantity of VCM and take delivery of the corresponding quantity of PVC and pay BCP the Conversion Fee for such conversion services. (b) The parties agree that the quantity of VCM to be supplied by OxyChem during the initial year of this Agreement shall be a pro rata portion of the Base Quantity based upon the number of days remaining in such year. (c) The parties agree that the grades of PVC which BCP shall manufacture for the benefit of OxyChem during the initial year of this Agreement shall be as specified in Appendix B. Such grades and volume mix shall not vary significantly in subsequent years during the Term without the mutual consent of the parties; provided that, variations will not be deemed significant to the extent they are not substantially different in terms of manufacturing economics from the grades listed in Appendix B. 3 ANNEX E SECTION 3.3 Excess Quantity of VCM. BCP may, but shall not be required to convert into PVC for OxyChem a quantity of VCM in excess of the Base Quantity. Not less than one hundred eighty (180) days prior to the end of each year, BCP shall provide to OxyChem in writing a proposal for the quantity of VCM it is willing to convert into PVC for OxyChem during the following year. Such proposed quantity shall not be less than the Base Quantity. To the extent such quantity is greater than the Base Quantity such excess shall be referred to as the "Excess Quantity". Not more than ninety (90) days after OxyChem's receipt of BCP's written proposal, OxyChem shall provide to BCP in writing OxyChem's election of the quantity of VCM it desires for BCP to convert into PVC during the following year. Such elected quantity shall not be less than the Base Quantity nor more than the Base Quantity plus the Excess Quantity. OxyChem's election shall be binding upon OxyChem and BCP. ARTICLE IV TERM SECTION 4.1 Term of this Agreement. The primary term of this Agreement shall commence on the date hereof. If this Agreement is dated other than on January 1, the initial year shall end on the next succeeding December 31 and the primary term of this Agreement shall continue thereafter for a period of five (5) full years (the "Primary Term") and year to year thereafter (the "Extended Term"), unless and until a notice of intent to cancel this Agreement is submitted by either party effective as of the last day of the Primary Term or the last day of any year during the Extended Term. A notice of intent to cancel shall be void if issued less than twelve months prior to its stated effective date. SECTION 4.2 Election to Continue this Agreement. In the event that a party to this Agreement has provided notice of intent to cancel pursuant to Section 4.1, the other party shall nevertheless have the option to continue this Agreement in effect in the following manner. Not more than ninety (90) days after the submission of any notice of intent to cancel pursuant to Section 4.1, the non-canceling party may provide notice of its election to continue this Agreement in effect, notwithstanding such notice of intent to cancel, by electing to reduce the quantity of PVC that must be supplied or received, as the case may be, during the next following year of the Term by of the Base Quantity in effect in the last full calendar year prior to the effective date of the first notice of intent to cancel submitted pursuant to Section 4.1. In the event that a notice of election to continue this Agreement is not provided as set forth in this paragraph, then this Agreement shall terminate in accordance with the most recent notice of intent to cancel. At such time, if any, as a notice of election to continue this Agreement has been submitted three times, then any subsequent notice of intent to cancel this Agreement shall have the effect of terminating this Agreement upon the effective date of such notice. 4 ANNEX E ARTICLE V PRICE AND PAYMENT SECTION 5.1 Fee for Conversion Services. (a) Each calendar month during the Term the Conversion Fee shall be separately determined for opaque and clear grade PVC resin manufactured by BCP for OxyChem pursuant to this Agreement. (b) The Conversion Fee shall be an amount, expressed in dollars per pound of prime grade PVC, which shall be no higher than (c) For purposes of determining as described in paragraph (b) above, a major domestic buyer is one that consumes at least (d) For purpose of determining the transportation cost of resin, as described in paragraph (b)(i) above, such cost shall be per pound of resin. Within sixty (60) days after the end of each year during the Term of this Agreement, the parties shall review such cost and may revise it upon their mutual agreement. (e) The delivered price of VCM supplied by OxyChem, as described in sub-paragraph (b)(ii) above, shall be the Market Price of VCM, as defined and determined in accordance with the provisions of Section 5.1 of the VCM Supply Agreement (irrespective of whether such agreement has been terminated) plus the net freight cost of delivering such VCM to the Facility. (f) The net freight cost of delivering VCM to the Facility, as described in sub-paragraph (e) above, shall be such cost for the relevant month determined in accordance with the provisions of the VCM Supply Agreement and which shall be per pound of VCM until such time as OxyChem shall notify BCP of a change in such cost; provided however, that in no event will such cost exceed the cost of rail freight from OxyChem's Ingleside, Texas facility to the Facility. SECTION 5.2 Invoicing Procedure. Not later than days after the last day of each month, BCP shall invoice OxyChem for PVC delivered during such month. Provided that BCP's invoice is timely submitted, OxyChem shall pay such invoice not later than days from the last day of the delivery month. The payment terms set forth in this Section shall be reviewed by the parties annually and shall be revised upon their mutual agreement that such revision is required to conform with then current PVC industry practice. 5 ANNEX E SECTION 5.3 Access to Records. From time to time during the Term of this Agreement and upon reasonable notice in advance to BCP, representatives of any nationally recognized public accounting firm designated by OxyChem and mutually satisfactory to BCP shall have access to such business and financial books and records of BCP as such representatives deem necessary or appropriate for the purpose of (a) determining the accuracy of BCP's calculations of the Conversion Fee pursuant to this Agreement, and (b) reporting such determination, but not the data underlying such determinations, to OxyChem. BCP may require the accounting firm and/or its representatives to enter into such commitments of confidentiality as reasonably facilitate the intent of this provision. In the event such audit results in a determination that the Conversion Fee has been overpaid or underpaid, then the parties shall promptly make such reimbursements or issue such credits as may be required to correct such overpayments or underpayments. The determination of such accounting firm shall be binding upon the parties to this Agreement. If it is determined that OxyChem has overpaid the Conversion Fee then the cost of such audit shall be borne by BCP. If it is determined that OxyChem has not overpaid, or has underpaid, the Conversion Fee then the cost of such audit shall be borne by OxyChem. ARTICLE VI DELIVERY SECTION 6.1 OxyChem's Shipping Instructions. Fifteen (15) days prior to the first day of each month, OxyChem shall furnish to BCP in writing a good faith estimate of the quantities and grades of PVC which OxyChem wishes BCP to produce from the VCM supplied by OxyChem during such month and during each of the next two succeeding months and such instructions and estimates for the month immediately following such notice shall be considered final and binding. The parties shall cooperate to distribute deliveries of PVC in approximately equal monthly quantities during each year. SECTION 6.2 BCP's Shipping Instructions. Ten (10) days prior to the first day of each month, BCP shall furnish to OxyChem in writing a good faith estimate of the quantities of VCM to be converted into PVC at the Addis Plant during such month and during each of the next two succeeding months and such instructions and estimates for the month immediately following such notice shall be considered final and binding. The parties shall cooperate to distribute deliveries of VCM in approximately equal monthly quantities during each year. SECTION 6.3 Title to VCM. Title to VCM delivered hereunder shall pass to BCP upon unloading from rail tank cars at the Addis Plant or at the first flange on the pipeline entering the Addis Plant premises, as the case may be. SECTION 6.4 Title to PVC. BCP shall deliver PVC to OxyChem FOB the Addis Plant predominantly in bulk form in rail cars owned, leased or otherwise provided by OxyChem, provided, that in the event OxyChem requires delivery of PVC in other packaging, BCP will cooperate in order to accommodate such packaging requirements. 6 ANNEX E Title to PVC delivered hereunder shall pass to OxyChem upon loading into rail cars at the Addis Plant. ARTICLE VII MEASUREMENT SECTION 7.1 Pipeline Delivery of VCM. If VCM is delivered to the Addis Plant via the VCM pipeline owned by the Dow Chemical Company ("Dow"), the quantity of VCM so delivered shall be determined by an industry standard flow measurement device owned and operated by Dow at its VCM shipping location in Plaquemine, Louisiana. Dow's weights and measures shall govern except in case of demonstrated error. SECTION 7.2 Rail Car Delivery of VCM. (a) If VCM is delivered in rail tank cars loaded by OxyChem, the quantity of VCM so delivered shall be determined by rail tank car weigh scales or other mutually agreed measuring device which shall be operated, maintained and regularly calibrated by OxyChem at its shipping location in accordance with accepted industry practice. OxyChem's weights and measures shall govern except in case of demonstrated error. (b) If VCM is delivered in rail tank cars loaded by a third party, the quantity of VCM so delivered shall be determined by rail tank car weigh scales or other measuring device employed in connection with the loading of such rail cars in accordance with accepted industry practice. Third party weights and measures shall govern except in case of demonstrated error. SECTION 7.3 Rail Car Delivery of PVC. Bulk PVC shall be delivered in rail hopper cars loaded by BCP. The quantity of PVC so delivered shall be determined by rail car weigh scales or other mutually agreed measuring device which shall be operated, maintained and regularly calibrated by BCP at the Addis Plant in accordance with accepted industry practice. BCP's weights and measures shall govern except in case of demonstrated error. SECTION 7.4 Calibration of Measuring Devices. (a) In respect of any VCM delivered hereunder the quantity of which is measured by devices operated by OxyChem, OxyChem shall give BCP at least three (3) days' prior notice of any calibration test and BCP may elect to have a representative present at any such test. If a level of inaccuracy is determined by such test at plus or minus one percent (1%) or more of full scale, OxyChem shall restore the measuring device to a condition of accuracy and billings shall be corrected for the period known to be affected by such inaccuracy or if such period cannot be accurately determined, billings shall be corrected for one-half the period of time elapsed since the date of the most recent previous calibration. (b) In respect of any VCM delivered hereunder the quantity of which is measured by devices operated by a third party, OxyChem shall exercise reasonable commercial efforts to afford to BCP (a) at least (3) days' prior notice of any calibration test (of which 7 ANNEX E OxyChem has such advance knowledge) to be performed on any such device, and (b) an opportunity for BCP to have a representative present at any such test. If a level of inaccuracy is determined by such test at plus or minus one percent (1%) or more of full scale, OxyChem's billings to BCP shall be corrected for the period known to be affected by such inaccuracy or, if such period cannot be accurately determined, billings shall be corrected as the parties shall mutually agree. (c) In respect of any PVC delivered hereunder the quantity of which is measured by devices operated by BCP, BCP shall give OxyChem at least three (3) days' prior notice of any calibration test and OxyChem may elect to have a representative present at any such test. If a level of inaccuracy is determined by such test at plus or minus one percent (1%) or more of full scale, BCP shall restore the measuring device to a condition of accuracy and billings shall be corrected for the period known to be affected by such inaccuracy or if such period cannot be accurately determined, billings shall be corrected for one-half the period of time elapsed since the date of the most recent previous calibration. ARTICLE VIII WARRANTIES SECTION 8.1 OxyChem's Warranty. OxyChem's sole and exclusive warranty is that the VCM complies with the physical and chemical specifications set forth in Appendix A to this Agreement. OxyChem makes no other warranties, either express or implied, whether with respect to its recommendations, instructions, product apparatus, process or otherwise and specifically disclaims any implied warranties, whether of merchantability, suitability, fitness for a particular purpose or otherwise. SECTION 8.2 BCP's Warranties. BCP's sole and exclusive warranty is that PVC delivered hereunder shall be of the grades and qualities set forth in Appendix B to this Agreement. BCP makes no other warranties, either express or implied, whether with respect to its recommendations, instructions, product apparatus, process or otherwise and specifically disclaims any implied warranties, whether of merchantability, suitability, fitness for a particular purpose or otherwise. SECTION 8.3 Patents. Neither party's recommendations or instructions are intended to suggest operations which would infringe any patents and neither OxyChem nor BCP assumes any liability to the other of any for any such infringement. SECTION 8.4 Uses and Safe Handling. OxyChem shall ship VCM to BCP in compliance with applicable statutes, rules and regulations. BCP hereby acknowledges receipt of OxyChem's material safety data sheet with respect to VCM. BCP shall carefully inspect VCM upon receipt and will maintain appropriate safe handling and use procedures for VCM used in its process as well as for the handling and loading of PVC. BCP will apprise its employees and contractors of the hazards, proper use and handling 8 ANNEX E requirements of VCM and PVC and shall comply with all applicable statutes, rules and regulations pertaining thereto. SECTION 8.5 Claims; Liability. BCP and OxyChem shall each be deemed to have waived all claims with respect to any VCM or PVC supplied hereunder for which notice of insufficient quality has not been given to the supplying party in writing within seventy-five (75) days of the receipt of such VCM or PVC. As to any claim of any nature, whether in contract, tort, strict liability or otherwise, BCP's liability shall not exceed the Conversion Fee attributable to the portion of PVC in respect of which such claim is made plus the value of the VCM attributable to the manufacture of such PVC. In no event shall either party or its affiliates be liable to the other for indirect, consequential, special, incidental or contingent damages, costs of litigation or for loss of business or business opportunities. ARTICLE IX TAXES SECTION 9.1 Responsibility for Taxes. OxyChem shall be responsible to pay all federal, state and local governmental taxes, excises, duties, and/or other charges (including, without limitation, sales and use taxes and Superfund Tax, and excepting taxes on or measured by the net income of BCP) that may be imposed with respect to the production, sale or transportation of VCM delivered to BCP hereunder. BCP shall be responsible to pay all federal, state and local governmental taxes, excises, duties, and/or other charges (including, without limitation, sales and use taxes, and excepting taxes on or measured by the net income of OxyChem) that may be imposed with respect to the production, sale or transportation of PVC delivered to OxyChem hereunder. Responsibilities for the payments set forth in this Section shall be reviewed by the parties from time to time and shall be revised upon their mutual agreement that such revision is required to conform with then current PVC industry practice. ARTICLE X LIABILITY AND RESPONSIBILITY SECTION 10.1 Allocation of Liability. Except to the extent that such is solely and directly caused by any breach of OxyChem's obligations hereunder, BCP assumes full responsibility for any liability arising out of (a) unloading, discharge, storage, handling, use and disposal of any VCM supplied by OxyChem hereunder, including the use of such VCM alone or in combination with other substances and compliance or non-compliance with any law or regulations relating thereto, or (b) BCP's storage and handling of any PVC prior to delivery to OxyChem. BCP shall defend, indemnify and hold harmless OxyChem and its affiliates and their respective representatives and employees from and against all losses, liabilities, damages and expenses made against or incurred by OxyChem, its affiliates and their respective representatives and employees arising out of any claim, suit or proceeding by any governmental agency or any third parties which claim, suit or proceeding alleges death, personal or economic injury or damages to any private or public 9 ANNEX E property or resources caused or contributed to by PVC produced by BCP or VCM supplied hereunder if such death, injury or damages occurred, with respect to such PVC, prior to the delivery of such PVC to OxyChem or, with respect to such VCM, subsequent to BCP's receipt of such VCM from OxyChem, except in each case to the extent such is solely and directly caused by any breach of OxyChem's obligations hereunder. OxyChem shall defend, indemnify and hold harmless BCP and its affiliates and their respective representatives and employees from and against all losses, liabilities, damages and expenses made against or incurred by BCP, its affiliates and their respective representatives and employees arising out of any claim, suit or proceeding by any governmental agency or any third parties which claim, suit or proceeding alleges death, personal or economic injury or damages to any private or public property or resources caused or contributed to by PVC produced by BCP or VCM supplied by OxyChem hereunder if such death, injury or damages occurred, with respect to such PVC, after the delivery of such PVC to OxyChem or, with respect to such VCM, prior to BCP's receipt of such VCM from OxyChem, except in each case to the extent such is solely and directly caused by any breach of BCP's obligations hereunder. ARTICLE XI EXCUSE OF PERFORMANCE SECTION 11.1 Excuse of Performance. Performance of any obligation under this Agreement may be suspended by either party without liability, to the extent that: an Act of God; war; riot; fire; explosion; accident; flood; sabotage; mechanical breakdown; involuntary plant shutdown; governmental laws, regulations or orders; or any other cause (except financial) beyond the reasonable control of such party; or labor trouble, strike, walkout, lockout or injunction (whether or not such labor event is within the reasonable control of such party), delays, prevents, restricts, limits, or renders commercially infeasible, the performance of this Agreement or the consumption, sale or use of VCM, except as to VCM already in transit. The affected party may invoke this provision by promptly notifying the other party in writing of the nature and estimated duration of the suspension period and exercising all reasonable diligence in curing such condition, provided, however, that neither party shall be obligated to procure VCM or PVC or otherwise obtain any materials required for its performance hereunder from other than its customary sources of supply. If any of the above described contingencies occur, the affected party shall, without further liability to the other party of any kind, allocate its available supply of VCM or PVC as the case may be, among its contract customers and such party's own internal consumption upon such basis and in such manner as such party deems fair and reasonable. ARTICLE XII MISCELLANEOUS SECTION 12.1 Imbalances. Any VCM or PVC imbalance occurring in connection with the operation of this Agreement whether as a result of an event within the 10 ANNEX E meaning of Article XI or otherwise shall be settled between the parties in such practical and equitable manner and at such intervals as they shall agree. SECTION 12.2 Notices. Any notice required or permitted to be given pursuant to this Agreement shall be in writing and shall be sufficiently given when duly mailed, postage prepaid, and addressed as follows or personally delivered or transmitted electronically. If to OxyChem for matters concerning quantity, price, quality, or shipment of VCM or PVC: Occidental Chemical Corporation 5005 LBJ Freeway Dallas, Texas 75244 Attention: Director - Commodity Resins Facsimile: (214)404-2883 Attention: Business Manager - VCM Facsimile: (214)404-2883 If to OxyChem for all other matters: Occidental Chemical Corporation 5005 LBJ Freeway Dallas, Texas 75244 Attention: Vice President and General Counsel Facsimile: (214)404-3957 with a copy to: Occidental Chemical Corporation 5005 LBJ Freeway Dallas, Texas 75244 Attention: Director - Commodity Resins Facsimile: (214)404-2883 If to BCP: Borden Chemicals and Plastics Operating Limited Partnership Highway 73 Geismar, Louisiana 70734 Attention: Vice President - Sales and Marketing Facsimile: (504)673-0672 with a copy to: BCP Management, Inc. 180 E. Broad Street Columbus, Ohio 43215 Attention: President 11 ANNEX E SECTION 12.3 Assignment. This Agreement shall bind the respective successors and assigns of the parties hereto, provided however, that neither party may assign or otherwise transfer its rights or obligations hereunder to a third party without the prior written consent of the other party hereto, provided further, however, that such consent shall not be required in the case of an assignment of this Agreement to a subsidiary or affiliate of the assigning party. In the event that a party hereto, or such party's subsidiary or affiliate (if such party shall have previously assigned this Agreement to a subsidiary or affiliate) shall have entered into a binding agreement for the sale to a non-affiliate of all or substantially all of its business or assets pertaining to the performance of this Agreement then such party shall assign (and shall make it a condition of the binding agreement of sale that the acquiring party shall accept assignment of) this Agreement; provided, however, that in connection with such sale if the other party hereto shall not have provided its consent to an assignment of this Agreement to the acquiring party, then the assigning party may elect to terminate this Agreement, by written notice delivered not less than thirty days (30) prior to the effective date of such sale. Any permitted assignment shall not relieve the assignor of its obligations hereunder. Any attempted assignment without such consent as may be required by this provision shall be void. SECTION 12.5 Jurisdiction. The parties hereto agree that all of the provisions of this Agreement and any questions concerning its interpretation and enforcement shall be governed by the internal laws of the State of New York and the execution and delivery of this Agreement shall be deemed to be the transaction of business within the State of New York for purposes of conferring jurisdiction upon courts located within the state. The parties agree that any litigation arising out of this Agreement shall be brought only in the federal or state courts in the State of New York and both parties consent to the jurisdiction of said courts. SECTION 12.6 Entirety of Agreement. The provisions of this Agreement constitute the entire understanding between the parties relating to the subject matter hereof. Neither party shall be bound by any change in, addition to or waiver of any of the provisions hereof unless approved in writing by its authorized representative. SECTION 12.7 Waiver. Any waiver of any particular breach or default of this Agreement shall be in writing and shall not constitute a continuing waiver or a waiver of any other breach or default. SECTION 12.8 Headings. Section headings or titles are included for ease of reference and do not constitute any part of the text or affect its meaning or interpretation. SECTION 12.9 Default. Any failure of either party to make any payment required hereunder without deduction, setoff or counterclaim within ten (10) days after 12 ANNEX E the same becomes due (excepting payments due but being contested in good faith), or if either party defaults in the performance of any other obligations, term or condition of this Agreement, or if either party shall make any assignment for the benefit of creditors, or in the event of a commencement of proceedings by or against either party involving bankruptcy, insolvency or reorganization, the other party, without demand or notice of any kind and without prejudice to any other remedy of such party, may cancel this Agreement or such party may defer further deliveries hereunder until the default is remedied. The remedies provided for in this Section are in addition to any other remedies that may be available to the parties in the event of a default. SECTION 12.10 Confidentiality. The parties shall, and shall cause their respective employees, agents and other representatives to, hold in strict confidence and not utilize for any commercial or other purpose or disclose to any other person, the terms and provisions of this Agreement; provided, however, that the foregoing obligation of confidence shall not apply to (i) any information that is or shall become generally available to the public other than as a result of a disclosure by or on behalf of such party, (ii) any information that was available to a party on a non-confidential basis prior to the date of this Agreement, (iii) any information that comes into a party's possession after the date of this Agreement from a third party not under any obligation of confidentiality with respect to such information, or (iv) any information that shall be required to be disclosed by or on behalf of a party as a result of any applicable law rule or regulation of any governmental authority having competent jurisdiction, provided, that such party shall give the other party thirty (30) days' prior written notice before making any such disclosure in accordance with the provisions of this clause (iv). IN WITNESS WHEREOF, the parties have, by their duly authorized representatives, signed this PVC Tolling Agreement as of the day and year first above written. OCCIDENTAL CHEMICAL CORPORATION By:_____________________________________ Title:__________________________________ BORDEN CHEMICALS AND PLASTICS OPERATING LIMITED PARTNERSHIP BY ITS GENERAL PARTNER, BCP MANAGEMENT, INC. By:______________________________________ Title:___________________________________ 13 EX-5.1 4 OPINION OF SID.AN AUST. LEG. EXHIBIT 5.1 Sidley & Austin 875 Third Avenue New York, New York 10022 (212) 906-2313 November 22, 1994 Borden Chemicals and Plastics Limited Partnership Highway 73 Geismar, Louisiana 70734 Re: 4,600,000 Depositary Units Representing Common Limited Partner Interests Registration Statement on Form S-3 ------------------------------------------------------ Ladies and Gentlemen: We have acted as special counsel to Borden Chemicals and Plastics Limited Partnership, a Delaware limited partnership (the "Company"), in connection with the filing by the Company of a Registration Statement on Form S-3 (File No. 33- 55863) (the "Registration Statement") with the Securities and Exchange Commission under the Securities Act of 1933 (the "Act"), relating to the registration of 4,600,000 depositary units ("Units") representing common limited partner interests in the Company. We have examined such records of the Company and of BCP Management, Inc., the general partner of the Company, certificates and other documents and such matters of law as we have considered necessary or appropriate for purposes of the following opinions. For purposes of rendering such opinions we have assumed the genuineness of all signatures, the legal capacity of all natural persons, the authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies. In rendering the following opinions, we have relied as to all matters of Delaware law exclusively upon the opinion dated November 22, 1994, of Richards, Layton & Finger, Wilmington, Delaware, a copy of which is attached. Based upon the foregoing, we are of the opinion that: November 22,1994 Page 2 (1) The Company has been duly formed and is validly existing as a limited partnership under the Delaware Revised Uniform Limited Partnership Act (the "Delaware Act"). (2) The Units to be issued to the underwriters upon their admission as limited partners of the Company ("Limited Partners") have been duly authorized by the Amended and Restated Agreement of Limited Partnership of the Company, dated as of December 15, 1988 (the "Partnership Agreement"), and, when issued and sold as described in the Registration Statement will represent valid and, subject to the qualifications set forth herein, fully paid and nonassessable common limited partner interests in the Company, as to which the Limited Partners, as limited partners of the Company, will have no liability in excess of their obligations to make contributions to the Company, their obligations to make other payments provided for in the Partnership Agreement and their shares of the Company's assets and undistributed profits (subject to an obligation of a limited partner of a limited partnership no greater than the obligation of such limited partner to repay (i) to the Company, to the extent provided under repealed 6 Del. C. (S) 17-608, for a period of one year after any rightful ------- return, any part of its contribution to the limited partnership rightfully returned to it, but only to the extent necessary to discharge the limited partnership's liabilities to creditors who extend credit to the limited partnership during the period the said contribution was held by the limited partnership, and (ii) any funds wrongfully returned to the extent provided under repealed 6. Del. C. (S) 17-608 or wrongfully distributed to it). ------- (3) There are no provisions in the Partnership Agreement the inclusion of which (subject to the terms and conditions therein) or, assuming that the Limited Partners, as limited partners of the Company, take no action other than actions permitted by the Partnership Agreement, the exercise of which (in accordance with the terms and conditions therein), would cause the Limited Partners, as limited partners of the Company, to be deemed to be participating in the control of the business of the Company (within the meaning of the Delaware Act). We hereby consent to the filing of this letter as an exhibit to the Registration Statement and the reference to us under the caption "Legal Opinions" in the Prospectus included as a part of the Registration Statement. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act. Very truly yours, SC/cr SIC94E85.SEN(11/14194 5:16pm) Richards, Layton & Finger One Rodney Square P.O. Box 551 Wilmington, Delaware 19899 November 22, 1994 Sidley & Austin 875 Third Avenue New York, New York 10022 Re: Borden Chemicals and Plastics Limited Partnership ------------------------------------------------- Ladies and Gentlemen: We have acted as special Delaware counsel for Borden Chemicals and Plastics Limited Partnership, a Delaware limited partnership (the "Partnership"), in connection with the matters set forth herein. At your request, this opinion is being furnished to you. For purposes of giving the opinions hereinafter set forth, our examination of documents has been limited to the examination of executed or conformed counterparts, or copies otherwise proved to our satisfaction, of the following: (a) The Certificate of Limited Partnership of the Partnership, dated as of August 28, 1987, as filed in the office of the Secretary of State of the State of Delaware (the "Secretary of State") on August 31, 1987; (b) The Agreement of Limited Partnership of the Partnership, dated as of August 28, 1987; (c) The Amended and Restated Certificate of Limited Partnership of the Partnership, dated as of October 16, 1987 (the "Original Certificate"), as filed in the office of the Secretary of State on October 21, 1987; Sidley & Austin November 22, 1994 Page 2 (d) The Certificate of Amendment to the Original Certificate, dated May 31, 1988, as filed in the office of the Secretary of State on August 8, 1988; (e) The Amended and Restated Certificate of Limited Partnership of the Partnership, dated as of August 8, 1988 (the "Certificate"), as filed in the office of the Secretary of State on December 15, 1988; (f) The Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of November 30, 1987 (the "Original Agreement"); (g) The Amendment to the Original Agreement, dated as of December 15, 1988; (h) The Amended and Restated Agreement of Limited Partnership of the Partnership, dated as of December 15, 1988 (the "Agreement"); (i) A registration statement (the "Initial Registration Statement") on Form S-3 (Registration No. 33-55863), filed by the Partnership with the Securities and Exchange Commission on October 7, 1994, as amended by Amendment No. 1 to the Initial Registration Statement, including a preliminary prospectus (the "Prospectus"), to be filed by the Partnership with the Securities and Exchange Commission on or about November 22, 1994 ("Amendment No. 1") (the Initial Registration Statement as amended by Amendment No. 1 being hereinafter referred to as the "Registration Statement"); and (j) A Certificate of Good Standing for the Partnership, dated November 21, 1994, obtained from the Secretary of State. Initially capitalized terms used herein and not otherwise defined are used as defined in the Agreement. For purposes of this opinion, we have not reviewed any documents other than the documents listed in paragraphs (a) through (j) above. In particular, we have not reviewed any document (other than the documents listed in paragraphs (a) through (j) above) that is referred to in or incorporated by reference into any document reviewed by us. We have assumed that there exists no provision in any document that we have not reviewed that is inconsistent with the opinions stated herein. We have conducted no independent factual investigation of our own, but rather have relied solely upon the foregoing documents, the statements and information set forth therein and the additional matters recited or assumed herein, all of which we have assumed to be true, complete and accurate in all material respects. Sidley & Austin November 22, 1994 Page 3 With respect to all documents examined by us, we have assumed that (i) all signatures on documents examined by us are genuine, (ii) all documents submitted to us as originals are authentic, and (iii) all documents submitted to us as copies conform with the original copies of those documents. For purposes of this opinion, we have assumed (i) that after the issuance and sale of the Common Units under the Registration Statement and the Agreement, the number of Common Units issued and reserved for issuance by the Partnership will not exceed the maximum number of Common Units which may be issued by the Partnership under the Agreement and the Registration Statement, (ii) that the Agreement constitutes the entire agreement among the parties thereto with respect to the subject matter thereof, including with respect to the admission of partners to, and the creation, operation and termination of, the Partnership, and that the Agreement and the Certificates are in full and effect, have not been amended and no amendment of the Agreement or the Certificates is pending or has been proposed, (iii) except to the extent provided in paragraph 1 below, the due organization or due formation, as the case may be, and valid existence in good standing of each party to the documents examined by us under the laws of the jurisdiction governing its organization or formation and the capacity of Persons who are parties to the documents examined by us, (iv) that each of the parties to the documents examined by us has the power and authority to execute and deliver, and to perform its obligations under, such documents, (v) the due authorization, execution and delivery by all parties thereto of all documents examined by us, including the Agreement by, or on behalf of, the Limited Partners (as hereinafter defined), (vi) that the General Partner has taken all corporate action required to be taken by it to authorize the issuance and sale of Common Units to certain underwriters as contemplated in the Prospectus (the "Underwriters"), and to authorize the admission to the Partnership of the Underwriters as limited partners of the Partnership (the "Limited Partners"), (vii) the due authorization, execution and delivery to the General Partner by each of the Limited Partners of an appropriate instrument applying to be admitted as a limited partner of the Partnership (a "Transfer Application"), (viii) the due acceptance by the General Partner of a Transfer Application from each of the Limited Partners and the due acceptance by the General Partner of the admission to the Partnership of the Limited Partners as limited partners of the Partnership, (ix) the payment by each of the Limited Partners to the Partnership of the full consideration due from it for the Common Units acquired by it, (x) that each of the Limited Partners is not an Ineligible Person (as defined in the Prospectus), (xi) that the books and records of the Partnership set forth the names and addresses of all Persons to be admitted as Partners, the contributions which such Persons are obligated to make to the Partnership, the agreed value of such contributions and all information required by the Agreement, (xii) that the Common Units are issued and sold to the Limited Partners in accordance with the Agreement and the Registration Statement, and (xiii) that the Limited Partners, as limited partners of the Partnership, do Sidley & Austin November 22, 1994 Page 4 not participate in the control of the business of the Partnership (within the meaning of the Delaware Revised Uniform Limited Partnership Act (6 Del.C. ------ (S)17-101, et seq.) (the "Act")). We have not participated in the preparation of ------- the Registration Statement and assume no responsibility for its contents. This opinion is limited to the laws of the State of Delaware (excluding the securities laws of the State of Delaware), and we have not considered and express no opinion on the laws of any other jurisdiction, including federal laws and rules and regulations relating thereto. Our opinions are rendered only with respect to Delaware laws and rules, regulations and orders thereunder which are currently in effect. Based upon the foregoing, and upon our examination of such questions of law and statutes of the State of Delaware as we have considered necessary or appropriate, and subject to the assumptions, qualifications, limitations and exceptions set forth herein, we are of the opinion that: 1. The Partnership has been duly formed and is validly existing in good standing as a limited partnership under the Act. 2. The Common Units to be issued to the Limited Partners have been duly authorized by the Agreement and, when issued and sold as described in the Registration Statement and the Agreement, will represent valid and, subject to the qualifications set forth herein, fully paid and nonassessable limited partner interests in the Partnership, as to which, the Limited Partners, as limited partners of the Partnership, will have no liability in excess of their obligations to make contributions to the Partnership, their obligations to make other payments provided for in the Agreement and their share of the Partnership's assets and undistributed profits (subject to an obligation of a limited partner of a limited partnership no greater than the obligation of such limited partner to repay (i) to the limited partnership, to the extent provided under repealed 6 Del.C. (S)17-608, for a period of one (1) year after ------ any rightful return, any part of its contribution to the limited partnership rightfully returned to it, but only to the extent necessary to discharge the limited partnership's liabilities to creditors who extended credit to the limited partnership during the period the said contribution was held by the limited partnership, and (ii) any funds wrongfully returned to the extent provided under repealed 6 Del.C. (S)17-608 or wrongfully distributed to it). ------ 3. There are no provisions in the Agreement the inclusion of which, subject to the terms and conditions therein, or, assuming that the Limited Partners, as limited partners of the Partnership, take no action other than actions permitted by the Agreement, the exercise of which, in accordance with the terms and conditions therein, would cause the Limited Partners, as limited partners of the Partnership, to be deemed Sidley & Austin November 22, 1994 Page 5 to be participating in the control of the business of the Partnership (within the meaning of the Act). We understand that you will rely as to matters of Delaware law upon this opinion in connection with an opinion to be submitted by you to the Partnership and filed by it with the Securities and Exchange Commission as an exhibit to the Registration Statement in connection with the filing by the Partnership of the Registration Statement under the Securities Act of 1933, as amended. In connection with such opinion, we hereby consent to your relying as to matters of Delaware law upon this opinion and to filing a copy of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement in connection with the filing by the Partnership of the Registration Statement under the Securities Act of 1933, as amended. We hereby consent to the use of our name under the heading "Legal Opinions" in the Prospectus. In giving the foregoing consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933 or rules and regulations of the Securities and Exchange Commission thereunder. Except as stated above, without our prior consent, this opinion may not be furnished or quoted to, or relied upon by, any other Person for any purpose. Very truly yours, EX-8.1 5 OPINION OF SID.AN AUST. TAX EXHIBIT 8.1 Sidley & Austin 875 Third Avenue New York, New York 10022 November 22, 1994 Borden Chemicals and Plastics Limited Partnership Highway 13 Geisnar, Louisiana 70737 Re: 4,600,000 Depositary Units Representing Common Limited Partner Interests Registration Statement on Form S-3 ---------------------------------------- Ladies and Gentlemen: We have acted as special tax counsel to Borden Chemicals and Plastics Limited Partnership, a Delaware limited partnership (the "Company"), Borden Chemicals and Plastics Operating Limited Partnership, a Delaware limited partnership (the "Operating Company"), and BCP Management, Inc., a Delaware corporation, in connection with the filing by the Company of a Registration Statement on Form S-3 (File No. 33-55863) (the "Registration Statement") with the Securities and Exchange Commission under the Securities Act of 1933, as amended, relating to the registration of 4,600,000 depositary units ("Units") representing common limited partner interests in the Company. In that connection, we have examined originals, or copies certified or otherwise identified to our satisfaction, of such documents, corporate records and other instruments as we have deemed necessary for the purpose of this opinion. Based upon the foregoing, we are of the opinion that the description set forth under the captions "Prospectus Summary -- Summary of Certain Income Tax Consequences", "Investment Considerations--Tax Considerations" and "Certain Federal Income Tax Considerations" in the prospectus (the "Prospectus") contained in the Registration Statement correctly describe the material aspects of the United States federal income tax treatment to investors, as of the date hereof, of an investment in the Units. SIDLEY & AUSTIN NEW YORK Borden Chemicals and Plastics Limited Partnership November 16, 1994 Page 2 We know that we are referred to under the heading "Certain Federal Income Tax Considerations" in the Prospectus contained in the Registration Statement, and we hereby consent to such use of our name in the Registration Statement and to the use of this opinion for filing with the Registration Statement as Exhibit 8.1 thereto. Very truly yours, Sidley & Austin EX-23.2 6 CONSENT OF PRICE WATERHOUSE EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-3 of our report dated January 18, 1994 relating to the financial statements of Borden Chemicals and Plastics Limited Partnership, which appears in such Prospectus. We also consent to the incorporation by reference in this Registration Statement of our report on the Financial Statement Schedules, which appears on page 39 of the Partnership's Annual Report on Form 10-K for the year ended December 31, 1993. We also consent to the reference to us under the heading "Experts" in such Prospectus. Price Waterhouse LLP Columbus, Ohio November 22, 1994 EX-23.3 7 CONSENT OF ARTHUR ANDERSEN EXHIBIT 23.3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports and to all references to our Firm included in or made a part of this registration statement. Arthur Andersen LLP Dallas, Texas November 22, 1994 -----END PRIVACY-ENHANCED MESSAGE-----